My comment: Great news ! One of the best ways to use foreign reserves in smart way. It provides stability to East Asia, to Asia and to global economy without dependency on external funds.
Peace and best wishes. Xi http://www.bloomberg.com/apps/news?pid=20601087&sid=aJfrsvG7Qw0k&refer=home Feb. 22 (Bloomberg) -- Japan, China, South Korea and 10 Southeast Asian nations agreed to form a $120 billion pool of foreign-exchange reserves that can be used by countries to defend their currencies amid the deepening global recession. The amount is 50 percent more than the $80 billion proposed last May, and an expansion of the current arrangement called the Chiang Mai Initiative that allows only bilateral currency swaps. The nations’ finance ministers and government officials jointly announced the decision at a meeting in Phuket, Thailand, today. “The pool will shore up confidence and provide support for these nations in any kind of emergency,” said Alvin Liew, an economist at Standard Chartered Plc in Singapore. “We cannot rule out that some countries will need to tap the fund in this crisis.” Many Asian currencies have weakened in the past year, threatening to undermine regional stability, as fallout from the global credit crunch ripples through their export-dependent economies. The fund is aimed at ensuring central banks have enough to shield their currencies from speculative attacks such as those that depleted the reserves of Indonesia, Thailand and South Korea during the 1997-1998 financial crisis. “Capital flows into the region have decreased due to global de- leveraging,” the ministers from the 10-member Association of Southeast Asian Nations and their three northern neighbors said in a joint statement. Threat to Growth Large reversals “of capital flows, which have affected the financial markets, could undermine growth prospects,” they said. “This can be a significant downside risk to regional growth, which has already been dragged down by the global economic downturn.” Eight of 10 of Asia’s most-traded currencies outside of Japan have declined against the dollar in the past year, led by a 37 percent slump in the Korean won and a 23 percent drop in Indonesia’s rupiah, according to Bloomberg data. The currencies are at risk of further losses as wealthier nations curb overseas investment and private investors sell existing stock and bond holdings in emerging markets. Japan, China and South Korea will provide about 80 percent of the currency pool with the 10 Asean members contributing the remainder, the statement said, in line with last year’s proposal. How much each country will contribute is still under discussion and no date was set for completion of the new arrangement. Asian Crisis A decade ago, Indonesia, Thailand and South Korea spent much of their foreign reserves attempting to prop up their exchange rates. The three nations were forced to turn to the International Monetary Fund for more than $100 billion of loans. In return, the governments had to cut spending, raise interest rates and sell state-owned companies. In the years since, Japan, China and South Korea together with the Asean economies have amassed more than $3.6 trillion of foreign- exchange reserves, about half of the global total. Fallout from the current global slump has led to some Asian nations using their reserves to support their currencies. South Korea’s foreign-currency holdings declined to $202 billion in January from a record $264 billion last March. The nation may use reserves after the won weakened beyond 1,500 per dollar last week, Yonhap News reported today, citing unidentified government and central bank officials. Malaysia’s gold and foreign-exchange reserves fell to $91.3 billion on Jan. 30 from $123.7 billion on Aug. 15. Indonesia’s reserves have slumped by $10 billion since last July to $50.9 billion at the end of January. ‘First Step’ “There remains the need for more foreign exchange cooperation and coordination” to bolster regional stability, Asian Development Bank President Haruhiko Kuroda told the ministers in Phuket, according to the text of his speech obtained by Bloomberg News. “A multi- lateralized and expanded Chiang Mai Initiative is a critical first step only if it is operationalized quickly.” Asian nations are expanding or forging new bilateral currency swap agreements even as they set up the combined reserve pool. Japan and Indonesia yesterday agreed to boost the size of an existing bilateral swap agreement to $12 billion from $6 billion. China and Malaysia this month agreed on a three-year 80 billion-yuan ($11.7 billion) currency swap. “As an interim measure, the existing bilateral swap agreement network should play its full role and be strengthened in terms of size and participants if necessary,” the Asian ministers said in the joint statement. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "World-thread" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/world-thread?hl=en -~----------~----~----~----~------~----~------~--~---
