Info Service on Finance and Development (Apr12/07)
17 April 2012
Third World Network
Asian regional financing arrangement doubles funds for crisis prevention
for Southeast Asian Nations (ASEAN) and their East Asian partner countries,
China, Japan and South Korea, have made a decision to double the amount
of funds in the Chiang Mai Initiative Multilateral (CMIM), a regional
currency swap pact that can be tapped during financial crises.
The decision occurred at a late March meeting held in the Cambodian
capital of Phnom Penh.
The fund will expand from USD $120 billion to $240 billion, and will
provide its member nations which have relatively small foreign exchange
reserves a safety net against future liquidity shortages.
The Cambodian Prime Minister Hun Send stated that this boosting of the
CMIM regional financing arrangement will be “the firewall of the ASEAN+3
region against further crises.”
The decision to expand the fund was taken by finance deputies from the
10-member ASEAN forum as well as their counterparts from China, Japan
and South Korea.
Finance ministers from the member countries have been urged to pay serious
attention to finalizing the deal by the end of 2012.
The expansion of the fund is expected to enhance market confidence in
the region’s ability to withstand future financial shocks.
The current amount of funds was widely regarded as too small to make
much difference, and so the expansion will demonstrate a more serious
approach to preventing financial contagion in the region.
The Southeast Asian region was engulfed by a financial meltdown in 1997
and 1998, triggered by currency devaluation and capital flight. As a
result, the region was brought under the financial governance of the
International Monetary Fund through its bailout funds and conditions
of structural adjustment and fiscal tightening.
Experience from the Asian financial crisis of 1997-98 has prompted ASEAN
and its economic partners from East Asia to create regional financing
arrangements in order to decrease the region’s dependency on the IMF.
Regional financing enables member countries who are experiencing liquidity
gaps and balance-of-payment problems to swap their local currencies
for US dollars in times of crises.
However, under the current swap arrangement 80% of funds received by
a member country come with conditions determined by the IMF, while only
20% can be accessed without IMF surveillance policies.
On this remaining connection to the IMF, Asian Development Bank official,
Iwan Azis, who heads the office of regional economic integration, has
stated that finance deputies in the region have agreed to increase the
amount that can be used without IMF conditions to 30%.
These proposals will be further reviewed with an eye to increasing the
amount free of IMD conditions to 40% by 2014.
Meanwhile the ASEAN+3 meeting predicted the region’s economies will
expand more quickly in 2012 than in 2011. Finance ministers from the
region also pledged vigilance against sharp surges in capital inflows,
which had affected the region in 2011 through currency appreciation,
inflation risks and credit bubbles.
ASEAN+3 finance ministers also predicted gross domestic product growth
for the region as a whole at between 5.6% and 6.3% for 2012, compared
with 4.5% in 2011.
The finance ministers stated that “downside risks to the region include
weak global demand, tight liquidity, rising oil prices and volatile
Growth in the Southeast Asian region soared in the aftermath of the
2008 global financial crisis, only to cool off last year as the European
debt crisis flared up, spooking investors. The finance ministers' assessment
reflects expectations that the global economy has returned to firmer
ministers also finalized some details of the ASEAN infrastructure fund,
which they plan to launch this month (April 2012). The maximum award
for a single project will be $75 million, the ministers said. The fund
is being set up with an initial equity of $485 million, with ASEAN countries
and the Asia Development Bank pooling resources.
Asian officials also took aim at a recent U.S. law that would require
financial institutions to report to the U.S. government the identity
of their U.S. account holders. They agreed to formulate a common approach
in responding to that law.
are all concerned about FATCA," said Singapore Finance Minister
Tharman Shanmugaratnam, referring to the U.S. Foreign Accounts Tax Compliance
Act. Treasury issued proposed rules on the law in February.
said ASEAN officials want "to ensure that business continues to
operate in a smooth and efficient fashion, and to ensure that our goals
and rules are respected."
"There are international standards when it comes to tax cooperation,
and when an individual country sets out its own requirements, we need
to ensure that this complies with international standards," he
ASEAN group is composed of the following countries: Brunei Darussalam,
Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore,
Thailand, and Vietnam. The three East Asian partner countries are: China,
Japan and South Korea.
of some of the news articles on this subject can be found here:
nations agree to double crisis fund
Asean Finance Ministers: Region's GDP Growth To Reach 5.6%-6.3% In 2012
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