Finance Secretary Carlos Dominguez III has asked Japan to back an Association of Southeast Asian Nations (ASEAN) proposal to raise the International Monetary Fund (IMF)’s de-linked portion (IDLP) for its $240-billion currency swap mechanism from 30 percent to 40 percent to further strengthen the region’s financial safety nets in the face of global market uncertainties.
This proposal pertains to the Chiang Mai Initiative Multilateralization (CMIM) mechanism, which is a currency swap agreement among the finance ministries and central banks of the ASEAN + 3 (China, Japan and South Korea) economies that aims to provide financial support for short-term liquidity problems.
Under the agreement, each ASEAN member can swap its local currency with US dollars based on certain conditions. The size of the CMIM doubled from $120 billion to $240 billion and the IMF-delinked portion increased from 10 percent to 30 percent, which means members can now draw up to 30 percent of their maximum borrowing amount without requiring IMF lending conditions.
The ASEAN finance ministers and central bank governors have been discussing since 2012 to raise the de-linked portion to 40 percent.
Dominguez, who sought Japan’s support for the proposal during the recently concluded Finance Ministers and Central Bank Governors’ Meeting between ASEAN and Japan, also cited the decades-old “symbiotic relationship” between ASEAN and Japan.
The meeting was attended by finance and central bank officials from the Philippines, Japan, Indonesia, Singapore, Brunei, Malaysia, Lao PDR, Myanmar, Cambodia and Vietnam.
He likewise noted that Japan remains the Philippines’ biggest aid provider and a major source of investments and remittance from overseas Filipino workers.
“On the ASEAN +3 Finance and Central Bank Process, I would also like to seek the support of Japan for the increase in the IMF de-linked portion (IDLP) from 30 percent to 40 percent for the CMIM,” said Dominguez in his speech at the Finance Ministers and Central Bank Governors’ Meeting between ASEAN and Japan, which was held at the Pacifico Yokohama Conference Center.
“This will strengthen the region’s financial safety nets, project a positive signal in the global markets, and enhance the credibility of the CMIM,” Dominguez said.
He said “the increase in the IMF de-linked portion will also minimize the downside risks from the normalization of US monetary policy and the Brexit, among other external factors.”
In a statement issued after its meeting with the ASEAN finance ministers and central bank governors, Japan said it had proposed to set up a yen-based fund that will provide up to $40 billion (approximately 4-trillion yen) to ASEAN economies under bilateral currency swap arrangements.
The joint statement issued after the ASEAN+3 meeting of finance and central bank officials stressed the “significant progress that has been made in working towards the potential increase of the IMF De-Linked Portion.” The joint statement cited the “revision of the CMIM Operational Guidelines to clarify the activation process of the IMF De-linked Portion of the CMIM, as well as the progress in the preparation of the CMIM Conditionality Framework and the endorsement by the finance and central bank deputies of the “assessment methodology on the increase in the IMF De-linked Portion.” The finance and central bank officials also said they “look forward to further progress on this issue.”
Both the Finance Ministers and Central Bank Governors’ Meeting between ASEAN and Japan and the ASEAN + 3 Finance Ministers and Central Bank Governors’ Meeting were held last week on the sidelines of the 50th Annual Meeting of the Asian Development Bank.
Dominguez acknowledged and welcomed Japan’s “Expanded Partnership for Quality Infrastructure” initiative, which will provide financing of approximately US$200 billion in the next five years to infrastructure projects across the globe.
He also cited Japan’s goal of “vibrant connectivity,” in which the infrastructure in the region will be connected and utilized through institutional improvements, including trade facilitation and the development of the areas along economic corridors.
Japan’s support for the further integration of the ASEAN economies, Dominguez said, “is bound to continue and be strengthened especially with the ASEAN-Japan Free Trade Agreement and Regional Comprehensive Economic Partnership (RCEP), where freer flow of goods and services is expected to happen in the region.”
Dominguez and other Philippine officials were in Yokohama last week to attend the ADB Board of Governors’ 50th Annual Meeting and other related meetings.
The finance secretary assumed the chairmanship of the ADB Board of Governors ahead of this multilateral lender’s 51st Annual Meeting in 2018 that will be held in the Philippines.
