Asian Nations Plan to Set Up Money Fund

Despite U.S. criticism, Asian nations are planning to set up a regional monetary fund modeled after the $17.2-billion Japanese-led rescue package cobbled together in August for Thailand’s troubled economy, Japan’s Finance Ministry said Wednesday.

A proposal for an “Asian Monetary Fund” of as much as $100 billion was a hot topic of discussion at an International Monetary Fund meeting in Hong Kong last month. But apparent opposition from the United States had led some observers to conclude that establishment of the fund appeared unlikely.

U.S. criticism was based largely on fears that such a fund might undercut the tough conditions the IMF attaches to bailouts, and also on concerns that a Japanese-led regional organization might freeze out the United States, analysts said.

A regional fund would boost Japan’s clout in Asia. It might also provide greater economic stability for Japan itself, as well as for its neighbors, by lessening the possibility that a Thai-style currency crisis could become contagious, with troubles spreading from one country to the next.

The devaluation of the Thai baht on July 2 set off a string of currency and stock market collapses in Southeast Asia that seriously set back prospects for economic growth in the region. The effects could have been much worse without the international rescue package approved in August. It included contributions of $4 billion each from the IMF and Japan and lesser sums from Singapore, Malaysia, Hong Kong, Australia, China, Indonesia and South Korea.

In a briefing for foreign reporters Wednesday in Tokyo, a Finance Ministry official, speaking on condition of anonymity, said plans for a regional fund are moving forward. He stressed, however, that the new organization will supplement and support IMF activities, not undermine them.

Critics of easy bailouts say they could encourage reckless policies in developing countries and fail to force governments to take the hard measures necessary to restore financial discipline once an economy is in serious trouble.

Despite Japan’s pledges that the new fund would not undercut the IMF, some analysts believe it could serve as a way for Asian countries to lessen what they sometimes see as U.S. bullying.

“The reason Asian countries are asking Japan for help is that they don’t want the United States to interfere in their affairs,” said Harumi Ichiki, an analyst at Sumitomo Life Research Institute.

Though Japan is still widely mistrusted in Asia because of its World War II aggression, it is usually less assertive than the United States on issues ranging from human rights to market-opening demands.

Given the size of its economy, Japan would be the leading contributor to any regional fund. Possible roles for the fund include intervening in currency markets to support stable exchange rates and providing a framework for countries to give advice to neighbors believed to be pursuing mistaken economic policies.

Such “policy dialogue” among nations of a region “frequently takes place in Europe and other parts of the world,” the Finance Ministry official said. “Unfortunately, such dialogue has not taken place in Asia to a sufficient degree.”

Although much remains to be settled, the basic decision to establish a permanent regional fund was made this summer at a meeting in Shanghai of East Asian central bank governors, the official said.

Natsuki Takagi, head of research at Tokai Bank, said Japan supports the idea of a regional fund partly because of the damage Southeast Asia’s economic troubles have inflicted on Japanese companies.

“Japan is trying to prevent this kind of situation and help [Japanese companies] through something like this fund,” Takagi said. “It’s understandable that Japan is interested in establishing it. Japan should do it.”

Such a fund would not undercut IMF bailout conditions because it would be used for rescue efforts only in conjunction with IMF action, as was the case with Thailand, the official said. Thus the fund’s money would go to rescue operations only when a bailout package was approved by both the IMF and the new regional organization, he said.

Japanese Finance Minister Hiroshi Mitsuzuka broached the idea at a meeting of finance ministers from the Group of Seven industrialized nations that took place in Hong Kong during the IMF gathering.

But U.S. objections prompted some public backpedaling by the countries involved. U.S. Treasury Secretary Robert E. Rubin won agreement that Washington would be involved in any further discussions of the idea, and according to some media reports, he portrayed that promise as a victory for U.S. diplomacy.

The Finance Ministry official said that both the IMF and the United States would be invited as “observers” at future meetings to set up the Asian fund but that such limited status would not make them powerless to affect the proceedings.

“Whether they are ‘observers’ or not is not so relevant,” he said. “Without the IMF, any of these kinds of things cannot be adequately discussed or fully discussed . . . . The IMF should be a permanent participant in any discussions of this kind.”

The place and time of the next meeting to discuss the fund has not been set, he said.

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Etsuko Kawase of The Times’ Tokyo bureau contributed to this report.

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