Connect with us

Asean

Affordable delays for the Chiang Mai Initiative?

Author: Joel Rathus, Adelaide University While the worst of the Global Financial Crisis may have passed, in East Asia the economic pressures are still mounting. Regional economies are struggling with inflation, asset bubbles and now increasingly volatile exchange rate movements

East Asia Forum

Published

on

 

While the worst of the Global Financial Crisis may have passed, in East Asia the economic pressures are still mounting. Regional economies are struggling with inflation, asset bubbles and now increasingly volatile exchange rate movements. One mechanism which might aid the regional economies to coordinate their exchange rate policies, to fend off currency speculation and assist with reigning in increasingly problematic ‘hot money’ flows is the Chiang Mai Initiative Multilateralisation (CMIM).

However, getting Japan and China to agree has proven difficult – especially on the issue of contribution and (therefore) voting weight. This is important because these two are both required to effectively bankroll the CMIM.

The most recent addition to this saga of strained Sino-Japanese political relations hampering the development of regional institutions is the contest over who will head the surveillance arm of the CMIM, the so-called ASEAN+3 Macroeconomic Research Office (AMRO). The original schedule, which was accelerated due to the GFC, called for an appointment to be made in November, however Chinese objections to the Japanese candidate have apparently pushed the timetable back until the next ASEAN Plus Three Finance Ministers Meeting in April 2011.

After the ruckus caused by shifting the AMRO office from Thailand to Singapore due to domestic political instability, can the CMIM really afford to have another internal dispute over the AMRO director?

It is clear why such disputes would arise. AMRO’s function of providing regional surveillance is crucial to the utility of the CMIM as a whole. This is because as long as financial policy coordination remains at the level of policy dialogue, CMIM members will be hesitant to allow crisis-stricken countries access to the pooled reserves. Indeed, the fact that only 20 per cent of the funds can be tapped without an IMF agreement in place reflects the fact that the IMF is continuing to lead – this is due to the IMF’s credibility in providing surveillance under both Article IV and in its actual rescue packages and other assistance programs. The massive expansion of the New Arrangements to Borrow at the IMF announced by the 2009 London G20 Leaders Summit, together with a series of other institutional innovations, is slowly reducing the need for the CMIM to develop its own competencies in this regard – indeed, it is worth recalling that an expansion of the NAB was the policy response initially considered by East Asian governments in the face of the Asian Financial Crisis before discussions moved via the shortly lived Asian Monetary Fund proposal to the CMI. Thus a return to the NAB suggests a shifting of focus away from the CMI, even though both mechanisms have been expanded after the outbreak of the Global Financial Crisis.

Crises are crucial inflection points at which policymakers can question the received wisdom and create new solutions. Many questions remain about how the CMIM will operate. Indeed, despite activation, the CMIM was not used during the GFC, regional member countries preferring to use ‘faster’ bilateral swap arrangement among themselves. And while some such as Korea and Singapore were also willing to engage with the US Fed, Asia as a whole continued to shun the IMF and focussed on building up the CMIM. One should never waste a good crisis, and the Global Financial Crisis provided the impetus to override intra-mural tensions in both North-east and Southeast Asia allowing compromise solutions to emerge.

But continued bickering over largely symbolic roles within the CMIM is running the risk that the crisis will have receded before the institutional arrangements are in place and a new solidarity in East Asia has developed. This would a pity because as de Bouwer has noted in his book, Financial Governance in Asia, the CMIM is not in some form of Gresham’s Law-type competition with the IMF, and would supplement rather than weaken global economic management at a time when this is much required.

Author: Joel Rathus, Adelaide University

Joel Rathus is a recent PhD graduate from Adelaide University and a regular contributor to the East Asia Forum. His other posts can be found here.

  1. The Chiang Mai Initiative’s multilateralisation: A good start
  2. The Chiang Mai Initiative: China, Japan and financial regionalism
  3. Are the Philippines equal before the Chiang Mai Initiative?

Read more from the original source:
Affordable delays for the Chiang Mai Initiative?

East Asia Forum provides a platform for the best in East Asian analysis, research and policy comment on the Asia Pacific region and world affairs.

Comments

Asean

The Latest on Covid-19 in Southeast Asia

Thailand has largely avoided widespread community transmission of Covid-19, but the kingdom is not faring well on the economic front, with a projected contraction of 7.1 percent this year.

Avatar

Published

on

Coronavirus Asia

As a region, Southeast Asia has fared relatively well in keeping coronavirus cases low, with the notable exceptions of the Philippines and Indonesia.

(more…)
Continue Reading

Laos

China’s debt-trap diplomacy: Laos’ credit rating downgraded to CCC

Laos’ debt challenge is deeply concerning, with some media commentators suggesting the country is falling into a debt trap as a result of Chinese infrastructure investments connected to the Belt and Road Initiative (BRI)

Boris Sullivan

Published

on

On 23 September, the Fitch Ratings agency downgraded Laos’ credit rating to CCC — the second downgrade in 2020, having dropped to B- in May.

(more…)
Continue Reading

Vietnam

Foreign capital still heads to Vietnam

As many as 798 projects added a combined over 5.11 billion USD to their investment capital, down 23 percent year-on-year in project number but up 6.8 percent in value.

Avatar

Published

on

Hanoi (VNA) – The total amount of foreign investment poured into Vietnam this year to September 20 reached 21.2 billion USD, equivalent to 81.8 percent of the same period last year, reported the Ministry of Planning and Investment.

(more…)
Continue Reading

Most Viewed

Subscribe via Email

Enter your email address to subscribe and receive notifications of new posts by email.

Join 13,099 other subscribers

Upcoming Events

  1. International conference on Public Health & Healthcare

    November 9 - November 10

Latest

Trending