Summer in the Field: The Irony of Abundance? Resolving the Continued Neglect of the Chiang Mai Initiative Multilateralization

Seoul, South Korea. Photo by Mathew Schwartz via Unsplash.

By Yaechan Lee

Financial crises can serve as catalysts for reinforcing and diversifying anti-crisis safety nets.

Following the 2008 financial crisis, improvements were made to the network of crisis support known as the Global Financial Safety Net (GFSN), born out of the recognition of inefficiencies and the under capacity of existing anti-crisis institutions and arrangements. Since 2008, the GFSN has been significantly diversified and enlarged, now comprising of mainly four layers:

  • Nations’ foreign exchange reserves
  • Central banks’ bilateral swap lines
  • Financial resources of global financial institutions, particularly of the International Monetary Fund (IMF)
  • Regional financial arrangements (RFAs)

Despite these efforts, the COVID-19 pandemic has revealed that there is still room for major improvements. Indeed, as a recently published journal article by researchers at the Boston University Global Development Policy Center demonstrates, the volume of anti-crisis liquidity available to countries has been insufficient and some components of the GFSN have not properly functioned in response to the pandemic crisis.

One clear example is the case of the Asia-Pacific region, where the Chiang Mai Initiative Multilateralization (CMIM), a $240 billion financial arrangement of the region, continued to be underutilized by its members.

Why has the CMIM been chronically under supported? And how could the CMIM be strengthened to better support crisis preparedness in the Asia-Pacific?

As part of the Summer in the Field Fellowship program sponsored by the Boston University Global Development Policy Center, I conducted extensive interviews with policymakers and financial experts in South Korea to ascertain why the CMIM has been chronically under supported and how to resolve the problem before the next crisis strikes.

The continued neglect of the CMIM

Countries have tapped on various components of the GFSN to steady their financial systems against the pandemic shock. However, countries in the Asia-Pacific have been excessively reliant on bilateral swap arrangements (BSAs) within the region that exist separate from the CMIM’s multilateral swap framework such as those between Japan and the ASEAN member states, and to a limited extent on unconditional IMF loans.

This is surprising, as the region has achieved significant improvements in developing its RFA. Following the financial crisis of 2008, the CMIM multilateralized and expanded to a massive $240 billion reserve pool initially denominated in the dollar but now also in local currencies as of March 31, 2021, second in volume only to the European Stability Mechanism. It also succeeded in establishing its own supporting surveillance unit, the ASEAN+3 Macroeconomic Research Office (AMRO) to allow for surveillance operations necessary for independent disbursement and management of the CMIM reserve pool.

The continued neglect of the CMIM, despite its capacity and volume, needs to be resolved as increasing uncertainty and spillovers from anti-crisis policies may further increase the demand for emergency liquidity in the future. This is especially true for ASEAN member states that could significantly benefit from the reserve pool, given their relatively smaller economic size.

One of the potential reasons for this neglect may be attributed to the robust intra-region trade and the thick network of BSAs among ASEAN+3 economies. As Table 1 below shows, the total volume of BSAs signed between the Plus Three countries (China, Japan and South Korea) and the ASEAN member states amounts to nearly $170 billion. Although only the currency swaps with Japan are doubly denominated with the dollar and the Japanese yen, local currency denominated swaps have also proven to be partially effective in settling payments to be made in bilateral trade, given the high levels of intraregional trade. When also considering the massive volume of BSAs signed among the Plus Three countries, the total size of the BSA network in the region exceeds that of the CMIM. Therefore, the abundance of liquidity may be ironically contributing to the continued neglect of the CMIM.

Table 1: Bilateral Swap Agreements with ASEAN+3 Countries (in billion $) as of 2020

China Japan South Korea Total
Indonesia 15 22.8 10 47.8
Malaysia 26.2 10.5 4.7 41.4
Thailand 10.8 3 13.8
Singapore 44.1 7.7 51.8
Philippines 2 12 14
Total 98.1 56 14.7 168.8

Source: Bank of Japan, Bank of Korea,, Author compilation.

Still, RFAs should hold a comparative advantage to BSAs in terms of their accessibility. RFAs are institutionalized and less reliant on a single country’s whims. The relative depoliticization that results from such qualities is observable in RFAs, such as the SAARC swap arrangement, where India established swap lines with Pakistan, a traditional adversary, through the institutionalized regional platform.

CMIM’s double reliance and inadequacies of the region’s response

The current framework of the CMIM, however, undermines its accessibility, as it is doubly reliant on both member state central banks and the IMF.

First, the CMIM is a network of promises to pay, which inadvertently makes the disbursement process partially reliant on multiple central banks, rather than the CMIM as an independent entity. In other words, without the full independence of the CMIM, getting access to liquidity through the CMIM may be even more complicated than through BSAs where currencies can be swapped between two central banks.

Secondly, IMF conditionality is attached to the CMIM’s credit disbursements that exceed 40 percent of a country’s borrowing capacity, strongly undermining the attractiveness of the CMIM’s credit. This is because the stigmatization of IMF conditionality raises adverse signals to market stability, making the ASEAN member states reluctant against reaching out to the CMIM, as opposed to activating bilateral swap lines. Yet, this problem would not be easily resolved in the short run as the entanglement comes from the lack of surveillance experience and capacity of AMRO. Unless AMRO’s capacities are significantly improved, IMF conditionality will continue to be attached, albeit in incrementally lower levels contingent on AMRO’s continued development. In an interview conducted during the Summer in the Field Fellowship program, Yoon Deokryong, previous advisor to the Korean Minister of Finance and Economy and senior researcher of the Korea Institute for International Economic Policy, mentioned that such complexities “seriously undermine the CMIM’s accessibility, making the CMIM a ‘last resort’ for both the Plus Three and ASEAN member states.”

