Asean+3 finance ministers will today announce a decision to multilateralise the management of the Chiang Mai Initiative (CMI), a $75 billion network of bilateral currency swaps created seven years ago to help ward off regional currency crises.
This is a good move, and it will make Asia safer in the longer run, ADB president Haruhiko Kuroda told Emerging Markets in Kyoto.
Korean finance minister Kwon Okyu also praised the decision. It becomes more formalised, and provides a more systematic way to deal with any future financial crisis, Kwon said in an interview with Emerging Markets.
Under the new system, if there is a crisis, members countries are required to have a meeting within two days and then they have to decide whether to offer support [to crisis-hit countries] within two weeks.
Kuroda considers a currency crisis like the one that caused economic turmoil in 1997 to be very unlikely. But, he said, the situation could change in future, and volatile inflows and outflows of capital could challenge monetary authorities. The region needs to safeguard against that possibility.
In five, ten or 15 years time the financial and economic situation in Asia may be different. If the Asean+3 finance ministers improve the Chiang Mai Initiative safety net, that would mark significant progress toward financial safety in the long run, the ADB president said.
Multilateralising the CMI would be significant progress over a network of bilateral arrangements, added Kuroda. But he emphasised that this would not turn the CMI into an Asian Monetary Fund.
Kuroda, a former deputy finance minister for international affairs in Japan, is often credited with devising the original plan for an Asian Monetary Fund at the time of the regional currency crisis in 1997. That was dropped in the face of strong opposition at the time, from then US Treasury secretary Lawrence Summers and from the IMF.
The CMI was launched three years later by Asean+3 finance ministers at the ADB meeting in the Thai resort of China Mai. The network of bilateral swaps was designed to provide emergency financial liquidity for Asian countries hit by balance of payments crises, although it has never been invoked.
Finance minister Kwon of Korea had a trilateral meeting in Kyoto yesterday with his counterparts Koji Omi of Japan and Jin Renqing of China, and afterwards issued a statement welcoming progress of the study toward an advanced framework of regional liquidity support arrangement under the CMI.
We agreed further to strengthen our efforts to explore ways for multilateralisation of the CMI, while confirming our commitment to maintain the two core objectives of addressing short-term liquidity difficulties in the region and supplementing existing international arrangements, they said.
The ministers also agreed to promote other means of cooperation and regional financial solidarity through the Asean+3 finance ministers process.
ADB president Kuroda said in his interview that the report by a group of Eminent Persons on the future of the ADB, which he commissioned last year, had been generally well received by shareholders.
I have talked to finance ministers and senior officials since the report was released [one month ago] and almost all of them have a positive view it, he said. He welcomed the groups clear analysis of poverty and other challenges facing the institution.