China, Japan, South Korea, ASEAN Agree on Wider Currency Swap Arrangements

Republic of China

ISTANBUL, May 4 (AFP) - Finance ministers from China, Japan, South Korea and the Association of Southeast Asian Nations (ASEAN) agreed Wednesday to expand their system of bilateral currency swaps under the Chiang Mai Initiative to a more multilateral system. The ministers, meeting as the “ASEAN-plus-3″ on the sidelines of the Asian Development Bank (ADB) annual meeting in Istanbul, said this would make the Chiang Mai Initiative a “more effective and disciplined framework.” Under the currency swaps, an Asian country hit by a foreign exchange crisis like the one in 1997 could borrow borrow foreign currency — usually US dollars — from another country to bolster its reserves until the crisis had passed. An ADB analyst remarked that Wednesday’s accord was a step towards setting up an “Asian Monetary Fund,” although such an institution might never actually be created.

In a joint press conference, the 1O ASEAN and three East Asian financial ministers also called for a review of the quota of Asian countries in the International Monetary Fund (IMF) “to properly reflect the current realities and their relative positions in the world economy.” The 13 ministers said an economic surveillance system would be put into place along with the Chiang Mai Initiative framework, to detect irregularities early and apply swift remedies. They also said a collective decision-making mechanism would oversee the current system of bilateral swap arrangements “as a first step towards multilateralization.”

This would make it easier to activate the bilateral swap arrangements in case of an emergency, the ministers said in a joint statement read after their three-hour meeting. Crisis-hit countries would also be able to draw down as much as 20 percent of the money under the bilateral swap arrangements without having to go through the IMF. Under the current arrangements, countries that draw more than 10 percent under their swap arrangements must have an IMF-supported program in place. The decisions of the ASEAN-plus-3 group apparently followed recommendations made during a meeting of the Chinese, Japanese and South Korean ministers a day earlier. Previously, the initiative launched in Chiang Mai, Thailand, in May 2000 involved only bilateral swaps but the Chinese, Japanese and South Korean ministers said they would look towards expanding this into multilateral swaps involving three or four countries. Asian countries had earlier proposed the creation of an Asian Monetary Fund after the 1997 fiscal crisis but the United States and the IMF had strongly opposed this. Chinese minister Renqing Jin said his country had already agreed to “double the scale of its currency swap,” from its current level.

However, when asked if they were setting up an Asian Monetary Fund, Japanese minister Sadakazu Tanigaki replied, “only the Chiang Mai Initiative was discussed”. The ministers said the initiative had been very helpful in maintaining the financial stability of Asian countries even if there had been no repeat of the 1997 crisis. Masahiro Kawai, special adviser to the ADB president, who monitored the ASEAN-plus-3 meeting, said the ministers wanted to increase the effectiveness of the Chiang Mai Initiative which now covers 16 bilateral swap arrangements. He called it a “step towards multilateralization,” adding that a “de facto Asian Monetary Fund,” may eventually be created. He said the United States and the IMF had opposed such a fund in the past partly due to fears it would increase the risk of moral hazard. But Kawai said this was why the ministers wanted to increase the surveillance function of the Chiang Mai Initiative. He remarked that in the past, China had not joined the move to create an Asian Monetary Fund and that if it joined with the other Asian countries, they might be more successful. mm/wai


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