Thaksin based idea, a Mini-Asian-IMF, gets funding boost

[somsak]

me: US financially colonization of thailand. We lost almost all private banks to foreigners after this financial war. N.E Asian are our true allies. They provide 80% of CMIM money total 240 billion. Thanx China S.Korea Japan. Thai Chinese were the haviest losers in this financial colony. IMF rules killed our large businesses. eg. forcefully high interest rate. forcefully close financial institution. One of my cuties lost entire empire of debt.When Us got her own financial crisis, the do everything reverse that IMF force us to do.

src:Thaksin based idea, a Mini-Asian-IMF, gets funding boost | Thai Intel News Center
thaiintelligentnews / July 28, 2014
The attached ADB paper says: “The idea of the Asian bond market emerged first from Thailand in the summer of 2002. The creation of a bond market requires both issuers of bonds and investors in those bonds. The Thai initiative focused mainly on the investor side as then-Prime Minister, Thaksin Shinawatra, proposed that the members of ASEAN Plus Three contribute 1% of each country’s respective foreign exchange reserves to launch a regional fund to purchase Asian bonds.”

Taksin’s Asian Bonds is the first step towards a “Mini” Asian IMF, being the so called CMIM. The move aimed to increase the region’s efficacy in financial cooperation to support each country’s cash flow in case there was a sudden short-term shortage of capital in one of the member countries. The CMIM fund was created after the Asian financial crisis in 1997 to increase the region’s financial cooperation. The finance ministers of member countries agreed on the creation of the fund on May 6, 2000, in Chiang Mai. The fund’s head office is in Singapore.

Recently members of Asean+3 and the Hong Kong Monetary Authority have agreed to double the Chiang Mai Initiative Multilateralisation fund to lower the risk of a sudden economic crisis and help prevent spill-over effects of future crises to other countries.

Asean+3, which includes China, Japan and South Korea, and the HKMA – the central bank of Hong Kong – had agreed to increase the CMIM fund from US$120 billion to $240 billion (Bt7.7 trillion), effective last week.

Local press reports the revised CMIM plan has been signed by all member countries but has only recently been signed by Thailand because of the dissolution of Parliament last December. The National Council for Peace and Order now has signed it.

There are 13 member countries in the fund. Before the agreed increase, its total reserve was $120 billion, including $746.5 million (20 per cent) from Asean countries. The contribution from China, Japan and South Korea was $3 billion (80 per cent). Countries that experience a sudden shortage of capital due to a crisis can allocate some of the CMIM fund according to previously agreed ratios.

Several local press reports the increase of the fund size means Thailand will have to provide $9.1 billion instead of $4.5 billion and the amount will be fronted by the BOT’s international reserves. If Thailand experiences a financial crisis and has cash-flow problems in the future, it will be able to receive financial help of 2.5 times its contribution to fund – $22.7 billion.

The revised CMIM plan has been signed by all member countries but has only recently been signed by Thailand because of the dissolution of Parliament last December.

Local reports the Thai junta (National Council for Peace and Order) has now has signed it.

Besides the increase of the fund size, there has also been an increase in the proportion of the fund that is not connected to the International Monetary Fund.

The CMIM fund was created after the Asian financial crisis in 1997 to increase the region’s financial cooperation. The finance ministers of member countries agreed on the creation of the fund on May 6, 2000, in Chiang Mai. The fund’s head office is in Singapore.

There are 13 member countries in the fund. Before yesterday’s agreed increase, its total reserve was $120 billion, including $746.5 million (20 per cent) from Asean countries. The contribution from China, Japan and South Korea was $3 billion (80 per cent).Countries that experience a sudden shortage of capital due to a crisis can allocate some of the CMIM fund according to previously agreed ratios.

The following is from the ADB (source)

Regional Economic Institution Building in East Asia

4.1 Regional Financial Cooperation and Institutions

In the aftermath of the Asian financial crisis, efforts to provide an institutional base for regional financial cooperation developed very quickly in East Asia. The experience of the crisis prompted these efforts, which aim to make sure that such a financial disaster will never happen again. Despite all three aspects of regional financial and monetary architecture being essential for securing maximum financial and monetary stability in the region, the emergency liquidity funding arrangement of currency swaps under the Chiang Mai Initiative (CMI) has become the most institutionalized, while the Asian Bond Market Initiative (ABMI) and Asian Bond Fund (ABF) are moving forward slowly and informally. There is currently very little movement in the area of monetary and currency cooperation in the form of an Asian Monetary Union or an Asian Currency Unit (ACU).

Both in terms of chronology and level of institutionalization, the CMI is the most well-established financial initiative in East Asia at the moment. As early as November 1997, the East Asian governments launched a regional framework in the context of Association of Southeast Asian Nations (ASEAN) Plus Three (Japan, PRC, and South Korea (hereafter Korea)) with the hope of dealing with financial emergencies. This framework became the core of the region’s emergency liquidity mechanism consisting of a network of mostly bilateral currency swap arrangements. The ASEAN Plus Three governments arrived at the basic agreement regarding this regional mechanism by May 2002.21 One component of the CMI is the expanded ASEAN Swap Agreement, a small regional currency swap facility that has existed among ASEAN members since 1977. The other, more recent components are the Bilateral Swap Arrangements and the repurchase arrangements between each member of the ASEAN Plus Three.22 The CMI has two basic objectives: the first is to provide emergency liquidity at a time of financial crisis, such as the Asian financial crisis. The second and longer-term goal is to enhance regional cooperation both in terms of currency stabilization and financial monitoring. As of June 2009, US$90 billion worth of swap lines have been committed by the participating monetary authorities.

In May 2009, the decision to multilateralize (i.e., regionalize) the CMI was finalized, and in the near future the funds already committed to bilateral swap lines will be pooled to create a potential for a much larger swap volume per use.23 The newly established CMIM (Chiang Mai Initiative Multilateralized) will consist of a multilateral private swap agreement among the member central banks with a pooled fund of US$120 billion. Through the multilateralization process, not only did the amount available for each swap expand, but it also allowed the ASEAN countries that were not incorporated into either the Bilateral Swap Arrangements or ASEAN Swap Agreement to become full members of the CMI process (namely Brunei Darussalam, Cambodia, Lao People’s Democratic Republic, and Viet Nam). Despite the large amount of available funds and the image of the “revival” of the Asian Monetary Fund (AMF) proposed by the Japanese authority at the onset of the Asian financial crisis in the summer of 1997, there are two features that clearly distinguish the CMIM from the (relatively vaguely defined) AMF.

