On 3 May 2012, on the sidelines of the Asian Development Bank’s Annual Meeting in Manila, the ASEAN+3 took a number of significant steps to further deepen monetary integration in the region (Joint Ministerial Statement 2012). In the midst of a flurry of other activities and announcements – including the sharp increase in ADB lending last year and the launching of the ASEAN Infrastructure Fund – these important steps went relatively unnoticed.
The most significant outcome of the Manila meeting was the upgrading of the ASEAN +3 Finance Ministers Meeting (AFMM+3) to the ASEAN+3 Finance Ministers and Central Bank Governors’ Meeting (AFMGM+3); the central bank governors of the 13 member countries (plus Hong Kong) have been invited to join. In the past, the region’s firewall for crisis prevention and crisis resolution had been run solely by finance officials responsible for tax and expenditure policies. Officials responsible for monetary and exchange-rate policies were left out. This major gap has now finally been filled.
Expansion of the Chiang Mai Initiative Multilateralisation
The size of the US$120 billion crisis fund, or the Chiang Mai Initiative Multilateralisation (CMIM), was doubled – although it still continues to be only a small fraction of the bailout fund in Europe. The amount that can be borrowed without an IMF programme in place was increased to 30% and is targeted to reach 40% in 2014. The meeting of ministers also established a CMIM Precautionary Line, which will permit countries with strong economic fundamentals to borrow large amounts of liquidity for crisis prevention. While the details of the credit line are yet to be worked out, those responsible should note that a similar facility at the IMF has been used by only three countries. They should ask why, and come up with solutions.
The ministers and governors also commended the ASEAN+3 Macroeconomic Research Office (AMRO) for its success in staff recruitment and its regional surveillance activities and requested their deputies to find out how AMRO’s organisational capacity could be further strengthened. They also welcomed Singapore’s commitment to provide necessary host country support to the AMRO.
Despite its commendable performance under Director Benhua Wei, AMRO faces a number of challenges. Aside from those mentioned above, two others need highlighting.
- First, AMRO must find out why at the height of the global economic crisis, Korea and Indonesia, who were most affected through the financial channel, chose not to borrow from the CMIM, the region’s own crisis fund, but found alternative arrangements. Korea chose to borrow from the US Federal Reserve while Indonesia struck an innovative agreement with a consortium led by the World Bank (Henning and Khan 2011). AMRO should seriously study the problem and put in place remedial measures lest capital once again flows out of the region in response to the rapidly deteriorating situation in the Eurozone with a Greek exit or “Grexit” looking increasingly likely.
- Second, modalities must be found so that AMRO can work jointly and smoothly with the IMF. The G20 Cannes Summit declaration noted that the leaders had “agreed on common principles for cooperation between the IMF and regional financial arrangements, which will strengthen crisis prevention and resolution efforts” (G20 Secretariat 2011). Lamberte and Morgan (2012) have come up with several recommendations to bring about more effective cooperation between the IMF and regional safety nets. Europe’s experience, where the IMF is working closely with the EU and the ECB as a member of the Troika, could also be useful to those involved in designing such modalities.
AMRO is now just over a year old and its plate is full. It should not be over-burdened. But two next steps, which require relatively fewer resources, should be considered. The first is that AMRO should start introducing the Regional Monetary Unit (RMU), a regional weighted currency basket, as a numeraire currency. The RMU would provide more stable currency values. It could also facilitate AMRO’s surveillance activities by making sure that countries are avoiding competitive devaluations among each other and are converging their macroeconomic policies for deeper integration. Eventually, the RMU could be an alternative international reserve asset to the ailing US dollar, but this is only a longer-term possibility at the present time (Kawai 2010 and Rana et al 2012).
What do opinion leaders think about the regional monetary unit?
Recently, I led a team of researchers from the Nanyang Technological University for the ASEAN+3 Research Group surveying ASEAN+3 opinion leaders, comprising government officials, academic, and bankers (Rana et al. 2012). Over two-thirds of the opinion leaders felt that the AMRO should be tasked with calculating the RMU, using the CMIM weights, and publicising it on a daily basis. A similar number felt that the AMRO should use the RMU for regional surveillance, its key activity. A large number also felt that the AMRO budget and the operations of the AMRO and CMIM should be denominated in the RMU like the Special Drawing Rights (SDRs) in the IMF.
Expand membership of ASEAN+3
The second next step is that the membership of the ASEAN+3 including AMRO and CMIM should be expanded because, among other things, this would increase the size of the region’s crisis fund. Two years ago, the former Thai Minister of Finance Chalongphob Sussangkarn (2010) and presently the chair of the AMRO Advisory Panel had proposed that India, Australia, and New Zealand be made associate members and contributing partners – short of full membership - of the CMIM.
I have also argued elsewhere that expanded membership of the ASEAN+3 could strengthen Asia’s voice at the G20 high table (Rana 2009, Rana 2010). Joint policy coordination meetings of the expanded ASEAN+3 would provide a robust regional agenda for the ASEAN chair to table at the G20 Summits. With the next AFMGM+3 meeting slated for New Delhi in May 2013, this is an opportune moment to expand membership that should not be missed.
Henning RC and MS Khan (2011), “Asia and Global Financial Governance”, Peterson Institute of International Economics Working Paper Series No. 11-16, October
G20 Secretariat (2011), “Cannes Summit Final Declaration”, 4 November
Joint Ministerial Statement of the 15th ASEAN+3 Finance Ministers and Central Bank Governors’ Meeting, Manila, 3 May 2012
Kawai, M (2010), “Reform of the International Financial Architecture: An Asian Perspective”, The Singapore Economic Review, 53:207-292.
Lamberte, M and PJ Morgan (2012), “Regional and Global Monetary Cooperation”, ADB Institute Working Paper No. 346, February.
Rana, PB (2009), “Reform of International Financial Architecture, G20, and Asia”, VoxEU.org, 14 November.
Rana, PB (2010), “Reform of International Financial Architecture: How can Asia have a greater impact in the G20?”, RSIS Working Paper 201, June.
Rana PB, Chia WM and Y Jinjarak (2012), “ASEAN+3 Monetary Integration: Perception Survey of Opinion Leaders”, Journal of Asian Economics, 23:1-12.
Sussangkarn, C (2010), “The Chiang Mai Initiative Multilateralization: Origin, Development, and Outlook”, ADBI Working paper Series 230, July.