Miyazawa revitalizes 'Asia Fund' proposal

Miyazawa revitalizes 'Asia Fund' proposal

TOKYO (Dow Jones): A year after U.S. pressure sank a Japanese proposal for an "Asia fund" to aid regional economies, Finance Minister Kiichi Miyazawa has refloated the idea -- and says it has a better chance of being accepted this time around.

In a speech at the Foreign Correspondents Club of Japan, Miyazawa said Tuesday that international policy makers should consider establishing regional currency funds that could augment efforts by the International Monetary Fund to provide liquidity to markets in times of crisis.

"The recent experience regarding Brazil has reinforced our conviction that, in order to strengthen the international community's capacity to provide liquidity at a time of crisis, it would be appropriate to complement IMF loans through some kind of regional mechanism that is anchored in a sense of solidarity and mutual dialogue among countries in a region," Miyazawa said.

Miyazawa's statement was the clearest indication yet that Japan hasn't given up on the idea of forming financial watchdogs based on locale.

A little more than a year ago, Japan's proposal for creating an Asia Fund to finance regional bailouts was shot down by the U.S., which feared that such an institution would undermine IMF efforts to impose strict conditions on aid extended to economies in turmoil. U.S. officials raised concerns that Asian countries might be too soft in dispensing assistance to neighboring countries, slowing the process of economic reform.

At the time, Asian countries ended up signing on to the Manila Framework, which stipulated clearly that the IMF would continue to lead such efforts.

But in his speech Tuesday, Miyazawa said that nations should take a more proactive role in helping financial systems in neighboring countries run smoothly and in keeping speculators at bay.

He didn't provide details of how the Asia Fund would be financed, but pointed to the substantial reserves held by many Asian countries as a potential source of funding.

Japan, China, Hong Kong and Singapore retain large foreign exchange reserves, though other Asian nations have seen their reserves depleted as a result of attacks on their currencies.

Under Miyazawa's scheme, countries outside a given area "with economic or political interests in the stability of the region" could also participate in any local fund, but it's unclear what sort of role they would play in determining policies or in actual financing.

Miyazawa's remarks appeared to reflect a growing resolve on Japan's part after a year in which the crisis got worse, not better, despite IMF efforts to put out fires around the world.

Miyazawa said that the U.S. objected to the Asia Fund proposal a year ago because Washington was afraid it would conflict with the IMF, but such concerns have begun to ease.

"That misunderstanding has been taken care of gradually," he said. Of the U.S., he added, "I think they're more forthcoming now."

Miyazawa said that "specific circumstances" pertaining to countries facing crises should be considered when devising policy steps to resolve the difficulties.

In his speech, Miyazawa criticized the IMF's handling of the crises in some countries, suggesting the institution may have blundered by applying conditions to rescue programs that were too strict.

In his speech, Miyazawa criticized the IMF's handling of the crises in some countries, suggesting the institution may have blundered by applying conditions to rescue programs that were too strict.

Miyazawa's speech was made against the backdrop of the Miyazawa Plan, an ambitious program unveiled last October that will make US$30 billion in financing available to Asian countries. Miyazawa has said he expects to begin extending loans as part of the plan any day now, and that it could act as a springboard for the Asia Fund idea.