TO SIGN ON, REPLY TO: twnet at po.jaring.my
Dear Friends,
As you probably know, in Chiangmai last year, Finance Ministers from some 13 Asian countries agreed to set up a network of currency swaps among their central banks to ensure that countries with liquidity problems during a financial crisis are able to draw US dollars from one another's foreign exchange reserves.
After the bitter experience of the Asian countries with the International Monetary Fund (IMF) during the 1997-98 financial crisis, this was viewed as a regional move to defend local currencies under attack without the necessity of having to turn to the IMF.
There is now a grave danger that once again the Asian countries will be denied the opportunity to set up a regional mechanism to deal with or prevent financial crisis without the interference or dominance of the IMF.
The reason is that there is a strong move to insist that the IMF be allowed to set the conditions for loans from this facility, thereby negating the regional independence of this facility.
Although Malaysia is resisting this attempt to bring in the IMF and assign a critical role to it in the operation of the facility, other Asian countries are being pressurized to accept the IMF's role.
We have prepared the following protest statement and if your organization is prepared to sign on to this statement, please email us at twnet at po.jaring.my. Individuals are also welcomed to join this sign-on.
We appeal to all NGOs, concerned groups and individuals to write to and call upon the US government and governments of other developed countries and the IMF to desist from subverting the effort of Asian nations to set up their own independent financial facility and regional funds to assist financially beleaguered nations.
Yours sincerely, Martin Khor, Director Third World Network
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Hands off the Chiangmai Initiative!
The Chiangmai Initiative, a move designed to establish an Asian financial facility to provide assistance to countries whose currencies are under attack, is in danger of unravelling. The reason is that there is a strong move to insist that the International Monetary Fund (IMF) be allowed to set the conditions for loans from this facility, thereby negating the regional independence of this facility.
There is now a grave danger that once again the Asian countries will be denied the opportunity to set up a regional mechanism to deal with or prevent financial crisis without the interference or dominance of the IMF. We the undersigned NGOs object to this interference and demand that the Chiangmai Initiative be implemented without giving the IMF the conditionality-setting role.
The object of the Initiative, which was agreed to by Finance Ministers at the Thai resort of Chiangmai last year, is to establish a network of central bank currency swaps among 13 Asian countries. Countries with liquidity problems during a financial crisis can draw US dollars from one another's foreign exchange reserves against their local currencies.
The Initiative was viewed as a regional move to defend local currencies under attack without the necessity of having to turn to the IMF.
The need for such a regional facility became apparent after the painful experience of East Asian nations during the financial crisis of 1997-1998.
As the crisis worsened, the countries which were unable to defend their national currencies against speculative attack and which were compelled to turn to the IMF for financial assistance suffered grievously as a result of misguided IMF policies and conditionalities which were imposed upon them.
An earlier attempt by Japan in 1997 during the Asian crisis to establish a US$100 billion Asian Monetary Fund to provide an alternative source of funds for such a purpose, was scuttled by the US and the IMF. The idea of a regional fund outside the IMF to act as a lender of last resort was simply not acceptable to the US.
And when, in May 2000, Asian Finance Ministers met at the Asian Development Bank's annual meeting in Chiangmai, the idea of a regional fund was again rejected because of US objections. Instead, the meeting decided to opt for a more modest proposal to establish a currency swap arrangement.
Any hope, however, that this regional arrangement would be outside the jurisdiction and control of the IMF is now threatened by the revelation that the IMF is expected to play a critical role in the whole scheme. The proposal is to tie disbursements under the swap arrangement to conditionalities imposed by the IMF. The latter will also supervise the implementation of the conditionalities by the debtor nations.
It is obvious that this move to give the IMF a critical role in the swap arrangement is a result of pressure from the US and possibly other developed countries. In effect, such a move would reduce the proposed swap facility to an appendage of the IMF!
According to press reports, the Malaysian government is resisting this move to bring in the IMF to play a key role in this Asian regional arrangement. However, according to the reports, many other Asian countries are being persuaded to accept the IMF's role.
We the undersigned NGOs make the following proposals:
· We strongly support Malaysia's objection to the role to be given to the IMF in the Chiangmai Initiative.
· We call on the Asian governments participating in the Initiative to insist that the facility is established independently of the IMF. It would be a gross waste of public funds and also contrary to the interests of Third World countries to support a financial facility which would give the IMF a key role in its operations.
· We call on the Japanese government to stand firm and not allow the IMF to take over this facility.
· We appeal to all NGOs, concerned groups and individuals to write to and call upon the US government and governments of other developed countries and the IMF to desist from subverting the effort of Asian nations to set up their own independent financial facility and regional funds to assist financially beleaguered nations.