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), with the central banker governors of the 13 member countries (plus Hong Kong) being 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 is now finally filled.
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 program in place was increased to 30 per cent and is targeted to reach 40 per cent in 2014. The AFMGM+3 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. Can the ASEAN+3 succeed where the IMF has failed?
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 AMRO.
Despite its commendable performance under Director Benhua Wei, AMRO faces a number of challenges. Aside from the above mentioned, two others need highlighting.
Firstly, AMRO must find out why at the height of the global economic crisis countries like South Korea chose to borrow from the US Federal Reserve instead of the CMIM, the region’s own crisis fund. Remedial measures should be put in place quickly lest capital once again flows out of the region in response to the rapidly deteriorating situation in the euro zone with a Greek exit no longer fanciful.
Secondly, modalities must be found so that AMRO can work jointly and smoothly with the IMF. Regional financial safety nets should complement the global financial net, not undermine it. Europe’s experience where the IMF is working closely with the European Union and the European Central Bank as a member of the troika could be useful.
AMRO is now just over a year old and its plate is full. It should not be over-burdened. But two more steps, which require relatively less resources, should be considered. The first is that AMRO should start introducing the Regional Monetary Unit (RMU), a regional weighted currency basket. The RMU would provide more stable currency values. It could also facilitate AMRO’s surveillance activities.
It could do so by making sure that countries are avoiding competitive devaluations among each other and 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.
A survey conducted by NTU researchers for the ASEAN Secretariat found that over two-thirds of ASEAN+3 ‘opinion leaders’ (comprising government officials, academics and bankers) felt that AMRO should be tasked with calculating the RMU, using the CMIM weights, and publicising it on a daily basis. A similar number felt that AMRO should use the RMU for regional surveillance, its key activity. A large number also felt that AMRO’s budget and the operations of AMRO and CMIM should be denominated in the RMU like the IMF’s Special Drawing Rights (SDRs).
The next step is that the membership of ASEAN+3, including AMRO, and CMIM should be expanded because, among others, this would increase the size of the region’s crisis fund. Two years ago, former Thai Minister of Finance Chalongphob Sussangkarn and present 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.
Such expanded membership of ASEAN+3 could also strengthen Asia’s voice at the G20 high-table. 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 not to be missed.
Pradumna B. Rana is Associate Professor at the S. Rajaratnam School of International Studies, Nanyang Technological University. The survey results mentioned above were recently published in the Journal of Asian Economics, 23 (2012) 1–12.
A version of this article was first published here as RSIS Commentary No 083/2012.