An Asian Monetary Fund (AMF) is an idea whose time has come.
Thats the view gathering pace in Asia as Japans new
government, which swept to power at the end of August on the
back of an avalanche of popular support, looks set to revive
the initiative that Tokyo took in 1997.
But this time it is likely to be a more ambitious project
than the one proposed unsuccessfully 12 years
ago, at the height of the Asian crisis. Crucially, it will have
the backing of China.
At the core of the scheme will be the so-called Chiang Mai
Initiative Multilateralized (CMIM), scheduled to begin
operation by the end of the year as a jointly administered
common pool of regional funds that began life in 2000 as a
network of bilateral currency swaps. But the AMF Mark
II may expand the functions of the CMIM well beyond this
emergency financing facility.
The idea of such an expanded fund has support in high
places. Ban Ki-moon, the UN secretary-general, recently
endorsed the idea, saying that an AMF could complement
the IMF in helping countries respond to financial and economic
shocks, and it could promote investment in regional transport
infrastructure and social protection.
Architect of the 1997 initiative and former Mr
Yen, Eisuke Sakakibara a key adviser to Japanese
prime minister Yukio Hatoyamas Democratic Party of Japan
(DPJ) in its victorious election strategy told Emerging
Markets before the landmark August 30 election that the DPJ
would almost certainly revive the idea of an AMF.
The plan which Sakakibara announced in 1997 at the height of
the Asian financial crisis was for a $100 billion Asian fund
that would work alongside the IMF. But this came in for strong
opposition, not least from then-US Treasury official Lawrence
Summers, who effectively blocked the move, and from the
NEED FOR CHINA
As Sakakibara, then Japans vice finance minister for
international affairs, confided afterwards when the 1997 plan
was abandoned in favour of less ambitious initiatives, one of
his critical mistakes was not to seek Chinese support before
announcing his grand design.
This time, Japan will not make the same mistake, he tells
Unlike the situation in 1997, Chinese support appears likely
to be forthcoming now provided any new initiative is
presented as a pan-Asian one and not as a move to achieve what
Beijing saw originally as a move by Tokyo to achieve yen
hegemony in Asia.
Yang Jiechi, Chinas foreign minister, has stressed the
importance of regional self-help among east Asian nations.
We should vigorously intensify financial cooperation
among the Asean+3 countries of Japan, China and South
Korea, Yang told a recent meeting of foreign ministers
from the group.Thailand is another supporter of regional
monetary initiatives in Asia. Vitavas Srivihok,
director-general of the Asean Affairs Department in the Thai
foreign ministry this years chair country of Asean
says he aims to implement the $120 billion CMIM during a
summit of the 10-nation south-east Asian nation group on
CMI multilateralization will eventually lead to some
kind of Asian Monetary Fund, says Sakakibara, adding that
the new Japanese government is likely to propose new moves to
this end. Once they earmark foreign reserves of each
country and jointly manage those reserves, it will be one form
of what I proposed a decade ago, he says.
Using such funds in emergencies for providing
liquidity is just one function, but there are other functions
such as coordination of foreign exchange policy and monetary
policy that could be carried out by an AMF, says
Chinese and Philippine officials have envisaged a future
Asian Monetary Fund as a kind of multi-purpose vehicle capable
of pooling some of east Asias huge foreign exchange
reserves which total well in excess of $3 trillion
to help finance infrastructure and other regional
projects, in addition to providing short-term financing.
But some experts have warned that the multilateralization of
the CMI should complement, rather than supplant, the IMFs
Writing in Emerging Markets, Randall Henning,
visiting fellow at the Washington-based Peterson Institute for
International Economics, said that while the US and
Europe cannot legitimately object as a matter of
principle to the progress of the CMI, since they maintain
their own balance-of-payments and liquidity facilities, the
terms of financing of any new fund should be determined
on the economic merits, not by bureaucratic competition among
Nevertheless, the idea of Asias foreign exchange
reserves being put to more constructive ends than simply being
deployed in US or other foreign securities is one that also
appeals to IMF first deputy managing director John Lipsky,
although what he has in mind is that reserve-rich Asian nations
should use their wealth for domestic development and turn to
the IMF if they need outside help.
Asia can afford to use some of its reserves for economic
development now that the IMF is able to provide crisis
insurance, says Lipsky, referring to IMF facilities such as the
Flexible Credit Line (FCL) designed to provide
conditionality-free access to sound borrowers in case of
OUT IN THE COLD
It no longer makes sense for Asia to opt for self-insurance
by maintaining large reserves, Lipsky says. But Asian nations
are in no mood to turn to the IMF for help nowadays and it is
notable that, of more than 30 emerging economies that have
sought IMF help since the global financial crisis and economic
recession began, less than a handful are from Asia.
Sakakibara is blunt about the reasons for this. Asian
nations in general went into the current global crisis in good
financial shape but because of their past experiences at
the time of the Asian financial crisis of 19971998, they
would never ask the help of the IMF unless it was absolutely
essential, he says. And I think they are
IMF policy toward Thailand, Indonesia and South Korea at the
time of the 1997 crisis was absolutely wrong
terrible, says Sakakibara. The IMF has learned some
lessons since, he acknowledges, for example by dropping certain
politically damaging structural economic reform demands, but
memories of 1997 die hard, he says.