THE ESTABLISHMENT OF THE CHIANG MAI INITIATIVE MULTILATERALISATION (CMIM) AND THE INTERNALIZATION OF ASEAN POLITICAL CULTURE
THE ESTABLISHMENT OF THE CHIANG
MAI INITIATIVE MULTILATERALISATION (CMIM) AND THE INTERNALIZATION OF ASEAN POLITICAL
CULTURE[1]
M. Sigit Andhi Rahman
Lecturer of IR Study Program
President University
(Konvensi AIHII Malang)
Abstract
This paper study The Chiang Mai Initiative Multilateralisation
(CMIM) in order to understand the internalization of political culture of
ASEAN. In contrary to Realist and Liberalist theories that see cooperation at
the minimum as non-existent and at the maximum as purely instrumental in the
pursuit of self-interest this paper will use a constructivist approach from
Alexander Wendt towards the establishment of the CMIM. By analyzing Wendt’s three master variables
that resembles the formation of collective identity of ASEAN and the legitimacy
of the CMIM political culture, this paper concludes that the establishment of
the CMIM has only for a small part internalized the political culture of ASEAN
to a higher degree.
Introduction
At a first glance the establishment
of the Chiang Mai Initiative Multilateralisation (CMIM) might be seen as a
technical and economic process, thought out by economists, Central Bank
governors, finance ministries and technocrats. Under the ASEAN Economic
Community Blueprint, ASEAN envisages to achieve integrated financial and capital
market by 2015.[2] CMIM is one of the key
initiatives to achieve that goal through the cooperation of ASEAN+3 (China,
Japan, and South Korea). A US$120 billion multilateral currency swap facility
designed to assist countries with short-term liquidity difficulties. This
mechanism has been implemented since 24 March 2010. However, the process of
ASEAN finance cooperation can be seen also as a political one, grounded in a
South East Asia security context; historical conflict between non-communist
states and communist states in, ideological and economic rivalries. Therefore, CMIM
can be analyzed to understand the internalization of political culture of
ASEAN. To be relevant with the general theme of the convention this paper will
exclude Japan, China and South Korea in its discussion. This paper will study ASEAN country members only.
In
contrary to Realist and Liberalist theories that see cooperation at the minimum
as non-existent and at the maximum as purely instrumental in the pursuit of
self-interest this paper will use a constructivist approach from Alexander
Wendt towards the establishment of the CMIM. According to this approach the establishment
of the CMIM and the norms, rules and institutions created are not alone
constraining actor behavior, more fundamentally they are shaping new identities
and interests.[3] The underlying theory is
explained by Wendt’s work Social Theory
of International Politics.[4] This theory will be used for this analysis. The
objective of this paper is to analyze to what extent the establishment of the
CMIM has increased the political culture within the ASEAN. First a brief
analysis will be made about the political culture of the ASEAN.
The
ASEAN political culture: a Lockean or Kantian one?
Wendt
differentiates three different anarchies: a Hobbesian, Lockean and Kantian.
Each political culture can be internalized to a lower or higher degree. At a
low level of internalization of its political culture states interact under
coercion or at a medium level on self-interest. The highest level of
internalization is when states regard the political culture as a legitimate
one.
In
a Hobbesian anarchy states regard each other as enemies and settle disputes
through violence. Violence can break out at any time and makes cooperation
almost impossible. In a Lockean anarchy states are rivals. Violence between
them is restrained based on the principle of mutual recognition of each other’s
right to exist. However, violence between states is not prevented and can
occur. Therefore, relative military power is still important in this political
culture.[5] A
Kantian political culture is based on friendship. States regard each other as
friends and settle disputes without violence or the threat of violence and will
fight as one team if the security of any state is threatened by third party.
Institutional and economic power replaces military power.[6]
ASEAN
political culture is quite unique. It resembles both Lockean and Kantian
features. In one hand, there are some border disputes together with small
military incidents (ex. Cambodia versus Thailand dispute on Preah Vihear
temple) happened between member states but violence is restrained based on the
principle of mutual recognition. Consensus model of decision making, loose
regionalism without regional authority over states, strategic and not
principle-based considerations describe the institutional development of ASEAN.[7] In
case of ASEAN response in the Third Indochina War (1978-1991), realist like Lee
Jones said ASEAN’s emphasis on non-intervention was ultimately a political rather
than a normative principle. It was an expression of a defense of weak capitalist
regimes from subversion by separatist or communist movements being sponsored by
outside powers. ASEAN’s interests were regional ‘stability’ and the safeguarding
of investments in Cambodia.[8]
On
the other hand, shared principles and collective identity have been initiated
in Bangkok Declaration, continued to be developed through the Treaty of Amity
and Cooperation (TAC), and strengthened through the three pillars of ASEAN
Community in Bali Summit 2003. The Kantian model of cooperation based on shared
principles, ideas and a common duty to establish peace and prosperity apparently
exists in certain extent. The current ASEAN political culture has more or less
in between Lockean and Kantian characteristics.
