[Letters] Asian financial safety net will help protect Korea, neighbors

The Chiang Mai Initiative (CMI) was announced to be launched on March 24 this year. Its content is simple, although its name could suggest otherwise. CMI is an arrangement by which South Korea, China, Japan and other 10 countries of the Association of Southeast Asian Nations (Asean) create a regional safety net of $120 billion that can be used during the time of possible financial crisis. Asian countries will now have another financial relief valve other than International Monetary Fund (IMF).

The significance and expected results with the launch of CMI can be summarized into three general points.

First of all, if there is to be a currency crisis, a faster countermove will be achieved locally. Unlike the past experience of depending solely on the IMF, Asia will be able to make primary steps required to be taken, and thus prevent problems from transferring to regional neighbors.

Secondly, South Korea has gotten to hold a casting vote by securing 16 percent of the fund during a time of a fierce competition between China and Japan for gaining the upper hand in the Asian economy.

This amount is the highest South Korea can acquire since the nation’s economy forms 6.4 percent foreign exchange holdings of all nations participating in CMI and 8 percent of their gross domestic product.

As two thirds of the entire stakes are required to decide on an agreement, even if any two groups combine their shares, a resolution cannot be reached without the South Korean vote, when China, Japan and Asean countries have 32 percent, 32 percent and 20 percent, respectively.

Thirdly, the “Korea Initiative” aimed to establish a financial safety net sees its fruits through the inception of CMI. South Korea proposed the first draft of CMI when in 2006 it was the chair. During the process, Korea confirmed its leadership in diplomacy by successfully mediating disputes about the contrasting interests of each country.

South Korea will thus elevate the level of Asian nations’ collaboration this year, as apparent by last year’s efforts to concentrate the powers of Asia. Above all, a surveillance unit needs to be founded for attainable favorable outcomes from this arrangement. Although there were many debates on where to build this watchdog, establishment in an Asean nation was a common concern in order to maximize the efficiency of surveillance. In addition, enactment of infrastructure of a bond market - such as credit guarantee and investment facility and central securities depository - has to be expedited in order to increase investment within the area. In this year of white tiger, South Korea hosts the G-20 summit, and hence, it will display leadership and Korean spirit.

With this financial crisis, we again confirmed that a critical situation can spread around, regardless the origin of a problem. Therefore, a regional financial relief valve such as CMI has to be globalized. And South Korea will actively guide the direction of such safety net talks, based on its experience of leading CMI negotiations.

Shin Je-yoon, senior official at the Finance Ministry