Call it the Larry Summers chronicles. Given a choice, most Asian countries experiencing balance-of-payments shortfalls do not want to resort to the IMF. This aversion is directly attributable to what many in the region and beyond regard as the IMF's botched handling of the Asian financial crisis of over a decade ago when "Washington Consensus"-style policies of liberalization, privatization, and deregulation were forced down the throats of borrower countries. Even then, Japan tried to set up an alternative Asian Monetary Fund (AMF) to counter the perceived harshness of IMF policies. Then-US Treasury Secretary Larry Summers took issue with this attempt to "usurp" US regional influence; nowadays, of course, the US is recoiling from undergoing much-needed "structural adjustment" it so famously recommended to others while Summers has become the #1 cheerleader for stimulus mania. As Korea's JoongAng Daily recounts:AMF [Chiang Mai Initiative] is Asia’s long-cherished project, launched with an idea of helping economically stricken Asian countries using Asia’s co-sponsored fund. Asia was deeply distrustful of the IMF, which is led by the United States and Europe [in its policymaking], and the harsh terms imposed on Asia during the Asian Financial Crisis 12 years ago. Since then, Asia endeavored to launch the AMF, but has yielded no tangible result.It is good news for the region that the ASEAN+3 (Japan, China, and South Korea) have finalized plans for implementing the Chiang Mai Initiative, whose main idea of a regional lending facility was first mooted in the AMF. Figuring big are the countries represented by the finance ministers pictured above: Xie Xuren of China, Kaoru Yosano of Japan, and Yoon Jeung-hyun of South Korea. This time around, it is highly unlikely that Larry Summers will butt into others' affairs as he must tend to his own debt-ridden subprime economy which is now suffering from the excesses of his (formerly) favored agenda of liberalization, privatization, and deregulation. Go figure. Here is the joint statement of ASEAN+3 finance ministers:
On the Chiang Mai Initiative (CMI), we have reached agreement on all the main components of the CMIM, including the individual country’s contribution, borrowing accessibility, and the surveillance mechanism. The agreed components of the CMIM, which is a framework of mutual assistance among ASEAN+3 countries, are consistent with its two core objectives: (i) to address short-term liquidity difficulties in the region and (ii) to supplement the existing international financial arrangements.It appears that China is now joining Japan in vying for regional influence by offering more emergency loan funding to other East Asian countries. Despite being hamstrung by its own crisis, Japan is not to be outdone in indicating a willingness to lend an additional $100B via bilateral swap arrangements over the amount it has already pledged for Chiang Mai. From the Financial Times:
We agreed to implement the CMIM before the end of this year. In this regard, we tasked our Deputies to work out the operation details and implementation plan, particularly the legal documents that will govern the CMIM.
We agreed that an independent surveillance unit will be established as soon as possible to monitor and analyze regional economies and support CMIM decision-making. As a start, we agreed to establish an advisory panel of experts to work closely with the ADB and the ASEAN Secretariat to enhance the current surveillance mechanism in order to lay the surveillance groundwork for the CMIM. In addition, we welcomed Hong Kong, China, to participate in the CMIM.
Japan has offered $100bn in financial assistance to Asian countries hit by the global financial crisis in a move that shores up its economic leadership in the region in spite of its own severe recession. Tokyo announced at a meeting of the finance ministers of the 10 countries of the Association of South-East Asian Nations in Indonesia that it would set up a Y6,000bn ($61.5bn) bilateral currency swap scheme , on top of a $38.4bn commitment to the multilateral Chiang Mai initiative...The total amount of funding agreed to for Chiang Mai amounts to $120B in a 2:2:1 ratio: Japan and China $38.4B each; South Korea $19.2B; and ASEAN nations the remainder of $24B. Also take note of the Asian Bond Market Initiative (ABMI) moving forward. The ABMI seeks to prevent a rehash of the Asian financial crisis by reducing currency mismatches (borrowing in US dollars due to Asian capital markets not being very deep and suffering from default when devaluation occurred) and maturity mismatches (projects being long-term while funding was short-term and flightly).
Japan pledged $100bn in extra capital to the International Monetary Fund in November, and has been anxious to sustain its leadership in Asia in the face of China’s huge foreign reserves and rising economic muscle.
Rivalry between the two countries spilled over into the final stage of the Chiang Mai negotiations, with both agreeing to provide $38.4bn each. China’s share includes $4.2bn from Hong Kong. South Korea is providing $19.2bn, with the rest shared among the 10 south-east Asian nations.
UPDATE: See Barry Eichengreen comment on the Asian Monetary Fund.
