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Regional Currency Swap Arrangement:
A Step Towards Asian Monetary Fund?
Walden Bello
Focus on Trade, No. 50, May 2000
The most notable agreement to come out of the 33rd Annual Meeting
of the Board of Governors of the Asian Development Bank meetings was
formulated on the sidelines. This was the much publicized decision the
ASEAN countries plus Japan, South Korea, and China to create a system of
regional currency swap arrangements as a 'firewall' against future
financial crises.
Looking at the fine print, however, makes this development less
significant than it seems. It is, for one, a really a much diluted version of the Asian Monetary Fund (AMF) that was proposed by Japan right after the outbreak of the Asian financial crisis in mid-1997. That proposal was envisioned as a much more solid mechanism capitalized to the tune of $100 billion. The proposal in Chiang Mai was presented as a 'network' of currency swap arrangements building on a more modest $200 million swap agreement among the big five ASEAN economies. No details were announced on the size of the funding being sought for the current proposal, though Eisaku Sakakibara, the
influential former Vice Minister of Finance of Japan, told the press that
some $20-$40 billion would be needed to have the arrangement really make a
difference.
The studious avoidance of the world 'Fund' by Japanese officials
underlines the fact that Japan and the Asian countries continue to be
prevented from making really bold steps by the desire not to ignite the
open opposition of the United States. It was Washington and the IMF that
killed the original AMF proposal in 1997, on the ground that it would
compete with and weaken the IMF. Despite seemingly mild reactions to the
current proposal, Washington continues to oppose the creation of any
institution that would involve either a weakening of US influence over the
economies in the region or supplant the role of the IMF. Access to the
current swap arrangements are apparently envisioned as flexible in terms
of policy reforms demanded of the recipient governments. Senior US
Treasury Department official Edwin Truman warned against this, saying that
the central point in any regional surveillance arrangement has to be one
that promotes timely economic and financial adjustment.
The US made its presence felt throughout the week-long discussions, and
in ways that irritated other member governments. In response to demands
for an increase in the Bank's capital resources, the US said that
countries such as South Korea and Thailand, which had borrowed huge sums
from the ADB and other multilateral agencies at the onset of the Asian
financial crisis, should make an early repayment of their loans now that
recovery was underway. Acccelerated repayment would provide resources for
the ADB that would make capital increase less urgent.
Truman, the US Treasury Department representative, also faulted the ADB
for not following up its anti-poverty rhetoric with concrete actions and
for not implementing 'good governance' as one of the major conditions of
its lending to client governments, according to The Nation. Good
governance and anti-poverty are two of the new policy directions that
have been pushed on the ADB, mainly by the United States.
The fact that a relatively obscure official like Truman, instead of
Treasury Secretary Larry Summers, headed the US delegation was seen by
many as the US's way of expressing unhappiness about trends in the ADB.
While the US has been very vocal about good governance and other
'new' policies, it has bee quite quite parsimonious when it comes to new
cash commitments and keenly protective of positions it holds within the
Bank, such as the office General Counsel. This has created strong
feelings among many other member countries that the ADB should become a
purely Asian institution since the larger part of its capital resources
already come from Japan and other countries in the region itself. These
feelings have surfaced at a time that in Washington itself, there are
calls, notably from the US Congress, to downsize the World Bank and
devolve many of its functions to the ADB and other regional development
banks.
The ADB continues to be an institution dominated by Japan. But if
devolution of development aid does become the trend, its importance will
increase as a mechanism to channel Washington's influence in the region.
Increasing tension between the US and an increasingly like-minded Asian
bloc is likely to be the force that will greatly determine the future of
the Asian Development Bank.
Copyright 2000 Focus on the Global South
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