$1-B RP-China currency swap to be completed in first half

The $1 billion bilateral currency swap between China and the Philippines is expected to be completed during the first semester of the year pending the resolution of the terms of the concessional loans based on the provisions of the so-called Chang Mai Initiative.

The Bangko Sentral ng Pilipinas (BSP) said the agreement was being finalized and would likely be ready for formal signing sometime during the second quarter of the year.

BSP Deputy Governor Amando Tetangco told reporters that the terms of the swap would follow the general template of the Chang Mai agreements with the final details being worked out by officials of both countries.

The proceeds of the currency swap will be used to finance government’s budget deficit for the year which is expected to reach P202 billion.

The Philippine government was originally negotiating for a $3 billion bilateral swap with China but the final grant was for $1 billion and the terms would be similar to the currency swap agreement signed by the Philippines with Japan.

The swap agreements would be part of the Chang Mai Initiative in which ASEAN countries together with Japan, China and South Korea agreed to forge as many bilateral agreements as possible.

The Chang Mai Initiative calls for a comprehensive regional financing facility that would prevent future financial crises from getting out of control such as the Asian financial crisis of 1997.

Under the Chang Mai Initiative, any country can access up to 10 percent of the entire credit line in time of emergencies. For the facility to be 100 percent available, the country has to be under an approved loan from the International Monetary Fund.

This means that an IMF program is needed as trigger to qualify for funding, effectively putting the facility out of reach of countries like the Philippines that have been sufficiently stable enough to be able to move to the so-called post-program monitoring (PPM) facilities of the IMF.