Good listeners: Indonesian Finance Minister Sri Mulyani Indrawati (left) and Asian Development Bank (ADB) president Haruhiko Kuroda listen to a speech during the bank’s meeting in Nusa Dua, Bali, on Sunday. Antara/Nyoman Buhiana
As a commitment of self-reliance to cushion the economy from deteriorating further, thirteen Asian nations reached a deal Sunday to set up a US$120 billion fund for emergencies.
The deal of pooling a regional fund comes as a follow up to the Chiang Mai Initiative Multilateralization (CMIM) scheme set up in 2000 between the 10 members of the Association of Southeast Asian Nation (ASEAN) and Japan, China and South Korea (ASEAN+3).
The fund will offer emergency balance of payments support to any country hit with extreme currency devaluation and capital flight; such as that which ignited the Asian financial crisis in 1997.
After the crisis, the region has learnt that it needs all the resources to be able to independently weather any kind of economic storm.
"The current global situation requires more concerted efforts to enhance confidence, maintain financial stability and prevent further decline in economic growth."
"The deepening global economic downturn, coupled with heightened risk aversion in financial markets, has adversely impacted trade and investment in the region," the region's finance ministers said in a joint statement on the sidelines of the Asian Development Bank's (ADB) annual meeting in Bali, Indonesia.
Thailand's Finance Minister Korn Chatikavanji said the regional fund could be implemented before the end of the year to "address short-term liquidity problems in the region and supplement the existing international financial arrangements".
Japan and China have each committed to provide 32 percent of the regional fund, South Korea will contribute 16 percent, while the remaining 20 percent will come from the 10 ASEAN members.
The ASEAN nations are: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
Indonesia, ASEAN's largest economy, is entitled to borrow as much as US$12 billion to strengthen its fairly vulnerable $54.84 foreign exchange reserves against the financial turmoil, if need be.
An independent regional surveillance unit will be established immediately to monitor and analyse the region's economies and support CMIM decision-making.
"As a start, we have agreed to establish an advisory panel of experts to work closely with the ADB and the ASEAN secretariat [for the setting up of the surveillance unit]," Korn said.
Surveillance by member countries is preferred because most of the ASEAN+3 nations have suffered traumatic experiences from tapping financial support from the International Monetary Fund (IMF), which is regularly tied with seemingly unfavorable and ineffective terms and condition. Members can borrow money from the fund without having to worry about being put under the strict supervision of the IMM.
However, members withdrawing more than 20 percent of their real need from the fund are required to be supervised by the IMF.
Aside from the regional fund, Japan will offer 6 trillion yen ($60 billion) of yen-denominated swap facilities to help the member countries during any emergencies, according to Kaoru Yosano, Japan’s finance, economic and fiscal policy minister.
He also said Asia’s biggest economy would guarantee up to 500 billion yen ($5 billion) in yen-denominated bonds, or Samurai bonds, issued in Japanese markets by developing countries.
The ASEAN+3 nations have a total combined population of 2 billion people, GDP of $9.09 billion, and foreign reserves of $3.6 trillion. Effectively, the group represents one-third of the world’s population, 16 percent of the world’s GDP; it holds more than half of the world’s gold reserves.
The region's economies may grow by 3.4 percent this year and 6.3 percent next year, according to the ADB.
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