KUALA LUMPUR – Finance ministers from the Association of Southeast Asian Nations began two days of talks Saturday on measures to buffer the region’s economies from the effects of a global economic slowdown and a planned network of bilateral currency swaps within East Asia.
Malaysian Finance Minister Daim Zainuddin, in opening remarks at the gathering, said that despite the economic recovery in the region, the world economic slowdown has dampened its exports and led to a crunch in external financing. Meanwhile, he said, oil prices are rising and equity markets are falling.
“Overall, the issues that need to be addressed are comprehensive, ranging from issues related to macroeconomic stabilization to those related to structural reform,” Daim said.
He also called on ASEAN to “remain focused on the longer-term issues including preventing the recurrence of the currency and financial crisis” that hit the region in 1997 and 1998.
“It is therefore important for us not to be distracted from addressing the continuing challenges arising from globalization and liberalization, the need to pursue reforms in the international financial architecture and ensuring the inclusion of all economies in the more equitable distribution of benefits accruing from global growth,” Daim added.
Known as the Chiang Mai Initiative, the currency swap plan aims to link ASEAN members’ international reserves with their three dialogue partners — China, Japan and South Korea — through bilateral pacts to avoid a repeat of the 1997 crisis.
ASEAN finance and central bank deputies, who met Tuesday to Thursday, have agreed to recommend to the ministers to set up a task force to study how the region can conduct its own economic surveillance needed for the disbursement of the funds, ASEAN and Japanese officials said.
Malaysia had earlier opposed tying the disbursement of funds to surveillance by the International Monetary Fund. It has since softened its stance, but wants the IMF’s role gradually phased out and replaced by a regional surveillance mechanism, a move supported by the other ASEAN members.
At the same time, Malaysia’s proposal to raise the ceiling for emergency disbursements under the swap plan gained enthusiastic support from the other ASEAN members, ASEAN sources said.
Under the plan, disbursement of funds will be tied to reforms supervised by the IMF except for emergency situations when quick disbursement of funds is needed. In an emergency, however, a country can borrow only up to 10% of its swap line.
The proposals for the swap plan are expected to be taken up during a meeting Sunday among ASEAN finance and central bank deputies with counterparts from Japan, China and South Korea.
A draft of their joint statement to be issued Sunday shows the ASEAN ministers will call for privatization and strengthening of domestic demand mitigate the effects of the economic slowdown.
They will also press for continued reforms in the banking and corporate sectors.
Because of increased risks in the U.S. economy due to the sharp fall in equity prices and a dive in corporate earnings, structural problems that continue to saddle Japan’s economy and the expected moderate economic growth in Europe, “the outlook for the ASEAN economies has become increasingly uncertain,” they said in the draft statement.
They note that export growth in ASEAN has already fallen sharply since last year and foreign direct investment is expected to be subdued in the near term.
“Under these conditions, we are taking measures to mitigate the economic slowdown through easier fiscal and monetary policies to the extent that they do not compromise medium-term fiscal sustainability or financial stability,” the draft states.
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