What anxious Asian currency swaps could challenge IMF

What anxious Asian currency swaps could challenge IMF

HONOLULU, Hawaii (AFP): Japan's efforts to forge a network of
currency swap arrangements with neighbors are being carefully
monitored by Western countries anxious they do not become a
regional rival to the International Monetary Fund (IMF).

Tokyo announced on Wednesday it was signing six billion
dollars' worth of foreign exchange reserve bilateral swaps with
South Korea, Malaysia and Thailand as part of a plan to prevent
future Asian currency crises.

The West is closely monitoring progress of the effort, which
evoked memories of an aborted Japanese initiative in 1998 to set
up an Asian Monetary Fund (AMF).

This was intended as a lender of last resort that would enable
crisis-hit Asian countries to tap urgent financing.

The idea of linking foreign exchange reserves to defend
individual currencies from speculative attacks took off among the
Association of Southeast Asian Nations (ASEAN), some of whose
members were hard hit by the 1997 Asian economic crisis.

In the ASEAN swap arrangement members lend dollars against
collateralized swaps of local currencies. The facility is now
worth a billion dollars and all 10 ASEAN members are
participants, their finance ministers said here.

Last year ASEAN decided at a meeting in Chiang Mai, Thailand
to expand the initiative with a series of bilateral swaps with
"dialogue partners" China, Japan and South Korea.

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

The United States had vetoed Japan's earlier AMF initiative
because it would pose a threat to the role of the IMF.

But this week U.S. Treasury Secretary Paul O'Neill said
Washington would not stand in the way of the Chiang Mai agreement
as long as the existing order was maintained and the deals "make
sense to the participants".

Bruno Bezard, France's deputy assistant finance secretary,
stressed during the Asian Development Bank (ADB) annual meeting
here that the process must be "harmoniously incorporated" within
the existing international financial framework.

"Given the international nature of capital movements, only the
worldwide network provided by the IMF is in my view capable of
offering a solution to the prevention and handling of financial
crises," he said.

Japan's Deputy Finance Minister Seiichiro Murakami said it was
"essential to strengthen monetary cooperation in the region to
prevent a future currency crisis and to ensure stability in the
international monetary and financial system."

The swap deals Tokyo made in Honolulu "confirms the progress
we are making toward the building of a support network for
monetary stability in the region," he said.

While the parties declined to provide the terms of the deals,
Malaysian Finance Minister Daim Zainuddin said an initial 10
percent of its one billion-dollar-ringgit swap with Japan "can be
disbursed without IMF conditionalities".

Japan and South Korea also announced that negotiations were
ongoing for similar bilateral swaps involving China and the
Philippines, among others.

ADB president Tadao Chino of Japan sought Friday to play down
the idea of a fund that would rival the IMF,

"The idea of an AMF may not be a very urgent issue at this
time," he said, noting that even with the global slowdown,
"recovery is going on and Asian countries are much more resilient
than before."