Japan says will tap FX reserve if IMF steps up bailout

WASHINGTON (Reuters) - Japan said on Saturday it is ready to offer a part of its $1 trillion foreign reserves to the International Monetary Fund (IMF) if the multi-national lender is to support countries facing economic crisis.

But Finance Minister Shoichi Nakagawa also criticized the IMF's attitude in the past, saying too stringent conditions it had imposed on loans during the Asian crisis in 19987-98 destroyed social and economic fabric of Asian countries.

"I said what the IMF did 10 years was not welcomed... I think my comments were well-received," Nakagawa told reporters, explaining what he said at the meeting of the IMF Committee.

A senior Japanese finance ministry official said Nakagawa told the IMF that Japan was ready to loan a portion of its forex reserves if the IMF needs more funds for rescue lending.

But Japanese officials did not elaborate on how much it is ready to contribute to the IMF.

Nor they endorsed a media report earlier in the week that Japan would propose making trillions of dollars in currency reserves held by other countries available to support IMF-led bailouts.

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

The Philippines, Thailand, Indonesia and South Korea all enlisted the IMF's help to stem crushing runs on their currencies at that time.

But some economists, such as former World Bank chief economist Joseph Stiglitz, have criticized the IMF's role, saying it focused too much on balancing budget to win market confidence when expansionary fiscal policy was needed to support the economy.

Nakagawa's comments echoed such a view, widely held in Asia.

Although Asia and other emerging economies have so far avoided largely the worst of the credit crisis sparked by burst of bubble in U.S. housing markets, deepening woes in Western financial markets are now infecting robust growth in many emerging economies.

Japan has been proposing that Iceland, which had been hit by collapse of its banks and plunge in its currencies, be helped through the IMF but the north Atlantic island has so far resisted the idea, looking for other sources of funding including loans with Russia.

Japan 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.

But the plan died a quick death in the face of U.S. opposition.

(Reporting by Hideyuki Sano; Editing by Anshuman Daga)