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.