Interestingly enough, I'm reading Stiglitz's "Globalization and Its Discontents" right now, so here are a few comments:
(1) The US remains cool to this initiative because it could take power away from the hands of the IMF, over which it has sole veto power. When dealing with BOP crises and the like, an Asian Monetary Fund or the more innocuous-sounding Chang Mai Initiative might cut into the cozy relationship between the IMF and US financial institutions. Instead of the IMF's reflexive action of ensuring that US creditors get their money back when things collapse, a Chang Mai will likely focus more on utilizing pooled Asian resources in bringing about macroeconomic stability. That is, an Asian institution in the service of Asians.
(2) Today's FT states that one of the reasons why Asian CBs are acquiring reserves far in excess of what's necessary according to IMF criteria is to ensure that 1997-style speculative attacks won't force them to resort to the IMF and its "remedies". What Chang Mai can hopefully achieve is what's stated in this post--pooling Asian savings in reasonably deep and liquid markets. If successful, Chang Mai could make Asian countries say, "You know what, we don't need to buy boatloads of Treasuries anymore to prevent us from kneeling before the IMF if we experience financial crises."
I witnessed the madness descend in Asia firsthand, and this initiative sounds promising. The barriers it faces though--US opposition, regional quarrels, skepticism from major international (read" Western") banks--are huge. I wish it well, but you can be certain that developing large, liquid capital markets in Asia will take much time and effort.
Emmanuel,
I agree with your points. The IMF's response to the Asian financial crisis was not only wrongheaded but woefully inadequate. The amount of money the IMF offered Asia (in contrast to the US sponsored bailout of Mexico) was not enough to solve the problem, and hence convinced the Asians they could not depend on the IMF in a crisis, spurring them to create regional solutions.
But apart from the technical hurdles, the political hurdles to overcome are indeed large. Perhaps US opposition could be bought off if US investment banks were given key roles in developing Asian bond markets, but I get the feeling many countries in East Asia would be touchy about this. Then there is the emerging rivalry between Japan and China. Will all these different countries really be able to cooperate to manage their exchange rates and develop regional capital markets?
To some extent at least, both Chiang Mai and the ABMI are Japanese-led initiatives. So far the rest of the Asean + 3 nations have been cooperating, in large part because they see distinct advantages in having regional help available in a crisis as opposed to the IMF. But it remains to be seen whether the big 3 - Japan China and South Korea, can agree on how to proceed as trade and exchange rate issues grow ever more complicated.
A seriously well informned blog!
pretty informing thx
Commenting by HaloScan
