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.