Malaysia proposes alternative surveillance mechanism

Asian Economic News, April 9, 2001

KUALA LUMPUR, April 5 Kyodo

Malaysia on Thursday recommended an alternative surveillance mechanism to officials of Southeast Asian finance ministries and central banks in a move to keep the International Monetary Fund (IMF) out of a regional currency swap arrangement.

Malaysian Finance Ministry Secretary General Samsudin Hitam confirmed the proposal was tabled at a meeting Thursday of the Association of Southeast Asia Nations (ASEAN) finance and central bank deputies ahead of a weekend meeting in Kuala Lumpur of ASEAN finance ministers and their counterparts from China, Japan and South Korea.

''We discussed that. It's part of the agenda,'' he told reporters, but declined to elaborate.

Finance ministers who met in Chiang Mai in May last year had agreed to establish a network of central bank currency swaps among 13 Asian countries -- 10 from ASEAN plus Japan, China and South Korea -- in a bid to avoid the pitfalls of the 1997 financial crisis.

The plan -- known as the ''Chiang Mai Initiative'' -- aims to link the international reserves of the ASEAN members through bilateral pacts with its three dialogue partners.

Malaysia has expressed reservations about tying disbursements of funds under the swap scheme to reforms supervised by the IMF as insisted on by the three potential creditors -- Japan, China and South Korea.

''We are not under the IMF. Why should they impose IMF conditions on us?'' Malaysian Finance Minister Daim Zainuddin said recently.

Malaysia has been a critic of the way IMF handled the 1997 regional financial crisis, especially its ''one-size-fits-all'' policy. It claimed the IMF imposed too strict a condition and disbursement of funds took too long, thus exacerbating the crisis.

Malaysia has survived the crisis without IMF help. It instead imposed controversial capital control measures and pegged its ringgit to the dollar.

Thai Finance Ministry director general of fiscal policy Sathit Limpongpan was optimistic a consensus could be reached on the swap arrangement.

''Everyone agreed there should be an ASEAN consensus. We need to negotiate with the plus three nations on the IMF role. The bottom line is, we want to achieve the bilateral swap arrangement,'' he said.

A Japanese official said Malaysia would have to agree on the swap arrangement scheme if it wants to continue with the current $2.5 billion swap line it has with Japan.

Malaysia signed the bilateral swap arrangement (BSA) with Japan in August 1999 under the Miyazawa Initiative and it must be renewed annually.

It was renewed in August and has four months left before the BSA expires this year.

Japan is hoping that the ASEAN ministers will reach a consensus before the 13 finance ministers meet in May in Honolulu.

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.