By Lee C. Chipongian
With improved bilateral relations between the two countries under the Duterte government – despite the confirmed presence of military weapons in the disputed Spratly Islands – China is looking to revive talks on the shelved bilateral swap arrangement (BSA) with the Philippines after an eight-year hiatus.
The previous BSA with China, amounting to $2 billion, expired in 2010. It was the Bangko Sentral ng Pilipinas’ (BSP) third BSA with the People’s Bank of China (PBoC). There have been attempts to renew the currency swap deal in 2014 but tensions over the West Philippine Sea during the time of President Aquino collapsed negotiations.
Sources attending the recent 51st Asian Development Bank Annual Meeting in Manila commented on China’s revived interest in the BSA. These BSAs are standby liquidity support or agreements between countries to mutually provide loans in foreign currencies for emergencies such as foreign currency fund shortage.
Talks were apparently initiated between the two countries and became “live” again after President Duterte’s visit to Beijing last April as one of the speakers at the Boao Forum for Asia. He came away from that trip with six bilateral agreements for financial assistance.
The same sources said the government is currently studying the BSA with China and possible increase in the currency swap amount.
China has been pushing for the internationalization of the renminbi (RMB) and the BSA is part of the program to make sure its currency stays liquid, along with the “One Belt, One Road” strategy. Based on a PBoC report, from 2008 to 2016, China as forged 36 currency swap agreements with central banks across the globe worth $480 billion (3.05 billion yuan).
When interviewed, BSP Governor Nestor A. Espenilla Jr. said there were no active multilateral or bilateral agreements reached on the sidelines of the three-day ADB meetings.
Espenilla confirmed that there were “not much talks” but there were meetings with multilateral agencies such as the International Monetary Fund and initial bilateral discussions but did not supply details on these meetings.
China’s BSA with the Philippines – if it pushes through – will be the second one following the BSP’s agreement with the Bank of Japan (BOJ) for the implementation of both countries’ third BSA worth $12 billion. The swap deal includes a crisis resolution facility which is a crisis prevention scheme to address potential liquidity needs. The BSP and BOJ also implemented a peso-yen swap facility through its cross-border liquidity arrangement.
In the meantime, the Philippines is set to hold official talks with other ASEAN nations plus Japan, China and South Korea or ASEAN+3 in December for the $240-billion Chiang Mai Initiative Multilateralization (CMIM) swap facility.
The central bank governors and finance ministers met to discuss ASEAN concerns including the CMIM last week in preparation for an end-2018 agreement. The sessions were part of the ADB meetings.
The Philippines has a committed contribution of $9.1 billion in the swap facility. It is the same amount committed by Indonesia, Thailand, Malaysia and Singapore.
The CMIM, which is basically a multilateral currency swap contract which covers all ASEAN+3, enhances the network of BSAs among member countries.
The Chiang Mai Initiative, established in 2000, is mostly currency swaps, which refer to a framework in which agreements are made beforehand to mutually provide loans in foreign currency funds from a foreign currency reserve in times of emergency, such as the inability to settle trade transactions because of a foreign currency fund shortage.