China, Japan, Korea to Mull Boosting Bilateral Swaps

By Keiko Ujikane and Seonjin Cha

Nov. 15 (Bloomberg) -- China, Japan and South Korea agreed to enhance economic cooperation and consider boosting bilateral currency swaps to protect against the global financial crisis, the countries' finance ministers said.

The ministers said they would ``expedite the process'' of the Chiang Mai Initiative on multilateral swaps, according to the statement, released after a meeting on the sidelines of the Group of 20 summit in Washington. South Korea's Finance Ministry sent the statement by e-mail.

``The Asian region faces challenges including slower economic growth and financial market fluctuations,'' the statement said. ``We concurred that we should be well-prepared against the adverse effects of the global financial turmoil and the risks of further slowdown in the world economy.''

Any cooperation on currencies would be a victory for South Korean President Lee Myung Bak, who pushed to expedite an Asian foreign exchange pool when he met with Japan's Prime Minister Taro Aso in October in Beijing. The won is the worst performer among Asian currencies this year, putting pressure on Lee to broker an agreement.

The won has fallen 33 percent against the dollar and 42 percent against the yen this year. Investors have sold South Korea's stocks, bonds and other assets amid fear that a global recession will damp demand for exports, the country's main growth engine.

Support the Won

Today's statement could help support the won after the U.S Federal Reserve on Oct. 30 agreed to provide $30 billion to the Bank of Korea, said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. Still, ``the fundamental factors causing dollar shortages in emerging markets, capital outflow because of the U.S. financial crisis, remain,'' he said.

Finance ministers from 13 Asian nations, including South Korea, Japan and China, agreed in May to create a pool of at least $80 billion in foreign-exchange reserves to be tapped to protect their currencies. That was an expansion of the so-called Chiang Mai Initiative, a deal allows countries to lend each other money at favorable terms if help is needed to support their exchange rates.

South Korea, Japan and China would provide about 80 percent of the pool, according to a statement after finance ministers met in Madrid in May. The rest would be provided by the 10 members of the Association of Southeast Asian nations.

Fukuoka Meeting

South Korea already has a currency-swap agreement of $4 billion with China and $13 billion with Japan. Leaders of the three Asian nations are scheduled to meet Dec. 14 in Fukuoka, Japan.

South Korea's won has dropped every week except one since Lehman Brothers Holdings Inc. filed for bankruptcy on Sept. 15 as investors exited emerging markets.

Finance ministers from the three nations met in Washington yesterday on the sideline of the G-20 leaders' summit. President George W. Bush invited the G-20 leaders, who represent almost 90 percent of the world economy, for their first-ever summit to discuss responses to the global financial crisis.

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net