ASEAN Swap Arrangement, 1977–2021

On August 5, 1977, the central banks of the first five ASEAN member countries (Indonesia, Malaysia, Philippines, Singapore, and Thailand) established the ASEAN Swap Arrangement, under a memorandum of understanding (MoU). The stated purpose, in addition to broadly promoting monetary cooperation, was “to provide immediate short-term swap facilities to participating ASEAN member countries with temporary international liquidity problems” (ASEAN 1977b, Article 1).

In May 2000, the finance ministers of the ASEAN member states, which by then had grown to 10, joined with China, Japan, and South Korea (collectively referred to as ASEAN Plus Three) and announced the Chiang Mai Initiative:

To strengthen our self-help and support mechanisms in East Asia through the ASEAN + 3 framework, we recognized a need to establish a regional financing arrangement to supplement the existing international facilities. As a start, we agreed to strengthen the existing cooperative frameworks among our monetary authorities through the “Chiang Mai Initiative.” (APT 2000)

The CMI expanded the capacity of the ASA and established a new network of bilateral swap agreements among the 13 APT countries (APT 2000).

Following the expansion of the ASA, its stated purpose changed slightly. The ASA’s most recent MoU, which entered into force on November 17, 2005, listed its purpose as providing short-term foreign exchange liquidity support to ASEAN countries experiencing problems with balance of payments (ASEAN 2005a).

The ASEAN central banks introduced the ASA following an August 1977 conference during which ASEAN leaders discussed political and economic cooperation initiatives. In addition to the ASA, leaders established oil- and rice-sharing arrangements to prioritize the sale of such goods to members experiencing shortages, as well as agreements to reduce various tariffs between the members (Andelman 1977).

The expansion of the ASA in 2000 was one of two components of the CMI. The CMI constituted an agreement to pursue future negotiations regarding (a) an expansion the ASA network to include all ASEAN countries, and (b) the development of new bilateral swap agreements (BSAs) among the ASEAN countries and Japan, China, and South Korea (APT 2000).

The network of BSAs that emerged out of the CMI differed from the ASA in three main ways: (a) BSAs were negotiated bilaterally and did not constitute a common commitment pool, although the terms of the arrangements were often similar; (b) BSAs included the large Plus Three countries, and thus the size of the swaps were significantly larger; (c) BSAs had an IMF link, which required a borrower to have an IMF program in place to access the full amount of a swap (Chandrasekhar 2021; Henning 2002, 17). See Hoffner (2023) for more information on the CMI’s BSAs.

The ASA was a multilateral currency swap agreement based on a memorandum of understanding among the governors of the 10 ASEAN central banks (ASEAN 2005a). The legal authority differed by country. For example, the Philippines, one of the participating countries, listed the MoU as a treaty ratified through a senate resolution (Senate of the Philippines 1977).

The central banks of the ASEAN countries governed the arrangement amongst themselves using an agent bank to coordinate negotiations and resolve disputes over swap terms, amendments, and renewals (ASEAN 2005a). The agent bank served for two years and was appointed on a rotational basis among the ASEAN member countries based on alphabetical order (Bank Negara Malaysia 2000). If a participating member was unable to act as agent bank, the role rotated to the next member in advance of the standard two-year tenure. The agent bank bore the administrative expenses it incurred in implementing the ASA agreement (ASEAN 2005a).

The ASA’s MoUs and supplementary agreements are publicly available, revealing all the terms of the arrangement. In contrast, the participating ASEAN Plus Three central banks and finance ministers have not revealed the bilateral swap agreements that underpin the CMI (Henning 2002, 15).

The ASA was not a standing fund but a commitment pool wherein participating central banks pledged financial contributions—self-managed reserves—only transferred during a swap draw. The ASA appointed a participating central bank as the standing agent bank, serving on a two-year rotational basis based on the alphabetical order of the country (ASEAN 2005a; Bank Negara Malaysia 2000). The agent bank administered the drawing process—initiated by a requesting member’s submitting a request to the agent bank—and was responsible for any administrative expenses. Thereafter, the agent bank monitored the outstanding balances, which it disclosed upon requests by other members (ASEAN 2005a).

Members also went through the agent bank for renewal requests, to help resolve disputes, and requests for modifications of the agreement (ASEAN 2005a). The ASA agreement initially was for a period of one year and was renewed. In 2005, the new agreement had a term of two years. The agreement was subject to renewal, and the agent bank initiated consultations with the members at least two months before the expiration (ASEAN 2005a).

