ASEAN raises its currency swap deal to US$1 billion

ASEAN raises its currency swap deal to US$1 billion

KUALA LUMPUR (Reuters): Southeast Asian nations have agreed to
increase a two-tier currency swap scheme supporting economies
facing balance of payments problems to US$1 billion from $200
million, central bank officials said on Monday.

Senior finance ministry and central bank officials from
members states of the Association of Southeast Asian Nations
(ASEAN) agreed in Brunei last week to strengthen the currency
safety net, central bank officials said in Kuala Lumpur.

"We have agreed on setting up a $1.0 billion (line) and hope
to sign the agreement at the IMF's Prague meeting in September,"
a senior Southeast Asian central bank official who asked not to
be identified told Reuters.

The official spoke on the sidelines of a regional conference
in Kuala Lumpur.

The first tier consisting of ASEAN's six founding members --
Brunei, Singapore, Indonesia, Thailand, Malaysia and the
Philippines -- will contribute 80 percent of the total funds.

The remaining 20 percent will be contributed by ASEAN's newer
members -- Cambodia, Laos, Myanmar and Vietnam.

Officials said bilateral pacts between the top five Asean
nations and Japan, China and South Korea would also be signed
later this year. The pacts are designed to offer similar currency
swap arrangements but on a bilateral basis.

Officials said 15 bilateral pacts between the top five Asean
nations and their big north Asian neighbors Japan, China and
South Korea would be signed later this year.

Japan already has a $2.5 billion pact with Malaysia.

"The terms and clauses of the bilateral will be similar in
nature as far as the interest rate and maturity are concerned,"
the official said.

Malaysia's central bank, Bank Negara, took over as the agent
bank of the ASEAN scheme from Bank Indonesia earlier this month,
and will serve in that capacity for the next year, officials
said.

The currency safety net, which many analysts see as laying the
foundation of an Asian monetary bloc, was first mooted at a
meeting of ASEAN finance ministers in Brunei in March after they
shelved plans to create an Asian Monetary Fund.

The plan to extend the existing swap arrangement was given the
go-ahead by finance ministers from ASEAN, Japan, China and South
Korea during the annual meeting of the Asian Development Bank in
Chiang Mai, Thailand, in May.

The idea is that a country that finds itself short of foreign
reserves can borrow from its partners to absorb selling pressure
on its currency without having to resort, as in 1997, to a
damaging devaluation.

"I think it is a good move though somewhat limited," Anwar
Nasution, acting governor of the Indonesian central bank, told
Reuters in Kuala Lumpur.

"We had agreed on a program of regional economic cooperation
in Chaing Mai. I think we need that."

The move by Japan, China and South Korea to work more closely
on sharing information and monitoring economic and financial
trends is seen as a stepping stone towards an Asian surveillance
process to underpin the swap scheme.

Officials are hopeful of getting the backing of international
multilateral institutions, whose support for a regional fund has
been lukewarm.

The United States fears a separate Asian financial facility
could undermine the IMF and weaken Asian countries' willingness
to embrace reforms advocated by the IMF.

The IMF extended large fiscal and monetary bail-out packages
to Thailand, Indonesia and South Korea in the wake of the Asian
economic crisis.

But Malaysia, a strong proponent of the regional financial
facility, has staunchly opposed IMF-style reforms.