Asia ponders bailout fund of its own

Bloomberg News

It's back! The so-called Asian Monetary Fund, that is. Such an animal was conjured up during Asia's financial crisis eight years ago and quickly died amid strong U.S. resistance to Asia creating a counterpart to the International Monetary Fund.

Last week's meeting of the Asian Development Bank in Istanbul appears to have marked the idea's resurrection. The fund, if created, could have major consequences for the so-called Washington Consensus on how developing nations should go about raising their living standards.

The idea came up in September 1997, amid worsening crises in Thailand, Indonesia and South Korea. The International Monetary Fund was holding its annual meeting in Hong Kong and Asian leaders pushed the idea of an Asia-only bailout fund to provide assistance to economies with fewer strings attached than the IMF required. Back then, the monetary fund was demanding high interest rates and fiscal tightening, policies that worsened the crisis.

Fueling speculation that the Asian Monetary Fund is back was a statement by a top Asia Development Bank official that currency-swap arrangements agreed to by the region have "the potential to become an Asian monetary fund." That the statement was made by Masahiro Kawai, an adviser to the Asia Development Bank's president, Haruhiko Kuroda, made it all the more significant.

Japan was arguably the most vocal advocate of an IMF-like organization for Asia, and Kuroda is a former deputy finance minister. Kuroda plans to use his time at the development bank to accelerate the economic integration and self-sufficiency of Asia. An Asian Monetary Fund seems a natural step in that direction.

The currency-swap arrangement to which Kawai referred is called the Chiang Mai Initiative. The $39.5 billion system to shield currencies from speculative attacks involving China, Japan, South Korea and 10 Southeast Asian nations is expected to double in value.

Yet Kawai agrees that "full IMF delinkage would not be desirable at this point." One reason is that nations involved in the Chiang Mai Initiative lack the bureaucratic infrastructure to conduct the kinds of economic surveillance and data collection done by the monetary fund. Kawai says that creating a secretariat to do just that is "clearly on the table."

David Roland-Horst, an economics professor at the University of California, Berkeley, thinks Asia should set up a regional equivalent of the Organization for Economic Cooperation and Development. "Just as it did for Europe, an Asian OECD could rapidly accelerate integration and independence for the region," Roland-Horst says.

Asia does have reasons to pursue its own monetary fund. The region is tired of U.S. assurances that free markets solve all problems.