An Asian Monetary Fund - More Harm Than Good?
Summary
Thailand is again promoting the establishment of an Asian Monetary
Fund (AMF) amid increasing regional support, including from the
International Monetary Fund. The AMF, an emergency fund for ailing
Asian economies, will be a key issue at two upcoming Asian economic
meetings in October and November. With Southeast Asian currencies
coming under increasing pressure, this fall's meetings will test
whether Asia is truly committed to an AMF, or whether the idea will
once again fall victim to individual political and economic
interests.
Analysis
Thai Deputy Prime Minister Supachai Panichpakdi called for Asia to
seriously consider an Asian Monetary Fund during a Sept. 19 seminar
in Bangkok on ASEAN economic cooperation. Supachai serves as
Thailand's commerce minister and will be the next director-general
of the World Trade Organization. He said an Asian fund, distributed
under the guidance of Asian governments, is necessary because "IMF
resources might be inadequate one day." He also said he would raise
the issue at the Oct. 2-7 ASEAN economic ministers meeting in
Chiang Mai, Thailand.
Supachai's comments come as the AMF and similar systems are gaining
support, even from former opponents like the IMF. The AMF and
regional currency-swap arrangements are set to be discussed at both
the October ASEAN meeting and a November ASEAN summit in Singapore
that will also include China, Japan and South Korea. With some
Asian currencies dropping to their lowest level since the 1997
economic crisis, these meetings will reveal whether Asia is truly
committed to an AMF, or if domestic political and economic
interests once again preempt regional cooperation.
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Japan initially raised the concept of an Asian Monetary Fund during
the Asian financial crisis in 1997. The concept was soundly
rejected by the United States, which feared that an AMF would
undermine the IMF and thus weaken the impetus for enacting strict
austerity measures. Despite the initial opposition, the idea has
been resurrected several times and in several guises. It is now
gaining broader acceptance.
In addition to the Asian Monetary Fund, an expanded ASEAN currency-
swap agreement is being investigated. Among ASEAN's founding
members, a pool of $200 billion for currency intervention has long
been established. However, the miniscule size of the fund makes it
next to useless for any real intervention. In Chiang Mai in May,
the ASEAN nations - along with Japan, South Korea, and even China -
agreed to work toward an enhanced ASEAN swap agreement with
reciprocal agreements to Northeast Asia.
The fund increased to $1 billion initially and is in effect an AMF
by another name. Even so, the IMF, and even U.S. Treasury Secretary
Lawrence Summers, offered at least measured support for this so
called "Chiang Mai Initiative," which will again be discussed at
the upcoming ASEAN meeting.
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Support for an AMF itself has also recently increased. Economist
Jeffery Sachs, former Taiwanese President Lee Teng-Hui, and
delegates at the recent First International Conference of Asian
Political Parties in Manila have all expressed support for some
version of the AMF.
Even former opponents of the Asian Monetary Fund are changing their
minds. In a Sept. 20 press conference, IMF Managing Director Horst
Koehler, who replaced Michel Camdessus after the Asian economic
crisis, said the proposal for an AMF that runs parallel with the
IMF was a positive step, as it fostered regional integration,
according to Kyodo. The Australian Associated Press reported that
on Sept. 4, the Reserve Bank of Australia Deputy Governor Stephen
Grenville said his country should "keep an open mind" not only
about the formation of an AMF but also about potentially joining
it.
The growing international support for a regional mechanism to stave
off another currency crisis, however, comes as the Philippine peso
is daily setting record lows. The Thai baht, which triggered 1997's
financial meltdown, is trading at the lowest level in 25 months.
And the Indonesian rupiah, despite a slight rebound in August, has
been losing value for the past 11 months.
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The fall of these currencies is raising concern as to their affect
on domestic interest rates, and thus economic growth and recovery.
All three nations have intervened in their currencies over the last
year, to little avail. Each is blaming the fall in its own currency
primarily on the general regional malaise, suggesting there is
little domestically they can do to stop the decline. Further, Asian
stock markets are facing pressure, and post-crisis economic
restructuring has slowed or stalled in many areas.
The upcoming ASEAN finance ministers meeting and the subsequent
ASEAN summit present East Asia with a challenge. The growing
support for a regional currency-defense system gives Asia the
opportunity to finally implement Japan's longstanding proposal of
an AMF and thereby stave off another regional crisis.
The current ASEAN swap-agreement fund, however, stands at just $1
billion. This is significantly less than necessary to stabilize the
region. Without a massive financial commitment from Asian nations,
implementing such a small fund could cause more harm than good.
With Asian currencies moving closely together, a regional
intervention of substance would require simultaneous moves in
several countries.
The tiny regional fund would quickly be drained and have only
short-term effect. Earlier interventions in Indonesia, Thailand and
the Philippines have had little more than a daylong effect on the
currency and have failed to affect the overall depreciating trends.
Rather than supporting the region, the fund only creates a false
sense of security among Asian nations. With regional currencies
nearing crisis levels again, and Thailand, Indonesia and the
Philippines facing political turmoil, the potential for a relapse
of the Asian flu is growing.
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