The Economics and Politics of Monetary Regionalism in Asia

I. Introduction In the interest of sharpening the issues, but cognizant that this may be an overgeneralization, we observe that to critics of the Japanese development model, Japan transferred the worst features of corporate governance to the rest of East Asia. The financial crisis was viewed by them as stark evidence of the unsustainability of the Japanese development model (Hughes 2000; Reich 2000; and Rhodes and Higgott 2000). The IMF conditionality imposed on crisis-hit East Asian ecomomies was correspondingly considered imperative in bringing about a "convergence" of the region's development strategies to the Anglo-American model, which in turn was thought to be a prerequisite for sustained robust growth in the future. Not surprisingly, the Japanese and many others in East Asia have viewed things quite differently. The essence of their argument has been that the IMF conditionality, which was "structural" in nature, was overly intrusive and unwarranted in view of what they considered as being a "liquidity" crisis attributable to a financial market panic and macro policy errors such as the maintenance of the U.S. dollar peg (Ito et al. 1998). Accordingly, in an effort to sustain the East Asian development model and remain supportive of the countries that adopted it, the Japanese Government first proposed an Asian Monetary Fund (AMF) in September 1997 in Bangkok, Thailand. (1) The original aim of the AMF was to make available a pool of funds to be quickly disbursed as a means of emergency balance of payments support for the crisis-hit economies. The proposal was enthusiastically welcomed by many regional economies that were eager to see Japan taking on a bigger leadership role in the region (in the economics and financial spheres) and promote closer monetary co-operation. In addition, there was an anticipation by some that the conditionality attached with the AMF would not be nearly as strict as those required by the International Monetary Fund (IMF). While the bulk of financing of the AMF would have been from Japan, it reportedly received pledges of contributions from Hong Kong, Taiwan, and Singapore. The potential mobilization capacity of an AMF was estimated to have been in the order of about US$100 billion (ADB 1999). The IMF was, however, unreceptive to the proposal. Stanley Fischer, Deputy Managing Director of the IMF, warned that Japan's AMF proposal was in essence "a threat to the authority and effectiveness of the IMF itself". (2) The U.S. administration was even more vehemently opposed to the idea, perceiving it as an attempt to challenge its regional hegemony. (3) A counterproposal, which included a U.S. component was hastily prepared and announced (a US$10 billion US-Japan initiative), though never acted upon (Montagnon and McNulty 1998). In the end, as Wade and Veneroso (1998, p. 19) noted, "(t)he United States Treasury pulled out all the stops to kill the proposal, and it died". The U.S. administration's reaction to the AMF proposal was in sharp contrast to its policy response to Mexico during the peso crisis of 1994-95, in which the Treasury tried to "strong-arm" the IMF, Europe, and Japan into contributing to the Exchange Stablization Fund (ESF) (Altbach 1997). Bergsten (1998) has reminded us that China's opposition to the AMF proposal was also instrumental in its failure to get off the ground. (4) While the AMF proposal has entered policy debates intermittently since it was first mooted, it made headlines in 1999 when the Malaysian Prime Minister, Mahathir Mohamad, tabled it again at an Asian Summit organized by the World Economic Forum (WEF) in Singapore. He reportedly stated that the AMF should be: a small compact wholly regional funding organization which would be deeply and constantly engaged in East Asian monetary cooperation and problems on a daily basis. (5) ASEAN ministers mooted a version of the AMF proposal in their "informal" summit in Manila in 1999; the Philippines President, Joseph Estrada, made specific reference to the AMF proposal in his opening remarks to the summit. …