For
an analysis of an increase in the degree of internalization of the political
culture Wendt emphasizes a few master variables.
He mentions efficient causes, such as common fate, interdependence, homogenization
and a permissive cause: self-restraint.[9] According
to Wendt for collective identity formation to occur is one efficient cause and
combined with self-restraint. Self-restraint therefore plays a key role. The
variable of homogenization is omitted in this analysis due several limitations
in its role to cause collective identity formation.[10] The
three variables will be analyzed in this paper to understand whether the CMIM
resembles the formation of collective identity of ASEAN. An extra attention
will be given to the legitimacy of the CMIM political culture, because legitimacy
functions as an indicator of a high degree of internalization of the political
culture.
The
CMIM
The CMIM agreement reached in May of 2009 at
the ASEAN Plus Three Finance Ministers Meeting (ASEAN+3-FMM) in Bali has come
into effect in March 24, 2010. Its core objectives are (i) to address balance
of payment and short-term liquidity difficulties in the region, and (ii) to
supplement the existing international financial arrangements. The total size is
US$120 billion.[11] This agreement is the
continuation of former ASEAN+3 multilateral currency swap arrangement. The
former arrangement was called as Chiang May Initiative (CMI). CMI was
constructed as a response to the 1997-1998 Asian Financial Crisis.
There
are three tracks of cooperation in the CMI agreement: currency swap,
surveillance and early warning system for future financial crisis, and exchange
views among the ASEAN+3 members on reform needed to international financial
structure[12] . Currency swap is an
agreement to exchange one currency for another and to reverse the transaction
at a date in the future. This builds on the expanded intra-ASEAN US$ 1 billion
standby swap arrangement currently being developed and the multibillion dollar
Miyazawa Initiative put in place by Japan in late 1998 to assist Asian
countries. The surveillance and early warning system will be in form of
exchange of information on short-term capital movements in East Asia that will
make governments aware of potential problems. The last track will become the
basis for recommendation to international forums on the international financial
structure reformation.[13]
CMI
has become framework for ASEAN+3 member states to make contract between member
states bilaterally. All arrangements generally swap US dollars for local
currency. For instance, Japan and Thailand contracted swap agreement in certain
amount of US dollar against Thailand Baht and so on. Only one exception which
is Japan and China contracted in Yen-Renmimbi. And if a state wants to withdraw
a necessary amount of money from more than one source, the state must negotiate
individually with each of the swap providing counterpart.
The
Multilateralization of CMI (CMIM) has transformed a network of CMI bilateral
currency swap arrangement between the members, valued $78 billion, into a
single $120 billion pool of funds committed by the members. This was the second
stage of CMI. Under this Common Fund Agreement, member states could swap their
respective currencies with US dollars for an amount up to the participants
contribution multiplied by respective purchasing multiplier as provided. This single
contract of common fund essentially replicates the model of reserve pooling of
the European Monetary Cooperation Fund (EMCF). This is meant to be legally
binding and enforceable contract, which would give effective protection to
participating members.[14]
Asian
Financial Crisis and ASEAN Financial Common Fate
When the individual survival or
welfare of one state depends on what happens to the group as a whole these
states face a common fate. In international politics this threat is mostly
constituted externally.[15]
Richard Stubbs stated that Asian
Financial Crisis has become a major catalyst in institutionalizing the new
arrangement (CMI and then CMIM). First, it added to the sense of common history
that has emerged in the region, secondly, it demonstrated the ineffectiveness
of APEC (Asia Pacific Economic Cooperation) and ASEAN. Thirdly, a clear
consensus has emerged in the region that the International Monetary Fund (IMF),
in conjunction with the U.S government, initially misdiagnosed the problem and
chose to impose a set solution that only served to exacerbate the situation.[16]
Asian Financial Crisis happened due
to the lack of coordination and collaboration between ASEAN member states. Even
not all ASEAN member states directly affected by it, nearly every its
government felt its reverberations and had to deal with the fallout from the
crisis.[17] The
crisis was very contagious. Asian Financial Crisis erupted in July 1997 when
the Thailand Government was forced to abandon the fixed exchange rate regime to
adopt a flexible exchange rate, resulting in substantial depreciation of the
Thai Baht. This crisis continued by the depreciation of Indonesian Rupiah and
Korean Won simultaneously.