The finance ministers of ASEAN countries hold an annual summit—ASEAN Finance Ministers’ Meeting (AFMM)—in the spring, and provide a statement on developments in ASEAN cooperation, including the ASA (ASEAN 2005b). The participating central banks’ annual reports also include information on ASA contributions and whether or not the facility had been activated (MAS 2021).

When signed in August 1977, the ASA included the central banks of the then five ASEAN member countries: Indonesia, Malaysia, the Philippines, Singapore, and Thailand (ASEAN 1977b).

By 2000, when the CMI called for an expansion of the ASA, ASEAN membership had grown to 10 countries with the addition of Brunei (1984), Vietnam (1995), Laos (1997), Myanmar (1997), and Cambodia (1999) (ASEAN n.d.a).

In 1977, the ASEAN countries established the ASA as a committed pool of USD 100 million total, as the maximum amount available. Though there was no standing fund, each of the five participating countries agreed to provide up to USD 20 million in the event of the facility’s activation (ASEAN 1977b). In 1978, the ASEAN countries doubled the size of the pool to USD 200 million, also doubling each contribution to USD 40 million (Henning 2002, 14).

With the expansion of the ASA participant base under the CMI, the ASA pool also increased to USD 1 billion, effective November 2000 (APT 2001). In 2005, the ASEAN members once again doubled the pool size to USD 2 billion along with equivalent increases to individual contributions (APT 2005; ASEAN 2005a).

With the expansion in 2000, the ASA fixed contributions according to each member’s ability to pay, as listed in Figure 2, which also determined the size of swap that a participating country could request; such a request was limited to twice the committed amount by the respective participating member (ASEAN 2005a; Rana 2002).

Source: ASEAN 2005a.

The process for a swap draw began with a member submitting a swap request to the agent bank (ASEAN 2005a). If multiple participants requested swap draws, the ASA prioritized requests in chronological order and further prioritized any participant that had not used the facility within the past year (ASEAN 1977b; ASEAN 2005a).

In the request, the member indicated the amount of swap in USD, the duration of borrowing, and the value date (date on which funds were transferred), which had to be at least seven business days after the request. As part of the request, the member was required to attach an assessment of its domestic economic situation and balance of payments outlook (ASEAN 2005a).

The day of the request, the agent bank informed the remaining members regarding the size of the request and the expected contribution to be provided by each member. Within two business days, each lending member had to confirm whether or not they would participate in the arrangement (ASEAN 2005a). The remaining (nonrequesting) members were expected to fund the swap in the weighted proportions of their contributions to the ASA (ASEAN 2005a). The ASA allowed a member to provide a partial contribution under “exceptional financial circumstances” or opt out entirely if the member was under an IMF Policy Program or if its foreign reserves were less than three months of retained imports (ASEAN 2005a, 4).^FAccording to Singapore’s department of statistics, retained imports are “goods imported and kept in the country for domestic use” (Singapore DOS n.d.).

While the ASA called for the remaining (non-requesting) members to finance the swap, a member was allowed to opt out (or provide partial funding). In the event of an opt-out, the agent bank negotiated with the other members to proportionally increase their funding shares and delayed the value date to 14 days after the date of request (ASEAN 2005a).

Once lending members confirmed their participation, they indicated the amount and type of currency they could make available. Notably, lending members, reserved the right to determine the type of currency provided in the swap transaction. Thereafter, the agent bank informed the borrowing member of the size and type of available swap funds. The borrowing member then opened a local currency account for each of the lending countries. At least two days before the value date, the agent bank had to inform all participating parties of the payment information and confirm the swap size, spot and forward conversion rates, and maturity (ASEAN 2005a).

Form of Swap

The ASA allowed a member to request swaps of US dollars, yen, or euros against the member’s domestic currency. The transaction involved a spot purchase of the requested currency against the domestic currency and simultaneous forward sale of the requested currency against the same amount of domestic currency. The domestic currency, as collateral, remained in non-interest-bearing accounts of the lending central banks, maintained by the borrower, and could not be used except for the reversal of the swap (ASEAN 2005a).

See Key Design Decision No. 11, Duration of Swap Draws, for discussion of the periods of the swap drawdowns.

