Association of Southeast Asian Nations + 3: The Chiang Mai Initiative Multilateralization, 2010

The ASEAN Plus Three countries developed the CMIM to improve upon the earlier Chiang Mai Initiative, which APT leaders introduced in 2000 to provide a regional safety net to supplement existing international facilities. The May 6, 2000, joint statement gave the following purpose for establishing the CMI:

In order to strengthen our self-help and support mechanisms in East Asia through the ASEAN 3 framework, we recognized a need to establish a regional financing arrangement to supplement the existing international facilities. As a start, we agreed to strengthen the existing cooperative frameworks among our monetary authorities through the “Chiang Mai Initiative.” (MOF Japan 2000)

The CMI consisted of two parts: (a) an expansion of the ASEAN Swap Arrangement among ASEAN countries, and (b) a new series of bilateral swap agreements between ASEAN 3 countries (BSP 2022; MOF Japan 2000). The CMI would be a work in progress in expanding regional swap lines beyond the preexisting ASA, established in 1977 (Henning 2002, 13).

The inclusion of Plus Three countries (China, Japan, and South Korea) provided for a much greater financing capacity under the BSAs than the existing ASA, which was limited to ASEAN countries. BSAs were, however, flawed in that they lacked a central institutional structure to coordinate relief to requesting members in a crisis (Han 2022). A requesting member would need to negotiate bilaterally with other countries if it wished to access swap funds, a potentially timely and uncertain process (Han 2022). Additionally, since BSAs were signed on a bilateral basis, not all ASEAN countries ended up establishing BSAs with Plus Three countries (BOJ 2009). Altogether, APT members lacked confidence in BSAs as a credible mechanism for crisis management, and in the intervening years before the GFC, members continued to precautionarily stockpile reserves. The GFC reinforced the need to enhance the BSAs as many members faced liquidity issues, but none utilized BSAs (Han 2022). APT members responded to these concerns by multilateralizing the BSAs into a single agreement through the CMIM, providing a better institutional basis for crisis-time financing through multilateral swaps.

Signed December 24, 2009, effective March 24, 2010, the CMIM agreement states its purpose to “(i) address balance of payment and/or short-term liquidity difficulties in the ASEAN 3 region, and (ii) supplement existing international financial arrangements” (AMRO n.d.a).

The CMIM is a multilateral currency swap agreement signed by the finance ministers and central bank governors of the 13 APT countries and the Hong Kong Monetary Authority. The agreement enables any member country, and the HKMA, to request a temporary USD swap against their own local currency; as of 2021, members can also request currency swaps denominated in other another member’s currency (AMRO n.d.a; HKMA 2022).

On May 2, 2010, in addition to announcing the ratification of the CMIM agreement, the APT finance ministers unveiled plans for the ASEAN 3 Macroeconomic Research Office (AMRO), the CMIM’s new regional macroeconomic monitoring organization (APT 2010). Established in April 2011 and located in Singapore, AMRO serves as an independent macroeconomic surveillance unit of the CMIM to monitor regional economies and coordinate CMIM relief efforts (APT 2010; Grimes and Kring 2020). The primary responsibilities of AMRO include: macroeconomic surveillance (the majority of AMRO’s operations), supporting/designing CMIM relief programs (swap draws), and providing technical assistance to member countries (AMRO n.d.b; Grimes and Kring 2020).

To expedite the start of its operations, AMRO was initially incorporated as a company limited by guarantee in Singapore pursuant to Singapore law (Grimes and Kring 2020). As the host country, Singapore was responsible for providing AMRO with budgetary and liquidity support, coordinating the hiring process, and protecting sensitive information of APT member countries (APT 2012).

In February 2016, APT members signed the AMRO Agreement, which is a treaty under international law, establishing AMRO as an international organization with independent legal standing (Grimes and Kring 2020). By 2018, AMRO had established memoranda of understanding with the IMF, European Stability Mechanism (ESM), and Asian Development Bank (ADB) to further international cooperation (APT 2017; APT 2018).

