Financial Times May 5 2000

Japan offers plan to avoid another Asian crisis

By Peter Montagnon in Chiang Mai, Thailand




[スワップ網・取決め]Network / Agreement of Swaps



Japan will on Saturday propose a co-ordinated network of currency swaps with other Asian countries to protect the region against a repeat of the crisis that hit financial markets in 1997.


The plan, to be put forward at a meeting of finance ministers, is a watered-down version of the Asian Monetary Fund suggested by Japan at the height of the crisis.


But unlike that proposal, which soon foundered, Japan's new idea has met a cautiously positive response from delegates at the Asian Development Bank annual meeting in Thailand.


"The Japanese are serious. We need to pursue that further," said Pisit Leeahtam, Thailand's deputy finance minister.


Thailand would be interested in the mobilisation of additional resources provided this did not override or add to the conditions imposed by the International Monetary Fund, he said. But there would still be serious political and technical issues to hammer out.


Among the factors underlying the supportive response to Japan's plan is a fear among Asian officials and economists that the economic recovery is fragile and could be aborted by fresh crisis. There is also a strong feeling of disappointment at the lack of progress on reform of the global international financial system.


"We need to have some kind of defence mechanism," said Il Sakong, chairman of the Korean Institute for Global Economics. "Since not much is expected to be done at the global level, something should be done at the regional level."


Japanese delegates stressed that their proposal would not include arrangements to bypass International Monetary Fund conditions, nor would it involve the creation of a new lending institution. Instead there should simply be agreement allowing Asian countries to borrow from each other through short-term swaps of currency reserves.


"This is in principle possible," said Hubert Neiss, the IMF's former Asia-Pacific head, who is now a senior executive with Deutsche Bank. "It can contribute to co-operation in Asia, but it is complex and will take a lot of time."


Other countries with large reserves, including China and Singapore, would have to contribute for the swap network to make sense, but some of these are expected to prove reluctant.


Japanese delegates said China was "neutral" on the proposal, while Lee Hun-Jai, finance minister of South Korea, which has almost $85bn of reserves, described the discussions as preliminary.


While any agreement may thus be a couple of years away, the proposal has been given some momentum by the fact that it is being launched in the context of talks between the finance ministers of Japan, China, South Korea and the 10 ten member states of the Association of Southeast Asian Nations.


Asean has recently stepped up its contacts with the East Asian governments with a view to improving cooperation in a number of areas including trade policy and as well as finance.