ASEAN+KOR-CHN-JPN Raise Firewall Against Regional Financial Crisis

ASEAN+3 Announces Chiang Mai Initiative Multilateralization Amendment Agreement
Liquidity Support Without IMF Program in Crisis Raised from 30% to 40%

[Asia Economy Reporter Kim Eun-byeol] Asian countries have strengthened their firewall to independently prevent financial crises. The proportion of funds that can be supported without linkage to the International Monetary Fund (IMF) has been raised from the existing 30% to 40%.

On the 31st, the Bank of Korea and the Ministry of Strategy and Finance jointly announced that the amended Chiang Mai Initiative Multilateralization (CMIM) agreement, a regional financial safety net, came into effect from this day. The signing process of the agreement, which was agreed upon at the ASEAN+3 Finance Ministers and Central Bank Governors Meeting in March 2009, has been completed, with 27 institutions from 13 member countries finishing their signatures on the 24th.

The amendment aims to enhance the financial safety net functions by expanding the IMF non-linkage ratio and additionally introducing a regional currency support system. The key point is that the ratio of dollar liquidity support available without implementing an IMF program has been expanded from 30% to 40%.

According to the CMIM agreement, member countries provide their own currency within pre-agreed beneficiary limits when necessary and receive support in US dollars (or regional currencies). The total support scale has doubled to $240 billion compared to $120 billion in July 2014. It is contracted in the form of a multilateral swap under a single agreement among 27 institutions. In Korea’s case, the contribution share is 16.0%, allowing withdrawals up to $38.4 billion. If a request for fund support exceeds 40% of the withdrawal limit, the introduction (or plan) of an IMF program is required.

The agreement introduced a system that allows support not only in US dollars but also in regional currencies within the currency swap limit. Additionally, technical matters related to LIBOR reform, exchange rate information, swap execution deadlines, and the meeting format of decision-making bodies were also improved.

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