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Updated Tuesday, December 29, 2009 11:07 am TWN, By Aki Ito, Bloomberg

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ASEAN, Japan, China sign US$120 bil. reserve deal

TOKYO -- The Association of Southeast Asian Nations, together with Japan, China, and South Korea, signed an agreement to create a US$120 billion foreign-currency reserve pool.

The fund, known as the Chiang Mai Initiative, will”strengthen the region's capacity to safeguard against increased risks and challenges in the global economy,” the nations said in a joint statement released today. The countries announced the initiative in May.

Member nations will be able to tap the pool, formed within an existing framework of bilateral currency swaps, in times of turmoil to defend their exchange rates.

The International Monetary Fund arranged more than US$100 billion of loans to Thailand, Indonesia and South Korea after their currencies collapsed during the 1997-98 crisis. In return, governments were forced to cut spending, raise interest rates and sell state-owned companies.

The countries agreed in May that Southeast Asian nations will contribute 20 percent to the pool; Japan will provide US$38.4 billion while China and Hong Kong together will add another US$38.4 billion. South Korea's contribution will be US$19.2 billion, the members said.

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