Japan, RP agree on $3.0b swap deal

Japan, RP agree on $3.0b swap deal

TOKYO (Reuters): Japan and the Philippines have agreed on a US$3.0 billion dollar-peso swap facility as part of an Asia-wide currency safety net, the Ministry of Finance said on Tuesday.

The deal helps to flesh out the Chiang Mai Initiative (CMI), a symbolically important step toward closer monetary integration in Asia that some analysts say could lead eventually to the creation of a permanent Asian monetary fund.

The Tokyo-led initiative aims to avert a repeat of Asia's 1997-98 financial crisis by linking international reserves of the 10-member Association of South East Asian Nations (ASEAN) with those of Japan, South Korea and China.

The arrangement with the Philippines builds on an initial set of CMI agreements that Japan sealed earlier this year.

In May, Japan agreed to set up a $3.0 billion currency swap deal with Thailand, a $2.0 billion pact with South Korea and a $1.0 billion swap facility with Malaysia.

Under the CMI framework, the initial term of a swap deal will be three months and can be renewed seven times, officials have said.

The interest rate would be set at dollar LIBOR (the London interbank offered rate) plus a risk premium of 150 basis points for the first drawing and first renewal. A further 50 basis points would be added for every two subsequent renewals.

The initiative ties disbursements under the scheme to reforms supervised by the International Monetary Fund. In cases in which member countries are deemed to have a temporary liquidity crunch, they can borrow up to 10 percent of the swap line without a link to the IMF program.