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U.S. and Asia-Pacific Leaders Likely to OK Monetary Plan

By Evelyn Iritani
Los Angeles Times
VANCOUVER, British Columbia

Key Asia-Pacific leaders are expected Tuesday to endorse a so-called "Manila plan" for a regional monetary stabilization package designed to provide "backstop financing" to Asian economies in trouble.

While President Clinton and other leaders meeting here are using every opportunity to bolster confidence in Asia's future, there is a sense of urgency to give global investors confidence to return to Asia and dissuade speculators from attacking the region's currencies and markets.

Supporters call the proposal a significant step because it gives the International Monetary Fund, which would oversee the program, a vehicle for addressing the effects of huge buildups of short-term debt, much of it in the private sector, an increasingly common and dangerous phenomenon.

That would be a major evolution for the IMF, which has been accused of paying too little attention to Asia and focusing too much of its resources on the problems of government indebtedness. The IMF was created after World War II as a vehicle for stabilizing the global financial system.

"Just the existence of such a regional arrangement would discourage speculative investment," said Dr. Young Soogil, president of the Korea International Economic Policy Institute.

A response to the economic crisis that has built across Asia since July, the plan was drafted last week in Manila, Philippines, by 14 deputy finance ministers in preparation for this week's Asia-Pacific Economic Cooperation forum summit, which is being attended by Clinton and 17 other Asia-Pacific leaders.

The proposal dominated breakfast talks Monday among Clinton and leaders of the Association of Southeast Asian Nations.

Critics questioned whether the Manila proposal is strong enough medicine for Asia's current problems, since it doesn't specify exactly how a monetary support mechanism would work, how much money would be ponied up by its supporters or who would be in charge.

Walden Bello, a Bangkok, Thailand-based economist and director of Focus on the Global South, a nonprofit research group, said the APEC governments had "abdicated their responsibility" to protect their people from the effects of massive movements of capital by failing to establish a system of currency controls.

Malaysia and Chile also believe there is a need for a global system of currency controls to discourage short-term speculation. Chile's Foreign Minister, Jose Miquel Insulza, said Chile has implemented such measures, including a one-year waiting period for the withdrawal of capital, and has no problems attracting foreign investors.

But the United States and Japan oppose those measures, arguing that it is not possible, or desirable, to limit capital flows in an increasingly global economy.

The Clinton administration pushed hard for support for the Manila monetary stabilization plan, after vigorously opposing an earlier plan championed by Japan for an Asian Monetary Fund. U.S. officials feared the creation of an Asian pot of money would undermine the IMF and make it too easy for Asian governments to seek a bailout rather than biting the bullet.

But Hiroshi Hashimoto, the spokesman for Japan's prime minister, said his government has decided to support the Manila plan because it achieves two important goals: forcing the IMF to turn its attention to Asia and institutionalizing a process of regional support that occurred in the past but only under the pressure of fiscal doom.

For example, when Indonesia's stock and currency markets began heading south, a group of countries including the United States and Japan agreed to participate in a $23 billion IMF rescue package. But it took time to put that together, since no official process was in place. In the meantime Indonesia's economy slid further into trouble.

"This new arrangement is in line with what occurred in the Indonesia case," Hashimoto said.

Mexican officials here, who have successfully turned around their economy after seeking a $50 billion IMF support package in 1995, also believe the proposed stabilization program is the right direction.

"Certainly the recipe is one of going to the source of the problems," said Mexican Secretary of Trade and Industrial Development Herminio Blanco. "These countries have to take the bitter medicine and together with that they need financial support."

The APEC leaders are considering calling for an early meeting of their finance ministers to push the Manila plan forward, according to officials. For Korea, which is undergoing an IMF review now to determine the size of its bail-out, the help may come too late.

"We hope Korea is the last country to have this problem," said Kim Ki Whan, Korea's ambassador at large for economic affairs. "We hope no other country gets sucked into this (economic) contagion."