The Chiang Mai Initiative Multilateralisation (CMIM) is the regional safety net of the ASEAN+3 region (comprising 10 members of the ASEAN and China; Hong Kong, China; Japan; and Korea). It originated from the Chiang Mai Initiative (CMI), a network of bilateral swap arrangements, established in May 2000, after the Asian Financial Crisis. The CMI was multilateralized in 2010 by making the coordination and decision-making process collective and systematic with an initial total amount of $120 billion. It was augmented to $240 billion in 2014.
The CMIM was set up with an International Monetary Fund (IMF) linkage as a condition for full access to individual bilateral swap arrangements to achieve two objectives. First, to supplement IMF lending which serves as the Global Financial Safety Net. Second, to safeguard members’ foreign reserves as IMF conditionality is meant to address potential concerns.
Stemming from the lessons learnt from the 1997 Asia Financial Crisis, there have been strong aspirations from ASEAN+3 members to move away from the legacy of IMF stigma to establish their own reliable financial safety net in the region. There have been continuous discussions on the extent that the CMIM can be activated independently from the IMF, which is the so-called IMF De-Linked Portion (IDLP). This question has led to a decades-long journey for the ASEAN+3 members to find a perfect answer.
Evolution of the IDLP
The IDLP was initially set as 10 percent under the CMI in the early 2000s, allowing participants to borrow up to 10 percent of funds from CMI without an IMF program.
In May 2005, the IDLP was increased to 20 percent, accompanied by an enhanced regional surveillance framework. Central to this development was the integration of the Economic Review and Policy Dialogue (ERPD), the peer monitoring mechanism among ASEAN+3 members, into the CMI framework. This strategic integration of surveillance capabilities underscored the unwavering commitment of ASEAN+3 members to enhance the role of the CMI, leading to the establishment of an independent surveillance unit, the ASEAN+3 Macroeconomic Research Office (AMRO), in 2011.
In May 2012, the ASEAN+3 members agreed to increase the IDLP to 30 percent, with a view to increasing it to 40 percent in 2014, subject to further reviews and should conditions warrant it. In 2014, the size of the CMIM was doubled to $240 billion and the CMIM Precautionary Line was introduced as its prevention facility.
The increase of the CMIM IDLP to 30 percent was legally realized in 2014 as well, together with the two enhancements, with all members signing the amendment to the CMIM Agreement. This decision was primarily spurred by the lessons learnt during the Global Financial Crisis and the result of enhanced regional surveillance by AMRO.
After continuous discussions, the long-awaited IDLP increase to 40 percent was realized as part of a package deal at the ASEAN+3 Finance and Central Bank Deputies Meeting (AFCDM+3) in Xiamen, China, in December 2019. The members reached a consensus on the IDLP increase, while also accepting the CMIM conditionality framework and the use of local currency for CMIM liquidity support on a voluntary basis.
How can the IDLP develop further?
Amid an increasingly uncertain and complex environment, any disruptions in the global economic financial market, compounded by a delayed response will have serious ramifications on the regional economies. A tricky question for policymakers is what would be an appropriate IDLP ratio to strike a good balance between safeguarding members’ scarce foreign reserves and pursuing the optimization of the CMIM as a self-help mechanism for the region.
Some ASEAN+3 members who prefer to promote the CMIM as the region’s self-help mechanism are in favor of a further increase in the IDLP from the current 40 percent. They argue more time should be dedicated to consolidating and enhancing the CMIM’s functionality. On the other side of the camp, some members are more skeptical of a further increase in the IDLP. By taking a more global perspective on financial safety nets, they have reservations on whether the regional financing arrangements can fully substitute the role performed by the IMF.
The previous rounds of the IDLP increases were materialized when major steps were taken to enhance regional surveillance capacity. These include the formalization of ERPD and establishment of AMRO as an independent surveillance unit under the CMIM and the adoption of CMIM conditionality framework. Another breakthrough would be essential to further develop the CMIM as a regional self-help mechanism, along with the strong commitment of its members.
At the 26th AFCDM+3 in May 2023, the members envisaged in their joint statement to conduct “further study on the de-linked portion,” which will be contingent on their collective aspiration. A further increase of the IDLP, if pursued, is likely to be based on members’ confidence in the CMIM and the related surveillance capacity of AMRO, including program design and conditionality. To kick start the discussion, members may consider conducting a survey.
As a supporting institution of the CMIM, AMRO will continue to support the ASEAN+3 members as they continue to discuss the IDLP and navigate the intricate balance between regional financial stability and the dynamic shifts of the global and financial environment.