KYOTO — Finance ministers from the Association of Southeast Asian Nations along with Japan, China, and South Korea on Saturday hammered out a basic agreement to pool some of the region’s $2.7 trillion in foreign reserves to prevent the kind of currency runs that led to the Asian financial crisis a decade ago.
“Proceeding with a step-by-step approach, we unanimously agreed in principle that a self-managed reserve pooling arrangement governed by a single contractual agreement is an appropriate form of multilateralization,” the finance ministers said in a joint statement following their meeting in Kyoto.
Under current agreements enacted in 2000 under the Chiang Mai Initiative, only bilateral currency swaps are permitted, which means that a country seeking to swap multiple currencies has to obtain permission from each individual partner country, a time-consuming process.
Finance Minister Koji Omi called the agreement a major step forward. “Japan will actively participate in the pooling arrangement,” he told a news conference afterward.
However, the agreement lacked specifics, including a timeline for realization, how much money should be committed and, most importantly, how the pool would be managed.
“The details need to be studied further. Progress reports will be issued on a yearly basis, and we hope that concrete conclusions will be reached within a couple of years,” said Chalongphob Sussangkarn, the Thai finance minister who served as cochair of the meeting.
Not all ASEAN countries participate in the Chiang Mai bilateral initiative, but the Thai minister said that ways will be explored so that all ASEAN members might participate in a multilateral process.
A multilateral currency swap agreement had long been desired by Asian countries that were heavily hit by the 1997-1998 Asian financial crisis.
South Korea, Indonesia and Thailand saw a run on their currencies and their reserves depleted, forcing them to seek a bailout from the International Monetary Fund. The stringent conditions that the IMF attached to its financial assistance prompted regional anger and a backlash against the Washington-led body.
Saturday’s agreement in Kyoto is the start of what is likely to be a long process to implementation, given concerns among some financial experts over the value of certain currencies, specifically the Chinese yuan. But the agreement could make it much easier for Asian countries to avoid going to the IMF if another crisis similar to the one 10 years ago should occur.
The meeting of finance ministers of ASEAN and its key partners took place during the 40th annual meeting of the Asian Development Bank’s board of governors. In the morning, the governors discussed the very future of the Asian Development Bank, and where it should be by 2020.
The focus of the meeting was a report released in late March by a group of outside experts on what steps the bank should take by 2020.
The report envisions a future Asia where poverty has been virtually eliminated and the role of the Asia Development Bank, originally established to fund large infrastructure projects benefiting developing countries, changes to an institution that meets the investment needs of an economically advanced region.
“In the future, the Asian Development Bank should move from fighting extensive poverty to supporting faster and more inclusive growth. It should also move from promoting economic growth to promoting environmentally sustainable growth, and from a primarily national focus to a regional and ultimately global focus,” said Supachal Panitchpakdi, chairman of the expert group that prepared the report.
The report was not welcomed by all of the ADB’s board of governors. Some, especially from Asia’s poorer countries, felt it was too optimistic in tone, especially about issues related to poverty. Others said the World Bank should remain the main global lending institution.
One area of future contention will likely be the governance structure of the bank. The ADB is seen by many in Asia as dominated by non-Asian investors, primarily the United States.
Japan and the U.S. are the largest shareholders, followed by China, India, Australia, Indonesia, Canada, South Korea, Germany and Malaysia.