Overview of the CMIM

In response to the Asian Financial Crisis, ASEAN+3 member authorities decided in 2000 to strengthen their financial cooperation through the establishment of the Chiang Mai Initiative (CMI), comprising a network of bilateral swap agreements among members. The CMI was multilateralised into a single contractual agreement called the Chiang Mai Initiative Multilateralisation (CMIM) Agreement, which came into effect on 24 March 2010.

The CMIM is a multilateral currency swap arrangement for liquidity support among ASEAN+3 members, established at USD120 billion. Its core objectives are to: (i) address balance of payment and/or short-term liquidity difficulties in the ASEAN+3 region, and (ii) supplement existing international financial arrangements. The evolution of the CMI into the CMIM marked an important milestone, exemplifying the members’ strong commitment to continuously improving and promoting financial stability in the region.

The contracting parties to the CMIM Agreement comprise the finance ministries and central banks of ASEAN+3 countries (Brunei Darussalam, Cambodia, China, Indonesia, Japan, Korea, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam), and the Hong Kong Monetary Authority.

The CMIM was further strengthened in 2014 by doubling the size of the facility to USD240 billion, increasing the CMIM-International Monetary Fund (IMF) De-linked Portion to 30 percent, and extending the maturity and supporting periods. A crisis prevention facility — the CMIM Precautionary Line — was also introduced, in addition to the existing CMIM Stability Facility; the latter of which is for crisis resolution.

In March 2021, members amended the CMIM Agreement to increase the IMF De-linked Portion to 40 percent from 30 percent of each members’ maximum arrangement amount, and to institutionalize the use of local currencies, in addition to the U.S. dollar, for CMIM financing on a voluntary and demand-driven basis.

CMIM members have repeatedly affirmed their commitment to further strengthening the CMIM as part of the regional financial safety net. The CMIM has also been enhanced through, for instance, test runs, revisions of the Operational Guidelines, and periodic reviews.

How the CMIM works

The total size of the CMIM is USD240 billion.

Coordination on CMIM discussions and the activation process will be conducted by the same two countries as represented by the Co-chairs. One of the Co-chairs is appointed from ASEAN member states and the other from the Plus Three countries (China, Japan and Korea), with appointments rotating alphabetically on an annual basis.

Fundamental issues, such as the total size of the CMIM and contribution of each CMIM party, will be determined by a consensus approval at the Ministerial Level Decision Making Body (MLDMB), which consists of ASEAN+3 Finance Ministers and Central Bank Governors.

Executive level issues, such as initial execution of drawing, renewal of drawing and events of default, will be determined by a two-thirds majority vote at the Executive Level Decision Making Body (ELDMB), which comprises the deputy-level representatives of ASEAN+3 Finance Ministries and Central Banks, and the Hong Kong Monetary Authority.

For balance of payments and/or short-term liquidity difficulties, any ASEAN+3 member is entitled to request the activation of swap transactions of their local currencies with the U.S. dollar or local currencies of other ASEAN+3 countries (known as the CMIM stability facility (CMIM-SF)). Each member’s swap quota is capped to an amount up to their contribution, multiplied by their respective purchasing multiples. This swap quota is referred to as the maximum arrangement amount.

Drawing amount and maturity for CMIM-SF

IMF-linked portion: If a CMIM-SF arrangement is linked to an IMF program, the drawing can be made up to each CMIM party’s maximum arrangement amount that is defined in the CMIM Agreement. Each drawing will mature one year after the date of drawing. Renewal of drawings is allowed and the number of renewals is determined by the Executive Level Decision Making Body for consistency with the relevant IMF-Supported Program.

IMF De-linked Portion: If the CMIM-SF is not linked to any IMF program, the drawing can be made up to 40 percent of each CMIM party’s maximum arrangement amount. Each drawing will mature in six months and can be renewed up to three times, bringing the total supporting period to two years.

If an ASEAN+3 member is experiencing potential balance of payments and/or short-term liquidity difficulties, they can request to establish swap lines of their local currencies with the U.S. dollar or local currencies of other ASEAN+3 countries. Once the swap lines are approved by the ELDMB, the member can make an actual drawing without any further approval from the ELDMB. Such an arrangement is referred to as the CMIM precautionary line (CMIM-PL), which was introduced in 2014. Each member’s swap quota is the same as their CMIM-SF.

Duration of access for CMIM-PL

The duration of access for the CMIM-PL is six months. In the case of the IMF De-linked Portion, renewal of the line is allowed up to three times, whereas in the case of the IMF-linked portion, the number of renewals is determined by the ELDMB for consistency with the relevant IMF-Supported Program. Once a drawing is made from the CMIM precautionary line, the drawing for the IMF-linked portion matures in one year and for the IMF De-linked Portion, maturity is set at six months. No renewal is allowed for the drawing from the CMIM-PL, regardless of whether it is from the IMF De-linked or linked portion.

