Author: Kaewkamol Karen Pitakdumrongkit
Reviewed by Piotr Sochon, Department of Politics, East China Normal University
As the twenty-first century brings an unprecedented amount of matters that call to be tackled globally and comprehensively, researchers and journalists tend to focus on Europe’s and US’s role in these processes. However, simultaneously to the growing political and economic role, East Asian states have established numerous governance frameworks. Among those the Chiang Mai Initiative Mechanism is worthy of particular attention. It provides a multilateral system of currency swaps, initiated to counter short-term liquidity problems.
“When most of us hear about the conclusion of international negotiation, a contract ceremony comes to mind. (…) But how many of us have ever wondered how negotiation is conducted?” asks Kaewkamol Pitakdumrongkit in the introduction to her book “Negotiating Financial Agreement in East Asia. Surviving the turbulence”. To give readers a glimpse from the inside of negotiation meetings, she undertook an ambitious challenge to examine the process of the CMIM development from the perspective of six major contributing states: China, Japan, South Korea, Indonesia, Malaysia, and Thailand. Her work specifically focuses on the measures applied by these countries to prevent negotiation from collapsing and conditions determining the successful application of such.
The first chapter of the book serves as a broad introduction to the CMIM, looking at its historical context. As the sources quoted by the author here reveal, it was not the first attempt to create a multilateral safety mechanism. The idea initially emerged from the aftermath of the Asian financial crisis of 1997-98, which according to the author exposed the vulnerability of the region’s banking and financial system (p. 4). Chapter 1 reconstructs the crisis landscape, associating fundamental problems with the incompatibility of the International Monetary Fund’s assistance to regional conditions and needs (p. 5). Successive, less and more effective efforts eventually led to the establishment of the Chiang Mai Initiative, the CMIM’s prototype, in 2000. Main differences between both mechanisms are illustrated by detailed figures and tables (p. 10; p. 13-16). The author extensively uses this method to present numerical data throughout the book, which significantly improves readability.
The author formulates six research hypotheses, whose detailed presentation form the basis of the second chapter. Even though they seem fairly obvious (“States (…) that had greater expertise on issues being negotiated were likely to close a deal with more favorable terms” (p. 37) or “Countries (…) that formed coalitions with stronger states were likely to close a deal with more favorable terms” (p. 41)), they organize the book findings and introduce the nomenclature used in following parts of the book. The chapter as a whole gives a reader up-to-date coverage of the key negotiators’ strategies and tactics, supported by various cases of well-known international negotiations.
Further part of chapter 2 refers to the methodology applied in the research. As the book’s structure is divided into separate blocks covering particular states’ involvement, the author decided to compare their original goal and the outcome in order to determine their success (p. 44). At the initial stage of the research, countries were grouped, accordingly to their original goals, into two clusters: +3 (China, Japan, South Korea) and ASEAN countries. While the former, having great reserve holdings, did not mind to exceed the financial contribution to the mechanism, as far as it reflects their voting share (p. 45); the latter was constrained by their relatively modest reserve levels, trying to secure their influence over the CMIM lending decisions (p. 46).
Later in the book, the author proceeds to analyze the CMIM negotiations from the individual perspective of the participating states. Consequently, the third chapter discusses Chinese involvement, then the second largest, and continuously growing economy, and the largest foreign reserve holder among all the CMIM states. Indeed, the country characterized by those assets has the potential to stamp its own imprint on the agreement. However, China had to compete with Japan for the leading position (p. 58). Both countries shared an ambition to become the largest CMIM contributor, which also meant having the most considerable voting power and the greatest influence on the decisions made. One factor that prevented the two superpowers from clashing over the leadership spot and reconciling their ambitions was the aspect of the Hong Kong inclusion into the CMIM. Pitakdumrongkit indicates the importance of the former English protectorate in the internationalization of the renminbi, thanks to its role of the world’s leading financial hub and the offshore yuan market (p. 61-62). CMIM was in this context a platform that gave Beijing even more significant opportunities to increase the status of renminbi in the region through bilateral swap agreements. The discussed chapter only partially reveals what stood behind the compromised achieved between Japan and China. According to the author, China’s deep understanding of Japan’s ambitions played a decisive role as Beijing agreed eventually to hand Tokyo the supremacy regarding financial contribution made in exchange for approval of Hong Kong’s membership (p. 64).
