ASEAN holds meeting on currency swap

By Eileen Ng

KUALA LUMPUR (AFP): Southeast Asian finance ministers will meet in the Malaysian capital this week as regional currencies undergo another beating amid expectations of a global slowdown.

The Association of Southeast Asian Nations' (ASEAN) plan for an expanded web of currency swaps with China, Japan and South Korea to avert future crises is expected to dominate talks, officials and analysts said.

Southeast Asian currencies have weakened in recent weeks dragged down by a weak Japanese yen, exacerbating an expected economic downturn in the region amid the US slowdown, analysts said.

Only Malaysia has been spared currency instability due to its ringgit peg of 3.80 to the dollar, imposed in 1998 as part of capital controls.

But Malaysia last week cut its growth forecast to between five and six percent this year, down from seven percent previously, citing an expected sharp fall in manufacturing and exports.

Most analysts have also revised downwards their economic forecast for ASEAN countries.

ASEAN finance ministers at their meeting in Chiang Mai last year agreed to expand the ASEAN Swap Arrangement (ASA) to include China, Japan and South Korea and to enlarge the facility to one billion dollars.

The scheme, which gives financial aid to member nations facing short-term liquidity needs, is designed as a safeguard against currency raids similar to the one that brought on the 1997 regional crisis sparked by the devaluation of the Thai baht.

But the scheme reportedly ran into problems amid Malaysia's reluctance to give the International Monetary Fund (IMF) a proposed key role.

Prime Minister Mahathir Mohamad in November last year said most ASEAN countries were not keen to let the IMF oversee the swap arrangement.

Japan, which is leading the plan, last month sent Vice Finance Minister Haruhiko Kuroda to Malaysia to meet with Finance Minister Daim Zainuddin to seek a solution to the disagreement.

But Daim stressed that Malaysia would oppose the proposal to link the disbursement of funds in the ASA to the IMF.

"We are not under the IMF, why should they impose IMF conditions on us?" he said recently. He added that ASEAN finance ministers would review the terms of the scheme at their meeting this week.

Daim will host the ASEAN finance ministers meeting, which will also be attended by central bank governors from the region, at a top hotel in Kuala Lumpur from Saturday.

The ministers will conduct a "peer review" on economic developments in the region, and hold dialogues with the Asian Development Bank and the US-ASEAN business council, officials said.

On Sunday, they will sign an agreement on a protocol for an ASEAN scheme on motor vehicle insurance. No other details were available.

ASEAN deputy finance ministers will also hold a three-hour meeting with their counterparts from China, Japan and South Korea on Sunday afternoon.

Senior officials will be meeting Wednesday, and finance and central bank deputies on Thursday and Friday to lay the groundwork for the two-day ministerial talks.

Ramon Navaratnam, a former finance ministry official and now a corporate figure, said progress of the ASA scheme could be stalled amid Tokyo's preference for IMF involvement.

"The IMF has not proved successful in recent years. Its credibility is low because of its recent poor professional performance and perceived American domination," he told AFP.

"IMF involvement may hold ASEAN back rather than let it move forward."

The Business Times daily, in a recent editorial, said ASEAN nations should "take charge of their own destiny" and confine the IMF's role to that of an advisor or observer.

"If these ASEAN countries would rather have someone else determine their collective future, that future will only continue to be uncertain and be dependent on what happens elsewhere in the world," it added.