The Changing Political Dynamics of East Asian Financial Cooperation: The Chiang Mai
Initiative
Author(s): Hyoung-kyu Chey
Source: Asian Survey, Vol. 49, No. 3 (May/June 2009), pp. 450-467
Published by: University of California Press
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THE CHANGING POLITICAL DYNAMICS
OF EAST ASIAN FINANCIAL
COOPERATION
The Chiang Mai Initiative
Hyoung-kyu Chey
Abstract
This paper analyzes the factors that have contributed to the development of
the Chiang Mai Initiative, one of the prominent examples of recent East Asian financial cooperation, by comparing it with the failed 1997 proposal for an Asian
Monetary Fund.
Keywords: ASEAN Plus Three, Asian Monetary Fund, Asian regionalism,
Chiang Mai Initiative, financial cooperation
East Asian economic cooperation has made substantial progress since the turning point of the 1997 Asian financial crisis. Prior
to the crisis, economic integration in East Asia was led mainly by private
business, while East Asian governments showed little serious interest in regional economic cooperation. As a result of weak government cooperation, the formal institutionalization of East Asian economic cooperation
had lagged far behind regional cooperation in the rest of the world.1 Since
Hyoung-kyu Chey is an economist in the Institute for Monetary and
Economic Research at the Bank of Korea, Seoul, South Korea. The author wishes to thank
an anonymous reviewer and Ouk-Heon Song, Seung-Je Hong, Seong-Hun Yun, Choong-Sik
Kam, Wosik Moon, Michael C. Marking, and seminar participants at the Bank of Korea for
their help in preparing this article. This paper reflects the views of the author and not those
of the Bank of Korea. Email: <hkchey@bok.or.kr>.
1. Paul Bowles, “Asia’s Post-Crisis Regionalism: Bringing the State Back in, Keeping the
(United) States Out,” Review of International Political Economy 9:2 (May 2002), p. 245. For
more on East Asian regionalism during the pre-crisis period, see, for example, Rosemary
Asian Survey, Vol. 49, Issue 3, pp. 450–467, ISSN 0004-4687, electronic ISSN 1533-838X. © 2009
by The Regents of the University of California. All rights reserved. Please direct all requests for permission to photocopy or reproduce article content through the University of California Press’s Rights and
Permissions website, at http://www.ucpressjournals.com/reprintInfo.asp. DOI: AS.2009.49.3.450.
450
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HYOUNG-KYU CHEY
451
the 1997 crisis, however, East Asian governments have been active in promoting regional economic cooperation, in particular in the area of finance.
In December 1997, the Association of Southeast Asian Nations (ASEAN)
and three northeast Asian countries—Japan, China, and South Korea—
established the ASEAN+3, a forum for coordinating cooperation among
the participant countries, which they institutionalized in 1999.2 Under the
ASEAN+3 framework, member countries have conducted annual economic
reviews and policy dialogues, promoted regional bond market development
through the Asian Bond Markets Initiative, and established a research group
to study ways of strengthening financial cooperation and enhancing financial stability. Central banks in the region have also facilitated development
of regional bond markets by establishing two Asian Bond Funds.3
At the center of East Asian financial cooperation lies the Chiang Mai
Initiative (CMI). The CMI refers to a network of bilateral swap arrangements (hereafter BSAs) created by ASEAN+3 countries in May 2000 to
provide short-term liquidity assistance.4 When the CMI was first established,
Foot, “Pacific Asia: The Development of Regional Dialogue,” in Regionalism in World Politics: Regional Organization and International Order, ed. Louise Fawcett and Andrew Hurrell
(Oxford: Oxford University Press, 1995), pp. 228–49; Stephan Haggard, “Regionalism in Asia
and the Americas,” The Political Economy of Regionalism, ed. Edward D. Mansfield and
Helen V. Milner (New York: Columbia University Press, 1997), pp. 20–49; Peter J. Katzenstein
and Takashi Shiraishi, Network Power: Japan and Asia (Ithaca, N. Y.: Cornell University Press,
1997); and Richard Stubbs, “The Political Economy of the Asia-Pacific Region,” in Political
Economy and the Changing Global Order, ed. Richard Stubbs and Geoffrey R. D. Underhill
(New York: St. Martin’s Press, 1994), pp. 366–77.
2. For more on the ASEAN+3, see Markus Hund, “ASEAN Plus Three: Towards a New
Age of Pan-East Asian Regionalism? A Skeptic’s Appraisal,” Pacific Review 16:3 (September
2003), pp. 383–417; and Richard Stubbs, “ASEAN Plus Three: Emerging East Asian Regionalism?” Asian Survey 42:3 (May/June 2002), pp. 440–55.
3. In 2003, ASEAN+3 countries launched the Asian Bond Markets Initiative, aimed at
developing efficient and liquid bond markets in Asia. The initiative focuses on two objectives:
facilitating access to bond markets by encouraging greater numbers of issuers and types of
bond, and enhancing market infrastructures to foster greater bond market development. In
the same year, the Executives’ Meeting of East-Asia and Pacific Central Banks (EMEAP),
comprising 11 central banks and monetary authorities in the East Asia and Pacific region,
launched the $1 billion Asian Bond Fund 1, which invests in U.S. dollar-denominated bonds
issued by sovereign and quasi-sovereign issuers in eight EMEAP economies (other than Japan,
Australia, and New Zealand). In 2005, the EMEAP established the Asian Bond Fund 2, with
$2 billion, which invests in domestic currency-denominated bonds issued by sovereign and
quasi-sovereign issuers in the same eight EMEAP economies.
