Indonesia Seeks Larger Japan Currency Swap, New Pacts

By Arijit Ghosh and Patricia Lui

Feb. 5 (Bloomberg) -- Indonesia’s central bank is seeking to expand its currency swap agreement with Japan from $6 billion and is seeking new pacts to bolster the rupiah, which slumped the most in eight years in 2008.

Indonesia, which has similar agreements with China and South Korea for $3 billion each, may also initiate talks with a fourth nation, central bank Governor Boediono said, without identifying the country. The rupiah, which fell 16 percent last year, closed at 11,673 per dollar yesterday in Jakarta.

“We think the critical period is six months in which the main problem is tight liquidity and investors pulling out money to return home,” Boediono said at a dinner with local newspapers late yesterday. “In the U.S. itself there’s dollar scarcity, which is ironic.”

Bank Indonesia is boosting supply of foreign exchange as a deepening global recession pummels exports and prompts overseas investors to sell emerging-market assets. The nation’s currency reserves slid to $50.9 billion at the end of January, from $60.6 billion in July, as the central bank intervened to slow the rupiah’s decline.

“The more resources and ammunition that they have in terms of foreign exchange, the more ability the central bank would have in terms of stabilizing the currency,” said Sailesh Jha, a senior regional economist at Barclays Capital Plc in Singapore. “It would be fair to say that one possibility is to look towards the U.S.”

Kazakhstan Devalues

Kazakhstan’s central bank yesterday devalued the tenge by 18 percent, joining Russia, Ukraine and Belarus in abandoning attempts to prop up exchange rates as currency reserves dwindle. Finance ministers from Japan, China, South Korea and 10 Southeast Asian nations plan an unscheduled meeting this month to forge a deal to pool $120 billion of foreign-exchange reserves to help defend their currencies.

A $5.5 billion so-called standby loan from Japan, Australia, the World Bank and the Asian Development Bank and $4 billion of proposed bond sales may help shore up reserves, Boediono said. The country’s foreign-exchange holdings are the 10th biggest in Asia and less than half those of Thailand.

Sales of Indonesian equities by foreign funds have exceeded purchases by $101 million this year. Exports from the $433 billion economy plunged 20 percent in December, the biggest decline since 2001.

The central bank said last week it would lend dollars to banks holding the nation’s foreign-currency denominated government debt to reduce volatility in the rupiah market.

To contact the reporter on this story: Arijit Ghosh in Jakarta at aghosh@bloomberg.net

Source : www.bloomberg.com