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Asian nations set up US$120b fund to tackle financial crisis

THIRTEEN East and Southeast Asian countries agreed yesterday to set up a US$120 billion emergency fund to provide liquidity to any of them in need of help during the economic downturn.

Japan also unveiled a scheme to supply up to 6 trillion yen (US$61.54 billion) to support nations hit by the economic crisis.

The moves, announced at the annual meeting of the Asian Development Bank (ADB) on the Indonesian island of Bali, could lead to some optimism in regional markets today, one analyst said.

"This news is not a surprise but confirmation may be taken by the optimists as a reason to continue the recent rally," said Kirby Daley, senior strategist at Newedge Group in Hong Kong. "It's definitely a step in the right direction for Asia to wean itself from dependence on the West. However, implementation is unlikely to have a sustainable impact on Asian economies in the absence of a robust United States consumer."

Under the plan, China and Japan would each contribute 32 percent to the regional fund, known as the Chiang Mai Initiative.

South Korea would provide 16 percent while the rest would come from the 10-member Association of South East Asian Nations (ASEAN). The fund will give emergency balance of payments support in case any of the countries experienced the kind of capital flight that marked the Asian financial crisis of 1997/98.

"The current global situation requires more concerted efforts to enhance confidence, maintain financial stability, and prevent further decline in economic growth," a joint statement by the region's finance ministers said. "The deepening global economic downturn, coupled with heightened risk aversion in financial markets, has adversely impacted trade and investment in the region."

The fund will be launched by the end of the year, and a surveillance unit to monitor the region's economies will be established with the help of the ADB, it said.

The meeting also decided to set up a US$500 million guarantee for local currency corporate bonds issued within the region.

ASEAN includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Underlining the importance of the Asian regional bond market, Standard & Poor's said yesterday it was launching an ASEAN credit rating scale that provides additional transparency about the credit risk of borrowers active in the region.

ADB President Haruhiko Kuroda told the bank's annual meeting that Asia needs to develop its debt markets to better channel the region's massive savings into investments and stave off another crisis

No discussions have yet been held on what currency the regional fund will be based on, but Japan's separate plan, announced by Finance Minister Kaoru Yosano, is aimed at promoting the use of the yen in the ASEAN region, Tokyo said.

"This brings our contribution to supporting regional liquidity to about US$100 billion," Yosano said.

In addition to the two initiatives, he said, Japan will introduce a framework to guarantee samurai bonds, yen-denominated debt issued in Japan by foreign governments and firms, up to 500 billion yen (US$5.13 billion).

The ADB itself also plans to ramp up lending to about US$33 billion in 2009-2010, an almost 50 percent increase over 2007-2008, to counter the crisis. The Manila-based multilateral lender is funded by donations mainly from Japan, the US and Europe.

"The economic crisis in Asia has had much more severe impact than probably we have reckoned," ADB Managing Director General Rajat Nag said. "The ADB can only be a part player in this but the impact of the crisis is very real. It's more than just economic numbers, it's a social crisis."

Jong-Wha Lee, the ADB's acting chief economist, said Asian economies had probably reached the bottom of the crisis but a major recovery still hinged on the revival of demand in developed nations.


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