ASEAN leaders plus three endorse currency swap plan<\/p>\n
SINGAPORE (Dow Jones): Leaders of 13 East Asian governments on
\nSaturday informally endorsed a system designed to improve their
\ncapacity to help each other counter sudden currency fluctuations.<\/p>\n
The presidents and prime ministers who discussed the so-called
\n\"Chiang Mai Initiative\" didn't build upon the program that has
\nbeen developed since May by the finance ministers of Japan, South
\nKorea, China and the 10 Association of Southeast Asian Nations.<\/p>\n
Several leaders expressed support for the plan which was
\nlaunched at a meeting of finance ministers in Chiang Mai,
\nThailand. But they didn't specifically take any action on the
\nswap agreements, which they say could help a country combat
\nliquidity or balance of payments problems.<\/p>\n
Nevertheless, their meeting in Singapore this week prompted
\nthe release of more details.<\/p>\n
\"Significant progress has been made since Chiang Mai,\" said a
\nJapanese Ministry of Finance official.<\/p>\n
The Chiang Mai Initiative has caught the attention of the
\nforeign exchange market partly due to the sheer size of foreign
\nexchange reserves held among the East Asian nations writing the
\narrangement, some $800 billion, by the Japanese finance
\nministry's count.<\/p>\n
Foreign exchange reserves would be made available to the
\ncountries in the event their currency comes under speculative
\nattack, as happened to Thailand through the first half of 1997,
\nsparking the Asian financial crisis.<\/p>\n
On one track, the program enlarges an existing ASEAN Swap
\nArrangement that has been in place since 1977, but apparently
\nnever used. The program's coverage will be expanded from the six
\nmost developed ASEAN nations to include the remaining four,
\nCambodia, Laos, Myanmar and Vietnam. Total size of the swap
\nfacility is also being boosted to $1 billion from $200 million.
\nSingapore, Malaysia, Thailand, Indonesia, Brunei and the
\nPhilippines would each eligible to request up to $300 million
\nfrom the others. The limit for four least developed economies
\nwould be $50 million.<\/p>\n
More substantially, ASEAN governments are hoping to establish
\na network of bilateral swap and repurchase agreements between
\nthemselves and the region's power-sized economies, Japan, China
\nand South Korea.<\/p>\n
In Singapore this week, those governments reiterated their
\nintention to see the plan implemented - and to see the funds
\nlargely tied to programs of the International Monetary Fund.<\/p>\n
The Japanese official said an interest rate formula has been
\nagreed, based on existing market rates plus a premium that isn't
\nbeing made public.<\/p>\n
The size of the bilateral arrangements with Japan, China and
\nSouth Korea will be subject to negotiation.<\/p>\n
Although IMF conditionality is important and the program is
\ndesigned to supplement IMF bailouts, some money could be made
\navailable before a country in crisis reaches a support agreement
\nwith the Washington-based Fund. If funds are made available
\nbefore an IMF program is in place, the maximum amount available
\nwill be limited to 10 percent of that country's credit line.<\/p>\n
Malaysian Prime Minister Mahathir Mohamad said he opposes the
\nplan to tie some of the funding to Washington-based Fund's
\nprescriptions. \"After all, the IMF has not contributed anything
\nto this,\" he said.<\/p>\n
Two or three ASEAN countries should have concluded their
\nbilateral swap agreements by the time ASEAN Plus Three finance
\nministers gather for the Asian Development Bank meeting in May.<\/p>\n
Analysts had initially dismissed the swap plan as a \"paper
\ntiger\" unlikely to make much difference to Asian currency
\ntrading. They noted a long-existing patchwork of agreements has
\nnever been used, even despite the massive volatility in Asian
\nforeign exchange markets during the past few years.<\/p>\n
But government officials have started to back up their view
\nthat currency stability efforts in the \"Chiang Mai Initiative\"
\namount to more than pie-in-the-sky dreaming by providing some
\ndetails of how the cooperation would work.<\/p>\n
Supachai Panitchpakdi, said negotiations among ASEAN countries
\nare proceeding well, and \"at the end of the day, I'm quite
\nhopeful we would have a full fledged Asian Monetary Fund.\"<\/p>\n
Although that kind of comment has weakened Western support for
\nthe effort, on concern that Asia is ultimately attempting to
\ncircumvent the tough provisions of the International Monetary
\nFund, analysts agree that Asian governments seem intent on
\nimproving their ability to help themselves.<\/p>\n
And a Japanese official said there is no cause for such
\nconcern that the IMF would be circumvented. \"The trigger for
\nimplementing swaps will be largely linked to an IMF program,\"
\nTakatoshi Ito, deputy vice minister for international affairs at
\nthe Japanese Ministry of Finance, wrote in the Financial Times
\njust ahead of the ASEAN meeting.<\/p>\n
An official of the Bank of Japan meanwhile suggested that once
\nthe political agreements are in place, the central bank will
\nfollow through. \"We are looking for a good result,\" the
\ninternational affairs official told Dow Jones Newswires as the
\nASEAN meeting got under way.<\/p>\n
At the same time, the official said he is far from ready to
\ndismiss cooperation efforts by countries with nearly half of the
\nworld's foreign exchange reserves. \"It's not complete fantasy,\"
\nhe said.<\/p>\n
For Southeast Asian countries in particular, he said, the
\nmarket should recognize there could be legitimate times for one
\ncentral bank to help another. He noted that the region's
\ncurrencies these days fluctuate far more against the U.S. dollar,
\neuro and yen than against each other, which is an intra-ASEAN
\nstability they might want to defend.<\/p>\n
The 10 ASEAN members are Brunei, Cambodia, Indonesia, Laos,
\nMalaysia, Myanmar, Singapore, Philippines, Thailand and Vietnam.
\nThe ASEAN Plus Three summit also includes participation of China,
\nJapan and South Korea.<\/p>",
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