Finance ministers of 13 Asian nations agreed on Sunday to set up a foreign exchange pool of at least US$80 billion to be used in the event of another regional financial crisis.
China, Japan and South Korea will provide 80 percent of the funds, with the rest coming from the 10 members of ASEAN, they said in a statement issued after talks on the sidelines of an Asian Development Bank (ADB) meeting in Madrid.
The 13 nations agreed after the 1997-98 Asian financial crisis to set up a mainly bilateral currency swap scheme known as the Chiang Mai Initiative (CMI) to protect their currencies from turmoil.
At the ADB’s previous annual meeting in Japan in May last year, member states decided to set aside part of their foreign reserves for a multi-nation system of reserves for use in emergencies, but did not decide on the size of the pool.
“We are committed to further accelerate our work in order to reach consensus on all of the elements which include concrete conditions eligible for borrowing and contents of covenants specified in borrowing arrangements,” the statement said.
The foreign exchange pool would be self-managed and governed by a single contract that would be legally binding, it added.
Vietnamese Finance Minister Vu Van Ninh, who co-chaired the Madrid meeting, said the 13 nations would now work to develop a way of monitoring the fund.
“We think it is very important to have a rigorous surveillance system, especially in the context that regional economies have made an important and big integration into the world economy,” he told reporters.
Japanese Finance Minister Fukushiro Nukaga, the other co-chair, did not give a timeline for the creation of the fund, saying only that it “should be achievable in terms of its objectives.”
The creation of the pool is a big step toward the creation of an Asian equivalent of the IMF.
During the 1997-1998 Asian financial crisis, Indonesia, Thailand and South Korea had to borrow heavily from the IMF to boost their finances as investors sold their currencies.
The IMF forced the governments of the three nations to make unpopular spending cuts, sell state-owned firms and raise interest rates in exchange for loans of more than US$100 billion.
Asian economies are being challenged by rising energy and commodity prices and the vulnerability of financial markets, the finance ministers said in the statement.
“The regional economy has continued its strong growth and is forecast to remain robust although somewhat weaker,” it said.
“We confirmed the importance of taking appropriate actions to ensure that economic activity continues at a sustained pace by balancing policies to deal with these risks,” it added.
The ADB predicts Asia’s developing economies will expand by 7.6 percent this year, its lowest level in five years, after surging 8.7 percent last year.
Inflation in the region should hit 5.1 percent this year, its highest level since the 1997-1998 financial crisis.