Japan flexes muscles with currency plan

By F. J. Khergamvala

TOKYO, MAY 13. Last week's decision by 10 Asian Finance Ministers on establishing a currency swap agreement symbolises Japan's realisation that its old ways of diplomatically outflanking the U. S. paid better dividends than a headlong confrontation.

Japan's Finance Ministry, still smarting from the slight of two and a half years ago when the U.S. and China ganged up to abort a Japanese initiative for an Asian Monetary Fund (AMF), obtained some compensation by leading 12 other Asian nations into a coordinated network of currency swaps. Ten Finance Ministers from the Association of South-East Asian Nations and Japan, China and South Korea agreed in Chiang Mai, Thailand to give Japan its due leadership provided it does not embroil the 10 in a larger controversy. China is said to be ``positively neutral.''

Last November, the summit of the ASEAN plus the three heard from Japan the idea of expanding the swap concept. The idea was fleshed out at the Finance Ministers' meeting in Brunei in March. In Chiang Mai, the Ministers agreed to Japan's proposal to expand Japan's bilateral swap commitments and an existing $ 200 million currency swap arrangement among the ASEAN's five members. The mechanism is for members to pool a part of their foreign reserves to help partners ward off speculatory attacks on their currencies. The multilateral currency swap arrangement is no where near the blockbuster $ 100 billion AMF idea, whose sheer size led the U.S. to believe that Japan was trying to exploit the weaknesses of regional economies to establish a regional hegemony. It is premature to believe that the swap agreement could be the thin end of the wedge. The AMF idea was pushed in Hong Kong during the annual IMF/World Bank meeting in September 1997, two months after the collapse of the Thai Baht followed later by a region wide crisis.

On Sunday, the U.S. acknowledged partial retreat by giving qualified welcome to the swap. The U.S. Assistant Treasury Secretary attending the Chiang Mai meeting said the swap agreement should not lull the Asian nations into exemption from structural reform. In fact, one of the reasons for the U.S. opposing the earlier AMF idea was the suspicion that by creating a huge fund, Japan could impose its own guided capitalism at a time when the ailing economies needed a tough, IMF-led assistance package pre-conditioned on reform. Obviously, the U.S., the major power in the IMF also did not want its clout in Asia diminished.

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Section  : International
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