Japan proposed an "Asian Monetary Fund" during the early stages of the crisis more than a year ago. The idea was never specified sufficiently to permit objective evaluation. It was nevertheless immediately rejected, mainly by other Asians most vocally China but also by the United States and the rest of the G-7, due to fears that it could undermine the Asian monetary fund role of the International Monetary Fund and foster a split between Asia and North America.
The subsequent deepening and broadening of the Asian economic crisis underlines the merit of creating such an institution. The major architectural weakness revealed by the latest crisis, as with the Mexican and other crises before it, is the absence of effective early warning and early action systems.
Some of the individual country problems, notably Thailand and Korea, were foreseen by at least some analysts. Asian monetary fund world desperately needs effective early warning systems. Such systems can now be constructed on the basis of fairly robust sets of objective economic indicators. Even when looming problems such as Thailand or Mexico were correctly identified, however, no preventive actions weretaken.
Regional Asian monetary fund pressure, especially in the Asian monetary fund Pacific, is probably the most promising route to induce anticipatory policy measures. It is now clear, even to the usually reticent Asians, that a Asian monetary fund neighbors can be badly burned by its failure to head off a crisis and that they therefore have a legitimate right to apply such pressure.
The Manila Framework sought to begin such a process on macroeconomic and monetary issues. But those processes have no formal status, secretariat or other institutional foundation and would be much more effective if rolled into an APMF. The IMF itself can never provide enough funding for large countries, even when sharply expanding its normal quota multiple as with Korea in December It would be far better to have such supplementary funding available on a permanent and assured basis.
The money could then be mobilized quickly as needed. The burdensharing among the donors could be worked out in advance. APMF credits should be granted only in conjunction with IMF programs, to maintain the primacy of IMF adjustment requirements, though they might be disbursed more quickly to provide essential bridge finance and to counter speculative attacks.
The reason is that their availability to any recipient country, as with the IMF's own credits, would then be limited by the "Asian monetary fund" system of quotas for individual members and whatever multiples can be agreed in a given circumstance.
Hence an APMF should lend with the Fund but not to or through the Fund, with the supplementary amounts in individual cases to be agreed in consultation between the two institutions.
The ability of the APMF to supplement IMF lending would obviously strengthen the new institution's clout in pursuing its primary responsibilities for early warning and early action.
First, no Asian country could effectively lead the effort. Any hint of Japanese domination will be roundly rejected by the rest of the region, as occurred a year ago, and Japan's continued economic Asian monetary fund precludes its early leadership in any event.
China, despite its highly responsible performance during the crisis to date, is not yet ready for such a role and might not be widely welcomed either. There are no other candidates.
It would be especially foolhardy to risk dividing Asia and the Americas at this time of global crisis, with its desperate need for leadership from the United States.
Thoughtful Asians have in fact insisted on American participation in any such scheme, mainly because of its long if recently tarnished experience in leading the G-7 and
Asian monetary fund willingness to speak much more frankly than most Asians, including to other Asians, at this time in history. Europe already has a comprehensive regional structure with its Economic and Monetary Union.
Japan receives full credit for initiating the regional Asian monetary fund but the idea needs to be modified along the lines suggested here to ensure that it makes the large contribution to future international financial stability of which it is capable.
Reviving the "Asian Monetary Fund". It is now clear, even to the usually reticent Asians, that a country's neighbors can be badly burned by its failure to head off a crisis. More on This Topic Book.
Sustaining Economic Growth in Asia. The Dog that Did Not Bark. RealTime Economic Issues Watch.
This article analyzes the current implications and likely future course of Chiang Mai Initiative Multilateralization (CMIM), which some observers have argued is a. Downloadable!
This paper examines the political dynamics surrounding the Japanese government's initial proposal for the creation of an Asian Monetary Fund. The other interesting thing about the expansion is that it suggests that Asian countries are still wary of approaching the IMF for crisis insurance.