Economic pain, protests cloud financial meet

Economic pain, protests cloud financial meet

HONOLULU (Reuters): Asian financial leaders, still struggling
with the lingering pain of the 1997 crisis, gather in Hawaii this
week ready to unveil progress in stitching together a currency
safety net to ward off another regional meltdown.

The Asian Development Bank annual meeting in Honolulu from
Wednesday to Friday is drawing ministers and central bankers from
across Asia, as well as U.S. Treasury Secretary Paul O'Neill.

It is also expected to attract thousands of protesters,
stoking fears of mass unrest and prompting the largest law-
enforcement operation in Hawaii's history.

Ironically, discussions inside the ADB meeting are likely to
share several themes with the protests outside -- in particular
an increasing disillusionment with globalization and growing
support for regional solutions to Asia's problems.

At last year's ADB annual meeting in the Thai city of Chiang
Mai -- also marked by demonstrations by thousands of protesters
-- the 10 nations of the Association of Southeast Asian Nations
(ASEAN) agreed to form a network of currency swap deals with
Japan, China and South Korea to defend against another crisis.

After a year of difficult negotiations, most of the hurdles
appear to have been overcome, and when the so-called "ASEAN+3"
group meets on Wednesday it is expected to announce further
progress towards making the "Chiang Mai Initiative" a reality.

Analysts say the swap web is widely viewed as an early step
towards the creation of an Asian Monetary Fund which could one
day act as an alternative to existing multilateral institutions.

Under the currency swap plan, ASEAN has agreed to set up a $1
billion swap facility which members can draw on if their currency
comes under attack. ASEAN members will also strike a series of
bilateral swap agreements with Japan, South Korea and China.

The main stumbling block has been the role of the
International Monetary Fund in supervising the swap scheme.

It is not just anti-globalization protesters who are wary of
the IMF -- Malaysia, which dealt with the 1997 crisis without IMF
assistance, was staunchly opposed to the Fund having a role.

But the likely lender nations, led by Japan, insisted that
activation of the swap lines should be linked to IMF-supervised
reforms. The scheme currently envisages that 10 percent of each
swap line could be drawn by a country in an emergency, with the
rest becoming available in tandem with IMF supervision.

Malaysia last month conceded that the IMF could have a role,
although ASEAN agreed that each bilateral swap deal should take
into account the specific circumstances of each country.

Most bilateral swap agreements have yet to be finalized, but
this week Japan is expected to unveil a $3 billion swap deal with
Thailand, a $2 billion deal with South Korea and a $1 billion
agreement with Malaysia. The terms of the Malaysian deal will be
particularly closely watched given the controversy over the IMF.

Japan already has a $5 billion swap deal with South Korea and
a $2.5 billion deal with Malaysia.

Analysts say the current steps are mainly symbolic, and it
will take time -- and a lot more money -- to weave an effective
web of swap deals. They say the network would need to total at
least $50 billion to stand a chance of being a useful safety net.

Some analysts say that because floating exchange rate regimes
and curbs on speculative trading have made a repeat of the 1997
currency collapse unlikely, southeast Asian countries could
better spend their time focusing on how to heal the damage of the
last financial crisis rather than on how to avoid another one.

The year has been a depressing one for many Asian economies --
amid a global economic slowdown, nations like Thailand, Indonesia
and the Philippines have found recovery from crisis longer and
harder than expected.

Regional currencies are on the slide once more, corporate debt
is proving stubbornly difficult to restructure, and political
risk is keeping many potential investors away.

ADB delegates are expected to discuss pressing issues like the
slowdown of the U.S. economy and the weakness of the yen.

Meanwhile, ADBwatch, a coalition of groups opposed to the
bank's development policies, has promised a week of protests. An
estimated $7 million has been spent on security measures and
activists say they fear a violent police response.

A press release from anti-ADB activists contained a warning
for tourists in Hawaii from ADBwatch member Cha Smith.

"Better carry a gas mask and a hard hat," she said.