The first is the fact that the CMI so far has been a virtual institution. The recent agreement will lead the CMIM to establish a more formal institution to engage in the monitoring and surveillance of member countries in preparation for the activation of currency swaps, but it is unlikely that this will turn into a large standing institution, and nor does it consist of an actual pool of funds in the same way that the International Monetary Fund does. The currency swap arrangements are based on a contractual agreement among the central banks to activate those swaps based on their respective foreign exchange reserves as the CMIM receives requests.24 The other feature of the CMIM is the IMF-link as a condition to activate the currency swaps. This 90% link (i.e., 90% of the swap can only be activated when the IMF agreement is either negotiated or in place) was put in place at the establishment of the CMI due to the lack of a monitoring function under the ASEAN Plus Three framework. Without this link, deciding to activate a swap line and guaranteeing repayment becomes difficult.25 The explicit definition of the CMIM as a complementary liquidity funding mechanism within the international framework led by the IMF did not emerge solely from the lessons of the failed AMF,26 it was established to make sure that repayment on the part of borrowers is secured through international pressure. A regional monitoring and surveillance mechanism has also been developed through the search for a way to prevent a financial crisis from occurring, and if it does, the borrowers can be monitored closely. The financial ministries of the member governments have, since the start of the CMI process, worked on those functions in the form of a biannual meeting of the Economic Review and Policy Dialogue, but the CMIM has already promised to develop a more specific surveillance function to allow the advisory panel to activate the swaps.27
The current global financial crisis after the collapse of Lehman Brothers of September 2008 helped the multilateralization of the CMI by making the leading countries compromise on and commit to a common regional goal.28 Despite such regional success, however, the monetary authorities of the countries with large foreign exchange reserves, namely the PRC and Japan, have established their own respective bilateral swap arrangements using their own currency (yuan and yen) besides the CMIM.29
The ABMI, in the context of the ASEAN Plus Three, also directly addresses the regional need for financial stability, a lesson that unmistakably came from the Asian financial crisis. The Asian financial crisis revealed the financial vulnerability of the East Asian economies ranging from domestic financial weakness to an inefficient investment climate. The challenge of the double mismatch problem, which came about as East Asia borrowed short-term in dollars and invested long-term in assets denominated in their local currency, has imposed more costs and risks on the borrowers in East Asia. As a region with relatively high savings, there was an emerging sense that “surplus savings from East Asia [flowing] out of the region to Western financial markets and then return[ing] by way of loans to Asian borrowers…makes little economic sense” (Rowley 2003).

The idea of the Asian bond market emerged first from Thailand in the summer of 2002. The creation of a bond market requires both issuers of bonds and investors in those bonds. The Thai initiative focused mainly on the investor side as then-Prime Minister, Thaksin Shinawatra, proposed that the members of ASEAN Plus Three contribute 1% of each country’s respective foreign exchange reserves to launch a regional fund to purchase Asian bonds. The idea, which was discussed at the East Asia Economic Summit in Kuala Lumpur in October 2002, was developed and adopted by the Executives’ Meeting of East Asia Pacific Central Banks as they set up the ABF, which was formally announced in June of 2003. As the central banks of eleven Asia-Pacific countries (including Australia and New Zealand) pledged US$1 billion for the purchase of semi-sovereign and sovereign bonds from less advanced countries (i.e., not Japan, Australia, or New Zealand) in the region. At this stage, the bonds that this fund had purchased were all US dollar-denominated. In June 2005, however, as the second phase of the Asian Bond Fund (ABF2) was launched, the fund used US$2 billion to invest in bonds denominated in Asian currencies.30
On the other hand, the Japanese government from the early stage of the Asian bond discussion was interested in developing a regional and local bond market in East Asia with the focus on the issuers. As early as the time of the New Miyazawa Initiative (October 1998), the Ministry of Finance (MOF) was interested in supporting local bond market development to tap into local savings and avoid a heavy reliance on foreign capital. In December 2002, Japan officially proposed the idea of the ABMI at an ASEAN Plus Three meeting in Thailand. The aims of the ABMI are two-fold: to facilitate access to the market through a wider variety of issuers, and to enhance market infrastructure to foster bond markets in Asia (Ministry of Finance).31 Under this initiative, the Japan Bank for International Cooperation extends bond guarantees to local-currency denominated bonds. Six working groups under the ABMI umbrella are working to establish a market infrastructure including a regional bond-rating system.32 The Japanese government also extends technical assistance in the development of a local bond market in some ASEAN countries utilizing Japanese foreign aid. Furthermore, the new ABMI Roadmap, which includes an insurance mechanism, the facility to increase the demand of local currency-denominated bonds, an improved regulatory framework, and a related infrastructure for the bond markets, was endorsed at the 2008 Madrid meeting.

The currency and exchange rate arrangement (the other element of the double mismatch) constitutes the last necessary component of East Asia’s regional financial cooperation.

Because of high and increasing regional economic interdependence in the mid-1980s, the dollar–yen exchange rate volatility (e.g., the depreciation of the yen to the US dollar after the spring of 1995) also put pressure on many Asian economies in the 1990s. After the de-pegging of the baht in the summer of 1997, some East Asian countries, most of whose currencies used to be pegged one way or another to the US dollar, floated their currencies. Being highly dependent on their investment and trade, the East Asian governments were eager to see their exchange rates stabilize (Kuroda and Kawai 2004). As Japan’s first efforts to increase the use of the yen in the region did not bear much fruit, East Asia has gradually started to entertain the possibility of regional monetary cooperation, even of a monetary union.

As the first step towards the Asian Monetary Union, economists and policymakers in East Asia conducted a joint study with the European Union (the Kobe Research Group) that published its report in July of 2002 and recommended a monetary integration process for phase one (to be completed by 2010); preparation for a single currency for phase two (to be completed by 2030); and the launching of a single currency in phase three that would start in 2030 (Institute for International Monetary Affairs 2004). The second and most current initiative is related to the idea of the ACU, initially discussed in late 2005 by the newly expanded Office of Regional Economic Integration at the Asian Development Bank under the leadership of its then-director Masahiro Kawai, and the new Asian Development Bank president Haruhiko Kuroda. The proposed ACU models itself after the European Currency Unit that existed as the region’s currency unit before the introduction of the euro. The European Currency Unit constituted a unit of exchange based on the weighted average of values of a basket of currencies. The ACU idea was picked up by the ASEAN Plus Three at the finance ministers’ meeting in May 2006, where all thirteen participating governments agreed to conduct in-depth research on its feasibility.33 One thing to note here, however, is that monetary cooperation at this stage has not given rise to discussion on convergence criteria or explicit macroeconomic policy coordination, which would be necessary in managing the stable exchange rates among the countries whose capital movement is relatively free (i.e., Mundell-Fleming Condition or Unholy Trinity).34 Moreover, despite the concerns over global imbalance and the high dollar-dependence of East Asia, the currency discussion in the region has not yet converged into concrete actions.

Regional financial and monetary cooperation in the last ten years has established a relatively clear membership. Given the experience of the Asian financial crisis, the question of who is in and who is out is easily answered. In this context, regional cooperation includes a mechanism to protect vulnerable countries with relatively low foreign currency reserves and financial capacity to acquire access to emergency liquidity funding and technical assistance in developing their financial markets. Meanwhile, as seen in the progress within the three areas of financial and monetary cooperation, there is still strong resistance against a country compromising its policy autonomy. The regional currency discussion, though fundamental in addressing the dollar dependence and ultimate stability in regional financial affairs, is progressing very slowly and, at this point, quite superficially without much commitment from the monetary authorities of the region. Furthermore, the protection of sovereignty over monetary affairs is strikingly clear even in how the CMIM is set up differently from the envisioned AMF.35

 

[Aepsilons]

Noteworthy, but doesn't China already have this obligation vis-a-vis the SCO? I'm sure Japan and ASEAN can develop something mutually beneficial in these lines.

