Asian Currency Swap Fund to Guard Against Future Crises

Dec. 29, 2009
Chosun Ilbo (South Korea)

A multilateral currency swap fund that upgrades the Chiang Mai Initiative of 2000 for South Korea, China and Japan plus ASEAN has been established to deal with any future dollar liquidity shortage. The initial amount in the pot will be US$120 billion.

The finance ministers and central bank governors of the participating countries formalized the establishment of the CMI joint fund on Dec. 24, said Chung Eun-bo of the Ministry of Strategy and Finance on Monday.

It will be launched 90 days later on March 24. Discussions started with a view to preparing Asian nations for any future financial crisis by themselves instead of relying only on international organizations such as the International Monetary Fund.

The three Northeast Asian nations plus Thailand, Indonesia, Malaysia, the Philippines, and Singapore agreed in Chiang Mai, Thailand in 2000 to establish what was then a $78 billion multilateral currency swap scheme. The latest upgraded CMI now includes all 10 ASEAN members, adding Brunei, Burma, Cambodia, Laos and Vietnam. Hong Kong is also a member as part of China.

China and Japan will each contribute $38.4 billion or 32 percent of the total. Korea will provide $19.2 billion or 16 percent and ASEAN $24 billion or 20 percent. The maximum amount any participating country can borrow in a crisis will be decided based on the contribution ratio multiplied by a certain percentage. Korea can borrow up to $19.2 billion.

But although it is a joint fund, the 14 central banks of participating countries including Hong Kong will not deposit their share in advance but make their contribution whenever necessary. The fund thus takes the form of a currency swap scheme.

It is expected to be able to react quickly to any crisis as decisions can be made in a week if a member that is short of dollars asks for help. A currency swap normally matures in 90 days, but the maturity for the CMI fund can be extended seven times, up to 720 days.

Korea's economy accounts for a paltry 6.4 percent of the total foreign reserves and a mere 8.0 percent of GDP of the ASEAN plus three nations, but its 16 percent share in the fund gives it more clout. Whether the CMI currency fund heralds a kind of an Asian regional version of the IMF remains to be seen.

Asia needs low interest rates amid recovery, ADB says

Thursday, December 17, 2009
Bloomberg

Asia should keep interest rates low even as China, South Korea and other emerging economies in the region may grow at the fastest pace in three years in 2010, the Asian Development Bank said.

“Inflation is still low,” Jong-Wha Lee, the Asian Development Bank’s chief economist, told reporters in Manila Tuesday. “We haven’t seen a very strong recovery in the region. You need low interest rates to make recovery prompt.”

China, South Korea, Taiwan, Hong Kong and 10 Southeast Asia economies may expand 6.8 percent in 2010 from 4.2 percent this year as the global recovery spurs demand for the region’s goods, according to a report released Tuesday by the ADB’s Office for Regional Economic Integration in Manila.

Asia is leading the world’s emergence from its deepest recession since the 1930s after governments boosted spending, cut taxes and slashed interest rates, averting a spiral into another Great Depression. Growth could falter as the effect of stimulus measures fade and governments exit expansionary policies, the ADB division said.

“With the global recovery tentative, monetary policy should remain accommodative where feasible, with a watchful eye on inflation and asset prices,” the division said. “The recovery could falter if policy makers tighten too early, but tightening too late may lead to higher inflation and unsustainable fiscal deficits in the coming years.”

Confidence dips

Confidence in the world economy dipped last month as central banks’ actions to withdraw some emergency measures sparked concern about the strength of the recovery, a Bloomberg survey of users on six continents showed.

Some policy makers in Asia have started raising borrowing costs to contain accelerating inflation. The Reserve Bank of Australia increased borrowing costs a total of 75 basis points at its last three meetings and Vietnam raised its benchmark rate by one percentage point to 8 percent in November.

“Inflationary pressures appear to be well under control for the moment,” the ADB’s regional integration office said. “While recently showing slight increases, inflation is still expected to remain subdued as economies operate with excess capacity.”

Recovery in East Asia also hinges on the revival of growth in Europe and in the US, as this will affect the region’s export-dependent economies, the office said.

Weaker demand

“The deleveraging cycle is still in its early years, and if households in developed countries, particularly the US, save more than expected to repair their balance sheets, then weaker consumer demand will delay recovery in these economies,” the ADB division said.

Emerging East Asia groups China, the Southeast Asian nations of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Thailand and Vietnam, and the newly industrialized economies of Hong Kong, Singapore, South Korea and Taiwan.

Developing Asia, which includes economies such as India and Pakistan and excludes Japan, will probably expand 6.6 percent next year after growing 4.5 percent in 2009, the ADB said in a separate note Wednesday.

Can Cambodia spare $150 mln to pitch in the Asian financial crisis fund?

Cambodia to pitch in $150 million to Asian financial crisis fund

Monday, 24 November 2008
Written by CHUN SOPHAL
The Phnom Penh Post

"I do not understand what Keat Chhon has said, and I do not believe this contribution can help Cambodia" - SRP MP Yim Sovan

$80 billion regional slush fund is intended to prevent a regional currency crisis, with Asean countries contributing 20 percent of the total

THE government has said it will contribute US$150 million to a regional fund established to combat the effects of the global economic crisis.

The US$80 billion fund was announced October 24 during the Asia Europe Meeting in Beijing.

Thirteen countries agreed to contribute, with 80 percent of funds coming from China, Japan and South Korea.

The balance is expected to come from the 10-member Association of Southeast Asian Nations.

Finance Minister Keat Chhon told the Post last week the fund would help Cambodia in the event of future market instability in the Kingdom.

"This is a fulfilment of Cambodia's duty to the region and the world, and we hope we will be able to access this money in the future," he said.

Final details for the fund have yet to be worked out, but it has nonetheless helped restore some confidence in Asia's shaky markets, he said.

"We think everybody is less worried after this fund contribution policy. However, we need to discuss the issues further to ensure the money will address the problem of currency shortages," he said.

Opposition Sam Rainsy Party lawmaker Yim Sovan said Sunday the country risks losing any investment it makes to the regional fund.

"I do not understand what Keat Chhon has said, and I do not believe this contribution can help Cambodia," Yim Sovan said.

"What we can see is that many companies in Cambodia are having problems, and some are going to collapse because they lack cash for trading," he added.

"We do not think that these problems can be solved by the contribution," he said.

"We will be able to solve the crisis without making a contribution to the fund by just eliminating corruption, by stopping requests for money from investors and by pushing for a decrease in oil and electricity prices," he added.

Prime Minister Hun Sen said Friday that Cambodia could contribute between five and 10 percent of its reserve budget to satisfy its commitment to the regional fund.