Feb. 22 (Bloomberg) -- Asian nations should work to stabilize foreign-exchange moves within the region and avoid competing against each others’ currency declines, said Asian Development Bank President Haruhiko Kuroda.

What is “worrisome is the heightened volatility and growing divergence in currency movements within the region,” Kuroda said in a speech delivered today at a meeting between finance ministers from Japan, China, South Korea, and 10 Southeast Asian nations.

An export-dependent nation typically benefits from a declining currency because it makes products relatively cheaper on global markets. Still, Asian countries have experienced steep moves in their currencies over the past year, undermining the region’s financial stability, as fallout from the global credit crisis roils their economies and prompts offshore investors to dump emerging-market assets.

South Korea’s won has tumbled 37 percent against the dollar the past year and Indonesia’s rupiah has dropped 23 percent. In contrast, Japan’s yen has risen 14 percent.

“While we understand how sensitive this is, helping stabilize currency movements between trading partners in our region can fortify the accelerating trend of intraregional trade and investment flows,” Kuroda said, according to the text of his speech that was obtained by Bloomberg News. “We should avoid competing against each others’ currency depreciations.”

Many Asian nations previously experienced large currency declines during the financial crisis in 1997-1998, when Indonesia, Thailand and South Korea spent much of their foreign reserves attempting to prop up their exchange rates. The three countries were forced to turn to the International Monetary Fund for more than $100 billion of loans to help repay offshore debt.

Reserve Pool

The finance ministers from 10 Association of Southeast Asian nations and their three northern neighbors are discussing today expanding a regional pool of foreign-currency reserves under the so-called Chiang Mai Initiative that at present allows only bilateral currency swaps. A reserve pool is designed to ensure central banks have ample funds to protect their currencies from speculative attacks.

“There remains the need for foreign-exchange policy cooperation and coordination,” Kuroda said. “A multilateralized and expanded Chiang Mai Initiative, as important as it is, is a critical first step only if it is operationalized quickly”

Kuroda said the ADB will cut economic-growth forecasts for the region on March 31, when it releases an update on Asia’s outlook. In December, the ADB forecast the economies of emerging East Asia would grow 5.7 percent in 2009, he said.

To contact the reporters on this story: Seyoon Kim in Phuket, Thailand or skim7@bloomberg.net; Shamim Adam in Phuket, Thailand or sadam2@bloomberg.net

Last Updated: February 22, 2009 03:06 EST