 

[somsak]

Noteworthy, but doesn't China already have this obligation vis-a-vis the SCO? I'm sure Japan and ASEAN can develop something mutually beneficial in these lines.

This is nothing to do with SCO. CMIM main propose is to avoid IMF if there is a financial attack on national currency value of ASEAN+3 members. CMIM money is for fast loan in case of such financial attack occur. Last time Japan gave us Miyazawa's loan. I thank Miyazawa and Japan for that. However, some of the loan money was leeched by corrupt Thai politicians and civil officers.

We need Japan China and Korea to avoid greedy colonization by the west. Average American are good people. Their wallstreet is full of greed. I would have called it a fair game should US dollar could not be printed freely. But to abuse other countries' trust in US dollar to bully small country like us? That is no fair game at all. We lost the financial institutions because of infinitely printable dollar.

I will have to say "Thank you. Teacher" to George Soros. Initially I hate him because all of this financial crisis. So I see a lot of his Video on Youtube. But now I see him as teacher. It is because of Thai Financial Crisis that our governemnt have to be careful about trade deficit. Bank loan was on the power of corrupted branch managers who used to loan to his circle of friends. But not now. Currently Banks in Thailand have research facility to systematically calculate the risk of loaning to a customers. We still have some survival financial institutions that became new private banks. I become financially educated because of the crisis. Every time I see Soros, I tell myself he is so smart and so charisma. My feeling is I like him and the way he see the world. Each time I listen to his youtube I get the feeling of being shown to a new dimension of the universe: financial universe. When I see him talking about Special Drawing Rights, I think he must be greedily find the way to make profit from it, but I cannot figure out.

Teacher, listen. This time we are protected by CMIM. Teacher cannot play the same trick to punch us again. Teacher, Next trick?

 

[Aepsilons]

This is nothing to do with SCO. CMIM main propose is to avoid IMF if there is a financial attack on national currency value of ASEAN+3 members. CMIM money is for fast loan in case of such financial attack occur. Last time Japan gave us Miyazawa's loan. I thank Miyazawa and Japan for that. However, some of the loan money was leeched by corrupt Thai politicians and civil officers.

We need Japan China and Korea to avoid greedy colonization by the west. Average American are good people. Their wallstreet is full of greed. I would have called it a fair game should US dollar could not be printed freely. But to abuse other countries' trust in US dollar to bully small country like us? That is no fair game at all. We lost the financial institutions because of infinitely printable dollar.

I will have to say "Thank you. Teacher" to George Soros. Initially I hate him because all of this financial crisis. So I see a lot of his Video on Youtube. But now I see him as teacher. It is because of Thai Financial Crisis that our governemnt have to be careful about trade deficit. Bank loan was on the power of corrupted branch managers who used to loan to his circle of friends. But not now. Currently Banks in Thailand have research facility to systematically calculate the risk of loaning to a customers. We still have some survival financial institutions that became new private banks. I become financially educated because of the crisis. Every time I see Soros, I tell myself he is so smart and so charisma. My feeling is I like him and the way he see the world. Each time I listen to his youtube I get the feeling of being shown to a new dimension of the universe: financial universe. When I see him talking about Special Drawing Rights, I think he must be greedily find the way to make profit from it, but I cannot figure out.

Teacher, listen. This time we are protected by CMIM. Teacher cannot play the same trick to punch us again. Teacher, Next trick?

@somsak , I had posted an article that had illustrated the realization of an Asian Development Bank, it is being heralded by Japan. I don't see why South Korea and China can't partake in this enterprise. To address the issue of domestic corruption, that is an issue that many governments in developing economies have to address. Would you say that Krungthep has implemented or has any internal auditing agencies in government to ensure loans are going to the right department(s)?

I've attached a link for you to check out:

Japan to propose Asian Development Bank celebrate its 50th anniversary in Yokohama | The Japan Times

Kap kun na krap.

 

[LeveragedBuyout]

me: US financially colonization of thailand. We lost almost all private banks to foreigners after this financial war. N.E Asian are our true allies. They provide 80% of CMIM money total 240 billion. Thanx China S.Korea Japan. Thai Chinese were the haviest losers in this financial colony. IMF rules killed our large businesses. eg. forcefully high interest rate. forcefully close financial institution. One of my cuties lost entire empire of debt.When Us got her own financial crisis, the do everything reverse that IMF force us to do.

While I sympathize with your frustration over the way the 1997 crisis was handled, I assure you that no creditor, whether it's the IMF, the CMIM, the AMF, ABMI, ABF, or whatever new structures are set up, will countenance a plan by an ailing country to increase its deficit spending in an attempt to restart the economy. You can see the proof of this in the way the EU (or more specifically, Germany) has handled its own crisis--it's no different from the IMF prescriptions. The bottom line is that structural reform is inescapable, but hard, while deficit spending and currency devaluation are easy, but destructive. The latter has been tried, already. It took a crisis to finally try the former.

Regarding the article, I wonder if you're misinterpreting the intentions, here. CMIM will not save you from another crisis (or at least, not in any different way than the IMF), and here's why:

src:Thaksin based idea, a Mini-Asian-IMF, gets funding boost | Thai Intel News Center
thaiintelligentnews / July 28, 2014

The CMI has two basic objectives: the first is to provide emergency liquidity at a time of financial crisis, such as the Asian financial crisis. The second and longer-term goal is to enhance regional cooperation both in terms of currency stabilization and financial monitoring. As of June 2009, US$90 billion worth of swap lines have been committed by the participating monetary authorities.

1) The CMI(M) provides emergency funding for liquidity purposes, not solvency purposes. The 2008 financial crisis was both a liquidity and a solvency crisis, so the CMIM would not be able to provide an alternative to the IMF should a crisis like that hit Asia. You are right that the US didn't follow IMF prescriptions in trying to escape the 2008 crisis, but that's because the US didn't need an IMF loan, and also because the category of crisis was entirely different, as stated.

The first is the fact that the CMI so far has been a virtual institution. The recent agreement will lead the CMIM to establish a more formal institution to engage in the monitoring and surveillance of member countries in preparation for the activation of currency swaps, but it is unlikely that this will turn into a large standing institution, and nor does it consist of an actual pool of funds in the same way that the International Monetary Fund does. The currency swap arrangements are based on a contractual agreement among the central banks to activate those swaps based on their respective foreign exchange reserves as the CMIM receives requests.

2) This is very important, because it means that in the event of a crisis, funds will not be available, and will have to be drawn based on the multilateral contracts between central banks. I will explain why this is dangerous in a moment.

The other feature of the CMIM is the IMF-link as a condition to activate the currency swaps. This 90% link (i.e., 90% of the swap can only be activated when the IMF agreement is either negotiated or in place) was put in place at the establishment of the CMI due to the lack of a monitoring function under the ASEAN Plus Three framework. Without this link, deciding to activate a swap line and guaranteeing repayment becomes difficult.25 The explicit definition of the CMIM as a complementary liquidity funding mechanism within the international framework led by the IMF did not emerge solely from the lessons of the failed AMF,26 it was established to make sure that repayment on the part of borrowers is secured through international pressure.

