Crisis fund idea gets mixed reaction

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.

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