Although the CMIM has not been used, in the future, CMIM financing may be deployed as part of a package with other financial safety nets, such as the IMF facilities. See Key Design Decision No. 15(B), Other Options, for other sources of foreign currency liquidity available to APT members.

The CMIM is not a standing fund or institution but rather a multilateral swap arrangement created through a private contractual agreement among the 26 finance ministers and central bank governors, in addition to the head of the Hong Kong Monetary Authority (APT 2010; Ciorciari 2011). The CMIM agreement does not necessarily hold the status of a law in each member country’s domestic legal system (Han 2022). As part of the agreement, APT central banks and the HKMA pledge financial commitments, the proceeds of which are transferred only when funding a CMIM swap requests, subject to certain opt-out rights (Ciorciari 2011). To opt out of such contributions, a CMIM country must receive approval from the Executive Level Decision Making Body of the CMIM (APT 2010). The CMIM agreement allows countries to opt out of contributions without obtaining the ELDMB’s approval under exceptional circumstances, broadly defined as “an extraordinary event or instance of force majours and domestic legal limitations” (APT 2010, annex).

The CMIM agreement, which went into effect March 24, 2010, was signed by 26 central bank governors and finance ministers from the 13 APT countries and the head of the HKMA (APT 2010). The CMIM agreement established the Ministerial Level Decision Making Body (MLDMB)—initially made up of only the APT finance ministers—as the body responsible for voting on CMIM governance decisions (for example, total size and contribution amounts) through consensus approval (AMRO n.d.a; APT 2010). Since the APT finance ministers established the CMI in 2000, the finance ministers headed negotiations over fundamental governance decisions related to the CMI. In 2011, APT finance ministers agreed to invite the APT central bank governors to their meetings; with the first amendments to the CMIM, effective July 2014, the MLDMB expanded to include the APT central bank governors (Han 2022).

Fundamental CMIM negotiations take place at the annual APT Finance Ministers Process meetings, which are cochaired on a rotating annual basis by an ASEAN member and a Plus Three member, represented by both a finance minister and central bank governor (ARIC n.d.; Ciorciari 2011). These cochairs also facilitate the negotiations of the swap activation process for the CMIM, the terms and conditions of which are voted on by the ELDMB (Ciorciari 2011).

Administrative Body

The CMIM agreement created the Executive Level Decision Making Body, which votes on administrative decisions (for example, approval and execution of swap draws, renewals, and default situations) according to a two-third majority vote (APT 2010; Kawai 2015). The ELDMB consists of the deputy-level representatives of APT finance ministries and central banks (and the HKMA) (APT 2010). The ELDMB is also responsible for overseeing the operations and direction of the regional surveillance unit, AMRO (Ciorciari 2011).

The APT also appoints two coordinating countries—the cochairs of the APT Finance Ministers Process (one from Plus Three and one from ASEAN)—who facilitate CMIM discussions and the swap activation process (APT 2010). The cochairs serve annual terms, rotating alphabetically among the APT countries (AMRO n.d.a).

Financial Architecture

The financial commitments pledged by the APT central banks and the HKMA constitute the collective funding capacity of the CMIM agreement. We refer to this overall funding capacity, currently set at USD 240 billion, as the CMIM’s commitment pool, though not to be confused with a standing fund (Ciorciari 2011). APT central banks and the HKMA issue commitment letters for their individual contributions, managing their committed reserves independently until a swap activation wherein funds are transferred to the borrowing country, following ELDMB approval (BSP 2022).

