Japan and South Korea agreed to push ahead with plans for a foreign exchange pool to be used in the event of a regional financial crisis, reports said yesterday.
On the sidelines of the Group of Seven finance chiefs’ meeting in Washington, Japanese Finance Minister Shoichi Nakagawa and his South Korean counterpart Kang Man-soo agreed to help launch a multilateral currency swap scheme for Asia, Jiji Press and Kyodo News reported.
The ministers agreed to speed up the implementation of an agreement in May by finance ministers of 13 Asian nations to set up a foreign exchange pool of at least US$80 billion to be used in the event of another regional financial crisis, the reports said.
The reports came as the South Korean won plunged to a 10-year low against the US dollar last week and South Korean President Lee Myung-bak accused some businesses and investors of trying to capitalize on financial turmoil.
“As South Korea is Japan’s closest neighbor, we want to keep close contacts with them,” Jiji Press quoted Nakagawa as saying after the meeting.
The creation of the pool is a big step toward the creation of an Asian equivalent of the Washington-based 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 dumped 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.
Meanwhile, Philippine central bank Deputy Governor Diwa Guinigundo said on Saturday that Asian central banks were studying ways to coordinate an effort to tackle the financial crisis.
“There is something that is being put together but it is still too early to say,” Guinigundo said in Washington, where regional officials are attending annual meetings of the IMF and the World Bank.
Asian economies have started to cut interest rates as policymakers shift their focus to supporting growth from fighting inflation. Stocks plummeted this week, sending the region’s benchmark index to its biggest weekly drop on record as the deepening crisis threatened to push more companies into bankruptcy.
The MSCI Asia Pacific Index fell 17.8 percent even as central banks in China, Australia, South Korea and Taiwan and Hong Kong’s monetary authority joined a global effort to cut interest rates after the yearlong credit-market seizure.
Merrill Lynch & Co this month cut its forecast for Asia’s growth this year and next. The region will expand 7.7 percent this year, and ease further to 7.3 percent next year. Both forecasts were reduced from previous predictions of 7.9 percent growth.
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