Posted tagged ‘economic crisis’

How East Asia is responding to global crisis

December 22, 2008

By Hadi Soesastro

In East Asia, South Korea was the first to be hit by the global crisis. A report by Citibank in early Oct. 2008 showed that in the region the S. Korean economy was the most vulnerable to external financial shocks, in terms of both the risk of a sudden stop and sudden reversal of financial flows.

Having experienced the 1997/1998 crisis, the region has established currency swap arrangements, known as the Chiang Mai Initiative (CMI), to help each other in the eventuality of another such crisis. Eight years have elapsed, and a crisis is looming, but it remains uncertain as to how this arrangement can be invoked and what would trigger its use.

S. Korea has not attempted to make use of the CMI to prevent a crisis from unfolding. Under the CMI, Korea can exchange a mere US$17 billion with Japan and China, and additional insignificant amounts with other ASEAN countries. In view of the magnitude of the potential problem, the size of the CMI is too small. But perhaps the main reason for not resorting to this arrangement was that the CMI is still “an initiative”.