Twin boost set for Asian crisis fighting arsenal

Asian leaders are pulling together billions of dollars of financial resources as part of a strategy to insulate the region from the fallout from the economic downturn and financial crisis in the West.

The ADB is poised to win approval at this week’s meetings for its concessional facility, the Asian Development Fund (ADF), which is expected to exceed $12 billion or an increase of least 6% on the previous replenishment.

Meanwhile finance ministers and central bank chiefs from the ASEAN+3 countries are expected to announce today a doubling of resources to $240 billion for Asia’s quasi-monetary fund, the Chiang Mai Initiative Multilateralized (CMIM), at a meeting chaired by Cambodian finance minister Keat Chhon on the sidelines of the ADB gathering.

ABD president Haruhiko Kuroda said the boost to the ADF combined with a major capital increase several years ago, meant the bank had sufficient financial resources overall to face the challenges confronting Asia.

In addition to the boost in CMIM finances, the amount of money it can lend to without members needing an IMF programme is likely to be increased from 20% to 30%, Kuroda said.

This is because of the CMIM’s enhanced economic surveillance capability via the Asian Monitoring Regional Office (AMRO) in Singapore.

Kuroda said he did not envisage International Monetary Fund or CMIM resources being needed anytime soon. “The Asian financial system at this moment is much safer and more robust than in the past Asian economies are growing very fast despite the global economic slowdown,” he said

On the expansion of the ADB’s own financial resources which governors are set to discuss in Manila this week, Kuroda expressed the hope that “soon we can announce the final results of ADF 11 negotiations.

“I expect that ADF 11 will have significantly larger resources than ADF 10 which were [around] $11.3 billion,” he said. “ADF 11 will be $12 billion or even slightly more, which is a significant increase. Given the difficult economic and fiscal situation in many traditional donor countries this is great success.

“Not only European countries but also the US, and Japan have quite serious fiscal problems and given this situation we highly appreciate [their contributions],” he said.

Emerging economies have shown willingness to contribute more to the ADF but these contributions remain “relatively small” by comparison with the “enormous” contributions of traditional donors - Japan, US, Canada and Europe - he said.

“In the long run this position might change but at this moment many emerging donors are still middle income countries” and this constrains their ability to contribute more to ADF yet, he added.

US banks have their own problems to deal with while Japanese banks are “cautious” given the stiffer capital requirements under the Base III regime, he suggested.

Meanwhile Naoyuki Shinohara, deputy managing director of the IMF, said he was confident the fund could work with the CMIM. He said the IMF and the CMIM could play a “complementary” role in crisis provision but noted that cooperation between the IMF and European countries was not always “smooth”.

“Sometimes there are conflicts of interest and differences of opinions. We have made efforts to smooth out those differences and I believe we have been successful,” he said.

“The same applies to the situation in Asia. If a crisis is significant and if it has spillovers into other countries I think there is big room for the IMF and the CMIM to work together.”