Asia fund no cure for forex instability: Analysts

Asia fund no cure for forex instability: Analysts

TOKYO (Reuter): A proposed rescue fund to deal with Asian
currency crises could provide a psychological weapon against
speculators, but it would not solve the region's foreign exchange
problems, analysts and currency dealers say.

"A rescue fund in Asia may have a psychological impact on
speculators, but it should not be considered the solution to
instability in the region," said Hisao Matsuura, an analyst in
the Asian/Oceania research section at Nikko Research Center.

"The argument should not be focused only on (speculative)
funds. It is more important for each nation to form a monetary
policy, under the guidance of the IMF or the Asian Development
Bank, which is solid enough to prevent crises," he said.

Matsuura pointed out that, during the Thai crisis, the baht
was attacked by speculators when the Thai central bank intervened
to defend its currency.

"As we saw when the baht was beaten down despite rounds of
intervention during the crisis, I think such a fund may not be
enough to stabilize currencies in times of turmoil," he said.

Last month, Asian-Pacific donors hammered out a US$17.2
billion IMF-led rescue package for Thailand, including $4 billion
each from Japan and the IMF.

The idea of an emergency fund to address financial crises in
the region, such as the recent turmoil in Thailand, was raised
during the annual World Bank/IMF meeting this week, although no
decision was reached.

IMF Managing Director Michel Camdessus told reporters at the
end of the meeting on Thursday that there was a need for further
debate on the Asia fund proposal.
The IMF, Southeast Asian countries and others are due to discuss
the issue in Tokyo in December.

"The scale of the fund and terms will be very important, but
the key to success will depend highly on how the fund can work
together with the IMF's system," said a senior Asian currency
dealer at a major Japanese bank.

"Many Asian nations are already committed to a bilateral repo
agreement so I don't feel there is an immediate need to form an
Asian version of the IMF," the dealer said.

Meanwhile, others said that there is a need to set up a rescue
facility by Asian nations as IMF loans were always linked to
strict conditions on spending, monetary targets and overall
economic performance.

But there are many hurdles that need to be cleared before
finalizing a system in Asia.

Japanese Finance Minister Hiroshi Mitsuzuka told reporters on
Wednesday that Asian nations would continue discussions on the
idea of an Asian fund to deal with currency fluctuations.

But Mitsuzuka added that such a fund should not "compete" with
the IMF and should instead be "supplementary".

"Listening to Mr Mitsuzuka's comments, we may be able to see
the establishment of a fund rather soon," said Fumiyuki Sasaki,
an economist at Nomura Research Institute.

"Although we know that currency intervention can only smooth
the operation (of the market), it may work effectively
considering the size of the Asian market, which is small by
global standards," Sasaki said. "On such a scale, it could work
effectively."