CMIM members double fund in bid to cushion risk of sudden crisis, spill-overs
The members of Asean+3 and the Hong Kong Monetary Authority have agreed to double the Chiang Mai Initiative Multilateralisation fund to lower the risk of a sudden economic crisis and help prevent spill-over effects of future crises to other countries.
The Bank of Thailand said Asean+3, which includes China, Japan and South Korea, and the HKMA – the central bank of Hong Kong – had agreed to increase the CMIM fund from US$120 billion to $240 billion (Bt7.7 trillion), effective yesterday.
The BOT said the move aimed to increase the region’s efficacy in financial cooperation to support each country’s cash flow in case there was a sudden short-term shortage of capital in one of the member countries.
Besides the increase of the fund size, there has also been an increase in the proportion of the fund that is not connected to the International Monetary Fund.
Member countries can ask for funding equivalent to 30 per cent of their contribution, up from 20 per cent, while there are increased support mechanisms in an attempt to prevent future financial crises instead of getting assistance only after there is a crisis.
“This term of agreement reflects the strengthening of financial cooperation in the region, which is an important mechanism that can help prevent sudden financial crises that can happened to its members, and this includes the prevention of a domino effect of the crisis on other member countries and the Asean+3 region,” the BOT said in a report.
The CMIM fund was created after the Asian financial crisis in 1997 to increase the region’s financial cooperation.
The finance ministers of member countries agreed on the creation of the fund on May 6, 2000, in Chiang Mai. The fund’s head office is in Singapore.
There are 13 member countries in the fund. Before yesterday’s agreed increase, its total reserve was $120 billion, including $746.5 million (20 per cent) from Asean countries. The contribution from China, Japan and South Korea was $3 billion (80 per cent).Countries that experience a sudden shortage of capital due to a crisis can allocate some of the CMIM fund according to previously agreed ratios.
The increase of the fund size means Thailand will have to provide $9.1 billion instead of $4.5 billion and the amount will be fronted by the BOT’s international reserves.
If Thailand experiences a financial crisis and has cash-flow problems in the future, it will be able to receive financial help of 2.5 times its contribution to fund – $22.7 billion.
The revised CMIM plan has been signed by all member countries but has only recently been signed by Thailand because of the dissolution of Parliament last December. The National Council for Peace and Order now has signed it.
