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.