East Asian Nations Expand Currency Pool

February 22, 2009 by Prakash Dhawan · 1 Comment
Filed under: Uncategorized 

Officials from East Asia’s largest economies have agreed to enlarge a currency swap agreement to boost the size of a common pool of regional reserves to $120 billion from $80 billion to protect weakening currencies. The 10 members of the Association of Southeast Asian Nations, or Asean, plus representatives of China, Japan and South Korea, said Sunday they plan to ease access to the pool under the so-called Chiang Mai Initiative.

The initiative was an agreement that came in the wake of the 1997 Asian financial crisis to address foreign reserve deficits through bilateral currency swaps. More funds from the initiative, including bilateral swap agreements across the region, may be accessible, regardless of agreements with the International Monetary Fund, the officials said.

Currently, only around 20% of the pool is accessible by countries not involved in a program with the IMF, a condition that has complicated access to funding. Asean members will provide 20% of funding, with the balance coming from China, Japan and South Korea. The plan is expected to be approved later this year.

At the same time, the grouping said it intends to create an independent regional surveillance unit to promote economic monitoring and facilitate the development of the initiative, in conjunction with the IMF.

Separately, Japan promised to provide Indonesia with new financial support that includes giving the country financial guarantees worth up to $1.5 billion in issuing yen-denominated samurai bonds.

The new steps also include doubling the scale of the bilateral swap arrangement between the two countries to $12 billion from $6 billion. A senior Japanese government official said that the moves are aimed at helping Jakarta finance various economic projects and maintain its economic fundamentals.

The new financial aid was announced following a meeting between Japan’s Parliamentary Secretary for Finance, Shinsuke Suematsu, and Indonesian Finance Minister Sri Mulyani Indrawati Saturday on the sidelines of the meeting of finance chiefs of Asean plus three countries. The Japanese official emphasized that these steps don’t mean that Indonesia is in financially tight conditions.

Tags: , , , ,