Finance Ministers of Southeast Asia nations, Japan, China, and South Korea (ASEAN+3) agreed Sunday to prepare precautionary measures aimed at avoiding the region from falling deeper into severe financial meltdown, The Jakarta Post reported.
In its joint statement after a meeting in Thailand's resort island of Phuket, ASEAN+3 agreed to expand its pool of cooperation fund to US$120 billion from $84 billion worth of foreign exchange reserves under the Chiang Mai Initiative framework signed in 2000.
Japan, China and South Korea will supply 80 percent of the fund, while ASEAN members the remaining 20 percent. "The immediate effect of the agreement is that there will be a positive signal to the financial market in which we reassure them that we have sufficient back up and ammunition to face possible financial turmoil," said Finance Minister Sri Mulyani Indrawati.
According to Mulyani, while the ASEAN+3 noted the Asian economies are in a better position to face challenges due to the structural reforms undertaken since the Asian financial crisis, it recognized the regional economy is now facing great challenges.
"The current severe economic downturn of the global economy coupled with heightened risk aversion in financial markets has adversely affected the region," said Mulyani.
ASEAN+3 includes the 10 members of the Association of Southeast Asian Nations (ASEAN) -- the Philippines, Indonesia, Thailand, Malaysia, Singapore, Brunei, Vietnam, Myanmar, Cambodia and Laos-- as well as three East Asian nations -- Japan, China, and South Korea.
The group has a total population of 2 billion, a combined gross domestic product (GDP) of $9.09 billion, and foreign reserves of $3.6 trillion. Therefore, ASEAN+3 represents one third of the world's population, 16 percent of the world's GDP, and holds more than half of the world's reserves.
As the first concrete joint action in Asia to cope with the global economic downturn, the foreign exchange reserve pool is accessible to members in a swap mechanism to boost their foreign exchange reserves and for addressing short-term liquidity problem.
Members in dire need of the foreign exchange reserve fund, however, will be subject to an independent surveillance mechanism by other members. A concrete arrangement of the surveillance will be decided during the upcoming ASEAN meeting in Bali in late May.
The group will also accelerate measures for better managing the regions' bond market by accelerating the completion of the Asian Bond Markets Initiative (ABMI) roadmap.
Thailand Finance Minister Korn Chatikavanij, which co-chaired the ASEAN+3 meeting, said in a joint statement the roadmap would focus on the promotion of local currency bond issue, facilitation for the bond demand, and legal framework and infrastructure improvement for bond markets in the region.
"The implementation of the new roadmap is expected to contribute to the broad-based development of local currency denominated bond markets and greater accessibility to the regional bond markets," he said.
"We also recognize the important role of the private sector in the development of bond markets, particularly in cross-border bond transactions and settlement issues."
ASEAN+3 also agreed to inject the Asian Development Bank (ADB) with more capital in a bid to strengthen the bank's role in mitigating risks of its members in facing future financial uncertainty. The capital increase will be decided at the upcoming ADB annual meeting in May.
On Thursday, Finance Minister Sri Mulyani Indrawati said US Secretary of State Hillary Clinton will pass on to the US president a request from Indonesia to consider a US-Indonesia bilateral currency-swap arrangement.
"The US as the major provider of dollar liquidity is a source that is highly logical to support emerging markets in general, and in particular, Indonesia," she said.