Asian Financial Chiefs Move to Fight Crisis

PHUKET, Thailand, Feb. 22 -- East Asia over the weekend started flexing its collective muscle in the battle against the global economic slowdown, with the head of the Asian Development Bank saying he was confident his shareholders would triple the bank's capital and regional finance ministers committing an additional $40 billion to a regional liquidity fund.

The moves show that East Asian economies, which between them control some $3.5 trillion in foreign reserves but have been badly hit by the slowdown in exports, are willing to commit substantial funds to multilateral action to counter the financial crisis.

Haruhiko Kuroda, the president of the ADB, said he is confident that he has secured agreement to triple the organization's general capital, raising it to $115 billion.

Kuroda said most of the expansion in the bank's general capital would come in the form of "quorum capital," which is guaranteed by shareholder countries but not committed in the form of cash. He said that only $5 billion would have to be paid into the bank over the next five years.

"We have not made any capital increases for close to 15 years," Kuroda said in an interview on the sidelines of the Association of Southeast Asian Nations meeting of finance ministers in the Thai resort of Phuket. "We are asking our shareholders to increase something like 200 percent of our general capital."

Kuroda said the increase in general capital would allow the bank, which works to counter poverty in developing Asian nations, to expand its annual lending from $9 billion to $13 billion. He said some of the money would be put toward credit guarantees for Asian countries that are facing spiraling risk premiums on their borrowing.

He said he hoped to have a final agreement by the next ASEAN finance ministers meeting, in Bali in May.

The ministers from the 10 ASEAN nations as well as ministers from China, Japan and Korea agreed to strengthen the so-called Chiang Mai Initiative, a series of bilateral swap agreements designed to provide a backstop should any of the member currencies be sharply devalued, as occurred during the Asian financial crisis of 1997.

The ministers agreed to pump in more money to increase the available funds from $80 billion to $120 billion and to change the initiative from a loose series of bilateral currency-swap agreements to a multilateral agreement.

But in the current crisis, the agreement has limited practical relevance.

Asian currencies are not under the same sort of pressure today: The two countries that did see rapid devaluations, Korea and Singapore, have solved their problems with a deal with the United States. And a continuing stipulation that countries have to agree to a program with the International Monetary Fund to access the bulk of the available Chiang Mai funds will make it an unattractive option.

To agree to such a program would be political suicide for many governments in a region that still harbors bitter memories of the strictures imposed by the IMF in the wake of the 1997 crisis. The ministers say they are trying to build a surveillance mechanism to take the place of the IMF, but it will be some time before it is up and running.