4. The idea of the CMI emerged from the ASEAN+3 Summit in November 1999, at which
ASEAN+3 leaders agreed to enhance self-help and support mechanisms in East Asia. The
CMI has also expanded the ASEAN swap arrangement, created by five ASEAN countries
(Indonesia, Malaysia, the Philippines, Singapore, and Thailand) in 1977 to promote financial cooperation among them. For more on the ASEAN swap arrangement, see C. Randall
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ASIAN SURVEY, VOL. XLIX, NO. 3, MAY/JUNE 2009
there was strong criticism that it would be ineffective, largely because of its
bilateral nature and the small size of the BSAs (a total of US$36.5 billion).5
Through the mid-2000s, however, the CMI has evolved. It has now adopted
a collective decision-making procedure for swap activation, while the total
volume of its BSAs has grown to $90 billion (as of April 2009). From May
2006, moreover, ASEAN+3 countries began to work on multilateralization
of the CMI and have reached agreement on many of its key elements, including the total size ($120 billion), the form of funding (self-managed reserve
pooling),6 the legal modality (legally binding single contractual agreement), and the proportion of contribution between ASEAN and the three
Northeast Asian countries (20:80). If successful, multilateralization of the
CMI is expected to lead East Asian financial cooperation into an unprecedented stage, the establishment of a de facto regional monetary fund.
What explains this progress in East Asian financial cooperation since
the late 1990s? This paper attempts to answer that question by analyzing
the factors that led to development of the CMI. In particular, this study
compares CMI development with the failure of the 1997 proposal for an
Asian Monetary Fund (AMF). This comparative analysis is appropriate,
given that successful CMI multilateralization is likely to result in creation
of a regional institution similar to an AMF. Examination of why two similar institutions for regional liquidity support adopted contrary paths can
provide valuable insight into what factors influence the development of
East Asian financial cooperation.
This study argues that the political dynamics of East Asian financial
cooperation have changed since the 1997 financial crisis and are a key
factor behind the development of the CMI.7 In particular, this research
Henning, East Asian Financial Cooperation (Washington, D.C.: Institute for International
Economics, October 2002), pp. 14 –15. In this study, however, the term CMI mainly relates to
the BSA network established under it.
5. For more details on the early arrangements of the CMI and criticism of them, see Jennifer A. Amyx, “Political Dynamics of Regional Financial Cooperation in East Asia,” Japanese Economy 32:2 (Summer 2004), pp. 98–112; Henning, East Asian Financial Cooperation;
and Yung Chul Park and Yunjong Wang, “The Chiang Mai Initiative and Beyond,” World
Economy 28:1 (January 2005), pp. 91–101.
6. Under the self-managed reserve pooling arrangement, each participating member contributes a certain amount of reserves to a “fund,” and members obtain claims on the fund in return.
The fund then entrusts the reserve assets received back to their respective contributors for management, and income arising from these reserve assets accrue to the respective central banks.
7. During the post-crisis period, the deepening of regional economic integration in East
Asia has not been very substantial. See David Cowen et al., Financial Integration in Asia: Recent Developments and Next Steps (Washington, D.C.: International Monetary Fund [IMF],
August 2006). Thus, East Asian economic integration during the period is not likely to be a
key factor that explains the recent development of East Asian financial cooperation.
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HYOUNG-KYU CHEY
453
demonstrates that (1) Japan has become more active in providing regional
initiative, (2) China has become more willing to support East Asian financial cooperation, and (3) U.S. opposition to East Asian financial cooperation has lessened.
This paper is organized as follows. It first reviews the literature on East
Asian regionalism with a focus on the issue of regional leadership. It then
analyzes why the 1997 AMF proposal failed and, in the following section,
explores why in contrast the CMI has developed successfully. In the final
section, it discusses the prospects for further development of East Asian
financial cooperation.
Leadership in East Asian Economic
Cooperation
It is generally acknowledged that close regional economic cooperation requires strong political leadership, to foster coherence among member countries with divergent interests by mediating among them. Yet, a number of
studies maintain that East Asia lacks such leadership.8 Much research also
indicates that the influence of the U.S. in East Asia hinders the development of closer regional economic cooperation.9
Given its economic power, Japan has been the most prominent candidate for regional leadership in East Asia. Despite its decade-long economic
recession during the 1990s and early 2000s, Japan remains the regional economic superpower. However, Japan has been widely criticized for its reluctance to provide strong initiative for regional economic cooperation. Japan’s
failure to do so has been attributed to a diversity of factors, including its
faltering economy, its unwillingness to shoulder the leadership burdens,
8. See, for example, Haruhiko Kuroda and Masahiro Kawai, Strengthening Regional Financial Cooperation in East Asia (Tokyo: Policy Research Institute, Ministry of Finance of
Japan, May 2003); Edward J. Lincoln, East Asian Economic Regionalism (Washington, D.C.:
Brookings Institution, 2004), pp. 231– 49; Naoko Munakata, “Has Politics Caught up with
Markets? In Search of East Asian Economic Regionalism,” in Beyond Japan: The Dynamics
of East Asian Regionalism, ed. Peter J. Katzenstein and Takashi Shiraishi (Ithaca, N. Y.: Cornell University Press, 2006), p. 132; T. J. Pempel, “International Finance and Asian Regionalism,” Pacific Review 13:1 (March 2000), p. 69; David P. Rapkin, “The United States, Japan,
and the Power to Block: The APEC and AMF Cases,” ibid., 14:3 (August 2001); and Yeongseop Rhee, “East Asian Monetary Integration: Destined to Fail?” Social Science Japan Journal 7:1 (April 2004), p. 99.
9. See, for example, Shaun Narine, “The Idea of an ‘Asian Monetary Fund’: The Problems
of Financial Institutionalism in the Asia-Pacific,” Asian Perspective 27:2 (June 2003), pp. 84 –98;
Rapkin, “The United States, Japan, and the Power to Block”; and Keiichi Tsunekawa, “Why
So Many Maps There? Japan and Regional Cooperation,” in Remapping East Asia: The Construction of a Region, ed. T. J. Pempel (Ithaca: Cornell University Press, 2005), pp. 101– 48.
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ASIAN SURVEY, VOL. XLIX, NO. 3, MAY/JUNE 2009
its relationship with the U.S., and its government’s high sensitivity to interest group pressures.10 This view of Japan as a “reactive state” remains strong
in analyses of recent East Asian economic cooperation.11 Moreover, Japan
has frequently been denounced for its reluctance to resolve historical tensions with its East Asian neighbors, which reduces its ability to gain their
support for it to lead.
