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Where to now for the Chiang Mai Initiative Multilateralisation?

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An Indonesian employee prepares rupiah banknotes at a money changer in Jakarta, Indonesia, 25 August 2015. (Photo: AAP)

In Brief

East Asian financial cooperation is at a crossroads. The Chiang Mai Initiative Multilateralisation (CMIM) and its surveillance unit — the ASEAN+3 Macroeconomic Research Office (AMRO) — are continuing to grow in size and importance. But the structure of these two entities must change to accommodate this growth.


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The CMIM is a currency swap agreement among the finance ministries and central banks of the ASEAN+3 states (including the Hong Kong Monetary Authority). The scheme, which evolved from the earlier Chiang Mai Initiative (CMI) bilateral currency swap network in 2000, aims to provide financial support for short-term liquidity problems. To manage macroeconomic difficulties, each member can swap its local currency with US dollars up to the amount of its financial contribution to the reserve pool times its borrowing multiplier.

After an amended agreement that came into effect on 17 July 2014, the size of the CMIM was doubled from its initial value of US$120 billion to US$240 billion, and a crisis-prevention mechanism — the CMIM Precautionary Line (CMIM–PL) — was introduced. The IMF delinked portion was raised to 30 per cent, meaning that members could draw up to 30 per cent of their maximum borrowing amount without requiring IMF lending conditions.

Despite these accomplishments, the CMIM is still a work in progress. In May 2012, some member states pushed to increase the IMF delinked portion to 40 per cent by 2014, but this has not yet been realised. AMRO is still drafting the operational guidelines and qualifications for access to the CMIM–PL. And AMRO still has to go through domestic processes to ratify the ‘AMRO Agreement’, which will transform it into an international organisation.

These matters are intertwined and are crucial to advancing this regional financial safety net. Addressing these issues requires clear vision about the future relationship between the CMIM and other international lending institutions such as the IMF.

The CMIM lending conditions must be tailored to best suit the interests and needs of East Asian nations, and will likely be different from the IMF’s. But the differences between CMIM and IMF conditions must complement — not compete with — each other.

The link with the IMF remains another concern. When the CMI was introduced, ASEAN+3’s surveillance mechanism was not on par with the IMF’s. The states agreed to incorporate IMF lending conditions into the CMIM to discourage moral hazard (when states take on more risk after being insured by other institutions).

Since then, CMIM participants have worked to reduce links to the IMF. The delinked portion increased from 10 per cent in 2000 to 30 per cent in 2012. So when will ASEAN+3 raise the delinked portion further?

The answer largely hinges on how AMRO develops in years to come. If AMRO is strengthened and functioning well as a surveillance unit, the likelihood of moral hazard will be reduced, requiring less links with the IMF.

But the entity must improve capacity and further its role as an independent authority to effectively undertake these functions.

The easier task is strengthening AMRO’s manpower. AMRO remains very small — housing only about a dozen experts — but there have been steps in the right direction. ASEAN+3 have added two deputy directors and one chief economist to the office.

But the jury is still out on how to make AMRO more independent. The entity assists the Executive Level Decision-Making Body (ELDMB) to make decisions on issues such as approving CMIM lending. But the ELDMB is mandated to oversee AMRO’s activities. The ELDMB consists of the deputy-level officials of the ASEAN+3 finance ministries and central banks. As such, AMRO is inevitably tied to governments. Such a relationship could affect its activities.

It seems clear that the CMIM cannot escape from the old game of sovereign politics. In East Asian financial history, conflicting interests and contestations between states have spilled over and influenced several CMIM details.

How will future outcomes unfold? Will they be in favour of the potential lenders (China, Japan and South Korea) or the potential borrowers (ASEAN)? The decision-making structure of the CMIM has been set up in a way that no single member is dominant. China (including Hong Kong), Japan and the 10 ASEAN nations have equal vote share at 28.41 per cent. South Korea’s vote share is smaller (14.77 per cent), but the two-thirds supermajority voting system allows the country to cast a determining vote under certain circumstances. Neither ASEAN nor the +3 nations can block a collective decision on its own. Future results will depend on how the parties collaborate with one another.

In coming years, we are likely to witness how the CMIM will progress. It will involve both technical sophistication as well as politics. But the outcomes that do unfold will reveal invaluable information about the political dynamics in East Asia. For those interested in East Asian regional cooperation, the CMIM is definitely worth keeping an eye on.

Kaewkamol Pitakdumrongkit is an assistant professor at the Centre for Multilateralism Studies, S. Rajaratnam School of International Studies, Nanyang Technological University.



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