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2 Japan, China as anchors of
financial stability By Hisane
Masaki
TOKYO - A decade after the
devastating financial crisis that swept through
Asia, 13 regional economies have agreed on an
ambitious plan to launch a multilateral
currency-swap scheme by pooling funds from the
region's vast foreign-exchange reserves to weather
similar upheavals in the future.
The
agreement was reached on Saturday in Kyoto at a
meeting of finance chiefs from the 10-member
Association of Southeast
Asian
Nations (ASEAN), Japan, China and South Korea, or
ASEAN Plus Three as the nations are collectively
referred to. ASEAN groups Brunei, Cambodia,
Indonesia, Laos, Malaysia, Myanmar, the
Philippines, Singapore, Thailand and Vietnam.
Although the details of the multilateral
currency-swap scheme, including how much each
country will contribute, have yet to be worked
out, it is expected in effect to give Japan and
China - the two Asian giants with gargantuan
foreign-exchange reserves - the role of anchor for
regional financial stability.
Foreign-exchange reserves have more than
doubled in many Asian countries since the
financial turmoil a decade ago. At present, the
region has about $3 trillion in forex reserves, or
roughly two-thirds of the world's total. Japan and
China are by far the largest holders of reserves,
together accounting for about $2.1 trillion. China
surpassed Japan as the world's largest holder of
reserves in February last year. China's success as
an exporter has given it a huge trade surplus -
and forex reserves of $1.2 trillion. Japan has
reserves of $900 billion.
The ASEAN Plus
Three currency-swap agreement is also seen by some
observers as a move that could lead to the
creation of an Asian Monetary Fund, an Asian
version of the International Monetary Fund (IMF),
which is led by Western nations. During the
1997-98 Asian financial crisis, Japan proposed the
creation of such a monetary fund, but the
initiative was quashed because of fierce
objections from the United States and China.
The meeting of the ASEAN Plus Three
finance chiefs, the 10th of its kind, was held on
the sidelines of a two-day annual general meeting
of the Asian Development Bank (ADB), which ended
on Monday evening.
Japanese Finance
Minister Koji Omi, who chaired the ADB powwow,
announced a plan on Sunday to contribute $100
million to the Manila-based international lending
organization to set up two new funds to fight
global warming and facilitate the investment
climate in the Asia-Pacific region. The proposed
funds - the Asian Clean Energy Fund and the
Investment Climate Facilitation Fund - are key
pillars of Japan's new initiative dubbed Enhanced
Sustainable Development for Asia.
Omi also
announced that Tokyo will extend low-interest yen
loans worth up to $2 billion over the next five
years through the government-affiliated Japan Bank
for International Cooperation (JBIC) in the areas
of investment and climate change under joint
programs with the ADB.
The Kyoto Protocol
on curbing global warming, which took effect in
February 2005, was adopted in late 1997 at the
Third Conference of Parties to the United Nations
Framework Convention on Climate Change, or COP3 as
the meeting is commonly remembered, held in the
ancient Japanese capital.
From
bilateral to multilateral The ASEAN Plus
Three finance ministers agreed to transform the
current regional network of bilateral currency
swaps into a multilateral framework. The network
of bilateral swap arrangements is now worth $80
billion, consisting of 16 bilateral arrangements
among eight countries. The finance chiefs also
agreed on the importance of strengthening regional
surveillance as part of efforts to make the
multilateral currency-swap framework effective.
"Proceeding with a step-by-step approach,
we unanimously agreed in principle that a
self-managed reserve pooling arrangement governed
by a single contractual arrangement is an
appropriate form of multilateralization," the
ministers said in a joint statement issued after
their one-day meeting. "We recognize the consensus
reached as a significant achievement toward an
advanced framework of regional liquidity support
mechanism."
The current web of bilateral
currency-swap deals, known as the Chiang Mai
Initiative (CMI), was introduced in May 2000 to
prevent a recurrence of the 1997-98 Asian
financial meltdown, which originated in Thailand,
spread to Indonesia and South Korea, and affected
most other regional economies.
Still,
bilateral arrangements would take time to work
because a country whose currency comes under
attack would need to request assistance from each
partner country. The 13 Asian nations have
concluded that a multilateral framework would
serve as a more timely safety net in case of a
crisis because a country could obtain rescue funds
from partner nations on a single request and use
them to counter speculative attacks on their
currencies.
The 13 Asian finance chiefs,
striking an upbeat note, affirmed that the
regional economy remains in good shape and on a
growth path despite recent global stock falls
stemming from plunges in the Shanghai market in
late February. "We welcomed continued strong
growth of the regional economy," the joint
statement said. "The growth outlook for 2007
remains favorable and the external environment is
broadly supportive of regional economic
expansion."
At the same time, the joint
statement noted "challenges posed by main downside
risk factors, including possible spillover effects
from potential slowdown in major world economies,
large global imbalances, greater financial market
volatilities, growing signs of a rise in
protectionist sentiment and a recurrent rise in
oil prices".
To be sure, few expect an
imminent recurrence of the 1997-98 crisis. But
what happened 10 years ago is still bitterly
remembered by many in the region. The joint
statement also noted, "We recognized the increased
globalization of economies and agreed on the
importance of policies that strengthen the
region's resilience.
"In this context, we
reiterated our commitment to accelerate and deepen
structural reforms and implement appropriate
macroeconomic policies including domestic
demand-driven measures to support sustainable
economic growth of the region."
Thai
Finance Minister Chalongphob Sussangkarn was
particularly vigilant. "The risk factors that we
face today are not any less than
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