Memo #90
By Karthik Nachiappan – karthiknach [at] nus.edu.sg
On May 4, 2011, representatives of the ASEAN +3 group took another critical step forward in realizing the goal of a full-fledged regional financial entity. These developments have special importance given the leadership vacuum at the International Monetary Fund (IMF) and the intransigence of the European Union and the United States in further democratizing the process for leadership selection at the IMF.
The meeting in Hanoi, Vietnam appointed Wei Benhua, former deputy head of China’s currency regulator, to a 3-year term as the founding director of the ASEAN +3 Macroeconomic Research Office (AMRO). It also called upon the AMRO to review its organizational strength and functional duties and also define its legal status to legitimize its multilateral role.
AMRO’s conception of its role and responsibilities has special geo-financial meaning. First, it stands to evolve into the regional lender of last resort with an estimated $120 billion (USD) fund of foreign exchange reserves. China and Japan will contribute 32 per cent each, South Korea 16 per cent, and the ASEAN countries 20 per cent. This serves as a boost for Asia’s economic standing and reinforces business confidence and sustained investment even as economies in Europe and North America falter.
Second, the presence of a regional surveillance mechanism deftly facilitates the management of the envisaged currency swap initiative when nations hit fiscal roadblocks. Due diligence on each nation’s economic state of affairs will reduce the information asymmetries that thwart bilateral lending. Having a regional body undertake this task institutionalizes a regional process, institutes a solid foundation for coordinating macroeconomic policies, and instills macroeconomic discipline. It also may eventually obviate the need for a global lender of last resort.
Geopolitically, AMRO’s status and progress reveal the unrepresentative character of the global governance architecture. More decentralized governance at the regional level is inevitable given the pervasive difficulties in managing economic affairs globally. Regionally, China’s triumph in bagging AMRO’s leadership and surmounting Japan’s effort in doing so is telling.
AMRO’s fate is tethered to Chinese support, material and conceptual. This is likely to boost confidence and cooperation in a region deeply concerned about the positive and negative implications of China’s rise. We frequently hear about an inexorable shift of power to Asia. AMRO may be its tangible manifestation and the West’s (un)doing.
About the Author:
Karthik Nachiappan – Research Associate at the Centre on Asia and Globalization in the Lee Kuan Yew School of Public Policy of the National University of Singapore.
Links:
- ASEAN Joint Ministerial Statement of the 14th ASEAN Finance Minister’s Meeting, May 2011
- Asian Regional Financial Arrangements and the IMF, East and South Asian Bureau of Economic Research Newsletter, May 2011
- Asian Monetary Fund: Getting Nearer, RSIS Commentaries, No. 79, May 2011
- China taking the lead in drive for possible common Asian currency, The China Post, May 2011
- Asia on the right foot to overtake the West in economic power, People’s Daily Online, May 2011
- Emergence of Regional Funds Could Challenge IMF Dominance, The Wall Street Journal, May 2011
Related Memos:
- Our other Memos about Asia