The decision by the Asean member-countries and China, Japan and South Korea (Asean+3) to set up a $120 billion fund designed to insure against currency volatility, is a very good idea. This is not an Asian extension of what the International Monetary Fund is planning with its newly-sanctioned war-chest, but an independent initiative in keeping with the region’s long-term response to the Asian crisis of 1997. The initial response was to build up foreign exchange reserves as country-level insurance against a repeat story. The Chiang Mai Initiative, as this latest move is called, will allow the participating countries to borrow from each other to relieve any selling pressures on their own currencies. Work is also on to develop an Asian bond market — the Asean+3 meeting decided to set up a $500 million guarantee for local currency bonds issued within the region.
The obvious question is why India is not part of this grouping. It would benefit tremendously from a fund that helps to stabilise the rupee in the event of large outflows, and a source of funds outside of the US would be of great support right now. The requirements for being a part of this initiative, it has to be admitted, are steep. China and Japan are contributing 32 per cent each to the corpus and South Korea 16 per cent — the balance 20 per cent is to be contributed by the 10 Asean nations. But with India announcing its willingness to contribute $10 billion to the IMF’s coffers if need be, the problem for the country is not a shortage of money.
The answer to why India is not part of the Chiang Mai Initiative is the same as why India is not part of the Asean+3 grouping itself — the Chinese want to exclude India from what they consider their sphere of influence. Given the trade links that China has, and how the economies of the region are integrated with China’s, the influence is obvious. Combine this with other moves by China in the region, and it becomes obvious that there is more at stake than trade and currency. Beijing’s objective vis-à-vis India is to confine it to South Asia, prevent its influence from spreading further afield, and to encircle it even within South Asia. The Chinese have helped build the Gwadar Port in Pakistan, just off the mouth of the Persian Gulf, and the Chinese navy has started coming into the Indian Ocean. China is now planning a crude oil pipeline from Gwadar to its hinterland, and building a billion-dollar commercial port in southern Sri Lanka. China has also become a military supplier to Sri Lanka and is the island’s biggest donor. Beijing’s rising influence in Nepal is well-known, as are the growing strategic ties with Bangladesh. Chinese firms are beating India’s in bids for strategic hydrocarbon resources whether in Myanmar or Kazakhstan, and have invested heavily in Africa to get control of natural resources. India would be very shortsighted indeed if it fails to read these signs and get its economic, diplomatic and political act together. Failure to do so will extract a heavy price down the road.