There have been efforts to detach the CMIM from IMF conditionalities by establishing an independent supporting surveillance institution and increasing the Precautionary Line (PL), which would allow for disbursements for a limited portion of available liquidity without attaching IMF conditionality. Nonetheless, the remaining reliance on the member state central banks and the limited amount of credit available through the PL compared to other components of the GFSN has led to the continued underutilization of the CMIM. In response, the ASEAN+3 financial ministers increased the PL to 40 percent and allowed for currency swaps to be made in local currencies in addition to the dollar. These improvements, however, seem to be a mere extension of previous efforts, all of which have a clear record of failing to improve the status quo.

Following the financial crisis, the CMIM’s volume and PL were increased to improve accessibility and effectiveness, but were met with continued neglect. It is also questionable whether also allowing for local currency swaps can make the CMIM more attractive under a dollar-dominated international financial system. This change also further blurs the line between the CMIM and the region’s BSAs, and especially with those between Japan and other ASEAN economies as they are also doubly denominated in the Japanese yen and the dollar.

Given the complexity of the CMIM’s disbursement process, it is difficult to expect such changes to make significant improvements to the existing shortcomings of the RFA. A different approach to fundamentally improve and expand the CMIM and AMRO, its supporting surveillance agency, is clearly needed.

Reducing the double reliance

There are two possible approaches to reducing the double reliance and improving access to emergency dollar liquidity in the Asia-Pacific region through the CMIM.

One of the approaches suggested by a number of policy think tanks in Korea could include transforming the CMIM into a dedicated reserve fund with paid in capital from members, like the Latin American Reserve Fund (FLAR) or IMF itself.

The CMIM currently is a network of promises to pay among the ASEAN+3 central banks. Each central bank has a specific volume of credit allocated in its account for the arrangement. Therefore, the process required for credit disbursement, in essence, becomes similar to, but even more complicated, than that of BSAs. Each central bank would be notified of a disbursement request, and each would pay their financial contribution, as previously agreed upon.

By transforming the CMIM into a reserve fund, the CMIM would be able to operate more independent politically, as the disbursement process would not have to go directly through the central banks. The size of the CMIM would also be expanded, as the contributions could serve as an equity base for accessing larger volumes of credit. This type of transition would first require that the divide between policy research and implementation be narrowed, and second, that the political divide among the major creditors be narrowed to induce increased commitment.

Nevertheless, discussions on this proposal seem stuck at the first stage. When asked why this idea was not earnestly discussed in the annual financial ministers’ meeting, Yoon answered that “South Korean policy think tanks had proactively pushed for this transition in the early stages of the CMIM’s establishment, but also lost momentum as no real action has been taken at the ministerial level to put forward this proposition.” The Bank of Korea’s executives, in a direct interview, also confirmed that the bank is aware of this proposal, but have not yet considered including it in their long-term policy agenda.

Given the multiple challenges ahead of such a radical change, a more realistic approach that focuses on improving existing institutions may be more desirable. To that end, AMRO should be tasked with a new purpose and meaning beyond its supporting role so that the development of its surveillance capacities could be accelerated, allowing for further detachment from the IMF and for technical improvements to facilitate the disbursement process.

With the continued neglect of the CMIM, the importance of AMRO as a mere supporting unit is insufficient in attracting higher commitment from member states. AMRO has the potential to serve as the platform for narrowing the divide between policy research and implementation. As AMRO hosts diverse talents from nearly all member states and as it conducts annual consultations similar to that of the IMF’s Article IV surveillance work, the policy insights produced independently by AMRO also have the potential to positively affect the policies of member states.

AMRO could also serve as the platform for the independent operation of technical assistance programs to enhance the financial systems of developing economies of the ASEAN+3 member states. AMRO has already signed multiple memoranda of understanding with governments, RFAs and the IMF promising cooperation for operating such programs, but to date, AMRO has not put forward any independent assistance programs. Making proactive use of this valuable network would enlarge the size of AMRO and increase its influence and value.

The experience of the IMF demonstrates why such improvements are important. The IMF’s core objectives lie not only in prudentially providing emergency liquidity but also in maintaining the stability of the international financial system. Through this work, the IMF operates numerous technical assistance programs and produces extensive policy research that can influence the policies of local economies. If AMRO is to further enhance its capacity, the broad scope of the IMF indicates that supporting the CMIM should not be its sole objective.


CMIM and AMRO are a regional landmark of cooperation. Its membership’s diversity, economic size, development level and political differences make the RFA and its supporting unit an important platform for cooperation for the ASEAN+3 economies.

The repeated underutilization of them should not be taken lightly, especially considering the increasing uncertainty from the massive spillover of the pandemic. While past efforts have proven to be ineffective in resolving this issue, there are alternative approaches that could fundamentally reduce the CMIM’s double reliance on central banks and the IMF.

While, as William W. Grimes argues, the political rivalry among the CMIM member states may again obstruct the continued development of the RFA, in the words of Yoon, “every country wants to leave the spark of cooperation on.” The approaches and views presented by the Korean policymakers and illuminated in this discussion aim to not only maintain this spark, but to enlarge it so fundamental improvements can be made to the CMIM and AMRO.

Yaechan Lee is Ph.D. Candidate in Political Science at Boston University and a 2021 Summer in the Field Fellow. Learn more about the Summer in the Field Fellowship.