Strict checks advised for Asian rescue fund

Strict checks advised for Asian rescue fund

TOKYO (Reuters): Japan's US$30 billion plan aimed at restoring stability in crisis-hit Asia will be effective if accompanied by a strict surveillance mechanism, analysts and traders said on Monday.

Japanese Finance Minister Kiichi Miyazawa announced the "Miyazawa Plan" at Saturday's meeting in Washington of the finance ministers of South Korea, Malaysia, the Philippines, Singapore, Thailand and Indonesia.

Under the $30 billion plan, $15 billion will be set aside for medium- to long-term financial needs to promote economic recovery in Asia, with the rest for potential short-term capital requirements as the countries implement economic reforms.

The Miyazawa Plan was welcomed by the United States and Asian nations, but analysts suggested it should be implemented carefully.

"Chances are that the plan may develop into a new financial institution in the region," said Fumiyuki Sasaki, economist at Nomura Research Institute (NRI).

"But its success largely depends on the conditions attached to each piece of financing," he said.

Daisuke Hiratsuka, senior research fellow at the Institute of Developing Economies, said: "The package could be very effective in a situation where the nations are struggling to recover, even by export-led growth."

Takashi Nobehara, general manager of the Centre for Asian Research at the Japan Research Institute, said: "It may be problematic if most money in the plan is used to clean up bad loans, as it is not clear how much in bad loans actually exists in the would-be recipient countries. A $30 billion fund might not be enough.

"Debt guarantees can be risky as there is always a possibility of default, particularly in countries like Indonesia. Defaults will have a substantial impact on the fiscal positions of creditor countries," Nobehara said.

He said that because of the default possibility, there needed to be a consensus on rules governing the fund, and there needed to be the ability to check the situation in each country before any funds were provided.

"The impression we got was that Japan hastily drew up this package without first building this much-needed consensus. That is a cause for concern," he added.

But the analysts said the formation of such an aid package could clearly have an impact and help pave the way to stabilization of the economic situation in the region.