By Yoko Nishikawa
TOKYO, Dec 12 (Reuters) - Asian casualties of the global financial crisis may have no choice but to endure the humiliation of seeking help from the IMF or the U.S. Federal Reserve as efforts to create regional safety nets falter.
Haunted by memories of the 1997/1998 financial crisis and the pain of International Monetary Fund-prescribed tough reforms, Asian nations have tried to set aside their political and economic divisions and create a regional alternative to the Fund.
But eight years since Asia began creating a regional currency swap network, called the Chiang Mai Initiative, to avoid a repeat of the crisis, the region is still far away from having a self-help fund to bail out countries in trouble.
"The Chiang Mai bilateral swap lines are not sufficient to address the current scale of crisis," said Frederic Neumann, senior Asia Economist at HSBC in Hong Kong.
The initiative is currently a network of bilateral swap lines totalling $118 billion among 10 members of the Association of Southeast Asian Nations plus Japan, China and South Korea, including a swap line between Tokyo and Seoul that was greatly increased in size on Friday.
Japan says only $75 billion of that is realistically available because the total figure includes symbolic swap pacts where poor countries would help rich ones.
Officials are now working to transform the scheme into an $80 billion multilateral arrangement that would enable countries hit by short-term liquidity shortages to borrow foreign reserves from each other to absorb selling pressure on their currencies.
But it is far from ready and even once it is in place it will not be enough, analysts say.
South Korea, for example, had been spending about a quarter of that amount per month in defence of its won currency.
Kenichi Takayasu, senior economist at Japan Research Institute, said Asia's fourth-largest economy alone might need $250-300 billion if its dollar funding crunch and foreign capital outflows escalated into a full-blown crisis.
Rather than approach the IMF, which in South Korea is still seen as tantamount to a political suicide, Seoul has set up a $30 billion currency swap line with the U.S. Federal Reserve. On Friday, it also agreed on expanded swap lines with Japan and China to the equivalent of nearly $50 billion.
But with little progress on the regional framework, many Southeast Asian nations will have only one, deeply unpopular option.
"In the event of a crisis in countries without currency swap lines with the Fed, they cannot help but rush to the IMF," said Eiji Ogawa, professor at Hitotsubashi University in Japan.
The worst global financial turmoil since the 1930s has pushed countries from Iceland to Ukraine and Pakistan into the Washington-based lender's arms.
But in Asia, where many nations believe the Fund's medicine prescribed after the 1997/1998 crisis only made matters worse, getting help on IMF terms remains a political taboo.
Ironically, 80 percent of Chang Mai funding is linked to IMF-approved reforms because of the lack of a credible regional economic monitoring system.
And one reason why more ambitious ideas such as a regional crisis fund to bail out banks or invest in equities proposed by the Philippines and Thailand have come to nothing is a reluctance of richer nations such as Japan to lend money without strong IMF-style safeguards.
The IMF connection, however, made Asian nations reluctant to tap even the limited resources of the Chiang Mai scheme.
"The IMF link is a fatal problem with the CMI," Hitotsubashi University's Ogawa said.
But approaching the IMF to help activate the swap lines may not be as humiliating as before, thanks to a new IMF lending facility that requires no standard IMF lending programme.
The IMF in late October launched a new Short-Term Liquidity Facility, which can provide funds with no conditionality to emerging countries that have a good economic track record but face difficulties raising credit.
"With no conditionality attached, it's easier for Asian authorities to explain to the domestic audience" about going to the IMF, said Japan Research Institute's Takayasu.
"It will make it easier to use the Chiang Mai Initiative." (Editing by Tomasz Janowski)