By Mohamed A. El-Erian
Asia wants a new specialized bank to fill the gaps left by the World Bank and the Asian Development Bank. In contrast to its last effort to create a supranational monetary institution back in the 1990s, it might actually succeed.
Asian countries have long felt underserved and misunderstood by the World Bank and the International Monetary Fund, initially set up after World War II to, respectively, fund development projects and help governments manage temporary financial difficulties. In the midst of the 1997-1998 Asian financial crisis, they sought to establish an Asian monetary fund designed to respond better to the needs of the region. Amid considerable international opposition, notably from the U.S., they ended up with a collection of less ambitious financial arrangements, such as a multilateral currency swap mechanism known as the Chiang Mai Initiative.
There were good and bad reasons for the opposition. The U.S., and to a lesser extent Europe, felt that an Asian monetary fund would undermine global cross-border coordination and would be too vulnerable to the kind of political pressures that arise in crisis situations. China, for its part, seemed rather noncommittal.
The U.S. and Europe also wanted to maintain the power that their historical domination of the IMF and the World Bank afforded. So they preferred to promise Japan and other Asian nations reforms to the existing institutions, as a means of forestalling the creation of a new one over which they would exercise limited direct control. The reforms, though, haven’t been deep enough to satisfy Asia's needs, and confidence in the process has been undermined further by the U.S. Congress's failure to pass what everyone admits is only a modest set of changes in representation and voice.
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