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."