ASEAN, China, Japan, South Korea agree to enhance financial safety nets

Posted on May 06, 2017

YOKOHAMA, Japan -- Finance ministers and central bank governors of Association of Southeast Asian Nations (ASEAN) members and their China, Japan and Korean peers meeting here on the sidelines of the 50th anniversary of the Asian Development Bank's Board of Governors agreed on Friday to help each other enhance resilience to financial shocks and to promote trade and investments.

The Asian Development Bank's 50th Annual Meeting is being held from May 4 to 7 in Yokohama, Japan.
A joint statement after the meeting of ASEAN and Japan finance ministers and central bank governors -- the first in four years -- said Japan proposed to make it possible to withdraw the yen under existing bilateral swap arrangements (BSAs) and to form “a new type of BSA” of up to $40 billion besides in order to be ready to address short-term liquidity problems.

“As economic ties between ASEAN and Japan strengthen amid ASEAN financial integration and increasing activities of Japanese firms in the region, it is important to promote the use of local currencies in cross-border transactions in the region over the medium term,” the statement read.

“Facilitating the funding of yen in ASEAN will contribute to further regional financial stability,” it added, citing “renewed demand for strengthening regional financial safety net in view of recent uncertainty in the global economy.”

On Friday, Thailand concluded such an arrangement with Japan, which also agreed with Malaysia to conclude a similar pact.

ASEAN and Japan also agreed to promote the conclusion among their central banks of cross-border collateral agreements by which they will support Japanese banks that encounter difficulty in funding local Southeast Asian currencies, saying “this will contribute to more transactions denominated in local currencies in the region...”

The regional bloc and Japan agreed further to promote movement of goods and investments among themselves to support economic integration. Japan will extend technical assistance for harmonization of customs processes, while ASEAN members will revise tax treaties in order to promote “sound” investment and economic exchanges “thereby supporting increased investment by Japan firms”.

It was a similar spirit with which ASEAN finance ministers and central bank governors engaged their counterparts from China, Japan and South Korea (ASEAN+3) in a separate meeting on Friday.

In a separate joint statement, ASEAN+3 officials noted that their group’s “relatively robust growth” prospects notwithstanding, “risks for the global economy remain... especially over the medium term, with pervasive uncertainties surrounding policies” that include the rise of protectionism and sharper-than-expected tightening of financial conditions.

Hence, they agreed to continue strengthening the $240-billion Chiang Mai Initiative Multilateralization (CMIM) currency swap arrangement “as an essential part of the regional financial safety net” and to coordinate this scheme closely with the International Monetary Fund in terms of burden-sharing, financing conditions and information sharing.

On the 20th anniversary of the 1997 Asian Financial Crisis, ASEAN+3 also on Friday adopted the “Yokohama Vision” as guide for a more resilient and integrated grouping. Thrusts include CMIM’s strengthening and diversifying local currency funding options across the group.

“[I]f we look ahead in the future, we need to be vigilant against various kinds of economic and non-economic risks and shocks,” read the Yokohama Vision.

“In this light, we recognise the importance of further enhancing economic resilience in the region through our collective efforts...”