China injects $38b into Asian crisis fund

China, Japan and South Korea Sunday finalized details of an emergency $120-billion liquidity fund to help 13 Asian economies counter the global economic downturn.
The three nations will contribute on a 2:2:1 ratio - $38.4 billion from China and Japan and $19.2 billion from South Korea - making up 80 percent of the fund, known as the Chiang Mai Initiative.

Japan has also launched a separate scheme to supply up to 6 trillion yen ($61.5 billion) to support nations hit by the economic crisis.

Both announcements were made on the Indonesian island of Bali, on the sidelines of the Asian Development Bank's (ADB) annual meeting.

South Korean Minister of Finance Yoon Jeung-hyun told reporters after a meeting with counterparts from China and Japan that Beijing and Tokyo would each contribute 32 percent to the regional initiative.

South Korea would provide 16 percent, while the rest would come from the 10-member Association of South East Asian Nations (ASEAN), he said.

The fund will give emergency balance of payments support to any country experiencing the kind of capital flight that marked the Asian financial crisis of 1997-98.

"The three countries have reached an agreement, recognizing the importance of our cooperation in the region," said Yoon.

The deal between the key players over what would be the region's first anti-crisis fund makes it likely all countries involved would conclude negotiations on the initiative by the end of the day. ASEAN includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

ADB lending

The ADB also plans to counter the crisis by ramping up lending to about $33 billion over the next two years, almost a 50 percent increase on 2007-08. The Manila-based multilateral lender is funded by donations mainly from Japan, the United States and European nations.

"The economic crisis in Asia has had a much more severe impact than probably we have reckoned," said Rajat Nag, managing director-general of the ADB.

Jong-Wha Lee, its acting chief economist, added economies in Asia had probably hit the bottom of the crisis but a major recovery still hinged on the revival of demand in developed nations, while officials suggested growing efforts by Asian nations to protect themselves will complement the role played by the International Monetary Fund (IMF) in combating the global recession.

"We are seeing a greater multi-lateralisation and expansion of the Chiang Mai Initiative, which is not at the cost of the region's role in the IMF or the IMF's role in the region," said Nag, who added: "If the region is going to be an economic growth center it is appropriate it knows it has the resources and reserves to stand on its own feet."