Now is probably
not a great time to be talking about further monetary integration – even if it
is in Asia. But this column argues that the ASEAN+3 has taken a number of
significant steps recently to further deepen monetary integration. The next
steps should be to introduce a regional weighted currency basket and expand
membership.
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.
References
-
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.
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