With the International Monetary Fund and other Western financial entities stretched close to the breaking point by the European debt crisis, Asia has decided it is time to act. Policymakers are laying the groundwork to double the region’s reserve pool to $240 billion as a hedge against financial shocks.
Bloomberg reported late Tuesday that officials from Asian countries will meet this week in Phnom Penh, Cambodia, to confer on the doubling of the Chiang Mai Initiative Multilateralization agreement to $240 billion.
Wei Benhua, director of the fund’s surveillance unit in Singapore, said deputy finance ministers from Southeast Asia, China, Japan and South Korea will discuss the plan this week and submit it to their ministers for a May approval.
Asian nations are not looking for help from Western financial bodies, such as the IMF, which in the 1997-’98 Asian financial crisis bailed out South Korea, Indonesia and Thailand. Instead they are looking to their own fund, a foreign-currency reserve pool created by Japan, China, South Korea and 10 Southeast Asian nations that took effect in 2010. The IMF has estimated that the euro area will consume about 80% of its own total credit in 2014.
Wei, who also heads the Asean+3 Macroeconomic Research Office in Singapore and is a former deputy director at China’s State Administration of Foreign Exchange, said the aim of a larger reserve pool was “crisis prevention.”
Tai Hui, the Singapore-based head of Southeast Asian economics at Standard Chartered, was quoted saying, “The global financial crisis and Europe’s debt crisis show that when markets become irrational or extremely volatile, countries need all the resources they can get. When there are trillions sloshing around in foreign-exchange reserves in Asia, adding another $120 billion is very small.”