ASEAN renews $2-B forex support fund

By Lawrence Agcaoili

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BSP Governor Nestor Espenilla signs the 6th supplemental MOU renewing the $2-B short-term forex liquidity support fund.

MANILA, Philippines — The Association of Southeast Asian Nations (ASEAN) has renewed for the sixth time the $2 billion in short-term foreign exchange liquidity support for member countries experiencing balance of payments difficulties.

The Bangko Sentral ng Pilipinas (BSP) and other ASEAN member central banks signed the sixth supplemental memorandum of understanding on the ASEAN Swap Arrangement (ASA) last Oct. 12.

BSP Governor Nestor Espenilla Jr. signed the agreement extending the ASA for two years starting Nov. 17.

The ASA involves the provision of $2-billion short-term foreign exchange liquidity support for Asean member countries that experience balance of payments difficulties.  

The Philippines’ contribution commitment of $300 million allows the country to draw up to  $600 million as the need arises.

“The ASA is part of the regional safety net. We are utilizing as additional foreign exchange liquidity buffer. That’s over and above our gross international reserves,” he said in a text message.

The GIR is the sum of all foreign exchange flowing into the country. The reserves serve as buffer to ensure that the Philippines would not run out of foreign exchange that it could use to pay for imported goods and services, or maturing obligations in case of external shocks.

The GIR level of the Philippines stood at $81.35 billion in September, enough to cover 8.5 months’ worth of imports of goods and payments of services and income.

The buffer is also equivalent to 5.5 times the country’s short-term external debt based on original maturity and 3.6 times based on residual maturity.

The ASA provides the country an additional safety net similar to other regional financial arrangements including the Chiang Mai Initiative Multilateralization (CMICM) under the ASEAN+3.

Central banks and monetary authorities of the original ASEAN – 5 agreed to establish reciprocal currency or swap arrangements in August 1977.

Originally intended to be in effect for just one year, the arrangement has been extended incrementally.

The CMIM expanded the ASA to all current ASEAN members during the ASEAN+3 Finance Ministers’ meeting held in May 2000.

“Other similar buffers we have include the CMIM and the bilateral swap arrangement with Japan. The BSP has exerted a great deal of effort to make the economy resilient to any foreign exchange liquidity crisis,” Espenilla said.

The total amount available for swap transactions under ASA was increased to $1 billion from $200 million in November 2000 and was doubled to $2 billion during the 8th ASEAN +3 Finance Ministers’ Meeting in May 2005.

Current ASEAN members include Brunei Darussalam, Cambodia, Indonesia, the Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.              

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