Asian financial leaders discuss increased market protection

The impact of rising US interest rates on regional capital flows can also be discussed as ASEAN+3 finance ministers and heads of central banks ….

Incheon, South Korea ( – Asian finance leaders will discuss ways to strengthen regional safeguards to better address emergency funding needs during pandemics and natural disasters, as fears of a global recession and volatile financial markets cloud the economic outlook.

The impact of rising US interest rates on regional capital flows can also be discussed when finance ministers and heads of central banks of ASEAN+3 – which is the Association of Southeast Asian Nations (ASEAN) group plus Japan, China and South Korea – meet on Tuesday.

Japan, which is co-chairing this year’s ASEAN+3 nations meeting with Indonesia, hopes to discuss strengthening currency exchange channels, Finance Minister Shunichi Suzuki told reporters on Friday (28/4/2023).

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Japan is interested in proposing facilities that increase use of existing currency exchange channels, and allow members to draw on funds in times of emergencies such as pandemics and natural disasters, said three sources with direct knowledge of the matter.

The recent failures of two US banks have raised alarm among policy makers about vulnerabilities in the global banking system and the potential for market turmoil that could resurface from aggressive US interest rate hikes.

South Korean Finance Minister Choo Kyung-ho in a meeting with his Chinese and Japanese counterparts held before the ASEAN+3 meeting said that cooperation between the three countries is becoming more important for Asia and the whole world, as the global economy is at an “inflection point”. .

After being hit by the Asian financial crisis in the late 1990s, the ASEAN+3 group created a network of currency exchange channels called the Chiang Mai Initiative Multilateralisation (CMIM) in 2000, and transformed it into a multilateral network in 2010, to help each other prevent or combat the sharp capital exit.

But the swap line was never used, including during the COVID-19 pandemic, giving rise to calls from within the group to make the system more accessible in the event of a surprise event.

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While Asian policy makers stress that their countries have sufficient reserves and buffers to fend off another crisis, they may see scope for enhancing existing arrangements to combat potential market upheavals, analysts said.

“The fact that CMIM has never been used since it was created shows that countries have a hard time using it,” said Toru Nishihama, chief emerging market economist at the Dai-ichi Life Research Institute.

While it is important to make CMIM more flexible, countries must also ensure that they have robust supervisory schemes in place to avoid moral hazard, he added.

Developing countries in Asia are expected to achieve strong economic growth of 4.8 percent in 2023, faster than the 4.2 percent growth in 2022 thanks to China’s rise, according to Asian Development Bank (ADB) projections.

ASEAN+3 finance leaders, including Suzuki and Bank of Japan (BoJ) Governor Kazuo Ueda, met on the sidelines of the ADB’s annual meeting in Incheon in South Korea this week.

Translator: Apep Suhendar
Editor: Nusarina Yuliastuti


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