AMRO, a Thai Head?

Bandid Nijathaworn, the Bank of Thailand's (Central Bank) deputy governor for monetary stability, will resign in order to position himself for a bid as the head of AMRO - the CMIM's secretariat. Being as Thailand initially championed the idea (Chiang Mai Initiatives says it all) but was denied the secretariat due to (continuing) internal civil unrest, it is conceivable that Thailand could win the post of Governor (or whatever) of AMRO as fair dues.

That said, without Thailand firmly behind Bandid (unsure how much time PM Abhisit Vejjajiva has to push his country-man forward) and not being a greater contributor to the fund than other tier 1 ASEAN members, his chances are little more 50:50. Expect to see other challengers come forward.

CMIM : Phillipines an equal.

When the CMIM was declared in December of last year a political decision was made regarding each countries' contribution and multiplier. Essentially a three tier system was set up for the multiplier (the multiplier determines how many times more than the contribution a given country can access). The multiplier also determines were one stands as a giver or taker of resources and is negetively correlated to contribution - it is therefore a marker of a rule giver or taker for the CMIM as a whole.

Those with a multiplier of 1 could not extract more from the CMIM that they put in. China, Japan and Korea as the suppliers of the international public good are on this top tier. On the other extreme are the undeveloped ASEAN members (the CLMV plus Brunei) which have a multiplier of 5.

Then there are the developed ASEAN-5 members (Indonesia, Malaysia, Singapore, Thailand and the Philippines) with multipliers of 2.5. Until May, the ASEAN-5 countries contributed 4.77 billion, except the Philippines (3.6). However, at the ASEAN Finance Minister's meeting in Tashkent saw this be revised (paywalled). The ASEAN-5 (with 2.5 multipler) now have a uniformed contribution of 4.5 billion, with the Phillipines commiting more and the other pairing back their commitments.

This represents a victory of sorts for ASEAN cooperation. As "the four other ASEAN founding states had agreed to an interim arrangement to temporarily cover part of the Philippines’ obligation to the fund, pending sufficient levels of gross international reserves (GIR) to cover this regional commitment, a BSP officer explained yesterday." On the other hand, the fact that the other ASEAN countries had to reduce their commitments demonstrates that the NEA:SEA 80:20 split rule is still in force. Certainly neither China or Japan would want to reduce their commitments - while ASEAN is still more interested in what they can get out of the CMIM than what they can put in.

Before the Phillipines could agreement to expanding its commitment, it was important the its reserves be in a healthier position. Thus it was only after "The country’s GIR rose to $47 billion as of end-April, enough to cover 9.3 months of imports of goods and services. It is also equivalent to 11.8 times the country’s short-term external debt based on original maturity" that the commitment could be made. But it is worth noting that the Philippines can only source 11.38 billion from the CMIM, enough to help in the event of short-term liquidity shocks or balance-of-payments difficulties but far from what would be needed to decouple from the IMF

Just a thought but as the CMIM pact does not require an upfront transfer until after a swap request has been approved, I can not see why the Phillipines was not in position to start at 4.55 from the outset.

h/t the emerging scholars who encouraged me to restart this project

Chiang Mai Inititative: now in Singapore

Despite its name and its origins lying in Thailand, the Chiang-Mai Initiative Multilateralization will have its surveillance mechanism, and the attendant secretariat, housed in Singapore.

For Thailand this is a bitter pill to swallow, as since 2000 (when the CMI begun), Thailand was the assumed country to house the secretariat. Political instability has cost Thailand dearly again, as this set-back is more than simply embarassing. Unlike the failure to successfully host the East Asian Summit in late 2008 (a farce that saw the EAS rescheduled four times), failure to win the secretariat will cost Thailand influence in the region. The secretariat would have attracted finance and central bank officials to Thailand, and been a site at which Thailand local officials could interact with the region more widely. Instead, Singapore has reinforced its position as a financial hub.

It will be interesting to see how the surveillance mechanism (so-called ASEAN-plus-three Macroeconomic Research Office or AMRO) will work, it is scheduled for activation in May of next year. Already Zheng Xiaosong, Director General of the International Department at China's Ministry of Finance has noted that, "we should prevent it [AMRO] from intervening in other countries' internal affairs, because the so-called monitoring function is, in other words, only a supervision or performance tracing role in order to provide necessary consultation to relevant countries," - suggesting that China still is - at best - disinterested in developing a rigorous surveillance mechanism, with all problems that brings with it.

America, China and Japan; military and monetary networks misaligned?

At this year’s Japanese Association of International Relations conference, Inoguchi Takashi (editor of International Relations of the Asia Pacific) chaired a session entitled “military and monetary networks.” Speakers included, T.J.Pempel, Daniel Drezner, and Chung-in Moon.

The papers themselves were all of a high quality, but it was in the discussion afterwards that the significance of the theme became apparent. Taken together, what these papers suggested to me was that the military and monetary networks in East Asia are no longer neatly aligned with each other.

It is now common knowledge that East Asia played a major role in the current financial crisis. While not dismissing the negligence of the US authorities, the global imbalance which permitted (or even encouraged) bubbles in US economy to emerge had their origin in the post-Asian Financial Crisis decision of East Asian government’s to build up excessive foreign reserves in a bid to ensure that “never again” would they need to go to the IMF.

What is less common knowledge is that this decision to rely on the dollar in Asia, (and thereby to effectively underwrite the US profligacy) has had major political implications. Make no mistake, East Asian states are not choosing to use the dollar (as a reserve currency, and importantly to denominate their trade and credit) out of the kindness of their hearts. Inoguchi called this “the kindness of strangers.” They expect something in return.

