MUMBAI/SEOUL As the U.S. struggles to avert a debt default, Asia's policymakers have trillions of reasons to believe they may be shielded from the latest financial storm brewing across the Pacific.
From South Korea to Pakistan, Asia's central banks are estimated to have amassed some $5.7 trillion in foreign exchange reserves excluding safe-haven Japan, much of it during the last five years of rapid money printing by the U.S. Federal Reserve.
Data this week showed those reserves continued to pile up, with countries having added an estimated $86.7 billion in the July-September quarter, according to data for 12 Asian countries whose reserves are tracked by Reuters.
China is by far the biggest holder of reserves, with an estimated $3.57 trillion according to a Reuters poll of analysts, which shows Asia's largest economy probably accumulated $68 billion alone in the previous three months.
"The level of external reserves of Asian countries continues to be healthy," said Philippine central bank governor Amando Tetangco.
"We are in a better position to meet the challenges that may be brought about by external shocks. But having said that, we have to remain vigilant. We should not be complacent."
For added protection, Asian governments have been whittling down their debt and cementing foreign exchange swap agreements that allow them to borrow their neighbors' reserves if necessary.
All that money might seem cold comfort given that roughly three-fifths of it is kept in U.S. dollars, invested in U.S. government bonds and other U.S. assets.
A U.S. default would hit the value of those investments and - as when the U.S. suffered a credit ratings downgrade in 2011 - paradoxically send investors fleeing from risky emerging markets, selling Asian currencies for the world's most commonly used legal tender, the U.S. dollar.
By making sure they have more than enough foreign currency in reserve to buy back their own, however, Asia's central banks hope they can keep any investors' rush for the exits from turning into a devastating stampede.
"We still think any external liquidity risk to be manageable," said Gundy Cahyadi, an economist at DBS Bank in Singapore. "In the most recent weeks the return of flows into Indonesia's equities and bonds suggest that foreign investors are still willing to invest in Asia."
That kind of confidence stands in stark contrast to the mood a few months ago, when markets were tumbling and countries with big trade gaps such as India and Indonesia seemed to be hurtling towards the kind of currency crisis that wracked the region in 1997 and 1998.
SIGNS OF STABILISATION
Facing strong capital outflows as investors pulled out their funds, India and Indonesia were compelled to raise interest rates at the expense of economic growth to defend their currencies. New Delhi limited gold imports and cut spending to reduce the country's current account deficit.
With their supply of dollars dwindling, both raised more money from abroad. Indonesia raised $1.5 billion selling U.S. dollar-denominated bonds. Meanwhile, Indian lenders have raised $5.7 billion from citizens and other loans abroad as of earlier this week after the central bank provided currency subsidies.
Much of that panic has passed, at least for now.
Indonesia's central bank said this week its reserves had risen 2.9 percent in September to $95.7 billion, although that would still cover just five months of imports. The Philippines' reserves edge up slightly to $83 billion, while Thailand's reserves recovered from a year low of $168.77 billion at the end of August to $172.2 billion.
"I think our current foreign reserves are sufficient for handling any volatility," said Bank of Thailand Deputy Governor Pongpen Ruengvirayudh.
Even India, whose reserves sank by almost $20 billion between May and September to $274.8 billion, has seen them recover slightly to $277.73 billion.
The rise reflects in part reduced anxiety surrounding emerging economies since the U.S. Federal Reserve last month unexpectedly delayed plans to slow its asset-purchases.
The rupee has recovered roughly 10 percent since tumbling to a record low of 68.85 to the U.S. dollar in late August, while the rupiah -- Asia's worst performing currency this year -- appears to have found its footing.
"One can never say we've done enough," said India's Finance Minister Palaniappan Chidambaram. "We've done a lot of things, but we have to do many more things, and I think we will do them in the next few weeks and months, both by the government and by the central bank."
But doubts persist among investors as to whether Asia's leaders, like their U.S. counterparts, have the political will to tackle remaining vulnerabilities.
"Asia isn't as vulnerable as those fearing a re-run of crises past have come to suspect. Risks may be rising, but the region's defenses remain sturdy enough to prevent a crippling blow," HSBC said in a note this week.
"That, alas, does not mean the issue can be ignored. For one, it renders growth sensitive to shifts in financial mood. What's more, if left uncorrected, the process might eventually, even if not currently, put Asia into a far more uncomfortable spot."
Years of low global interest rates, for example, sent cheap money washing into Asia, fueling a borrowing binge that has sent debt levels in many countries soaring.
Moreover, a U.S. default and ensuing damage to the global economy could snuff out a nascent recovery of exports to the United States, Europe and China from countries such as South Korea, Malaysia and Thailand.
Asian countries have therefore been working to augment their reserves with currency swap agreements. Indonesia has in the last two months signed the equivalent of $27 billion in swap agreements with China and Japan. China and South Korea in June extended their own roughly $60 billion worth swap agreement by three years.
China, Japan and South Korea have also joined the 10 members of the Association of Southeast Asian Nations in the Chiang Mai Initiative, a $240 billion regional lender of last resort.
But just how much insurance these agreements provide remains untested. Analysts say drawing on swaps during a crisis could fuel market panic by highlighting a country's vulnerability.
"Currency swaps are meant to say 'we have these things that will support us in the worst situation and we won't default,'" KEB futures currency analyst Chung Kyung-parl in Seoul said.
"But using the swaps sends a negative signal; policymakers should not put themselves in a position in which they must tap into the lines."
(Additional reporting by Karen Lema in Manila, Orathai Sriring in Bangkok, Rieka Rahadiana in Jakarta, Siva Sithraputhran in Kuala Lumpur, and Suvashree Dey Choudhury and Swati Bhat in Mumbai; Editing by Kim Coghill)