The Bangko Sentral ng Pilipinas announced today the signing of the agreement on the Bilateral Swap Arrangement (BSA) under the Chiang Mai Initiative (CMI). The BSA, which came into force on 17 October 2005, was entered into between the Bangko Sentral ng Pilipinas (BSP) and the Bank of Korea (BOK). The BSA Agreement shall be effective for a two-year period and may be extended by agreement between the BSP and BOK.
The Agreement renews the BSA between the BSP and BOK, which was signed on 9 August 2002. The previous BSA, which has a validity period of three years from date of signing, expired on 8 August 2005.
The BSA between the BSP and BOK reflects the measures adopted by the ASEAN+3 Finance Ministers during their meeting on 4 May 2005 in Istanbul, Turkey, to enhance the effectiveness of the CMI as a foreign exchange liquidity support mechanism. The size of the two-way swap was increased from US$1 billion to US$1.5 billion. The size of the swap that could be withdrawn without the IMF-support program was also increased from 10 percent to 20 percent of the total swap amount.
The BSA would enable the BSP and BOK to swap their local currencies (i.e., either Philippines pesos or Korean won) totaling US$1.5 billion in the event that an immediate need arises that would require balance of payments or short-term liquidity support.
The new BSA between the Philippines and Korea signals the continued solidarity of the ASEAN+3 member countries in promoting regional stability. The increase in the size of the BSA will provide more substantial, immediate, short-term foreign exchange liquidity support for member countries to endure sharp reversal of capital flows in the region.