Asian currency swap plan could progress

Asian currency swap plan could progress

CHIANG MAI, Thailand (Dow Jones): East Asian finance and
monetary heads meeting at the Asian Development Bank's annual
gathering in Chiang Mai are expected to put more flesh on the
bones of a proposed currency-swap agreement.

In what could be a major thrust in deepening monetary
cooperation in the region, the proposed agreement would enable
participating central banks to draw on each others' foreign
exchange reserves to repel speculative currency attacks.

The facility, which would build on existing but scantily
funded bilateral arrangements, was floated at a meeting of
finance ministers from the 10-member Association of Southeast
Asian Nations in March. Asean wants the economic powerhouses of
Japan, China, South Korea - all non-Asean members - to
participate in the plan.

Asean finance ministers are expected to seek the backing of
their richer northern neighbors for the facility on the sidelines
of the ADB's May 6-8 annual meeting.

Japan's former Vice Finance Minister for International Affairs
Eisuke Sakakibara, who is scheduled to attend the meeting, said
Wednesday at least $20 billion would be needed to fund the plan,
and possibly double that amount.

While Japan's Finance Minister Kiichi Miyazawa has reportedly
said the multilateral-swap system could be a "significant
defense" against currency attacks, it is by no means certain that
he will propose setting it up during his visit over the weekend
to the ADB meeting.

A senior Tokyo monetary official said while Japan would be
willing to consider ASEAN's proposal for a multilateral currency
pact, Tokyo itself has nothing concrete in mind at present.
Moreover, even if a game plan for such an agreement is forged on
the sidelines of the ADB meeting, "it's not something we could
put in place right away," he said.

The official added that such a facility would be highly
complex to set up and require a web of bilateral currency
agreements between the participating countries.

The swap arrangement would replace a more ambitious plan for
an Asian Monetary Fund, a regional lender of last resort playing
a similar role to the International Monetary Fund. Japan first
mooted an AMF shortly after the outbreak of Asia's currency storm
in July 1997, but the proposal was shot down by the U.S. and
other Western governments.

Even so, the idea continues to smolder in some quarters, and
was discussed again by Asean finance ministers at their meeting
in March.

But the Tokyo monetary official said the plan is the "most
powerful" option being mooted to prevent future currency crises.