Thai, China currency swap agreed

Thai, China currency swap agreed

BANGKOK (AP): Thailand and China have agreed in principle to
set up a standby pool of money from which either country could
borrow to protect its currency from large fluctuations.

The agreement was announced Monday night by Thai Prime
Minister Thaksin Shinawatra during the four-day official visit by
Chinese Prime Minister Zhu Rongji. Zhu is scheduled to leave on
Wednesday.

Thaksin said the two countries' central banks would work out
the details.

The Nation newspaper on Monday quoted Chinese Foreign Minister
Tang Jiaxuan as saying that Thailand had requested a US$4 billion
standby fund with China. Thailand already has a $3 billion swap
arrangement with Japan.

Last month, finance ministers from the 10-nation Association
of Southeast Asian Nations expanded a similar regional fund to
include all 10 member countries and increased its size to $1
billion.

The aim is to bolster each other's currencies in the event of
a new financial crisis like the one that hit regional economies
in 1997.

The finance ministers also discussed arrangements for
individual bilateral currency support deals with China, Japan and
South Korea.

ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia,
Myanmar, the Philippines, Singapore, Thailand and Vietnam.

However, the benefits of such arrangements are limited since
the currency pools would prove to be inadequate to protect
currencies if they come under attack.

The currency swap arrangements are mostly seen as a political
statement aimed at international lending agencies that the Asians
are united and are capable of looking after themselves.

Economists say that artificial protection of a currency is no
match for market forces.

Countries contemplating currency swap arrangement should bear
in mind that no country can go against market forces, Asoke
Wongcha-um, a top investment banker, said Monday.

Asoke, the executive vice president of Thai Farmers Asset
Management Company, said that Thailand's experience at the start
of the 1997 economic crisis showed that a country can only defend
its currency for so long.

"We ran out of money trying to protect our currency and we
thought we had enough money," he said in an interview with The
Associated Press. "It's a small amount and with the whole world
against you, you can hardly protect the currency."

Countries should instead improve the fundamentals of their
economy, he said.