E. Asia urged to push for regional monetary fund

East Asian economies should set up their own fund mechanism to weather financial crises and rely less on the International Monetary Fund (IMF), Nobel Prize laureate Joseph Stiglitz said here Monday.

"I am a very strong supporter of the (proposed) Asian Monetary Fund and there are many reasons why it could better help the region," Stiglitz said after delivering a lecture at the Asian Development Bank in Manila.

Stiglitz said the 1997-1998 financial crisis in East Asia underlined the need for a regional monetary fund as it was recognized then that more funds were required to cope with the turmoil than that made available from the IMF.

Besides the magnitude of the funds available, he said East Asian economies were in a better position to formulate monetary policies in line with the needs of the region.

"The point is that the countries in the region understand each other’s economies much better than the IMF or the US Treasury does," said Stiglitz, who won the Nobel Prize for economics in 2001 and is currently a professor at New York’s Columbia University.

He said that if policy formulation was left to Japan and East Asia as a whole during the region’s financial crisis, "then you would have had a much more shallow recession and much better policy framework than what happened relying on the IMF."

The financial crisis was triggered by currency turmoil and plunged most of the region into recession, which for more economies was the worst in their history.

The Asian Monetary Fund was first proposed by Japan in 1997 just after the crisis began but was withdrawn in the face of strong US opposition.

Many regional leaders had supported Japan which later refined the idea to complementing IMF loans through a regional currency support mechanism.

Tokyo suggested that such a mechanism be funded by countries in the region that are strongly dependent upon each other on trade and investment and which consult each other on policy directions.

Although the proposed fund has not taken off despite the extensive debate, East Asian economies have established a network of currency swap arrangements to ward off speculators in the event of a crisis.

Pushing for such a fund Monday, Stiglitz said countries in the region had a much larger vested interest in helping each other.