Japan offers to help fund IMF-led rescues

Japan stands ready to help the International Monetary Fund ride to the rescue of countries struck down by the global credit crisis, Finance Minister Shoichi Nakagawa said.

"If there's something the IMF can do, I want them to do it flexibly. Japan will cooperate with that, including providing funds for it," Mr Nakagawa told reporters in Washington.

"The impact of the credit crisis is spreading to the world. To minimise the chain-reaction, Japan is ready to take leadership in contributing to support countries by providing funds", Mr Nakagawa said.

The Nikkei newspaper reported that Japan would propose making trillions of dollars in currency reserves held by Asian and Middle Eastern governments available to support IMF-led bailouts.

Japan alone has €735 billion in official foreign currency reserves. China has €1.5 trillion, the world's largest stockpile.

The Nikkei said the IMF programme would be available to smaller emerging countries but not to members of the G7 - the US, Japan, Britain, France, Germany, Canada and Italy - or to other large nations.

"What the IMF should think about is not G7 or G8 countries, but about contingencies that may arise in newly emerging economies and other areas at this time of financial crisis, credit crunch and the dollar's exchange rate," Economics Minister Kaoru Yosano said in Tokyo.

The G8 is made up of the Group of Seven plus Russia.

Japan also took the diplomatic initiative during the 1997/98 Asian financial crisis, proposing the creation of an Asian Monetary Fund to help the region recover from a meltdown that plunged several countries into a deep recession.

The plan died a quick death in the face of US opposition.

Under the Japanese plan, the IMF would ask the borrowing country to draw up a plan to revitalise its financial sector including writing off its bad assets, the Nikkei said.

It was not clear how - or if - this would differ from the conditions the IMF usually sets in return for an emergency loan.

The loans would be funded by €1.5 contributed by IMF member countries plus loans from the foreign currency reserves of Middle Eastern oil exporters as well as the likes of Japan and China, the paper said.

China, which has pledged to cooperate with other countries to tackle the current crisis, has been repeatedly urged by Washington to play a greater role in international financial policy-making commensurate with its economic power.

But Beijing has given no indication that it is willing to mobilise its reserves in the way that Japan - its big regional political rival - is suggesting.

The IMF said it was ready to lend to countries hit by the global credit crunch and had activated an emergency financing mechanism first during the Asian financial crisis a decade ago.

IMF Managing Director Dominique Strauss-Kahn told a news conference it would provide financial assistance not only to emerging and developing nations, but also to Western countries.

"Nobody knows if some... advanced economies will not also be in need of some help by the IMF," he said, adding that funds would be made available quickly to countries in need.

"Very quickly means two weeks at most," he added.

The Fund already sent a mission to Iceland.