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Confusion deepens over Arroyo’s crisis fund

 

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October 17, 2008

Confusion deepens over Arroyo’s crisis fund
Philippines President Gloria Macapagal Arroyo left people puzzled on Thursday after countries and institutions said they were unaware of a plan she announced to set up a regional fund to deal with financial turmoil, reported Reuters.

Arroyo said on Wednesday the World Bank had committed to initially provide $10 billion to a fund to buy toxic debt and recapitalise banks in the region hit by the financial crisis. The World Bank denied it had made any such commitment.

On Thursday, Philippine Economic Planning Secretary Ralph Recto said it was the International Monetary Fund, and not the World Bank, which floated the possibility of a $10 billion credit facility during the IMF/World Bank annual meeting in Washington.

"This is for a worst-case scenario, they are making available $10 billion," Recto, who was present at the Washington meeting, told Reuters. "My understanding is it is for Southeast Asia."

Despite the mix-up, analysts in Manila said Arroyo appeared to have jumped the gun on what was essentially a scenario exercise.

She said the 10-member Association of South East Asian Nations (ASEAN), its three dialogue partners of Japan, China and South Korea and the Asian Development Bank (ADB) could also contribute to the fund.

The ADB said it was too early to talk of contributions because the region was economically sound and in no imminent danger from global turmoil.

"Although real economies may be affected, the banking sector remains fairly sound. We don't really have much toxic assets," ADB Managing Director General Rajat Nag told Reuters.

The loan-to-deposit ratio of most Asian banks is around 80 percent, according to Merrill Lynch data, which means that they can repay depositors if needed without needing additional funds.

Asean member Singapore said it was unaware of any plan as detailed by Arroyo.

"It's perfectly rational for such facilities to be established," said University of the Philippines professor Felipe Medalla, a former economic planning secretary in Arroyo's cabinet. "But it is not reasonable for any leader to jump the gun on the other leaders before such decisions have been made."

Asean Secretary-General Surin Pitsuwan said in Indonesia that Arroyo may have made the announcement because her Finance Secretary, Margarito Teves, had made the initial proposal.

"I think it was the initiative of the Philippine finance secretary in Washington," he said.

"Again it's not a loan, it is talking about the future possible steps to help each other, for monitoring the situation, to strengthen our cooperation, our regulatory regime, our advance monitoring system, our surveillance."

Though Arroyo may have been premature in announcing a regional rescue fund, discussions have been taking place across Asia over finding common approaches to a financial storm that originated in First World financial centres but which is buffeting emerging economies.

In New Delhi, the leaders of India, Brazil and South Africa said on Wednesday the global credit crisis showed the need for reforming institutions such as the United Nations to reflect their growing economic clout.

In Seoul, South Korean President Lee Myung-bak suggested a new international organisation mandated to address cross-border economic issues such as the current financial crisis.

But he, too, left analysts scratching their heads over whether he was proposing an alternative to the International Monetary Fund, which arranged a $58 billion bailout for South Korea in the 1997/98 financial crisis that came with onerous conditions.

Asean and its three dialogue partners will have an opportunity to discuss various ideas floating around at the Asia-Europe summit on Oct 24-25 in Beijing. Arroyo and Indonesian President Susilo Bambang Yudhoyono have proposed an Asean summit on the sidelines along with China, Japan and South Korea.

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