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