Japan eyes more FX swap deals with RI, S'pore

Japan eyes more FX swap deals with RI, S'pore

HONOLULU (Reuters): Japan on Thursday said it wants to strike
currency swap deals with Singapore, and later Indonesia, as part
of the plan for an Asia-wide safety network that it sees as
prelude to an "Asian Monetary Fund" (AMF).

Senior Vice Finance Minister Seiichiro Murakami said he hoped
Wednesday's announcement of bilateral swap agreements totaling
US$6 billion with Thailand, South Korea and Malaysia would help
foster talks among other Asian nations to develop the web.

Japanese officials also said on Wednesday they expect talks
with China and the Philippines to conclude by the summer.

"As next candidates, there are Indonesia and Singapore,"
Haruhiko Kuroda, vice finance minister for international affairs,
told reporters at the Asian Development Bank's annual meeting in
Honolulu, where the swap deals were revealed.

The proposed network, known as the Chiang Mai Initiative
(CMI), is aimed at preventing a repeat of 1997-98 Asian financial
crisis by offering vulnerable countries the ability to draw on
the web of swap deals in times of crisis or fund shortage.

"I think we will eventually start negotiations with Singapore
without any problem," Kuroda said, adding that Indonesia may not
be ready for talks yet given its uncertain economic and political
situation.

Murakami met with Indonesia's Finance Minister Prijadi
Praptosuhardjo on Thursday, but there was no specific reference
to the CMI at the meeting.

Singapore, which has the largest foreign reserves among ASEAN
nations, appeared to be somewhat indifferent to the scheme, but
Tokyo is eager to change Singapore's mind.

The Japanese deals, however, are only the beginning of the
Tokyo-led plan that aims to link the international reserves of
the 10-member Association of Southeast Asian Nations, through
bilateral pacts, with the China, Japan and South Korea (ASEAN+3).

"South Korea and China are working hard, and I expect we will
have good results not in the long-distant future," Murakami told
reporters.

Some analysts were skeptical about the CMI's effectiveness,
believing the deals were too small and would only encourage the
speculation it was designed to protect currencies from.

"Speculators will be delighted, no doubt, at the enlarged pool
of funds available for squandering by central banks," Deutsche
Bank said in its Asia Economics Daily.

"A couple of billion dollars might conceivably stave off
devaluation by a few days, but if reserves ever fall to levels
where $2 billion makes a significant difference in the central
bank's defenses, devaluation is probably inevitable," it added.

The CMI scheme is seen as a move towards more permanent
regional monetary integration, and the possibility of an AMF.

Japan's initial 1997 proposal was quickly quashed by
Washington and Europe, which said it would undermine reforms
advocated by the International Monetary Fund (IMF).

Murakami hoped the discussion on regional financial
cooperation would head towards the creation of an AMF, but
acknowledged there would be a long road ahead.

"I personally think we should bring the issue toward that
direction. But it would be a step-by-step talk for the future
with other countries, such as China, involved," he said.

China has shifted significantly from opposing the AMF proposal
to backing to the CMI, which maintains a link to IMF-supervised
reform and surveillance programs.

Kuroda, one of the key forces behind the AMF proposal, has
said he would never give up on it, but also stressed that it was
not Japan's imminent policy goal and Tokyo wants to promote
regional cooperation through the CMI for now.

He acknowledged on Thursday that there is still a wide gap
over the issue of the regional surveillance, which would be
indispensable if Asia wants to set up a regional monetary fund.

But he said an agreement by ASEAN+3 finance ministers on
Wednesday to set up "a study group to examine ways of enhancing
the effectiveness of our economic reviews and policy dialog was a
step forward."