Wednesday, May 9, 2007

Pooling reserves in Asia

The Yomiuri Shimbun's lead editorial today focuses on an agreement reached at the annual meeting of the Asian Development Bank (ABD) to pool currency reserves among the ASEAN + 3 countries so to be able to provide liquidity in the event of a crisis.

Building on the Chiang Mai Initiative, an earlier agreement in ASEAN + 3 that provided for bilateral currency swaps in the event of a crisis, this agreement may signal a new phase in Asian regionalism, although, as this Reuters story notes, the details of the arrangement have yet to be solidified.

I think this agreement may be important for a few reasons: it cements the role of ASEAN + 3 as the critical forum in regional cooperation (much to the chagrin of the US, undoubtedly); it reinforces the counter intuitive pattern of integration whereby ASEAN is the hub and the region's giants (Japan, China, and South Korea) are the spokes; and, together with that, it signals to the world that even as Asia stands up a complement (or a rival) to the IMF, Asian integration remains a largely open affair.

While I think the first two points are probably uncontroversial, the last may require some teasing out.

The key point is that ASEAN is the hub. Because ASEAN, a group of smaller, poorer countries dwarfed by the great powers of Northeast Asia is the hub of regional integration arrangements, there is less of a "Fortress Asia" feel to ASEAN + 3 cooperation than there might otherwise have been if it was occurring under the aegis of China or Japan. With Japan and China cancelling out each other's influence within the grouping, ASEAN has been free to push for a more open environment. ASEAN's thrust — and thus the thrust of ASEAN + 3 initiatives — is largely outward.

Look at ASEAN's recent activities. It has recently opened FTA negotiations with the EU and CEP negotiations with Japan, while continuing with CEP negotiations with the PRC and pushing ahead with the liberalization of markets within ASEAN.

One can argue about whether these agreements are trade-creating or trade-distorting, but the politics of ASEAN-centered regionalism suggest a more dynamic, commercial regionalism than Europe's inward-looking, institution-building regionalism. As numerous commentators have observed, the conditions of Asia make European-style integration unlikely.

The relationship of the ASEAN + 3 pool to the IMF remains to be decided — Yomiuri suggests that it will be complementary — but that relationship will say much about how power has shifted to Asia in the decade since the Asian contagion. As such, even as the region becomes more open to global commerce, it may become less friendly to international financial institutions perceived as harmful to "Asian" interests.

While it is too early to say more about this arrangement, seeing as how it remains inchoate, it is, unmistakably, an important step in Asian regionalism — and a sign of the growing wealth, power, and independence of Asian countries (and not just China).

1 comment:

MTC said...

Tokyo Observer -

I am afraid the Yomiuri is just tooting a Asian Co-prosperity horn here, making a policy triumph out of a bureaucratic footnote.

The Chiang Mai Initiative's web of bilateral swaps agreements was more than sufficient to counter any assaults on any of ASEAN's currencies. This "one stop pooling" facility (excuse me, who will run it? Oh boy, what the world needs most--a new secretariat!)) is a gesture, nothing more.

It is sad to note that the only explanation the Yomiuri can give for the reason why Asia needs this new institution is the 1997 currency crisis--an event that will see its 10th anniversary come July.

So much has changed since the Asian Currency Crisis. Every economy in Asia--indeed every developing country aside from the kleptocracies, which no one invests in anyway--has built up enough currency reserves to keep them liquid in response to any contingency up to and including Armageddon.

As for the IMF being a bugabooa and a purple Meanie--the poor institution cannot give generate enough interest income to pay for its own expences. Some wags are indeed calling it the TMF, as nearly all its lent funds are now to a single country--Turkey.

Check out the course of lending since 2003 on this graph, produced by the IMF itself:


The currency reserves of both China and Japan are five times the size of the IMF's total one year forward lending capacity.

The Yomiuri editors should be ashamed of themselves but you know, they ain't.