Madrid: East Asian finance ministers are set on Sunday to agree an upgrade to an $80 billion currency swap scheme to fight regional financial crises, a deal taking them a step closer to creating a full scale Asian monetary fund.
“The meeting was successful and we agreed on key elements about upgrading the existing arrangements,” South Korea’s Finance Minister Kang Man-soo told reporters after a meeting with his counterparts from Japan and China.
Kang’s deputy, Shin Je-yoon told reporters separately that the currency swap scheme “will be upgraded to at least $80 billion”.
The deal -- more than a year in the making -- will replace the existing arrangement of mainly bilateral currency swaps, called the Chiang Mai Initiative (CMI) and transform it into a more powerful self-managed reserve pooling mechanism governed by a legally binding single contract.
The broad terms are set to be agreed later on Sunday at a full meeting of finance ministers from the so-called ASEAN+3 group -- the 10 members of the Association of Southeast Asian Nations plus Japan, China and South Korea.
The talks, taking place on the sidelines of the Asian Development Bank’s annual meeting in Madrid, will finalise terms to pool foreign exchange reserves for use in emergencies in any of the signatory economies.
Japan, China and South Korea are expected to provide 80% of the total, ASEAN countries the balance, South Korea’s Shin said.
Loans will be made in US dollars against local currency collateral provided by the borrowing nation, either via a currency swap or a promisory note.
Loans will cost between 150 and 300 basis points above the London Interbank Offered Rate (Libor) and be provided for three months, renewable for up to two years. Borrowing costs will be reviewed every five years.
SECURING FINANCIAL STABILITY
Finance officials say the agreement will be a significant step forward for the 13 nations involved in the bilateral swap deals that were created in the wake of the 1997-98 Asian financial crisis, taking them closer to a full scale regional equivalent to the International Monetary Fund.
“This will play a role of supplementing existing international financial stability schemes,” Shin told reporters. “This will show to the world that Asia is making a concerted push about securing financial stability.”
The finance ministers said they were determined to work together to secure financial stability in Asia and would create a forum in which to discuss policies required to do so.
“We’ve decided to hold a gathering of finance ministers, financial supervising authorities and central banks from the three countries within this year because it is important (for) authorities who are responsible for macroeconomic policy and financial market stability to exchange views,” Japan’s Finance Minister Fukushiro Nukaga told reporters. Japan has been a leading advocate for the creation of a regional forum that brings together policymakers, supervisors and central bankers to promote financial stability, similar to the Financial Stability Forum backed by the Group of Seven industrialised nations.
Calls for an Asian monetary fund were made during the depths of the Asian financial crisis when IMF-led bailouts worth around $100 billion came attached with conditions for unpopular austerity programmes and economic reforms.
But Naoyuki Shinohara, Japan’s vice finance minister for international affairs, said ahead of the ADB meeting that any deal agreed would not be about creating easy money.
“We don’t want it to be a mechanism to give out easy money,” Shinohara said. “The most important issue is how to strengthen surveillance,” he added.
Complicated factors remain to be negotiated, such as how to activate currency swaps while making sure borrowing countries would return the money after a crisis ends.