Aside from the ASA’s stated purpose—to provide foreign currency liquidity for member central banks experiencing balance of payment issues—research has not found information on downstream usage of swaps (ASEAN 2005a). Between 1977 and 2000, the ASA was used five times: Indonesia in 1979, Malaysia in 1980, Thailand in 1980, and the Philippines in 1981 and 1992 (Henning 2002, 14).

At its signing in 1977, the ASA offered swaps with maturities of one, two, or three months. In addition, participants could renew a swap once for a maximum of three months (bringing the maximum duration of a swap to six months), absent other swap requests. If another participant had requested a swap, the ASA prioritized granting new swaps over approving renewals (ASEAN 1977b).

With the expansion of the ASA through the CMI in November 2000, the ASA added maturities of six months, with the maximum duration of a swap, inclusive of renewals, limited to six months (ASEAN 2005a; Rana 2002). That is, if a participant received a six-month swap, it would not be eligible for a renewal. The expanded ASA also stipulated a cooling-off period, requiring a participant to wait six months after reversing a swap draw before making a new swap request (ASEAN 2005a).

The 2005 ASA MoU noted that the renewal process followed the same steps as the initial requests to draw on a swap; see Key Design Decision No. 9, Process for Utilizing the Swap Agreement. Additionally, the borrowing member had to file a request at least seven business days before the maturity of the initial swap (ASEAN 2005a).

For the ASA, swaps for US dollars, yen, or euros were exchanged for a borrower’s local currency at a spot rate, calculated using the mean of the closing interbank exchange rates two days before the value date (ASEAN 2005a). If interbank exchange rates were not available, the spot rate was based on the mean of the buying and selling rates fixed by the central bank, or the exchange rate set by that authority.

The ASA embedded an interest margin in the forward rate for the reversal of a swap transaction. Both the 1977 and 2005 memoranda applied an annual (360-day) interest rate to the term of the swap. The interest rate for the 1977 MoU was the Eurodollar deposit rate with no premium applied (ASEAN 1977b). The 2005 MoU computed the interest rate as the (US dollar, euro, or Japanese yen) LIBOR rate plus a premium of 25 bps (ASEAN 2005a).

In addition, the 2005 MoU included a stipulation for interest on delayed repayments. In addition to the standard forward rate interest, unpaid balances carried an additional margin of 100 bps annualized (ASEAN 2005a).

Outside of the local currency provided by borrowing countries as collateral for swaps, the ASA did not include other balance sheet protection measures.

The ASA did not carry additional restrictions, such as IMF linkages, as is the case with the Chiang Mai Initiative Multilateralization. In contrast to the ASA, the CMIM requires borrowers have IMF programs in place to be eligible for the full swap quota. CMIM borrowers can access only 40% of their swap quota without an IMF program, whereas, the ASA had no such restriction (BSP 2022).

Outside of the ASA and individual foreign exchange (FX) reserves, ASEAN countries can borrow international liquidity through the IMF, CMIM, and, depending on the country, bilateral swap agreements with other Asian countries. A 2018 AMRO^FAMRO, short for the ASEAN+3 Macroeconomic Research Office, is an international organization that provides regional macroeconomic surveillance to support financial stability amongst ASEAN Plus Three countries, which includes assisting in the implementation and development of the Chiang Mai Initiative Multilateralization (AMRO n.d.). working paper compares the sizes of these other funding options for ASEAN Plus Three countries. See Figure 3.^FThe table in Figure 3 comes from an AMRO working paper produced in 2018. The 2023 IMF de-linked portion of the CMIM is set at 40%, as mentioned in Key Design Decision No. 14, Other Restrictions.

Source: Kadogawa et al. 2018. Notes:

Since 1977, there have been three iterations of the ASA, characterized by unique MoUs: in 1977, 2000, and 2005 (ASEAN 1977a; ASEAN 2005a). Accompanying each of the MoUs were several supplementary agreements, usually specifying a renewal of the ASA (ASEAN 1977a). The agent bank initiated the consultations with members to renew the ASA at least two months before the set expiration date (ASEAN 2005a).

The first iteration of the ASA in 1977 expired in one year, subject to annual renewals (ASEAN 1977b). In 1979, the duration of the agreement increased to three years. In 1982, the duration increased to five years (ASEAN 1979; ASEAN 1982). Research has not been able to locate the 2000 MoU, but at least since the 2005 MoU, the duration of the agreement has stayed at two years (ASEAN 2005a). The ASA expired on November 16, 2021, and has yet to be renewed (BSP 2022).