There is change in the thinking
among both political and business leaders and a growing realization of the
urgent need for the creation of formal regional mechanism to deal with any
similar crisis in the future and to maintain the economic growth of the region. The construction of CMIM has built the sense of
solidarity among ASEAN member states in term of economic and trade especially
in financial sector. Surely, future threat on one member's financial structure
will be a threat to all members.
The CMIM: more or less interdependency after the 1997-8
Asian Financial Crisis?
In respect to the level of
interdependence this section discusses whether the establishment of the CMIM
increased interdependence between the member states of the ASEAN or not. We can
distinguish two forms of interdependence; sensitivity and vulnerability.[18]
Sensitivity deals with the degree to which changes in one actor affect the
other, while vulnerability deals with the costs an actor would incur from
ending a relationship. Both stand in relation to each other. The more
vulnerable a state is, the more likely it is to accept a high level of
sensitivity. By using vulnerability and sensitivity it is possible to determine
the level of interdependence between states and to find out if it has
increased.
Compare to European Monetary Union
(EMU), CMIM has not given many consequences for the interdependence between
member states. In EMU member states
would mutually fix their exchange rate, guarantee the free flow of capital and
transfer their monetary policy to the European Central Bank. However,
sovereignty of the fiscal domain remained at the state level. EMU is a monetary
union without a fiscal union. This has several consequences for the
interdependence between the states joining EMU. States in the EMU have lost the
power of monetary policy to steer their economies, while fiscal policies of
separate states can affect the whole member states by undermining the Euro. The
current economic crisis illustrates the consequences. For example, Greece with
an estimated deficit of around 14 percent cannot devaluate its currency to improve
the competiveness of its economy. At the same time questions arise if the
states that adhered to fiscal discipline should fill the gaps created by
undisciplined states. This is clear evidence that EMU has increased the level
of sensitivity. Domestic policies can affect directly monetary stability in the
EMU, so if one states spends too much it has consequences for all the European
states and therefore asks for rules and norms which constrain all.[19]
In respect to the level of
vulnerability there has also been an increase in costs and risks associating
with leaving the EMU. Not only have the member states adjusted their economies
to the Euro. It has been the Euro, so argue many, which has prevented more
serious economic problems in, for example, Ireland
and Greece .
Leaving the Eurozone would mean the loss of credibility and possible capital
flight out of the country.[20]
While CMIM has been created in form
of common fund where there is no transfer in term of state financial
sovereignty. Both monetary and fiscal policies still remain in the state level.
CMIM only provide mechanism for each member state to swap their currencies with
US dollars for an amount up to their contribution. The level of sensitivity is
only concerning the sustainability of CMIM and not on other member state. For
example, if one member state is using the fund through the CMIM mechanism
carelessly, this will affect its own economy and fund sustainability in CMIM.
Of course it will affect the regional financial stability in the future. But
this level of sensitivity has not changed significantly from 1997 Asian
Financial Crisis.
In term of structural relation, the
relation within the CMIM is more appropriate to be described as the relation
between potential borrowers (Korea and ASEAN) and loaners (Japan and China).
There is an increase in term of interdependence relation between loaners and
borrowers since Japan and China realized that their industries are depend on
the economic stability of ASEAN. While ASEAN regards Japan and Korea as the
financial resources to overcome the problems. But the level interdependence
among ASEAN member states has changed significantly. ASEAN member states have
developed stronger relation with those 3 states outside ASEAN than among
themselves.
In respect to the level of
vulnerability, there are no increases in costs and risks for leaving the CMIM.
