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.