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)