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  May 9, 2000  

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Silly scheming in Chiang Mai

Asian nations' finance ministers meeting this past weekend at (or behind) the scene of the annual Asian Development Bank confab in Chiang Mai (Thailand) got it all wrong. Several of them (or their predecessors) had openly or more guardedly blamed the Asian financial crisis that hit the region in 1997 on international currency speculators. Well, the two biggest and baddest of those, Julian Robertson and his Tiger Fund and George Soros and his Quantum Fund, have fled the scene of their alleged crimes and all but ceased to exist. The ministers should have taken note, declared victory, and left it at that.

But no, never let good be good enough. Instead, these valiant fighters of previous wars revived and expanded currency swap agreements first dreamt up in late 1996/early 1997 enabling member nations to draw on each others' foreign exchange reserves when faced with liquidity troubles and hostile currency attacks. It all now goes under the name of Chiang Mai Initiative and combines the resources of the Asean countries, China, Japan, and South Korea. But, mind you, the arrangements in place in 1997 when the Asian crisis hit, albeit less comprehensive, did nothing to prevent or attenuate it. We fearlessly, or perhaps fearfully, predict that the new arrangement or countries subscribing to it - when push comes to shove - will fare no better.

In announcing their swap agreement the ministers said in a joint statement that, ''In order to strengthen our self-help and support mechanisms in East Asia through the Asean plus three framework, we recognized a need to establish a regional financing arrangement to supplement the existing international facilities.'' What precisely that need was or how the arrangement would function or under what circumstances it would be invoked, they didn't say. Perhaps none of that has been worked out - and perhaps none of it ever will be since the agreement has now been submitted to the ever so efficient Asean Secretariat for further study of its modalities and mechanisms. The only one who commented on the deal was Edwin M Truman, the asssitant secretary for international affairs of the US Treasury Department who was on hand for the ADB conference. ''We find this a fine idea,'' he said, ''but our concern is that there's no detail. The devil is in the detail. If they [the ministers] are supportive of prompt economic and financial adjustment, then I think they are to be commended. But we don't know . . .''

Mr Truman doesn't seem too concerned that the Chiang Mai Initiative will not amount to much, and hence not much bad, and probably for the same reason we aren't: the detail is not likely to be worked out any time soon and thus the devil won't have much chance to make an early appearance.

But seriously, who needs this?! While some currency speculators profited from the Asian crisis, the idea that they set it off has always been whacky and except in Malaysia now enjoys little following in the region. The idea that the existence of a currency swap arrangement or the wider concept of an Asian monetary fund (as claimed by former Japanese vice-minister of finance for international affairs Eisuke Sakakibara) could have prevented the Asian crisis or the worst of it, is both wrong and politically noxious. If some such arrangement had per chance succeeded in 1997/98 to paper over the crisis which obviously had deeper roots than just financial imbalances, this would ultimately have proved utterly detrimental by forestalling badly needed reform. So, let's hope the new initiative has provided a few feel-good points for ministers who haven't had much to feel good about recently, and will then be properly buried in the Asean Secretariat.

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