Meanwhile, a number of scholars assess China’s capability of providing
strong regional leadership as not yet sufficiently mature.12 Given its rapid
economic growth, huge population, historical legacy of regional influence,
and reintegration into the global economy, China does seem to have potential to lead East Asian economic cooperation. Nevertheless, there are at
present several problems with the idea of China exercising regional leadership. Its economy has a long way to go to catch Japan’s. China’s transition
to a market economy is incomplete; by contrast, most of its East Asian
neighbors have had market-based economies for decades. As China has expanded its economic and military strength, East Asian countries’ fears of
its dominance in the region have also grown.13 All of these factors make it
difficult to envision the emergence of China as the leader of East Asian
economic cooperation, at least in the near future.
10. See Kent E. Calder, “Japan as a Post-Reactive State?” Orbis 47:4 (Autumn 2003), p. 615;
Kuroda and Kawai, Strengthening Regional Financial Cooperation in East Asia, p. 12; Lincoln,
East Asian Economic Regionalism, pp. 232–39; Werner Pascha, “The Role of Regional Financial Arrangements and Monetary Integration in East Asia and Europe in Relations with the
United States,” Pacific Review 20:3 (September 2007), pp. 434 –36; and Pempel, “International
Finance and Asian Regionalism,” p. 69.
11. In his seminal work on Japan’s foreign economic policy, Kent E. Calder characterized
Japan as a “reactive state,” indicating its failure to undertake major independent foreign economic policy initiatives and its deferential response to outside pressures, in particular from the
United States. See Kent E. Calder, “Japanese Foreign Economic Policy Formation: Explaining the Reactive State,” World Politics 40:4 (July 1988), pp. 517– 41. Examples of recent papers
supporting this view include Calder, “Japan as a Post-Reactive State?”; Lincoln, East Asian
Economic Regionalism; Narine, “The Idea of an ‘Asian Monetary Fund’ ”; and Rhee, “East
Asian Monetary Integration.” In counter to this traditional view of Japan’s foreign economic
policy, however, some scholars argue that Japan exercises “leadership from behind,” meaning
that it helps in development of innovative institutional options but eschews overt dominance
of multilateral forums. See, for example, Alan Rix, “Japan and the Region: Leading from Behind,” in Pacific Economic Relations in the 1990s, ed. Richard Higgott, Richard Leaver, and
John Ravenhill (Boulder, Colo: Lynne Rienner, 1993), pp. 62–82.
12. See, for example, Lincoln, East Asian Economic Regionalism, pp. 242– 49; and Rhee,
“East Asian Monetary Integration,” p. 97.
13. C. Fred Bergsten, The New Asian Challenge (Washington, D.C.: Peterson Institute
for International Economics, March 2000), p. 10; Peter J. Katzenstein, “East Asia: Beyond
Japan,” in Beyond Japan, ed. Katzenstein and Shiraishi, pp. 2–3; and Lincoln, East Asian
Economic Regionalism, pp. 244 – 47.
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HYOUNG-KYU CHEY
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There is also strong skepticism about the possibility of joint East Asian
leadership emerging, in particular leadership by Japan and China.14 According to this perspective, most East Asian countries view one another as
economic rivals rather than potential partners, and Japan and China are
political rivals competing over regional leadership. The possibility of cooperation becomes even more doubtful considering Japan’s problems with
its historical legacy, as well as its fears of growing Chinese economic and
military power.
The influence of the U.S. in East Asia adds further complications to the
issue of East Asian economic cooperation. The U.S. is a key actor in security affairs in the region. The U.S. is also critical as an end market for East
Asian economies’ exports, and thus for their vitality, which makes it important that East Asian countries accommodate U.S. interests. The U.S.
thus exercises a large influence in the region and, notably, has traditionally
opposed development of multilateral regional frameworks, promoting instead its own bilateral relationships with East Asian countries.15 Furthermore, whenever its leadership has been challenged by movement toward
“Asian” regionalism that excludes it, the U.S. has resisted strongly and effectively hindered development of regional economic cooperation.16
The contrasts between the cases of the 1997 AMF proposal and the CMI,
however, demonstrate that the traditional view of the political dynamics
relevant to East Asian regionalism has recently become less applicable to
the development of East Asian financial cooperation. The possibility of a
regional hegemon emerging that can impose economic cooperation appears
to remain low and may decline further if China continues to grow while
Japan maintains its power. Hence, East Asian financial cooperation depends
largely on whether the two regional powers can cooperate or exercise joint
leadership. Notably, Japan and China have in fact since the late 1990s begun
to do just this. Japan has become active in taking regional financial initiative, while China has begun to respond positively to some (albeit not all)
14. See, for example, Bergsten, The New Asian Challenge, p. 10; Lincoln, East Asian Economic Regionalism, p. 249; and Rhee, “East Asian Monetary Integration,” p. 98.
15. Peter J. Katzenstein, “Introduction: Asian Regionalism in Comparative Perspective,”
in Network Power: Japan and Asia, ed. Katzenstein and Shiraishi, pp. 23–27; Munakata, “Has
Politics Caught up with Markets?” p. 132; and Pempel, “International Finance and Asian Regionalism,” p. 69.
16. See Bergsten, The New Asian Challenge, pp. 15–16; Katzenstein, “Introduction,” pp.
23–27; and Pempel, “International Finance and Asian Regionalism,” p. 70. One good example
of the U.S. resistance to “Asian” regionalism was its strong opposition to the East Asian Economic Caucus proposed in 1990 by former Malaysian Prime Minister Mahathir Mohamad.
See Stubbs, “The Political Economy of the Asia-Pacific Region,” p. 374; and Rhee, “East
Asian Monetary Integration,” p. 99.
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of them. In these novel circumstances, U.S. opposition to the development
of East Asian financial cooperation has dwindled. The following sections
explain in detail how and why these changes have emerged.
