Enhanced 'Chiang Mai Initiative' Takes Effect... ASEAN+3 Response Capability Strengthened

[Asia Economy Reporter Kim Eunbyeol] A strengthened regional currency swap support system takes effect from today. Amid growing uncertainty due to the spread of the novel coronavirus infection (COVID-19), the financial crisis response capabilities of ASEAN+3 (Korea, China, Japan) countries are expected to improve.

On the 23rd, the Bank of Korea announced that the revised agreement of the Chiang Mai Initiative Multilateralization (CMIM) will take effect from today. Although the agreement was already reached at the ASEAN+3 Finance Ministers and Central Bank Governors Meeting in May last year, it took over a year for it to come into effect due to delays in approval procedures in some countries.

CMIM is a regional multilateral currency swap among ASEAN+3 member countries to provide liquidity support in preparation for foreign exchange crises, operating with a scale of 240 billion US dollars. In times of crisis, the requesting country provides its own currency, and the supporting countries provide US dollars according to their contribution ratios. Korea can withdraw up to 38.4 billion US dollars in times of crisis based on its contribution ratio.

CMIM’s own IMF non-linked funds can only support up to 30% of the total, and if the support exceeds 30%, it is structured to be jointly supported with the IMF.

The revision taking effect today aims to enhance the financial safety net function, including extending the CMIM fund support period.

According to the revised agreement, ASEAN+3 member countries abolish the upper limit on the IMF-linked fund support period. If the swap requesting country demands more than 30% of the withdrawable amount, the introduction (or planned introduction) of an IMF program is a prerequisite.

For swap requesting countries, in addition to financial support, they are required to improve vulnerabilities in economic management, and the credit provision condition system that checks whether policy recommendations are properly implemented is also strengthened.

Not only does it provide liquidity support in advance when a crisis is anticipated, but it also allows emergency funds to be provided after a crisis occurs. In the case of IMF-linked fund support, the payment schedule can be adjusted according to the decision of the Executive Level Decision-Making Body (ELDMB), thereby enhancing consistency with IMF support programs.

This content was produced with the assistance of AI translation services.