The Japanese government is taking another crack at non-performing loans (NPLs). The Diet recently established the Industrial Revitalization Corp. to help viable but debt-laden companies reach profitability.

The IRC is set to begin operations in early summer and will exist for five years. The intention is to open the way toward eliminating NPLs. But for the institution itself, the "goals at best are not clear-cut," says Yukari Sato, a senior economist at J.P. Morgan & Co. The government hasn't even expressed a target number of companies it wants fixed.

The IRC will review turnaround plans jointly submitted by a business and its primary lenders. The institution will determine what chance each plan has of meeting requirements such as maintaining profitability after interest expense. If the plan is approved, the IRC would then offer to buy the NPLs of all but the main lenders and help in the reorganization.

But what is meant to be a joint public-private venture has yet to get private funding because of uncertainty over who would pay for secondary losses -- the difference between the purchase and disposal price of an asset. So far, the IRC only has the $84.0 billion provided by the government.

There are also competing interests. Banks would prefer the IRC to buy up NPLs quickly, allowing for fast write-offs. But businesses are afraid that if the IRC moves too fast, some nonviable companies will receive relief. The conflicts could make for contentious IRC appointments and drive away possible candidates.

Don't look for a fast start. The IRC is expected to pick only the easiest cases at first. Smaller companies initially will be avoided because of their political sensitivity, says Sato. Indeed, tough sectors, such as construction, may be skipped over for a few years. If the IRC succeeds, it could widen the mergers-and-acquisitions market and open the door for some foreign investors. Right now, though, the odds seem long. By James Mehring in New York