Asia flexes muscle with crisis fund boost

Finance ministers from a bloc of leading Asian nations last night agreed to double to $240 billion a regional crisis fighting fund, turning the 12year old arrangement into a de facto Asian Monetary Fund.

ASEAN+3 finance ministers in Manila hailed the decision to bolster the Chiang Mai Initiative Multilateralized (CMIM) as a sign of the growing self-government and resilience of the region.

Korean finance minister Bahk Jaewan, co-chair of the group, indicated that the loan facility could be invoked before long, for the first time in its history.

“There is always the possibility that in the months to come there may be capital outflows from the ASEAN region [and] we cannot exclude the possibility that [the CMIM) will be used,” he said.

In its enhanced form the CMIM will be superior to any other regional monetary arrangement, even the European Financial Stability Facility and the proposed European Stability Mechanism that are supposed the draw a line under the European debt crisis.

Its key advantages are the fact that it has its own economic surveillance mechanism and “precautionary” lending facility to pre-empt financial crises, Bahk said.

He called the revamped CMIM a “benchmark for regional financial cooperation in the rest of the world” and hailed the achievement of the ASEAN +3 group – which includes the three East Asian in agreeing to “accelerated cooperation” on the CMIM and other issues.

The 13 ministers also agreed on Thursday to step up the scope of their long-standing Asian Bond Market Initiative (ABMI) and to examine “the use of local [Asian] currencies in settlement of trade transactions.”

The CMIM will continue to collaborate closely with the IMF but the portion of its funds that can be lent without a borrower having an IMF programme in place will be increased from 20% to 30% and this could be a raised later to 40% or more, Bahk indicated.

The speed at which ASEAN+3 ministers have moved contrasts with the relatively slow pace at which IMF plans for a $430 billion resource boost have proceeded.

IMF Deputy Managing Director Naoyuki Shonihara told Emerging Markets that it would “take a little time” for the resource expansion to take effect.

“We have bilateral contracts with those countries that showed willingness to contribute and we will have a Board meeting on how to proceed. It will take a little time for the whole scheme to be effective,” he said.

He noted that while a global sum of $430 billion has been agreed by way of additional resources “there are some countries [such as the BRICS] that have not made specific commitments yet. For those countries the G20 leaders meeting could be a target.”

The IMF is still treated with resentment by some Southeast Asian nations who are still angry at the policy prescriptions the funds imposed on the region during the 1990s Asian financial crisis.

Yu Yongding, a former member of the People’s Bank of China (PBOC) monetary policy committee, told Emerging Markets in Manila on Thursday that lending to the IMF was “better” than investing in US Treasuries or European sovereign bonds but China should insist the US should drop its power of veto over the IMF since “no country” should hold such power at the institution.

The IMF’s recent shift away from a “dogmatic, market fundamentalist” ideology, the dangers of monetary integration as laid bare by the eurozone crisis and the technical hurdles in advancing co-operation in the region mean policy-makers will pursue a “less ambitious” approach to regional monetary integration.

The changes agreed on Thursday are due to be endorsed by ASEAN+3 deputies meeting in Seoul in November, at which time the CMIM will be poised to go into operation as needed.

Under the agreement the 13 members of ASEAN+3 (plus also Hong Kong) will double the size of the CMIM from $120 billion to $240 billion and introduce an IMF-style crisis prevention facility known as the CMIM Precautionary Line or CMIM-PL.