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2ND LD: 13 East Asian nations to strengthen currency swap framework

ISTANBUL, Turkey, May 4 Kyodo


Finance ministers from the 10-member Association of Southeast Asian Nations plus Japan, South Korea and China agreed here Wednesday to substantially strengthen their currency swap framework to better cope with a regional financial meltdown.

The ministers from the ASEAN-plus-three forum struck the deal at their one-day meeting in this Turkish city on the fringes of a three-day annual meeting of the Asian Development Bank, which began earlier in the day.

The accord will increase the total amount available for bilateral currency swaps -- now about $39.5 billion -- under the Chiang Mai Initiative, a safety net to help the 13 nations fight speculative attacks on their currencies that spawned the 1997-1998 Asian financial crisis.

''''On the Chiang Mai Initiative, we reaffirmed our resolution to strengthen our self-help and support mechanism in East Asia by making the CMI a more effective and disciplined framework,'''' the ministers said in a joint statement.

Specifically, they agreed on a ''''significant increase in the size of swaps'''' by increasing the amount of existing bilateral swap arrangements, by concluding new BSAs or by turning one-way BSAs to two-way BSAs.

Although they ''''favored an enhancement of up to 100 percent increase of the existing individual arrangements,'''' the ASEAN-plus-three ministers noted that the size ''''could be flexibly decided by bilateral negotiations,'''' the statement said.

Apart from the size of the currency swap network, they also represented a major milestone in the history of the five-year-old initiative.

The ministers agreed on clear-defining of the swap activation process and the adoption of a collective decision-making mechanism of the current network, thus converting the framework to resemble a regional fund.

This is ''''a first step of multilateralization'''' under which ''''the relevant BSAs would be activated collectively and promptly in case of emergency,'''' the statement said.

They also agreed to enlarge the amounts that can be paid to nations in trouble without prior International Monetary Fund approval to 20 percent from the current 10 percent ''''in order to better cope with sudden market irregularities.''''

But they added that ''''the current framework to complement the international financial arrangements and other disciplined conditions would be firmly maintained,'''' according to the statement.

Another key issue that was taken up by the ASEAN-plus-three finance ministers is the acceleration of the forging of Asian bond markets, an alternative strategy for avoiding future financial crises by ensuring that Asia collects more of its own savings for channeling into local investment instead of relying on borrowing from outside the region.

To further contribute to the development of deeper and more liquid regional bond markets, they ''''will continue and expedite our efforts in undertaking a wide variety of studies and implementing various effective measures,'''' the statement said.

Among others, they agreed to explore the possible issuance of ''''Asian currency basket bonds'''' and embark the study of ''''Asian Bond Standards'''' to develop international bond markets in Asia, it said.

A primary objective of developing efficient and vibrant bond markets in the region is to provide Asia''s expanding private sector with more stable supplies of long-term capital.

Proponents say that should end the situation in which Asian savings are funneled into global markets and then back to the region in the form of higher premium loans.

The ASEAN-plus-three forum comprises the 10 ASEAN members -- Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam -- and Japan, South Korea and China.

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