SEOUL, SOUTH KOREA: East and South-east Asian economies yesterday said they will launch a US$120 billion (S$168 billion) emergency fund in March, the first such alliance in the region, to shield themselves from a financial crisis.

Under the scheme, known as the Chiang Mai Initiative Multilateralisation (CMIM), Japan, China, South Korea, Hong Kong and the 10 members of the Association of South-east Asian Nations (Asean) can swap their own currencies into United States dollars in case of a liquidity crunch.

'The core objectives of the CMIM are to address balance of payment and short-term liquidity difficulties in the region and to supplement the existing international financial arrangements,' a joint statement said.

The four non-Asean members committed the bulk of money to the fund, to be launched on March 24. The move comes as Asian economies lead the world out of the worst economic downturn in decades and amid increasing calls for global economic diplomacy.

The scheme is an upgrade of the Chiang Mai Initiative launched after an agreement in the Thai city of Chiang Mai in 2000 among finance ministers of the member countries to help avoid a repeat of the 1997-1998 Asian financial crisis.

Some analysts say the CMIM is partly hamstrung as access to 80 per cent of the available funds is tied to conditions set by the International Monetary Fund, which is seen in Asia to have mismanaged the 1997-1998 crisis.

Asean Plus Three - Asean and Japan, China and South Korea - first agreed in May to set up the fund by transforming the Chiang Mai Initiative, a network of mostly bilateral currency swap arrangements among the member economies, into a single pool of funds.

Asia is home to seven of the world's top 10 holders of foreign reserves. 'By making the scheme multilateral, there will be one contract and one decision-making mechanism,' a Japanese Finance Ministry official told journalists in Tokyo.

Contributions by China, Japan and South Korea will make up 80 per cent of the fund. Indonesia, Thailand, Malaysia, Singapore and the Philippines will each contribute more than 3 per cent.

The 14 members have yet to reach an agreement on details of an independent surveillance unit, which will act as the control station, to be set up with the help of the Asian Development Bank and the Asean secretariat.