U.S. signals opposition to Asian rescue fund

U.S. signals opposition to Asian rescue fund

NEW YORK (AFP): The United States on Wednesday signaled its
reluctance to support a regional rescue fund to resolve financial
crises in Southeast Asia.

U.S. Deputy Treasury Secretary Lawrence Summers, in a speech
here to the Japan Society, insisted that the International
Monetary Fund -- rather than regional alliances -- should play
the lead role in dealing with market turbulence.

"Financial regionalism based on notions of regional reliance
in times of crisis ... carries real risks," Summers said.

Such an approach, he added, could reduce resources available
for future turmoil, or impair capacity to confront "cross-
continental crises."

Other possible drawbacks could be the emergence of blocs and
exclusion of countries that do not have wealthy neighbors.

"This is an important part of why we believe it to be
essential that the IMF should play a central role," Summers said.

The idea of a regional fund was put forward by Japan following
acute financial unrest in Thailand that began in July.

"We've had good discussions with Japan," Summers told
reporters before the speech, but added: "There has been no
agreement on this."

In his prepared remarks, he argued that the Washington-based
IMF's "unique ability to provide apolitical, conditioned finance
in the context of, and only in the context of, strong reforms,
makes it the appropriate vehicle for providing support when
crisis comes."

Recent calls in Asia for a regional rescue fund and the future
of financial markets there will be discussed at a meeting in
Manila of U.S. and Asian finance officials Nov. 18-19.

The same questions could also be raised at a summit of leaders
from the Asia-Pacific Economic Cooperation forum in Vancouver,
Canada No. 24-25.

The proposal for a special Asian bailout fund was raised in
Hong Kong in late September during joint meetings of the World
Bank and the IMF.

Finance ministers from the Association of Southeast Asian
Nations insisted that a planned meeting of U.S. and Asian
officials would discuss establishment of the regional mechanism.

While the United States at the time took no official position
on the fund proposal, the IMF was quick to reject it.

Stanley Fischer, IMF first deputy managing director, warned
that a regional mechanism was not as likely as the IMF to attach
stiff requirements for overall economic reform in exchange for
aid.

"We do not think that setting up a large fund or standing
organization with different conditionality would help," Fischer
declared at the time.

"It would be an invitation to assume that there is another
better and easier way of doing things and it would cost a great
deal of money before we would realize that it was not going to
work."

The IMF has arranged a US$17.2 billion finance package for
Thailand, shaken since July by a weakening currency and a large
current account deficit, and just last week announced a similar
$23 billion package for Indonesia.

Summers, answering reporters' questions following his speech,
said there was "no reason to believe that there should be any
major impact on the U.S. economy" because of a slowdown in
Southeast Asian growth.

In his address, Summers said Japan's moves to deregulate the
financial sector reflect Prime Minister Ryutaro Hashimoto's
"understanding of the critical role that a 'free, fair, and
global' financial market will play in achieving the deep
restructuring of the Japanese economic system that will be
required to support a broad-based sustainable domestic recovery."

If Tokyo follows through on financial sector liberalization,
"it will also send a powerful message to Japan's regional
neighbors, and to others around the world, that reforms to make
financial markets more liberal and transparent are not in
conflict with the task of restoring health to a troubled
financial system -- they are essential to it."