Key Points Of The CMIM Agreement

April, 2016 | CMIM

[Basic Objectives]

1. The basic objectives of this CMIM Agreement are (i) to address balance of payments (BOP) and/or short-term liquidity difficulties in the region and (ii) to supplement the existing international financial arrangements.

[Total Size and Contribution]

2. The total size of CMIM is USD 240,000,000,000 (two hundred forty billion). The contribution to CMIM is agreed to be made through the exchange of Commitment Letter that commits each CMIM party to provide financial support within the amount of contribution. Individual country’s contribution, borrowing multiples and voting power are as follows:

Contribution and Voting Power Distribution

[CMIM Governance and Decision-making]

3. Two countries will be appointed to coordinate the swap activation process when a request for drawing is made. Two Coordinating Countries shall be the two co-chairs of the ASEAN+3 Finance Ministers and Central Bank Governors Process, one Coordinating Country from ASEAN member countries and the other from China, Japan and Korea.

4. Fundamental issues (total size of CMIM, contribution of each CMIM party etc) for the CMIM would be determined by a consensus approval at Ministerial Level Decision Making Body (MLDMB), which consists of ASEAN+3 Finance Ministers and Central Bank Governors. Executive level issues (initial execution of drawing, renewal of drawing, events of default) would be determined by 2/3 majority at Executive Level Decision Making Body (ELDMB), which comprises the deputy-level representatives of ASEAN+3 Finance Ministries and Central Banks and Monetary Authority of Hong Kong, China.

[Crisis Resolution Facility]

5. In case of actual balance of payments and/or short-term liquidity difficulties, any central bank of ASEAN+3 countries as well as Monetary Authority of Hong Kong, China, is entitled to request for swap of their local currencies with the US dollar for an amount up to their contribution multiplied by their respective purchasing multiples. This is called the “CMIM Stability Facility (CMIM-SF) for crisis resolution. If a CMIM-SF arrangement is linked to an IMF program (so called the “IMF linked portion”), each drawing in the form of bilateral currency swap shall mature one year after the date of drawing with 2 renewals, totaling up to 3 years in supporting period. The drawing can be made up to 30% of each CMIM party’s swap quota or maximum arrangement amount if it is not linked to any IMF program (so called the “IMF de-linked portion”), the maturity shall be 6 months with 3 renewals, totaling up to 2 years in supporting period.

6. A CMIM party that requests for CMIM arrangements (CMIM-SF and CMIM-PL) needs to meet a set of conditions precedent before the ELDMB members take a vote on whether to approve such request. The conditions precedent include, among others, completion of review of the economic and financial situation and no events of default. As well, each CMIM party is requested to comply with covenants such as submission of the periodic surveillance report and participation in the ASEAN+3 Economic Review and Policy Dialogue (ERPD). In principle, each of the CMIM parties may only escape from contributing to a CMIM arrangement by obtaining an approval of ELDMB. In exceptional cases such as an extraordinary event or instance of force majors and domestic legal limitations, escape is possible without obtaining the ELDMB approval.

[Crisis Prevention Facility]

7. Since 2014, a simplified crisis prevention facility called the CMIM Precautionary Line (CMIM-PL) was introduced. In response to any request for CMIM-PL arrangement, the ELDMB may flexibly apply the 5 qualification criteria, which are stipulated below, as ex-ante qualifications, and ex-post conditionality after considering the economic reports by the requesting country and analyses by AMRO/ADB/IMF as the basis for the decision.

< 5 qualification criteria >

(i) External position and market access

(ii) Fiscal policy

(iii) Monetary policy

(iv) Financial sector soundness and supervision

(v) Data adequacy

8. Duration of access for CMIM-PL arrangements is 180 days with 3 renewals, totaling 2 years in arrangement period. In principle, the commitment fee of 0.15%. A set of conditions precedent, covenants and escape for CMIM-SF are also applicable for CMIM-PL arrangements. As to the CMIM-PL’s relationship with CMIM-SF arrangements, the total amount that can be drawn by each member country, either for prevention or resolution purposes, should be within the maximum swap amount set aside for that country. Particularly, dual-drawing from both CMIM-SF and CMIM-PL is restricted. And CMIM-PL can be replaced with CMIM-SF if any CMIM-PL recipient party is hit by crisis and needs to activate the swap lines for drawing.

[Facilitating the CMIM’s coordination with Other Financial Facilities]

9. The reform of the international financial architecture is now being pushed forward by the G20, with a focus on further strengthening the GFSN with the IMF at its center. Against this backdrop, the ASEAN+3 members decided to carefully study how the CMIM can be better integrated into the global financial safety net. To this end, a test run was conducted in collaboration with the IMF in 2016. AMRO will support the members in setting up the CMIM’s structured coordination mechanism with other components of the GFSN, including the IMF, bilateral swap agreements, regional financing arrangements (for example, European Stability Mechanism (ESM), Latin American Reserve Fund (FLAR), etc) and other international financial institutions involving effective information sharing, staff exchange, synchronized decision making and capacity building through technical assistance.