ASEAN KEY DESTINATIONS
Chiang Mai initiative to be doubled to $240B
3 May 2012
Officials from the Association of Southeast Asian Nations together with Japan, China and South Korea will agree on doubling a regional currency fund meant to help in a liquidity crisis to $240 billion, in a move that will strengthen the region's financial safety nets to help underpin sustainable growth.
Finance ministers and central-bank governors from the group, known as Asean+3, plan to publish a joint statement Thursday announcing a decision to increase the size of the Chiang Mai Initiative from $120 billion.
As well, the group will agree on making itself less dependent on larger entities like the International Monetary Fund, with a decision to increase the amount that each country can tap for support, without having to have a parallel aid package in place from the IMF, to 30% this year, according to the draft joint statement.
Under the current framework, each nation may only tap up to 20% of its individual quota. Asean+3 members, who are convening in Manila on the sidelines of the Asian Development Bank board of governors annual meeting, will agree to boost the percentage to 40% from 2014 "subject to review should conditions warrant" that, the draft said.
As part of the agreement, the members plan to lengthen the maturity for the IMF-linked portion of the funds to one year from 90 days, while boosting the supporting period to three years from two.
For the portion not linked to the IMF, the group plans to lengthen the maturity period to six months from 90 days, while the supporting period will be boosted to two years from one, according to the draft statement.
The pact by Asean+3 comes as the region's economy has posted steady growth so far this year as the impact from the euro-zone debt crisis is reduced. Still, the group remains concerned about an uncertain outlook, and the decision to double the Chiang Mai Initiative is aimed at strengthening the regional financial safety net.
"We are fully aware of the potential downside risks to the region's economic performance in 2012," the group said in the draft.
The Chiang Mai Initiative is a multilateral currency swap arrangement among the 10 Asean members plus its three major trade partners to the north. China and Japan have each pledged about one-third of the fund's current $120 billion resources, with South Korea offering $16 billion and Asean nations pledging a combined $20 billion. Individual countries' quota amount, or what they could actually access in the event of a crisis, is much smaller than the overall pot and determined by a formula.
The initiative is an attempt to avoid a repeat of the kind of liquidity crisis that struck Southeast Asian nations in 1998, though no country has yet sought to tap the fund. Nonetheless, worries about fallout from the debt problems in Europe have prompted policymakers to conclude that the current amount pledged to the fund isn't enough.
Asian Development Bank President Haruhiko Kuroda said earlier Wednesday he believes the worst of the euro-zone debt crisis is over, and he doesn't expect any serious impact on Asian economies from Europe's woes in the near future.
As such, he said assistance measures for Asia such as the Chiang Mai Initiative and the Asian Development Fund are "sufficient" to help Asian economies deal with the global headwinds for now.
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