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* Members can tap fund in case of FX liquidity squeeze
* First move by Asia to protect itself from crises (Adds comment from Japanese official, details)
By Yoo Choonsik
SEOUL, Dec 28 (Reuters) - East and Southeast Asian countries said on Monday it will launch a $120 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 Multilateralization (CMIM), Japan, China, South Korea, Hong Kong and the 10 members of the Association of Southeast Asian Nations (ASEAN) can swap its own currency into U.S. 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, which will be launched on March 24.
The move comes as Asian economies have been leading the world out of the worst economic downturn in decades and amid increasing calls for global economic diplomacy.
The scheme is an upgrade to the Chiang Mai Initiative launched after an agreement in the Thai city of Chiang Mai in 2000 between 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 percent of the available funds is tied to conditions set by the International Monetary Fund, which is seen in Asia to have mismanaged the 1997/98 crisis.
The ASEAN Plus Three first agreed in May to set up the fund by transforming the previous Chiang Mai Initiative, a network of mostly bilateral currency swap arrangements between 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. (Editing by Kazunori Takada)