The 1997 Asian Monetary Fund Proposal
In mid-September 1997, in the wake of the Thai financial crisis, Japan put
forward a proposal to establish a regional monetary fund—an AMF. The
AMF was envisioned as a $100 billion fund participated in by 10 regional
countries or entities (Japan, China, South Korea, Indonesia, Malaysia, Thailand, the Philippines, Hong Kong, Singapore, and Australia). The AMF
proposal was significant in that its membership excluded the U.S. and that
it would not necessarily act in harmony with the IMF.17 In other words,
the AMF proposal was an attempt to build an “Asian” self-help mechanism, which could reshape the structure of international financial governance led by the IMF. However, the AMF proposal failed only two months
after its emergence. Why did this happen?
Japan’s Initiative
The Japanese Ministry of Finance began pushing for establishment of an
AMF in August 1997, immediately after the outbreak of the Thai financial crisis, sending high-ranking officials to other East Asian countries to
discuss the idea. Japan also planned to provide half the funds necessary
for the AMF creation.18 These efforts to establish the AMF contradicted
both the view of Japan as a reactive state and the notion of its aversion to
regional economic cooperation. Furthermore, the idea of excluding the
U.S. from AMF membership was a significant change in Japan’s foreign
economic policy, given that Japan had never tried to intentionally keep the
U.S. out of an international institution in the postwar era.19
When Japan proposed creation of an AMF, it had the desire of expanding
its influence and leadership in the region, a policy goal it has maintained
even after the demise of the 1997 proposal. However, this motivation alone
cannot fully explain Japan’s exclusion of the U.S. from its proposed AMF.20
17. Eisuke Sakakibara, Nihon to Sekai Ga Furueta Hi: Saiba Shihonsyugi No Seritsu [The
day Japan and the world shivered: The birth of cyber capitalism] (Tokyo: Katokawa Bunko,
2005), p. 186.
18. Ibid., pp. 185–86; and “Ministry Withdraws Asian Monetary Fund Plan,” Japan Economic Newswire, November 10, 1997. In fact, Haruo Kuroda, then director general of the International Finance Bureau of the Ministry of Finance of Japan, had long cultivated the AMF
idea privately, and he had many supporters in Japan. See ibid., p. 184.
19. Yong Wook Lee, “Japan and the Asian Monetary Fund: An Identity-Intention Approach,” International Studies Quarterly 50:2 (June 2006), p. 340.
20. Ibid., pp. 360–61.
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Also behind the AMF proposal was Japan’s ideological interest in defending the Asian development model against the IMF’s neoliberal bailout programs. The IMF, along with Western countries such as the U.S.,
had asserted that the structural problems inherent in the Asian development model were the main cause of the crisis. Accordingly, IMF conditionality for bailout required strong economic restructuring on the part of
crisis-hit countries. Japan, however, diagnosed the deregulation of capital
accounts in those countries as the direct cause of the crisis. Japan also suspected the IMF bailout programs of being heavily influenced by U.S. intentions to topple the Asian development model, which Japan had been
trying to promote. Ultimately, Japan proposed the AMF idea in order to
create a policy alternative to the IMF prescription.21 This economic ideological schism between Japan and the Western countries has continued,
and it has led Tokyo to continue pushing for an AMF even after the original proposal’s explicit demise.
It is of course also likely that Japan had more myopic interests related
to its AMF proposal. The quick provision of liquidity for the crisis-hit
countries through an AMF could have benefited Japan. It had strong economic ties with those countries through bank loans, foreign direct investment, and trade, and a full-blown crisis could have seriously hurt many of
its banks and firms.22 However, if such economic interests had been Japan’s
sole motivation, it could have used the IMF. It should also be noted that
many Japanese banks and firms were opposed to the AMF proposal.23 In
addition, such myopic economic interests cannot explain why Japan has
strongly supported the CMI, which it hopes will eventually develop into
an AMF, even after economic recovery in the crisis-hit countries.
The Demise of the AMF Proposal
Japan’s AMF proposal died in November 1997, when Japan, the U.S., and
12 other Asia-Pacific countries agreed to create the Manila Framework, a
forum for regional economic surveillance and crisis management. Under
21. Ibid.
22. Phillip Lipscy, “Japan’s Asian Monetary Fund Proposal,” Stanford Journal of East
Asian Affairs 3:1 (Spring 2003), pp. 97–98.
23. Lee, “Japan and the Asian Monetary Fund,” pp. 346–50, 360; and Saori N. Katada,
“The Purpose of Asian Monetary Regionalism: Japan Cultivating a Leadership after the
Asian Financial Crisis,” paper presented at the 2nd International Political Symposium on
“Japan and the Transformation of the International Order,” organized by the Institute of Social Science, University of Tokyo, and School of International Relations, Sophia University,
Tokyo, June 20–22, 2002, p. 10. A number of Japanese banks were opposed to the AMF proposal, arguing that it could create a psychology of dependence in crisis-hit countries. Many
Japanese firms, meanwhile, argued against the proposal because they regarded the crisis as a
golden opportunity for further liberalization of Asian markets.
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the Manila Framework, the size of the cooperative financing mechanism
was only $20 billion; the mechanism had no institutional components, instead taking the form of a stand-by arrangement. The framework also
lacked a regional orientation: it included the U.S. and was subordinated to
the IMF.24
The failure of the AMF proposal was attributable, first of all, to strong
opposition from the U.S., in tandem with the IMF.25 U.S. opposition was
made superficially on the grounds that the AMF would duplicate the IMF
and could cause moral hazard problems because its relief funds might be
available without rigorous conditions such as those imposed by the IMF.26
However, the strong U.S. opposition to the AMF proposal appears to have
had more fundamental reasons. The U.S. worried that the AMF could
undercut its interests and influence in East Asia, partly because its establishment might lead to creation of a yen bloc, which would threaten U.S.
dollar hegemony in the region and could undermine U.S. supremacy in
managing future financial crises.27 Moreover, the AMF could be a powerful
voice for international financial policies that were not inclined toward Western interests and ideas, creating a division between the Western-backed
IMF and the Asian-backed AMF.28 The U.S. opposition to the AMF proposal was so strong that it gutted it, pushing East Asian countries into accepting the Manila Framework instead.29
24. Lipscy, “Japan’s Asian Monetary Fund Proposal”; and Rapkin, “The United States,
Japan, and the Power to Block,” p. 398.
