Asia to complete currency safety net by May 2003

Asian governments plan to complete by May all the main bilateral currency-swap deals underpinning a regional initiative to help avert future financial crises, according to regional officials.

The aim is to finish the work in time for the annual meeting of the Asian Development Bank (ADB) in Istanbul, which will mark the third anniversary of the launch of the currency safety net in the northern Thai resort of Chiang Mai.

Under the Chiang Mai Initiative, central banks of the 10-member Association of South East Asian Nations (ASEAN) plus Japan, China and South Korea are weaving a web of swaps that would make foreign exchange reserves available at short notice to a country facing a sudden deterioration in its balance of payments.

The goal is to give central banks firepower to buy time during the sort of speculative attack that led to the devaluation of the Thai baht in July 1997, triggering a region-wide crisis.

Although the sums involved are small in relation to the size of the foreign exchange market, officials see the Chiang Mai initiative as an important step toward regional economic cooperation that might even lead, one day in the distant future, to a single Asian currency.

"By the time of the ADB annual meeting, the entire network should be in place," Pradumna Rana of the ADB’s Regional Economic Monitoring Unit said in Manila.

Rana, whose unit provides input to an economic peer-review process that is also part of the Chiang Mai initiative, said ministers and their deputies would meet on the sidelines of the Istanbul conference to review the size of the swap deals and the rules governing them.

IMF guidelines

Currently, countries can draw down only 10 percent of the swap line without agreeing to a program of reforms overseen by the International Monetary Fund (IMF).

ASEAN central bankers took the view at a meeting in Indonesia in July that this requirement was too harsh. Some countries, though, fear they would be throwing good money after bad without tough IMF guidelines.

Initially, the swaps network excludes Brunei and ASEAN’s four newest members – Vietnam, Laos, Cambodia and Myanmar.

The most recent bilateral deal, for $1.5 billion, was signed last month between China and Malaysia.

Officials will have their work cut out meeting the May deadline. A $3 billion pact between Japan and Indonesia, which was due to have been signed in August, is still not ready, although officials in Tokyo said steady progress was being made.

Similarly, $1 billion deals with South Korea and China that Philippine Finance Secretary Jose Isidro Camacho said on September 11 would be signed very soon are still on the drawing board.

Despite the hiccups, Rana said he was encouraged by the steps toward closer cooperation.

Next month, for instance, officials will meet in Beijing to finalize a prototype early warning system designed to predict the probability of a crisis in the region based on a battery of economic and financial data.