Crisis fund idea gets mixed reaction

Tue, 23 Sep 1997, 00:00 WIB | Source: JP

By Vincent Lingga

HONG KONG (JP): The proposal to set up an Asian emergency fund
to counter a currency crisis such as the one hitting several
Southeast Asian countries received mixed reactions from delegates
at the International Monetary Fund-World Bank meetings here.

Japan was the only member of the Group of Seven leading
industrial countries (G-7) which supported the idea and brought
it up at the G-7 ministerial meeting here Saturday.

The G-7 meeting of finance ministers and central bank
governors ended Saturday without issuing an official communique
but only notes of handwritten remarks read out by the ministers
of several members at separate news conferences. There was no
mention of the proposed Asian emergency fund.

France's Minister of Economy and Finance Dominique Strauss-
Kahn was quoted by Reuters here yesterday as saying that the G-7
ministers were opposed to the idea of an Asian crisis fund as it
could amount to a disincentive to bolstering financial
discipline.

Japan's Finance Minister Hiroshi Mitsuzuka was quoted earlier
by Kyodo as saying that Japan would consider supporting such a
move if requested.

Indonesia's President Soeharto was one of the first Southeast
Asian leaders to raise the idea of a regional fund but he called
it a regional safety net instead of a crisis or emergency fund.

President Soeharto said at the meeting of the ASEAN Inter
Parliamentary Organization in Bali last month in the wake of the
currency turmoil in Thailand, Malaysia, Indonesia and the
Philippines that ASEAN needed to set up a safety net to cope with
a currency crisis.

The President further broached the idea at a meeting with the
chief of Japan's Overseas Economic Cooperation Fund (OECF) in
Jakarta.

Governor of Indonesia's central bank Soedradjad Djiwandono
told AFP here Saturday that Southeast Asian economies were to
negotiate with the IMF the setting up of a mechanism to deal with
the region's currency crisis.

But Soedradjad declined to elaborate.

Minister Strauss-Kahn told a news conference after the G-7
meeting that the idea provoked major reservations among the
developed economies as such a scheme could be seen by the market
as an automatic bail out mechanism.

"The ministers (G-7) saw more drawbacks than advantages in
such a scheme," the French minister said.

Chairman of the IMF's top policy making body, the Interim
Committee, Philippe Maystadt, confirmed the existence of
proposals to set up a regional fund in case of financial crisis.

"But the proposal came from Asia and not the IMF... the IMF
will not become involved in it," Maystadt said.

Maystadt said such a fund should be managed so that the
markets would not get the wrong signal that countries in
financial difficulty would automatically be bailed out.

American and European financial officials here understand
Japan's enthusiasm about the Asian fund plan in view of its
leading role in the region's economy.

Strauss-Kahn compared Japan's relationship with Asia to that
of the U.S. and Mexico which was shocked by a financial crisis in
late 1994.

European Commissioner for Finance Yves-Thibault de Silguy said
Sunday that a regional fund should not interfere with the work of
the IMF.

"The creation of a fund must not be an excuse not to take the
necessary reforms," Silguy added.

Nonetheless, ASEAN countries, with the support of Japan,
seemed determined to push ahead with the idea.

Thailand's Finance Minister Thanong Bidaya said Sunday that
the concept of setting up an ASEAN currency fund remains intact.

The IMF previously signaled its opposition to a fund scheme,
cautioning that a permanent regional financing mechanism
to tackle currency crises could encourage speculators to take
risks.

IMF First Deputy Managing Director Stanley Fischer argued
against such a financing scheme not only because it tended to
increase what he called "moral hazard" but also because it could
reduce the conditionality attached to IMF-led recovery programs.