Five central banks tie in cooperation<\/p>\n
By Hendarsyah Tarmizi<\/p>\n
HONG KONG (JP): Central banks and monetary authorities from
\nIndonesia, Malaysia, Thailand, Hong Kong and Australia agreed in
\na meeting here yesterday to cooperate in curbing possible
\nspeculative attacks on their currencies.<\/p>\n
The cooperation included the signing of a memorandum of
\nunderstanding on the repurchase of U.S. treasury notes to provide
\nliquidity on a bilateral basis and the exchange of information
\nand views on currency speculation.<\/p>\n
Bank Indonesia Governor J. Soedradjad Djiwandono said that the
\ncooperation would allow central banks and monetary authorities to
\nsell their U.S. treasury notes to their counterparts under a
\nrepurchase agreement to enhance their liquidity.<\/p>\n
\"This is an important breakthrough in cushioning the impact of
\ncurrency speculation,\" Soedradjad said following the signing of
\nthe accord.<\/p>\n
In the meeting, Bank Indonesia signed the repurchase
\nagreements with central banks and monetary authorities of Hong
\nKong, Thailand and Australia. The Indonesian central bank signed
\nsimilar agreements with the Monetary Authority of Singapore on
\nSaturday and with the Malaysian central banks in late October.<\/p>\n
Most of the central banks attending yesterday's meeting also
\nsigned similar agreements among themselves.<\/p>\n
The 10 countries represented in the meeting have a combined
\ngross national product (GNP) of US$7.36 trillion and foreign
\nexchange reserves of $403 billion.<\/p>\n
The repurchase agreements will enable the Asian countries to
\nwork more effectively in using their financial power to contain
\ncurrency speculations, Soedradjad said.<\/p>\n
Soedradjad said that the repurchase agreement gives Indonesia,
\nan additional instrument to strengthen its liquidity if rupiah is
\nunder speculative attacks.<\/p>\n
Southeast Asian currencies, including Indonesian rupiah, Thai
\nbaht, Malaysian ringgit and the Philippine peso were badly
\nbattered during Mexico's crisis in January.<\/p>\n
Mexico devalued its peso by 15 percent on Dec. 20, 1994, but
\nthe impact of the move caused the currency to lose nearly 50
\npercent of its value, causing a massive outflow of foreign funds
\nfrom the country. Foreign fund managers in Southeast Asia also
\ndumped their portfolio investments on fears that a Mexican-style
\ncrisis would also hit the region.<\/p>\n
Bank Indonesia spent US$500 million in just a few days to curb
\nspeculative attacks on the rupiah. The central banks of Malaysia,
\nThailand and the Philippines also sold a large amount of dollars
\nto stabilize their currencies at the time.<\/p>\n
Fears of a Mexican-style crisis still hunt Indonesia even
\nthough its economic fundamentals bear no resemblance at all to
\nthose of Mexico, Soedradjad said.<\/p>\n
He said that the repurchase agreement is, therefore, essential
\nfor dealing with a possible speculative attack on rupiah even
\nthough Indonesia's economy remains fundamentally sound.<\/p>\n
\"Our foreign reserves are enough to finance imports for five
\nmonths. The amount of standby loans for Bank Indonesia is also
\nlarge enough,\" he said.<\/p>\n
In addition to the repurchase agreement, the Asian central
\nbanks also signed a number of cooperation arrangements, such as
\nthat on the exchange of views and information on speculation in
\ntheir respective countries.<\/p>\n
\"We will continue to expand cooperation in the future in other
\naspects of banking activities,\" he said.<\/p>\n
In yesterday's meeting, Australia proposed the establishment
\nof a settlement bank for Asia like that of the Bank for
\nInternational Settlement.<\/p>\n
Although, the establishment of such a bank still needs further
\ndiscussions, the Australian proposal indicated that Asian
\ncountries still have the opportunity to expand their financial
\ncooperation. (hen)<\/p>",
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