Qualifications and conditionality

The Executive Level Decision Making Body may flexibly apply the five qualification criteria below, as ex-ante qualifications for CMIM-PL, and ex-post conditionality, after considering the economic reports by the requesting country and analyses by AMRO and, if necessary and available, by third parties such as the ADB, the IMF or other similarly competent institutions.

Five qualification criteria:
(i) External position and market access
(ii) Fiscal policy
(iii) Monetary policy
(iv) Financial sector soundness and supervision
(v) Data adequacy

The total amount that can be drawn by each member country, either for prevention or resolution purposes, should be within the maximum arrangement amount set aside for that country. Dual drawing from CMIM-SF and CMIM-PL is restricted. The ELDMB can decide if the CMIM-PL should be replaced with the CMIM-SF upon request, if the CMIM-PL recipient is experiencing crisis and needs liquidity support.

The CMIM party that requests the CMIM arrangements (CMIM-SF and/or CMIM-PL) must meet a set of conditions precedent before the ELDMB takes a vote on whether to approve such a request. For example, ELDMB members must review the economic and financial situation of the swap requesting country before voting, and the requesting country is required to meet all terms and conditions set out by the CMIM Agreement; namely, to show no events of default.

After liquidity support is provided, the swap requesting country must comply with covenants, including the submission of the periodic surveillance report and participation in the ASEAN+3 Economic Review and Policy Dialogue.

The global financial safety net (GFSN) is generally composed of four layers; Regional Financing Arrangements, Bilateral Swap Arrangements, and national foreign exchange reserves; with the IMF at its center.

Stronger cooperation among the different layers of the GFSN is crucial to preventing and containing future crises and safeguarding global financial stability. Against this backdrop, ASEAN+3 members decided to carefully study how the CMIM can be better integrated into the GFSN. To this end, joint test runs have been conducted in collaboration with the IMF since 2016 and the lessons were reflected at the time of the first Periodic Review of the CMIM Agreement to ensure consistency with the IMF. In particular, the supporting period of the IMF-linked portion of the CMIM arrangements was adjusted for consistency with the relevant IMF-supported programs and an information-sharing coordination process was established in the Operational Guidelines to develop shared views on economic and financial situations, financing needs, and policy recommendations for co-financing.

Support to the CMIM

Supporting the implementation of the CMIM is one of AMRO’s core functions. AMRO’s effort has centered on providing support to members on the following aspects to enhance the CMIM’s operational readiness.

The CMIM Agreement is supplemented by the Operational Guidelines specifying relevant activation procedures, which are continuously updated along with test runs.

Members have regularly conducted test runs under various scenarios since 2013, especially joint test runs with the IMF from 2016 to 2018.

The peacetime checklist was drawn up and checked to monitor member authorities for CMIM activation, in line with the CMIM Agreement and Operational Guidelines.

AMRO has supported members in developing and enhancing the ERPD Matrix to act as qualification criteria and methodology for the CMIM-PL.

AMRO supported members in the first five-year Periodic Review by identifying and addressing key issues, and consolidating points raised at the CMIM test-run evaluation sessions. The first periodic review was acknowledged by the Finance Ministers and Central Bank Governors in 2019, and the CMIM Agreement was amended accordingly; going into effect in June 2020.

AMRO has provided intellectual and administrative support to further strengthen the CMIM. Specifically, AMRO has supported CMIM members in adopting the CMIM conditionality framework and collaborating with other international financial institutions.

Updates of the CMIM

Regional Financing Arrangements

Regional Financial Arrangements (RFAs) are mechanisms or agreements through which groups of countries mutually pledge financial support to countries experiencing financial difficulties in their regions. There are multiple active RFAs globally, with CMIM/AMRO providing a financial safety net for the ASEAN+3 region.

Other forms of financial safeguards comprise national foreign exchange reserves, bilateral swap lines, as well as financial assistance from the IMF.

RFAs were typically set up in response to different types of crises, such as those related to currency, sovereign debt or bank runs. Cooperation between RFAs — and between RFAs and the IMF — is crucial to limit the worst effects of the next financial crisis. The first High-Level Dialogue on the role of RFAs was held in 2016 in Washington, D.C., where participants agreed to hold a Joint RFA Research Seminar on an annual basis. The most recent seminar jointly organized by AMRO, the European Stability Mechanism, and the Fondo Latinoamericano de Reservas, was virtually held in December 2020.

Several joint research and other initiatives have been put in place to enhance the capacities of RFAs, as well as strengthen cooperation among RFAs, and between RFAs and the IMF.