3) CMIM not only is not a replacement for the IMF, it largely depends on the IMF (though not entirely).

A regional monitoring and surveillance mechanism has also been developed through the search for a way to prevent a financial crisis from occurring, and if it does, the borrowers can be monitored closely. The financial ministries of the member governments have, since the start of the CMI process, worked on those functions in the form of a biannual meeting of the Economic Review and Policy Dialogue, but the CMIM has already promised to develop a more specific surveillance function to allow the advisory panel to activate the swaps.27

4) This is the danger I was referring to in item #2. In the event of a crisis, where every country is looking out for itself, how likely is it that countries will allow their own forex reserves to be tapped on behalf of another country? Barring China, I don't see that as likely.

Moreover, do you think this monitoring mechanism will differ substantially from the IMF's?

Despite such regional success, however, the monetary authorities of the countries with large foreign exchange reserves, namely the PRC and Japan, have established their own respective bilateral swap arrangements using their own currency (yuan and yen) besides the CMIM.29

5) Would you call this a vote of confidence in the CMIM?

As the first step towards the Asian Monetary Union, economists and policymakers in East Asia conducted a joint study with the European Union (the Kobe Research Group) that published its report in July of 2002 and recommended a monetary integration process for phase one (to be completed by 2010); preparation for a single currency for phase two (to be completed by 2030); and the launching of a single currency in phase three that would start in 2030 (Institute for International Monetary Affairs 2004).

6) Sorry. This is pure fantasy, both because it is politically non-viable, and because the EU has taught us that monetary union requires a banking union, and works best in countries that have similar economic cycles. Asia does not fit these requirements.

One thing to note here, however, is that monetary cooperation at this stage has not given rise to discussion on convergence criteria or explicit macroeconomic policy coordination, which would be necessary in managing the stable exchange rates among the countries whose capital movement is relatively free (i.e., Mundell-Fleming Condition or Unholy Trinity).34 Moreover, despite the concerns over global imbalance and the high dollar-dependence of East Asia, the currency discussion in the region has not yet converged into concrete actions.

Regional financial and monetary cooperation in the last ten years has established a relatively clear membership. Given the experience of the Asian financial crisis, the question of who is in and who is out is easily answered. In this context, regional cooperation includes a mechanism to protect vulnerable countries with relatively low foreign currency reserves and financial capacity to acquire access to emergency liquidity funding and technical assistance in developing their financial markets. Meanwhile, as seen in the progress within the three areas of financial and monetary cooperation, there is still strong resistance against a country compromising its policy autonomy. The regional currency discussion, though fundamental in addressing the dollar dependence and ultimate stability in regional financial affairs, is progressing very slowly and, at this point, quite superficially without much commitment from the monetary authorities of the region. Furthermore, the protection of sovereignty over monetary affairs is strikingly clear even in how the CMIM is set up differently from the envisioned AMF.35

7) This is a relatively large qualification for the entire idea. The specific mechanisms of integration have yet to be worked out, the enforcement mechanisms are unclear, and most countries are resistant to surrendering sovereignty for the sake of further monetary integration. When the CMIM is tested in a crisis, it's unclear whether it will function as predicted, or if countries will assert their sovereign right to protect their own reserves. Meanwhile, the IMF has been tested for decades, and has tens of billions of dollars at its disposal available for nearly immediate use in an emergency.

The best cure for a financial crisis is never to let one happen in the first place. Strong bank regulation, an economy balanced between export and domestic consumption, and constant structural reform are the best prescription for countries looking to prevent a crisis.

 

[narcon]

Keep it coming!
Pakistan has already popped few champagnes on this premature news anyway..
It ^ will be the first great customer of such institution.

 

[somsak]

While I sympathize with your frustration over the way the 1997 crisis was handled, I assure you that no creditor, whether it's the IMF, the CMIM, the AMF, ABMI, ABF, or whatever new structures are set up, will countenance a plan by an ailing country to increase its deficit spending in an attempt to restart the economy. You can see the proof of this in the way the EU (or more specifically, Germany) has handled its own crisis--it's no different from the IMF prescriptions. The bottom line is that structural reform is inescapable, but hard, while deficit spending and currency devaluation are easy, but destructive. The latter has been tried, already. It took a crisis to finally try the former.

Regarding the article, I wonder if you're misinterpreting the intentions, here. CMIM will not save you from another crisis (or at least, not in any different way than the IMF), and here's why:



1) The CMI(M) provides emergency funding for liquidity purposes, not solvency purposes. The 2008 financial crisis was both a liquidity and a solvency crisis, so the CMIM would not be able to provide an alternative to the IMF should a crisis like that hit Asia. You are right that the US didn't follow IMF prescriptions in trying to escape the 2008 crisis, but that's because the US didn't need an IMF loan, and also because the category of crisis was entirely different, as stated.



2) This is very important, because it means that in the event of a crisis, funds will not be available, and will have to be drawn based on the multilateral contracts between central banks. I will explain why this is dangerous in a moment.



3) CMIM not only is not a replacement for the IMF, it largely depends on the IMF (though not entirely).



4) This is the danger I was referring to in item #2. In the event of a crisis, where every country is looking out for itself, how likely is it that countries will allow their own forex reserves to be tapped on behalf of another country? Barring China, I don't see that as likely.

Moreover, do you think this monitoring mechanism will differ substantially from the IMF's?



5) Would you call this a vote of confidence in the CMIM?



6) Sorry. This is pure fantasy, both because it is politically non-viable, and because the EU has taught us that monetary union requires a banking union, and works best in countries that have similar economic cycles. Asia does not fit these requirements.



7) This is a relatively large qualification for the entire idea. The specific mechanisms of integration have yet to be worked out, the enforcement mechanisms are unclear, and most countries are resistant to surrendering sovereignty for the sake of further monetary integration. When the CMIM is tested in a crisis, it's unclear whether it will function as predicted, or if countries will assert their sovereign right to protect their own reserves. Meanwhile, the IMF has been tested for decades, and has tens of billions of dollars at its disposal available for nearly immediate use in an emergency.

The best cure for a financial crisis is never to let one happen in the first place. Strong bank regulation, an economy balanced between export and domestic consumption, and constant structural reform are the best prescription for countries looking to prevent a crisis.

Thanks for your deligent reply.

1),2)
- CMIM is born for the propose of financial crisis. It is to be lender especially for the next currency crisis. It has even IMF de-link option.
Chiang Mai Initiative - Wikipedia, the free encyclopedia
If it is not intend to avoid IMF, why does it have IMF de-link option? It is straight forward to infer the mind of those who write this CMI up.

3)
- It is to aid IMF so that IMF do not have to lend the money to us. That is the meaning of the word aiding IMF in CMI means. "It is not to replace IMF" -> Both Correct and Incorrect.
-> correct. Because it is only to be used in ASEAN+3. Therefore, for a Country outside ASEAN+3, CMI cannot replace IMF.
-> Incorrect because if Thailand loan from CMI, it may not need IMF, thus IMF is replaced for a single case.

