Indonesia Doubles the Size of Its Currency Swap Deal With Japan

BY :DION BISARA

OCTOBER 08, 2016

Jakarta. Indonesia and Japan have extended a bilateral currency swap agreement that provides an additional buffer for Southeast Asia's largest economy to stabilize its currency.

Bank Indonesia Governor Agus D.W. Martowardojo, Finance Minister Sri Mulyani Indrawati and Japanese Finance Minister Taro Aso signed the agreement on the sidelines of International Monetary Fund and World Bank annual meeting in Washington, D.C., on Friday (07/10).

"This cooperation indicates the commitment of both authorities to maintain regional financial stability amidst the lingering uncertainty in the global financial market," Agus said in a statement on Saturday.

The two countries agreed on a swap facility of $22.76 billion, or almost double the size of the previous deal signed in 2013. Under the agreement, Indonesia can swap rupiah directly to yen at a predetermined exchange rate, instead of having to convert it first to other currencies, such as the United States dollar.

This arrangement should reduce the risk a fluctuating exchange rate may pose to trade and investment between the two countries.

Indonesia also has swap agreements with China and South Korea, as well as multilateral swap facilities under the Chiang Mai Initiative involving the 10 members of the Association of Southeast Asian Nations (Asean).

These are designed to add additional layers of protection to the country's currency and were implemented following the 1998 Asia financial crisis, which forced it to borrow on unfavorable terms from the IMF.

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