Malaysia can draw from RM264bil pool against financial crises

Wednesday June 4, 2008

Malaysia can draw from RM264bil pool against financial crises



PETALING JAYA: Malaysia will be able to draw from a US$80bil (RM264bil) pooled fund should it be hit by a financial storm akin to the 1997-98 meltdown.

The self-help fund is expected to come into effect by the end of the year, Deputy Finance Minister Datuk Kong Cho Ha told The Star.

The fund is the initiative of the Asean+3 coalition, whose partners comprise economic giants China, Japan and South Korea as well as the 10-member Association of South-East Asian Nations.

"The sum of US$80bil (RM264bil) has been agreed upon, with the +3 countries contributing 80% of the amount, while the Asean members pay up the remaining 20%," said Kong.

The fund, known as the Chiang Mai Initiative, was conceived in 2000 at the Asean+3 Finance Ministers' Meeting to promote regional co-operation in the aftermath of the 1997-1998 financial crisis.

Malaysia's then Prime Minister Tun Dr Mahathir Mohamad attacked rogue speculators for starting the crisis. He bucked the norm and pegged the Malaysian currency at RM3.80 against the US dollar. He also imposed controls on short-term capital flow in capital accounts.

The fund was among the topics of deliberation at the Asian Development Bank meeting in Spain held in early May.

Kong was the head of the Malaysian delegation.

One of the financial mechanisms of the fund is the mutual swap deal, allowing for central banks from participating countries to swap foreign exchange reserves to fight off speculative attacks on their currencies.

Kong said details, such as the need for a monitoring system, the deployment of funds, how to define triggering factors and who should supervise the fund, would be worked out.

Second Finance Minister Tan Sri Nor Mohamed had recently said the Asean+3 fund would be started without any involvement of the International Monetary Fund, World Bank or the Asian Development Bank.