Nusa Dua, Indonesia: Japan, China and South Korea finalized details of an emergency $120 billion (Rs60.24 trillion) liquidity fund for 13 Asian nations on Sunday, a key regional initiative to counter the global economic downturn.
Separately, Japan announced a scheme to supply up to 6 trillion yen ($61.54 billion) to support nations hit by the economic crisis. Both announcements were made in Bali, on the sidelines of the Asian Development Bank’s (ADB) annual meeting.
South Korean finance minister Yoon Jeung-hyun told reporters after a meeting with counterparts from China and Japan that Beijing and Tokyo would each contribute 32% to the regional fund, known as the Chiang Mai Initiative.
South Korea would provide 16% while the rest would come from the 10-member Association of South East Asian Nations (Asean). The fund will give emergency balance of payments support in case any of the countries experienced the kind of capital flight that marked the Asian financial crisis of 1997-98.
“The three countries have reached an agreement today (Sunday), recognizing the importance of our cooperation in the region,” Yoon said.
The agreement between the key players of what would be the region’s first anti-crisis fund, now makes it likely that all 13 countries involved will conclude negotiations on the initiative by the end of the day.
Asean includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
No discussions have yet been held on what currency the fund will be based on, but Japan’s separate plan, announced by finance minister Kaoru Yosano, is aimed at promoting the use of the yen in the Asean region, Tokyo said.
“This brings our contribution to supporting regional liquidity to about $100 billion,” Yosano said. In addition to the two initiatives, Yosano said Japan will introduce a framework to guarantee samurai bonds, yen-denominated debt issued in Japan by foreign governments and firms, up to 500 billion yen.
ADB itself also plans to ramp up lending to about $33 billion in the two-year period starting 2009, almost a 50% increase over 2007-08, to counter the crisis. The Manila-based multilateral lender is funded by donations mainly from Japan, the US and European nations.
“The economic crisis in Asia has had much more severe impact than probably we have reckoned,” ADB managing director general Rajat Nag said.
“The ADB can only be a part player in this but the impact of the crisis is very real. It’s more than just economic numbers, it’s a social crisis,” Nag said.
“The concern we have is that the crisis is putting at risk the hard-won gains of the fight against poverty.”
Jong-Wha Lee, ADB’s acting chief economist, said Asian economies had probably reached the bottom of the crisis but a major recovery still hinged on the revival of demand in developed nations.
“It is almost impossible for the region to return to the boom seen until 2007 before demand from the advanced economies fully regains strength,” Lee said.
ADB has forecast that Asian economies will grow only 3.4% in 2009, the slowest pace since the Asian financial crisis a decade earlier. It sees growth recovering to 6.3% next year.
The growing efforts by Asian nations to protect themselves from economic crisis will complement the role played by the International Monetary Fund (IMF) in combating global recession, officials said.
“We are seeing a greater multilateralization and expansion of the Chiang Mai Initiative which is not at the cost of the region’s role in IMF or IMF’s role in the region,” said ADB’s Nag.
David Dolan contributed to this story.