AMRO is a regional macroeconomic surveillance organisation that contributes to securing macroeconomic and financial stability in the ASEAN+3 region. It provides regional surveillance capabilities to members of the Chiang Mai Initiative Multilateralization (CMIM) — ASEAN’s 10 member states, and China, Japan and South Korea.
AMRO already engages in the analysis of short-term risks, including the impact of pandemics on the macroeconomic stability of East Asia. But it does not yet engage in systematic analyses of the physical and transition risks associated with the impacts of climate change.
AMRO should rectify this by incorporating the NGFS climate framework into its assessment of financial risk in Asia and the macroeconomic stability of East Asian countries. By exploring the economic impacts of various climate scenarios, the NGFS provides a common toolkit that AMRO could include in its analyses of long-term climate risk.
The NGFS is a coalition of the willing comprised of a network of 89 central banks and financial supervisors. Its purpose is to enhance the financial system’s role in managing risks and mobilising capital for green and low-carbon investments to ensure environmentally sustainable development. It currently has participants from several countries in East Asia. To expand its role and ensure that it is a significant player in Asia, the NGFS should establish institutional linkages with regional specialist organisations such as AMRO.
AMRO should consider joining NGFS as an observer to have a better sense of the cutting-edge thinking and practices developed there. The Asian Development Bank (ADB) is already an observer. Since AMRO maintains close formal and informal relations with the ADB, it will be well served to support the ADB in providing an East Asian regional perspective in NGFS discussions.
With the collective support of ASEAN+3 member countries, AMRO could sign a memorandum of understanding (MoU) with the NGFS to cement its position within international sustainable finance architecture. AMRO has already signed MoUs to institutionalise joint collaboration with the IMF, the European Stability Mechanism and other international financial institutions. By expanding the range of partnerships, AMRO can bolster its status in East Asia.
AMRO should also undertake greater thematic research into the short-term and long-term risks of climate change by studying its impact on the financial solvency of ASEAN+3 countries. This can create specific case studies of the impact of climate change on different countries. AMRO can also engage in comparative risk analysis of ASEAN+3 countries, providing a window into how they can tap into CMIM funds as the number of climate-related disasters increases in the future. This can be done by harnessing internal staff capabilities or in partnership with the ADB.
AMRO could then provide the NGFS with the deep country specific and region-specific analysis that it currently lacks to refine its conceptual framework. This will allow the NGFS to better apply this framework in other countries and regions.
Through these potential linkages, AMRO can also provide additional space for the central banks of the remaining ASEAN+3 countries — Brunei, Laos, Myanmar and Vietnam — to make a more informed judgement on joining the NGFS. By engaging with the NGFS and individual central banks, AMRO can enhance ASEAN countries’ familiarity with the relevance of climate risk in their countries and amplify East Asian voices in the NGFS. These countries can play a greater role in ongoing NGFS workstreams to better prepare East Asian countries to deal with the inevitable financial impacts of climate change.
By collaborating with NGFS, AMRO can provide data and research material that ASEAN+3 countries could use to expand the scope of the CMIM to respond to climate risks. Scholars have commented on the proliferation and fragmentation of financial swap lines in East Asia, potentially undermining the centrality of the CMIM. To ensure that the CMIM remains an important source of liquidity for East Asian countries, it needs to be responsive to future financial risks, including climate change. This will ensure that ASEAN+3 countries do not depend solely on IMF Article IV consultations, which recently started integrating climate analyses in annual country economic assessments.
Since its inception, AMRO has evolved to become more institutionalised. However, one challenge faced by AMRO is that its authority is both derived from and constrained by ASEAN+3 member countries. Regional institutions in the Asia Pacific have often established formal and informal strategic connections with other institutions to expand their operational space and enhance their influence.
AMRO should carefully design institutional linkages with regional and global financial institutions to strengthen its role in the region and ensure that it is at the forefront of supporting Asian countries in their transition to net-zero economies.
Giridharan Ramasubramanian is a PhD candidate at the Coral Bell School of Asia-Pacific Affairs, The Australian National University.