Asian govts agree on wider currency swap

Asian govts agree on wider currency swap

Mynardo Macaraig, Agence France-Presse/Istambul

Finance ministers from China, Japan, S. Korea and the Association
of Southeast Asian Nations (ASEAN) agreed on Wednesday to expand
their system of bilateral currency swaps under the Chiang Mai
Initiative to a more multilateral system.

The ministers, meeting as the "ASEAN-plus-3" on the sidelines
of the Asian Development Bank (ADB) annual meeting in Istanbul,
said this would make the Chiang Mai Initiative a "more effective
and disciplined framework."

Under the currency swaps, an Asian country hit by a foreign
exchange crisis like the one in 1997 could borrow foreign
currency -- usually U.S. dollars -- from another country to
bolster its reserves until the crisis had passed.

An ADB analyst remarked that Wednesday's accord was a step
towards setting up an "Asian Monetary Fund," although such an
institution might never actually be created.

In a joint press conference, the 1O ASEAN and three East Asian
financial ministers also called for a review of the quota of
Asian countries in the International Monetary Fund (IMF) "to
properly reflect the current realities and their relative
positions in the world economy."

The 13 ministers said an economic surveillance system would be
put into place along with the Chiang Mai Initiative framework, to
detect irregularities early and apply swift remedies.

They also said a collective decision-making mechanism would
oversee the current system of bilateral swap arrangements "as a
first step towards multilateralization."

This would make it easier to activate the bilateral swap
arrangements in case of an emergency, the ministers said in a
joint statement read after their three-hour meeting.

Crisis-hit countries would also be able to draw down as much
as 20 percent of the money under the bilateral swap arrangements
without having to go through the IMF.

Under the current arrangements, countries that draw more than
10 percent under their swap arrangements must have an IMF-
supported program in place.

The decisions of the ASEAN-plus-3 group apparently followed
recommendations made during a meeting of the Chinese, Japanese
and South Korean ministers a day earlier.

Previously, the initiative launched in Chiang Mai, Thailand,
in May 2000 involved only bilateral swaps but the Chinese,
Japanese and South Korean ministers said they would look towards
expanding this into multilateral swaps involving three or four
countries.

Asian countries had earlier proposed the creation of an Asian
Monetary Fund after the 1997 fiscal crisis but the United States
and the IMF had strongly opposed this.

Chinese minister Renqing Jin said his country had already
agreed to "double the scale of its currency swap," from its
current level.

However, when asked if they were setting up an Asian Monetary
Fund, Japanese minister Sadakazu Tanigaki replied, "only the
Chiang Mai Initiative was discussed".

The ministers said the initiative had been very helpful in
maintaining the financial stability of Asian countries even if
there had been no repeat of the 1997 crisis.

Masahiro Kawai, special adviser to the ADB president, who
monitored the ASEAN-plus-3 meeting, said the ministers wanted to
increase the effectiveness of the Chiang Mai Initiative which now
covers 16 bilateral swap arrangements.

He called it a "step towards multilateralization," adding that
a "de facto Asian Monetary Fund," may eventually be created.

He said the United States and the IMF had opposed such a fund
in the past partly due to fears it would increase the risk of
moral hazard.