RI's request for IMF aid to spur Asia fund

RI's request for IMF aid to spur Asia fund

TOKYO (Reuter): An Indonesian request for aid to cope with a currency crash will spur momentum for the creation of an Asian fund to help troubled economies in the region, but opposition from key players in the debate won't fade quickly.

"Indonesia's request will bolster those who say we need an additional fund, but I don't think it will change anyone's mind if they are against such a facility, especially if this can be handled within the current structure," one diplomat here said.

Indonesia, seeking to repair shattered confidence in its economy, said on Wednesday it would seek help from the International Monetary Fund (IMF) and other agencies to help keep foreign exchange reserves at safe levels.

Officials did not say how much aid would be sought, or in what form. Analysts said any package would be far less than the $17.2 billion package for Thailand and a monetary source in Washington said Jakarta might not even need to use IMF cash once it agreed on an IMF loan program.

Southeast Asian nations, supported by Japan, have been urging the creation of a special fund to help countries in trouble. "What happened in Indonesia has underlined the need to create a regional facility to take care of the financial problems in this region," said Som Jatusititak, an adviser to Thai Finance Minister Thanong Bidaya.

The IMF and United States are wary of the concept and Germany is strongly opposed, fearing a regional facility would disperse funds without demanding the strict -- some Asians say too strict -- policy adjustments required by the IMF.

Japan, meanwhile, wants to assume a higher profile in regional affairs while some of its neighbors hope Tokyo, whose funds would be vital for an regional facility, will lead the way in persuading reluctant players the idea's time has come.

"How fast the idea can be put into reality would depend on how fast Japan can dispel the reservations that the IMF and G-7 nations might have about the proposal," Thailand's Som said.

Leery of angering Washington, Tokyo has denied taking the lead and emphasized that an Asian fund would complement, not conflict with, the IMF. "Any facility in the region would never undermine the function of the IMF," a senior Japanese Finance Ministry official told reporters last week.

Others in the region also appear anxious to reassure detractors that a new fund would have policy strings attached and not insure authorities against fallout from their mistakes.

Malaysian Finance Minister Anwar Ibrahim said yesterday that a proposed Asian fund would need $100 billion and that it would only be used to help economies that had run into trouble by accident. "There will be some regulation to ensure that recipients have genuine economic problems which they need help for. Those who have created their own economic fiasco cannot be beneficiaries of this fund," Anwar told reporters.

Japan will contribute $50 billion toward the establishment of an Asian fund to help troubled economies in the region, the daily Sankei Shimbun, quoting international financial sources, reported yesterday.

The conservative Japanese daily said that Japan will foot the bill for half of the planned $100 billion regional fund, which will be used to supplement the activities by the International Monetary Fund (IMF).

A senior IMF official in Tokyo said the debate would go on, but that Indonesia's request was a "completely separate issue". "My understanding is the debate will continue and there is agreement among key players concerned to hold a meeting as soon as possible," Kunio Saito, director of the IMF's regional office for Asia and the Pacific, told Reuters. "Officials are exploring mutually agreeable timing."

"The amount involved in the context of Indonesia is relatively small, so I don't think anyone can argue on that basis...for a new fund," Saito said. "At the same time, unfortunately, the situation (in the region) remains fragile...so some may say some kind of arrangement is needed. But please note, the IMF is there, with resources."

Discussions could well heat up further when leaders of Asia- Pacific nations gather in Vancouver late next month.

"The purpose of the Asia fund is to round up the funding requirements and the contributions of Asian countries in case of a crisis, and it is a good idea," Thailand's Thanong said. "But somehow it has been delayed. Why not put it in the APEC (Asia- Pacific Economic Cooperation) forum? Why just keep it within Asia? The IMF will not have enough to deal with any crises by itself, and (the Asian Fund) is an effort to prepare something more solid," Thanong, in Tokyo with Prime Minister Chavalit Yongchaiyudh, told reporters yesterday.