It might work. But probably not.

That seems to be the verdict of many analysts on the government’s plan to create an “industrial revival body,” which promises to bring selected debt-ridden companies back to life.

The aim is for the government to take a shot at what banks have failed to do — take on salvageable problem loans, reinvigorate the companies that hold them and put them back on their feet.

Whether the body will bring genuine change or allow the government to continue muddling through the problem depends on how it receives funding, which companies it chooses to save and how.

Ministers on Tuesday promised to reveal these details by yearend.

“This could potentially trigger a true reorganization of industries into the good and the bad, the winners and the losers,” said Masatoshi Kikuchi, senior strategist of Merrill Lynch Japan Securities Co.

If decisions about company bailouts and failures are made in a transparent manner, it will put the body under huge pressure to show that loss-making companies and divisions are being allowed to fail, he said.

But the government has yet to decide what the private-public body ultimately aims to do, experts say, adding it remains unclear whether it will solve either Japan’s short-term or long-term problems.

“The government should be more honest, they should call it the ‘deadbeat resuscitation entity,’ ” said Hajime Yamazaki, chief investment consultant at UFJ Institute Ltd, a think tank affiliate of UFJ Bank.

“What do they mean by ‘industrial revival?’ Do they mean merging shaky companies? Making them get rid of some of their factories? However you look at it, the government is paving the way for a cartel of bad businesses.”

The body, termed The Lord of Hell by Finance Minister Masajuro Shiokawa, has been charged with essentially deciding which of the banks’ nonperforming borrowers have a shot at survival.

Shiokawa and other ministers have said the entity will likely decide which loans to buy by setting a certain cut-off line, comparing a company’s cash flow and the size of its debt.

A clear, numerical standard will be necessary to ward off criticism that the entity is only interested in saving politically important companies — the largest employers.

But coming up with a numerical cut-off point that applies to all industries is impossible, Yamazaki notes.

“If it were possible to plug in a formula and find out which companies are viable,” he said, “we wouldn’t have this bad-loan problem in the first place.”

Even economists who support the idea of a revival entity have their doubts about whether it will be effective.

“The most important factor in corporate revival is speed,” said Hideo Kumano, senior economist at Dai-ichi Life Research Institute Inc.

With prices falling, acting swiftly is the only way to prevent further damage to a company’s value, he said.

It would have been better if the government expanded the existing state debt-collection agency, the Resolution and Collection Corp., to enable it to buy up more nonperforming loans, he said. The market now has to wait for the spring, when the revival body is supposed to begin operations.

“With share prices like this, and with banks up for another round of special inspections by regulators, I don’t know if the market can wait that long,” Kumano said.

He argued, however, that some kind of body to absorb banks’ bad loans is necessary.

“Banks are giving funds not to the companies that deserve to live, but to those they have to keep alive to survive themselves,” Kumano said.

However, even if banks clean up their bad loans and the salvageable companies are saved, fundamental problems remain.

The new scheme will only delay reorganization in industries like the retail sector, said Takayuki Suzuki, an advisory analyst at Merrill Lynch Japan Securities Co., and allow weak companies to continue to squeeze other firms.

Looking to solve financial problems alone will do little to help, he said.

“What retailers need to do now to survive is to propose new business models or new store formats that can attract more consumers to their stores,” he said. “That’s not easy.”

The graver problem is deflation, notes Tomoo Noguchi, a marketing professor at Waseda University.

“It’s like performing surgery on a patient who has yet to recover enough strength,” Noguchi said. “The government should have taken measures to pick up the economy first.

“Even with support from the government, companies may find it difficult to revive businesses in this severe economic environment.”

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