Sunday, finance ministers from across Asia agreed to set up a $120 billion emergency fund to be launched by the end of the year to enhance Asian countries' ability to counter the global financial meltdown, guaranteeing the safety of their foreign reserve and attracting overseas investment with a more secure capital environment, reports say.
At the Asian Development Bank's annual meeting in Indonesia's resort island of Bali, Asia's biggest economy Japan as well as China agreed to contribute $38.4 billion each to the region's planned foreign-exchange reserve fund known as the Chiang Mai Initiative. The rest is to come from South Korea ($19.2 billion) and the 10-member Association of Southeast Asian Nations.
The initiative aims to create a network of bilateral currency-swap arrangements between Asean--comprising Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam--and the three East Asian countries. The program will allow smaller Asian economies to borrow larger amounts in proportion to their contributions than the more-developed economies.
The ministers also unveiled a $500 million credit-guarantee and investment mechanism, which will be used to enhance the credit ratings of companies that want to issue debt.
Japan also announced plans to launch a program to provide around JPY6 trillion in emergency funds for Asian countries to support its neighbors in an economic downturn. Separately, the Japan Bank for International Cooperation will guarantee the so-called Samurai bonds--the yen-denominated bonds sold in Japan by foreign governments and companies--issued by Asian nations worth up to JPY500 billion.
Finance officials at Bali said Asian governments must spend more on social safety nets and reduce their reliance on export-driven growth, as many Asian economies are reeling under the economic downturn with their export demands--the region's main growth engine--drying up in big Western markets amid the worst global slump since World War II.
The region's economies are likely to grow just 3.4 percent in 2009, the slowest pace since the Asian financial crisis a decade ago, the ADB has forecast. It sees growth recovering to 6.3 percent next year if demand rebounds.
A joint statement by the region's finance ministers said Sunday that 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, it added.
Earlier Saturday, the ADB said that it will increase lending to the region's poorest nations by more than $10 billion over two years, though this won't be enough to compensate the shortfall created from a near-halt in private investment amid the economic crisis.
The announcement came just days after the bank's 67 member-countries approved a tripling of the ADB's capital to $165 billion, expanding its ability to finance infrastructure and other projects aimed at reducing poverty in partnership with the private sector.
Meanwhile, the Manila-based multilateral lender has warned that 61 million persons would remain trapped in extreme poverty this year because of the global slump--a figure that could increase to nearly 160 million if slow growth continues next year.
Haruhiko Kuroda, the bank's president, said the collapse in global trade has gathered momentum as export markets contract. Japanese Finance Minister Kaoru Yosano, who is also a governor of the ADB, said Asian countries must restructure their economies and prop up domestic demand to avoid economic meltdown.
Boosting Asia's spending on social protection--currently the lowest of any region as a percentage of gross domestic product--is crucial to boosting confidence and reducing the human cost of an economic downturn, he said.
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