Jakarta and Manila sign repo pact

Jakarta and Manila sign repo pact

JAKARTA (JP): The central banks of Indonesia and the Philippines signed a memorandum of understanding yesterday, establishing a repurchasing agreement line which will provide an alternative source of liquidity for both parties.

The memorandum was signed by Bank Indonesia Governor Soedradjad Djiwandono and Gabriel C. Singson, Governor of the Philippine central bank.

A statement from Bank Indonesia said the agreement with the Philippine central bank was the sixth similar accord concluded with central banks in the Asia-Pacific region.

Bank Indonesia signed repo agreements with the central banks of Malaysia, Singapore, Hong Kong, Thailand and Australia last year.

The repo agreements seem to have been prompted by the massive speculative attacks on the currencies of Indonesia, Thailand, Malaysia and Hong Kong early last year which were set off by the financial crisis in Mexico late in December, 1994.

The agreements increase the ability of the central banks to intervene in foreign exchange markets by giving them additional sources of liquidity to draw on to curb speculative attacks on their own currencies.

Bank Indonesia reiterated the importance of macro-economic stability for coping with the impact of big capital flows.

"We have also maintained an adequate amount of foreign reserves, including a standby loan, to meet our international obligations," the central bank said.

But given the accelerated globalization process of the economy and the financial markets, the management of economic and currency stability has now become more complicated, it added.

The repo agreements thus serve as an additional source of liquidity which can be drawn on whenever required, Bank Indonesia said. (vin)