TOKYO, March 10 (Reuters) - Asia's success in weathering last year's deep economic downturn with barely any financial strains is sapping the momentum of an initiative to sling a safety net under the region's currencies, officials and analysts say. Nearly two years since 13 countries agreed to weave a web of central bank currency swap lines in case of a re-run of Asia's 1997 balance-of-payments crisis, progress in fleshing out the so-called Chiang Mai Initiative (CMI) has been steady rather than spectacular.

In the sixth of a series of bilateral swaps under the CMI umbrella, China and Japan are expected to sign an agreement worth $3 billion later this month when Chinese central bank governor Dai Xianglong visits Tokyo, officials in the region said. The signing will give a boost to the CMI, named after the northern Thai resort where it was agreed in May 2000 by the 10 members of the Association of South East Asian Nations (ASEAN) plus three northern neighbours -- Japan, China and South Korea. The pact between the two regional heavyweights will be symbolically important for the CMI but Japanese officials are frustrated that the deal has not already been signed. It was approved by the Bank of Japan several months ago.

The officials, who attributed the delay in part to Beijing's preoccupation with its entry to the World Trade Organisation, insist the CMI is on track and say Japan hopes to complete negotiations next on a bilateral agreement with Singapore. Japanese officials visited Singapore last week, but an official close to the talks said a deal would not be ready before ASEAN Plus Three finance ministers meet in May on the sidelines of the Asian Development Bank's (ADB) annual meeting in Shanghai.

WATERSHEDS - Pradumna Rana, head of the ADB's Regional Economic Monitoring Unit in Manila, called the CMI and the fledgling economic surveillance process that underpins it watersheds for Asian economic cooperation. But he acknowledged that regional integration was in its early days and the pace would depend in part on perceptions of how serious problems were at any given time. After all, the original impetus for a self-help strategy stemmed from the 1997 crisis, which plunged most of the region into deep recession, and the resentment many governments felt over the International Monetary Fund's response to the meltdown.

"These things take time. Countries move two steps ahead, one step back," Rana said. "These are the initial years when the foundations and institutions are being built. What happens in future will depend on how the ministers see their economies going and the global surveillance process developing."

Writing in the KWR International Advisor newsletter, Jean-Marc Blanchard said the prospects for deepening regional economic arrangements were positive, partly because East Asia's foreign policy elites appear to have learned that multilateral institutions are an essential part of statecraft in the region. But Blanchard said the short-term outlook was dismal for ventures such as ASEAN Plus Three, the ASEAN Free Trade Area (AFTA) and the Asia-Pacific Economic Cooperation forum (APEC).

"First, there is an absence of a pressing threat, either political or economic, that might create the imperative or cooperation in the realm of economic affairs and/or generate the political will to make concessions," Blanchard wrote.

Opposition from key constituencies that feel threatened by closer ties, like Japan's farmers, and domestic political instability in countries such as the Philippines and Indonesia would also act as a brake on integration, he argued. Japan is party to four of the five bilateral CMI swaps signed so far -- with South Korea ($2 billion), Thailand ($3 billion), the Philippines ($3 billion) and Malaysia ($1 billion). The fifth, worth $2 billion, was signed in December between China and Thailand.

Unlike Japan's other swaps under the CMI, the China scheme is likely to be denominated in yen, not dollars. China opted for a yen-yuan pact because it already has plenty of dollars in its foreign reserves, according to Japanese officials. The Japan-China swap line is primarily symbolic as neither is expected to experience liquidity or balance-of-payment problems in the foreseeable future. Both have huge stockpiles of foreign reserves.

The ADB's Rana, whose unit contributes to the ASEAN Plus Three economic surveillance process, said South Korea should be in a position soon to sign pacts with China ($2 billion) and Thailand ($1 billion)."The steps that have been taken are more than symbols, but at the same time we don't have an Asian economic bloc as yet. It took Europe 40 or 50 years. I think we're somewhere in between," he said.
((Tokyo newsroom, +81-3 3432-8453, alan.wheatley@reuters.com))s.