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This was designed to help Asian countries avoid a financial crisis, and came as the outcome of an ongoing discussion of the 10-Asean members plus Japan, China and South Korea during the Asian Development Bank forum. The proposal was widely welcomed.

The world is facing a global financial crisis on a scale not seen since the 1930's Great Depression. Asian countries need to pull together to pre-empt the financial flu - which has already hit the US, Britain and other European countries - with an Asian Monetary Fund. This fund would serve as a regional last-resort lender. When an Asian country faced a balance-of-payments crisis, it could draw from the fund to defend its currency from going overboard.

South Korea has been pushing for a stabilisation fund because it is suffering from a mini currency crisis - the won has crashed by more than 40 per cent so far. Apparently, South Korea has not learnt many lessons from the 1997-1998 crisis, when it sought a rescue package from the International Monetary Fund.

Obviously, its memory is short. Its industries, such as shipbuilders, and financial institutions have continued taking short-term loans from overseas to finance their long-term businesses. So when the global financial crisis struck, South Korea became vulnerable to a currency crisis arising from the mismatched funding.

Then there are Indonesia and the Philippines, which have also become vulnerable to capital outflows. The Philippines' situation has prompted President Gloria Macapagal Arroyo to come out and soothe the financial markets by indicating that the World Bank had tentatively agreed to contribute $10 billion to the stabilisation fund, while the IMF and the Asian Development Bank would be asked to pitch in later.

There were also some initial agreements that China, Japan and South Korea would together cover 80 per cent of the Asian Monetary Fund. However, it was not clear how much the other 10 Asean members would contribute. Would the formula be based on the size of their international reserves or on the size of their gross domestic product? China wanted to go with the first option, while Japan with the second. Neither Thailand nor the other Asean members have said anything yet.

The Asian Monetary Fund would be a giant step forward, even more advanced than the Chiang Mai Initiative and the International Monetary Fund.

Under the Chiang Mai Initiative, there were three pillars of regional financial cooperation. First, the Asean Plus Three would agree to coordinate on their foreign-exchange policies, though it's easier said than done.

Second, they would form currency-swap arrangements, which have so far developed from bilateral to multilateral currency-swap arrangements. For instance, Thailand has a bilateral currency-swap agreement with China. Malaysia has also formed a bilateral currency-swap agreement with Japan. If Thailand were to face a currency crisis again, it could dip into China's dollar reserves to shore up the baht with an agreement to repay at a specific time.

Third, the Asean Plus Three would help each other monitor the macroeconomic conditions. Hopefully, pressure would be asserted on member countries that are pursuing a macroeconomic imbalance.

Of the Chiang Mai Initiative's three pillars, the currency-swap arrangements have made the most progress. Altogether the web of bilateral and multilateral currency-swap agreements have reached $86 billion.

The IMF framework is not suited to dealing with a global or regional financial crisis because it does not have the money. So far, the IMF has been acting as a broker between the crisis-hit countries and the donor countries, who are ready to lend the money. It then implements the support programme under a strict formula to fit the needs of the donor countries.

During the 1997 financial crisis, for instance, the IMF contributed $4 billion to the $17.2-billion standby-credit programme for Thailand. Other contributors included the World Bank, Asean, Japan, China and other countries. However, this time around, the IMF is not acting as a last-resort lender.

The act of putting together a bailout package is also clumsy and time-consuming. The Federal Reserve Board has stepped in as a last-resort lender for all US financial institutions, which are facing a deep-seated crisis.

The Asian Monetary Fund, whose idea was shot down by the US in August 1997, would be a giant show of regional financial cooperation because once it was established with $80 billion as seed money, it could be quickly implemented. An Asian country could draw reserves from the fund when it faced a balance-of-payments crisis without having to wait for signals from the IMF or Washington DC.