Page 2 of 2 Japan, China as anchors of
financial
stability By Hisane Masaki
they
were 10 years ago," said the minister, who
co-chaired the ASEAN Plus Three gathering with his
Chinese counterpart. "The volatility of capital
flow, the size of capital flows are even bigger,"
he said. "This is why we feel we need a regional
approach to deal with this problem."
The
multilateral currency-swap scheme would allow
Asian countries first to try countering a local
crisis before resorting to
outside help, especially from
the Washington-based IMF. Thailand, Indonesia and
South Korea - three nations hardest hit by the
financial crisis - were forced to turn to the IMF
for more than $100 billion in loans to shore up
their finances.
Asian governments want to
avoid relying on the IMF, which forced them to
adopt harsh economic policies, including raising
interest rates and cutting public spending, in
return for bailouts during the crisis. Still, even
the Chiang Mai Initiative is not completely free
from IMF supervision.
In fact, the
initiative has been confined to a complementary
role to the IMF. At present, only 20% of bilateral
swap lines under the initiative can be activated
independently. The remaining 80% can be disbursed
only when a country in trouble agrees to an IMF
program. The independent ratio was originally set
at 10%. The condition was designed to deter
countries from following lax economic policies.
The ASEAN Plus Three finance chiefs' joint
statement also noted the complementary role of the
new multilateral scheme vis-a-vis the IMF. "We
reiterated our commitment to maintain the two core
objectives of the CMI ... to address short-term
liquidity difficulties in the region and to
supplement the existing international financial
arrangements."
The Asian financial chiefs
also discussed ways to foster an efficient and
more liquid bond market in Asia, with the aim of
better utilizing relatively high levels of
private-sector savings in the region for
infrastructure and other investments within the
region. In their joint statement, they said they
"welcomed the diversification of issuers and types
of local currency-denominated bonds" under the
Asian Bond Markets Initiative, launched in August
2003.
Heavy reliance on the borrowing of
short-term funds from abroad, especially those
denominated in US dollars, for long-term
investments, was blamed by many economists as a
primary structural problem behind the Asian
crisis.
Asian Monetary Fund? Minister Omi emphasized the significance of
the ASEAN Plus Three agreement to launch a
multilateral currency-swap scheme. "I understand
this is very big progress, and it is a major
achievement that all 13 nations reached an
agreement on the matter," Omi said, adding that
Japan will engage in the new currency-swap
framework in a proactive manner.
However,
the 13 nations have yet to work out details,
including how much each country will contribute,
who will manage the scheme and when the new system
will start. The Asian finance ministers' joint
statement said, "We instructed the deputies to
carry out further in-depth studies on the key
elements of the multilateralization of the CMI,
including surveillance, reserve eligibility, size
of commitment, borrowing quota and activation
mechanism."
Chalongphob said he hopes that
"within a couple of years a concrete conclusion
will be reached." There is speculation that the
size of the multilateral scheme will be about $80
billion, the same amount as the current network of
bilateral arrangements. As for the question of who
will manage the scheme, the ADB is tipped to be a
leading potential candidate among other
international institutions.
Despite
optimism shown by the 13 Asian financial leaders,
there appear to be a number of potential obstacles
to actually activating the multilateral scheme,
which is still on the drawing board. Aside from
technical issues that might arise in the process
of fleshing out the scheme, politics could stand
in the way of the new Asian initiative.
The agreement to launch a multilateral
scheme could alarm the US because it is seen by
some as a move that could lead to the creation of
an Asian Monetary Fund. In addition, the scheme
could be hampered by the increasing rivalry
between Japan and China over the leadership role
in regional economic cooperation.
The
United States, which firmly believes it has
ensured peace and prosperity in the Asia-Pacific
region and has huge economic as well as security
interests here, would oppose any new move based on
Asianism to exclude the US. Japan would feel it
politically difficult to push for any regional
framework vehemently opposed by the US.
In
the early 1990s, the US objected - and
successfully killed - the East Asia Economic
Caucus (EAEC), a grouping of Asian nations
proposed by then Malaysian prime minister Mahathir
Mohamad and called by some wags a "caucus without
Caucasians". The EAEC proposal failed to
materialize after Tokyo balked at throwing its
support behind the Malaysian initiative, out of
political consideration to Washington. More
recently, the Japanese initiative for the Asian
Monetary Fund, unveiled during the 1997-98 crisis,
was aborted because of strong objections from the
US - and also from China.
The EAEC
proposal may have been killed, at least nominally.
But practically it has been resuscitated with a
new name - ASEAN Plus Three. As a grouping, the 13
nations began the process of boosting cooperation,
especially in the currency and finance areas, in
the wake of what they perceived as a slow and
lukewarm US response to the 1997-98 Asian crisis.
The US is also wary of growing moves among
Asian nations toward greater economic integration.
Japan and China are pushing competing ideas for a
regionwide free-trade agreement . In 2004, China
proposed an East Asian FTA among the ASEAN Plus
Three nations. As a counterproposal aimed at
diluting China's regional influence, Japan last
summer proposed an East Asian agreement that would
also include Australia, New Zealand and India.
After the Japanese proposal, the US
administration of President George W Bush threw
its hat into the ring in the race for regional
economic integration by floating the idea of
creating a much wider, Pacific Rim FTA that
included the US, utilizing the 21-member
Asia-Pacific Economic Cooperation (APEC) forum.
China joined the US in opposing the
Japanese-proposed Asian Monetary Fund in the late
1990s, fearing Japan's greater clout in the
region. But China seems to have become rather
enthusiastic about discussing the proposal in
recent years.
Some analysts say that if
the multilateral currency-swap scheme actually
gets up and running, China, now the world's
largest holder of foreign-exchange reserves, might
take a greater leadership role than Japan in its
management, a prospect Tokyo probably would not
want to become a reality.
Hisane
Masaki is a Tokyo-based journalist,
commentator and scholar on international politics
and economy. Masaki's e-mail address is
yiu45535@nifty.com.
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