Asian Monetary Fund in the works

Korea Proposes Creation of $80 Bil. Asian Fund, The Korea Times
Japanese Business Pessimism Grows, Financial Times

South Korea, Japan, China and the 10 members of ASEAN are working together to establish an $80 billion foreign exchange fund to aid the nations in dealing with the global credit crisis. The initial proposal to pool resources was introduced after the Asian credit crisis in the 1990’s and was revised in the Chiang Mai Initiative of 2000 with the intent to create an Asian Monetary Fund, patterned after the International Monetary Fund, to be used to provide emergency money to countries undergoing economic crises.

South Korea, Japan and China agreed to supply 80 percent of the initial capital and the ASEAN members to provide the rest, but the proposal stalled when the nations couldn’t agree on how to operate the fund. Now, however, South Korea is calling on its fellow nations to speed up the process and the financial ministers of South Korea, Japan and China plan to meet during the upcoming World Bank meeting or sometime soon thereafter. South Korea hopes to get the fund working by next year and also wants to discuss introducing a stimulus package and setting up a surveillance system for the pan-Asia financial market.

Work was renewed on the fund as the effects of the U.S. financial crisis spread across the globe. Many of the Asian nations have seen their economies take a downward turn in response to the crisis. Japan, for example, declared its economy to be deteriorating as its GDP contracted in the second quarter of this year. Its industrial production also fell by 6.9 percent year-on year and unemployment rose to 4.2 percent. Japan’s situation is expected to get worse in response to the declining US economy and weakening domestic markets, and other Asian economies are likely to do the same.

Questions

(1) How should the Asian Monetary Fund be operated and how should power over it be allocated? Are the participating nations likely to reach an agreement?

(2) How would the fund help Asia deal with the credit crisis? How would the pooled money be used to the best effect?