IMF official favors Asia currency basket

IMF official favors Asia currency basket

PHILADELPHIA (Reuters): Japan's representative at the
International Monetary Fund said Friday that he believed troubled
Asian countries could set the stage for economic recovery by
pegging their exchange rates to a basket of regional currencies.

IMF executive director for Japan Yukio Yoshimura, expressing
only his personal opinion, said currency boards like one being
considered by Indonesia work best in economies suffering from
hyper-inflation and managed by governments with the political
will to confront the harsh economic consequences.

"Many Asian countries have not satisfied these types of
conditions," he told Reuters.

Yoshimura said Southeast Asian countries have talked about
setting up a currency basket based on the Singapore dollar.

"Discussions towards that arrangement would be very helpful
not only in stabilizing the currencies but in helping them to
regain economic growth," he said in an interview.

Yoshimura was in Philadelphia to speak at a conference on
Asia's economic woes sponsored by the University of
Pennsylvania's Wharton School of business. Despite his opinion
about currency boards, he told the conference that free-floating
exchange rates by a majority of Asian countries could not be
sustained over the medium term.

Such a system would affect capital and trade flows, "and the
end could be competitive devaluations in the region," he said.

The threat made the idea of a currency basket a viable option
for Asia. "In that case, the share of the yen should be
substantial, reflecting the important role of Japan as a regional
trading partner," he said.

The Japanese official told his audience that recent
discussions about regional financial surveillance in Asia could
help to narrow the gap between orthodox IMF macroeconomic policy
and the so-called Asian economic model.

"In fact, the gap has already narrowed as a result of the
Asian crisis. Many Asian countries have acknowledged the need to
tighten macroeconomic policy to defend currencies and have agreed
to reform the relationship between governments, banks and
businesses," Yoshimura said.

Meanwhile, he said Japan must move back to a course of stable
economic growth if it is to stabilize the wider Asian region. He
also called for Big Bang financial markets reforms to move ahead
in Tokyo.