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East Asian, Asean agree on $80b crisis fund


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October 25, 2008

East Asian, Asean agree on $80b crisis fund
East Asian leaders agreed on Friday to create a US$80-billion fund to fight the global economic crisis, as they met in Beijing ahead of a two-day summit with their European colleagues, AFP reported.

The agreement, between South Korea, China, Japan and the 10 members of the Association of Southeast Asian Nations (Asean), is the first major coordinated regional action since the financial turmoil reached full force last month.

In announcing the new Asian monetary fund, a spokesman for South Korean President Lee Myung-Bak said the 13 leaders had pledged to work even more closely on economic matters.

"(They) agreed on the need to strengthen regional cooperation and policy coordination in the face of the global financial crisis," the spokesman said in a statement.

The $80-billion fund would be created by the end of June next year, and be accompanied by an independent regional financial market surveillance organisation, according to the spokesman.

The "Asean Plus Three" fund would supersede the Chiang Mai Initiative, which came into being in 2000 in the wake of the 1997/98 East Asian financial crisis to ease mainly bilateral currency swaps.

The leaders brokered the agreement during an informal breakfast before the start of the 43-member Asia Europe Meeting, a summit held every two years that is set to be dominated by the global financial crisis.

Ahead of the forum, European Commission President Jose Manuel Barroso called for more help from Asian nations in fighting the worst economic meltdown since the Great Depression.

"We swim together or we sink together," Barroso said after arriving in Beijing.

"We need Asia to be on board, and more particularly countries like China, India (and) Japan."

European governments had already committed more than $2 trillion to banks and the money markets in a largely coordinated move to shore up their plummeting stock markets.

Before Friday, Asian governments had mostly limited their intervention to cutting interest rates, guaranteeing bank deposits and injecting money into the credit markets - without the kind of coordinated action taken by Europe.

China's President Hu Jintao described the current financial turmoil as "grim," during a meeting with his Indonesian counterpart on Thursday.

"The current world economic situation is grim and complicated," Hu said.

"The emerging markets and developing countries are confronted with financial risks, weak foreign demand and mounting inflation."

French President Nicolas Sarkozy, whose country currently holds the rotating presidency of the European Union, has already said he would use the summit to seek Asian backing for his bid to rebuild the world's financial system.

The summit officially begins at 4:00 pm (0800 GMT).

The East Asian countries began talks in 2006 on transforming the Chiang Mai Initiative into a more powerful and multilateral reserve pooling mechanism.

In May they reached preliminary agreement to create a foreign exchange reserve pool of $80 billion.

The initial agreement called for South Korea, Japan and China to provide 80 per cent or $64 billion, with Asean members providing the remaining $16 billion.

Disagreements had continued between South Korea, China and Japan on cost-sharing and the way the fund would be managed, South Korea's Yonhap news agency quoted a top aide to President Lee as saying.

"However, the three countries have now ironed out their differences in Beijing, paving the way for an early creation of the new Asian monetary fund," said the unidentified aide.

Asean groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

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