Strengthening Chiang Mai Initiative

Finance Ministers of Korea, Japan and China agree on need to double emergency fund to $240 bln at ADB meeting




Minister Yoon Jeung-hyun of the Ministry of Strategy Finance, center, holds hands with Japanese Finance Minister Yoshihiko Noda and Chinese Deputy Finance Minister Lee Yong at their meeting while attending the Asian Development Bank annual conference held in Hanoi May 4.

FFinance ministers of South Korea, Japan and China on May 4 vowed to strengthen the crisis prevention function of the current regional financial safety net of the Chiang Mai Initiative, their joint statement said.
Gathered for an annual Asian Development Bank conference in Hanoi, Vietnam, the three finance chiefs also agreed on the need to double the emergency fund reserved for markets facing a liquidity crunch from the current $120 billion.
The plan will be carried out under the newly established pact among the ASEAN+3 nations called the Chiang Mai Initiative Multilateralization (CMIM), a system that offers emergency funds to any member nation hit with capital flight and sharp currency devaluations.
CMIM, in essence, is an Asian version of the International Monetary Fund, which was expanded from a bilateral swap facility under the CMI since 2000. CMIM differs from CMI in that it is a multilateral agreement that allows the provision of more emergency funding for member countries.
It aims to help member countries doomed to experience more capital volatility compared with advanced nations and prevent a repeat of the 1997-98 Asian Financial Crisis.
The trilateral meeting, chaired by South Korean Finance Minister Yoon Jeung-hyun, also emphasized the importance of surveillance in detecting crises.
“We shared the view that strengthening the ASEAN+3 Macroeconomic and Research Offices’ surveillance function is an effective tool to prevent a financial crisis in the region and a key element to avoid moral hazard,”said the statement released after the meeting.
AMRO, starting this month, will serve ASEAN+3 nations as a regional surveillance unit. It aims to provide early warnings to member nations in case one needs emergency help from the $120 billion fund held at the CMIM currency swap facility.
The three finance ministers noted the challenges from inflation, rising commodity prices and the increasing volatility of capital inflows in the region.
“There are also uncertainties such as the turmoil in the Middle East and North African regions, and the aftermath of the earthquake in Japan,”the joint statement said.
“We will continue to implement appropriate macroeconomic policies and strengthen policy cooperation to achieve strong, sustainable and balanced economic growth of the three countries.” The three ministers are scheduled to join their counterparts from ASEAN+3 at the ADB conference on May 5.
ASEAN+3 includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam plus Korea, Japan and China.
In the meantime, Bahk Jae-wan, the labor and employment minister, was named to replace Finance Minister Yoon in the May 6 cabinet reshuffle, who will take office pending parliamentary confirmation of his appointment. Yoon served as the finance minster longer than any of his predecessors, having stayed on the job for more than two-and-a-half years. He is credited with having done a good job leading the country out of the global financial crisis faster than any country in Asia and record GDP growth of more than 5 percent on average during his watch.




A scene of the ADB Anuual Conference where Korean Finance Minister Yoon Jeung-hyun is shown at the center, along with other participants.


Joint Message
The 11th Trilateral Finance Ministers's Meeting among China, Japan and Korea
May 4, 2011, Hanoi, Vietnam
1. We, the Finance Ministers of China, Japan and Korea held the 11th Trilateral Finance Ministers’ Meeting on May 4, 2011 in Hanoi, Vietnam. We had a valuable opportunity to exchange views on current macroeconomic and financial developments, regional financial cooperation and other issues of common interest.
2. We delivered a message of deep condolences to the Japanese people regarding the devastating earthquake and tsunami that hit Japan in March. The Ministers of Korea and China support the Japanese government’s efforts for recovery and reconstruction following the crisis. The Finance Minister of Japan deeply appreciated the warm support for Japan from China and Korea and briefed on the latest developments.
3. The economic growth in the region, after having weathered the global financial crisis, has been resilient owing to robust domestic demand and buoyant exports. However, we are mindful of the challenges the region is faced with, including growing inflationary pressure, a rise in commodity prices and increasing volatility of capital flows to the region. There are also uncertainties such as the turmoil in the Middle East and North African regions, and the impact of the earthquake in Japan. We will continue to implement appropriate macroeconomic policies and strengthen policy cooperation to achieve the strong, sustainable and balanced economic growth of the three countries."
4. We discussed and welcomed the progress made on regional financial cooperation under the ASEAN+3 Finance Ministers’ Process, and reaffirmed our commitment to cooperation. We were pleased with the establishment of AMRO. We shared the view that strengthening AMRO’s surveillance function is an effective tool to prevent a financial crisis in the region and a key element to avoid moral hazard, and in this regard, we agreed to work together to seek measures to further strengthen AMRO’s surveillance function.
5. We discussed how to strengthen regional financial cooperation in the future. We stressed the importance of initiating a study on the design of a possible regional crisis prevention function. We committed to contribute to improving the international monetary system by enhancing collaboration between Asia’s regional financial arrangement and the IMF, as agreed at the G20 Seoul Summit.
6. We also agreed to explore ways to further improve the Asian Bond Markets Initiative (ABMI), which helps to promote regional bond markets and reduce risks of double mismatches, and, accordingly, contributes to preventing financial crises in the region. In this context, we expect that there will be discussions, in due course, on the possibility of expanding ABMI to cover the capital market’s development, in order to support the strong, sustainable and balanced growth of the regional economy in the post-crisis's period. Also, we agreed to deepen our discussions on how to facilitate cross-border' securities transactions and contribute to further developing capital markets in the region, including the studies of the establishment of RSI. We agreed to initiate studies on the new possible priority areas for future ASEAN+3 financial cooperation, with the support from ADB as appropriate, including the studies on regional infrastructure financing, disaster risk insurance and the use of local currencies in regional trade settlement."
7. We appreciate the cooperation among the three countries, as well as the fruitful outcomes of this meeting, and believe that the Trilateral Finance Ministerial Process will continue to work as an effective platform for enhanced policy dialogue's and cooperation into the future. nw

Photos on Courtesy of the Ministry of Strategy and Finance