$120 billion available under Chiang Mai Initiative - Asean central bank chiefs

MANILA, Philippines - Finance ministers and central bank governors of the Association of Southeast Asian Nations (Asean), China, Japan, and Korea announced yesterday the availability of the $120-billion fund under the Chiang Mai Initiative to address the balance of payments and short-term liquidity difficulties in the region.

In a joint statement, the ministers and governors announced that the Chiang Mai Initiative Multilateralization (CMIM) agreement took effect yesterday to supplement existing international financial arrangements and at the same time provide financial support through currency swap transactions among participants in times of liquidity need.

With the agreement taking effect, any member with a need foreign currency may tap from the communal pool for balance of payments support as and when necessary.

“The successful launch of the CMIM, together with an independent regional surveillance unit to be established, demonstrates the solid commitments and concerted efforts of Asean plus 3 members to further enhance regional capacity to safeguard against downside risks and challenges in the global economy,” the statement read.

The facility initiated by Asean members, China, Japan, Korea and the Monetary Authority of Hong Kong had been planned ever since the region plunged into a crisis in 1997 but the agreements advanced only on a bilateral basis.

The Philippines had separate bilateral agreements with China, Japan and Thailand for many years after the 1997 financial crisis, agreements that had to be renewed annually or every few years thereafter.

With the multilateralization, countries observe only a single contract and set aside a portion of their foreign exchange reserves as contribution to the liquidity pool.

“Each participant is entitled, in accordance with the procedures and conditions set out in the agreement, to swap its local currency with US dollars for an amount up to its contribution multiplied by its purchasing multiplier,” the official said.

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo earlier explained that the country’s contribution to the pool would physically remain with the Philippines but the central bank would have to set aside $3.68 billion of its gross international reserves (GIR) readily available as and when required.

The agreement binds the Philippines to set aside 3.07 percent of its GIR for the common pool but at the same time entitles it to draw 2.5 times its contributions should this be necessary.

In return, the Philippines could quickly tap up to $9.2 billion from the pool for BOP purposes whenever necessary.

Japan contributed $38.4 billion followed by China excluding Hong Kong with $34.2 billion, and Korea with $19.2 billion.

Indonesia, Thailand, Malaysia, and Singapore contributed $4.77 billion to the fund.