Japan may extend a special yen-loan program worth 600 billion yen beyond its planned expiration next spring to help Asian neighbors hit by a global slowdown and the economic fallout from the Sept. 11 terrorist attacks in the United States.

According to government sources, the Finance Ministry, the Foreign Ministry and the Ministry of Economy, Trade and Industry have started behind-the-scenes consultations to discuss whether -- and how -- to extend the three-year special loan program.

The three ministries, which have a collective responsibility for formulating and implementing Japan's yen-loan policy, will make a final decision on the matter before the special loan program's planned expiration on March 31, the sources said.

Prime Minister Junichiro Koizumi plans to tour several Southeast Asian countries, including Indonesia and the Philippines, in early January, and he is expected to renew his commitment to assisting their economic development.

Japan introduced the special loan program on April 1, 1999 as part of its efforts to assist developing Asian neighbors hit hard by the 1997-1998 regional economic crisis. METI took the initiative in putting the program in place.

Under the special loan program, 600 billion yen -- or about $5 billion -- in yen loans are to be provided to crisis-struck Asian countries through fiscal 2001, which ends on March 31, under much more favorable terms than ordinary yen loans.

They are extended at the exceptionally low interest rate of 0.95 percent and they are repayable over 40 years, including a 10-year grace period, instead of the 30 years for ordinary yen loans. Japan has retained its status as the world's largest single aid donor over the past decade. Yen loans are a major pillar of the country's official development assistance. Two other types of Japanese ODA provided directly to developing countries are grants-in-aid and technical cooperation.

The sources said that although the Koizumi government has decided to slash the ODA budget for fiscal 2002 by 10 percent to curtail the huge government deficit, the decision will not have a major effect on a possible extension of the special loan program.

That is because even if the special loan program is actually extended beyond its planned expiration next spring, it will be implemented within the limit of the ODA budget, as it is at present, the sources said.

The special yen loans are provided to developing countries on top of ordinary yen loans. The special loan program was initially limited to several East Asian countries directly affected by the 1997-1998 regional economic crisis. But it was expanded later to cover other countries that were indirectly affected by the crisis, such as those in Central and South Asia.

The government has begun to consider extending the special loan program in response to growing calls for an extension, not only from Japan's Asian neighbors but also from the ruling Liberal Democratic Party, the sources said.

The special loan program benefits not only cash-strapped Asian neighbors but also struggling domestic companies, especially in the construction sector. That sector is one of the most troubled in the Japanese economy, as exemplified by the recent collapse of Aoki Corp.

Since special yen loans are completely "tied," strings are strictly attached to their provision. Almost all ordinary yen loans are "untied," however.

Contracts for infrastructure and other projects funded by "untied" loans are awarded through international competitive bidding. Tied loans, on the other hand, are provided on the condition that contracts for projects funded by them be awarded to either Japanese companies alone or Japanese and borrowing countries' firms.

Contracts for projects financed by special yen loans are awarded to Japanese companies alone.

The special loan program was introduced amid growing pressure for more tied loans from domestic industries, which were -- and still are -- struggling to survive amid the continued economic slump at home and increasingly tough competition abroad.

In recent years, Japanese firms have won an average of only 30 percent of contracts for yen loan-funded projects in developing countries.

With less than four months left before the 600 billion yen special loan program's planned expiration on March 31, more than 100 billion yen has yet to be disbursed under the program, the sources said.