CMIM members can access swap funds through the CMIM’s two facilities: the CMIM Stability Facility and the CMIM Precautionary Line. The CMIM-SF (renamed in 2012) functions as the CMIM’s crisis resolution facility and enables members to request temporary swaps of their local currency for USD or another member’s currency in the event of a crisis (for example, balance of payments and short-term liquidity problems). The CMIM-PL, introduced in 2014, allows a member to request the establishment of temporary swap lines for USD or another member’s currency secured by its local currency as a preventative measure for any potential balance of payments and liquidity issues (AMRO n.d.a). Once established, these swap lines can be drawn upon without ELDMB approval. The approval process for the CMIM-PL, however, requires members to submit to the ELDMB, which flexibly applies five criteria for ex ante qualification and ex post conditionality. The criteria include: external position and market access, fiscal policy, monetary policy, financial sector soundness and supervision, and data adequacy (AMRO n.d.a). See Key Design Decision No. 9, Process for Utilizing the Swap Agreement, for information on the administrative mechanics of CMIM activation for each facility. Although the CMIM swaps have never been activated, AMRO, as one of its core responsibilities, is expected to play an administrative, advisory role in swap draws. In so doing, AMRO would help design the terms of swap draws (such as size of draws) through recommendations to the ELDMB (Grimes and Kring 2020).

The APT provides consistent communication about amendments to the CMIM, plans for future changes to the agreement, and other related developments at the annual meeting of APT finance ministers and central bank governors. Although the CMIM’s agreement has not been publicized, the APT summarizes many of the terms and conditions in press releases from annual APT meetings (APT 2010; APT 2012). On an individual basis, APT central banks also communicate CMIM developments in their own annual reports (Bank Negara Malaysia 2021; BOT 2020).

The CMIM agreement contains a confidentiality clause, which the APT amended in 2020 to give the ELDMB more flexibility in disclosing CMIM information for two purposes: (1) for media coverage of a swap drawing to enhance market confidence and (2) to share information with third parties such as the IMF (AMRO 2020).

The CMI’s two-part agreement included the ASA among the 10 ASEAN countries as well as the bilateral swap arrangements among 13 APT countries (ASEAN countries plus China, Japan, and South Korea) (AMRO n.d.a).

The signatories of the CMIM agreement are the finance ministers and central bank governors of the APT member countries and the HKMA. ASEAN countries include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. “Plus Three” includes China, Japan, and South Korea (BSP 2022).

In the CMI’s initial announcement in May 2000, APT leaders did not provide a specific size for the expansion of the ASA or formation of BSAs (APT 2000). In November 2000, ASEAN leaders agreed to expand the ASA size to USD 1 billion (from the original USD 200 million size) before doubling the size to USD 2 billion in 2005 (APT 2005; Henning 2002, 14).^FNWhen established in 1977, the ASA had a total size of USD 100 million before doubling to USD 200 million in 1978 (Henning 2002).

With the inclusion of the larger Plus Three countries in the original CMI, BSAs were considerably larger in their cumulative size, growing from USD 17 billion in 2002 to USD 90 billion by April 2009 (APT 2002; Kawai 2015).

Effective March 24, 2010, the CMIM supplanted the BSAs with a multilateral swap arrangement of USD 120 billion (APT 2010). APT leaders announced a doubling of this commitment pool to USD 240 billion in 2012, taking effect in 2014 (APT 2012; BSP 2022).

The CMIM also varies individual contributions, generally reflecting a country’s size, with the Plus Three countries and Hong Kong accounting for 80% of the total USD 250 billion size (Kawai 2015). The CMIM sets purchasing (drawing) multiples for each country, which when multiplied by a country’s contribution, determines the country’s maximum allocation for a swap drawing (APT 2010). Purchasing multiples for each country are inversely related to their contribution sizes, enabling smaller countries to borrow higher multiples of their contributions than larger countries. For example, Japan (with a purchasing multiple of 0.5) can draw at most half of its USD 76.8 billion contribution (USD 38.4 billion), whereas Vietnam (with a purchasing multiple of 5.0) can draw five times its USD 2 billion contribution (USD 10 billion) (Kawai 2015). See Figure 1.

Sources: AMRO n.d.a; Kawai 2015.

In contrast to the CMI, which relied on bilateral negotiations to activate individual BSAs, the CMIM provides for a more centralized process to coordinate relief. For the CMIM-SF, the process for drawing on a CMIM swap begins with a CMIM party submitting a swap request (for either USD or another member’s currency) to the CMIM coordinating countries—the two cochairs of the APT Finance Ministers Process. The coordinating countries then deliver the request to the ELDMB, which sets up a meeting to vote on the request (BSP 2022). Before the ELDMB votes on the request (requiring a two-thirds majority vote), the requesting country must meet certain conditions, including: “completion of review of the economic and financial situation and no events of default” and must comply “with covenants such as submission of the periodic surveillance report and participation in the ASEAN 3 Economic Review and Policy Dialogue” (APT 2010).

