ASEAN+3 finance ministers are expected to endorse the creation of a quasi Asian Monetary Fund at their meeting today.
They are set to agree to multilateralize the management of at least part of the $84 billion Chiang Mai Initiative (CMI), an Asia-wide network of bilateral currency swaps. The proposed changes would amount to the creation, in effect, of a regional fund with functions similar to those of the IMF.
The move comes at a time when some officials say financial crises resembling those of 1997 could again hit Asia’s more vulnerable economies.
The ministers from the ten ASEAN states, plus Japan, China and South Korea – whose meeting will be c haired by Japanese finance minister, Fukushiro Nukaga – may also decide to launch studies on the possibility of forming an Asian version of the Financial Stability Forum of banking, securities and other financial regulators, to help ensure stability in Asia’s financial markets following recent global turbulence.
Japan has proposed that some $80 billion of the CMI funds be set aside as a multilateral facility for helping Asian nations in times of balance-of-payments crises. This would be equivalent in all but name to the Asian Monetary Fund proposed by Eisuke Sakakibara, the former Japan vice finance minister for international affairs, during the 1997 Asian currency crisis.
The idea was brought down by opposition from the US and the IMF, and by lack of support from China among others. But under the CMI agreement, reached several years later, a series of bilateral currency swaps was created to provide hard-currency support for countries whose own currencies were hit by capital flight.
These swaps have never been invoked but some of them came close to being triggered in 2005 when Indonesia faced a “mini-rupiah crisis,” Masahiro Kawai, a former senior Japan finance ministry official revealed to Emerging Markets.
A “similar situation” exists now in some of Asia’s weaker economies which have been hit by surging oil and fuel prices, he said.
“The CMI continues to be important,” said Kawai, now dean of the ADB Institute. “Although several big countries in Asia have now accumulated huge foreign exchange reserves there are still weak spots in the region.” Kawai declined to identify individual countries that might be at risk. “But not all countries are 100% solid,” he said. “There is still sense in strengthening the CMI.” Food and energy subsidies are placing heavy strain on certain countries’ fiscal positions and that “can reduce confidence in the currencies of many emerging market economies.” This could trigger capital flight and create a need for outside help, he added.