PICS: Wikipedia and Enquirer.net
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To circumvent problems related to short term liquidity, the Japanese government has decided to extend its bilateral swap agreement. This proposed agreement with ASEAN countries including the Philippines is a purely temporary measure.
Japanese businesses are increasing their focus on the neighborhood ASEAN and increasing interaction with the regional entities. The backdrop of the financial integration of the ASEAN countries is lending encouragement to the Japanese.
However, the Japanese firms would do themselves and their business a favor if they utilize local currencies at least for the medium term. That will strengthen financial stability and the financial transactions will be convenient too.
There have been calls for strengthening the financial safety net since the global economy has seen turbulence in recent times. This was the gist of a joint statement at the end of a meeting of the finance ministers and central bank governors of ASEAN and Japan.
Consequently, to address short-term liquidity problems, Japan proposed the facility of it being able to withdraw Yen. This would be applicable under the existing Bilateral Swap Agreements (BSAs).
Moreover, Japan proposed the setting up of another BSA to meet the short-term liquidity problems. Under the proposal, the BSA value will be $40 billion which is equal to 4 trillion Yen approximately.
Filipino perspective
Bangko Sentral ng Pilipinas Deputy Governor Diwa C. Guinigundo spoke to newsmen about this proposal. The Japanese proposals had come during the 50th annual meeting of the Asian Development Bank.
He explained that, while Japan proposed an amount of $40 billion for each nation, the actual amounts might differ. The finalization will take place only after discussions with individual nations, he stated.
Furthermore, Japan will decide the final amounts according to a standardized formula for all ASEAN member nations.
The Philippines has its own BSA with Japan; it is third one and matures in October 2017, Guinigundo said. For the $12 billion that Japan is providing the Philippines, the Philippines was willing to pay back $ 500 million.
This, he explained was due to the Filipino economy being much smaller.
Guinigundo mentioned the current position that limited the BSA to 30 percent. That was because of the de-linked portion of the Chiang Mai Initiative.
The Chiang Mai Initiative
The Chiang Mai Initiative (CMI) came into existence after the Asian financial crisis of 1997.The intention was to tackle liquidity problems while assisting international financial heavyweights.
The meeting of the stake holders was held in a place called Chiang Mai in Thailand.
It is a multilateral swap agreement and includes the following:
1. The 10 members of the ASEAN,
2. South Korea,
3. Japan, and
4. The People’s Republic of China, and
5. Hong Kong (as a part of China).
It started with a pool of $120 billion and now it stands at $240 billion. The future strategy includes raising the level of assistance. Thus, you may withdraw up to 30 percent or 40 percent of your allotted amount without any questions.
Japanese Yen will be the currency for drawing, Guinigundo stated. Furthermore, he expected the BSAs to be in place by the year-end. Since the Philippines already has a BSA in place, there may only be an enhancement in their BSA.
In another move, the governors of Central banks of ASEAN countries and Japan urged for concluding the collateral agreement between the central banks of ASEAN country and the Bank of Japan.
Henceforth, this would function as a backup means when ASEAN nations face liquidity crunch in funding in local currencies.
Therefore, this will ensure the stability of financial markets within the ASEAN due to transactions in local currencies.
In conclusion, the governors and Finance Ministers reiterated their commitment to enhance local cooperation.
This will result in sustaining wholesome growth both for Japan and for the ASEAN countries over the next half century.
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Umrao Singh
umraoz.wordpress.com
Written for: Lars-Magnus Carlsson.
www.thephilippinepride.com?utm_source=rss&utm_medium=rss
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