Asean Agrees To Expand Fund To US$120 Billion

By D.Arul Rajoo, Bernama , 22 February 2009

PHUKET, Feb 22 (Bernama) -- Asean financial chiefs and their counterparts from China, Japan and South Korea have agreed to expand the size of the Multilateralised Chiang Mai Initiative (CMIM) from the initially agreed US$80 billion to US$120 billion. 

The agreement was reached despite initial fears that some countries, including Singapore, were reluctant to contribute to the fund which is considered Asian's version of the International Monetary Fund (IMF). 

CMI is an initiative under the Asean 3 framework which aims for creation of a network of Bilateral Swap Arrangements (BSAs) among the 10 South-east Asian economies and China, Japan and South Korea. 

After the 1997 Asian financial crisis, member countries started this initiative to manage regional short-term liquidity problems and facilitate the work of other international financial arrangements and organizations like IMF. 

A draft statement prepared here by officials for final approval by Finance Ministers meeting at the Special Asean 3 Finance Ministers' Meeting (AFMM), noted that the ministers stressed that further strengthening the CMI was crucial to ensure regional market stability. 

It said that a regional surveillance mechanism should be further strengthened into a robust and credible system which would facilitate prompt activation of the CMIM. 

In this regard, the grouping also plans to set up an independent regional surveillance unit to promote objective economic monitoring. 

After the surveillance mechanism becomes fully effective in its function, the IMF de-linked portion may be increased from 20 percent. 

The agreement to expand the CMIM is expected to be signed at the annual AFMM in Bali in May. 

Deputy Prime Minister and Finance Minister Datuk Seri Najib Tun Razak is leading Malaysia's delegation at the meeting co-chaired by Thai Finance Minister Korn Chatikavanij and South Korean Minister of Strategy and Finance, Jeung Hyun Yoon. Also present at the meeting were Asean Secretary-General Surin Pitsuwan and Asian Development Bank (ADB) President Haruhiko Kuroda. 

The CMI which is designed to provide liquidity support for member countries that experience short-run balance of payment deficits will help prevent a severe crisis or systemic failure in affected countries and subsequent regional contagion. 

With growing concerns among the Finance Ministers and region's leaders on the impending impact of the crisis on the region which emanated from the U.S. subprime credit crisis, Asean 3 proposed to expand the fund from a bilateral basis to a multilateral one and increase its size. 

According the draft, while ministers noted that Asian economies are in better position to face challenges due to the structural reforms undertaken since the Asian financial crisis, they nevertheless recognised that the global economic problems have affected the region. 

It said regional financial markets have observed large and sometimes disruptive fluctuations, while capital flows into the region have decreased due to global de-leveraging and a large reversal of capital flows which affected the financial markets and could undermine growth prospects. 

The ministers also agreed to reject protectionist measures which would worsen the economic downturn, and to refrain from raising new barriers to trade and investment. 

Besides that, they agreed that the Asian Bond Markets Initiative should focus on the promotion of the issuance of local currency-denominated bonds, facilitation of demand of local currency-denominated bonds, improvement of legal framework and strengthening of infrastructure for bond markets in the region. 

Another important aspect is the role of private sector in the development of bond markets, particularly in cross-border bond transactions and settlement issues, as well as increasing the capital base of ADB. 

-- BERNAMA