Andi Haswidi and Aditya Suharmoko , The Jakarta Post , Tokyo/Jakarta | Tue, 07/07/2009 10:16 AM | Headlines
Japan and Indonesia signed a new currency swap agreement Monday on which the latter will have access to an additional 1.5 trillion yen (US$15.7 billion) of reserves as a precautionary measure in the event of a financial crisis.
“This currency swap scheme will serve as our second line of defense,” said Finance Ministry’s head of fiscal policy agency, Anggito Abimanyu, in Tokyo, representing the Indonesian government.
Anggito was speaking to reporters following a meeting with Naoyuki Shinohara, Japan’s vice finance minister for international affairs, earlier in the day.
Anggito said although the yen was relatively lower than the US dollar in terms of value, the large currency reserve would help Indonesia with significant leverage in warding off currency speculators.
In Jakarta, Finance Minister Sri Mulyani Indrawati confirmed the agreement.
“The swap is in case Indonesia and Japan need direct transactions, and to support the balance of payments,” Finance Minister Sri Mulyani Indrawati said in a press conference at her office.
“Of course we should be careful that in 2010 [the economy] may [still] not yet be normal.
“It is to support the country’s balance of payments from being hit [by negative impacts of the global economic downturn],” she added.
Japan believes these resources will help stabilize the economic situation in Indonesia, increase market confidence, and underpin the continuing reform agenda as well as financial instruments, she said.
Monday’s agreement will come on top of two similar deals already secured by the Indonesian government, all aimed at providing emergency balance of payments support whenever a crisis might strike the country, potentially resulting in extreme devaluation and capital flight, as happened in the Asian banking and financial crisis in the late 1990s.
In the two previous agreements however, the swaps would be carried out in US dollars.
The two agreements were a $12 billion dollar-denominated currency swap deal — also with Japan which was struck during a recent ASEAN+3 meeting in Thailand, and another $11.9 billion swap agreement under the so-called Chiang Mai Initiative Multilateralization (CMIM) scheme.
The Chiang Mai Initiative, originated by ASEAN members, aims to create a network of bilateral swap arrangements between ASEAN+3 countries to address short-term liquidity difficulties in the region and to supplement existing international financial arrangements.
ASEAN+3 includes the 10 members of the Association of Southeast Asian Nations — the Philippines, Indonesia, Thailand, Malaysia, Singapore, Brunei, Vietnam, Myanmar, Cambodia and Laos — as well as three East Asian nations; Japan, China, and South Korea.
Back in Tokyo, Hartadi A. Sarwono, a deputy governor of Bank Indonesia, said that the central banks from both countries will work on the details of the arrangements, including how and when the facilities will officially become operational.
In May, Hartadi also said that Japan was planning to provide up to 6 trillion yen-denominated swap facilities for members of ASEAN to help strengthen their reserves.
It is to support the country’s balance of payments from being hit (by the impacts of the global economic downturn).
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