• Kyodo

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Finance ministers from the Association of Southeast Asian Nations as well as China, Japan and South Korea indicated Wednesday that they have made major progress in developing a currency swap plan.

Three concrete bilateral deals and five arrangements under negotiation were reported to a meeting the ministers held Wednesday in Hawaii of the 10 ASEAN member nations and their three dialogue partners — China, Japan and South Korea — known as ASEAN-plus-three.

Japan confirmed it had made bilateral agreements with Thailand, South Korea and Malaysia.

The currency swap plan, known as the Chiang Mai Initiative, is aimed at linking the international reserves of the ASEAN countries — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Thailand, Singapore and Vietnam — with those of the three dialogue partners through a set of bilateral pacts to prevent further currency crises.

The finance ministers of the ASEAN-plus-three countries agreed on the basic ideas of the network of bilateral swap agreements (BSAs) last May in the Thai city, Chiang Mai.

Japanese Senior Vice Finance Minister Seiichiro Murakami, who attended the Hawaii meeting on behalf of Finance Minister Masajuro Shiokawa, told a joint news conference that Japan is also negotiating with China and the Philippines.

Japanese officials said Tokyo hopes to reach agreements with the two countries by this summer.

South Korean Finance and Economy Minister Jin Nyum told the news conference that Seoul is in talks with China and Thailand, while Chinese Finance Minister Xiang Huaicheng said Beijing is discussing a deal with Bangkok.

The ASEAN-plus-three ministers, who met on the sidelines of the annual gathering of the Asian Development Bank in Honolulu, welcomed the progress in a joint statement issued after they met.

“We are pleased to note (that) significant progress has been made in implementing the CMI to further strengthen our self-help and support mechanisms in East Asia,” the statement says.

Malaysian Finance Minister Daim Zainuddin told the news conference, “Our senior officials will continue to work towards establishing a network of bilateral swap and repurchase agreement facilities among ASEAN countries, China, Japan and Korea.”

Murakami said Japan will provide up to $3 billion to Thailand, $2 billion to South Korea, and $1 billion to Malaysia under the swap arrangements.

Japan already has a $5 billion swap agreement with South Korea and a $2.5 billion arrangement with Malaysia under the 1998 Miyazawa Initiative, which was announced by then Japanese Finance Minister Kiichi Miyazawa and designed to assist Asian countries hit by the financial crisis of the time.

“The scheme will be supplementary to lending facilities of international organizations, such as the International Monetary Fund,” Murakami said.

Disbursement of funds will be tied to reform supervised by the IMF except for emergency situations, when a country will be able to receive up to 10 percent of its swap line, according to Murakami.

He said interest rates on the disbursement funds will not be disclosed because financial markets are sensitive to them.

Japanese officials said the disbursed funds will be used for purposes including currency interventions, which are prohibited under the existing Miyazawa Initiative swap arrangements.

Malaysia had initially opposed the IMF’s involvement in the plan and insisted on surveillance by an Asian agency more familiar with regional economies as it has been upset with the IMF’s handling of the 1997-1998 Asian financial crisis. Kuala Lumpur, however, apparently could not gain sufficient support from its ASEAN partners.

It also wanted a higher ceiling for emergency disbursements from the credit line.

Partly to respond to such dissatisfaction, the ASEAN-plus-three countries agreed to review the currency swap initiative in three years, according to the joint statement.

“We agreed that we would review the current main principles of the bilateral swap arrangement under the CMI in three years, taking into account the actual operation of the BSA and other relevant factors,” the statement says.

Asian countries have proposed the plan to guard each other’s currencies from volatility in financial markets after a Japanese proposal in 1997 to establish an Asian Monetary Fund was nixed due to strong U.S. opposition.

The Asian ministers, meanwhile, agreed to strengthen monitoring of short-term capital flows inside and outside East Asia to detect unusual trends and take proper action to mitigate adverse effects.

“We agreed to update the capital flows situation in each member country and to exchange data on capital flows bilaterally among member countries on a voluntary basis,” the statement says.

The Japanese officials said the ASEAN-plus-three countries agreed to establish a study group to examine ways to establish a regional economic surveillance system.

But some countries are cool to the idea, they said, adding that Japan supports it.

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