East Asia agrees to currency accord

East Asia agrees to currency accord

CHIANG MAI, Thailand (AP): A landmark currency cooperation agreement between 13 East Asian nations to fight future economic crises was welcomed cautiously on Sunday by the United States, which shot down more ambitious proposals by Japan in 1997 to create an Asian monetary fund to bail out regional economies.

The Americans in 1997 felt an Asian fund would rival the Washington-based International Monetary Fund's ability to deal with economic crises.

But the IMF's admitted mishandling of the Asian crisis, which made the recession deeper than it needed to be, kept the dream of an Asian-led plan alive in many Asian countries.

On Sunday, the top U.S. official at the annual meeting of the Asian Development Bank reacted positively to Saturday's deal between the East Asian nations to a swap plan to protect each other's currencies in times of crisis.

Edwin M. Truman, the Treasury Department's assistant secretary for international affairs, told a news conference that Washington supported the idea in general but was awaiting the details.

"We have long supported regional cooperation, in this region and others," Truman said. "We think this is a fine idea. But the nature of financial arrangements depends on the details."

As long as the details enable a quick response to financial and economic problems, Truman said, then "they are to be commended."

Meanwhile, thousands of demonstrators bulldozed their way past Thai riot police Sunday, besieging a hotel where the Asian Development Bank was holding its annual meeting and demanding an end to policies they said punish the poor.

Outside, 4,000 protesters inspired by demonstrations in Seattle and Washington, D.C., against multilateral economic institutions caught police by surprise and stormed over barricades to lay siege to the Westin Hotel.

The police did not use their clubs and eventually allowed the crowd across. They gathered across the street from the hotel, with 2,000 police preventing them from going further. Police also took up positions inside.

A standoff endured several hours, but there were no further clashes. The protesters drifted off in the late afternoon to set up a camp on the other side of the river. The police left afterward.

"It hasn't interrupted any of the meetings going on inside, but we're very aware of them," said N. Cinammon Dornsife, executive director for the U.S. at the ADB. "We're definitely keeping an eye on it."

The so-called Chiang Mai Initiative, named for this northern Thai city, brings together the 10 members of the Association of Southeast Asian Nations (ASEAN) plus Japan, China and South Korea in a pledge to rescue currencies in case of speculative attacks or other problems.

Details, including the amount of money and whether fixed exchange-rate bands will be involved, remain to be worked out by ASEAN officials and in negotiations between individual countries.

The mechanism would revolve around currency swaps, which in theory could allow the financial authorities of troubled countries to gain access to the reserves of allies to use in buying up their own currencies - and keeping up exchange rates - in case of attack.

The plan avoids a more ambitious idea mooted by some officials to make the Manila-based ADB, dominated by Japan, into a regional lender of last resort. Washington would oppose such a proposal, which would smack of a regional monetary fund.

Kiichi Miyazawa, the Japanese finance minister, who noted Saturday that a full-fledged Asian monetary fund would only arouse "suspicions" in other countries, said in a speech Sunday that the monetary cooperation would lead to a stronger region.

The result would be "improving regulatory frameworks and accounting systems to ensure greater transparency," Miyazawa said.

The currency-swap scheme builds on a plan adopted two months ago by ASEAN finance ministers and expands it to the Northeast Asian powers, part of a vague but continued drive to give Asia more clout on the global stage against the North American Free Trade Agreement and European Union.

ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Although East Asia's economies are recovering strongly from the crisis, concern is mounting that the capital flowing back into the region could be a potential source of currency instability, such as hit financial markets in 1997.