Rationales for Establishing Regional Financial Arrangements in Asia

In the wake of the Asian Crisis, a strong consensus has emerged among
policymakers, academics, and the media in favor of establishing
regional financial arrangements (RFAs) in Asia. This consensus led to
the Chiang Mai Initiative, which in 2000 proposed an expansion of
existing Association of Southeast Asian Nations (ASEAN) swap
arrangements as well as the establishment of bilateral/unilateral swap
arrangements among the 10 ASEAN countries with People's Republic of
China (PRC), Japan, and Korea (ASEAN+3). This paper reviews existing
financial arrangements as well as new initiatives and discusses the
rationales behind them.

In the wake of the Asian Crisis, a strong consensus has emerged among
policymakers, academics, and the media in favor of establishing
regional financial arrangements (RFAs) in Asia. This consensus led to
the Chiang Mai Initiative, which in 2000 proposed an expansion of
existing Association of Southeast Asian Nations (ASEAN) swap
arrangements as well as the establishment of bilateral/unilateral swap
arrangements among the 10 ASEAN countries with People's Republic of
China (PRC), Japan, and Korea (ASEAN+3). This paper reviews existing
financial arrangements as well as new initiatives and discusses the
rationales behind them.

The main recommendation to prevent another capital account crisis is to
establish a regional financial arrangement. The rationale for this lies
in the following: regional interconnections in trade and finance, the
need for self-help for emergency liquidity assistance, the need for
regional surveillance to complement the IMF's, and the limitations of
the IMF system.

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