Teves says ASEAN+3 working on initiative
With or without funding from the World Bank, the Association of Southeast Asian Nations plus China, Japan and South Korea (ASEAN+3) will pursue new initiatives to reinforce the region’s defenses against the worst global financial meltdown in 80 years.
Aside from setting up a regional facility to help ASEAN countries experiencing liquidity problems, talks are under way to turn into a multilateral scheme the $84-billion ASEAN bilateral swap arrangement under the Chiang Mai initiative, Philippine officials said Monday.
Finance Secretary Margarito Teves said there was a “convergence of ideas” on pursuing the establishment of a regional facility to assist ASEAN countries during an ASEAN+3 meeting held on the sidelines of the meetings hosted by International Monetary Fund (IMF) and World Bank on Oct. 11 in Washington.
Teves said the ASEAN+3 meeting was arranged by the World Bank and chaired by Thai Finance Minister Suchart Thada-Thamrongvech. It was attended by representatives of the ASEAN, the World Bank, the IMF and the Asian Development Bank.
“This is going to be an ASEAN+3 initiative,” Teves said at a news briefing. “The World Bank does not have anything to do with it because the World Bank doesn’t have a regional facility.”
The finance secretary said the World Bank group had initially indicated willingness to provide a $10-billion seed money for such a regional fund as earlier announced by President Gloria Macapagal-Arroyo.
“During the course of discussions on how the multilateral agencies could support this initiative, a representative of the World Bank group, Michael Klein of IFC [International Finance Corp.], indicated that the World Bank should be ready with at least $10 billion more in commitments over the year, in response to the global financial
He said the World Bank also indicated that it was ready to assist in drawing up the mechanism to implement the initiative.
At a follow-up meeting with World Bank representatives on Oct. 13, Teves said, the initiative was called “ASEAN Preparedness Plan.”
It was also discussed that further consultations would be conducted with the ASEAN secretariat on the mechanism of the proposed facility and efforts would be made to get the endorsement of the ASEAN+3 members for the holding of a technical working group meeting in Manila.
The meeting is tentatively scheduled for Nov. 12 before the leaders’ meeting in Bangkok on Dec. 18.
“The proposed initiative was well received by ASEAN members, particularly the suggestion that the facility be fairly sizeable, quick disbursing and with minimum conditionalities,” Teves said.
He said the new fund would complement ASEAN’s Chiang Mai initiative, which is limited to providing emergency liquidity in case of a foreign exchange crisis.
The Chiang Mai initiative of 2000 was the closest alternative to a regional defense mechanism that the region was able to establish after the Asian currency crisis.
“Right now, the challenge to the Chiang Mai initiative is it remains on a bilateral basis, which means countries have bilateral swap arrangements and in case of need for contingency, they can draw on this bilateral swap,” said Diwa Guinigundo, deputy governor of the central bank, Bangko Sentral ng Pilipinas (BSP).
“The challenge is to multilateralize the Chiang Mai initiative, which means countries will be pledging a certain amount to the fund and in case of any emergency, countries that are in need of resources can draw form the same facility,” Guinigundo said.
But he noted that even if multilateralized, the structure of the Chiang Mai initiative itself was aimed at addressing crises in countries’ balance of payments.
Guinigundo said the proposed “multilateralization” of the Chiang Mai initiative had been on the table for the last year or so. “It is progressing,” he said.
Among the areas yet to be ironed out is a proposed increase in the IMF-linked portfolio of the facility to 20 percent from 10 percent, Guinigundo said.
In principle, the financial assistance under the Chiang Mai initiative is still linked to the IMF facilities. Only up to 10 percent of the maximum amount to be drawn from the initiative could be provided without linkage with IMF facilities.
Guinigundo said ASEAN was also working to speed up the activation of the funding facility. From three to four weeks, processing now takes about two weeks, he said.
“That’s consistent with one of the features of a regional fund, which is quick disbursing,” Guinigundo said.
He added that ASEAN had also agreed on a “self-managed reserve pooling mechanism.”
“Pledges will be announced,” he said. “The resources will be managed by individual countries. So in the case of a drawdown, that facility will have to be made available to those countries in need.”
Member-countries have yet to give pledges but the “notional” amount should be no less than the $84-billion worth of existing bilateral swaps arrangements.
“But the situation we are facing today is something that calls for the recapitalization of banks, purchase of toxic assets and even an increase or expansion in deposit coverage and, therefore, details will have to be threshed out among member-countries,” Guinigundo said.
Teves said the regional fund envisioned strengthening banking systems across the ASEAN region with contributions from member-countries.
“IFC will continue to provide assistance to individual member-countries,” he said, noting that the World Bank group subsequently said it had no facility for such a regional initiative.
Teves maintained that the IFC had indicated an initial amount of $10 billion, but he said such funding would have to go through a certain process and would have to be approved by the board.
“We haven’t reached that level yet,” he said.
Economic managers maintain that while Asian banks are in a better shape than their counterparts from the United States and Europe, more measures must be put in place to build up defenses.
“Do you have an earthquake drill during an earthquake?” Socioeconomic Planning Secretary Ralph Recto said.
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