IMF efforts to win back Asian nations will continue as it
seek to persuade them to take out insurance in the
form of expanded IMF facilities, rather than holding foreign
exchange reserves, Fund deputy managing director Naoyuki
Shinohara has said.
Part of those reserves may also help bolster the IMFs
own resources, Shinohara suggested in an interview with
Emerging Markets yesterday.
The recent meeting at Daejeon, South Korea, organised
jointly by the IMF and the Korean government, was widely seen
as the start of a charm offensive to woo Asian
countries that have regarded the Fund with suspicion since the
1997 Asian financial crisis.
But Daejeon was just one step, Shinohara said.
In itself it did not represent huge progress.
In in terms of improving communication between the IMF and
an estranged Asia, it was a significant event,
however, Shihohara, a former senior official and vice
minister at the Japanese Ministry of Finance, said.
Meetings in other East Asian countries, invitations to their
officials and staff consultations there are also being
expedited. The Funds staff presence is also being
increased in Asian countries, many of whom came cap-in-hand to
the Fund in 1999, but now represent wealthy potential
At Daejeon, the Fund sought to convey to Asian nations that
there was no longer any need for them to hold large volumes of
foreign exchange reserves as self-insurance against a future
Instead, they could take out insurance in the form of new or
expanded IMF facilities, which would provide them with foreign
currency reserves with virtually no strings attached, in
contrast to the often harsh conditionality that accompanied IMF
These instruments include the Flexible Credit Line (FCL)
which allows countries with a strong track record on economic
management to borrow virtually condition-free and the
Precautionary Credit Line (PCL) which applies to countries
without such strong credentials.
A Global Stability Mechanism (GSM) which would provide
short-term liquidity support on a multilateral basis for
dealing with systemic risks, is also under consideration.
Shinohara acknowledged to Emerging Markets that
there is still some stigma attached to having to go
to the IMF for help, in the eyes of certain Asian
But holding a huge amount of reserves costs a
lot, he argued. Asian countries could in future
rely less on reserve accumulation and look to regional as
well as global insurance. Mexico is doing that by using the
FCL, and also Poland. So why not also some of the Asian
Shinohara noted that Asia is doing well at this
moment, and I dont think that they feel the threat of
contagion. But there may be cases in the future that change
this perception. The IMF should be ready to provide a safety
net to these countries.
Asias roughly $5 trillion of aggregate foreign
exchange reserves are also seen as a potential source of extra
resources for the IMF. Many Asian countries are already
creditors of the IMF so any further provision would be
welcome, Shinohara added.