FRANKFURT, Nov 22:International Monetary Fund (IMF) managing director Michael Camdessus was quoted as saying Japan must step up efforts to strengthen and deregulate its economy in view of the Asian financial crisis which is set to hurt growth, banks and the yen.

Camdessus was quoted as telling Germany's Frankfurter Allgemeine Zeitung newspaper that it was of central importance for the global economic system that Japan overcome its problems.

Referring to the weakness of the Japanese banking sector and the closure on Monday of Hokkaido Takushoku Bank, Camdessus said: ``I welcome the way in which the bankruptcy of the 10th largest bank was allowed without government intervention.''

Camdessus said the problems affecting the financial sector had been exacerbated by the steep fall in the Tokyo stockmarket's Nikkei index and that the Japanese authorities could no longer avoid addressing these difficulties.

``We told the Japanese government several years ago, when the real estate bubble burst, that they should contemplate using public money for the restructuring of the banks,'' Camdessus said.

The IMF had not changed its mind, but did not want shareholders and creditors of the banks to escape unscathed, Camdessus said according to the paper. Camdessus also defended the IMF's role in leading bailout packages to help struggling economies in southeast Asia.

German bankers have opposed the provision of major IMF funds, arguing that it would discourage the economies from reforming themselves.

The Bundesbank, in its November monthly report published on Wednesday, urged the IMF to avoid giving the impression it was prepared to provide substantial credit to protect debtors and creditors from the risks of cross-border capital transactions. Such a stance would promote a ``moral hazard'' trend which would undermine the international monetary system, the Bundesbank said. Camdessus told Frankfurter Allgemeine that the IMF, by providing help to some southeast Asian tiger nations, was fulfiling its stated task ``to help countries in need to overcome crises, and to do so at the lowest possible cost to their prosperity and that of the world as a whole.''

The IMF was not providing nations with a ``bed of roses.'' The volume of IMF aid was still relatively small when measured against the potential danger that the Southeast Asian crisis posed to the global economic system.

Like Mexico two years ago, Thailand and Indonesia had to undergo painful reforms as part of the IMF programmes, Camdessus said.

The IMF has led two bail-out packages recently -- for Indonesia and Thailand, totalling close to $60 billion. Mexico paid for the IMF rescue package by suffering a deep recession with more than 1.3 million unemployed.

Thailand had closed 58 banks, Indonesia had shut 16, Camdessus said.

The IMF also insisted on a host of structural reforms to ensure clear bankruptcy procedures and better banking supervision, Camdessus said.

He said the IMF saw the risks of ``moral hazard'' and was even obsessed by the idea, the paper said.

``We are not and we don't see ourselves as ... lenders of last resort. We always leave our member countries in the dark about our intentions so that the responsible governments tear out the roots of the problem themselves.''He also said that it was especially in Europe's interest that the Asian crisis was overcome as quickly as possible. Europe should not forget that it was among the main beneficiaries of Mexico's rapid recovery despite its ``bizarre stance'' regarding the bailout package at the time. Germany believes that the US-led international support package of almost $50 billion to Mexico in 1995 probably set an unwelcome precedent.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.