This working paper discusses the need to for Australia to further strengthen its economic ties with other South East Asian nations, making particular reference to future international trade.
The impetus for strengthening regional financial safety nets among members of the Association of Southeast Asian Nations (ASEAN) came following the Asian Financial Crisis (AFC) of 1997/98. Although there was an existing insurance mechanism in the form of the ASEAN Swap Arrangement (ASA)—which had been used a couple of times in the early 1990s, although not really in a crisis context—the ASA proved miserably inadequate in the face of the huge amounts of financing required by countries affected by the AFC.
Despite pledges of external support from other countries in the region, the AFC-affected countries were eventually forced to turn to the International Monetary Fund (IMF) for the massive bailouts required. With the resentment that derived from the bitter medicine prescribed, a decision was taken to pursue a regional safety net that could provide a real alternative. The initial step was taken with the creation of the Chiang Mai Initiative (CMI) in 2000, which expanded the bilateral swaps of the ASA, both in size and membership, to include three additional members: the People’s Republic of China (PRC), Japan, and the Republic of Korea.
The CMI’s first major test came in September 2008 when, following the Lehman Brothers collapse, short-term capital quickly exited emerging economies. Members of the CMI that required liquidity support did not turn to it, but instead rushed to secure bilateral swaps with and support from the US, PRC, Japan, Australia, regional development banks, and multilaterals.