Commentary: Asia ponders a bailout fund of its own: printer friendly version
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Commentary: Asia ponders a bailout fund of its own
By William Pesek Jr. Bloomberg News
TUESDAY, MAY 10, 2005Commentary: Asia ponders a bailout fund of its own
By William Pesek Jr. Bloomberg News
TUESDAY, MAY 10, 2005
It's baaaaaaaaaaaaack! The so-called Asian Monetary Fund, that is. Such an animal was conjured up during Asia's financial crisis eight years ago and quickly died amid strong U.S. resistance to Asia creating a counterpart to the International Monetary Fund.
Last week's meeting of the Asian Development Bank in Istanbul appears to have marked the idea's resurrection. The fund, if created, could have major consequences for the so-called Washington Consensus on how developing nations should go about raising their living standards.
The idea came up in September 1997, amid worsening crises in Thailand, Indonesia and South Korea. The International Monetary Fund was holding its annual meeting in Hong Kong and Asian leaders pushed the idea of an Asia-only bailout fund to provide assistance to economies with fewer strings attached than the IMF required. Back then, the monetary fund was demanding high interest rates and fiscal tightening, policies that worsened the crisis.
U.S. officials were beside themselves. At the time, I was traveling with Treasury Secretary Robert Rubin and his deputy, Lawrence Summers. After the IMF meeting, we boarded a plane for Beijing. On the flight, Rubin and Summers were in a panic that an Asian Monetary Fund sponsored by Japan and other nations would shut the United States out of efforts to end Asia's crisis.
Fueling speculation that the Asian Monetary Fund is back was a statement by a top Asia Development Bank official that currency-swap arrangements agreed to by the region have "the potential to become an Asian monetary fund." That the statement was made by Masahiro Kawai, an adviser to the Asia Development Bank's president, Haruhiko Kuroda, made it all the more significant.
Japan was arguably the most vocal advocate of an IMF-like organization for Asia, and Kuroda is a former deputy finance minister. Kuroda plans to use his time at the development bank to accelerate the economic integration and self-sufficiency of Asia. An Asian Monetary Fund seems a natural step in that direction.
The currency-swap arrangement to which Kawai referred is called the Chiang Mai Initiative. The $39.5 billion system to shield currencies from speculative attacks involving China, Japan, South Korea and 10 Southeast Asian nations is expected to double in value.
Yet Kawai agrees that "full IMF delinkage would not be desirable at this point." One reason is that nations involved in the Chiang Mai Initiative lack the bureaucratic infrastructure to conduct the kinds of economic surveillance and data collection done by the monetary fund. Kawai says that creating a secretariat to do just that is "clearly on the table."
David Roland-Horst, an economics professor at the University of California, Berkeley, thinks Asia should set up a regional equivalent of the Organization for Economic Cooperation and Development. "Just as it did for Europe, an Asian OECD could rapidly accelerate integration and independence for the region," Roland-Horst says.
Credibility matters, too. Love it or hate it, the International Monetary Fund has an authority that few other global organizations can match.
The fund has also learned some hard lessons since the Asian crisis. In its dealings in Asia, it has taken on a less public and preachy air. There is also a perception in markets that the U.S. Treasury does not control the fund to the extent that it did in the late 1990s.
Reform at the IMF is still needed, of course. The organization needs to do a better job detecting signs of crisis before it's too late and to be more perceptive of the unique challenges of each economy. And it needs to give Asia a bigger voice in its policies. The United States may be the monetary fund's biggest shareholder, but Asia will increasingly dominate global trends.
Despite its warts, the IMF may have more credibility in markets than an Asian Monetary Fund, at least for a while. Asia should be careful about sidelining an organization that it may need in the not-so-distant future.
Asia does have reasons to pursue its own monetary fund. The region is tired of U.S. assurances that free markets solve all problems.
It is rightfully leery of Washington Consensus policies like shrinking governments to ineffectiveness, deregulating and privatizing industries immediately and putting shareholder value over social considerations.
As we have seen in Latin America, taking these steps does not ensure that developing economies will get as much out of them as multinational companies do.
Hence Asia's search for economic-success recipes of its own. These include not only an Asian Monetary Fund, but also the Asian Bond Fund, which consists of two pools of central bank reserves totaling more than $3 billion to buy Asian debt as a means of jumpstarting the region's debt markets.
Taken together, these steps will move Asia further toward integration, and they will also reduce its reliance on the dollar. U.S. fears of Asians dumping Treasuries to bring the money home may become even more justified.
