The Chiang-Mai Initiative is Freaking Out the IMF


For some basic details on the IMF’s relevance in this post-Great Recession world, try here. Or read the IMF’s own publication, Finance & Development, which obsessively navel-gazes over the IMF’s own role.

So last month, I was a selectee for an internal IMF research project on its continuing relevance in Asia. Yikes! That should set off alarm bells. Neither the cover letter nor the interviewer mentioned the Chiang-Mai Initiative (CMI), but it was clear as day if you know about Asian attitudes toward the IMF. In short they loathe it. In fact, they loathe it so much, they want to build their own local version. After the Asian financial crisis (AFC), Japan proposed an “Asian Monetary Fund” (AMF), which the US shot down. At the time, the US was the indispensible nation at the end of history. What all that ‘America-is-awesome’ rhetoric really meant was that we were the uncontested hegemon with our fiscus in order, so we could push the Washington Consensus pretty hard. Today though, the US is a mess, and Asia is feeling its oats. So here we are again.

It was pretty easy to see from the questions that the IMF is really nervous about this. CMI is basically the AMF warmed over, although no one wants to come out and say so. Asians want it, because when the AFC hit, the IMF conditions on the bail-outs were tough. But unsurprisingly they were necessary – really necessary actually. Asian economies are far too export-dependent, mercantilist, corrupt, and oligarchic, and the Fund helped somewhat loosen the death-grip of politically-connected conglomerates on the economies out here. As usual, the Fund was demonized for providing good advice that was necessary. One reason why the AFC was so short, and the region’s economies bounced back so fast, was the IMF’s necessary pain. But no one ever thanks the Fund. It’s far easier to blame it for domestic political point-scoring.

So this time, the Asians are going to create their own currency pool, with their own Asian rules – whatever that means. In a way, one could see as part of the Great Recession-inspired fantasy of ‘de-coupling.’ (Tell me how you decouple from globalization and not fall behind lightning fast?) But they say, Asia should look inward, with its own rules and such. The irony, of course, is that conflict has already erupted between the likely lenders (China and Japan) and the likely borrowers (ASEAN) over what the rules over the loans should be. It’s the clash over conditionality all over again – except far more demur and behind-closed-doors, because of ‘ASEAN Way’ sensitivities that Asian countries should not publically criticize each other (lest that open the door for Western lecturing and preening). Asian leaders love the CMI for the distance it creates from the West and the Fund, but the fight over rules-set will mirror those of the Fund. The other big benefit for Asia, or rather for its elites, is that an neo-AMF/CMI will be far kinder toward ‘state-capitalism’ – all the rage now, as it is supposedly superior to liberal economics. The CMI will provide bail-outs and conditionality which push Southeast ASEAN borrowers to modernize as Northeast Asian donors have – directed state investment, aggressive mercantilism, (semi-)closed politics.

This is unfortunate to my mind for two reasons:

1. Obviously, propping up authoritarians capitalism has an anti-democratic ring to it. The last thing, politically, that Southeast Asia needs is more cheerleading to concentrate political-economic power in a small, almost-closed elite. Insofar as the Fund promotes economic neoliberalism, there has always been an oblique pressure to openly politically therefore as well. This will now be lost, as the CMI is certain to follow the ‘ASEAN Way’ of no political commentary.

2. If you bracket this political concerns, there are clear economic worries. A CMI fractures the global financial system, just as the proliferation of free trade areas in Asia is fracturing the WTO universal trade system, and Chinese pressure increasingly threatens to regionalize the Internet. This year’s ‘multilateralization’ of the CMI means it is now a genuine systemic-institutional threat to the Fund. This is almost certainly the proximate cause of the worried IMF survey on its relevance.

So I felt bad for the Fund (who EVER says that?) All the questions from the interviewer were about the Fund’s continuing relevance, what its role in Asia should be, and perhaps most telling, should it have a role? That inspired real discomfort.  I can only imagine what interviewer heard from Koreans – who feel they were turned upside down by the IMF even though the bail-out probably prevented street rioting – and Indonesians- where the AFC did end in street rioting and government collapse. The prime minister of Malaysia at the time even said the AFC was caused by ‘Jewish speculators.’

I should only add in the Fund’s defense that when I talk with Koreans and other Asians, most have no good sense of what the IMF should do differently, because most have no grasp of what it actually does. All will tell you that it should reform, but like most of the anti-globalization protestors, their ideas are vague or indicate that they don’t understand the, albeit highly technical, IMF. (I even wrote my dissertation on this topic.) Most seem to think that the bailouts should come cost- and change-free, but all that does it move the costs somewhere else – to the OECD taxpayers providing the Fund’s bailout resources – nor does it help clear up the problems that created the crisis in the first place. The great irony is that although Asians loathe the Fund, they actually learned the appropriate lessons from it in 1997 and were much better able to withstand the next crisis in 2008, the Great Recession. Pity the Fund. It does its job pretty well, but everyone hates it anyway

8 thoughts on “The Chiang-Mai Initiative is Freaking Out the IMF

    • That is absolutely correct, but I think Basel is a different issue. I am trying to get to the angst the IMF feels over the move of financial power toward Asia. Given Asia’s collective, post-Asian Finacial Crisis disdain for the IMF, the CMI is a genuine threat.


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