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Are the Wings of IMF being Clipped by a New Regional Monetary Body?

by Harun ur Rashid
***Analysts believe that the concept of Asian Monetary Fund arose from the frustration of the East Asian countries over high-handedness of the IMF. . . Despite the mantra of globalisation sweeping across in all sectors of human activities, it appears that the East Asian countries havedecided to think of regional solution through regionalism.***
THE regional conference of (he East Aslan countries (South-East and North Asian countries) in June endorsed the concept of Aslan Monetary Fund (AMF), a sort of regional Monetary Fund to control and oversee the monetary policies of the countries in the region. East Asian nations wish not to be dependent totally on the International Monetary Fund (IMF) as Its policy Is being perceived to be at the dictates of the industrialised G-7 countries. It Is reported that Indonesia, Singa]>ore, South Korea and the Philippines strongly supported the setting up of the AMF at the conference.
This move was taken In the light of their bitter experiences of the economic crisis In Asia in 1997 which was painful and humiliating for the East Asian nations. The East Aslan countries are now prepared to go all out to forestall another crisis in future and they seem to address the issue regionally. If their concept Is Implemented, it will have huge ramifications on the existing functions of the International Monetary Fund (IMF).
It may be recalled that IMF’s policy to end the crisis was criticised as its direction was reportedly found to be flawed. At the time, the then World Bank's chief economist. Joe Stiglitz called for a radical change of policy towards the
crisis-ridden countries. He argued that the tough fiscal policy imposed by IMF had actually worsened Asia's problems by constricting their struggling economies.
One of the biggest problems confronted by the East Aslan countries during the crisis was the need to protect the poor from the worst effects of the financial collapse. It was argued that IMF had no answer to this iroblem The US, on the other land, advocated a market-jased approach, despite growing concern from countries that this could not cope with the crisis.
Since then trade co-operation is growing among them and they are now moving into monetary areas and some ob-servers say that it Is a regional watershed. The situation is compared to that of Europe in the late 50s.
Although the East Asian countries have been getting back on their feet, the Idea of an Asian Fund has gained new momentum. The East Aslan financial think-tanks are drawn together by a powerful sense of post-crisis regionalism. There appears to be a new vigour In exploring regional arrangements in finance, trade and politics. At the time of crisis in 1997, people were sceptical about regional solutions. But now there seems to be a groundswell In favour of them.
ASEAN (the Association of South-East Asian Nations) for 30 years had a principle of non-Interference In each other s affairs. But when the crisis which first commenced In Thailand spread over the whole region in 1997. the leaders came to realise that the Internal monetary policy of a member-country could nave a devastating ef-
fect on other economies in the region They had learnt (hat one country's crisis was no longer a "remote fire" but would be a problem " next morning". The scrupulous observance of the principle of non-Interference among ASEAN seems to have discarded.
Japan first advanced this idea of AMF in 1997 while the economic crisis had hit hard Eas( Aslan countries. The proposed AMF would have a USS 100 billion with half the capital contributed by Japan and a Tokyo-based secretariat of 200-300 staff.
The US at the time vetoed the proposal. Analysts believe that the US feared that It would be a Japanese-run 'slush fund' for buying political Influence, handing money unconditionally to countries in economic crisis. Furthermore IMF would have marginal control on the
economic policy of half of Asia and it was perceived that the Influence of (he US. the IMF s biggest shareholder, would tend to diminish over these countries.
Let us look at the scale of economy of the East Asian countries to appreciate the dawning of economic regionalism in East Asia.
Admittedly Japan dominates the economy of this region. Its annual output is worth US$4 5 trillion, about half that of the US. Even after a decade of economic stagnation. Japan constitutes the world's second-biggest economy and twice the size of that of the next-ranked country. Germany. The rest of East Asia--the larger economies of China and South Korea, plus the 10 countries of ASEAN--has an annual output worth US$2.1 trillion. The region s total economy of US$6.6 trillion
means it accounts for about one-fifth of world's output.
The East Aslan countries are getting closely integrated and collectively it Is reported that 55 per cent per cent of all East Aslan trade Is with other East Aslan countries, compared to only 30 per cent per cent In 1996. They seem to be working on agendas that would bring them more close to one another. In financial sector, the governments of East Asia agreed last May on the so-called Chiang Mat Inittatiue. a network of currency swaps between member countries to allow them greater liquidity In the event of crisis.
Analysts believe that the concept of Asian Monetary Fund arose from the frustration of the East Asian countries over high-handedness of the IMF. Some say that the most powerful person in Asia in 1997-98 was not an Aslan or even a resident of Asia but the IMF's then managing Director. Mr. Michel Camdessus. Despite the mantra of globalisation sweeping across in all sectors of human activities, it appears that the East Asian countries have decided to think of regional solution through regionalism.
The author is Jormer Bangladesh Ambassador to the UN. Geneva.