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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

THE ASIAWEEK FINANCIAL 500

The Line in the Sand
Cooperation, yes. Asian intervention, no


THREE WEEKS AFTER THAILAND devalued the baht, 11 Asian central bankers gathered in Shanghai. They were talking only for the second time since Emeap -- the Executives’ Meeting of East Asian and Pacific Central Banks -- was formed at Japan’s urging in 1991. The outcome? Despite Southeast Asia’s tumbling currencies, the region’s economies were “fundamentally sound,” said the officials. Translation: Bank of Japan Governor Matsushita Yasuo, Bank of Korea’s Lee Kyung Shick and Hong Kong’s Joseph Yam, among other central bankers, would not take concerted action to support the baht and other currencies.

That was in late July. Since then, the baht, peso, rupiah and the ringgit have sunk to record lows. Even Singapore and Hong Kong are under attack. Will the region’s Group of Eleven -- Australia, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore and Thailand -- now march together to crush the speculators? Says a Singapore official: “A lot depends on Japan, since it would be difficult to develop a coordination mechanism without its leadership.” But the Japanese are lukewarm, partly because of worries that a high profile would ruffle China and Southeast Asia.

Others are moving. Prime Minister Mahathir Mohamad pitched the idea of an anti-currency-speculation coalition at the leaders’ meeting of the Asia Pacific Economic Cooperation (APEC) forum in Osaka in 1995 and again in the Philippines last year. Philippine Finance Secretary Roberto de Ocampo says he and his ASEAN colleagues will meet in Bangkok Sept. 17-18 to study the possibility of a common fund to be used by member countries hit by currency instability. But he does not expect a deal anytime soon. The best defense, says de Ocampo, “is keeping your fundamentals sound so that the basic framework of the economy remains strong.”

Most of the region’s central banks are opting for restraint over regional intervention. True, there is an agreement to help each other in times of turmoil. “But it involves nothing more than the exchange of information,” says Gabriel Singson, governor of the Central Bank of the Philippines. Last month, Thailand did get loans from Japan and other countries, backed by the International Monetary Fund. “Although it was initiated by the IMF, there was a strong sentiment among all central bankers that there should be a rescue package,” says Hong Kong Financial Secretary Donald Tsang Yam-kuen.

More help is available -- for a price. Under a regional repurchase arrangement, central banks can borrow dollars from each other, but must provide collateral in the form of U.S. government securities. An agreement among Indonesia, Malaysia, the Philippines, Singapore and Thailand is in place. Each can exchange its local currency for up to $80 million from a $200-million fund that may be increased this year. Bilateral pacts are also in effect. Last year, Hong Kong and Singapore signed an agreement with Tokyo to intervene on Japan’s behalf when the offshore dollar-yen exchange becomes too volatile.

Anything beyond these require political will. Former Reserve Bank of Australia governor Bernie Fraser suggested in 1996 that Emeap could evolve into an Asian equivalent of the Bank of International Settlements within three to five years. Owned largely by European central banks, the Swiss-based BIS acts as a clearing house for the foreign reserves of many countries and as a lender of short-term loans. An Asian BIS could work better for the region because it would operate in the same time zone. And transactions costs could be lower. The Swiss BIS charges members of the OECD -- the rich nations’ club -- lower rates than the rest of its clients.

But Japan, which is part of the OECD and BIS, has reservations. Instead, it calls for the inclusion of more Asian central banks in the Bank for International Settlements. Nine of them, including those from China, India, Hong Kong and Singapore, were invited last year to buy equity. The BIS has also said the new members will be given a strong voice, despite fears from existing shareholders about the dilution of their influence. As if to underscore its commitment to Asia, the bank arranged a $3.3-billion bridging loan to Thailand in August. The money came from the U.S. and Europe.

What no one disputes is the importance of cooperation. Within the 18-member APEC, finance ministers now meet regularly. “We need more frank consultation and frequent dialogue,” says Malaysian Finance Minister Anwar Ibrahim. “The risks that accompany the move towards greater financial integration and increasing openness are obvious. These risks include instability, increased risk-taking by financial institutions and pressures on international payment and settlement systems.” Just don’t expect intervention.

-- By Alejandro Reyes and Antonio Lopez


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