Until the approval of a swap request, CMIM parties manage their committed dollar reserves on their own (Ciorciari 2011). Once the ELDMB approves the request and swap size, CMIM parties are expected to provide dollar resources in proportion to their CMIM contribution (BSP 2022).

To receive a precautionary swap line through the CMIM-PL, a member must meet certain ex ante qualification criteria not required under the CMIM-SF (Han 2022). The ELDMB flexibly applies the following five ex ante qualification criteria for a requesting member: external position and market access, fiscal policy, monetary policy, financial sector soundness and supervision, and data adequacy (AMRO n.d.a) Once approved, the member can draw on the line without additional approval from the ELDMB.

At the time of writing, the CMIM has not been used (Negus 2020). Aside from the stated purpose of the swaps, to address temporary balance of payments and liquidity issues, research has not found stipulations about how borrowers use swap proceeds.

The CMIM agreement initially fixed the maximum maturities for swap draws at 90 days. A draw could then be renewed up to seven times, thereby providing a maximum duration of 720 days (or around two years) (APT 2010).

The 2014 amendments to the CMIM created separate maturity schedules for the IMF-delinked portion (IDLP) and IMF-linked portion (ILP) of draws. Maturities for the ILPs were extended from 90 days to one year; maturities for ILDPs were extended from 90 days to six months.

The 2014 amendments also created a new CMIM Precautionary Line (CMIM-PL) that stands alongside the existing facility, which was renamed the CMIM Stability Facility (CMIM-SF). Draws on the precautionary line could not be renewed. Draws on the stability facility could be renewed up to two times (IMF-linked) or three times (delinked) (APT 2012).

In May 2018, following a review of the CMIM, the APT removed the limit to the maximum number of renewals for IMF-linked portions. The change extended the maximum duration of IMF-linked draws beyond three years with no set limit, providing the CMIM with flexibility for financial assurances and joint financing operations with IMF programs (APT 2018). See Figure 2 for maturity schedules of the CMIM’s two facilities.

Figure 2: CMIM-PL and CMIM-SF Maturity Schedules, 2022

Sources: AMRO n.d.a; BSP 2022.

The CMIM’s interest rate formula for swap draws includes a reference rate and a premium. Per AMRO sources, the current reference rate is the six-month term Secured Overnight Financing Rate plus a spread adjustment of 0.428%; the State Bank of Vietnam refers to this reference rate simply as the six-month F-SOFR or forward-looking SOFR (SBV 2022). On top of this reference rate, the CMIM charges a 150-bp initial premium, which increases by 50 bps for additional renewals; the maximum premium is capped at 300 bps. Prior to March 2022, the CMIM used the London Interbank Offered Rate (LIBOR) as the reference rate, with a similar premium initiating at 150 bps and increasing by 50 bps every 180 days up to a maximum of 300 bps (Ciorciari 2011; SBV 2022). The CMIM borrowed this rate convention from the CMI’s BSAs. Ciorciari explains that the relatively high rate set for CMI swaps was a “signal to lenders and Western observers that the CMI would not be a vehicle for easy money” (Ciorciari 2011, 931).

Research has not identified balance sheet protection information.

The CMIM incorporates an IMF linkage scheme, adopted from the CMI’s BSAs. Although the CMI’s BSAs were negotiated bilaterally, APT members agreed to certain common principles, one of which was the IMF linkage. Under the initial terms of the BSAs, a requesting country was eligible for only 10% of the maximum amount of a swap if it did not have an IMF program in place; this portion, absent an IMF program, is known as the IMF-delinked portion, with the IMF-linked portion being the remaining 90% of the swap amount (Ciorciari 2011). The motivation for an IMF linkage is also reflected in the second of the CMI’s (and CMIM’s) two core objectives: to supplement existing international financial arrangements (such as those with the IMF). Since the CMI did not have a central institutional structure or surveillance organization, an IMF link assuaged lending APT members (for example, Plus Three countries) of moral hazard and repayment concerns by relying on IMF conditionality. The negotiations over the size of the IMF link continued, as ASEAN countries lobbied to increase the IDLP. In 2005, the delinked portion increased to 20% (Han 2022).