25. In the case of the IMF, it initially supported the AMF proposal, but changed course
to object to it later. The IMF’s official reasons for opposition to the AMF proposal were similar to those the United States presented. See “Ministry Withdraws Asian Monetary Fund
Plan,” Japan Economic Newswire. However, there was speculation that the IMF’s opposition
stemmed from its fears of the AMF being a direct threat to its authority. See “A Fund for
Asia, by Asia,” Business Times (Kuala Lumpur), November 7, 1997.
26. See “Japan Sticks with Controversial AMF Idea,” Asahi News Service, May 14, 1999;
and “Japan Should Lead by Example in Region’s Economic Challenge,” Nikkei Weekly, October 20, 1997.
27. See “A U.S.-led Unipolar World Negative for Japan,” Asahi Shimbun [Asahi News],
June 16, 1998. In the Air Force jet to the IMF/World Bank annual meeting in Hong Kong in
September 1997, then U.S. Treasury Secretary Robert E. Rubin gathered with his deputy
Lawrence H. Summers and other officials to plot strategy, and complained that the AMF
proposal would undercut U.S. interests and influence in Asia. See “Of World Markets, None
an Island,” New York Times, February 17, 1999.
28. Note that the United States became antagonistic to the AMF proposal only after it
noticed its exclusion from the AMF and the possibility of fund operation independent of the
IMF. See Sakakibara, Nihon to Sekai Ga Furueta Hi, pp. 186–87.
29. “Small Steps towards a Common Asian Currency,” Business Times (Singapore), May
17, 2001. Most ASEAN countries initially welcomed the AMF plan, but their support began
to fade immediately once the United States—and the IMF—expressed strong opposition to
it. See Lipscy, “Japan’s Asian Monetary Fund Proposal,” p. 96.
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HYOUNG-KYU CHEY
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The fate of the AMF proposal might have been different if it had received strong support from other regional powers, especially China. However, China did not support the proposal, out of worries about an increase
in Japanese regional influence. China perceived the AMF proposal as an
attempt by Japan to assume regional leadership and to establish hegemony
of the yen in the region, and Beijing did not wish to see that happen. At
the time, China was more concerned about Japan becoming powerful than
about the U.S. retaining economic supremacy in East Asia.30
China’s traditional reluctance to participate in multilateral institutions
should also be noted. The country had generally placed great emphasis on
its own autonomy and independence, a key reason being its concern that
in multilateral settings it could be outvoted and have its bargaining power
decreased. Therefore, China maintained a minimalist and passive approach
toward regional cooperation.31 In these circumstances, Japan made a critical mistake by not consulting with China about the AMF proposal, which
raised Chinese suspicions about the plan.32 In addition to the Japanese diplomatic error, the U.S. also lobbied China to get it to oppose the plan, by
emphasizing the threat of Japanese hegemony.33 In the end, without Chinese
support the AMF plan could not overcome the strong U.S. opposition.
The Chiang Mai Initiative
The CMI basically shares with the proposed AMF the common objective
of ensuring that liquidity assistance is available. Although the 1997 AMF
proposal died quickly, the CMI has continued to evolve successfully. It is
important to ask why. East Asian countries’ accumulations of huge amounts
of foreign exchange reserves since the 1997 financial crisis may have helped
the development of the CMI to some extent.34 Given that the CMI’s effectiveness in resolving crises has not actually been tested, and that an unresolved financial crisis in one country can spread throughout the region, it
30. Rapkin, “The United States, Japan, and the Power to Block,” note 36; “Asian Monetary Fund Plan to Be Revived This Week,” Business Times, May 1, 2000; and “China-Japan’s
Economic Outlook Does Have a Silver Lining,” China Online, January 12, 2001, <http://www.
chinaonline.com>. A Japanese Foreign Ministry official commented, “It is true that China
has also opposed the [AMF] idea because it did not like to see Japan taking a leading role.”
See “Japan in Search of Global Soft Power,” Asahi News Service, May 13, 1999.
31. Injoo Sohn, “Learning to Co-Operate: China’s Multilateral Approach to Asian Financial Co-Operation,” China Quarterly 194 (June 2008), pp. 309–26.
32. “China-Japan’s Economic Outlook Does Have a Silver Lining,” China Online.
33. Lipscy, “Japan’s Asian Monetary Fund Proposal,” p. 96.
34. The volume of foreign exchange reserves held by the three major fund-providing
countries in the CMI—Japan ($1.031 trillion), China ($1.946 trillion), and South Korea
($201 billion)—reached about $3.2 trillion in aggregate in December 2008, around 38 times
as high as the combined size of the CMI BSAs in January 2009 ($84 billion).
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is risky for a country to allocate a large part of its foreign exchange reserves for the CMI. In this situation, the fact that member countries need
only allocate small portions of their foreign exchange reserves for their
CMI commitments may have reduced such risk, making it easier for fundproviding countries to participate in the scheme. However, this economic
analysis alone does not fully explain the successful development of the
CMI. In particular, it remains questionable why East Asian countries—
especially Japan and China—have worked to establish and develop the
CMI when they had large amounts of foreign exchange reserves in their
own hands. It is at this point that political economic explanations come to
the fore.
Emerging Cooperation between Japan and China
Development of the CMI has derived largely from Sino-Japanese cooperation. Despite the humiliating defeat of its 1997 AMF proposal, Japan has
spearheaded establishment of the CMI, expecting that it would in the end
develop into an AMF.35 Japan has contracted BSAs with seven countries
and is the biggest financial provider in the scheme, contributing $44 billion
(as of April 2009). Moreover, with regard to the recent CMI multilateralization efforts, Japan supported centrally managed reserve pooling as the
form of funding and a treaty as the legal modality, both of which would
strengthen institutionalization of the multilateralized CMI.
