ASEAN+3 swaps lack muscle as a safety net<\/p>\n
NEW DELHI (Reuters): Doubts ASEAN+3 can build a big enough
\nfinancial war chest for a swap scheme to support currencies in
\ncrisis are fueling skepticism about how well the safety net will
\nwork, analysts and traders said.<\/p>\n
Lenders in the program appeared cautious and ASEAN was showing
\nsigns of disunity, currency dealers attending the Asia Pacific
\nForex Congress in New Delhi said.<\/p>\n
In addition, there was no clear idea how big the war chest
\nwould be so that the foreign exchange market can assess ASEAN's
\nspending power in times of crisis.<\/p>\n
\"The swap agreement's usefulness as a mechanism to prevent
\nspeculative attacks on Asian currencies may turn out to be
\nlimited,\" Ken-Ichi Takayasu, senior economist for Sakura
\nInstitute of Research said from Tokyo.<\/p>\n
A framework for a web of bilateral currency swaps linking 13
\nAsian central banks was unveiled last month, following an
\nagreement among 10 member nations of the Association of Southeast
\nAsian Nations (ASEAN) plus Japan, China and South Korea at a
\nmeeting in Singapore.<\/p>\n
The idea of the swaps is to make foreign reserves, mainly
\ndollars, available at short notice to a member of the group whose
\ncurrency comes under sudden speculative attack, as happened to
\nthe Thai baht in 1997.<\/p>\n
In order for the ASEAN+3 swap scheme to be effective in
\npreventing another financial crisis, dealers say the war chest
\nwould have to be big, and that its ability to disburse funds
\nquickly must be unquestioned.<\/p>\n
\"There can't be any sign of internal squabbling,\" Congress
\nattendee Nao Nakajima, Japan treasurer for Standard & Chartered
\nBank, said.<\/p>\n
Indonesian President Abdurrahman Wahid's accusation against
\nSingapore last month, that it was taking advantage of Indonesia's
\ntroubles and cared about only profits, showed that there were
\nseeds of dissension among ASEAN countries.<\/p>\n
And there are unanswered questions regarding size.<\/p>\n
Officials for Japan's Finance Ministry have said that ASEAN+3
\ngovernments have yet to negotiate the size of each swap line, and
\nsay that there is no way to tell now how large a swap line each
\ncountry would have access to when all negotiations are finished.<\/p>\n
\"It would have been better if they had announced the planned
\nsize of the swap lines,\" Nakajima said.<\/p>\n
Analysts say that ideally, the credit line which can be
\nextended at one time needs to be around $50 billion to $100
\nbillion, or at least about half the $125.3 billion disbursed by
\nthe IMF, World Bank and Asia Development Bank among others, to
\nIndonesia, Korea and Thailand combined during the Asian crisis.<\/p>\n
But with Japan, the world's number two economy, taking a
\ncautious stance toward committing funds as it wrestles with the
\ntask of bringing its surging government debt under control,
\nanalysts are skeptical that the swap lines would become that
\nlarge.<\/p>\n
The ASEAN+3 swaps agreement was signed when the currencies of
\nmany Asian currencies are coming under selling pressure, reviving
\nconcerns of another regional crisis.<\/p>\n
\"The 1997 crisis was like a bomb which went off all of a
\nsudden, without any warning,\" said Standard & Chartered's
\nNakajima.<\/p>\n
\"The situation now is more similar to the ignition of a long
\nfuse. Everyone is watching, worried there may be another bomb at
\nthe end of the fuse,\" said Nakajima.<\/p>\n
The Thai baht recently fell to its lowest level against the
\ndollar since March 1998, prompting the Bank of Thailand to begin
\nstrict enforcement of a ban on off-shore speculative short
\nselling of the baht.<\/p>\n
Among others, the Philippine peso fell to a life low last
\nmonth, the Korean won hit a 13-month low on Friday and the
\nIndonesian rupiah was down 27 percent this year.<\/p>\n
One positive sign in the region, currency dealers say, is that
\nthe 1997 experience has helped make Asia better prepared to cope
\nwith falls in regional currencies.<\/p>\n
Standard & Chartered's Nakajima said Asian companies with
\ndollar denominated debt are more likely now to be hedged against
\ncurrency risk. This lessens the chances of a recurrence of the
\ntype of panic-buying of dollars by unhedged corporates which
\nhelped trigger the 1997 crisis, he said.<\/p>\n
ASEAN links Indonesia, Malaysia, Singapore, Brunei, the
\nPhilippines, Thailand, Cambodia, Vietnam and Myanmar.<\/p>",
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