ASEAN + 3 nations to create swap deal to stem crisis

05 May 2008

The 10-member Association of Southeast Asian Nations plus Japan, China and South Korea agreed on Sunday in Madrid that they will create a multilateral currency swap deal worth $80 billion to prevent a recurrence of the 1997-1998 Asian financial crisis. Finance ministers of the 13 Asian economies said in a joint statement the proportion of the contribution between ASEAN and the three other countries to the scheme, known as the Chiang Mai Initiative, will be ''20 versus 80.''

 

In May last year, the Asian nations reached a basic accord in Kyoto on converting the current network of bilateral currency swaps begun in 2000 into a multilateral framework. This was done to better protect fast-growing Asian economies from currency upheavals. They then agreed to set up the multilateral scheme, pooling funds from their foreign exchange reserves. There are 16 such bilateral currency swap schemes and up to $58 billion in total can be diverted to any of the 13 countries as deemed necessary.

 

The ministers confirmed in the Madrid statement ''the principle agreement that a self-managed reserved pooling arrangement governed by a single contractual agreement is an appropriate form of multilateralization.''

 

To make the scheme work effectively and avoid the disbursement of easy money, the 13 nations said it is necessary to strengthen regional surveillance by increasing the frequency of economic reviews and policy talks from twice a year and developing a standardized format for the provision of information and data.

 

A senior Japanese Finance Ministry official said before the Madrid meeting that some countries misunderstand the currency co-operation as a type of official development assistance and that the framework should not allow the disbursement of easy money.

Analysts say the advanced regional currency co-operation could lead to the establishment of an Asian version of the Washington-based International Monetary Fund and the introduction of a regional common currency.

 

Japan proposed the idea of setting up the Asian Monetary Fund after the currency crisis, but opposition from the United States thwarted it.

 

The 13 ministers also assessed current global economic conditions and said in the statement, ''While we remain positive about the long-term resilience of the global economy, the short-term economic prospects have weakened.''

 

They pointed to inflationary pressures driven by high energy and food prices and the potential worsening of housing and credit cycles as risks to the outlook.

 

On the regional economy, they said it ''has continued its strong growth and is forecasted to remain robust although somewhat weaker.'' They noted that several risks remain, such as financial market vulnerability and continued inflationary pressure from rising oil and other commodities prices.

 

The Asian nations welcomed the Asian Development Bank's efforts to stabilize food prices and agreed to ''work closely with the ADB on regional and national initiatives to provide food security and stability of food prices for the regional economies.''

 

The 13 economies also endorsed a Japan-proposed ''new road map'' for the Asian Bond Markets Initiative launched in 2003 aimed at fostering local bond markets.

 

It focuses on such areas as promoting the issuance of local currency-denominated bonds and improving regulatory framework and related infrastructure.

 

They agreed each country will periodically assess its own progress in realizing more accessible regional bond market development, according to the statement.

 

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

 

The 13 nations gathered in the Spanish capital on the eve of a two-day annual meeting of the ADB. ASEAN and its three partners will hold a finance ministers meeting in Bali, Indonesia, next year.

 

ASEAN press release

© Kyodo News