Asian nations form $80B emergency pool

CNN 

MADRID, Spain (AP) -- A group of Asian nations have agreed to create a pool of at least US$80 billion (worth about euro52 billion) for addressing short-term liquidity difficulties. 

Finance ministers of the Association of Southeast Asian Nations plus Three -- Japan, South Korea and China -- said in a statement Sunday that the region faces risks amid turmoil in international foreign exchange markets as well as oil and commodity price spikes. 

ASEAN countries will contribute 20 percent of the amount, while Japan, South Korea and China will put up the rest, the ministers said. 

The group released the statement during the Asian Development Bank's annual meeting in Madrid. It said the agreement on pooling currency had resulted from talks on expanding the so-called Chiang Mai Initiative, by which Asian nations have set up bilateral contracts to supply funds through currency swap lines. 

The announcement of a pool came as the bank also said it had created emergency funding to help poor countries struggling with soaring food prices and warned these could keep rising and stifle economic growth in the region. 

"The cheap food era may be over," the bank's President Haruhiko Kuroda told a news conference Saturday in Madrid , where the bank was holding its annual meeting. 

The new aid will come in the form of soft loans for the governments of countries hardest hit by the global food crisis, such as Bangladesh. 

Kuroda declined to give an overall figure for this expenditure, saying it would depend on requests governments make. He said the amount would be "sizable, but not enormous." 

Asia is home to two-thirds of the world's poor, and nearly 1.7 billion people in the region live on US$2 (euro1.30) a day or less. Asia's poor are particularly vulnerable to rising prices for staples such as rice because 60 percent of their spending goes toward food, and the figure rises to 75 percent if fuel costs are included, the bank said. 

Kuroda said prices of rice, for instance, have nearly tripled in the past four months. 

Higher food costs mean higher inflation, which will reduce consumption, savings and investment. And if governments raise interest rates to control inflation, this could reduce demand and trigger an economic slowdown, the ADB said in a report. 

It estimated a food price shock of 50 percent could cut real growth in Asian gross domestic product by 1.05 percentage points in 2008 and lower growth in 2009 as well. 

Many countries in the region are grappling with the crisis by imposing price controls or bans on food exports, but the bank says this can backfire by discouraging farmers from planting, thus reducing supplies and raising prices. 

Food-specific aid is a better idea, Kuroda said. 

"We believe targeted interventions to protect food entitlements of the most vulnerable and poor are more effective to mitigate the immediate impact of rising food prices," he said. 

He also said the bank does not like Thailand's idea of creating a rice-exporting cartel along the lines of OPEC, saying it is better to let market forces operate freely. 

The Manila-based bank was created in 1966 to fight poverty in the Asia-Pacific region, and every other year holds its annual meeting in one of its 19 member countries that are outside the region. This year it picked Spain, which joined in 1986. 

Soaring prices for staples have been stoked by higher fuel costs, unpredictable weather and greater demand from emerging powerhouses such as India and China. 

In Washington, U.S. President George W. Bush responded to the world's rising food prices by asking Congress to approve US$770 million (euro500 million) in new global food aid for the coming fiscal year. 

The bank says that while stocks of rice are the lowest they have been in a decade, the real problem is one of prices: the ability of poor people to buy food. 

At this meeting, the bank will discuss how governments can help these people, including measures such as targeted aid, and over the long term with greater investment in agriculture and infrastructure like irrigation systems to increase production. 

The bank wants developed countries to stop paying subsidies for production of biofuels, saying it makes staples more expensive. 

The meeting of the bank's board begins in earnest on Monday and will bring together about 3,000 delegates, including finance ministers, academics and members of other multilateral development agencies. 

Asia has been experiencing torrid economic expansion -- 8.7 percent last year -- and the bank forecasts it at a still-robust 7.6 percent in 2008, excluding Japan, despite slowdowns in the United States and elsewhere. 

But for Asia, this has come with inflation now running at 5.1 percent -- the highest in a decade -- and disregard for the environment amid go-go development and industrialization.