4) This is the saving account that every countries save --prior-- to crisis. Meaning that the money 240 Billion is collecting right now, just last couple of months ago. That means if crisis come, then this money can help. Last time when the crisis hoards of Investment Banks did the currency attack, they harrase country 1 by 1. I doubt that they could harrase many countries at the same time because the amount of money to attack a country is huge, thus these hoards of investment banks must work together in concert. What CMI do is just to increase the door barrier to entry higher so to deter the hoards.
Mechanism is being setup. The research facility to monitor probability of some members' financial crisis is setting up this year. You may find the news.

5) The currency swap between China and Japan does not deteriorate the utility of CMI. For China and Japan, they have 2 saving accounts, one between them and one with ASEAN+3, it is to strengthen overall Asia's saving. Nothing bad. For Thailand in particular, it is even better, because CMI will have more money available to Thailand should the future crisis happened. Just like your 4) problem. Everycountry is going to take care of themself. But there are additionally 2 saving accounts! for China and Japan!

6) I don't like single Asean Currency either. I only want God currency. Be it gold, silver, Urenium, or Oil. It must be a matter made from god. You can make a price agent over such matter and called it Oil_Kilogram Bank notes, or gold_Kilogram bank notes. The unit of these notes must be units of weight measurement. Weights are the only thing science cannot explain. Weights induce gravity, how? Gravity change the speed of light, and therefore time, why? Therefore, In god we trust == We trust in Weigths of elements.

7) This is not science. Its simple math! If you have less debt than CMI saving accounts, then you are fine. It is as simple as that.


Finally, I would like to talk about 2008 Hamberger Crisis. US printed QE money by fed to bail out your banks, while IMF tell us to sell everything very cheaply to foriegn buyers, most of which, are related to those currency attackers. I won't go into details but Lehman Brother's one of them. Current Lehman Brother's end of business does not prove that those shareholders get any poorer. I am guessing that they do not effect at all. IMF force us set high (loan) interest rates. It is this high rates that kills Thai SMEs a lot, while US set the interest rate almost 0!.

"Banks got bail out, We got sold out." Chanted Occupied Wall Street protesters. When banks got bailout, they can be arrogant to the US debtors.

Do you see unfair adventage of QE? Do you see unfair currency attack using money which can be printed? Thats why the weight of matters are fair money.

I was pro-US children. That is the main reason why my English is good. I sang English song since young and eat McDonal. US was great allies against Communists. I hate Communists more than anything when I was young and Commy was brutal (refering to Cambodia killing field next door).
But is this the way friend treat friends in US? Seeing smaller friend as pray?
If you are to say certain population of US is, I am more than agree. I went to US many times. But then you need to have sentiment to make things right for the US and the whole world under her leads.

---Peg US dollar with the weight of golds! or Oil!---
And US power will be backed by God's propety. And that is the meaning of "In God we trust"

 

[LeveragedBuyout]

Thanks for your deligent reply.

1),2)
- CMIM is born for the propose of financial crisis. It is to be lender especially for the next currency crisis. It has even IMF de-link option.
Chiang Mai Initiative - Wikipedia, the free encyclopedia
If it is not intend to avoid IMF, why does it have IMF de-link option? It is straight forward to infer the mind of those who write this CMI up.

3)
- It is to aid IMF so that IMF do not have to lend the money to us. That is the meaning of the word aiding IMF in CMI means. "It is not to replace IMF" -> Both Correct and Incorrect.
-> correct. Because it is only to be used in ASEAN+3. Therefore, for a Country outside ASEAN+3, CMI cannot replace IMF.
-> Incorrect because if Thailand loan from CMI, it may not need IMF, thus IMF is replaced for a single case.

4) This is the saving account that every countries save --prior-- to crisis. Meaning that the money 240 Billion is collecting right now, just last couple of months ago. That means if crisis come, then this money can help. Last time when the crisis hoards of Investment Banks did the currency attack, they harrase country 1 by 1. I doubt that they could harrase many countries at the same time because the amount of money to attack a country is huge, thus these hoards of investment banks must work together in concert. What CMI do is just to increase the door barrier to entry higher so to deter the hoards.
Mechanism is being setup. The research facility to monitor probability of some members' financial crisis is setting up this year. You may find the news.

5) The currency swap between China and Japan does not deteriorate the utility of CMI. For China and Japan, they have 2 saving accounts, one between them and one with ASEAN+3, it is to strengthen overall Asia's saving. Nothing bad. For Thailand in particular, it is even better, because CMI will have more money available to Thailand should the future crisis happened. Just like your 4) problem. Everycountry is going to take care of themself. But there are additionally 2 saving accounts! for China and Japan!

6) I don't like single Asean Currency either. I only want God currency. Be it gold, silver, Urenium, or Oil. It must be a matter made from god. You can make a price agent over such matter and called it Oil_Kilogram Bank notes, or gold_Kilogram bank notes. The unit of these notes must be units of weight measurement. Weights are the only thing science cannot explain. Weights induce gravity, how? Gravity change the speed of light, and therefore time, why? Therefore, In god we trust == We trust in Weigths of elements.

7) This is not science. Its simple math! If you have less debt than CMI saving accounts, then you are fine. It is as simple as that.


Finally, I would like to talk about 2008 Hamberger Crisis. US printed QE money by fed to bail out your banks, while IMF tell us to sell everything very cheaply to foriegn buyers, most of which, are related to those currency attackers. I won't go into details but Lehman Brother's one of them. Current Lehman Brother's end of business does not prove that those shareholders get any poorer. I am guessing that they do not effect at all. IMF force us set high (loan) interest rates. It is this high rates that kills Thai SMEs a lot, while US set the interest rate almost 0!.

"Banks got bail out, We got sold out." Chanted Occupied Wall Street protesters. When banks got bailout, they can be arrogant to the US debtors.

Do you see unfair adventage of QE? Do you see unfair currency attack using money which can be printed? Thats why the weight of matters are fair money.

I was pro-US children. That is the main reason why my English is good. I sang English song since young and eat McDonal. US was great allies against Communists. I hate Communists more than anything when I was young and Commy was brutal (refering to Cambodia killing field next door).
But is this the way friend treat friends in US? Seeing smaller friend as pray?
If you are to say certain population of US is, I am more than agree. I went to US many times. But then you need to have sentiment to make things right for the US and the whole world under her leads.

---Peg US dollar with the weight of golds! or Oil!---
And US power will be backed by God's propety. And that is the meaning of "In God we trust"

Always a pleasure to discuss these issues with you, @somsak . For #1-5, I will express skepticism until I see the results, as the 1997 crisis affected several Asian countries simultaneously, and we have yet to see if the funds will be made available, if they will be loaned quickly enough, and if certain countries will be prioritized over others. But I acknowledge that it's a positive move for Asia to take care of itself.

