ASEAN +3 May Increase Emergency Fund

Posted at Manila Bullletin on January 31, 2012, 11:36pm

SINGAPORE (Dow Jones) – Southeast Asian countries and Asia’s three largest economies will likely agree this May to expand an emergency fund designed to buffer countries in the region against global economic shock, the director of the fund’s research office said.

A doubling of the fund from its current $120 billion is the minimum amount needed to provide a safety net for Asia’s developing economies in light of current global uncertainty, said Wei Benhua, director of the ASEAN+3 Macroeconomic Research Office.

Wei was speaking in an interview with Dow Jones Newswires following the Singapore launch of the 20-person office, known as AMRO. The office is broadly comparable to a small-scale, Asia-only version of the International Monetary Fund: it will monitor economic conditions in the region, detect risk, and decide when and how to deploy the emergency fund.

The office is an outgrowth of a decade of work between officials in Japan, China, South Korea and the Association of Southeast Asian Nations–which includes Indonesia, Thailand, Vietnam, the Philippines, Singapore, Malaysia, and others. It is an effort by Asian countries to prevent another event like the 1998 financial crisis that ravaged Southeast Asian economies.

Wei said its mission is particularly urgent now, with the euro zone’s sovereign debt crisis threatening to send more severe repercussions around the world. For instance, an eventual departure from the euro zone by Greece or another member of the currency bloc could trigger outflows that would necessitate deploying the emergency fund, he said.

In such a scenario, the fund’s $120 billion would be insufficient, he said, pointing to Greece’s own bailout as an example.

“Greece is not a big economy, but they are taking in billions and billions of euros to address their problem. This region also needs to be well prepared in terms of financial resources. Doubling the current size I believe is a minimum first step,” said Wei.

But that means persuading the bigger kids on the block, China and Japan, to pony up more. They already have pledged $38.4 billion each, or 32% of the pool.

Wei said he doesn’t think it likely that the fund will be tapped in the short term. Asian countries have stockpiled foreign currency reserves and are well-prepared to weather global disruption; at the moment Wei said short of a euro-zone break-up, he doesn’t see a scenario that would trigger use of the fund.