The Japanese endeavors for development of the CMI and ultimate creation of an AMF have been driven mainly by three motivations. First, quite
consistent with its key desire related to the 1997 AMF proposal, Japan
wishes to establish a regional institution representing Asian voices.36 Indeed,
an anti-American mood has grown within Japanese policy circles since the
1997 crisis, as Japan was heavily accused by the U.S. of not doing enough
to help Asia at the time, despite Japan’s having been the largest single donor
35. Regarding creation of the CMI in May 2000, then Japanese Finance Minister Kiichi
Miyazawa commented, “The new initiative [CMI] is of the same philosophy as the AMF. . . .
While it takes the form of bilateral agreements, it is in nature similar to multilateral cooperation.” See “Asian Currency Contingency Plan Agreed On,” Nikkei Weekly, December 25,
2000.
36. See “Tokyo Revives IMF-style Fund for Asia,” Asahi News Service, February 10,
1999. The Japanese government has made a significant change in its foreign policy since the
late 1990s by beginning to regard Asia as the most important region. See Tadahiro Yoshida,
East Asian Regionalism and Japan (Chiba: Institute of Developing Economics, Japan External Trade Organization, March 2004), p. 13. Some studies indicate that Japan prefers “AsianPacific” economic cooperation, which includes Australia, New Zealand, and India, to simply
“Asian” economic cooperation. See, for example, Hund, “ASEAN Plus Three.” Yet, note that
even in this design of Asian-Pacific economic cooperation, the United States is not included.
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to crisis-hit countries. In this situation, a volition to reduce U.S. influence
in East Asia has risen within the Japanese government.37
Secondly, Japanese efforts to develop the CMI also aim at facilitating internationalization of the yen, which has been an important Japanese policy
goal since the 1997 crisis.38 Japan expects that the CMI will help make the
yen a more international currency, since through its BSAs it can encourage
other countries to use the yen more often.39 Indeed, Japan’s BSA with China
is denominated on Japan’s side not in dollars but in yen, marking the first
time the yen has been used as the key currency in such an agreement.
The third reason behind Japan’s efforts for CMI development is China’s
growing participation since the late 1990s in East Asian economic cooperation, especially with ASEAN countries.40 China’s influence in the region
has grown as it has increased this participation. This has caused worries in
Japan that China could take supremacy in East Asian regionalism, pushing
Japan into moving to bolster its own leadership in the region.41 Under these
circumstances, financial cooperation is an attractive idea for Japan, given
that its financial system is more advanced than China’s, and it may therefore be easier for Japan to establish leadership vis-à-vis China in the area.
37. Yoshida, “East Asian Regionalism and Japan.” Werner Pascha argues that such Japanese interests in East Asian financial cooperation have aimed at protecting East Asia from financial risk, rather than at proactively trying to boost regional influence vis-à-vis United
States. See Pascha, “The Role of Regional Financial Arrangements and Monetary Integration in East Asia and Europe in Relations with the United States.”
38. As mentioned above, when Japan raised its AMF proposal in 1997, there was suspicion
that it wished to facilitate internationalization of the yen through an AMF. In February 1998,
Japan’s ruling Liberal Democratic Party suggested the need for establishing an AMF so as to
make more active use of the yen and reduce dependency on the U.S. dollar for trade settlement by countries in the region. See “Japan to Lend $3.9b to E. Asian Companies Officials
Trying to Drum ‘Do More' Message into Japan,” Straits Times (Singapore), February 21,
1998. For more on the Japanese government’s policy of yen internationalization after the 1997
Asian financial crisis, see Nobuhiro Hiwatari, “Embedded Policy Preferences and the Formation of International Arrangements after the Asian Financial Crisis,” Pacific Review 16:3
(September 2003), pp. 350–52; and William W. Grimes, “Internationalization of the Yen and
the New Politics of Monetary Insulation,” in Monetary Orders: Ambiguous Economics, Ubiquitous Politics, ed. Jonathan Kirshner (Ithaca: Cornell University Press), pp. 172–94.
39. In April 2000, then Japanese Finance Minister Kiichi Miyazawa said, “We had been reluctant . . . about the yen’s internationalization. . . . But our hesitation is now going away. . . .
Unlike in the past, we are positive now. . . . As a matter of fact, we are planning to expand,
swap, and repurchase agreements between Japan and other countries. . . . Through such
things, I hope other countries will have a sense of affinity with the yen.” See “Japan Growing
More Ambitious about Pushing Yen: Miyazawa,” Agence France-Presse, April 25, 2000.
40. For China-Southeast Asian relations, see, for example, John Wong, Keyuan Zou, and
Huanqun Zeng, China-ASEAN Relations: Economic and Legal Dimensions (Singapore: World
Science Publishing, 2006).
