China, Japan, SKorea, ASEAN Makes Moves for Asian Monetary Fund

CHINA-JAPAN-SKOREA-ASEAN-ADB - 05/06/2005 18:42 - AFP

ISTANBUL, May 6 (AFP) - China, Japan, South Korea and the 10 members of the Association of Southeast Asian Nations (ASEAN) have agreed to expand their network of bilateral currency swaps into what could become a virtual Asian Monetary Fund, analysts said Friday. Finance officials of the 13 nations, who met in the sidelines of the Asian Development Bank (ADB) annual conference in Istanbul, appeared determined to turn their various bilateral agreements into some sort of multilateral accord, although none of the officials would directly call it an Asian Monetary Fund. Masahiro Kawai, special adviser to the ADB president, who monitored the ASEAN-plus-3 meeting, said it was a "step towards multilateralization," adding that a "de facto Asian Monetary Fund," may eventually be created. "What it is doing is try to insulate this region from the kind of turbulence it faced in 1997," said Ifzal Ali, chief economist of the ADB, commenting on the effort of the countries to avoid a repeat of the Asian currency crisis. In the past, the United States and the International Monetary Fund (IMF) have opposed the creation of an Asian counterpart, saying it would duplicate functions and create a moral hazard. Ali remarked, however, that "the Asian countries would prefer less influence from the IMF because, in 1997, the Asian countries feel the advice they got from the IMF was not correct and led to a lot of suffering." He minimized the risk of moral hazard, saying: "Asian countries are quite responsible. They know what they are doing and they know what is right for them." Asians are not looking for "easy money," he said. "It is their money. If they create an Asian Monetary Fund, it is going to be their money and if it is their money, they are going to use it quite prudently." Commenting on the efforts of the 13 nations, ADB president Haruhiko Kuroda did not mention a possible Asian Monetary Fund but gave it his endorsement, saying, "the basic thing is to make the swap arrangements more smooth and efficient." "The ASEAN-plus-3 finance ministers decided to earmark improving the functioning of the swap arrangements so they can be coordinated if the need is felt by member states," he said. China, Japan and South Korea had sent the first signal at a three-way meeting on May 4, when they called for an expansion of the Chiang Mai initiative, a network of bilateral currency swaps with the ASEAN countries. The three ministers later received the endorsement of their counterparts from ASEAN -- Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam -- at an ASEAN-plus-3 meeting on Thursday. The initiative launched in Chiang Mai, Thailand, in May 2000, in the wake of the 1997 Asian financial crisis, involved wealthier countries such as Japan, South Korea and China making emergency foreign currency loans to ASEAN nations in the event another currency crisis ever menaced these nations. The initiative now covers some 16 bilateral agreements totalling almost 40 billion dollars between ASEAN nations and the three East Asian economic giants. While the original initiative involved only bilateral swaps, the ministers are now looking into expanding this into multilateral exchanges involving three or four countries. Crisis-hit countries would soon also be able to draw down as much as 20 percent of the money under the bilateral swap arrangements without having to go through the IMF. Under the current arrangements, countries that draw more than 10 percent under their swap arrangements must have an IMF-supported program in place. The 13 ministers said an "economic surveillance" system would be put into place along with the Chiang Mai Initiative framework to detect irregularities early and apply swift remedies in a way that "complements the current undertaking by the international financial institutions." Chinese Finance Minister Renqing Jin said his country had already agreed to "double the scale of its currency swap" from its current level and his Japanese counterpart Sadakazu Tanigaki said his country was "willing in principle to double the size," of its bilateral swap agreements. However, ASEAN secretary-general Ong Keng Yong said the emergence of an Asian Monetary Fund was "too far away." "I don't think it is so simple," Ong remarked, asking: "Will the people receiving the assistance be prepared to go into such a venture so swiftly?" mm/sf/nh