In the case of Japan and Korea, part of the kickback is a security guarantee. Japan (and Korea) support the US dollar in part (perhaps large part) because of a political logic. During the Asian Financial Crisis, Japan’s proposal for an Asian Monetary Fund was seen as a sort treachery by the US. Indeed, as Prof. Chung-In noted Korea did not endorse it for fears of US retaliation. Would a movement away from the US dollar really affect the region’s security order? Who can say. But in the minds of decision-makers at the top, clearly a link existed between the military and monetary networks.

But what about China? Now the world’s largest holder of US treasury bonds and the US’s only potential rival, what does China expect from US in return for supporting the dollar’s role until now? Obviously, China does not want any kind of security guarantee, China will provide protection for its own national integrity, national dignity and nationals - Thank-you. What about political favors? Also unlikely, as a permanent member of the UNSC, China is already at the top. The US played that card in 1972. Taiwan? Maybe, but hard to imagine.

In fact, China is most likely after an economic return. This should hardly be surprising, the CCP’s regime legitimacy depends now on being able to deliver economic growth and development – and to do so consistently. The accumulation of US dollars, whether in foreign reserves, treasury bonds or bank accounts, was a function of the decision to maintain a peg (or de facto peg) of the RMB to the USD. As Drezner argues, it was not a deliberate decision – but rather came out of China’s export orientated development strategy, a strategy which had been successfully road tested by both Japan and Korea (both of whom alliance partners of the US!). The fact that China ended up “supporting” the US hegemonic position in finance was neither here nor there.

Until now. Now China has realized that sitting of 2 trillion of USD is not a proposition that carries no costs – quite the opposite, it is risky. China finds itself having effectively bought ‘war bonds’ from the US, a country which - while a largely benevolent hegemon - is nevertheless a hegemon feeling challenged by China’s rise. China’s is now worried that that investment will not be repaid in full. Simple inflation might wipe out significant value, as would appreciation in the RMB versus the dollar – something China is now under pressure to do.

At the same time that China is reconsidering its position in the US’s monetary network, Japan and Korea are reconsidering their position in the so-called “Pax Americana” military network. Indeed, Hatoyama’s administration’s difficulties in negotiating US base arrangements (over the noise of vocal protests in Okinawa) are suggestive of this shift in Japan. Just how this will effect Japan’s orientation towards the monetary network is still unknown, but it is unlikely that Japan is going more interested in supporting the USD in the longer term.

In a related point, Prof. Tadokoro noted that while all eyes are one the big holders of US debt in North-east Asia, ASEAN countries have the possibility of “sneaking out” the US monetary network, evidence for such can be seen in the Chiang-Mai Initiatives (some of which are denominated in Yen and RMB).

The misalignment of the security network which excludes China, and the monetary network in which China and US so close as to be mutually dependent is thrown into sharp relief by the current World Financial Crisis. A crisis with its origin in this region.

(The papers presented at the session should be released in a special issue of IRAP next year.)

CMI and IMF, a thought.

Apparently the G20 has made some break-thru with IMF reform.

One idea, which I read here , suggests that the EU should take a single seat at the IMF rather than have country level representation. Doing so would mean that the IMF would have to be based in Europe, as the law establishing the Fund states.

This would be in exchange for the western european powers giving up their over-representation at the Fund, a patently unfair situtation arrising from historical circumstance and now threatening the legitmacy of the Fund as a whole. Of course, the beneficiaries of a redistributation would be Asian nations. And, in the face of the WFC, keeping the Asian countries in, and invovled, at the Fund is very sensible.

A good idea perhaps, and not beyond the bounds of international law. However, the article further suggested that if the Asians did not like this arrangements they could go and formally establish the CMI.

But infact IMF reform would reduce the chances of the CMI ending its 20% link the IMF. In fact, the whole raison d'etre of the CMI comes crashing down if the Asian nations are granted better access to the Fund and its decision making processes. One might even interpret the CMI as a call for precisely such reform, a call for help. (Of course, there is more going on).

Asia's monetary integration - diffusion

Japan has just extended 16bn USD worth of currency swap to Indonesia, see here. There are two points of interest in this.
Firstly, this agreement falls outside the other smaller Bilateral Swap Agreements denominated in USD, thereby shoring up Japan's new trend of denominating its BSAs in yen.
Secondly, this agreement comes outside of the Chiang Mai Initiative (CMI).

In the context of the World Financial Crisis, the pressure for states to accept any BSA agreement which may bolster confidence in their economies and even help to fend off currency speculation is growing. For Japan, this WFC looks rather like the Asian Financial Crisis (AFC) writ large, and provides another opportunity for Japan to try and cement its leadership in regional monetary affairs having failed to establish in 1998 the Asian Monetary Fund.

But by providing these new BSAs outside of the CMI, Japan is risking sidelining an organisation that, while still nascent, provides the best hope for Asian economic integration in the longer term. Of course, Japan's interest in seeing the CMI go ahead are well known, indeed it spearheaded the CMI. Thus, this move is puzzling. There are two main possible reasons why Japan might do so,
1/ Japan does not believe these BSAs affects the CMI, or that it is not significant (unlikely)
2/ In fact, Japan does not want the CMI to go ahead, or wants a hedge in case the organisation gets too independent too quickly (more likely)

Why is the second reason more likely? In the first instance, even as the CMI has developed, Japan been signing BSAs in increasing numbers, particular to its ASEAN partners (China has also extended similar). That has to reflect a certain dissatisfaction with the CMI. Moreover this dissatisfaction is likely to do this future voting weights. With Japan only holding a likely 32% of the future voting weight, China and ASEAN can vote themselves access to the CMI treasure chest over Japan. Japan would still rather have a larger (veto-ing) voice in the future CMI. But at the same time Japan seems locked in competition to provide economic security to ASEAN, both with the US and IMF and increasingly with China. The result is support for the CMI and at the same time BSAs.