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Sunday, 26 March, 2000, 16:09 GMT
Asian fund plan dropped
Brunei
The plan was raised at the Asean meeting in Brunei
By BBC Asia Business Correspondent Jonathan Head

Finance ministers from thirteen Asian countries have decided not to go ahead with a proposed emergency fund to help economies in the region which run into trouble.

Earlier, officials at the ministerial meeting in Brunei said they had reached agreement on establishing a fund.

Instead, the ministers have now decided to expand an existing agreement to support each other's currencies if they run into trouble.

The proposed fund had run into opposition from the US and Europe because it was feared it would undermine the role of the International Monetary Fund.

Talk of an Asian monetary fund has been around since the onset of the Asian economic crisis three years ago.

Gesture of solidarity

Part of the reason was that some governments in the region objected to the strict conditions imposed by the IMF in return for financial assistance.

The ministers discussing the proposed fund in Brunei this weekend had insisted it would complement rather than undermine the role of the IMF.

Now it appears they have decided to abandon the idea altogether.

Instead they plan to build on an existing agreement between five South East Asian countries to support each other's currencies in times of economic turmoil.

The problem with this agreement is that it is not binding and when there is a sudden drop of confidence in currencies, such as three years ago, it is hard to imagine one government gambling all its foreign reserves to support another country's collapsing currency.

The agreement would also have to include economic giants like Japan if it was to have any hope of mustering enough financial muscle to beat the currency speculators.

In practice, the watered-down proposal agreed in Brunei seems more like a gesture of regional solidarity than a real weapon against shifts in the global capital markets.

It leaves the International Monetary Fund and other multilateral financial agencies as the only source of substantial help when an economy runs onto the rocks.

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See also:

23 Mar 00 | Business
Growing row over IMF role
14 Sep 98 | The Economy
IMF cash crisis
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