Newly elected governments often come into power with bold ideas for change, particularly if they have been in opposition for some time. But untested ideas and inexperience in government can quickly lead to problems. Recent developments in Japan suggest that the new government in Tokyo is no exception.

Japanese Prime Minister Yukio Hatoyama took charge of the centre-left Democratic Party of Japan (DJP) in September, declaring his dislike for the impersonal aspects of what he called “market fundamentalism”. What the country needed, he said, was a sense of yuai (fraternal love)—a sort of middle ground between free-market capitalism and egalitarianism—in economic policy.

Having won the election, Hatoyama and his inexperienced Cabinet now have to decide what precisely yuai should mean in practical terms. And they need to do so in a way that reflects unity of purpose while retaining the confidence of the private sector. So far, the outlook has not been very promising.

Take controversial financial services minister Shizuka Kamei’s plans to provide debt relief to small and medium-sized enterprises (SMEs). Many observers believe the policy could seriously weaken confidence in the banking system. It has already produced tensions within the Cabinet.

Kamei, who heads the People’s New Party (PNP) currently in coalition with the DPJ, came into the government last month arguing that relieving SMEs’ indebtedness was “the most basic need of the Japanese economy”.

The proposed debt moratorium would allow SMEs to suspend repayment of principal and interest for up to three years, with the government gua-ranteeing repayment to the lenders. People having difficulty paying off their home loans, as a result of losing their jobs or having their salaries cut, would also have access to the facility.

The hope is that once the beneficiaries are freed from the need to service burdensome loans, they will respond with increased spending, thus encouraging economic growth through a rise in domestic demand.

After years of stagnant growth in the 1990s—the result of a reluctance to confront the vested interests standing in the way of reform—Japan has tried a wide variety of unorthodox policies designed to save moribund companies from the discipline of the market. After the collapse of Lehman Brothers triggered a global credit crunch late last year, the Bank of Japan took this approach a step further by buying corporate bonds and commercial paper from banks, and providing companies with low-interest loans.

Politically, the timing seems right for even more such measures, particularly since in the eyes of many Japanese, the global economic crisis late last year has further underlined the deficiencies of so-called “market fundamentalism”. But Kamei’s scheme threatens to create more problems than it solves.

In order to prevent the frozen loans from showing up on bank balance sheets, current plans call for a relaxation of the Financial Services Agency’s criteria for classifying bad or non-performing loans.

This has not been well-received. Stock market prices of banks have already fallen in anticipation of its implementation, and the ability of the banks to raise capital on foreign markets has almost certainly been affected as well.

Even more serious is the threat of moral hazard. Lacking the urgency to perform, ailing companies may continue to remain in need of government handouts. Others may go bankrupt anyway, forcing taxpayers to foot the bill. And with bad loans virtually underwritten by the government, the banks could respond by engaging in unbridled lending.

Hatoyama may already be regretting his appointment of Kamei, but he has done little about it. Indeed, he has his hands full dealing with other bumbling ministers. These include finance minister Hirohisa Fujii, who has recently been confusing foreign exchange markets with seemingly contradictory comments about the yen.

Meanwhile, a Cabinet row may well be brewing. Told recently that Fujii was worried about the debt moratorium proposal, Kamei responded bluntly: “A finance minister should not meddle in my business, tell him that.”

Kamei has also accused the central bank of sleeping on the job, and blamed the nation’s biggest business lobby for increasing the murder and suicide rates.

Hatoyama’s dilemma is that as leader of the government, he is obliged to ensure that the Cabinet works as a team and that the government’s economic policies make sense.

But he also needs Kamei and his party to help him push laws through the Upper House of Parliament where the DPJ lacks a majority.

The Prime Minister spent most of his first month in office travelling. He went to the United States for the G20 Summit and the United Nations General Assembly, then to Copenhagen in support of Japan’s failed bid to win the 2016 Summer Olympics and to Bangkok to attend the Asean Summit.

He should stay home now and sort out his new government. (By Bruce Gale in Tokyo/ The Straits Times/ Asia News Network)