East Asian finance ministers on Sunday agreed for an upgrade to an $80 billion (Dh293bn) currency swap scheme to fight regional financial crises, a deal taking them a step closer to creating a full-scale Asian monetary fund.
"The meeting was successful and we agreed on key elements about upgrading the existing arrangements," South Korea's Finance Minister Kang Man-soo told reporters after a meeting with his counterparts from Japan and China.
Kang's deputy, Shin Je-yoon told reporters separately that the currency swap scheme "will be upgraded to at least $80 billion".
The deal – more than a year in the making – will replace the existing arrangement of mainly bilateral currency swaps, called the Chiang Mai Initiative (CMI) and transform it into a more powerful self-managed reserve pooling mechanism governed by a legally binding single contract.
The broad terms are set to be agreed later at a full meeting of finance ministers from the so-called Asean+3 group – the 10 members of the Association of Southeast Asian Nations plus Japan, China and South Korea.
The talks, taking place on the sidelines of the Asian Development Bank's annual meeting in Madrid, will finalise terms to pool foreign exchange reserves for use in emergencies in any of the signatory economies.
Japan, China and South Korea are expected to provide 80 per cent of the total, Asean countries the balance, South Korea's Shin said.
Loans will be made in US dollars against local currency collateral provided by the borrowing nation, either via a currency swap or a promisory note. Loans will cost between 150 and 300 basis points above the London Interbank Offered Rate and be provided for three months, renewable for up to two years. Borrowing costs will be reviewed every five years.
Finance officials say the agreement will be a significant step forward for the 13 nations involved in the bilateral swap deals that were created in the wake of the 1997-98 Asian financial crisis, taking them closer to a full-scale regional equivalent to the IMF.
"This will play a role of supplementing existing international financial stability schemes" Shin told reporters. "This will show to the world that Asia is making a concerted push about securing financial stability."
The finance ministers said they were determined to work together to secure financial stability in Asia and would create a forum in which to discuss policies required to do so.
"We've decided to hold a gathering of finance ministers, financial supervising authorities and central banks from the three countries this year because it is important for authorities who are responsible for macroeconomic policy to exchange views," Japan's Finance Minister Fukushiro Nukaga said. told reporters.