Jockeying over initiative to color Asia fund meet

Jockeying over initiative to color Asia fund meet

TOKYO (Reuters): Asian officials and representatives from United States and the IMF meet in Manila this week to discuss an Asian economic emergency fund, but there may be more haggling over who leads the initiative than how the facility would be set up.

Asian nations, keen to craft a framework to fend off a repeat of the recent financial upheaval, might see their idea of a regional fund leave their hands after the U.S. and Europe made clear they did not want to be left in the cold.

A Philippine finance ministry official said last week that European countries, including Italy, France, Germany and Britain have indicated their wish to attend the meeting.

U.S. Deputy Treasury Secretary Lawrence Summers will meet European officials in Frankfurt on his way to Manila, as well as stopping in Japan to meet Finance Minister Hiroshi Mitsuzuka.

Tokyo had mooted the idea of a fund facility separate from the International Monetary Fund at the Group of Seven (G7) meeting in Hong Kong in September, and had hoped to lead the initiative.

Japanese officials have said IMF financial aid, especially the quota it sets to each country, is not enough for Asia.

"The growth and the capital flow of Asia has just been too fast for the IMF," said a Japanese finance ministry official.

He said IMF-led rescue packages for Thailand and Indonesia have proven that additional support was needed. In both cases, a group of countries made financial contributions or commitments in addition to those made by the IMF.

IMF-backed packages to rescue and reform the Thai and Indonesian economies, plus assistance for the Philippines, have topped US$40 billion.

"The resources of the IMF are not infinite," said another Japanese official.

But the IMF has been lukewarm to the idea of a separate facility, fearing it would undermine its authority.

"Whatever financing mechanism is in place, it shouldn't in any way compete, alter...or reduce the strength of IMF policies and conditionality," IMF Managing Director Michel Camdessus said in Manila on Saturday.

The IMF chief has repeatedly said what is needed was a regional surveillance forum where "peer pressure" would play a role in monitoring each others' economies.

The U.S., hoping to retain its regional influence but cool to the idea of another bail-out fund, has insisted that the IMF should be at the center of any aid package. "The IMF must remain at the heart of any international response," Summers said last week.

International financial sources, said many European nations also prefer the use of exceptional clauses within the IMF, rather than to set up a separate facility.

Japan might have shifted course in the face of Western resistance to a permanent Asian fund.

Officials now say the package for Indonesia, in which Asian countries and the U.S. made financial commitments as a "second line of defense," was one idea for such a facility.

Analysts said commitments of credit lines would be consistent with U.S. thinking and may be easier for the U.S. to agree to.

"If lines of credit can be arranged, it'll be easier to convince the U.S. Congress," Masahiro Kawai, economics professor at the Institute of Social Science at Tokyo University told Reuters Financial Television (RFTV) last week. Congress has repeatedly shown reluctance to U.S. overseas aid.

There might also be wrangling in Manila on whether to expand the fund facility to cover Asian Pacific Economic Cooperation (APEC) forum nations, or limit it to Asian countries.

"It must be broader than just Asia...Bring in the U.S. and Canada," said Fred Bergsten, director of the Institute of International Economics in the U.S. "Therefore I think the APEC format is the easiest, most natural way to do it."

But Japanese officials said they were skeptical about putting the facility under the umbrella of APEC.

"We would have to address the issues of Latin American countries. That's not 'Asia'," said one official.

APEC, groups Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, the Philippines, Singapore, Taiwan, Thailand and the U.S.

But Tokyo seemed to lack strong backing from its Asian neighbors.

Philippine President Fidel Ramos have said he would seek APEC's endorsement of the facility at a summit meeting which starts in Vancouver on November 24.

Analysts said if APEC became the forum for the Asia fund, it would greatly undermine the influence of Japan, the region's largest economy, or of any other nation.

"The APEC umbrella could help prevent a dominance of one country," Mari E. Pangestu, executive director at the Center for Strategic and International Studies in Jakarta told RFTV.