ASEAN begins search for consensus on money swaps

ASEAN begins search for consensus on money swaps

KUALA LUMPUR (Reuters): Senior finance officials from
Southeast Asia met on Wednesday to search for consensus on
creating a regional web of currency swaps to ward off future
financial crises.

"There are still some major differences to be sorted out.
There is much to be discussed and agreed," said a Southeast Asian
central bank official attending the meetings.

The three-day meeting is expected to throw up alternative
solutions to problems plaguing the implementation of the currency
swap plan, known as the Chiang Mai Initiative after the Thai city
where it was conceived last year.

The plan envisages linking international reserves of the 10
countries from the Association of South East Asian Nations
(ASEAN) with those of China, South Korea and Japan.

The scheme is being discussed at a time when the currencies of
many countries in the region have fallen sharply, some to Asian
crisis levels.

Plan members, who saw their economies battered by speculative
attacks on their currencies in 1997-1998 amid big balance of
payments problems, could borrow from the swap network.

But the initiative envisages tying disbursements under the
scheme to reforms supervised by the International Monetary Fund
(IMF), a proposal Malaysia staunchly opposes.

Malaysia, an ardent supporter of regional monetary
cooperation, says negotiations have reached a critical stage but
foresees extra time being needed to fine tune the arrangements.

The country, which balked at IMF assistance during the Asian
economic crisis of 1997-98, says there is no role for the
Washington-based institution in the regional currency plan.

"The time taken to disburse loans or assistance under IMF
arrangement is long and sometimes too late," a Malaysian official
told Reuters.

The official said Indonesia and Thailand would have been
better off if IMF had been faster in delivering the bailout
packages.

Malaysia did not turn to IMF for financial help during the
Asian crisis. Its radical approach of imposing capital controls
and pegging its currency at 3.8 ringgit to the U.S. dollar to
ward off speculative attacks on its forex and stock markets
helped it to recover faster than its neighbors.

"Our success shows that 'one size doesn't fit all'. Sometimes
policy prescriptions have to be country specific," the Malaysian
official said.

Potential creditor nations, especially Japan, have stressed
that the swaps would not be activated until IMF programs were
already in place or were at the point of being finalized.

Only in cases where a member country was deemed to be
suffering a passing cash crunch could the swap deal be triggered
without a link to an IMF program. In such a case, a country could
borrow no more than up to 10 percent of the swap line.

Malaysian officials cite the IMF's loan facility, the
Contingent Credit Lines, which allows release of one-third of
total line of pre-set credit provided to a country without any
conditions.

"We also have a $2.5 billion swap line under the Miyazawa
Initiative with Japan. There are no conditionalities in that,"
the Malaysian official said.

An international monetary source told Reuters the potential
lenders wanted to ensure that their money is put to good use and
not squandered away.

"Good economic policies are the only collateral in such kind
of a currency swap arrangement," he said. "So, it's important
that there is some kind of surveillance system in place."

Malaysian officials say there is no need for any IMF
surveillance of reforms undertaken by the regional economies.

"There are existing institutions within the region which have
excellent facilities to perform the role," the Malaysian official
said, pointing to ASEAN, the Asian Development Bank and Southeast
Central Bank Research and Training Center as alternatives.

Finance ministers are to consider officials' work at the
weekend.

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