More Asia short-term aid seen from Miyazawa Plan

More Asia short-term aid seen from Miyazawa Plan

TOKYO (Reuters): More short-term aid is in the pipeline under Japan's US$30 billion program for Asia, after billions of dollars were pledged in long-term financing since its introduction, monetary sources say.

"We have received various requests for short-term credits under the Miyazawa Initiative and have been negotiating with would-be recipients," a senior aid official at the Ministry of Finance (MOF) said.

The short-term aid represents $15 billion, or half of Tokyo's mega aid package for liquidity-strapped Asian countries, named for Finance Minister Kiichi Miyazawa.

The other half is earmarked for the medium- to long-term financial needs of liquidity-strapped recipient nations.

About 77 percent of the long-term aid under the plan has already been pledged, but Korea is the only country to be named a recipient of the short-term credit, worth $5 billion.

Asked about a possible increase to the planned $30 billion package, another aid official said: "We must see how much funds Asian countries seek out of the package. There are of course other channels of aid available, such as guarantee facilities."

Monetary sources say Malaysia may be the next country to receive short-term aid of up to $3 billion from Japan.

"If it (short-term aid to Malaysia) materializes, it could pave the way for Kuala Lumpur to depart from the current fixed foreign exchange system," said Tetsuji Sano, a senior economist at Nomura Research Institute in Singapore.

Malaysia in September adopted three-point capital controls -- pegging the ringgit to the U.S. dollar, controls on the transfer of funds in external accounts, and restrictions on foreign investment.

It took a step towards dismantling one of the controls last week, scrapping a rule that had barred foreign investors from repatriating the principal of their investments for at least a year.

But MOF officials dismissed any notion that Tokyo might use the aid as leverage to urge Malaysia to lift capital controls.

Apart from the Miyazawa Initiative, the United States and Japan put together in November a $10 billion joint aid package called "Asian Growth and Recovery Program" (AGRP).

It provides a combined $5 billion from Japan, the Asian Development Bank and the World Bank in the form of guarantees on public bonds issued by Asian nations as a catalyst for private financing. Japan has just chipped in $3 billion plus 7.5 billion yen for a guarantee facility.

The United States said it will provide $5 billion worth of tied loans through the U.S. Export-Import Bank trade financing programs and Overseas Private Investment Corp insurance program.

But so far no aid has been mobilized by the U.S.

Table: Breakdown of aid to Asian nations

Malaysia (total $2 billion)

$500 million Ex-Im Bank two-step loans

$1 billion government yen loans

$500 million trade insurance by MITI

Thailand (total $2.35 billion)

$600 million Ex-Im Bank cofinancing

$750 million Ex-Im Bank two-step loans

$500 million government yen loans

$500 million MITI trade insurance

Indonesia (total $2.4 billion)

$1.5 billion Ex-Im Bank co-financing

$900 million government yen loans

South Korea (total $8 billion)

$1.3 billion Ex-Im Bank loan

$5 billion short-term lines of credit

(remainder of $3 billion package not yet decided)

Philippines (total $1.4 billion)

$1.1 billion Ex-Im Bank loans

$300 million government yen loans