Comment on “Chiang Mai Initiative Multilateralization: Origin, Development, and Outlook”
Article first published online: 6 DEC 2011
© 2011 The Author. Asian Economic Policy Review © 2011 Japan Center for Economic Research
Asian Economic Policy Review
Volume 6, Issue 2, pages 221–222, December 2011
How to Cite
ASAKAWA, M. (2011), Comment on “Chiang Mai Initiative Multilateralization: Origin, Development, and Outlook”. Asian Economic Policy Review, 6: 221–222. doi: 10.1111/j.1748-3131.2011.01197.x
- Issue published online: 6 DEC 2011
- Article first published online: 6 DEC 2011
Regionalism emerged as a global trend at the turn of the century. This trend was symbolized with several significant events, including the birth of Euro, and the prevalence of regional trade agreements such as free trade agreements. In East Asia, a concrete initiative in financial cooperation has been developed in the context of the ASEAN+3 (ASEAN plus China, Japan, and South Korea), based on the experience of the Asian Currency Crisis in 1997. The Chiang Mai Initiative, later developed into the Chiang Mai Initiative Multilateralization (CMIM), is the most eminent product to come out of the financial cooperation effort in the region.
From the viewpoint of how to further develop our efforts in financial cooperation in East Asia in a longer and broader context, I would like to make several comments on Sussangkarn (2011) which proposes several improvements to the current CMIM. First, according to the current CMIM arrangements, only 20% of the committed amount can be disbursed without linkage to an International Monetary Fund (IMF) program. It has been sometimes said that the 20% figure should be raised and/or the total commitment amount should be increased. However, it should be remembered that from the very beginning, it has never been expected that the CMI would completely replace IMF assistance either quantitatively and/or qualitatively. Moreover, the 20% portion is supposed to be disbursed when a liquidity shortage takes place for external reasons so that macroeconomic policy adjustment is not crucial. Needless to say, in order to make a fair and prompt judgment about whether the capital outflows occurring are of an external nature or not, we need a quite sophisticated surveillance mechanism in the region. Therefore, whether the CMIM could be further delinked from the IMF totally depends on the development of policy coordination mechanisms in the region, not necessarily on how many times the swap is rolled over. The potential role and function of the newly created ASEAN+3 Macroeconomic Research Office (AMRO) will be undoubtedly crucial in this respect.
Second, the global financial crisis which took place in 2008 seemed to have posed a great challenge to what regionalism should be. This crisis was special in that it was created by the country of the key currency, and the impact of the crisis was not regionally contained, but spread globally. More concretely, I would like to highlight two important matters which emerged in the process of overcoming this crisis. First, the role of the IMF was seriously reconsidered, and it was widely recognized that the financial resources of the IMF needed to be significantly increased to cope with financial crises. As a result, the agreed expansion of New Arrangements to Borrow and the quota increases will lead to more than a doubling of the available financial resources of the IMF compared with precrisis period. Second, utilizing the increased financial resources, new types of IMF lending facilities, the flexible credit line (FCL) and the precautionary credit line, have been created. These facilities are new in that they aim at preventing rather than resolving a crisis, thus they do not require ex post conditionality, but require ex ante good macroeconomic performance. Furthermore, FCL does not have a predetermined credit ceiling, unlike the other facilities offered by the IMF. It is clear that the current CMIM does not have these elements, the CMIM being more for crisis resolution than prevention. If it is recognized that a similar kind of instrument for crisis prevention is necessary in the East Asian region, we need to consider what form this new facility should take, how much financial resource would be necessary to this end, and which countries in the region have good macroeconomic performances that would qualify for this new instrument. The CMIM could be restructured along this line, or a completely new facility could be created. At all events, we cannot avoid the question of what should be the relationship of this new facility with the IMF, which has now sufficient financial resources to provide almost limitless lending amount for crisis prevention purpose.
Third, the currency provided under the CMI was not necessarily limited to the US dollar in its original framework. This means that if and when the ASEAN+3 countries find it beneficial to pursue exchange rate stability between their own currencies, then the CMIM could be converted to a mechanism to mutually provide their own currencies in the region, not US dollars. This possibility depends on the developments in the trade and capital integration process in this region. In other words, if intraregional trade and capital transactions continue to develop, and more regional currencies, not the US dollar, are utilized in those intraregional transactions, then the practical demand to stabilize the exchange rates between Asian currencies, not with the US dollar, will be created. If the current CMIM is converted to another mechanism to support such developments, it would imply a first step toward developing a system that steps aside from the current US dollar key currency system.
Fourth, any regionalism effort had better have some flexibility in its membership. Although the fact that ASEAN+3 has been backed up by a strong political support has resulted in such tangible financial cooperation as CMIM, we should be aware that the ASEAN+3 itself may not always be an ideal body for any financial cooperation in the region. We should remain open to any possible membership in our future financial cooperation effort, depending on its expected purpose and role.