Asia’s freshly enhanced financial safety net is an Asian Monetary Fund in all but name, a leading Asian policymaker declared on Friday
The Chiang Mai Initiative Multilateralised (CMIM), the new Asian financial safety net, boosted with fanfare in Manila this week is tantamount to the creation of an Asian Monetary Fund, a leading Asian politician declared yesterday.
Finance ministers from the Asean+3 countries unveiled a planned boost in the CMIM’s resources from $120 billion to $240 billion at a high-profile event at the ADB meetings.
Asked whether this was a step towards the creation of a fund Takehiko Nakao, Japan’s vice finance minister for international affairs, told Emerging Markets: “Yes, I think it is, we just don’t need to call it an Asian Monetary Fund.”
The comment are the strongest hint to date that Asia is looking to build up a crisis-fighting fund to rival the International Monetary Fund, which many blame for exacerbating the 1997 Asia crisis.
Thai finance minister Kittiratt Na-Ranong told Emerging Markets that the need for a swift response to regional crises was among the key rationales for establishing the fund. He said that although “we trust the judgment of the IMF…waiting for an IMF decision” on funding is less helpful than “if we send in some financial resources to help [countries] heal in early days.”
Nakao said that it was not possible to rule out a fresh financial crisis that would require the intervention of the CMIM. “I hope we will not have another crisis but no-one can be complacent,” said Nakao. “What is important is that we now have a stronger monetary arrangement and have a stronger dialogue with each other. If we need the money we can mobilise it region-wide.”
Zeti Akhtar Aziz, Malaysian central bank governor, told Emerging Markets:”We have created an institutional arrangement to increase our cooperation.”
Diwa Guinigundo, deputy governor of Bangko Sentral ng Pilipinas, echoed a theme sounded repeatedly by the ministers during a seminar that the possibility a future Asian crisis could not be ruled out. “We don’t expect tail events [from the global crisis] or a ‘black swan’ to happen but these things do happen,” he said
The CMIM has not been invoked as yet despite the fact that financial crisis swept around the world after the Lehman collapse in 2008 and the onset of the eurozone crisis two years ago. But ministers argued yesterday that this time had been well spent in building up the resources and capacity of the CMIM
“The likelihood of anyone within Asean+ 3 dipping into the pool is remote,” suggested Guinigundo. “Only reason I can imagine that anyone would dip into the pool is if global markets worsen and export-dependent member countries are affected.
However Nakao acknowledged that the CMIM had “not yet been tested in action”, despite the fact that it was launched 10 years ago, but added that “having this kind of mechanism is better than having nothing”.
There were others sign that the initial enthusiasm over the launch were fading as leading figures warned over when it would become operational.
Jayant Menon, lead economist in the ADB’s office of regional economic integration told Emerging Markets that aspects of the CMIM’s operations, including its relationship with the economic surveillance unit, were still “very unclear”. The CMIM remains a series of central bank commitments rather than a monetary fund, he said.
The threat of “volatile” capital flows disrupting Asian economies was cited as a reason for continued caution Zeti told Emerging Markets she was confident the ability of most Asian economies to “intermediate” these inflows had increased sharply since the 1997 Asian crisis.
China’s vice finance minister Li Yong said: “I’m a strong promoter of the CMIM. It’s very useful for members of the region to provide resources to it. We are very happy to double the fund in size to $240bn, and in future we would agree to review the size if enough members decide to do so.”
But the effectiveness of the CMIM as an instrument of regional financial cooperation in Asia – and as a model for other regions, as suggested by Korean finance minister Bahk Jaewan – has not yet been proved in action.
“The test will come if when there is a crisis but that is unlikely at this moment,” Iwan Aziz, head of the ADB’s regional economic integration office, suggested to Emerging Markets, but he emphasized that bringing the CMIM to its current state of relative readiness was a considerable achievement.