Currency pact gets boost

04/05/2007 | Anthony Rowley

Asean+3 to drive forward Chiang Mai Initiative on forex reserve cooperation

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 group’s “clear analysis” of poverty and other challenges facing the institution.

Related stories

  • France, Luxembourg eyeing up RMB bonds after UK's ...

    China is keen to step up the pace of internationalising the renminbi - and European governments are keen to help.

  • KAZAKHSTAN: Kicking Kazakhstan back into gear ...

    With every resource that it needs to become a wealthy country, Kazakhstan should be doing better, but its economy remains stubbornly tied to energy and metals prices. President Nazarbayev is running out of time to transform his nation

  • AFRICA IN THE INTERNATIONAL BOND MARKETS: African ...

    Africa has been on the cusp of mainstream capital markets for years. While the continent made a breakthrough in the variety of issuance it produced in 2012-13, 2014 looks like it will be the year when African borrowers finally become established

  • CARIBBEAN DEBT: Lingering debt spectres highlight need for ...

    Jamaica is getting back on track and could become an unlikely poster child for the IMF. However, elsewhere in the Caribbean the threat of default looms and some countries are not ready to ask for help

  • MONGOLIA: OT mess holds up Mongolia's advance

    Falling commodity prices have hurt Mongolia’s economy, which relies heavily on its abundant natural resources. Improving relations with China are helping it through the squeeze but the country has yet to show its true potential to global investors


Editor's Picks


In Focus

  1. AFRICA IN THE INTERNATIONAL BOND MARKETS: African sovereigns go mainstream as investors shift focus away from Russia

  2. KAZAKHSTAN: Kicking Kazakhstan back into gear - Nazarbayev tries again at transformation