This is noteworthy--Asia plan to protect markets
By Peter Montagnon
Published: May 7 2000 15:16GMT | Last Updated: May 8 2000 02:10GMT
Economic co-operation in Asia moved into a new phase as the region's leading governments agreed at the weekend to press ahead with a Japanese proposal for a network of currency swaps to bolster their defences against the kind of speculative attacks that provoked the 1997 economic crisis.
The agreement, reached at a meeting of finance ministers of Japan, China, South Korea and the 10 countries of the Association of South-east Asian Nations, was "a very significant" step forward, said Kiichi Miyazawa, Japan's finance minister.
Crucially it came after support from China, which has reserves of more than $150bn but had been thought reluctant to contribute to a support network. Xiang Huaicheng, finance minister, said China backed the idea "because it contributes to the financial and economic stability of this region".
However, no decisions have been taken on the final size of the network, on the need for collateral or on the conditions under which participants will be able to draw on it to support their currencies. The ministers commissioned the Asean secretariat to come up with a technical blueprint that will answer these questions.
Japanese officials said the basic plan was to build incrementally on the modest existing arrangements between Asian countries. The five largest Asean economies - Thailand, Malaysia, Singapore, Indonesia and the Philippines - would increase their existing $200m swap arrangements, possibly increasing them to $2bn.
The three east Asian countries would consider establishing swaps among themselves, adding to the one existing arrangement between Japan and South Korea. They would also look at extending swap arrangements with the Asean countries, which currently exist between only Japan and Malaysia.
The idea was to establish standard conditions, the Japanese officials said. There would also need to be a surveillance system because peer pressure was an important weapon for warding off crisis.
Although elaboration of the details would take time, analysts said the deal was significant because it underlined a new determination among Asian countries to enhance their co-operation in the wake of the regional crisis. The growing links between east and south-east Asia were particularly important, said Neil Saker of SG Securities.
Significantly, the initiative also drew some support from the US which shot down an earlier Japanese plan for an Asian Monetary fund.
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