APEC Expected to Back Monetary Plan

Key Asia-Pacific leaders are expected today to endorse the so-called Manila plan for a regional monetary stabilization package designed to provide “backstop financing” to Asian economies in trouble.

While President Clinton and other leaders meeting here are using every opportunity to bolster confidence in Asia’s future, there is a sense of urgency to give global investors confidence to return to Asia and dissuade speculators from attacking the region’s currencies and markets.

Supporters call the proposal a significant step because it gives the International Monetary Fund, which would oversee the program, a vehicle for addressing the effects of huge buildups of short-term debt, much of it in the private sector, an increasingly common and dangerous phenomenon.

That would represent a major evolution in policy for the IMF, which has been accused of paying too little attention to Asia and focusing too much of its resources on the problems of government indebtedness. The IMF was created after World War II as a vehicle for stabilizing the global financial system.

“Just the existence of such a regional arrangement . . . would discourage speculative investment,” said Dr. Young Soogil, president of the Korean International Economic Policy Institute.

The plan, a response to the economic crisis that has spread across Asia since July, was drafted last week in Manila by 14 deputy finance ministers in preparation for this week’s Asia-Pacific Economic Cooperation forum, which is being attended by Clinton and 17 other Asia-Pacific leaders.

The proposal dominated breakfast talks Monday among Clinton and leaders of the Assn. of Southeast Asian Nations.

Critics questioned whether the Manila proposal is strong enough medicine for Asia’s current problems, since it doesn’t specify how a monetary support mechanism would work, how much money would be ponied up by its supporters or who would be in charge.

Walden Bello, a Bangkok, Thailand-based economist and director of Focus on the Global South, a nonprofit research group, said the APEC governments have “abdicated their responsibility” to protect their people from the effects of massive movements of capital by failing to establish a system of currency controls.

Malaysia and Chile also believe there is a need for a global system of currency controls to discourage short-term speculation. Chilean Foreign Minister Jose Miguel Insulza said his nation has implemented such measures, including requiring a one-year waiting period for the withdrawal of capital, and has no problems attracting foreign investors.

But the United States and Japan oppose those measures, arguing that it is not possible, or desirable, to limit capital flows in an increasingly global economy.

The Clinton administration pushed hard for support for the Manila monetary-stabilization plan after vigorously opposing an earlier plan championed by Japan for an Asian Monetary Fund. U.S. officials feared that the creation of an Asian pot of money would undermine the IMF and make it too easy for those governments to seek a bailout rather than confront difficult decisions.

But Hiroshi Hashimoto, the spokesman for Japan’s prime minister, said his government has decided to support the Manila plan because it achieves two important goals: forcing the IMF to turn its attention to Asia and institutionalizing a process of regional support that occurred in the past but only under the pressure of looming fiscal disaster.

For example, when Indonesia’s stock and currency markets began to weaken, a group of countries including the United States and Japan agreed to participate in a $23-billion IMF rescue package. But it took time to put that together, since no formal structure was in place. In the meantime, Indonesia’s economy slid further into trouble.

Mexican officials here, who have successfully turned around their economy after seeking a $50-billion IMF support package in 1995, also believe the proposed stabilization program is the right idea.

“Certainly the recipe is one of going to the source of the problems,” said Herminio Blanco, Mexico’s secretary of trade and industrial development. “These countries have to take the bitter medicine and together with that they need financial support.”

The APEC leaders are considering calling for an early meeting of their finance ministers to push the Manila plan forward, according to officials. For South Korea, which is undergoing an IMF review to determine the size of its bailout, the help may come too late.

“We hope Korea is the last country to have this problem,” said Kim Ki Whan, South Korea’s ambassador at large for economic affairs. “We hope no other country gets sucked into this [economic] contagion.”