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Prime Minister Junichiro Koizumi said Friday the government will devise measures next month to accelerate the disposal of nonperforming loans held by the nation’s financial institutions.

“If bad-loan disposals remain unfinished, financial institutions will not provide lending in a productive manner,” Koizumi said during a television interview at his official residence. “Thus, the government should speed up bad-loan disposals.”

Fuji TV was interviewing Koizumi about how he plans to pursue his structural reform policies while fighting current economic problems, including deflation and the stock market slump.

The slowness in terminating its bad-loan problem is considered the main cause of the country’s inability to recover economically.

Last week, in talks with U.S. President George W. Bush. in New York, Koizumi pledged to accelerate bad-loan disposals while fighting deflation.

Although Koizumi did not specify what steps the government will take next month, he said the measures will be drawn up to “support the drastic measures pledged by the Bank of Japan.”

On Wednesday, the central bank decided to consider directly purchasing shares held by banks to protect them from fluctuations in share prices.

Earlier in the day, Heizo Takenaka, minister in charge of economic and fiscal policy, also said the government will compile a new “emergency strategy” primarily to deal with the problem of plunging stock prices.

The new step will be mapped out in the latter half of October at a meeting of the Council on Economic and Fiscal Policy, Takenaka said. The council is headed by Koizumi.

Stock prices have plunged to near 20-year lows this month, with the benchmark Nikkei stock average sinking below 9,000 at one point Sept. 4.

Dump bad loans: IMF

WASHINGTON (Kyodo) Horst Koehler, managing director of the International Monetary Fund, urged Japan on Thursday to accelerate the disposal of bad loans weighing down the nation’s banks.

Amid mounting concerns over a stalling global economic recovery, Koehler also encouraged Tokyo to take decisive action to counter deflation.

“Risks to the global economic outlook today are clearly tilted more to the downside than they were a few months ago,” Koehler told a meeting of the Council of Foreign Relations.

“These include continuing fallout from the collapse of the equity price bubble and corporate scandals, difficulties in some emerging market economies, regional political tensions and volatility in world oil prices.”

The IMF chief stressed the urgent need for advanced economies to tackle underlying problems.

“Europe and Japan have to be more serious about accelerating structural reforms, to unlock self-sustaining growth,” Koehler said. “Japan should act decisively to bring an end to deflation.”

At a news conference in Tokyo earlier this month, Koehler voiced support for the use of public funds to accelerate the disposal of banks’ bad loans and to consolidate the country’s ailing financial industry.

He said the Bank of Japan should, if necessary, further relax its monetary grip to fight deflation.

In his speech Thursday, Koehler asked the United States to maintain its fiscal discipline.

“The United States should beware of falling back into chronic public-sector deficits,” he said.

He downplayed concerns, however, that the U.S. economy could fall back into a double-dip recession.

“The probability of the United States sliding back into recession, in our view, is not high,” he said during a question-and-answer session after the speech.

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