International Monetary Fund chief Horst Koehler encouraged the Financial Services Agency on Wednesday to step up disclosure of its assessments of banks’ problem loans.

Much of the IMF’s information on Japan’s nonperforming loans “comes from private discussions with the private sector,” the managing director of the Washington-based lending agency said at a Tokyo news conference.

In his meeting with Koehler the day before, Financial Services Minister Hakuo Yanagisawa said the IMF’s reports on the state of Japanese banking do not describe the true situation, and that more discussion in the international community is required on how nonperforming loans are counted.

Koehler conceded the need for discussion, saying “the number (of problem loans) depends on certain assumptions,” and that any changes should be discussed openly.

The IMF chief said he found Yanagisawa and other Cabinet members determined “to finally deal with the bad-loan problem,” which is “priority No. 1”

“Restoring the banking system to health is a prerequisite for a return to sustained growth,” Koehler said.

Earlier Wednesday, Koehler threw his weight behind a government plan to review the use of revenues for building roads, airports and other projects, government officials said.

The plan is in line with Prime Minister Junichiro Koizumi’s pledge to limit new government bond issues to below 30 trillion yen in fiscal 2002.

“The strong popular support for the government provides a real window of opportunity to take bold measures,” he said, praising the government’s strategy to achieve fiscal consolidation through the privatization of quasi-government agencies, tax and pension reform, and restructuring relations between local and central government.

“The core problem is lack of (public) confidence,” Koehler said. “The Japanese citizens are insecure about the future. They need to know that their pensions are secure, that their futures are secure.”

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