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Asian FMs eye global imbalances talk

The ministers meet in Hyderabad on May 4 amid growing pressure to allow more exchange rate flexibility.

india Updated: May 01, 2006 11:24 IST

Asian finance ministers, in an effort to sustain the momentum for cooperation nearly a decade after a financial crisis rocked the region, are likely to make small but concrete progress this week in preventing currency turmoil and developing still-immature domestic bond markets.

Finance chiefs from the Association of Southeast Asian Nations plus China, Japan and South Korea (ASEAN+3) meet in India on Thursday amid growing pressure on emerging Asian nations to address global imbalances by allowing more exchange rate flexibility.

While global imbalances are not the main focus of the talks, a separate seminar to discuss a shared responsibility to address them, to be held just hours before the ASEAN+3 meeting, could fuel debate on the sidelines.

"Asian nations are interested in the issue of global imbalances at a time the levels of (global) interest rates are changing," Japanese Finance Minister Sadakazu Tanigaki told a news conference on Friday.

"We should try to have common understanding."

Some officials in the region are worried that rising interest rates in industrialised economies could attract more capital to those markets, to the disadvantage of Asian emerging markets.

Tanigaki is expected to speak at the seminar hosted by the Asian Development Bank, along with Chinese Vice Finance Minister Li Yong, US Treasury Undersecretary for International Affairs Tim Adams and Indian Finance Minister Palaniappan Chidambaram.

The ASEAN+3 ministers, who will gather in Hyderabad on the sidelines of the ADB's annual meeting, will likely agree on fine-tuning the region's six-year-old currency swap scheme and boosting domestic debt markets, Japanese officials said.

They are also expected to call for increased voting rights at the International Monetary Fund to reflect their growing economic power -- a politically sensitive reform proposal that the IMF will finalise later this year, the officials said.

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

Regional cooperation

Despite diplomatic bickering among Japan, China and South Korea, Asian nations have been boosting economic ties as they still have bitter memories of how outside powers such as the United States were reluctant to help during the 1997/98 Asian financial crisis.

One example is the Chiang Mai Initiative (CMI), a regional network of bilateral currency swap arrangements that give Asian central banks more firepower in case of speculative attacks on their currencies. Asian ministers last year vowed to double the amount of swap deals, which totalled $39.5 billion in May 2005.

South Korea's Ministry of Finance and Economy said on Sunday the ASEAN+3 group would probably declare the completion of follow-up talks to the CMI as they are set to succeed in doubling the total size of the swaps since last May.

Currently, the total size of the CMI stands at $71.5 billion.

Asian nations are making gradual but solid progress in financial cooperation, though they know it will still take several decades to create a home-grown monetary fund or a European-type common currency.

One new idea is to set up a system in which a country in financial turmoil would only need to ask one country within the ASEAN+3 group, which would act as a coordinator, to collectively activate several bilateral currency swap deals.

This would save time for the country in trouble and is seen as a step towards making the CMI scheme a single multilateral arrangement rather than a complex network of bilateral deals.

The ASEAN+3 group will discuss ways to improve still-illiquid bond markets in Asia as stronger bond markets help them raise more funds in their own currencies, thus avoiding currency mismatches, and keep Asia's savings within the region.

The size of domestic bond markets in Asia excluding Japan has more than quadrupled since 1997 to $1.65 trillion.

New initiatives to be discussed at this week's meeting include South Korea's proposal to study ways of developing international bond markets in Asia, and Japan's study of future issuance of bonds denominated in a basket of Asian currencies.

First Published: May 01, 2006 11:17 IST