41. Yoshida, “East Asian Regionalism and Japan,” pp. 17–18.
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China, meanwhile, has also supported the CMI, in sharp contrast to its
negative 1997 reaction to the AMF proposal and to its traditional reluctance to join a regional cooperative framework. China has established BSAs
with six countries, with total support amounting to $16.5 billion (as of
April 2009). All four BSAs between China and ASEAN countries are for
one-way support provision by China. Moreover, voices have grown within
China stating that an AMF should be established, separate from the IMF.42
This rising Chinese support for East Asian financial cooperation appears to stem partly from its foreign policy objective of taking leadership
in the region. However, there are two additional important factors. First,
China has changed its stance, so that it now puts higher priority on reducing U.S. influence than on limiting Japan’s role in East Asia.43 The SinoU.S. relationship worsened because of the U.S.-led NATO war in Kosovo
in 1999, and since then China has begun to see the U.S. as the main threat
to its interests.44 In this changed context, China has begun to view regional
arrangements, particularly those that exclude the U.S., as effective means
of reducing American influence in East Asia.45 Meanwhile, China has grown
increasingly tolerant of seeing Japanese gains in the region, including expansion of the role of the yen, insofar as China can also derive benefit. Indeed, as shown above, China did accept the yen-denominated BSA with
Japan in exchange for the reciprocal renminbi-denominated one. In other
words, inside the Chinese policy community a positive-sum view relative
to regional financial cooperation appears to have begun taking precedence
over the zero-sum view. This change in China’s view of regional financial
cooperation is partly attributable to the positive outcomes its earlier participation in regional multilateral arrangements such as the ASEAN Regional Forum have produced.46
Second, since the late 1990s China has begun to place greater emphasis
on its Asian identity, which it deemphasized until the 1997 crisis. However,
China was unhappy with the IMF bailout programs during the crisis,
viewing the West in general, and the U.S. in particular, as having exploited
the crisis to advance a particular economic agenda aimed at serving their
42. “Globalization, Information Technology Bring Opportunities to Asia,” Asahi News
Service, July 10, 2000. Since the late 1990s, China has become a strong advocate of East Asian
regional cooperation not only in economic but also in security-related areas. See Joshua Kurlantzick, “Pax Asia-Pacifica? East Asian Integration and Its Implications for the United
States,” Washington Quarterly 30:3 (Summer 2007), pp. 67–77.
43. Rapkin, “The United States, Japan, and the Power to Block,” note 36.
44. Bowles, “Asia’s Post-Crisis Regionalism,” p. 257.
45. Samuel R. Berger, “The U.S. Stake in Greater Asian Integration,” Global Asia 1:1 (Fall
2006), p. 26.
46. Sohn, “Learning to Co-Operate.”
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own interests. China’s resentment of the IMF policies helped it share with
its Asian neighbors a sense of common victimhood vis-à-vis Western countries, bolstering its sense of Asian identity. This in turn led Beijing to support East Asian-only regional financial cooperation as a means of reforming
the existing international economic order.47
One might ask whether China’s growing integration into the global economy has been another important factor behind China’s support for the
CMI. In fact, since China joined the World Trade Organization in 2001, it
has faced increasing pressure to open its financial markets, and its growing
financial liberalization may expose it more to the risk of financial instability. In these new circumstances, China might expect regional financial cooperation through such mechanisms as the CMI to help with financial
stability.48 However, in view of China’s large volume of foreign exchange
reserves (amounting to about $2 trillion in December 2008), its need to
use regional financial cooperation as a means of securing its own financial
system is unlikely to be high. The political motivations discussed above,
therefore, rather than such an economic motivation, appear to be more
important factors explaining China’s support for the CMI.
After all, Japan and China appear to share, in principle, a common policy goal—establishment of a regional institution that can represent Asian
identity and voices. This appears to have made it possible for the two
countries to cooperate in developing the CMI. In other words, their basic
consensus on the need for developing “Asian” regionalism appears to have
broadened the room for cooperation between them.49 Of course, both countries also have other long-term policy objectives in supporting CMI development. However, such objectives have so far worked in harmony with
their increased cooperation.
Weakening Opposition from Outsiders
In contrast to the 1997 AMF proposal, the CMI has not faced strong opposition from non-East Asian countries, including the U.S. Indeed, in May
2001, Paul O’Neill, then U.S. Treasury secretary, said in a news conference
47. Ibid. China’s embrace of East Asian financial cooperation may also have stemmed
from its need to demonstrate its benign behavior and thereby reduce “China threat” perceptions in the region. However, this “China threat” rationale is not likely to explain China’s
change to supporting East Asian financial cooperation from the late 1990s, since “China
threat” perceptions were circulating in the region throughout the 1990s as well. See ibid.
48. Mingqi Xu, East Asian Economic Integration: China’s Perspective and Policy (Canberra: Australia-Japan Research Center, Australian National University, 2003).
49. In this regard, it is noteworthy that the Manila Framework eventually broke up in
2004, as it was ineffective in producing meaningful outcomes.
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that he did not see why the U.S. should stand in the way as long as the
CMI “makes sense to the participants.”50 However, a softened stance toward the CMI does not mean that traditional U.S. opposition to a regional
grouping that excludes it has disappeared.51 In fact, Washington has kept
a cautious watch on the development of the CMI, stressing the need for it
to be compatible with the existing international financial system.52
This insistence follows a similar vein to the strong U.S. opposition to the
1997 AMF proposal. Given the U.S.’s powerful influence on international
financial system management through existing international institutions
such as the IMF, attempts to challenge these institutions could be inimical
to American interests. The emergence of such a challenge is likely if the
CMI develops independently. If that happens, CMI member countries might
conduct surveillance and crisis management programs distinct from those
of the IMF. Indeed, as discussed above, Japan and China have supported
the CMI as a means of ensuring representation of East Asian voices. Therefore, it is likely that CMI development will create a crack in current international financial governance, reducing U.S. influence in the management
of international financial affairs. Moreover, decreased influence may be accompanied by diminished U.S. regional power in other areas as well. In
this regard, an important question is why the U.S. has not expressed strong
opposition to the CMI despite its visible growth.
The lack of U.S. opposition to the CMI is partly attributable to the
ASEAN+3 countries’ careful efforts to reduce U.S. suspicions that the CMI
could challenge American interests. For instance, in their joint ministerial
statements, ASEAN+3 countries have explicitly reiterated that the CMI
50. “Japan Unveils 6 Bln Dlrs in Swaps with Three Countries,” Agence France-Presse,
May 10, 2001. Since the early 2000s, the IMF also has not expressed strong opposition to the
CMI or to establishment of an AMF.
51. A U.S. government study in January 2000 listed regional financial cooperation such as
the 1997 AMF proposal as one of the ten biggest threats to the U.S. position in the world. See
“Asian Regionalism in a High Wind,” The Nation (Bangkok), December 25, 2006. Also, in
December 2004, Mitchell Reiss, then director for Policy Planning of the U.S. State Department, commented, “East Asians are developing a distinctive path to regional integration. And
the United States, as a traditional Western Pacific power, must remain involved. . . . For our
part, we seek an East Asia that is open and inclusive.” See “U.S. Wary as East Asian Community Nears Reality,” Nikkei Weekly, December 13, 2004.
