Japan to help RI guard rupiah, says Mulyani

Rendi A. Witular , THE JAKARTA POST , PHUKET Sun, 02/22/2009 9:04 AM Headlines
Indonesia and Japan inked Saturday a bilateral cooperation agreement aimed at warding off currency speculators from the ailing rupiah 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 a special meeting of finance ministers from member countries of the ASEAN + 3 organization on Thailand’s resort island of Phuket.
Under the deal Japan has agreed to double its existing bilateral swap agreement with Indonesia to US$12 billion, strengthening Indonesia’s foreign currency reserves in case of a sharp depreciation in the rupiah against the U.S. dollar. The 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 has depreciating to above Rp 12,000 per US dollar. Under the planned revision of the state budget the government has set the currency at an average of Rp 11,000 against the dollar for this year.
While the declining value of the rupiah is in part good for exports, it creates greater harm, especially when it comes to the country’s ability to pay dollar-denominated government and private sector debts, as well as its ability to financing international trade.
Mulyani said the support from Japan would help increase the stability of the Indonesian economy and complement its current, strong foreign reserve position.
“The deal with Japan, which is a very progressive move, will ease speculation on the rupiah because Indonesian foreign currency reserves are getting bigger and stronger. This will boost confidence in the market and in businesses,” Mulyani said.
“Although the Indonesian economy remains sound, there’s still a need for a second-line of defense to fully anticipate the worst from the impact of the global economic crisis,” she said.
The deal is part of the Chiang Mai Initiative, inked in Thailand in 2000, which is aimed at creating a network of bilateral swapping arrangements among ASEAN+3 countries to address short-term liquidity problems 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.
The ministers are expected to come up with concrete measures to help cushion the region from the fallout from the US-led financial crisis.