THE amended agreement on a stronger currency swap arrangement that aims to address balance-of-payments (BOP) and short-term liquidity difficulties among Association of Southeast Asian Nations (Asean) and its partner-economies in the region finally took effect on Tuesday.
This, after 27 signatures needed for the amended Chiang Mai Initiative Multilateralization (CMIM) agreement were completed last week, according to a statement from the Department of Finance (DOF) on Tuesday.
The International Finance Group (IFG) of the DOF said all finance ministers and central bank governors of the Asean and its “Plus 3” partners Korea, Japan and China, along with the Hong Kong Monetary Authority, have signed the amended CMIM.
Finance Secretary Carlos G. Dominguez III signed the amended CMIM in December last year, while the Minister of Finance, Planning and Industry of Myanmar signed the amended agreement on June 16.
Among the key points in the amended CMIM are the flexibility on the supporting period for financing linked to International Monetary Fund (IMF) lending conditions which will be done by allowing multiple renewals to match the supporting period of the IMF-supported programs; and adjustments of other financing terms under CMIM, such as the disbursement date to secure consistency with the IMF-supported program in the case of cofinancing agreements.
The amended accord also strengthened the CMIM’s coordination with the IMF by establishing a set of operational guidelines, aiming to create a shared view on economic and financial situations, financing needs and policy recommendation for cofinancing.
The CMIM IMF-delinked portion has two facilities: a Precautionary Line (CMIM-PL)—a crisis-prevention facility that may be tapped for potential crisis or liquidity difficulties; and the Stability Facility (CMIM-SF), which is for crisis resolution. Under the amended CMIM, a legal basis for conditionality was introduced that applies to both facilities—unlike before when conditionality only covered the CMIM-PL.
Other salient features of the amended CMIM: the reinforced program review and monitoring process; upgraded series of financing conditions to match the relevant IMF-supported program and easing of rules on confidentiality so that CMIM-related information could be provided for media coverage and to third parties.
As a signatory to the CMIM, which came into effect in March 2010, the Philippines may be able to borrow up to $22.76 billion from the facility to help avert an impending or actual BOP crisis.
In turn, the Philippines will also be able to provide liquidity assistance to another CMIM member if so needed.
Under the CMIM, each member-state may swap its local currency with US dollars based on certain conditions when faced with short-term liquidity or BOP problems.
The current size of the CMIM has since doubled to $240 billion and its IMF-delinked portion has since been raised to 30 percent, which means member-economies could draw up to 30 percent of their maximum borrowing amount, without being subjected to lending conditions set by the IMF.
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