Mon, 02/23/2009 Rendi A. Witular THE JAKARTA POST PHUKET, THAILAND
Finance ministers of Southeast Asian nations, as well as Japan, China and South Korea, agreed Sunday on steps to prevent the region falling into financial meltdown.
In its joint statement after a meeting in the Thai resort island of Phuket, the ASEAN+3 countries agreed to prepare the precautionary measures by expanding their cooperation fund to US$120 billion from $84 billion worth of foreign exchange reserves under the Chiang Mai Initiative framework signed in 2000.
Japan, China and South Korea will supply 80 percent of the fund, and ASEAN members the remaining 20 percent. Details on the contribution of each countries are still undecided.
“The immediate effect of the agreement is that there will be a positive signal to the financial market in which we reassure them that we have sufficient backup and ammunition to face possible financial turmoil,” said Indonesian Finance Minister Sri Mulyani Indrawati.
She added that ASEAN+3 had noted that while Asian economies were in a better position to face challenges, due to the structural reforms undertaken since the Asian financial crisis, it recognized the regional economy was now facing great challenges.
“The current severe economic downturn of the global economy, coupled with heightened risk aversion in financial markets, has adversely affected the region,” Mulyani said.
ASEAN+3 includes the 10 member states of ASEAN — the Philippines, Indonesia, Thailand, Malaysia, Singapore, Brunei, Vietnam, Myanmar, Cambodia and Laos — and the three East Asian nations of Japan, China and South Korea.
The group has a total population of 2 billion people, a combined GDP of $9.09 billion, and foreign reserves of $3.6 trillion. Effectively, ASEAN+3 represents one-third of the world’s population, 16 percent of the world’s GDP, and holds more than half of the world’s reserves.
As the first concrete joint action in Asia to cope with the global economic downturn, the foreign exchange reserve pool is accessible to members in a swap mechanism to boost their foreign exchange reserves and to address short-term liquidity problems.
Members in dire need of the foreign exchange reserve fund, however, will be subject to an independent surveillance mechanism by other members.
A surveillance by member countries is preferred because most of the ASEAN+3 nations have suffered a traumatic experience from tapping financial support from the International Monetary Fund (IMF), which is regularly tied with seemingly unfavorable and ineffective terms and condition.
After the surveillance mechanism takes full effect in its function, members can use more of the fund without having to worry about being put under IMF supervision.
Under existing rules, members withdrawing the fund by more than 20 percent of their real need are required to have IMF supervision.
ASEAN+3 is still working on expanding the 20 percent tolerance level to enable members to get more funds but still remain under the surveillance of other members.
The group will also speed up measures to better manage the region's bond market by accelerating the completion of the Asian Bond Markets Initiative (ABMI) road map.
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