In fact, the CMIM fund is considered not sufficient to stave off a financial
crisis in the ASEAN countries. The largest ASEAN members of the CMIM can access
roughly US$11 billion via the CMIM, yet these same countries needed around $40
– $60 billion during the Asian Financial Crisis in 1997-8. The CMIM does not
provide incentives for member countries to stay only within the CMIM and disconnect
its financial from global architecture. China and Japan have calculated the
‘required’ CMIM resources based on the assumption of involving funds from IMF.[21]
The CMIM
conditionality is very strict. For ASEAN and Korea, accepting short-term
financing through the CMIM mechanism is probably not the cheapest option, at
least on average. CMIM funding is charged at higher than market rates and is
non-differentiated.[22] For
example, during the late global economic crisis, Korea chose to borrow from the
US Federal Reserve while Indonesia struck an innovative agreement with a
consortium led by the World Bank.[23]
The formation of CMIM has not showed any
increases in the level of sensitivity and vulnerability in ASEAN as EMU in EU
does. Domestic economic policies has not directly influence the economic and
financial well being of other states.
The permissive condition: self-restraint
Wendt stresses self-restraint is
the key role in collective identity formation. Internalization to a higher
degree will be impeded by the fear of being physically or psychically engulfed
by those whom the actor would identify. Actors must trust that their needs will
be respected and their individuality not submerged by the group. Creating this
trust is fundamental. If actors have the belief that others pose no threat to
them it is easier to identify with them.[24]
In the CMIM there exists a tension
between the national financial sovereignty and non-state regional macroeconomic
surveillance unit within it, AMRO (ASEAN+3 Macroeconomic Research Office). AMRO as independent unit has duties to monitor
and analyze regional economies and to contribute to early detection of risks.
But the tension is not as intense as the
tension between the sovereignty of EMU member state and the European Central
Bank as the supranational institution. In
a political culture with a high degree of internalization states match their
self-interest more willingly with the group interest. In the EMU member states
would have obey certain criteria in order to maintain the economic stability
within the region. The convergence criteria were the condition under which it
was able to join EMU and consisted of three important conditions
- The annual budget must not exceed 3% of
Gross Domestic Product (GDP).
- The national debt must not exceed 60% of
GDP or approaching it in a satisfactory
pace.
- The inflation rate must not be 1,5% higher
than the average of the three EU members with the lowest inflation.
This is an example of self binding mechanism
found in the EMU. For states like
Portugal, Italy, Greece and Spain (PIGS) meeting these criteria would mean a
great effort. They would have to show self-restraint regarding their domestic
economic policies. However, by meeting the criteria the member states of the
Eurozone has showed an example of self-restraint and compliance to shared rules
and by doing so they created mutual trust.
AMRO
is planning to
introduce the Regional Monetary Unit (RMU), a regional weighted currency
basket, as a numeraire currency. The RMU would provide more stable currency
values. It could also facilitate AMRO’s surveillance activities. This is to
make sure that member states are avoiding competitive devaluations among each
other. This also motivates them to coordinate their macroeconomic policies for
deeper integration.[25] This mechanism is still far in term of
contributing a self-binding mechanism for member states. The problem in
establishing a binding CMIM surveillance mechanism is due to the strong non-interference
principle in the ASEAN. This is the reason that AMRO is designed as independent
unit and not as a supranational institution. AMRO acts as only consultation
unit without sufficient political power. AMRO together with its RMU will not
sufficiently create self-restrain mechanism regarding member states domestic
economic policy.
The CMIM: a legitimate political
culture?
The
last indicator that will be analyzed is the level of legitimacy of the CMIM
political culture, its institutions, rules and the commitments made. When the member
states regard the CMIM as a legitimate political culture they accept the
disadvantages and costs associated with it as legitimate. Therefore, they are less
likely to use the CMIM purely instrumentally to accomplish their
self-interests, but recognize that the well-being of other states is part of their
own self-interest.[26] CMIM
should be founded on a solid normative base, spreading and promoting shared
values and the overall good. Furthermore, it should be a proponent of fair
policy. Decisions must be defensible and avoid arbitrariness or privileging
some of the member states. Only then will the political culture be regarded as
legitimate and be able to enforce moral obedience from its member.[27] An
important factor in achieving this will be through the promotion of solidarity
between the member states. It is vital that the richer states join a system of
burden sharing, which results in disadvantages for the richer member states,
but, on the other hand, increases the overall legitimacy of the CMIM. Another
factor that influences the legitimacy of the CMIM is the mode of governance. If
the mode of governance reflects relative bargaining powers and promotes
inequality it erodes the legitimacy of the Eurozone and risks losing moral
obedience of the member states. Equally important is the democratic
accountability of the institutions involved. For the member states legitimacy
means that they find a way to act responsible towards the other states and
match their self-interests accordingly.
