Japan to set up Asia fund to curb regional crisis

Japan to set up Asia fund to curb regional crisis

TOKYO (Reuter): Japan may be fine-tuning a plan to establish
an Asia fund to deal with regional economic crises which can win
broad sympathy from Western nations and multilateral
institutions, government sources said yesterday.

The idea of an emergency fund to address financial crises in
Southeast Asian nations, such as the recent turmoil in Thailand,
was floated during last month's annual World Bank/IMF meeting,
with some putting the total amount at $100 billion.

The idea to set up such fund has long existed among Southeast
Asian nations, Japanese government sources said.

But the International Monetary Fund (IMF) and the United
States are wary of the concept and Germany is strongly opposed,
fearing that a regional facility would disburse funds without
demanding the strict -- some Asians say too strict -- policy
adjustments required by the IMF.

The daily Sankei Shimbun, quoting international financial
sources, reported on Thursday that senior Japanese Finance
Ministry official Eisuke Sakakibara will travel to Association of
South East Asian Nations (ASEAN) members from Oct. 14 to 22 to
explain a Japanese proposal.

The conservative daily said Japan was ready to foot the bill
for half of a planned US$100 billion regional fund, which would
be used to supplement the IMF's activities.

It added that after Sakakibara's trip, finance ministers of
Japan, the United States, China and ASEAN would meet to formalize
the plan.

A Finance Ministry official on Friday declined to comment on
the report.

The trip, if it takes place, could be a move by Japan to
initiate further discussion among Asian nations in order to get a
wider consensus in the global community.

Asked about the reported Sakakibara visit for consultations
with Asian nations, Thai Finance Minister Thanong Bidaya replied
on Friday: "There will be a lot of consultations (on the Asia
fund)."

Thanong was accompanying Prime Minister Chavalit Yongchaiyudh
on a visit to Japan aimed at boosting investor confidence in the
Thai economy.

"The situation surrounding the Asia fund is still fluid and
nothing concrete has been set," one government source told
Reuters on Friday.

The official said he understands the U.S. position is to avoid
the establishment of an Asia fund which would undermine the
decision-making process of the IMF, in which it holds a major
stake.

IMF officials remain skeptical of the plan to form the Asian
fund. They warn that such a fund could undermine the IMF's
authority to insist on economic and financial reforms in a
troubled country.

A Japanese Finance Ministry official said on Thursday that an
Asian fund should have a similar degree of strictness to the IMF
to prevent any "moral hazard" in Asian nations.

"The character of an Asian fund should be line with that of
the IMF, and the idea of the creation of the fund is to monitor
economies in Asian nations more closely," the Finance Ministry
official said.

"In general, countries in trouble may not like stringent
conditions imposed on them by the IMF because their policies are
completely under the influence of the institution," he said. "But
this does not mean that this leads to calls for the IMF's
austerity program to be amended."