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Friday, 11 May, 2001, 17:11 GMT 18:11 UK
Asia plans currency fund
Protestor against ADB
Anti-globalisation protests were visible but peaceful
Asian financial leaders have spent Thursday and Friday locked in a period of intense talks on the Pacific island of Hawaii - the 50th US state.

Many of the nations are still struggling with the aftermath of the 1997 financial crisis, and the leaders are desperately trying to set up new structures to protect themselves from any such future crash.

Despite unprecedented and unparalleled economic growth in many Asian countries over the past 30 years, Asia still remains home to two-thirds of the world's poor

Tadao Chino
ADB President
The 34th annual general meeting of the Asian Development Bank in Honolulu drew ministers and central bankers from across Asia, as well as US Treasury Secretary Paul O'Neill.

Several thousand protestors also turned up, but the estimated $7m spent on security ensured that the demonstrations remained peaceful.

The most significant development during the meeting was the progress made on a currency swap agreement aimed at protecting local currencies from being aggressively sold down in speculative trading - the very event that triggered the 1997-98 crisis.

Safety net

Japan concluded bilateral swap agreements worth $3bn for Thailand, $2bn for South Korea and $1bn for Malaysia.

ADB President
Tadao Chino admits that IMF surveillance is necessary
Japan expects further agreements to be made with the Phillippines and China by the summer.

This will now increase the existing currency web formed one year ago between the Association of South East Asian Nations and Japan, China and South Korea.

The idea is to offer vulnerable countries the ability to draw on the web of swap deals in times of crisis or fund shortage.

The negotiations have been long and tortorous, with the US opposing any developments which might weaken the power of the International Monetary Fund.

Existing problems

Analysts have a expressed concern that much more attention has been given to finding future solutions rather than discussing existing problems.

The global economic slowdown has meant that nations like the Philippines, Thailand and Indonesia have found the path to recovery longer and harder than expected.

And the weakness of the Japanese yen is also hindering the competitiveness of the exports of its surrounding countries.

An ADB report said that rate of growth in the value of exports is expected to decline sharply from 21% in 2000, to just 3% in 2001 before strengthening to 13% the year after.

Overall Asian economic growth is forecast to slow to 5.3% this year, down form 7.1% last year.

Symbolic start

Analysts also say the current steps to create current swap arrangments are mainly symbolic, with a lot more money - in the order of $50bn - needed to create an effective safety net.

Growth in value of exports
2000 21%
2001 3%
2002 13%
And there are also fears that the deals could actually encourage the speculation it was designed to protect currencies from.

"Speculators will be delighted, no doubt, at the enlarged pool of funds available for squandering by central banks" said a scathing commentary in Deutsche Bank's Asia Economics Daily, adding that a couple of billion dollars could only conceivably stave off devaluation for a few days.

The network is also controversial because it is viewed as an early step towards the creation of an Asian Monetary Fund which would later act as an alternative - potentially a rival - to the International Monetary Fund (IMF) and the World Bank.

US rebuff

Japan's previous proposals for the creation of an AMF were quickly rebuffed by the US over concerns over an appropriate system of accountability.

Hawaiian dancer
Hawaii was chosen as a location to discourage protestors
And Japan itself has now admitted that there is a "wide gap" over the issue of regional surveillance.

Other countries such as Malaysia were staunchly opposed to the ideal of ultimate control from the IMF.

Of the 59 nations who are members of the ADB, Western countries together account for a 36.2% share.

The US and Japan hold the largest share of 15.9% each.

Poverty reduction

The main objective of the bank is to halve Asian poverty by 2015. It lent $5.85bn to 22 countries last year.

"Despite unprecedented and unparalleled economic growth in many Asian countries over the past three decades, Asia still remains home to two-thirds of the world's poor," said ADB's Japanese President Tadao Chino.

But the administration of these good intentions has also come under fire.

Several Western countries including Britain have accused the ADB of wasting resources and spending too high a proportion of the money on small, non-strategic projects.

Wasted resources

In an internal audit last year, 38% of the bank's projects were deemed "less than successful"

...rethink, restructure, reorganize and reorient...

Sweden on what the ADB needs to do
"ADB's self-avowed goal of reducing poverty must "follow an obligation to rethink, restructure, reorganize and reorient" said Swedish foreign ministry official Gunilla Olson.

President Bush also warned that the bank must maintain the highest standard of accountability - "we look for concrete, measurable results," he said.

Meanwhile, anti-ADB activists marched on the Hawaii Convention Centre to denounce the bank as anti-poor.

See also:

08 May 01 | Business
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