Asia's answer to IMF
On May 3, Asean plus three - the 10-member Association of Southeast Asian Nations, together with China, Japan and South Korea - announced that a US$120 billion regional foreign exchange reserve fund would be launched by the end of the year. China and Japan will support the fund, each coming up with 22 per cent of the necessary funds and Korea 16 per cent, with the remaining amount from Asean. It will be called the Asian stabilisation fund, and possibly later renamed the Asian Monetary Fund.
Is this a regional answer to the International Monetary Fund, which is now largely discredited in the developing world? Predictably, the IMF opposes the idea on the grounds that it only duplicates that fund's function.
Actually, the idea for a regional fund emerged during the 1997 Asian financial crisis, when IMF policies only exacerbated economic and political problems in many nations. A joint currency stabilisation fund for the region was again floated last autumn, during the onset of the global financial crisis. It identified that smaller export-based economies such as Vietnam and Thailand could not withstand international financial turbulence now that their economies were intertwined in the globalisation matrix. The intention - based on 1997 Asian financial crisis experience with the IMF- is to develop a regional fund to stabilise currencies, contrary to the standard IMF practice of devaluations.
Moreover, support to keep currencies stable will be provided without conditions often viewed as political. The intention is to address regional issues with local knowledge and common sense. The threat to IMF cookie-cutter thinking looms large, as such regional solutions could be applied to a global problem.
While the purpose of the regional fund is to achieve Asian financial stability, it also represents calls for a new emerging-market economic regime, and a broader voice for developing nations. They cannot challenge globalisation itself so, instead, they will create an alternative framework. In a way, this could evolve into a new Bretton Woods without heads of state having to sit down and create it. China is also calculating how this will alter the standards of global finance - listening less to the US and the IMF, and having a regional vehicle of its own.
Logically, in the wake of the still-unfolding global financial crisis, regional solutions will evolve organically, as people in one area tend to know more about what they need, rather than succumbing to outsiders' theories. To a large extent, this is part of the problem that has brought us to where we are. So the regional approach will be largely a counter-response to the forced globalisation of the past two decades. New international financial market standards will emerge from new regional rules to address pragmatic local problems.
Nowhere have the lessons been so sharp as in Asia, where the 1997 crisis struck after unregulated hedge funds wiped out decades of savings, opening a Pandora's box of political crises in Southeast Asia. As capital fled from solid export-oriented industries and property to the US market, an artificial boom was created during the Clinton presidency, based on the 'new economy' assumptions of an artificial market - the dotcom business.
Soaking up the success of an entirely artificially leveraged stock market boom that would last more than a decade and half, the Asian economic model was condemned by mainstream western economists, and a new era of Washington-knows-best globalisation permeated the media and politicians. Little did anyone in Washington realise that they were laying the foundations of the global economic meltdown we face today.
While many are now calling for the creation of new institutions, such as a global monetary authority and a single global currency, locally co-ordinated initiatives could be the prelude to a new era of localisation rather than globalisation, and of multilateralism instead of unilateralism.
