IMF extends currency swap facility

Countries not under any program of the International Monetary Fund(IMF) can now access up to 20 percent of their currency swap facilities should they need balance of payment (BOP) or liquidity support.

The increase in the ceiling was approved by finance ministers of the Association of Southeast Asian Nations (ASEAN) in India as monetary officials said this would enable the swap facility to yield more than it would under the Chang Mai Initiative.

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said the ceiling was raised as countries in the region decided to strengthen the Chang Mai swap agreements to head off potential problems should any country in the region run into a tight BOP situation.

Under the Chang Mai Agreement, the parties had agreed that Asian countries could access the bilateral swaps up to 100 percent if they were under an IMF program, to ensure that the country would stick to economic programs prescribed by the IMF.

Countries that are not under any IMF program could only access the swap facility up to 20 percent unless they elect to go into an IMF program.

Asian countries have also been talking about the relevance of using the IMF as a trigger, especially since more and more countries in the region are no longer under any IMF program.

The Philippines, in particular, has been out of the IMF since 1999 and so has not been able to fully access the Chang Mai facility since it has no IMF program to trigger 100 percent availment.

"Initially, there was discussion to increase the availment to 20 percent," said a source who attended the meeting in India. "With many countries exiting from the IMF, that requirement might be dropped altogether although the discussions did not go that far."

As a safeguard, the source said it is possible for the Chang Mai parties to do the monitoring themselves although this would require a more formal structure for the Chang Mai facility. The Philippines itself has a pending bilateral swap agreement with China and has already completed two agreements with Japan and South Korea.

The BSP has also just recently signed a second bilateral currency swap arrangement with the Bank of Japan (BOJ) that would allow the Philippines to exchange pesos for up to $6 billion should it require BOP support or liquidity support.

The BSP said the Philippines currently had no need to tap the facility but it was an important signal to the rest of the world that should another crisis erupt, the region is prepared with mechanisms to assist each other.

Guinigundo told reporters that the facility would give the Philippines the opportunity to draw dollars and beef up its reserves without necessarily going to the IMF like it had to at the height of the 1997 crisis.

He said that under the three-year agreement, the BSP could swap its pesos for up to $6 billion from the BoJ which in turn could swap its yen for up to $500 million should either country ever need BoP support or short-term liquidity support.