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The Asian reaction to the current financial-market turmoil has been strongly conditioned on its experience during the previous 1997 crisis. It is no exaggeration to say that the Asians were deeply disappointed, even embittered, by the response in that earlier episode of "Washington"—not simply the US government but the Washington-based Bretton Woods institutions, particularly the International Monetary Fund (IMF), which imposed tough conditions for the assistance it provided. Among the countries that went through painful retrenchments were Thailand, Indonesia, South Korea, and the Philippines. In response, Japan proposed an Asian Monetary Fund, but the plan was blocked by objections from the United States, the IMF, and China.
Today, however, Asian countries possess roughly $3 trillion in official reserves, around 50 percent of the world total. If the political will is there, Asia has the financial wherewithal to go its own way and establish an alternative rescue mechanism to the IMF. Whether it will do so depends significantly on the capacity of Japan and China to act cooperatively and how far the responses of the United States and Europe go in addressing the longstanding demands of the Asians (and others) for a more inclusive policymaking international-financial architecture.
Since the crisis of 1997–98, the Asians have pursued a two-track strategy, on the one hand seeking greater Asian influence within the Bretton Woods institutions, while at the same time formulating in parallel Asian regional initiatives with the Japanese-led Asian Development Bank playing the secretariat role. Prominent among these Asian regional schemes has been the Chiang Mai Initiative (CMI), a network of more than $80 billion of central bank swaps.
The current crisis could provide the first real opportunity to activate the CMI swap commitments. But what is striking is the extent to which the national-government responses have marked a reversion to form, with the Southeast Asian nations seeking assistance, the South Koreans running for help to the United States, and the Chinese and Japanese, as always, eyeing each other warily.
For example, led by Thailand, the Southeast Asians, presumed "borrowers" in a crisis, have pressed the Northeast Asians, the presumed "lenders" in a crisis, to expand their CMI commitments before any CMI funding has even been deployed. Indeed, Philippine President Gloria Macapagal-Arroyo jumped the gun prematurely when she announced in October that an agreement on such an expansion had been reached. South Korea, under a conservative government, sought and received a $30 billion bilateral swap commitment from the United States, its traditional military and political ally. For now, China and Japan have sat on the sidelines.
The world will be watching for signs of Asia’s intentions when the Group of 20 leaders meet in Washington later this month.
