By Aso Taro, Japan’s Deputy Prime Minister and Minister of Finance; and Le Minh Hung, Governor of the State Bank of Vietnam
This article was published as an op-ed in Project Syndicate on October 5, 2020.
TOKYO/HANOI – The modern international financial system emerged from the devastation of World War II. Since then, it has continued to be shaped by historic slumps – most recently, the 2008 global financial crisis.
Today, the COVID-19 pandemic is putting the global financial system to another stringent test. And the unprecedented challenge facing the ASEAN+3 region – the ten members of the Association of Southeast Asian Nations (Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam), plus China, Japan, and Korea – further underscores the importance of regional financial cooperation.
Since the 1997 Asian financial crisis, the ASEAN+3 economies have been diligently enhancing their regional financial-safety measures. The annual ASEAN+3 Finance Ministers’ and Central Bank Governors’ Meeting has been the focal point for regional cooperation aimed at strengthening economic and financial resilience.
To this end, the ASEAN+3 countries decided in 2000 to establish the Chiang Mai Initiative, the region’s financial safety net. The CMI was a network of bilateral swap arrangements among the ASEAN+3 countries that aimed to provide US dollar liquidity to members in times of need and supplement financial assistance from the International Monetary Fund.
In March 2010, following the global financial crisis, the CMI evolved into the Chiang Mai Initiative Multilateralisation (CMIM) Agreement, under which the participating swap arrangements would henceforth be governed by a single agreement and a centralized decision-making body. The size of the CMIM facility was set at $120 billion.
Since its establishment, the CMIM Agreement has been upgraded twice. The first amendment, in 2014, doubled the size of the arrangement to $240 billion, and increased the “IMF de-linked” portion – the maximum amount members could access without IMF co-financing – from 20% to 30%.
The second amendment, to promote greater flexibility in co-financing with IMF financial assistance, and strengthen coordination with the Fund, entered into force in June.
At their most recent meeting, on September 18, ASEAN+3 finance ministers and central-bank governors exchanged views on the global and regional economic outlook, as well as policy responses to risks and challenges arising from the COVID-19 pandemic. Over the past few months, the region’s policymakers have deployed extraordinary pandemic-related measures in the form of targeted fiscal, monetary, and credit support to households and firms, and have afforded regulatory forbearance and liquidity support to the financial system.
Against this backdrop, ASEAN+3 finance ministers and central-bank governors announced a timely and historic agreement to strengthen the CMIM, which will certainly help members to better cope with the heightened risk and uncertainty posed by the pandemic. The latest enhancement will allow members to access up to 40% of the CMIM facility without IMF co-financing. Moreover, members agreed to formulate the option of using their own currencies for CMIM crisis financing, in addition to the dollar, on a voluntary and demand-driven basis.
These amendments, which will take effect upon completion of the signing process by all ASEAN+3 members, further strengthen the CMIM as a robust and reliable regional self-help mechanism, and reinforce its importance and relevance in the global financial safety net.
In this regard, the ASEAN+3 Macroeconomic Research Office (AMRO), established in 2011 to conduct regional macroeconomic surveillance and aid the implementation of the CMIM, plays an important role as a “trusted family doctor” to support the group’s members. AMRO’s mandate to contribute to regional economic and financial stability is even more critical in today’s environment. Under the leadership of Doi Toshinori, AMRO has produced timely analyses and updates on the pandemic’s regional impact to support members’ policymaking.
Since its outbreak, the COVID-19 pandemic has taken a heavy toll on both human life and national economies. Within the ASEAN+3 region, policymakers have implemented necessary containment measures to control the transmission of the coronavirus, which inevitably affected economic activity. With the global economy increasingly interconnected, the disruptions to international supply chains and the challenges faced by many industries have demonstrated the importance of mitigating the region’s vulnerability to economic and financial shocks. We are encouraged by the progress of the CMIM and AMRO as important tools for strengthening our economies’ resilience.
While growth is projected to fall sharply for many economies this year, we expect the ASEAN+3 economies to rebound in due course – and there are early signs of recovery. Given the pandemic’s uncertain trajectory, however, the ASEAN+3 countries will remain vigilant, and we will cautiously plan our exit from pandemic-related measures to safeguard growth and financial stability in the region.
Finally, the ASEAN+3 finance ministers and central-bank governors pledge to remain resolute in our commitment to uphold an open and rules-based multilateral trade and investment system, and to strengthen regional cooperation and integration.
Aso Taro, a former prime minister of Japan (2008-2009), is Japan’s Deputy Prime Minister and Minister of Finance. Le Minh Hung is Governor of the State Bank of Viet Nam. Japan and Vietnam are the Co-chairs of the 2020 ASEAN+3 Finance Ministers’ and Central Bank Governors’ Process.