ASEAN+3 Agrees To Form AMRO

The Association of South East Asian Nations (ASEAN)+3 countries have agreed to form financial surveillance institution, ASEAN+3 Macroeconomic Research Office (AMRO). The forming of the institution is an effort to minimize the dependency on the International Monetary Fund (IMF). The new institution which starts to operate on 1 May 2011 needs initial fund of US$ 120 billion. In the future, AMRO fund is hoped to be larger with the support from China, Japan, and South Korea which also join in the ASEAN+3 cooperation forum.

The new institution will be based on Singapore and lead by Japan and China. During the ASEAN Finance Ministers Meeting (AFMM) in Nusa Dua, Bali, Executive Director of Fiscal Policy Agency of the Ministry of Finance, Bambang PS Brodjonegoro, said: 'We hope that there will be additional members. Therefore, it will enlarge the Chiang Mai Initiative Multilateralization (CMIM) scheme. AMRO and CMIM strengthen each other. If AMRO gets stronger, CMIM also gets larger. The nations believe that CMIM can be a mechanism to maintain economic stability in Southeast Asia.'

Monitor Financial Development

According to Brodjonegoro, the agreement was a result of deputy finance ministers meeting. The institution functions as first defense if ASEAN+3 members face financial problem before involving IMF.

In the long run, AMRO will monitor financial development, especially ASEAN members. Next, this institution will give early warning if one of the members is in a condition in need of support. AMRO will issue a recommendation after receiving request from the nation in need.'

Brodjonegoro explained that there are three pillars which must be built so that financial defense of a nation can survive from pressure of global money market speculative action, which could weaken the currency exchange rate. First, regional surveillance or monitoring effort and financial risk calculation in Asia. Second, Bilateral Swap Arrangement (BSA) or exchange of foreign reserves between two nations. Thirdly, development of the financial sector.

Indonesia is currently developing one pillar, which is BSA agreement as much as $18 billion involving China as much as $ 4 billion, Japan as much as $12 billion, and South Korea as much as $2 billion.

Considering AMRO's initial capital is only US$ 120 billion, this institution can only help in a certain scale according to the CMIM scheme. If the scale of the problem is considered too big, the IMF involvement is needed. AMRO is like a first line of defense for Southeast Asia.'

Foreign Reserves Depletion

Brodjonegoro explained that the size of the case depends on each nation. In a foreign reserves depletion, for example, the size for Indonesia is different than smaller ASEAN member. A US$ 1 billion foreign reserves depletion might not affect in Indonesia, but it might have a large impact in another nation.

In facing the possibility of financial pressure, Indonesia can request for additional emergency fund as much as $31.68 billion consisting of $18 billion from the BSA and $13.68 from ASEAN+3. The emergency fund will strengthen Indonesia's foreign reserves which is currently $102 billion. Elsewhere, Deputy Governor of Central Bank (BI) Hartadi Agus Sarwono, explained that Indonesia will use its foreign reserves according to the need, including to prevent capital outflow. The BI must prepare itself considering the swiftly capital inflow to ASEAN, including Indonesia. However, he hopes that the government also prepares budget allocation as backup.

Infrastructure Fund

In the previous meeting, ASEAN finance ministers have agreed to form a special new institution to support infrastructure development (infrastructure fund). The institution which will be formed in September 2011 will involve Asian Development Bank (ADB).

In the meeting, they will finalized the concept of infrastructure fund. This institution is scheduled to be formed in September 2011. Brodjonegoro said: 'There are still several technical factors to be discussed.'

So far, infrastructure fund has collected fund about US$ 450 to 480 million. In supporting this institution, Indonesia has allocated budget as much as US$ 120 million, while Malaysia as much as $150 million, and ADB about $480 million. He said: 'This is still initial capital, but addition is still open.'

This year, Indonesia is the chairman of ASEAN Finance Ministers Meeting (AFMM). Indonesia also has three opportunities. First, chairmanship position is a mandate and also Indonesia's opportunity to increase its role in ASEAN region. Moreover, chairmanship position is an opportunity to execute a larger regional role, such as ASEAN+1, ASEAN+3, ASEAN+6, and East Asia Summit. Thirdly, the success of holding ASEAN meeting in Indonesia will give a positive impact as a media of promotion and imaging. This success will show that Indonesia is a conducive, safe, and has potential of cooperation opportunity in economy, finance, politics, social, culture, and investment.

