Finance ministers from the Association of Southeast Asian Nations, along with Japan, China and South Korea, said yesterday they have agreed on a policy that will enable bilateral currency swaps.
Finance ministersBy Lyn Danninger
The agreements announced during the Asian Development Bank meeting are the first steps to form a regional safety network to guard against future financial crises.
Also known as the Chiang Mai Initiative, the currency swap schemes are aimed at linking the international reserves of the 10 ASEAN countries -- Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam -- with the stronger economies of China, Japan and South Korea.
Japan announced a $3 billion currency swap deal with Thailand, a $2 billion agreement with South Korea and a $1 billion swap facility with Malaysia.
"I think, and certainly hope, that talks with other ASEAN nations, such as Singapore and Indonesia, and China's and South Korea's negotiations with ASEAN members would make progress after this," said Seichiro Murakami, Japan's senior vice finance minister.
The deal will add to a $1 billion swap fund among ASEAN members. The ministers said Japan is expected to sign pacts with China and the Philippines by the summer.
They also said negotiations between South Korea, China and Thailand were in their final stages. Japan already has a $5 billion swap arrangement with South Korea and a $2.5 billion arrangement with Malaysia.
The ministers were careful to emphasize that the currency swap plan is meant to supplement on a short-term emergency basis existing monetary assistance already provided by the International Monetary Fund.
During an emergency, a country could receive up to 10 percent of its swap line, Murakami said.
"When IMF has been put into place for action or is close to it, then funding assistance would be implemented. However it only involves short-term liquidity up to 10 percent," Murakami said.
Murakami would not disclose interest rates on the disbursement funds.
Initially, Malaysia had been opposed to any IMF involvement because of the organization's handling of the 1997-1988 Asian financial crisis but apparently did not get support from other ASEAN members. It also wants a higher ceiling for emergency disbursements from the credit line.
The ministers agreed they would review the main principles of the bilateral swap agreement in three years.
Asked if he felt the swap deal was a reaction to the possibility that regional currencies are now at greater risk since the previous monetary crisis, Malaysian Finance Minister Daim Zainuddin said "We will not be caught by surprise this time and we are ready to face any eventuality,"
Asian Development Bank