East Asian financial regionalism: why economic enhancements undermine political sustainability

Abstract

East Asian financial regionalism was born in response to the Asian Financial Crisis of 1997-1998. The centrepiece of financial regionalism was the Chiang Mai Initiative (CMI), an emergency liquidity mechanism created by the ASEAN+3. It embodied both a clear interpretation of what had gone wrong in 1997-1998 and an understanding of the need for institutions that would be politically viable despite Sino-Japanese rivalry. Enforcement under CMI relied on the 'IMF link' -release of funds would be predicated on crisis countries' initiating negotiations with the International Monetary Fund (IMF), as a means of reducing moral hazard, enforcing conditionality and diverting blame from the leading creditors, Japan and China. The global financial crisis of 2008-2010 and the eurozone crisis that followed have inspired important changes meant to address CMI's economic gaps, including accelerated adoption of 'CMI Multilateralization' (CMIM), the creation of a new surveillance unit (ASEAN+3 Macroeconomic Research Organization, or AMRO), and the establishment of a new precautionary line. Many observers have remarked that these developments weaken the IMF link, which had effectively subordinated CMI to the IMF. While the moves appear to demonstrate a more confident, autonomous regionalism and a relative devaluation of the US-dominated global financial institutions, this paper argues that in fact, the ASEAN+3 states have again unearthed the underlying politics of divided leadership and mutual suspicion. CMIM is now threatened by the renewed potential for internal divisions. Further complicating the picture, both China and Japan have recently established large bilateral swap lines outside of the CMIM framework with several of their ASEAN+3 partners, raising the question of whether CMIM is moving towards political irrelevance even as it has arrived at a high water mark in its institutional development.

Leaving the Nest: The Rise of Regional Financial Arrangements and the Future of Global Governance

“…In practice, it has reaffirmed the importance of the biggest members, Japan and China. As has been argued elsewhere (see Grimes, 2009Grimes, , 2012Grimes, , 2015, these two countries are the ones putting their money most at risk, whereas others (especially ASEAN-4 and South Korea) are the most forward-leaning in terms of expanding resources, easing conditions and reducing the IMF link.…”

“…While our focus has been on the relationship between RFAs and the IMF, we should also note a further wrinkle in the East Asia case: the parallel existence of large, non‐CMIM BSAs between Japan and/or China on the one hand and potentially vulnerable CMIM partners on the other (see Table , as well as Grimes, ). Some of these are very large (e.g.…”

“…However, the shift toward being a parallel institution in many aspects of CMIM's design opens a clear path to leaving the nest, should Japan and China choose to do so in response to either regional or global dynamics. While our focus has been on the relationship between RFAs and the IMF, we should also note a further wrinkle in the East Asia case: the parallel existence of large, non-CMIM BSAs between Japan and/or China on the one hand and potentially vulnerable CMIM partners on the other (see Table 1, as well as Grimes, 2015). Some of these are very large (e.g.…”

Varieties of regional monetary cooperation: a tool for reducing volatility in developing economies?

“…Regionally coordinated selfinsurance mechanisms such as the FLAR (Imbs & Mauro, 2007;Titelman, Vera, Carvallo, & Pérez Caldentey, 2014) and the CMIM (Sachs, Kawai, Lee, & Woo, 2010; see Grimes, 2015) have gained attention in that sense.…”

Continuity, Discontinuity and Incoherence in the Bretton Woods Order: A Hirschmanian Reading

“…Even CMIM sceptics acknowledge that another crisis may propel further development (e.g. Grimes, 2015). 7.…”