East Asia itself has accumulated international reserves of close to $4 trillion, but it was still talking about creating a regional fund of sorts. In May 2008 ASEAN+3 finance ministers agreed to transform CMI into a much stronger CMIM (Chiang Mai Initiative Multilateralization) that can act as a ‘firewall’ in the event of a regional financial crisis. They suggested that CMIM should at least be boosted to $80 billion, with 80 per cent contributed by China, Japan and Korea, and the remaining 20 per cent by ASEAN countries. This ‘fund’, as already envisaged in 2007, should be a ‘self-managed reserved pooling’ arrangement that governed by a single contract.
At the sidelines of the 7th ASEM in Beijing, leaders agreed to create an $80 billion regional, multilateral fund, based on the CMIM. A technical working group meeting was held in Manila on 20 November, followed by a meeting of deputy finance ministers in Hakone on 28 November, to work out on the details of the fund. Their recommendations were prepared for a meeting of finance ministers, originally scheduled for mid December, before the ASEAN+3 Summit, with the expectation that leaders’ would endorseme the fund’s becoming operational in May 2009.
The Summit has been postponed to 24-26 February 2009. A finance ministers meeting will be held on 16 January. Their decisions will have major implications for the institutionalization of cooperation arrangements in East Asia. To make the fund operational requires a political decision, and they will have to settle the following important issues. First, they must decide on the size of the fund, going beyond the initial suggestion of $80 billion. Proposals that have been aired range from a fund of $120 billion (the amount required during the 1997-98 Asian crisis) to 10 per cent of the total amount of international reserves in the region.
Second, they need to agree on how to quickly disburse the fund and minimize conditionalities, for instance, by increasing CMI’s 20 per cent quick disbursement component to 50 per cent. Third, a strong regional surveillance mechanism will be required for the fund to be able to function. Who can organize an independent and credible surveillance mechanism? Fourth, and an equally important question, is the desirability of expanding the fund’s purpose beyond providing emergency liquidity in case of a foreign exchange crisis to providing liquidity support for (recapitalization of) financial institutions as well as to purchase toxic banking assets. There are other pending issues about the pooling structure, escape clause, as well as the inclusion of Hong Kong SAR into the scheme.
East Asia will need to act quickly and forcefully. At the ASEAN+3 Summit in February 2009, leaders will need to agree on the operation of the CMIM and a series of coordinated actions, including on the implementation of counter-cyclical fiscal measures. They can invite other members of the East Asia Summit (EAS) to participate in many of their proposed actions.
These courses of action will have wide-ranging implications for regional cooperation arrangements in East Asia. Regional ambitions to develop various cooperation schemes are often hampered by the hard facts of deep-seated, narrowly defined sovereignty issues.
China, Japan and Korea organized their first self-standing trilateral summit in Fukuoka on 13 December. This is a welcome development. In their Joint Statement they reiterated a commitment to work with ASEAN members to expedite the process of CMIM and strengthen the regional surveillance mechanism. Most importantly, a regular trilateral summit could gradually eliminate the deep-seated reservations amongst the big three in the region. They have been an obstacle to the speedy progress with regional cooperation.
The other obstacle is lack of coherence in ASEAN. Independent, track-two regional policy research projects of institutions, like ERIA (Economic Research Institute for ASEAN and East Asia), may be useful in preparing studies that help overcome this problem.
East Asia will be severely affected by the global economic crisis. Since the economies in East Asia are export driven, declining demand for their goods due to the economic crisis already hitting major importing nations will strike the region very hard. No part of the world will be unaffected by the global economic crisis.
what is the up-shot of the East Asian regionalization and rationalization of the continuing melt-down caused by the hit on subprimes in the West? if East Asia emerges the new wonderment of world policy, how do we hope to reduce consumerism in the West, which ironically is the bed-rock of Western capitalism and at the same time the source of its bleak peognostications?
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