If public institutions in East Asia, whether central banks or finance ministries, were found wanting, it is not because they pursued inappropriate macroeconomic demand management policies, but because they failed to safeguard the stability of the financial system. Countries in the region had rushed to liberalize their financial systems and capital accounts before adequate safeguards were in place - Former Singaporean Finance Minister Richard Hu
Against the background of a surprisingly successful US diplomacy to engage China, I see the very circumscribed efforts of building an Asia-specific financial architecture and the intensification of Asian dialogues as important though less than transformative - Peter Katzenstein
The contrasting statements above by noted observers of Asian political economy may have much to say about an evolution which I believe can be a medium-term game-changer in the region. Richard Hu reflects the opinion of many that while macroeconomic fundamentals in the region were sound, the Asian financial crisis of 1997/98 was worsened by excessive calls for premature liberalization and deregulation by institutions like the IMF before safeguards were in place. It rankles me that the current IMF head is still reluctant to say that the institution was at fault while effectively disowning the Washington Consensus era. What for? The IMF even sees virtue in capital controls nowadays. Meanwhile, the noted American IPE scholar Peter Katzenstein identifies Asia's inability to develop an alternative financial infrastructure as evidence for his belief that American regional influence is not yet waning.
In previous posts, I've reflected on how the Chiang Mai Initiative Multilateralization (CMIM) had the potential to improve matters by building regional safeguards as Hu suggested as well as an Asian financial infrastructure. Together with the Asian Bond Market Initiative (ABMI) and the Credit Investment Guarantee Facility (CGIF) which I will have more to say about in the future, there already is an emerging infrastructure.
The CMIM's history is generally well known. During the Asian financial crisis, a Japan concerned with possible unravelling of its regional production networks proposed the creation of an Asian Monetary Fund (AMF) in July of 1997. However, the Americans were unhappy with this proposal. It prompted Treasury Undersecretary Larry Summers to call Vice-Minister for International Finance Eisuke Sakakibara (known in financial circles as Mr. Yen) and yell in true ugly American fashion, "I thought you were my friend!" Still, Asian countries felt the cause important enough to face down American pressure to eventually propose the Chiang Mai Initiative in the eponymous Thai town on 6 May 2000. The name was different to placate certain North Americans, but the idea remained the same: to skirt harsh IMF conditionalities, a regional arrangement fulfilling lender of last resort functions was necessary. More recently, the series of bilateral swaps encompassed by the original Chiang Mai Initiative was replaced by a pooling of funds, hence the "multilateralization" addition. For more on the transition from CMI to CMIM, see my slide presentation on Asian economic integration.
Something that CMI and now CMIM lack, however, is an economic surveillance office to administer the $120 billion fund. A valid critique levelled at CMI/CMIM was that the amount member countries put into the fund was actually more than the amount they could take out of it in the event of a balance of payments episode without first availing of an IMF seal of approval. That is, they could only draw more than they put in if they first arranged for an IMF standby agreement or something similar with the Washington lender. In effect, Asian countries' unwillingness to look over each others' shoulders meant relying on an entity they were trying to get away from in the first place--the IMF.
Well, this situation may be at an end. Unnoticed to most has been the recent ASEAN Leaders' Meeting where regional bigwigs have decided on a location for a surveillance office that should, in time, become a regional and not an external arbiter of when countries could draw from CMIM. The institutional capacity is indeed emerging to fulfil the original promise of Chiang Mai. The winner, to no one's surprise, is Singapore. There's also interesting commentary on how various ASEAN countries were jockeying to host this important body. From Kyodo News International:
Against the background of a surprisingly successful US diplomacy to engage China, I see the very circumscribed efforts of building an Asia-specific financial architecture and the intensification of Asian dialogues as important though less than transformative - Peter Katzenstein
The contrasting statements above by noted observers of Asian political economy may have much to say about an evolution which I believe can be a medium-term game-changer in the region. Richard Hu reflects the opinion of many that while macroeconomic fundamentals in the region were sound, the Asian financial crisis of 1997/98 was worsened by excessive calls for premature liberalization and deregulation by institutions like the IMF before safeguards were in place. It rankles me that the current IMF head is still reluctant to say that the institution was at fault while effectively disowning the Washington Consensus era. What for? The IMF even sees virtue in capital controls nowadays. Meanwhile, the noted American IPE scholar Peter Katzenstein identifies Asia's inability to develop an alternative financial infrastructure as evidence for his belief that American regional influence is not yet waning.In previous posts, I've reflected on how the Chiang Mai Initiative Multilateralization (CMIM) had the potential to improve matters by building regional safeguards as Hu suggested as well as an Asian financial infrastructure. Together with the Asian Bond Market Initiative (ABMI) and the Credit Investment Guarantee Facility (CGIF) which I will have more to say about in the future, there already is an emerging infrastructure.
