Political hurdles still blocking Asian fund

Political hurdles still blocking Asian fund

TOKYO (Reuters): Political hurdles still need to be cleared to
enable the successful launch of an Asian emergency financial
facility to help address financial crises in the region, senior
analysts in Japan say.

"The Asian region is gradually transforming itself from pro-
national to market-orientated economies, and a region-wide
facility, if crafted carefully, would prevent this transition
from being reversed," said Mitsuru Toida, chief economist of the
statistical research department of the Institute of Developing
Economies (IDE), a Japanese government affiliated think-tank.

Southeast Asian nations, backed by Japan, have urged the
creation of the Asia fund in the wake of regional currency
upheaval.

But the idea has been greeted with strong opposition by the
United States, Europe and the International Monetary Fund (IMF)
out of fears that it would disburse cash without demanding the
strict policy adjustments often required by the IMF.

Deputy U.S. Treasury Secretary Lawrence Summers said on
Wednesday there had been no agreement yet between the U.S., Japan
and other countries on the proposed fund.

Takashi Hosomi, chairman of NLI Research Institute, the
research arm of Nippon Life Insurance, said the idea of a fund
was timely and pooling capital would not be difficult.

"But," he added, "Asia must be understanding to America's need
to stay informed about any regional movement to keep their global
influence intact."

Hosomi, a former vice finance minister for international
affairs, said the fund should have a framework allowing certain
involvement by the United States, which worries it might weaken
U.S. presence in the region.

Senior U.S. officials have called the creation of such a fund
dangerous, arguing it would discourage the kind of policy
discipline needed to get some of the economies back on course.

Summers said financial regionalism based on notions of
regional reliance in times of crises carried real risks of
reducing the resources available for future crisis and
encouraging the emergence of blocs.

"This is an important part of why we believe it to be
essential that the IMF should play a central role," he said.

Responding to such worries, Asian countries have repeatedly
made clear that the Asia fund, which some Asian officials say
could amount to $100 billion, will supplement rather than
supersede the IMF.

"It's not as of now a big war chest designed for interventions
to prop up depreciating currencies, nor is it designed for a new
IMF for Asia," Philippine Finance Secretary Roberto de Ocampo
said late last month.

Japanese officials, sensing that Washington's main concern is
of losing control in the region rather than the risks of the fund
spoiling members' policy discipline, are now trying to find a
role for the United States and the IMF in the Asia fund by
attaching a new operational facility.

They have suggested that the fund should provide assistance to
upgrade mutual surveillance of regional macroeconomies and to
ensure transparency of information in the financial arena.

The fund will be discussed at a meeting of deputy finance
ministers from the Association of South East Asian Nations, the
United State and Japan in Manila on November 18 and 19.
Some Asian nations remain wary of heavy U.S. involvement in the fund.

"The general feeling is that the U.S. has provided Asia with
little financial support but only a loud voice, thus its
involvement in the fund is unwelcome," said an Asian diplomat.

Hosomi said a more complex issue would be how China would deal
with the fund.

"The fund would boost Japan's influence over the region and
they have to think how to deal with the membership of China, Hong
Kong and Taiwan," he said.

De Ocampo said last week there was a growing belief that China
should participate in the fund to help out those countries in the
region hit by financial turmoil.

If the fund were to be established as a supplementary facility
to the IMF, Taiwan could end up being excluded as it is not an
IMF member, said the IDE's Toida. "But China is unlikely to have
an aversion to Taipei's membership because it (China) may be the
main beneficiary of the Asia fund," he said.

Toida said China's balance of payments surplus of the past 2-
years could shrink rapidly in light of its recent moves to delay
economic deregulation and protect national companies. Also,
China's competitive edge, sharpened by the yuan's 33 percent
devaluation in 1994, is now being blunted by steep devaluations
of other Asian currencies, he said.