The central banks of the Philippines and Japan on Friday signed their amended third bilateral swap agreement (BSA), a stopgap measure for short-term liquidity problems.
The Bangko Sentral ng Pilipinas (BSP) and the Bank of Japan, which acted as the agent for Japanese Finance Minister Taro Aro, signed the restated BSA, which also took effect Friday.
Similar to the original BSA that expired this month, the restated agreement “enables the Philippines to swap its local currency against Japanese yen, in addition to US dollars of up to $12 billion equivalent for the Philippines and $500 million for Japan,” the BSP said in a statement.
“The authorities of both countries believe that the strengthened bilateral financial cooperation will contribute to the stability of financial markets, promote the use of local currency including the Japanese yen in Asia in the medium term, and thereby further develop growing economic and trade ties between the Philippines and Japan,” according to the BSP.
During a meeting of finance ministers and central bank governors from the Asean and Japan in Yokohama last May, the Japanese government proposed to extend its various BSAs with the different countries.
“As economic ties between Asian and Japan strengthen amid the Asean financial integration and increasing activities of Japanese firms in the region, it is important to promote the use of local currencies in cross-border transactions in the region over the medium term. Facilitating the funding of yen in Asean will contribute to further regional stability. Meanwhile, there is also renewed demand for strengthening regional financial safety net in view of recent uncertainty in the global economy,” read the joint statement issued after the meeting.
“Upon these considerations, Japan proposes to make it possible to withdraw yen under the existing BSAs as well as to establish a new type of BSA with size of up to $40 billion (approximately 4 trillion yen) to address short-term liquidity problems,” the statement added.
As early as May, BSP Deputy Governor Diwa C. Guinigundo had said the Japanese government was “prepared to provide the BSA—those are actually enhancements and new BSAs.”
Guinigundo had said each Asean member may be extended a maximum of $40 billion each, with the actual amount subject to discussion depending on a standardized formula.
“We have our own BSA with Japan. This is now the third BSA that we have, which will mature in October of 2017. It provides for $12 billion from Japan to us, and in case Japan encounters a problem, we’re prepared to give them $500 million. There’s a disparity for obvious reasons—we’re a smaller economy,” Guinigundo had explained.
Guinigundo had noted that at present, the BSA was limited to 30 percent of the maximum drawable amount in line with the Chiang Mai Initiative, the multilateral currency swap arrangement among Asean’s 10 member-states, China, Japan and South Korea.
“I think they’re going to enhance that and adjust it to a higher level. So if you encounter a problem in your balance of payments—a very short-term liquidity problem, you can draw as much as 30 or 40 percent without condition,” according to Guinigundo, adding that the BSAs would also allow a drawdown in Japanese yen.