Officials from 13 countries are gathering in Bali on May 3 to finalize each nation’s contribution to the US$120 billion pool of foreign-exchange reserves that can be used to defend their currencies in times of financial turmoil. They will meet at the sidelines of the Asian Development Bank’s annual meeting on the Indonesian resort island.

Economists are raising their estimates for the region’s growth this year amid expectations of a recovery in China and as indicators show production declines may have bottomed. Some manufacturers, including Toyota Motor Corp., have announced plans to boost output this quarter as inventories decline.

“As recent as a few months ago, there were expectations that at least one country will need to tap the reserve pool for funds before this crisis is over,” said Vishnu Varathan, a regional economist at Forecast Singapore Pte. “With signs that the slowdown is easing and of stability in the financial arena, that seems unlikely now.”

The global slowdown had slashed demand for the region’s computer chips, cars and commodities, and forced companies to fire hundreds of thousands of workers. The region’s governments pledged to pump more than $950 billion into their economies through increased expenditure, tax cuts and cash handouts to kick-start local consumer and business spending.

Industrial production

The extra spending may have helped the region’s economies escape a more prolonged slowdown. Malaysia’s central bank this week said it is seeing some signs of moderation in the pace of decline in economic activity, while the Monetary Authority of Singapore said the island has probably passed the worst phase of its recession.

In South Korea and Japan, industrial production increased in March, while China’s urban fixed-asset investment surged by almost a third the same month.

“Asian exports have shown signs of bottoming and orders from industrialized economies are starting to pick up,” said Sailesh Jha, an economist at Barclays Capital Plc in Singapore. “The worst in the decline of growth is over. We should see a modest path of recovery in the second half of the year.”

Nine of the region’s ten currencies tracked by Bloomberg fell against the US dollar in the first three months of the year. This quarter, eight have gained against their US counterpart.

Reserve pool

At a meeting last month in the Thai resort town of Pattaya, finance ministers from the 10-member Association of Southeast Asian Nations said they “stand ready” to pursue expansionary policies for as long as needed, and pledged to remain vigilant against downside risks to growth.

ASEAN, together with Japan, China and South Korea, have responded to the crisis by speeding up plans to create and boost the size of the reserve pool. The Southeast Asian nations will contribute 20 percent of the total amount, while the rest is divided between their three North Asian neighbors.

Thailand, Indonesia, Malaysia and Singapore, the four biggest Southeast Asian nations, will contribute $4.77 billion each, and the Philippines will provide $3.68 billion, Thai Finance Minister Korn Chatikavanij said April 9. South Korea will put $24 billion into the pool, ASEAN Secretary-General Surin Pitsuwan said a day later.

The fund is a broadening of a current arrangement called the Chiang Mai Initiative that allows only bilateral currency swaps. It was set up to help 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 during a financial crisis a decade ago.

Source: Bloomberg