Japan set to propose SE Asia initiative

Japan set to propose SE Asia initiative

TOKYO (Reuters): Japan is set to propose a fresh plan to ease
the pain being suffered by Southeast Asian nations, while
suggesting ways to control the rapid short-term capital flows
that have devastated emerging market economies, government
officials and analysts said on Tuesday.

Tokyo's new initiative to support Southeast Asia is expected
to be announced at next week's annual meeting of the World Bank
and International Monetary Fund (IMF) in Washington.

"The focus is now shifting to how (Japan) can help ease the
immediate economic problems, such as the existing debt burden, of
these nations," said a senior government official.

Tokyo is unlikely to revive the ambitious proposal it made
last year at the same meeting -- to create a regional fund of up
$100 billion to support crisis-hit Asian nations -- as the
region's problems have now shifted, government sources said.

"The essence of the Asian economic problem has changed from
last year, when the outbreak of currency crisis spurred rapid
capital flight and then resulted in a current account imbalance,"
he added.

The current account problem has improved as capital flight
from the region has abated, but "these nations are still in
distress, since improvements in trade positions were mainly
brought on by falling imports, not by rising exports," he said.

Government sources said Japan's proposals would include
activating the regional debt market and promoting private direct
investment into the region, while giving some investments
government guarantees.

Already, Tokyo has announced that it will use trade insurance
to guarantee loans made by private Japanese financial
institutions to Southeast Asian nations to help them obtain funds
to establish infrastructure.

The first case is likely to be a loan totaling 70 billion yen
($522 million) to Malaysia, in which Sumitomo Bank Ltd and Nomura
Securities Co Ltd are involved.

The financing will enable Malaysia to raise funds at lower
costs than when it directly taps capital markets.

Japan is also likely to express at the G-7 meeting the need to
prevent foreign capital from flooding Asian nations, where there
are varying degrees of economic development.

Finance Minister Kiichi Miyazawa said on Tuesday he wanted to
discuss the idea of putting controls on short-term capital
movements with his deputy Eisuke Sakakibara.

He suggested he would consider middle ground between the
unbridled free movement of short-term capital, which has called
into question the role of giant hedge funds, and the drastic
capital and currency controls recently implemented by Malaysian
Prime Minister Mahathir Mohamad.

Akira Nagashima, a former deputy governor of the Bank of Japan
and now executive adviser to Tokio Marine and Fire Insurance Co
Ltd, said there was a growing international view among developed
nations that "moderate" restrictions on capital inflow into
emerging market economies would be appropriate.

"I understand that Japan will take such a stance," he told
Reuters on Tuesday. "And there is a chance that this view will
gather momentum, particularly for developing nations whose
financial markets are underdeveloped."