Regarding the US crisis. The Fed addressed the liquidity issue, but it was the taxpayer who addressed the solvency issue. The nearly $1 trillion in bailouts came from the taxpayer, not from from the Federal Reserve, and that is why the US wasn't forced into a fire sale of its assets. The government simply held a gun to the head of the American people and extracted the money it needed to save the companies. A fire sale did happen in the US, like when that other vulture, Warren Buffet, extracted some preferred stock that pays extortionate yields from Goldman Sachs. After its bankruptcy (in which the shareholders were wiped out), Nomura got the Asian assets of Lehman Bros., and Barclays got the European and US assets, but no one stepped in to buy Bear Stearns earlier that year. AIG was forced to sell AIA. Buying assets in a solvency crisis is no simple matter, and takes both due diligence and an appetite for risk in order to execute. And it also takes time, so only the government could move quickly enough to both raise the funds and bypass the due diligence.

The other reason why a fire sale of US assets was not possible is that the financial crisis severely affected the rest of the world as well, and the US problem was so big that no one else had the financial firepower to absorb US capacity. Only the US federal government and Federal Reserve had the power to save the US. In fact, the Federal Reserve bailed out foreign banks as well (Foreign Banks Tapped Fed’s Secret Lifeline Most at Crisis Peak - Bloomberg ).

The reason why the US was able to set interest rates at zero was because our inflation rate is very low, and that is because our productivity rate is high and the dollar is strong. Thailand has a central bank, so it technically could have set interest rates to zero, but it needed to raise interest rates to support the baht, which had weakened considerably, and combat inflation, which had spiked because of the baht depreciation. Again, I am sorry that Thailand suffered so much, but I don't see another way that the Thai central bank could have acted. Japan has been doing QE since the 1990s, and in the financial crisis, the Bank of England and to some degree, the European Central Bank also did QE, so it wasn't just the US.

I'm unclear how QE was used to attack Thailand. Are we talking about 1997, or 2009+? There was no American QE in 1997, and in fact, the Federal Reserve benchmark interest rate was 5.50%, hardly accommodative monetary policy.

What do you propose the US should have done differently in reaction to the 1997 crisis?

 

[alaungphaya]

me: US financially colonization of thailand. We lost almost all private banks to foreigners after this financial war. N.E Asian are our true allies. They provide 80% of CMIM money total 240 billion. Thanx China S.Korea Japan. Thai Chinese were the haviest losers in this financial colony. IMF rules killed our large businesses. eg. forcefully high interest rate. forcefully close financial institution. One of my cuties lost entire empire of debt.When Us got her own financial crisis, the do everything reverse that IMF force us to do.
View attachment 132516

src:Thaksin based idea, a Mini-Asian-IMF, gets funding boost | Thai Intel News Center
thaiintelligentnews / July 28, 2014
The attached ADB paper says: “The idea of the Asian bond market emerged first from Thailand in the summer of 2002. The creation of a bond market requires both issuers of bonds and investors in those bonds. The Thai initiative focused mainly on the investor side as then-Prime Minister, Thaksin Shinawatra, proposed that the members of ASEAN Plus Three contribute 1% of each country’s respective foreign exchange reserves to launch a regional fund to purchase Asian bonds.”

Taksin’s Asian Bonds is the first step towards a “Mini” Asian IMF, being the so called CMIM. The move aimed to increase the region’s efficacy in financial cooperation to support each country’s cash flow in case there was a sudden short-term shortage of capital in one of the member countries. The CMIM fund was created after the Asian financial crisis in 1997 to increase the region’s financial cooperation. The finance ministers of member countries agreed on the creation of the fund on May 6, 2000, in Chiang Mai. The fund’s head office is in Singapore.

Recently members of Asean+3 and the Hong Kong Monetary Authority have agreed to double the Chiang Mai Initiative Multilateralisation fund to lower the risk of a sudden economic crisis and help prevent spill-over effects of future crises to other countries.

Asean+3, which includes China, Japan and South Korea, and the HKMA – the central bank of Hong Kong – had agreed to increase the CMIM fund from US$120 billion to $240 billion (Bt7.7 trillion), effective last week.

Local press reports the revised CMIM plan has been signed by all member countries but has only recently been signed by Thailand because of the dissolution of Parliament last December. The National Council for Peace and Order now has signed it.

There are 13 member countries in the fund. Before the agreed increase, its total reserve was $120 billion, including $746.5 million (20 per cent) from Asean countries. The contribution from China, Japan and South Korea was $3 billion (80 per cent). Countries that experience a sudden shortage of capital due to a crisis can allocate some of the CMIM fund according to previously agreed ratios.

Several local press reports the increase of the fund size means Thailand will have to provide $9.1 billion instead of $4.5 billion and the amount will be fronted by the BOT’s international reserves. If Thailand experiences a financial crisis and has cash-flow problems in the future, it will be able to receive financial help of 2.5 times its contribution to fund – $22.7 billion.

The revised CMIM plan has been signed by all member countries but has only recently been signed by Thailand because of the dissolution of Parliament last December.

Local reports the Thai junta (National Council for Peace and Order) has now has signed it.

Besides the increase of the fund size, there has also been an increase in the proportion of the fund that is not connected to the International Monetary Fund.

The CMIM fund was created after the Asian financial crisis in 1997 to increase the region’s financial cooperation. The finance ministers of member countries agreed on the creation of the fund on May 6, 2000, in Chiang Mai. The fund’s head office is in Singapore.

There are 13 member countries in the fund. Before yesterday’s agreed increase, its total reserve was $120 billion, including $746.5 million (20 per cent) from Asean countries. The contribution from China, Japan and South Korea was $3 billion (80 per cent).Countries that experience a sudden shortage of capital due to a crisis can allocate some of the CMIM fund according to previously agreed ratios.

The following is from the ADB (source)

Regional Economic Institution Building in East Asia

4.1 Regional Financial Cooperation and Institutions

In the aftermath of the Asian financial crisis, efforts to provide an institutional base for regional financial cooperation developed very quickly in East Asia. The experience of the crisis prompted these efforts, which aim to make sure that such a financial disaster will never happen again. Despite all three aspects of regional financial and monetary architecture being essential for securing maximum financial and monetary stability in the region, the emergency liquidity funding arrangement of currency swaps under the Chiang Mai Initiative (CMI) has become the most institutionalized, while the Asian Bond Market Initiative (ABMI) and Asian Bond Fund (ABF) are moving forward slowly and informally. There is currently very little movement in the area of monetary and currency cooperation in the form of an Asian Monetary Union or an Asian Currency Unit (ACU).

Both in terms of chronology and level of institutionalization, the CMI is the most well-established financial initiative in East Asia at the moment. As early as November 1997, the East Asian governments launched a regional framework in the context of Association of Southeast Asian Nations (ASEAN) Plus Three (Japan, PRC, and South Korea (hereafter Korea)) with the hope of dealing with financial emergencies. This framework became the core of the region’s emergency liquidity mechanism consisting of a network of mostly bilateral currency swap arrangements. The ASEAN Plus Three governments arrived at the basic agreement regarding this regional mechanism by May 2002.21 One component of the CMI is the expanded ASEAN Swap Agreement, a small regional currency swap facility that has existed among ASEAN members since 1977. The other, more recent components are the Bilateral Swap Arrangements and the repurchase arrangements between each member of the ASEAN Plus Three.22 The CMI has two basic objectives: the first is to provide emergency liquidity at a time of financial crisis, such as the Asian financial crisis. The second and longer-term goal is to enhance regional cooperation both in terms of currency stabilization and financial monitoring. As of June 2009, US$90 billion worth of swap lines have been committed by the participating monetary authorities.

