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Asean to set up crisis fund to help banks - Arroyo


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October 16, 2008

Asean to set up crisis fund to help banks - Arroyo
Southeast Asian nations, backed by Japan, China and South Korea, have agreed to set up a multi-billion dollar fund to buy toxic debt and help the region's banks hit by the financial crisis, Reuters quoted the Philippines president as saying Wednesday.

President Gloria Macapagal Arroyo said the World Bank has committed to initially provide $10 billion to the fund.

"The facility can be used to purchase what the bankers call toxic assets and recapitalise troubled financial institutions and private companies," she said in a speech at the presidential palace in Manila.

Governments around the world have pledged around $3.2 trillion in a variety of schemes to combat the worst global financial crisis in decades that has toppled financial institutions globally.

The crisis has provided plenty of reminders to Asia of its own financial crisis a decade ago, when currencies in several countries crashed and foreign investors fled the region.

Analysts said there was no immediate need to recapitalise banks or companies in Asia as few were exposed to the crisis in the West, although Asian financial markets have been badly hit by contagion.

Still, an emergency fund could help avert any potential crisis and could also provide a boost to confidence, they said.

"We are not forecasting a crisis scenario where governments will have to recapitalise," said Ritesh Maheshwari, a primary credit analyst at Standard & Poor's rating agency, told Reuters in Singapore.

"There is no such pressing need in Asia yet for such a fund. But it is a good development as it will prepare Southeast Asian nations to better take care of any banking problems that may occur."

Arroyo said the 10-member Association of South East Asian Nations (Asean), its so-called dialogue partners of Japan, China and South Korea, the Asian Development Bank and the International Monetary Fund could also contribute to the fund.

It was not immediately clear why Arroyo made the announcement, rather than Thailand, the current chairman of Asean. A Thai official said it could be because of political problems in the country.

Anusorn Tamajai, member of a Thai finance ministry working group on the economy, said Manila may have made the announcement because of political problems in Bangkok.

"This should be good for the region and it's a plan that Finance Minister Suchart (Thada-Thamrongvech) has already studied," he added.

The Thai government is in crisis over a strident campaign by opposition groups seeking its ouster while its troops have exchanged fire with Cambodian forces in a border dispute.

The two countries, as well as the Philippines, are members of ASEAN along with Indonesia, Malaysia, Singapore, Brunei, Vietnam, Myanmar and Laos.

Plans for the fund were drawn up at the World Bank/IMF meetings in Washington last week, she said, adding that some details were still being worked out.

The World Bank and the IMF, with the help of Asean finance ministers and central bank governors, would draft the implementing mechanism for disbursing funds, hopefully with minimal conditions attached, she said.

The World Bank, which said it is ready to help East Asian countries hit by the financial crisis, denied it plans to contribute to a regional fund that would buy toxic debt.

"The World Bank is supporting the initiatives of Asean members to share information and develop a coordinated response," World Bank Vice President for East Asia, Jim Adams, said in a statement, following weekend meetings with officials from the 10-nation Association of South East Asian Nations.

Meanwhile, Singapore said it was not aware of a plan by Southeast Asian nations, backed by Japan, China and South Korea, to set up the multibillion-dollar fund.

"We are not aware of any proposal for the ASEAN+3 nations to set-up a multi-billion dollar fund to buy toxic debts and help the region's banks," a spokesman from Singapore's finance ministry said late on Wednesday.

East Asian countries earlier this year proposed an $80 billion currency swap agreement, expanding a much more modest agreement that was set up in the wake of the 1997/98 Asian financial crisis to protect any country facing a balance of payments crisis.

Arroyo also reiterated that the Asean plus 3 grouping would hold a meeting on the sidelines of the Asia-Europe summit in Beijing next week to discuss how the crisis was affecting the region.

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