AFMM is an annual ASEAN finance ministers' summit, which is held in the first week of April and held by each ASEAN member. In this meeting, there are also bilateral and multilateral meetings between the members. The Ministry of Finance will form cooperation including stock market development, customs, and infrastructure funding.

Catastrophic Bond

In the meeting, ASEAN members started to plan a new scheme insurance or natural disaster relief fund by issuing catastrophic bond. There are two options, which can be implemented: strengthening existing catastrophic insurance or issuing catastrophic bond. It is just the initial observation.

The catastrophic bond buyer must pay the premium just like insurance. Therefore, the collected fund becomes stronger due to involvement of other nations. The target of forming will be as soon as possible. Hopefully, it could form it this year. However, next year is the most realistic target. In the long-run, ASEAN will form a special company to issue catastrophic bond. The company can be private or state-owned. This company issues the bond, while the nations are the buyers. The money must be reinvested because it will be idle.

ASEAN Seeks To Establish EU-Like Asian Grouping

The summit of leaders of the Association of Southeast Asian Nations (ASEAN) with six dialogue partners (China, Japan, South Korea, India, Australia and New Zealand), which was host by Thailand has recently been concluded. Following the summit, there is a question as to how much successful the summit has become.
Agreement Signed
To get a clearer picture of the success of the summit, I would like to sum up the agreements reached during the summit as following:
1. China agreed to grant $10,000 for the promotion of investments between China and ASEAN. It also agreed to provide a soft loan worth $15,000 for ASEAN countries for the developments of basic infrastructures and trades. The loan will be spent for building roads to link ASEAN nations to China to facilitate trades, transportations and traveling among citizens of these countries.
2. UNESCO estimated that it requires an investment worth $14,000 to build roads to link all Asian countries.
3. The ASEAN reached an agreement with the six dialogue partners to establish a free trade area among them. They also agreed to unite Asian countries into a union because Asia has over 3.3 billion citizens and its total trade value is higher than $14 trillion. And all Asian countries have combined foreign reserves of $39 billion.
4. The ASEAN agreed with three dialogue partners (China, Japan and South Korea) to set up a multilateral fund under the so-called Chiang Mai Initiative Multilateralization (CHIM).
Chiang Mai Initiative Multilateralization
The plan is known under the initial of CHIM. The fund will have $120,000 for providing help to Asian countries, which are affected by liquidity crunch. The fund will begin its operation late 2009.
What matters most about these four points is their possibility. And when these points materialize, Asia will receive huge benefits. It is a new and joyful era because China and Japan, which are super economic powers, can cooperate to turn Asia into a powerful grouping with enough power to bargain with the super-power European Union and the United States for the first time.
Influence of Western Countries
If everything is carried out smoothly as planned, Asia will no longer have to be under influence of western countries. Asian countries will no longer have to borrow from the International Monetary Fund (IMF) and World Bank. And when the Asian grouping is developed up to a point, Asia may have the same nature with the EU.
That is, there will be no longer borders dividing citizens of Asian countries. Asian people will be able to travel across their countries without visa and they will use the same currency like the euro. The investment funds, production bases, work forces and raw materials will be moved among the Asian countries freely. Asian countries will also use the same or similar customs codes.
Economic and Other Cooperation
And consequences of such grouping will also be very important. The Asian countries will help one another to develop technologies and upgrade their education and skilled labors. They will cooperate on heath care services and exchange culture. Such cooperation will turn Asian into a strong region with stable economy. Their social system will get developed with good standard and this will make it hard for westerners or any group to try to destroy the Asian societies.
However, before Asia can rise to be a powerful grouping like the European Union (EU), each and all Asian countries must first do away with their weak points and must create their strong points in all respects -- political, economic, and social respects.
In particular, leaders of Asian countries must be outstanding with their ability and they must win trust from people both inside and outside their countries. They must not be leaders who have no tangible achievements but still boast that they have become successful and that they enjoy working in politics.