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CURRENCY SWAP: US $4 bn in credit sought

May 19, 2001

Thailand is expected to request US$4 billion (Bt182.06 billion) in standby credit from China as part of a currency-swap agreement designed to ward off future financial turmoil.

Prime Minister Thaksin Shinawatra will be making this specific request during talks with Chinese Prime Minister Zhu Rongji, who today begins a four-day official visit to Thailand.

"We intend to ask for more standby credit from China than the $3 billion agreement we have agreed with Japan," Finance Minister Somkid Jatusripitak said yesterday, adding that he expected the figure to be $4 billion.

Thailand has been negotiating with other Asean countries plus China, Japan and South Korea to form a regional currency-swap arrangement. The deal would allow member countries to borrow dollar reserves from each other to defend their currencies during financial upheavals.

However, China will be opening the credit line of $4 billion to Thailand unilaterally because of its huge foreign-exchange reserves of more than $120 billion. The same unilateral principle applies with Thailand's $3-billion swap arrangement with Japan.

But the Thai-South Korean currency swap arrangement of $500 million will be bilateral, with both countries opening an equal standby credit of this amount to each other in time of crisis.

The Association of Southeast Asian Nations has agreed to set up a regional fund of $1 billion to defend currencies in the region. This fund will be supplemented by individual bilateral currency-swap arrangements between Asean member countries.

To add clout to the regional fund, China, Japan and South Korea were invited to join in this arrangement, dubbed the Chiang Mai Initiative. Analysts broadly consider the regional currency-swap agreement as the first step towards creation of an Asian Monetary Fund.

Somkid said that during his meeting with Paul O'Neill, the US treasury secretary, in Honolulu on the sidelines of the Asian Development Bank meeting last week O'Neill had expressed his support for the regional currency-swap agreement.

However, O'Neill reportedly cautioned that the arrangement should not supersede the role of the International Monetary Fund, which acts as chief guardian of the stability of the international financial system.

Thanong Khanthong






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