Asian finance ministers have agreed to build a regional safety net to help countries withstand currency weakness and avoid a financial meltdown.
But they appear to be making haste slowly when the deepening global recession demands decisive action.
Meeting in Phuket, Thailand, on Sunday, the ministers and senior officials from the 10 member states of ASEAN (the Association of South East Asian Nations) as well as China, Japan and South Korea, confirmed that a currency swap arrangement would be enlarged and extended from US$80 billion to US$120 billion ($A125 billion to $A185 billion), with North-East Asia supplying 80 per cent and ASEAN countries the remaining 20 per cent.
But details on each Government's contribution remain undecided and the scheme will be finalised only at another meeting later this year in Bali. It seems odd that 13 Asian states with more than $A5.6 trillion in official currency reserves, about half the global total, are taking so long to build defences against the financial instability that has contributed to the deepening economic slump.
Last May, well before the crisis intensified, finance ministers from the ASEAN plus-3 group met on the sidelines of an Asian Development Bank meeting and agreed to link a series of bilateral currency swap arrangements. The aim was to create a pool of at least $US80 billion in reserves, which could be tapped by regional nations if they needed to protect their currencies.
In November, after the global financial system had been severely shaken by the collapse of Lehman Brothers investment bank in the US, ASEAN plus-3 deputy finance ministers discussed expanding the currency pool to $US120 billion.
The arrangement is designed to ensure that central banks and monetary authorities of the 13 participating states have access to major trading currencies (chiefly dollars, euro and yen) to shield their local currencies from speculative attacks like those that depleted the foreign exchange reserves of Indonesia, Thailand and South Korea in the Asian financial crisis of 1997-98.
Countries hit by the Asian crisis had to turn to the International Monetary Fund for more than $100 billion in bail-out loans. In return, governments had to cut spending, raise interest rates, sell state-owned companies and accept other belt-tightening measures. No regional government wants to go down that humiliating path again.
As foreign investment dries up and exports collapse, some Asian countries are starting to feel the heat. South Korea's reserves declined by 23per cent, to just under $US202billion in the year to January 31, as the central bank sold dollars to defend the won, which lost nearly 32per cent of its value in that period.
The currency reserves of Indonesia, South-East Asia's biggest economy, slid to just under $US51billion at the end of last month, from more than $US60billion in July, as its central bank intervened to slow the rupiah's decline.
Neither South Korea nor Indonesia is waiting for the expanded ASEAN plus-3 currency swap, known as the Chiang Mai Initiative, to be put in place. Both have worked out stand-by arrangements with other countries that have a strong stake in their stability. In Indonesia's case, the World Bank and the Asian Development Bank, as well as Australia and Japan, have also been involved.
Still, having a regional safety net for currencies would be a significant advance in Asian financial cooperation and foreign exchange coordination.
But Asian Development Bank president Haruhiko Kuroda told the finance ministers meeting in Phuket on Sunday that a multilateralised and expanded Chiang Mai Initiative would be only a critical first step if it was put into operation quickly.
A bigger question is where the regional currency swap might lead: to an Asian Monetary Fund and a common currency in an increasingly integrated pan-Asian economy?
Asian supra-nationalists would like to move in this direction. But they know it took Europe 50 years to create a monetary union and that Europe had to overcome significantly less political, economic and cultural diversity than Asia would.
Political disarray in Thailand, which currently chairs ASEAN, has delayed the complex process of completing the regional currency swap program. But behind the scenes a bigger game is being played by China and Japan for regional leadership and influence.
Between them, the two Asian giants control about $US3 trillion of the ASEAN plus-3 reserves. China, with nearly $US2 trillion, now has double Japan's reserves. In the Asian financial crisis just over a decade ago, Japan was the region's financial and economic top dog. Tokyo proposed that an Asian Monetary Fund be set up to rescue the region, but this was blocked by the US, the IMF and China, among others.
In the current crisis, Japan is supporting an expansion of the IMF's global role as a lender of last resort to governments in financial and economic trouble. Last Friday, Tokyo signed an agreement to offer up to $US100 billion in extra funding to the IMF, which has eased its lending terms in some cases and wants to double its lending pool from $250billion to $US500 billion in case it has to backstop more countries.
Meanwhile, China has refused to allocate any of its huge reserves to the IMF, arguing that the organisation should first be reformed to increase the influence of developing countries and reduce the power of the US, Europe and Japan.
The writer is a visiting senior research fellow at the Institute of South-East Asian Studies in Singapore.