In May 2009, the decision to multilateralize (i.e., regionalize) the CMI was finalized, and in the near future the funds already committed to bilateral swap lines will be pooled to create a potential for a much larger swap volume per use.23 The newly established CMIM (Chiang Mai Initiative Multilateralized) will consist of a multilateral private swap agreement among the member central banks with a pooled fund of US$120 billion. Through the multilateralization process, not only did the amount available for each swap expand, but it also allowed the ASEAN countries that were not incorporated into either the Bilateral Swap Arrangements or ASEAN Swap Agreement to become full members of the CMI process (namely Brunei Darussalam, Cambodia, Lao People’s Democratic Republic, and Viet Nam). Despite the large amount of available funds and the image of the “revival” of the Asian Monetary Fund (AMF) proposed by the Japanese authority at the onset of the Asian financial crisis in the summer of 1997, there are two features that clearly distinguish the CMIM from the (relatively vaguely defined) AMF.

The first is the fact that the CMI so far has been a virtual institution. The recent agreement will lead the CMIM to establish a more formal institution to engage in the monitoring and surveillance of member countries in preparation for the activation of currency swaps, but it is unlikely that this will turn into a large standing institution, and nor does it consist of an actual pool of funds in the same way that the International Monetary Fund does. The currency swap arrangements are based on a contractual agreement among the central banks to activate those swaps based on their respective foreign exchange reserves as the CMIM receives requests.24 The other feature of the CMIM is the IMF-link as a condition to activate the currency swaps. This 90% link (i.e., 90% of the swap can only be activated when the IMF agreement is either negotiated or in place) was put in place at the establishment of the CMI due to the lack of a monitoring function under the ASEAN Plus Three framework. Without this link, deciding to activate a swap line and guaranteeing repayment becomes difficult.25 The explicit definition of the CMIM as a complementary liquidity funding mechanism within the international framework led by the IMF did not emerge solely from the lessons of the failed AMF,26 it was established to make sure that repayment on the part of borrowers is secured through international pressure. A regional monitoring and surveillance mechanism has also been developed through the search for a way to prevent a financial crisis from occurring, and if it does, the borrowers can be monitored closely. The financial ministries of the member governments have, since the start of the CMI process, worked on those functions in the form of a biannual meeting of the Economic Review and Policy Dialogue, but the CMIM has already promised to develop a more specific surveillance function to allow the advisory panel to activate the swaps.27
The current global financial crisis after the collapse of Lehman Brothers of September 2008 helped the multilateralization of the CMI by making the leading countries compromise on and commit to a common regional goal.28 Despite such regional success, however, the monetary authorities of the countries with large foreign exchange reserves, namely the PRC and Japan, have established their own respective bilateral swap arrangements using their own currency (yuan and yen) besides the CMIM.29
The ABMI, in the context of the ASEAN Plus Three, also directly addresses the regional need for financial stability, a lesson that unmistakably came from the Asian financial crisis. The Asian financial crisis revealed the financial vulnerability of the East Asian economies ranging from domestic financial weakness to an inefficient investment climate. The challenge of the double mismatch problem, which came about as East Asia borrowed short-term in dollars and invested long-term in assets denominated in their local currency, has imposed more costs and risks on the borrowers in East Asia. As a region with relatively high savings, there was an emerging sense that “surplus savings from East Asia [flowing] out of the region to Western financial markets and then return[ing] by way of loans to Asian borrowers…makes little economic sense” (Rowley 2003).

The idea of the Asian bond market emerged first from Thailand in the summer of 2002. The creation of a bond market requires both issuers of bonds and investors in those bonds. The Thai initiative focused mainly on the investor side as then-Prime Minister, Thaksin Shinawatra, proposed that the members of ASEAN Plus Three contribute 1% of each country’s respective foreign exchange reserves to launch a regional fund to purchase Asian bonds. The idea, which was discussed at the East Asia Economic Summit in Kuala Lumpur in October 2002, was developed and adopted by the Executives’ Meeting of East Asia Pacific Central Banks as they set up the ABF, which was formally announced in June of 2003. As the central banks of eleven Asia-Pacific countries (including Australia and New Zealand) pledged US$1 billion for the purchase of semi-sovereign and sovereign bonds from less advanced countries (i.e., not Japan, Australia, or New Zealand) in the region. At this stage, the bonds that this fund had purchased were all US dollar-denominated. In June 2005, however, as the second phase of the Asian Bond Fund (ABF2) was launched, the fund used US$2 billion to invest in bonds denominated in Asian currencies.30
On the other hand, the Japanese government from the early stage of the Asian bond discussion was interested in developing a regional and local bond market in East Asia with the focus on the issuers. As early as the time of the New Miyazawa Initiative (October 1998), the Ministry of Finance (MOF) was interested in supporting local bond market development to tap into local savings and avoid a heavy reliance on foreign capital. In December 2002, Japan officially proposed the idea of the ABMI at an ASEAN Plus Three meeting in Thailand. The aims of the ABMI are two-fold: to facilitate access to the market through a wider variety of issuers, and to enhance market infrastructure to foster bond markets in Asia (Ministry of Finance).31 Under this initiative, the Japan Bank for International Cooperation extends bond guarantees to local-currency denominated bonds. Six working groups under the ABMI umbrella are working to establish a market infrastructure including a regional bond-rating system.32 The Japanese government also extends technical assistance in the development of a local bond market in some ASEAN countries utilizing Japanese foreign aid. Furthermore, the new ABMI Roadmap, which includes an insurance mechanism, the facility to increase the demand of local currency-denominated bonds, an improved regulatory framework, and a related infrastructure for the bond markets, was endorsed at the 2008 Madrid meeting.

The currency and exchange rate arrangement (the other element of the double mismatch) constitutes the last necessary component of East Asia’s regional financial cooperation.

Because of high and increasing regional economic interdependence in the mid-1980s, the dollar–yen exchange rate volatility (e.g., the depreciation of the yen to the US dollar after the spring of 1995) also put pressure on many Asian economies in the 1990s. After the de-pegging of the baht in the summer of 1997, some East Asian countries, most of whose currencies used to be pegged one way or another to the US dollar, floated their currencies. Being highly dependent on their investment and trade, the East Asian governments were eager to see their exchange rates stabilize (Kuroda and Kawai 2004). As Japan’s first efforts to increase the use of the yen in the region did not bear much fruit, East Asia has gradually started to entertain the possibility of regional monetary cooperation, even of a monetary union.

