ASEAN + 3 push expanded Chiang Mai Initiative

MANILA, Philippines - Members of the Association of Southeast Asian Nations (ASEAN), together with dialogue partners Japan, South Korea, and China, have agreed to expand an existing bilateral foreign currency swap framework that had been set up to assist to any of them that may experience liquidity problems, amid the spreading global financial crisis. In a phone interview on Friday, Press Sec. Jesus G. Dureza, who forms part of the Philippine delegation to the 7th Asia Europe Economic Meeting (ASEM) in Beijing, said the ASEAN "plus three" is studying ways to expand the $84-billion Chiang Mai Initiative, the deal that allows these countries to borrow foreign currency from one another, via bilateral arrangements, in order to boost their reserves. "They [ASEAN plus three] agreed to increase it but they will still discuss the details. A working group has been designated to discuss it," he said. "According to [Finance] Sec. Margarito B. Teves, the fund seeks to assist the macroeconomic needs of countries. This will be a preparation for the effects of financial crisis...It is going to be an enhancement of the Chiang Mai Initiative," he added. Mr. Dureza said the agreement was reached by "ASEAN + 3" leaders at a breakfast meeting held before the formal opening of the ASEM on Friday. A Palace statement released on Friday confirmed this development, saying that the leaders have discussed the possibility of elevating the Chang Mai initiative from a bilateral swap arrangement into a multilateral scheme. It quoted Mr. Teves as saying that the leaders had cited the need to expand the Chiang Mai Initiative to include all effects of liquidity problems, including support for beleaguered financial institutions. He noted that the original agreement is limited to providing emergency liquidity only in case of a foreign exchange crisis. "[Mr.] Teves also said Thailand suggested that the fund be increased from $84 billion to $250 billion. The leaders agreed to wait for the recommendations of the technical working group in December at the ASEAN Summit in Bangkok," the statement read. Mr. Dureza said the President would be advocating quick disbursement of the funds with minimum conditionality to countries that would need them. Under the Chiang Mai Initiative, a country experiencing conditions similar to the 1997 Asian financial crisis could borrow foreign currency from another country to augment its foreign reserves until the crisis is over. This would enable countries vulnerable to a financial crisis to access the funds in a foreign reserve pool without seeking assistance from lenders like the International Monetary Fund. Mr. Dureza said the Philippines would call for the immediate approval of the enhanced Chiang Mai Initiative amid the urgency of worsening global economic conditions. The Palace statement said leaders of the ASEAN +3 promised to ensure economic stability in their respective countries and to strengthen regional cooperation. "The leaders also assured that they would undertake precautionary measures to insulate the region from the Wall Street meltdown by increasing investments and working together to advance regional and economic interests," it read. ‘Severe challenges’ In a related development, a joint statement issued by the 7th ASEM "on the international financial situation...expressed concern over the impact of the spreading international financial crisis on the global economy and, in particular, the severe challenges it poses to financial stability and economic development of countries in Asia and Europe." Among others, the leaders: * "supported that the IMF [International Monetary Fund] should play a critical role in assisting countries seriously affected by the crisis, upon their request"; * "were of the view that, to resolve the financial crisis, it is imperative to handle properly the relationship between financial innovation and regulations"; * "recognized the need to improve the supervision and regulation of all financial actors, in particular, [ensuring] their accountability"; and * "supported the convening of an international summit on November 15 in Washington D.C. to help stabilize the international financial situation." Early this month, Ms. Arroyo called for a meeting among leaders of the ASEAN + 3 at the sidelines of the ASEM meet to craft measures that will shield the region from the global financial markets meltdown. Meanwhile, the President also had bilateral meetings Friday with other ASEAN heads of states. A schedule provided by Malacañang Friday showed that she met separately with Malaysian Prime Minister Abdullah Badawi, Singaporean Prime Minister Lee Hsien Long, and Thai Prime Minister Somchai Wongsawat. Details of the said meetings remain unavailable as of late Friday afternoon. Ms. Arroyo also met with European Commission (EC) President Jose Manuel Barroso and with officials of the Industrial and Commercial Bank of China. A separate Palace statement said Ms. Arroyo and Mr. Barroso agreed to start negotiations on a partnership and cooperation agreement that would provide the general framework of relations between the Philippines and the EC. The statement quoted Mr. Barroso as saying that the EC is interested to help families affected by the ongoing conflict in Central Mindanao, and to promote development on that island. - BusinessWorld