ASEAN+3 countries deepen financial cooperation

16:11, May 06, 2011

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Wei Benhua, former deputy head of China's currency regulator, was appointed to serve a three-year term as the first director of the ASEAN+3 Macroeconomic Research Office (AMRO) at a meeting of deputy finance ministers from the 10 ASEAN member countries, China, Japan and South Korea (ASEAN+3) in Vietnam's capital city of Hanoi on May 3. He said in an interview after the appointment that the establishment of the AMRO marks significant progress in the deepening of financial cooperation among the ASEAN+3 countries.

Historical evolution

The ASEAN+3 countries launched the Chiang Mai Initiative in 2000 and created a pool of foreign exchange reserves in 2009.

Wei said that the Asian financial crisis that lasted from 1997 to 1998 gave Asian countries awareness in the necessity of a regional crisis response mechanism. The first step toward such a mechanism was the Chiang Mai Initiative between ASEAN, China, Japan and South Korea. It was a bilateral currency swap arrangement with complicated procedures and low efficiency.

In 2003, the Chinese government proposed the Chiang Mai Initiative Multilateralization (CMIM), and called on the ASEAN+3 countries to develop a multilateral currency swap mechanism. The proposal was widely welcomed and was brought to the agenda of the ASEAN+3 Finance Ministers' Meeting shortly afterwards.

The ASEAN+3 countries signed the CMIM Agreement in 2009 in hopes of establishing a foreign exchange reserves pool to provide short-term financial support to contracting parties hit by financial crises. The reserve pool amounted to 120 billion U.S. dollars. China and Japan each contributed 38.4 billion U.S. dollars, each accounting for 32 percent of the pool.

China's contribution included 4.2 billion U.S. dollars from the Hong Kong Special Administrative Region. South Korea and the ASEAN countries contributed 19.2 billion U.S. dollars and 24 billion U.S. dollars, respectively, representing 16 percent and 20 percent of the pool. The equally generous contributions by China and Japan to the reserve pool laid a solid foundation for their major role in the multilateral currency swap mechanism.

Two major tasks

Conducting macroeconomic surveillance and studying the use of reserve funds

Based in Singapore, AMRO aims to establish an independent macroeconomic surveillance and crisis relief mechanism with Asian characteristics and is committed to promoting regional economic surveillance and analysis and advancing the implementation of the CMIM. Wei said that related international institutions failed to perform their early-warning roles during the international financial crisis that originated in the United States, making AMRO members more aware of the necessity of stepping up the regional macroeconomic surveillance.

AMRO has two major tasks. First, it will monitor the macroeconomic development of the 13 members and put forward policy suggestions in a timely fashion for related members if problems are found. Second, AMRO as an organization designed to implement the CMIM, will be responsible for researching how a member can borrow from the reserve fund, offering suggestions about the use of the reserve fund and evaluating the effects of the use of the funds.

Wei added that in terms of the use of the funds, AMRO will fully respect the needs of the members who want to borrow from the reserve fund while taking into proper account the safety concerns of the members that invested in the reserve fund. According to the CMIM, AMRO will not attach any condition when providing a member with financial support that is below 20 percent of its borrowing limit. If the amount of funds borrowed by a member is above 20 percent, the excess part will be under surveillance in accordance with the IMF's borrowing mechanism.

Vision for the future

Promoting transformation from self-management to centralized management

Wei pointed out that it is clearly inappropriate to call AMRO the "Asian version of the International Monetary Fund" or the "Asian IMF" because AMRO is still far from this goal. However, AMRO can move in this direction on the basis of achieving consensus from various parties in the future. Wei believes there is an obvious drawback of the current regional reserve funds established by the CMIM Agreement. The funds committed by various member countries are still under the management of various parties. Member countries will provide funds in accordance with their shares only when a member country makes a loan request. This is very different from the IMF.

The IMF concentrates funds provided by various member countries in one account, which can be directly allocated when needed. However, when the time is ripe, the AMRO member countries can promote transformation from self-management to centralized management to form a "true reserves system." In other words, it intends to concentrate money for use. If this vision can be achieved, it will be an important step for AMRO to stride forward in the creation of an Asian region relief mechanism with a wider range.

Wei plans to visit Singapore in mid-May to start AMRO's preparatory work. According to sources, AMRO will release a regional macroeconomic analysis report each quarter.

By People's Daily reporters Wu Chengliang and Ji Peijuan, translated by People's Daily Online