As the first step towards the Asian Monetary Union, economists and policymakers in East Asia conducted a joint study with the European Union (the Kobe Research Group) that published its report in July of 2002 and recommended a monetary integration process for phase one (to be completed by 2010); preparation for a single currency for phase two (to be completed by 2030); and the launching of a single currency in phase three that would start in 2030 (Institute for International Monetary Affairs 2004). The second and most current initiative is related to the idea of the ACU, initially discussed in late 2005 by the newly expanded Office of Regional Economic Integration at the Asian Development Bank under the leadership of its then-director Masahiro Kawai, and the new Asian Development Bank president Haruhiko Kuroda. The proposed ACU models itself after the European Currency Unit that existed as the region’s currency unit before the introduction of the euro. The European Currency Unit constituted a unit of exchange based on the weighted average of values of a basket of currencies. The ACU idea was picked up by the ASEAN Plus Three at the finance ministers’ meeting in May 2006, where all thirteen participating governments agreed to conduct in-depth research on its feasibility.33 One thing to note here, however, is that monetary cooperation at this stage has not given rise to discussion on convergence criteria or explicit macroeconomic policy coordination, which would be necessary in managing the stable exchange rates among the countries whose capital movement is relatively free (i.e., Mundell-Fleming Condition or Unholy Trinity).34 Moreover, despite the concerns over global imbalance and the high dollar-dependence of East Asia, the currency discussion in the region has not yet converged into concrete actions.

Regional financial and monetary cooperation in the last ten years has established a relatively clear membership. Given the experience of the Asian financial crisis, the question of who is in and who is out is easily answered. In this context, regional cooperation includes a mechanism to protect vulnerable countries with relatively low foreign currency reserves and financial capacity to acquire access to emergency liquidity funding and technical assistance in developing their financial markets. Meanwhile, as seen in the progress within the three areas of financial and monetary cooperation, there is still strong resistance against a country compromising its policy autonomy. The regional currency discussion, though fundamental in addressing the dollar dependence and ultimate stability in regional financial affairs, is progressing very slowly and, at this point, quite superficially without much commitment from the monetary authorities of the region. Furthermore, the protection of sovereignty over monetary affairs is strikingly clear even in how the CMIM is set up differently from the envisioned AMF.35

Very good post, Somsak. I didn't know you had such an articulate knowledge of this issue. I agree with you that currency speculators really messed up the region (particularly Soros), but this is the price of free capital flows. When you free up your markets, you're going to become addicted to cheap, short-term paper and you're going to be open to speculative attack without proper regulation. I do think @LeveragedBuyout 's accusation was a bit unfair as SEAsian governments weren't running deficits with reckless fiscal policy back in '97 but they certainly didn't put in the checks they should have.

I know that Thailand is on a higher level of financial maturity but if you look at Myanmar right now, we have resisted the temptation of fully liberalising the financial sector. This is a major drag for FDI but it protects us in the long run from such shocks. China has similar safeguards and I think S Korea also has a quite heavily regulated capital market. Perhaps that should be the focus for Thailand to prevent a repeat of 97.

As for the CMI or AMF, it is a fine idea in theory but I don't think the ASEAN region is either politically united enough or economically similar for a regional bailout fund to be viable. As for the +3, China won't need ASEAN and Japan are already in deep with the IMF so they probably won't provide any meaningful support which only really leaves Korea. Anyway, how would you feel if Thai reserves were used to defend the Myanmar Kyat because of an asset bubble in the Burmese property sector, for example? Would you be happy about this? Would your politicians be willing to keep to the commitment of such a fund? If not then the whole thing falls apart. Its current role of regulating currency swaps etc. makes it sound like a regional BIS that oversees regional financial practice. And that seems to be about the extent of any regional cooperation, sadly.

 

[hans]

Right...
Wests are well experienced players and S.E Asian countries are just start up...
They are not the same level

If you don`t want to be fooled and robbed, this kind of safe guard is quite necessary..
China open its door little by little, seeing its reaction and make counter action..
Even with growing economy, China is still very caution of open up.
For SE Asian countries, it is better to be more caution...

Very good post, Somsak. I didn't know you had such an articulate knowledge of this issue. I agree with you that currency speculators really messed up the region (particularly Soros), but this is the price of free capital flows. When you free up your markets, you're going to become addicted to cheap, short-term paper and you're going to be open to speculative attack without proper regulation. I do think @LeveragedBuyout 's accusation was a bit unfair as SEAsian governments weren't running deficits with reckless fiscal policy back in '97 but they certainly didn't put in the checks they should have.

I know that Thailand is on a higher level of financial maturity but if you look at Myanmar right now, we have resisted the temptation of fully liberalising the financial sector. This is a major drag for FDI but it protects us in the long run from such shocks. China has similar safeguards and I think S Korea also has a quite heavily regulated capital market. Perhaps that should be the focus for Thailand to prevent a repeat of 97.

As for the CMI or AMF, it is a fine idea in theory but I don't think the ASEAN region is either politically united enough or economically similar for a regional bailout fund to be viable. As for the +3, China won't need ASEAN and Japan are already in deep with the IMF so they probably won't provide any meaningful support which only really leaves Korea. Anyway, how would you feel if Thai reserves were used to defend the Myanmar Kyat because of an asset bubble in the Burmese property sector, for example? Would you be happy about this? Would your politicians be willing to keep to the commitment of such a fund? If not then the whole thing falls apart. Its current role of regulating currency swaps etc. makes it sound like a regional BIS that oversees regional financial practice. And that seems to be about the extent of any regional cooperation, sadly.

 

[alaungphaya]

Right...
Wests are well experienced players and S.E Asian countries are just start up...
They are not the same level

If you don`t want to be fooled and robbed, this kind of safe guard is quite necessary..
China open its door little by little, seeing its reaction and make counter action..
Even with growing economy, China is still very caution of open up.
For SE Asian countries, it is better to be more caution...

Do you think China would support a regional bailout fund? What about a regional monetary union?

 

[Cossack25A1]

I remember that there is the Asian Development Bank (ADB) which was established back in 1960s and has its headquarters here in Manila with Japan having the largest shareholders and thus all the presidents of the ADB from the time it was conceived up to now are all Japanese.

 

[hans]

Why not...
China has a lot of foreign currency that can be used to set up this fund.
China is also trying to expand the influence of RMB in SE Asian.
With this fund, SE Asian don`t need to endure hard terms from IMF, US,etc..
China could offer a much better terms for these countries.

Do you think China would support a regional bailout fund? What about a regional monetary union?

 

[alaungphaya]

I remember that there is the Asian Development Bank (ADB) which was established back in 1960s and has its headquarters here in Manila with Japan having the largest shareholders and thus all the presidents of the ADB from the time it was conceived up to now are all Japanese.

The ADB is different in that its like a lender to poor countries (an Asian World Bank). It's very much different to what and Asian IMF would do. I don't think Japan is independent enough from the US to go ahead and start such an initiative apart from the IMF. It would need China's support anyway, realistically.

 

[somsak]

@LeveragedBuyout Sorry for late reply. Your question about the rate during 1997. I remember it was 15% or something like that. Please wait I need research back coz u r asking something 17 years ago. Please wait when I have time to research what happened back then. Why was it so bad memory for nationalist like.me.

@alaungphaya I think it is a kind of mutual fund that you need to pay into a mutual fund apriori. Then You can withdraw not exceed than twice of your contribution or something like that. A full implementation of Thaksin idea is to avoid IMF, but that would anger US politically. Iguess that is why Thaksin had to go.