Indonesia gets Japan help to guard rupiah

Rendi A. Witular, The Jakarta Post, Phuket | Sat, 02/21/2009 11:09 PM  

Indonesia and Japan inked Saturday a bilateral cooperation aimed partly at warding off the ailing rupiah against currency speculators amid the deepening global economic slowdown. 

Finance Minister Sri Mulyani Indrawati and Japanese Parliamentary Secretary for Finance Shinsuke Suematsu forged the long-awaited deal during the special ASEAN + 3 Finance Minister’s meeting in Thailand’s resort island of Phuket. 

Under the deal, Japan agreed to double its existing bilateral swap agreement with Indonesia to US$12 billion, strengthening Indonesia’s foreign currency reserve in case of a sharp depreciation in the rupiah against the U.S. dollar. Latest central bank data shows Indonesia’s foreign exchange reserves currently stand at $50.87 million. 

Bank Indonesia (BI) uses the reserves to supply the financial market with the greenback to help ease volatility in the rupiah, which is currently depreciating to above Rp 12,000 per dollar. Under the planned revision of the state budget, the government has set the currency at Rp 11,000 in average against the dollar for this year. 

“The deal with Japan, which is a very progressive move, can ease speculation in the rupiah because Indonesian foreign currency reserve is getting bigger and stronger. This will boost confidence in the market and in the businesses,” said Mulyani. 

The deal is part of the Chiang Mai Initiative inked in Thailand in 2000 which is aimed at creating a network of bilateral swap arrangements among ASEAN+3 countries to address short-term liquidity difficulties in the region and to supplement the 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.