ASEAN currency plan not instant cure: Analysts

ASEAN currency plan not instant cure: Analysts

TOKYO (Reuters): A proposal to promote the use of local currencies for trade between ASEAN members may not be an instant panacea for the region's financial problems and could also face resistance from key members, economists say.

While they agree that over-reliance on the U.S. dollar puts a strain on Southeast Asian countries, particularly since Asia's financial crisis has sent the value of their currencies plummeting, they say the yen might be a better counterweight.

Finance ministers of the nine-member Association of Southeast Asian Nations (ASEAN), which groups Brunei, Indonesia, Laos, Malaysia, Myanmar (Burma), the Philippines, Singapore, Thailand and Vietnam, agreed last weekend on the use of local currencies to promote intra-regional trade.

In a joint communique after an ASEAN meeting, the ministers endorsed the idea of using of bilateral payment arrangements as proposed by a special task force of ASEAN central banks.

It has been proposed that regional central banks would act as clearing houses for trade payments and would offset each other's receivables and pay the difference in dollars.

"This plan may not be able to solve the region's problems.

Regional trade between ASEAN nations may have grown, but the amount is still very small compared with their trade with the industrialized countries," said Fumiyuki Sasaki, an economist at Nomura Research Institute's Asian Economic Research Group.

With trade among themselves representing only about 20 percent of their total commerce, the plan, even if it comes to fruition, may not have much impact, Sasaki said.

Analysts said the ASEAN nations should consider conducting trade settlements in yen rather than their own currencies.

"It will be possible in the future when intra-ASEAN regional trade rises to about 50 to 60 percent (of total trade by those countries), but until then it may be better to consider the idea of using the yen as the currency to settle trade," Sasaki said.

In Kuala Lumpur on Tuesday, Japanese Vice Finance Minister for International Affairs Eisuke Sakakibara said Asian nations depend too much on the U.S. dollar and should use the yen more widely in regional trade.

"Use of local currencies for intra-regional trade, I think, is an effective countermeasure to cope with the situation," Sakakibara said after meeting with Malaysian Deputy Prime Minister Anwar Ibrahim.

"For the Japanese-ASEAN trade, more use of the yen may be commendable and we will investigate ways (for them) to use more yen in trade with Japan," Sakakibara said.

Analysts said ASEAN members would need time to turn the idea into something more solid. The finance secretary of the Philippines, Salvador Enriquez, has himself said as much.

Hisatoshi Funada, an economist at Nikko Research Center's country research group, said: "I can't be optimistic that this idea will receive full support from all the members of ASEAN."

Analysts said the plan could also invite strong resistance from members such as Singapore, which has long opposed internationalization of its currency.

"I wouldn't be surprised if Singapore rejects the plan, as it contains elements that would disrupt the underlying stability of its own currency," an analyst at a Japanese brokerage said.

Nikko's Funada said the idea may also contravene an agreement made between Indonesia and the International Monetary Fund in mid-January that would give full autonomy to the central bank, Bank Indonesia, on monetary policy.

"The plan could become an obstacle for Indonesia in achieving the goals set by the IMF," Funada said.