ADB backs Asia fund, readies new loans

ADB backs Asia fund, readies new loans

TOKYO (Reuters): The Asian Development Bank (ADB) is preparing to help underwrite between US$2 billion and $3 billion in new loans to the Asian economies most directly hit by the regional crisis, a senior official at the bank said on Monday.

The official said an Asia-specific monetary fund of the kind proposed by Japan could play an important role in leveraging more private-sector financing for the region.

"The magnitude is extremely large, in terms of liquidity gaps, so additional funds are always welcome," Yoshihiro Iwasaki, a strategy and policy officer at the ADB, told Reuters Television in an interview.

For its part, the ADB is preparing to help underwrite loans under Japan's Miyazawa Plan. Those funds will be available by mid-1999 and will be disbursed over 18 months or so, he said.

"The focus is now not on macroeconomic stability but on structural reform, especially in the financial and corporate sectors," Iwasaki said by telephone from ADB headquarters in Manila.

Japan has set aside $30 billion in financing for the rest of the region in a facility named after its chief architect, Finance Minister Kiichi Miyazawa.

The ADB's co-financing under the plan will be directed initially at Thailand, Indonesia, Malaysia, the Philippines and South Korea, Iwasaki said.

In addition to the already approved funds, Miyazawa has given his support for a kind of Asian monetary fund to complement the IMF -- an idea that was floated and dropped in 1997 after it met with opposition from the United States and Europe.

But the nature of the Asian financial crisis and the response to it are both better understood now than they were earlier and that could soften opposition this time, Iwasaki said.

The Asian financial crisis was primarily driven by capital account flows, not chronic current account imbalances, Iwasaki said. And the crisis was "highly regionalized", despite Asia's high domestic savings, he said.

Those factors support the case for a new approach to regional support, including consideration of some kind of Asia fund, he said.

"The existing international framework, particularly the supply of short-term credit such as the IMF, I think could be usefully supplemented by such a regional fund," he said.

But Iwasaki said he sees no need now for the development bank to expand its own borrowing program for 1999.

"I think the situation in some of our member countries has been improving quite significantly, so I don't see any significant increase in the need to go to market by the bank," he said.