Asean members renew currency swap facility
However, Tetangco said no decision was reached on the proposal to expand the Chiang Mai Initiative (CMI) into a multi-lateral undertaking that could eventually rival the International Monetary Fund (IMF) in the developing world.
Returning from the annual meeting of the IMF and the World Bank in Washington, Tetangco said the most concretely productive discussions focused on the Southeast Asian swap facility.
According to Tetangco, the Association of Southeast Asian Nations (ASEAN) signed the agreement effectively renewing the ASEAN Swap Agreement or ASA for two years.
Central banks and monetary authorities of the ASEAN agreed to establish reciprocal currency or swap arrangements, primarily to provide liquidity support for those experiencing balance of payments difficulties.
The duration, coverage, and amount of the ASA have expanded markedly since its inception in 1977 when it was originally intended to be in effect for just one year.
Since then, the swap arrangement has been extended incrementally and in 2000, the ASA members joined up with China, Japan and South Korea to form the Chiang Mai Initiative.
Data from the Asian Development Bank indicated that in November 2000, the total amount available for swap transactions under ASA was increased from $200 million to $1 billion.
In May 2005, during the 8th ASEAN+3 Finance Ministers’ Meeting, the total amount for the ASEAN Swap Arrangement was further doubled to $2 billion.
The maximum total outstanding amount of United States dollars provided by each participant under the Arrangement shall be $40 million.
During the Washington meetings, Tetangco said there was also a separate meeting of the Central Bank Governors of Asia, Latin America and the Caribbean (CEMLA) chaired by the Philippines and Peru.
Tetangco said CEMLA discussed the multi-lateralization of the CMI but so far, no agreement has been reached.
The BSP has been strongly supporting this initiative, saying that transforming the Chiang Mai Initiative into a multilateral facility would help market confidence in the country and the region in the face of uncertainty from the US’ economic prospects.
The initiative is made more urgent by the recent market turmoil which demonstrated the capability of the region to move in a cooperative fashion and contain what initially threatened to become another contagion.
According to Tetangco, the BSP supported the initiative since this would facilitate stronger regional cooperation and improve access to liquidity in case of financial turmoil in the future.
“We expect to generate an amount big enough to bolster market confidence but not too big to cause moral hazard,” Tetangco said. “We are fine-tuning the details so that it would be a facility that could be both sufficient and drawable upon in a timely manner.”
Under the currency swaps, an Asian country hit by a foreign exchange crisis like the one in 1997 would be able to borrow foreign currency from another country to beef up its reserves until the crisis was over.
Viewed as a step closer towards multilateralization, the system would allow members to activate the bilateral swap arrangements in case of an emergency.
Asian countries had been pushing for the creation of an Asian Monetary Fund after the 1997 fiscal crisis but the IMF and the US were adamantly against the idea.
The multilateralization of the Chiang Mai Initiative was seen as a step towards the proposed Asian Monetary Fund, if not officially, at least as a de facto institution performing basically the same function but more focused on regional requirements.
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