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Last month, while Lehman Brothers was filing for bankruptcy and Merrill Lynch sought a merger with Bank of America, Supachai Panitchpakdi, the secretary-general of the United Nations Conference on Trade and Development, proposed that Asia move ahead to establish the Asian Monetary Fund to mitigate the global financial crisis.

"Global emerging markets should work together to avert a global crisis," Supachai told the Vietnam Economic Conference in Hanoi. "In the short run, actions should be taken including injecting funds and keeping interest rates from going up."

The Asian Monetary Fund, once established, would represent the hallmark of regional financial cooperation that could reshape the global financial architecture.

As the deputy prime minister between 1997 and 2001, Supachai has fresh memories of the Asian financial crisis, which was sparked off after the baht's devaluation.

One of the main problems then was the lack of a global lender of last resort. When Thailand faced a balance of payments crisis and lost almost all of its foreign-exchange reserves from the baht attack in 1997, it could not find any institution willing to provide credit to shore up its reserves.

The International Monetary Fund was not acting as lender of last resort, nor did the G-7 pay any attention to the Thai and Asian crises.

In Hong Kong in 1997, on the sidelines of the World Bank/IMF annual meeting, Japan pushed for the setting up of the Asian Monetary Fund as an institution to help prevent a future financial crisis. It was afraid of the contagious effect of the financial meltdown. Once the crisis hit one country, it could spread, like flu, to others. With its huge investment in Asia, Japan was concerned that a regional financial crisis could hurt its plants and investment.

But the United States shot down this Asian Monetary Fund proposal, fearing that it could rival the IMF, over which it has influence. Thanong Bidaya, the then finance minister, sought help from Alan Greenspan, the chairman of the Federal Reserve, and Robert Rubin, the US Treasury secretary. They told Thanong to work with the IMF programme.

Eventually, Asian governments came to Thailand's rescue, with the participation of the IMF and the World Bank. The US was only pulling the strings behind the IMF, without providing any financial assistance to Thailand. Eventually, the US$17.2-billion (now Bt584 billion) rescue package was wrapped up quickly. Thailand had to go through the painful IMF programme, which required it to close down insolvent financial institutions, keep interest rates high to defend the baht, protect creditors' rights, employ international banking standards and open up the financial markets for further foreign participation.

Indonesia and South Korea followed Thailand by asking for the bitter bail-out pill from the IMF.

In the US, with financial institutions running out of liquidity and facing insolvency, the Federal Reserve is now acting as a lender of last resort by handing out dollars to keep them afloat. It has also gone so far as to act as a safety net by bailing out the whole financial system. The US financial institutions are going broke, but the Fed still has the resources to bail them out.

But at the country level, there is no lender of last resort in the event of a country facing a liquidity crisis. The IMF, for all its bureaucracy and limited resources, is not a lender of last resort in the true sense.

If there were a lender of last resort, or the Asian Monetary Fund, in Asia, then the crisis could have been handled more smoothly. As it turned out, Washington dictated the conditions under the rescue packages, as it is doing now, clumsily handling the Wall Street debacle.

After the 1997 crisis, Japan and other countries came together to work on the building blocks to create the Asian Monetary Fund anyway. The member countries are the 10-nation Asean, plus Japan, China and South Korea.

They started off with the Chiang Mai Initiative, under which member countries would create bilateral currency-swap agreements to help each other in times of liquidity crisis. Currently these countries and Thailand are in the process of transforming the bilateral agreement into a multilateral one. The members would create a pool of reserves and allow them to borrow during times of abrupt, massive capital outflows.

The Asian bond market has also followed suit by deepening the regional capital-market development. This will help keep financial resources or excess reserves within the region to help finance projects. So far the reserves have been used to subscribe to US Treasury or OECD bonds.

Olarn Chaipravat, deputy prime minister in charge of economic affairs, is one of the champions of regional financial cooperation. He has been working on the building blocks for the Asian Monetary Fund for the past several years. With the US financial crisis threatening to spread globally, Olarn has suggested that Thailand expand its economic cooperation with other Asian countries.

The new government will seek closer financial cooperation with neighbouring countries in response to the turmoil in the global financial markets. Cooperation has already been implemented through the Asian bond initiative, he said.

So far, the Asian countries have reached step three or four in the 10 steps needed to create the Asian Monetary Fund, which will rival the role of the IMF. Asia is holding huge foreign-exchange reserves, with sovereign wealth funds from South Korea, Singapore, China and Middle East buying into assets in the US and Europe.

Going forward, the sovereign wealth funds from Asia and the Asian Monetary Fund will reshape the global financial system.