Asian Nations Double Currency Swap Agreement Size

28 March 2012
Nasdaq

Deputies of finance ministries and central banks of 13 East Asian countries agreed Wednesday to double the size of a regional currency swap arrangement to $ 240 billion to cope with a potential financial crisis that could hit the region, official sources said, the Kyodo news service reported.

Meeting in Cambodia’s capital, the deputies agreed that each country’s contribution to the arrangement, set up under the Chiang Mai Initiative Multilateralization scheme, will be doubled, the sources said, Kyodo reported.

They said the ratio will remain the same, with 80% coming from Japan, China and South Korea, and the other 20% from the 10 members of the Association of Southeast Asian Nations: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

For example, Japan’s contribution, at 32% of the fund, will be doubled from $ 38.40 billion to $76.80 billion. China’s contribution, which is the same as Japan’s at 32% if Hong Kong is included, will also be doubled, Kyodo reported.

The scheme, which entered into force in March 2010, aims to address balance- of-payment and short-term liquidity difficulties in the region and to supplement or provide an alternative to the existing international arrangement.

The sources said it was also agreed at the meeting to reduce the intervention of the International Monetary Fund by raising the portion of the fund that is delinked from the IMF from 20% at present to 30% later this year, Kyodo reported.

The delinked portion is emergency credit that the countries can use in times of crisis without having to negotiate with the IMF.

A source said most ASEAN member countries had been pushing for a higher target of 40% this year, but Japan, China and South Korea — the so-called ASEAN-plus- three countries — were apparently reluctant to go along with that proposal, nor were they able to agree on increasing to 40% by 2014, Kyodo reported.

The move reflects the bad experience that ASEAN countries such as Indonesia had with the IMF during the 1997 Asian financial crisis, when the IMF meted out harsh prescriptions to pluck them from their financial troubles.

The meeting also agreed to include a crisis prevention function to the Chiang Mai Initiative Multilateralization scheme.

The issues agreed on in Phnom Penh will be announced at a meeting of ASEAN- plus-three finance ministers to be held in Manila in May, the source said, Kyodo reported.