The Bangko Sentral ng Pilipinas (BSP) said 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.
BSP Governor Amando M. Tetangco Jr. said yesterday that the BSP is supporting the multilateralization of the Chiang Mai Initiative which would make the facility a more “effective and disciplined framework.”
The initiative was started early this year when the Association of Southeast Asian Nation (ASEAN) together with China, Japan and South Korea known as the Asean+3 agreed to expand the system of bilateral currency swaps.
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 is over.
The Chiang Mai Initiative also initiated an economic surveillance system intended to detect irregularities early and apply swift remedies.
Viewed as a step closer towards multilateralization, the system would allow members to activate the bilateral swap arrangements in case of an emergency.
For the Philippines, Tetangco said the expansion of the initiative would add another cushion against disruptions in the market.
“It will be useful to the Philippines because added to our increasing level of GIR, a standby facility from the Chiang Mai package will further increase market confidence,” he said. “From a regional perspective, it underlines a united front of countries ready and able to deal with financial turbulence.”
Asian countries had been pushing for the creation of an Asian Monetary Fund (AMF) after the 1997 fiscal crisis but the International Monetary Fund (IMF) and the US were adamantly against the idea.