Singapore 'uneasy' about contribution

Singapore is expressing reservations over its contribution to an enlargement of the regional currency-swap agreement among the 10 members of Asean plus China, Japan and South Korea, an informed source says.

 The East Asian finance ministers are to meet in Phuket this weekend to discuss key issues, including trade protectionism, regional economic stimulus packages, establishing of a multilateral credit line, and recapitalisation of the Asian Development Bank.

 However, the tough negotiation among Asean members is likely to revolve around upgrading the status of the Chiang Mai Initiative - dubbed as the International Monetary Fund's Asian version - from a bilateral agreement to a multilateral one.

Thai officials previously said that Asean plus Three had agreed to expand the credit line from US$84 billion to $120 billion (Bt3 trillion to Bt4.3 trillion). Of this, 20 per cent would come from Asean and the rest from China, Japan and South Korea.

 But Asean still cannot agree how much each would contribute to the regional currency-swap arrangement. Thailand and other key members of Asean are supposed to contribute $4.5 billion each. But Singapore has objected to the proposal, according to officials.

Although Singapore has official reserves worth $160 billion, compared with Thailand's $106 billion, the Singapore government wants to contribute less than $4.5 billion, according to officials.

Singapore has opened up a currency-swap line with the US Federal Reserve amounting to $30 billion. South Korea has also drawn on its currency-swap agreement with the US to reduce pressure on the downward trend of its currency.

 The Philippines has proposed that the regional currency-swap arrangement be expanded from $84 billion at present to $120 billion, according to a person familiar with Asean.

"It still will take time before this arrangement will evolve to become multilateral cooperation. The question is whether they have the people or the skills to manage the pooling of the reserves under one umbrella," he added.

But in the end, officials said, the expansion of the regional currency-swap arrangement might probably reach $100 billion, according to the source.

A combined contribution from smaller economies - Brunei, Burma, Cambodia, Laos and Vietnam - is estimated to be $1.25 billion.

Negotiations among senior officials on the size of the currency-swap arrangement is expected to drag on until tomorrow.

Despite facing a global crisis, no country will ask to use the fund in the near future, according to the source. "It is rather to be symbolic," he said.

The process of establishment is expected to take at least one year after the agreement. The agreement will be forwarded to the Asean plus Three summit expected to be held in Thailand in April this year. Thailand will need approval from Parliament.

In the first phase, the fund will be tied with the IMF. In the event of any country asking for help when it faces capital flight, 80 per cent of the financial assistance has to meet IMF conditions. Only 20 per cent will be free of such restrictions.

When the surveillance system of the Chiang Mai Initiative improves, the fund would be fully de-linked from the IMF.

At the Phuket meeting, ministers will together vow to avoid trade protectionism in order to ensure economic recovery. Otherwise, all Asean members would be affected.