Asian ministers decide to pool foreign reserves

BLOOMBERG

Sun, May 06, 2007 - Page 11

Finance ministers from 13 Asian nations agreed to pool part of their US$2.7 trillion of foreign-exchange reserves to prevent a repeat of the crisis that depleted the region's holdings 10 years ago.

"We unanimously agreed in principle that a self-managed reserve pooling arrangement" is appropriate, Japan's Koji Omi, China's Jin Renqing (金人慶) and South Korea's Kwon Okyu and ministers from Southeast Asia said in a statement in Kyoto yesterday. Countries in the region face the challenge of "greater financial market volatilities."

Asian governments want to avoid having to rely on institutions like the International Monetary Fund, which forced them to adopt harsh economic policies in return for bailouts during the 1997-'98 financial crisis. The ministers haven't decided how the plan will work, how much money will be involved, or set a date for when it will start, saying it needs more study.

This is "just the latest of a number of regional initiatives which have promised great things but then fizzled out," said Mark Williams, an economist at London-based Capital Economics. It's hard to argue the move is "anything more than a symbolic step."

A year ago, ministers from the same countries said in Hyderabad, India, that they would study the creation of an index of the region's currencies as a precursor to forming a single currency sometime in the future. The ministers meet each year on the sidelines of the Asian Development Bank annual gathering.

"A relatively modest proposal for a currency index comprising a weighted basket of regional currencies has been bogged down in wrangling," Williams said. Officials from the ADB now agree the proposal of a single currency is "many decades from being viable," he added.

The finance ministers yesterday agreed to expand on an arrangement established in 2000 in Chiang Mai, Thailand, whereby pairs of nations would lend each other money at favorable terms if help is needed to support their exchange rates.

The total amount of country-to-country currency swaps available will be increased to US$80 billion from US$75 billion, the ministers said Saturday.

The ministers didn't make much headway on plans to develop an Asian bond market, saying only that they had agreed on setting "clear deliverables to move forward," the statement read.