The CMIM's history is generally well known. During the Asian financial crisis, a Japan concerned with possible unravelling of its regional production networks proposed the creation of an Asian Monetary Fund (AMF) in July of 1997. However, the Americans were unhappy with this proposal. It prompted Treasury Undersecretary Larry Summers to call Vice-Minister for International Finance Eisuke Sakakibara (known in financial circles as Mr. Yen) and yell in true ugly American fashion, "I thought you were my friend!" Still, Asian countries felt the cause important enough to face down American pressure to eventually propose the Chiang Mai Initiative in the eponymous Thai town on 6 May 2000. The name was different to placate certain North Americans, but the idea remained the same: to skirt harsh IMF conditionalities, a regional arrangement fulfilling lender of last resort functions was necessary. More recently, the series of bilateral swaps encompassed by the original Chiang Mai Initiative was replaced by a pooling of funds, hence the "multilateralization" addition. For more on the transition from CMI to CMIM, see my slide presentation on Asian economic integration.
Something that CMI and now CMIM lack, however, is an economic surveillance office to administer the $120 billion fund. A valid critique levelled at CMI/CMIM was that the amount member countries put into the fund was actually more than the amount they could take out of it in the event of a balance of payments episode without first availing of an IMF seal of approval. That is, they could only draw more than they put in if they first arranged for an IMF standby agreement or something similar with the Washington lender. In effect, Asian countries' unwillingness to look over each others' shoulders meant relying on an entity they were trying to get away from in the first place--the IMF.
Well, this situation may be at an end. Unnoticed to most has been the recent ASEAN Leaders' Meeting where regional bigwigs have decided on a location for a surveillance office that should, in time, become a regional and not an external arbiter of when countries could draw from CMIM. The institutional capacity is indeed emerging to fulfil the original promise of Chiang Mai. The winner, to no one's surprise, is Singapore. There's also interesting commentary on how various ASEAN countries were jockeying to host this important body. From Kyodo News International:
ASEAN finance ministers have chosen Singapore as the location for East Asia's first ever economic and financial surveillance office, which will run a US$120 billion multilateral currency swap scheme to ward off future regional financial crises, ASEAN sources said. The decision made by consensus among ministers of the 10-member Association of Southeast Asian Nations at their informal meeting here Wednesday follows months of fierce competition among Thailand, Singapore and Malaysia to host the high-powered regional surveillance office.So the ASEAN+3 Macroeconomic Research Office (AMRO) may not have a snappy name, but its importance should not be lost on us. Furthermore, Agence France-Presse leaves us in no doubt about what it will be tasked with:
The office, currently referred to as the ASEAN-plus-three Macroeconomic Research Office or AMRO, is expected to be established by May next year to run the Chiang Mai Initiative, which involves cooperation among ASEAN members, Japan, China and South Korea. It is expected to monitor economic developments in the region and also make urgent decisions on the activation of a reserve fund to help defend regional currencies in times of financial turmoil.
Singapore had a strong edge over other contenders because of its efficient infrastructure as a business and financial center, ASEAN officials said. The city-state scored highly in an assessment that the Jakarta-based ASEAN Secretariat commissioned international consulting house Ernst & Young to conduct recently.
Thailand had been lobbying strongly in the last few months on the grounds that the Chiang Mai Initiative was established as a regional network of bilateral swaps by the 13 East Asian nations in Chiang Mai, Thailand, in 2000 in response to the 1998 Asian financial crisis that had battered some economies in the region badly. It had also proposed and offered a couple of sites to be used by the new office free of charge, officials said. It is understood that some ASEAN governments had earlier favoured Thailand due to its lower business cost compared with Singapore. But Thailand's political uncertainties could have stood against it.
An ASEAN official attributed the three countries' drive to host the office to the perceived prestige of hosting what could potentially grow in stature to become an Asian version of the International Monetary Fund someday. But at least for the moment, officials see its role as just to complement the IMF...
In February last year, the finance ministers of the 13 East Asian countries involved in the Chiang Mai Initiative agreed to raise the reserve fund from US$80 billion to US$120 billion, with ASEAN countries contributing US$24 billion and China, Japan and South Korea shouldering the rest.
The surveillance office will be launched in May 2011, Vietnam's finance ministry said in a statement released after a meeting central bank deputies and finance ministers of the Association of Southeast Asian Nations (ASEAN).Like the Brits, it seems us Asians are keen on seeing the back of Uncle Sam. See ya--and we definitely wouldn't wanna be ya. Asians rejoice: it lives!
Named the ASEAN Plus Three Macroeconomic Research Office, or AMRO, it will monitor economic developments in the region with a view to detecting potential risks and vulnerabilities. During a crisis, AMRO will facilitate the timely activation of the swap arrangement by providing prompt assessment and updated information on the crisis-hit economy.
