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Call for Asian lender of last resort

SINGAPORE: Proposing “a new financial architecture in Asia,” Union Minister of State for Commerce and Power, Jairam Ramesh, has called for an updated expansion of the existing Chiang Mai Initiative (CMI). The objective is to put in place “a regional lender of last resort.”

Fashioned in the context of the 1997 East Asian crisis, the CMI covers China, Japan, South Korea and ASEAN. With its $80-billion reserve, the CMI is designed to help members during financial crises. Addressing the Asian Development Bank in Manila on Monday, Mr. Ramesh noted the CMI, with “many limitations,” was floated after Japan’s proposal of an Asian Monetary Fund ran into rough political weather. “In the current context, a more profound and bolder approach needs to be considered … to provide balance-of-payments support to the member-countries in crisis periods.” Any such arrangement can be used “to create Asian currency unit for facilitating intra-regional trade.”

In the first phase of an updated expansion, the CMI should cover all East Asia Summit (EAS) countries, he said. This implies India, Australia, and New Zealand should be invited to join the current CMI members. Eventually, the new lender of last resort could cover all other Asian countries. “The current global crisis will certainly affect India, even though our approach to financial liberalisation has been prudent and nuanced.” Viewing the crisis period as a right season for new ideas, Mr. Ramesh suggested the creation of an ADB-affiliate for financing infrastructure projects in the bank’s existing domain.

The EAS leaders, expected to hold their annual summit in Chiang Mai next month, could carry forward the idea of an economic partnership on the basis of an anticipated preliminary report.

On “Chindia,” his terminology for the China-India equation as emerging powers, Mr. Ramesh said their two-way trade, at $40 billion now, was more favourable to Beijing. For New Delhi, , “the big challenge will be to develop new exports, if the growing trade deficit is not to become a political issue in India.”

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