Finance ministers from Japan, China, South Korea and 10 Southeast Asian nations plan an unscheduled meeting next month to forge a pact to pool US$120 billion of foreign exchange reserves to help defend their currencies.

The grouping plans to increase the pool from the US$80 billion proposed last May in Madrid in an expansion of an arrangement that allows only bilateral currency swaps known as the Chiangmai Initiative. The meeting may take place on February 22 in Thailand, according to two Japanese finance ministry officials who spoke on the condition of anonymity.

Asian governments have pledged more than US$685 billion in fiscal stimulus and injected billions more into their financial systems to spur lending as the global recession worsens. The reserve pool, like its predecessor, is designed to ensure central banks have enough to shield their currencies from speculative attacks such as those that depleted the reserves of Indonesia, Thailand and South Korea in the 1997 Asian financial crisis.

“It’s not likely that any of the countries will need to tap the fund in this crisis, but it’s there as a safety net if required,” said V. Anantha-Nageswaran, chief investment officer for Asia Pacific at Bank Julius Baer in Singapore. “That said, Asean should be addressing issues pertaining to this current crisis instead of looking at the rear-view mirror.”

Asian economies have largely escaped a credit crunch that toppled banks in the US and Europe and forced others to eliminate thousands of jobs. Still, growth in the region is slowing as demand for exports shrink and developing Asia will probably expand 5.5% this year, the slowest since 1998, the International Monetary Fund said this week.

Currencies at Risk

That may put their currencies at risk for further losses as wealthier nations rein in overseas investment. Nine out of 10 Asian currencies tracked by Bloomberg have dropped versus the dollar this year.

Japan, China and South Korea together with the 10-member Association of Southeast Asian Nations have accumulated more than US$3.6 trillion of foreign-exchange reserves, about half of the global total.

Depleted reserves during the Asian crisis, which was set off by plunging currencies, forced some countries to turn to the IMF for more than US$100 billion in bailouts, and in return the governments had to cut spending, raise interest rates and sell state-owned companies.

Finance chiefs agreed in May 2008 to make at least US$80 billion of their foreign reserves available to one another should countries need money to prop up their currencies. Their deputies had discussed expanding the pool to US$120 billion when they met in Japan in November last year, the finance ministry officials said.

Leaders were supposed to announce a deal at a December meeting that was canceled because of political unrest in Thailand, the people said.

Asean wants the three partners to help ensure the facility is big enough to help with economic and financial pressures, the bloc’s Secretary general Surin Pitsuwan said December 15.

In May, finance ministers agreed Japan, China and South Korea would provide about 80% of the money, while the 10 Asean members would contribute to the rest. They haven’t decided on how much each country will contribute.

Asean leaders are scheduled to meet in Thailand from February 27 to March 1. -By Keiko Ujikane and Kyoko Shimodoi. (Bloomberg)