By Yoon Ja-young
Korea will join in the creation of an Asian version of the International Monetary Fund (IMF) next March by teaming up with with ASEAN member countries and China and Japan, the Ministry of Strategy and Finance said Monday.
The fund based on the Chiang Mai Initiative is expected to enhance member countries' ability to cope with short-term foreign currency volatility triggered by external shocks..
Finance ministers and central bank governors of the ASEAN member states and Korea, China and Japan announced the signing of the Chiang Mai Initiative Multilateralization (CMIM) Agreement, Monday.
The multilateral financial support program, which will make an official debut on March 24, includes the 10 member countries of ASEAN - Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam - and three Northeast Asian countries of Korea, China and Japan.
It is based on the Chiang Mai Initiative (CMI), in which the countries in Asia agreed to support each other with dollar liquidity in times of crisis. The need for the safety net especially increased following the Asian financial crisis, which also hit Korea in 1997.
While the CMI was a Bilateral Swap Arrangement between Vietnam, Cambodia, Laos, Brunei, and Myanmar, and Korea, China and Japan, the agreement this time is a multilateral one between the 13 countries.
"At this time, we reiterate the importance of the CMIM in strengthening the region's capacity to safeguard against increased risks and challenges in the global economy," the ministers and central governors of the member countries said in a joint statement.
"The CMIM, with the total size of $120 billion, will provide financial support through currency swap transactions to CMIM parties facing balance of payments and short-term liquidity difficulties," they added in the announcement.
If a member country seeks support, central banks of other member countries will provide dollars, while the recipient country will give its domestic currency in exchange.
For the $120 billion fund, Korea contributed 16 percent or $19.2 billion, while China and Japan provided 32 percent, each. Indonesia, Malaysia, Thailand, Singapore gave 3.97 percent, while the Philippines gave 3.07 percent. Brunei, Cambodia, Laos, Myanmar, and Vietnam accounted for less than 1 percent of the fund.
When Korea suffers a dollar shortage, it can seek up to $19.2 billion in support from the fund.
"Korea took a bigger share in the fund compared to its economic size, setting up ground to expand its influence within the region," the ministry said.
Among ASEAN plus three, Korea accounts for 8 percent of total GDP, and 6.4 percent of the region's total foreign exchange reserves.
"The launch of the CMIM is an important accomplishment upgrading intraregional financial cooperation, including the capability to cope with a short-term liquidity crisis," the ministry added.