DEFENSE REFORM: PROBLEM UNDERSTOOD, SOLUTION NOT

1. (SBU) A Kantei-led panel on Ministry of Defense (MOD)
reform held its first expert meeting on December 3. The
panel, set up in response to bribery scandals involving
former Administrative Vice Minister of Defense Takemasa
Moriya and defense trader Yamada Corporation executive
Motonobu Miyazaki, is charged with delivering an interim
report to Prime Minister Fukuda in February 2008 and is
comprised of industry, academic, and government experts. The
work of the experts will focus on three major themes:
ensuring civilian control, establishing a system for managing
classified information, and improving defense procurement
transparency. While some defense industry insiders welcome
the reform efforts and emphasize that the system needs to be
fixed, others have expressed concern that changes will be
made solely for the sake of satisfying the public desire to
"do something." Private sector and government contacts
acknowledge, however, that there is strong political will to
push for an end to what many see as a system to which
corruption is endemic. End Summary.



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MOD: "Let's Fix the System"


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2. (SBU) In the wake of the scandal surrounding former MOD
Administrative Vice Minister Moriya and Yamada Corporation
executive Miyazaki, in mid-November Chief Cabinet Secretary
Nobutaka Machimura announced plans for the creation of a
panel of experts to look at ways to reform MOD. Public
outcry over bribery allegations, improper handling of data
involving Japan's Indian Ocean refueling mission, and
allegations of confidential information leaks have all led to
calls for significant changes to be made. Machimura stated
publicly that the panel, comprised of seven experts plus
Machimura and Defense Minister Shigeru Ishiba, will "take the
lead in creating a firm reform plan based on the Prime
Minister's ideas and instructions."



3. (C) While the actual impact the panel will have is
unclear, at least some MOD insiders welcome the potential for
change. MOD Equipment and Facilities Planning Deputy
Director Kazuhito Shiiba, noted that MOD staff expect
"significant changes" to come from the panel's
recommendations and that this will have a substantial and
positive impact on how MOD does business. Shiiba noted the
system of procurement at MOD is the root cause of a problem
that unscrupulous individuals have exploited. Likening the
purchasing process that currently exists to "buying a black
box," Shiiba said a dramatic improvement in transparency was
necessary. MOD officials say that the new panel should
stimulate MOD's own procurement reform office, established by
Ishiba during his last term as Defense Minister. MOD
staffers say that this internal team may be forced into
"actually doing something" now that there is a higher level
of oversight from the Prime Minister's office.



4. (C) The public and media are expected to focus on efforts
to address the role of trading companies in defense
procurement. While welcoming the potential for improved
transparency that reforms may bring, Shiiba conceded that
"trading companies add value" and shouldn't be summarily
associated with corrupt business practices, as some recent
media reports have implied.



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Trading Company View: Too Much Reform May Mean More Cost


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5. (C) Japanese private sector contacts echo media reports
that Yamada executive Miyazaki was likely involved in illicit
activity with Moriya. Itochu Corporation Aerospace and
Defense Division FX Project Manager Natsuki Segawa claimed
that Miyazaki was "famous" for his "bad dealings" in defense
equipment trading and that current media reports only scratch
the surface of what Japanese defense industry insiders "know"
has been going on for "more than a decade."

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6. (C) Segawa admitted that MOD reforms are necessary, but
like some MOD interlocutors expressed concern that the Kantei
reform panel could "go too far for political reasons." One
aspect of defense reform that the media have highlighted has
been the lack of extensive procurement expertise at MOD. If
defense trading companies involvement in procurement is
phased out, some experts say that MOD would have to hire
hundreds of new employees to fill the same role. While
obviously concerned about the potential loss of business,
Segawa told Poloff that eliminating defense trading companies
from the procurement process would result in an increase of
costs that would ultimately be borne by the Japanese
taxpayer. Moreover, they add, MOD would find it difficult to
hire a cadre of procurement experts as the "talent doesn't
exist."



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Comment


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7. (C) In recent weeks, the scandal surrounding the alleged
illicit dealings between former AVM Moriya and defense trader
Miyazaki have dominated the headlines almost daily. The
Japanese legal process has yet to determine what, if any,
wrongdoings actually took place, and what punishment will be
meted out is far from certain. Whatever the end result,
insiders in both the private and public sector lay the blame
for MOD's current problems on a lack of transparency in the
procurement process, which has allowed unscrupulous
individuals to exploit the system for personal gain. Any
real reform will need to address fundamental challenges such
as the lack of trained procurement professionals at MOD and
distortions caused by Japan's ban on exporting defense
articles. Fixing these problems will require political and
financial commitments beyond the mandate of the new Kantei
panel.
SCHIEFFER