East Asian finance officials line up for photographs yesterday in Chiang Mai.

East Asian finance officials have agreed to pool their international reserves into a multilateral arrangement, paving the way for a regional version of the International Monetary Fund.

Asean+3 (Asean's 10 members plus China, South Korea and Japan) officials yesterday agreed to upgrade the bilateral swap arrangement under the so-called Chiang Mai Initiative into a multilateral deal.

The Chiang Mai Initiative, the first phase of regional financial cooperation, came about in 2000 as a regional self-help network.

If the second phase is successful, the cooperation will enter the third stage where a central body will be established to manage international reserves and achieve the ultimate goal of an Asian Monetary Fund, providing immunity against volatility in the global financial market.

East Asian countries are now under pressure from global imbalances that affect the values of their currencies. Most central banks in the region have over the past year piled up international reserves to maintain their currencies at a competitive level.

"The agreement will be proposed to the Asean+3 finance ministers' meeting for endorsement on May 5 in Kyoto, Japan," Suparut Kawatkul, Thailand's permanent secretary for finance, said yesterday.

Global imbalances will be on top of the agenda at the 11th Asean finance ministers' meeting in Chiang Mai today. Ministers are expected to discuss the impact from global imbalances on capital inflows, the movement of inflows and financial cooperation to pave the way for an Asean Economic Community by 2015.

On the multilateral arrangement, Suparut said the Chiang Mai Initiative had progressed over seven years and now the region wanted to advance it to a higher level.

Suparut and Li Yongh, China's vice minister of finance, chaired yesterday's meeting of Asean+3 finance officials and central bank deputies.

Officials said they were concerned about capital inflows into the region that pushed up regional currencies against the US dollar. "They shared the view that regional currencies should move up in tandem," said an official, speaking on condition of anonymity.

Officials also agreed to set up an infrastructure investment fund aimed at using huge savings for investment in the region.

Suparut told a press conference that officials had agreed to set up the fund within two years. He said officials from finance ministries and central banks from the 10 Asean+3 countries would mobilise surplus savings from current accounts to invest in infrastructure projects.

Pannee Sathavarodom, director-general of the Fiscal Policy Office, said the scheme would provide opportunities for institutional investors in Thailand such as the Government Pension Fund and Social Security Fund.

When the Chiang Mai Initiative was set up after the 1997 Asian financial crisis, then-finance minister Tarrin Nimmanahaeminda and his counterparts believed that pooling of short-term liquidity support would help to prevent another crisis by providing immediate assistance to help a country defend its currency from speculators.

Thailand became the epicentre of the crisis after it lost the battle with currency speculators to the point where its reserves dried up.

Since then, the Kingdom has made several bilateral swap agreements with Asean members, plus China, Japan and South Korea.

Suparut said the second phase would enter a multilateral level, or a so-called "self-managed reserves pooling".

The pool would be about US$80 billion (Bt2.6 trillion). Each country would contribute and each would manage its contribution, said Suparut.

Asean+3 would also consult with the International Monetary Fund on whether each country's contribution would still be counted as official reserves of that country, he added.

The pool would be bound by a contractual agreement less rigid than a treaty. If the second phase succeeds, Asean+3 would move up to the third phase of setting up a central mechanism to manage the pool, he added.

The meeting also discussed the Asian bond market, which has expanded by 2.5 times in the past four years.

Finance Minister Chalongphob Sussangkarn agreed with his Singaporean counterpart to launch a pilot project to link bond trading between the countries.

Wichit Chaitrong

The Nation

CHIANG MAI