'THEY HAVE TO DO SOMETHING'

IMF meeting ends with plea to Japan

Kyodo

The International Monetary Fund and the World Bank brought two days of financial meetings to an end Sunday, renewing pressure on Japan to cure its economic ills and speed up the disposal of banks’ bad loans and offering guarded optimism over the global economy.

In the annual meetings, global financial leaders also discussed ways to reduce poverty, fight AIDS, promote development and manage financial crises, while IMF and World Bank chiefs reported progress on improving ways to handle debt crises.

The high-profile gathering was held amid a worldwide fall in stock prices, threats of a war against Iraq and continuing economic turmoil in Latin America.

At a news conference wrapping up the talks, IMF Managing Director Horst Koehler and World Bank President James Wolfensohn said the future outlook stands somewhere between wild optimism and wild pessimism — a sense they termed “realistic optimism.”

Koehler urged the Japanese government to speed up the elimination of bad loans and follow the lead of the Bank of Japan’s unprecedented move to buy shares from commercial banks.

The central bank’s stock-buying plan should be “part of a more comprehensive package of measures,” Koehler said.

“I expect Prime Minister (Junichiro) Koizumi to outline the full package in the coming weeks.”

In October, the government plans to adopt a new package of measures aimed at stemming deflation and reviving its economy.

“They have to do something in order to get rid of nonperforming loans,” Koehler said, adding that he also expects Japan to revitalize its economy through tax cuts for “a positive impact on investment and demand.”

On Sept. 18, the central bank announced plans to buy shares directly from commercial banks to shield them from plunging stock prices, which have caused banks with large equity holdings to suffer massive latent losses.

Speaking at a news conference after attending the meetings, Bank of Japan Gov. Masaru Hayami said he thinks he has won the backing of the Group of Seven nations for his stock-purchasing plan.

But he also conceded that Japan’s G7 partners — Britain, Canada, France, Germany, Italy and the United States — see the need for the plan to be run in tandem with additional measures by the government.

“They said it would be good if this can be carried out as part of a broader package that would lead to the disposal of bad loans,” he said.

Facing similar pressure at a meeting of G7 finance ministers and central bank governors held Friday before the IMF and World Bank gatherings, Finance Minister Masajuro Shiokawa promised to speed up the disposal of bad loans.

But Shiokawa made confusing comments as to whether he mentioned the possibility of injecting public funds into banks in a meeting with U.S. Treasury Secretary Paul O’Neill held shortly before the G7 meeting.

Shiokawa said in the end that he discussed the matter with O’Neill at one point on Friday but not in the bilateral talks.

Even developing nations singled out Japan in a joint statement issued after a meeting Friday of finance ministers from the Group of 24 countries, urging Tokyo to clean up its bad-loan mess.

On issues related to developing nations, Koehler cited as progress the emergence of a “broad understanding” over the need for a better mechanism for restructuring debt when a country’s debt becomes unsustainable.

The International Monetary and Financial Committee — the IMF’s policy-setting panel — asked the IMF to come up with a plan by April for ways to deal with the eventuality of a country defaulting on its debts.

Koehler said there was still a long way to go before the debt-restructuring system can be established, given the differences between concerned parties over the approaches that should be taken.

“Often, the devil lies in the detail,” Koehler said. “Nothing is (yet) decided, but I take from these discussions here that there is a broad understanding about the absolute need to have a better mechanism for a timely, orderly, less costly” debt-restructuring process.”