52. In June 2006, Timothy D. Adams, then under secretary for International Affairs, U.S.
Department of the Treasury, commented, “Specifically, we see room for further clarity on the
Chiang Mai Initiative. Too little is known by the markets or by borrowers about amounts
available absent IMF adjustment programs, and conditions, if any, CMI creditors would impose. More clarity on these issues would aid an assessment of the CMI’s compatibility with
the international system.” See “Treasury Official Adams Addresses World Economic Forum,”
U.S. Fed. News, June 15, 2006.
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will supplement existing international financial arrangements. Also, under
the CMI, any country drawing more than 20% of its allowable maximum
is required to accept an IMF financial support program.
The careful ASEAN+3 emphasis on a low-profile for the CMI cannot,
however, fully explain the lack of U.S. opposition. Japan made similar endeavors to reduce U.S. and IMF opposition to the 1997 AMF proposal by
emphasizing that the AMF would act in concert with the IMF.53 Moreover, the CMI involves elements that could lead the U.S. to doubt its supplementary nature vis-à-vis the IMF. For example, even though the CMI
fund disbursement mechanism is currently linked with an IMF program,
this linkage has weakened. The swap amount a country could draw without connection with an IMF program was initially only 10% of its maximum drawing amount. From 2005, however, that proportion has been
increased to 20%. In discussing the disbursement mechanism of the multilateralized CMI, ASEAN+3 countries are considering increasing the IMF
de-linked portion above this limit.54
In this regard, cooperation between Japan and China, which clearly distinguishes the CMI from the 1997 AMF proposal, is likely to be a more
important factor in explaining the lack of U.S. opposition. This cooperation appears to have reduced the ability of the U.S. to object to the CMI,
leading it to regard what was once objectionable as now a fait accompli.
Perhaps the U.S. has the ability to block the CMI despite cooperation by
Japan and China, but it will bear considerable political costs if it does so.
In fact, there are growing worries within the U.S. that trying to forestall
East Asian cooperation will only exacerbate anti-Americanism in the region, which has worsened because of U.S. policies during the 1997 crisis,
the Iraq war, and the war on terrorism.55 U.S. efforts to suppress development of East Asian cooperation may in fact enhance the appeal of China
53. See “Need for Asian Monetary Fund, Says Japan Official,” Business Times, October 2,
1997; “Japan Should Lead by Example in Region’s Economic Challenge,” Nikkei Weekly; and
“Asian, U.S. Officials to Discuss AMF,” Business Times, October 30, 1997.
54. It should be also noted that the linkage with an IMF program is not just to keep the
CMI supplementary to the IMF. The linkage serves the interests of prospective creditors (Japan, China, and South Korea) as well, as they will wish any money they provide to be spent
properly without creating moral hazard. Indeed, the three countries have insisted on a surveillance mechanism supervised by the IMF, despite opposition from some ASEAN countries.
See “ASEAN Agrees on IMF Role in Currency Plan,” Channel News Asia (Singapore), April
7, 2001; and “AFFM Agrees that Swap Deal Will Be Supplementary to IMF Facilities,” Malaysia Economic News, April 7, 2001.
55. See Fred C. Bergsten, China and Economic Integration in East Asia: Implications for the
United States (Washington, D.C.: Peterson Institute for International Economics, March
2007), p. 7.
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to its neighbors: it could be seen as defending East Asian interests against
the U.S.56 In these circumstances, it has become more difficult for the U.S.
to express strong opposition to the CMI.57
Conclusions
This article has analyzed the factors behind the successful evolution of the
CMI, a prominent example of the development of East Asian financial
cooperation since the 1997 Asian financial crisis. It has done so by placing
CMI development in a historical and political economic context, in particular by comparing it with the failure of the 1997 proposal for an AMF.
The paper has demonstrated that the political dynamics of East Asian financial cooperation have changed substantially, and that it is this that has
led to successful CMI development. One critical element in these changed
political dynamics is the current cooperation between the region’s two major
powers, Japan and China. Since the 1997 crisis, Japan has become positive
about taking regional financial initiative, while China has become more
willing to cooperate with Japan and to support East Asian financial cooperation. In addition, the U.S. has come to tolerate the development of East
Asian financial cooperation as its ability to block such a movement has
declined. These findings shed light on the factors influencing the development of East Asian financial cooperation.
Successful multilateralization of the CMI is highly likely. Even though
the ASEAN+3 countries have not yet reached final agreement on the remaining key issues related to multilateralization, such as borrowing quotas,
decision-making mechanism, activation mechanism, and contribution sizes
of individual countries, their differences in views in these areas have been
narrowing across several meetings. In fact, ASEAN+3 countries expect to
reach final agreement on CMI multilateralization during 2009. Establishment of a de facto East Asian monetary fund is no longer just talk. The
start of a new stage of East Asian financial cooperation is approaching.
Given that Japanese and Chinese support for development of the CMI
has come largely from their common policy goal of establishing a regional institution representing East Asian voices, the realization of CMI
multilateralization is likely to create tension in the existing international
financial governance. ASEAN+3 countries may try to operate the multilateralized CMI in a way that reduces the regional influence of existing
international financial institutions, the main players in which are Western
56. Kurlantzick, “Pax Asia-Pacifica?” p. 74.
57. There is an indication that the United States may benefit from East Asian financial cooperation. However, such an argument is not so appealing, given that the United States has
not expressed strong support for it.
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countries. Alternatively, ASEAN+3 countries may demand more power
within the existing systems of international financial governance in exchange
for keeping the multilateralized CMI compatible with the existing international financial system. Whatever the outcome, it will shake up the current structure of international financial governance.
Certainly, there may be obstacles that might hinder further development
of East Asian financial cooperation. Yet, the successful evolution of the
CMI demonstrates that cooperation between Japan and China, long deemed
difficult to realize, can emerge. The political dynamics in East Asia have
been changing in a direction that strengthens East Asian voices and interests in the international system.
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