However, by reading the next chapter 4, covering the role of Japan, gives a fuller insight into the circumstances of breaking the deadlock over the Hong Kong issue. Someway contradictory to the previous chapter, the author makes a synthetic analysis of the interest of Japan in embracing the Hong Kong with CMIM frames (p. 82-84). Even though Tokyo was aware of the added value behind the Hong Kong incorporation, it saw a disproportion of the benefits it would represent. Hence the choice of negotiation strategy that forced Beijing to make sacrifices (p. 85). The reference to this aspect is significant, as it reveals the book’s structure, where the negotiations are examined from the perspective of the critical elements constituting CMIM agreements. Most of them are common for more than one state, which makes the study of various and intertwining perspectives included in separate chapters necessary.
The following chapter 5, devoted to South Korea’s role in the CMIM negotiations, outlines how Seoul was able to utilize this complicated relationship between China and Japan. Notably, in the first place, the author breaks down South Korea’s urgency to conclude CMIM agreement, resulting from the experience of Asian and Global financial crises (p. 112), as well as its IMF aversion (p. 114). Therefore, these adverse conditions led to Seoul’s smaller financial contribution to the CMIM fund. However, this did not prevent South Korea from obtaining favorable terms of the final agreement, specifically choice of the two-thirds supermajority voting system which, given the decided voting shares pertaining to the country’s contributions (p. 117), granted South Korea with pivotal role regarding lending decisions, simultaneously preventing the Tokyo and Beijing single-party vetoing-ability (p. 126-127). Pitakdumrongkit attributes this achievement to Seoul’s effective use of co-chair position (p. 122; p. 125) and lack of alliance-building capacity among other CMIM negotiating parties (p. 124). With the benefit of hindsight, agreed on CMIM voting system, initially aiming at greater inclusiveness of the loan decisions, de facto blurred the responsibility and had not allowed developing a clear leadership. This issue was brought by Pitakdumrongkit herself in “East Asian Financial Safety Net: The Problem of Leadership” (2018).
While reading “Negotiating Financial Agreement in East Asia. Surviving the turbulence”, one thing stands out – the marginalization of ASEAN countries throughout the CMIM talks. This impression results both from reading above reviewed chapters as well as the sixth one devoted exclusively to the role of Indonesia, Malaysia, and Thailand. The author explains this limited coverage by the issue of inaccessibility of the relevant government officials and turning to the most influential parties (p. 43). Probably due to the insufficiency of data and minor affectation of the CMIM negotiations outcome, chapter six mainly includes sound analysis of Indonesia’s, Malaysia’s and Thailand’s economic and political incentives and weaknesses. The analysis in chapter six is accompanied by a considerable amount of numerical data, which in connection with the number of countries covered, results in more confusing and challenging reading.
Despite the shortcomings of the last chapter and general disproportion between +3 and ASEAN coverage, the book by Pitakdumrongkit is definitely a must-read for professionals and scholars working in the field of Asian financial integration. An extensive number of interviews with officials directly involved in the CMIM negotiations is the books paramount advantage. Thanks to this research, the author provides a unique, behind-the-scenes perspective on East Asian political and economic relations. Book generally avoids journalistic, black and white judgments, adhering to the academic standards for writing. At the same time, the reasoning is delivered in a precise manner, helping readers without expertise in economic policy to understand and enjoy this book. Multifaceted analyses explaining various CMIM features, negotiation behaviors, main motivations, as well as a regional and global background of this initiative, equip the reader with the food-for-thought needed to advance understanding of the current state of financial integration of the East Asia as well as its possible future directions.
Piotr Sochon (2018), Review of “Negotiating Financial Agreement in East Asia: Surviving the Turbulence”, by Kaewkamol Karen Pitakdumrongkit, East Asian Integration Studies, Vol. 11, no. 5.