Author

Yong Wook Lee is an associate professor of department of political science and international relations at Korea University.

Abstract

The 2008 global financial crisis calls for change in the U.S.-led neo-liberal financial and monetary order on a global and regional scale. After the 1997 Asian Financial Crisis, East Asia has been pursuing regional financialization by constructing institutionally cooperative mechanisms. These measures for prevention of and response to the financial crisis began with bilateral swap agreements in 2000 and then became institutionalized with the Chiang Mai Initiative Multilateralization (CMIM) and were further broadened with discussion on creating an Asian Monetary Fund (AMF), the counterpart of the current IMF. ASEAN+3 (China, Korea, and Japan) successfully launched the AMRO (ASEAN Plus Three Macroeconomic Research Office) in Singapore in May 2011, a sister organization of CMIM and an internal financial supervisory board, thereby realizing the possibility of an AMF. The revitalization of developing an internal financial market is focused on bond market expansion, as seen with the Asian Bond Market Initiative (ABMI) in 2002. ASEAN+3 established the Credit Guarantee Investment Facility (CGIF) in May 2011, a critical mechanism for bond growth in Asia and they are currently actively discussing setting up a Regional Settlement Institute (RSI), which will provide payment service for internal bond exchange.

With the international financial and monetary order in a period of transition, how can South Korea play the role of a rule shaper, encompassing not only East Asia but also the rest of the world? Supply and management of capital for stabilizing the rate of exchange, creation of a financial safety net, and economic development remain South Korea’s long terms goals of financial and monetary policies. As such, how can South Korea pursue such objectives while at the same time maintain policy autonomy in order to reflect its preference in the global and regional financial and monetary order?

In this regard, South Korea should pursue multilateralism in its financial and monetary diplomacy. As a middle power, Seoul should consider multilateralism as not only an ends but also as a means. More specifically, South Korea, while taking on the role of an honest broker, should direct its energy toward institutionalizing regional financial and monetary cooperation while at the same time participate in the rule-making process on a global-level through the G20 on the basis of its regional cooperation. A strategy encompassing both the regional and global level via the prism of multilateralism offers the possibility for South Korea to imprint its policy preference during this period of reshaping the world economic order. Through strengthening regional multilateralism, South Korea can build trust with China and Japan and gain the experience of mutual cooperation as well as direct policies together, which will help Korea’s policy preference be reflected in global institution. While it remains true that a middle-power encounters limitations in launching multilateral efforts and constructing institutional framework, it may effectively employ the ongoing multilateral framework in progress.

The full text in Korean is available here