In
term of solidarity, CMIM has able remarkably show how a communist states like Vietnam
and Laos joined in the CMIM. Small and poor states such as Cambodia,
Burma/Myanmar have also contributed in this arrangement. The sharing burden
shows the increase in the level of legitimacy. But the sharing burden is only in term of
share of fund in the CMIM and not in term of sharing burden when one member
state get financial problems. Solidarity between member states could add
legitimacy to the CMIM. In practice this is a difficult issue. There is no
explicit statement that member states will bail each other out if there is
problem. As long as the richer states do not wish to support poorer states real
solidarity within CMIM cannot be achieved.
In term of governance, there is the
problem of who will control the CMIM – China or Japan? This Sino-Japanese
rivalry was the principal cause of the failure to multilateralise (and
insititutionalise) the CMI before now. Indeed, it took an external threat in
the form of the Global Financial Crisis for Japan and China to finally settle
their differences and work out a compromise on contributions and, implicitly
therefore, voting weight. This rivalry has hardly disappeared however, and
continues to be a factor inhibiting the development of the CMIM.[28]
ASEAN has not been the main driver in this mechanism. There are no democratic
mechanisms in the institution. As the case mentioned before, Indonesia used
other mechanism outside the CMIM to cope the recent global financial crisis.
This means that the CMIM is merely instrument of national interest. The member
states will use this mechanism when it is beneficial for their own interests.
Conclusion
I argue that although CMIM has developed the
ASEAN previous regional cooperation (CMI) into a more institutionalized and
multilateralised mechanism, the establishment of the CMIM has only for a small
part internalized the political culture of to a higher degree. The CMIM arose from
common fate resulted from 1997-8 Asian Financial. But CMIM has not increased
the level of interdependence between ASEAN member states. CMIM has not provided
enough rules, norms that develop self-restraint mechanism for member states. These
mechanisms, rules, institutions are important to make higher degree of
internalization of ASEAN political culture.
High level of internalization
happens when states match or consider their interests with the collective
interest. There are increase interdependence relations between the borrower
(ASEAN) and the loaner (China and Japan) but not between ASEAN member states
itself. Member states preferred not using CMIM when other less straining
mechanism available. The CMIM is more or less an instrument for pursuing national
interest. Moreover, democratic accountability is very low which makes it more
difficult for a necessary feature to form and sustain its identity on the
longer term. ASEAN political culture has not changed significantly by the
formation of CMIM.
.
[1] This paper is
presented in Convention of AIHII (Asosiasi Ilmu Hubungan Internasional
Indonesia)III in Malang, 8-10 October 2012
[3] Kenneth Dyson, The Politics of the Euro-zone, (London 1999), 8.
[4] Alexander Wendt, Social Theory of International Politics,
(New York; 1999).
[6] Ibidem, 298-302.
[7] Donald E. Weatherbee, International
Relations in South East Asia: The Struggle for Autonomy, 2nd ed.
(Maryland: Rowman &Littlefield, 2009).
[8] Lee Jones, “ASEAN Intervention in Cambodia: From Cold War to
Conditionality”, The Pacific Review, Vol. 20 No. 4 December 2007:
523–550 , 537
[9] Wendt, 343-344.
[12] Richard Stubbs. ASEAN Plus Three:Emerging East Asian Regionalism?, Asian
Survey, Vol XLII, No 3, 42:3,May-June 2002, p. 449-450
[13] M. Sigit Andhi Rahman,
Multilateralims in East Asia: Analysis of Chiang Mai Initiative (CMI) within ASEAN+3
Framework, Jurnal Kajian Wilayah, Vol.1, No.1. (Jakarta, 2010)
[14] PARK Yung-Chul. 2009. Global Economic Crisis and East Asia: What
ASEAN+3 Can and Should Do, SERI Quarterly, April 2009, 52.
[15] Wendt, 349-350.
[19] Peter Beynen, The Establishment of European Monetary Union and the
Internalization of its Political Culture, 2010, unpublished.
[21] Joel Rathus, The Chiang
Mai Initiative’s Multilateralisation: A Good Start, East Asia Forum, March
23rd, 2010
[23] Henning RC and MS Khan, “Asia and Global Financial Governance”, Peterson
Institute of International Economics Working Paper Series No. 11-16,
October 2011.
[24] Wendt, 358.
[26] Wendt, 303-307.
[27] Dyson, 225-228.
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