East Asian nations agree to double regional currency swap scheme

Kyodo

Finance ministers and central bank governors from the 10-member Association of Southeast Asian Nations plus Japan, China and South Korea agreed Thursday to double the size of a multilateral currency swap arrangement to $240 billion in a bid to shield the region from future financial crises.

The beefing up of the Chiang Mai Initiative Multilateralization scheme, which aims to address balance-of-payments and short-term liquidity difficulties in the region, comes amid calls to strengthen the Asian safety net to act as a buffer to risks that the eurozone debt crisis could pose.

“The doubling of the CMIM comes at the right time and Japan will make appropriate contributions,” Finance Minister Jun Azumi told reporters following the meeting held prior to a two-day annual Asian Development Bank gathering starting Friday.

As a result of the additional handout, the amount of Japan’s contribution to the program will be $76.8 billion, or 32 percent of the total, matching China as the top provider.

“The CMIM’s idea is to make sure that solid growth in the region will not be hindered by economic crises stemming from outside of the region. So it is very significant to create a system that allows smooth funding in Asia,” Azumi said.

At their meeting, the participants also agreed to include a crisis-prevention facility in the CMIM scheme for the first time in response to criticism that only postcrisis measures were being addressed.

The added function is called the CMIM Precautionary Line, which is similar to the Precautionary and Liquidity Line lending facility introduced by the International Monetary Fund, according to their joint statement issued following the meeting.

“We strongly believe that our agreement made today on strengthening of the CMIM, including doubling its total size, increasing the IMF delinked portion, introducing the crisis prevention function . . . will serve as another important step forward to strengthen the regional financial safety net and to pursue sustainable growth in the region,” the statement said.

At the meeting, which central bank governors joined for the first time this year, the participants also agreed to reduce the intervention of the IMF by raising the portion of the scheme that is delinked from the Washington-based institution from the 20 percent at present.

The participants agreed “to increase the IMF-delinked portion to 30 percent in 2012 with a view to increasing it to 40 percent in 2014, subject to review, should conditions warrant,” the statement said.

The raising of the delinked portion comes as progress is being made in the running of the ASEAN+3 Macroeconomic Research Office, an East Asia currency surveillance body designed to coordinate the decision-making process for providing emergency liquidity to member states under the CMIM scheme.

The Singapore-based body began operating from October and produced its first quarterly regional report in December, while conducting several consultative missions with countries in the region.

The participants sought “to accelerate the preparation to institutionalize AMRO as an international organization,” according to the statement.

They also took note that the Asian Bond Markets Initiatives that started in 2003 has helped to boost the scale of local currency-denominated bond markets, with diversified issuers and types of bonds issued.

To ride the momentum, the 13 countries agreed on creating a new plan through which they will aim to strengthen foundations for a regional credit rating system among other targets, the statement said.

Under the road map, efforts will be made to provide guarantees for local currency bonds issued by companies in the region with the Credit Guarantee Investment Facility trust fund contributed by the ASEAN-plus-three and the Asian Development Bank.

On macroeconomic situations, the ministers and central bankers noted that “despite the heightened uncertainties in the global financial markets, the ASEAN-plus-three region has posted steady growth so far.”

At the same time, they said they are “fully aware of the potential downside risks” to the region’s economy in 2012, such as the prolonged eurozone crisis, inflationary pressures on rising oil prices and increased volatility in short-term capital flows.

The ASEAN-plus-three consists of the 10 ASEAN members — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — plus Japan, China and South Korea.