The Association of Southeast Asian Nations and Asia's leading economies - China, Japan and South Korea mutually agreed on Sunday to form a $120 billion emergency fund, a regional initiative,administered internally to counter any global financial crisis.
Finance ministers from 13 east and Southeast Asian countries reached an agreement on the sidelines of the 42nd annual meeting of the Asian Development Bank (ADB) in Bali, to improve the existing Chiang Mai Initiative Multilateralisation or CMIM network of bilateral currency swap schemes to a multilateral operation by the end of this year.
China and Japan will each contribute 32 per cent ($38.4 billion), while South Korea will provide 16 per cent ($19.2 billion) which amounts to 80 per cent of the total $120 billion emergency fund. The remaining 20 per cent will be provided by the 10-member Association of South East Asian Nations.
The four larger ASEAN economies - Indonesia, Malaysia, Singapore and Thailand - will contribute $4.77 billion each and Philippines will contribute $3.68 billion. The allocations will not exceed 10 per cent of each country's foreign reserves.
The smaller five economies namely Brunei, Cambodia, Laos, Myanmar and Vietnam will contribute 5 per cent of their foreign reserves.
The combined bilateral deals arrived at, was to the tune of $83 billion.
"We are pleased to announce that we have reached agreement on all main components of the Chiang Mai Initiative Multilateralisation or CMIM and decided to implement the scheme before the end of the year," said Chatikavanijn, Thai finance minister at a press conference.
The Chiang Mai Initiative scheme of bilateral swap deals was launched as a regional endeavour in 2000 between finance ministers of the 13 countries after the 1997-1998 Asian financial crisis to protect Asian countries from any regional financial crisis.
The fund denotes Asia's desire for self-reliance in crisis, said General Rajat Nag, Asian Development Bank's managing director.
Japan's finance minister Kaoru Yosano announced that Japan will offer upto 10 trillion yen to support other Asian nations hit by economic crisis, of which about 6 trillion yen ($61.54 billion) will be made available from its foreign reserves using a currency swap deal.
The Japan Bank for International Cooperation will also set up a 500 billion yen ($5 billion) of yen-denominated Samurai bonds to further support other Asian nations, he added.
The scheme provides an emergency balance of payments support to a country in a crisis situation and provides an option to change the Japanese currency into dollars or any other major currencies.
"We would be very happy if this scheme will be able to ease the difficulties that the countries might face in issuing their bonds," said Kaoru Yosano at the press conference.
Under the frame work of the $120-billion emergency fund, the decision-making on lending matters will be made on a simple voting majority, while agreement of full members will be required for changes on fundamental matters such as terms of lending, length of lending and membership.
Asian Development Bank and the ASEAN Secretariat which will be formed in due course will manage the fund as well as set up a surveillance unit to supervise the Asian region's financial performance.
Although the formation of the funds was finalized, the actual currency on which the fund will be based was not disclosed in the joint statement.
The ADB also promised to increase lending to about $33 billion starting 2009 to 2010, almost a 50 per cent increase over 2007-08, to counter the economic crisis.
ADB has forecasted a 3.4 per cent growth for Asian economies this year, the slowest rate since the 1997 Asian financial crisis. It has also projected growth to recover to 6.3 per cent in 2010.
The next Asian finance ministers meet will be chaired by China and Vietnam at Tashkent next year.
Asian leaders are working together since the advent of the global financial crisis. In December, leaders of China, Japan and the Republic of Korea sealed a historic tripartite partnership to tackle the global financial crisis in Japan's Fukuoka Prefecture. (See: China, Japan, South Korea sign historic trilateral deal)
In another move in December, central bankers from China, Japan and South Korea agreed to hold regular meetings to discuss regional economic and financial issues, aimed at enhancing the dialogue mechanism among the financial policymakers of these countries. (See: China, Japan, Korea bankers to meet annually)
Facing the global financial crisis, the Association of Southeast Asian Nations (ASEAN) called for coordinated action and reform of international financial systems at the ASEAN meet in March. (See: ASEAN unites to face economic heat)
Similarly, the global economic crisis has hit hard the oil rich nations pushing the Gulf Corporation Council to approved an agreement to create a central bank and single currency for the region to boost trade and strengthen monetary policy. (See: GCC to have common currency by end 2009) and the 29th annual summit of the Gulf Cooperation Council (GCC) emphasised the goal of a common currency and broader economic unity. (See: GCC conference to focus on economic issues)