The New Nation - Internet Edition

FINANCE ministers of 13 Asian nations in a joint statement recently from a meeting in Madrid agreed to set up a foreign exchange pool of at least $80 billion to be used in the event of regional crises like the one experienced a decade ago. China, Japan and South Korea reportedly will provide 80 per cent of the funds, with the rest coming from the 10 members of ASEAN (Association of South East Asian Nations). To protect their currencies from turmoil, the 13 Asian nations had agreed to set up a mainly bilateral currency swap scheme known as the Chiang Mai Initiative, particularly after the 1997-98 Asian financial crisis.

The creation of the pool is a big step towards the creation of an Asian equivalent of the International Monetary Fund. Issuing the joint statement, the Asian finance ministers said that they are committed to further accelerate their work in order to reach consensus on all of the elements that include concrete conditions for borrowing and contents of covenants specified in borrowing arrangements. The foreign exchange pool would be self-managed and be governed by a single contract that will be legally binding and the 13 nations would work to develop a way of monitoring the fund.

During the 1997-98 financial crisis Indonesia, South Korea and Thailand had to borrow heavily from the IMF to boost their finances as investors sold their currencies and the IMF forced the governments of the three nations to make unpopular spending cuts, sell state-owned firms and raise interest rates. The regional economy as a whole has continued its strong growth and is forecast to remain robust although somewhat weaker. Yet the Asian economies are being challenged by rising energy and commodity prices as well as the vulnerability of financial markets.