The CMIM first adopted the BSAs’ existing IMF link structure with the delinked portion initially set at 20%. In 2014, APT members increased the delinked portion to 30% before increasing it to 40% in 2021 (Han 2022). Under the CMIM’s quota system, the IMF-delinked portion applies to the maximum swap amount (a member’s financial contribution multiplied by its purchasing multiple).

At a Group of 7–IMF meeting in September 1997, prior to the first meeting of APT member countries, Japanese authorities proposed an Asian Monetary Fund (AMF). The idea was to create a USD 100 billion fund with 10 members: China, Hong Kong, Japan, South Korea, Australia, Indonesia, Malaysia, Singapore, Thailand, and the Philippines (Lipscy 2003). Japan would provide USD 50 billion, with the remainder coming from the other large regional economies such as China, Singapore, and Hong Kong. The major regional economies (China, Japan, Singapore, Hong Kong) benefited from large foreign exchange reserves—close to USD 800 billion in total—and balance of payments. During a crisis, an Asian Monetary Fund would be able to channel some of these resources to finance debt of afflicted Asian economies (Narine 2003). While most APT countries supported the AMF, the US Treasury and IMF quickly and definitively rejected the proposal (Henning 2002, 2; Lipscy 2003). In rejecting the AMF, the US Treasury noted two problems: the AMF would create a moral hazard for Asian countries to avoid policy adjustments and would be duplicative given the IMF’s established role in the region (Lipscy 2003). In contrast, the CMI, with its complementarity with the IMF, received approval from the US Treasury and the IMF (Henning 2002, 13).

When multilateralizing the CMI’s BSAs, APT members discussed three options for structuring the CMIM’s funding arrangement: (1) a pledging system like the ASA where central banks made commitments to fund future swap draws but managed their reserves independently; (2) a virtual fund where central banks transferred the legal ownership of a portion of their reserves to a separate legal entity in exchange for a claim on the fund, while being able to self-manage reserves; and (3) a centrally managed, funded reserve pool. In 2007, APT members initially adopted the virtual fund model but dropped the plan in 2009 as some members’ legal codes did not allow for central banks to transfer reserve ownership in this manner (Han 2022). Instead, APT members settled on the first option, the commitment letter model, for the CMIM.

APT members facing balance of payment and liquidity issues have access to other foreign currency financing including bilateral swap agreements (outside of the CMIM) and IMF funding. An AMRO working paper from 2018 compares the sizes of these other funding options to the CMIM and APT members’ individual foreign exchange reserves. Generally, the total funding available under the CMIM (USD 240 billion) is roughly equivalent to the cumulative size of bilateral swaps between APT countries (USD 290 billion). Most of these swaps, however, are denominated in local currencies and may serve different purposes, such as promoting cross-border trade (Kadogawa et al. 2018). See Figure 3, dated 2018, which does not include recent changes in the CMIM (for example, increasing the IDLP from 30% to 40%) and other financing sources, including the addition of the IMF’s COVID-19 lending facility, the Short-term Liquidity Line (SLL).

Figure 3: Comparison of Financing Sources for ASEAN Plus Three Members, 2018 (USD billions)

Notes:

Source: Kadogawa et al. 2018.

The CMIM Agreement, effective March 24, 2010, replaced the CMI’s BSA network (APT 2010; BSP 2022). The CMIM is a standing arrangement with no set expiration. On the other hand, the ASA, which was coexistent with the BSAs and the CMIM, expired on November 16, 2021, and has yet to be renewed (BSP 2022). To date, the CMIM has not been used.