The Ministry of Economy, Trade and Industry is planning to relax loan repayment terms for small and midsize companies that took advantage of an expired government guarantee and are now having difficulty paying back the funds, ministry officials said Thursday.

METI chief Takeo Hiranuma is expected to unveil the plan at today's gathering of the Council on Economic and Fiscal Policy, which is in charge of compiling an antideflation package by the end of the month.

Chief Cabinet Secretary Yasuo Fukuda had told reporters earlier Thursday that the government had moved up the date of the council meeting from Wednesday in order to accelerate efforts to combat deflation.

According to METI officials, the ministry plans to allow small and midsize companies that borrowed funds under the government's loan guarantee system, which expired last March, to make repayments under relaxed conditions.

It may seek to extend the repayment period and introduce more flexible repayment methods. For example, borrowers may be initially allowed to pay back small amounts, with the size of payments increasing gradually over time, the officials said.

In addition, METI is negotiating with the Financial Services Agency to allow financial institutions to maintain their current ratings on these loans. Usually, they are required to reclassify loans whose repayment terms have changed as credits that merit close scrutiny.

Under the program, credit guarantee associations extended 1.72 million loans worth 29 trillion yen to small and midsize companies across the country. Many borrowers went bankrupt, but 17 trillion yen has been repaid or reimbursed.

Now calls for flexible treatment of the outstanding 12 trillion yen are mounting.

The system was created in October 1998 in response to the credit crunch, which continues to this day.

The ministry apparently hopes to keep the loan recipients from going under in order to stem any rise in unemployment, which would put further downward pressure on consumption and bring prices still lower.

Another reason the ministry could be keen to continue propping up these firms is that they contribute to the economy by making purchases from suppliers.

Some economists, however, say weak companies must accept some of the blame for the deflationary trend. These economists point out that struggling businesses propped up with forgiven loans, as in the case of Daiei Inc., or with relaxed repayment schedules only exacerbate price competition among companies.

In a related development, Fukuda indicated that the controversial question of whether to inject banks with public funds will be discussed at today's meeting.

"The odds are high that it will be taken up as one of the topics at the upcoming meeting," he said.

Meanwhile, Koizumi asked the leader of a coalition partner at a meeting Thursday to help the government devise effective antideflation steps.

In the meeting, Takeshi Noda, leader of the New Conservative Party, urged Koizumi to stimulate domestic demand through not only fiscal steps but also measures to promote deregulation and research and development to bolster private-sector demand.