Indonesia currency swap a boost for Korea’s profileKorea has reached an agreement with Indonesia on a $10 billion currency swap as part of its ambition to be a regional financial security player ahead of the inevitable tapering of U.S. monetary easing.
The deal was agreed upon by the governors of the central banks of the two countries during the International Monetary Fund/World Bank annual meetings in Washington, D.C. on Saturday, the Ministry of Strategy and Finance and the Bank of Korea announced yesterday.
It is part of a quickly forged and developed partnership between the two Group of 20 members, whose top leaders agreed in Indonesia on Saturday to complete a bilateral free trade deal, called a comprehensive economic partnership agreement, within the year.
The currency swap is expected to benefit Indonesia more in its efforts to reduce its vulnerability to capital outflows.
Indonesia, which signed currency swap deals of $15 billion with China and $12 billion with Japan earlier this year, had called for a currency swap with Korea.
The deal will be signed in the “near future” for an initial three-year period and could be extended by mutual agreement, the BOK said.
As for Korea, the agreement will bolster the country’s growing role in the regional fiscal safety net. The meeting of finance ministers and central bank heads of G-20 countries in Washington on Friday decided to hold a G-20 conference in Seoul in December to discuss how to enhance regional fiscal arrangements, among other things.
The BOK assessed the currency swap arrangement with Indonesia as a turning point in the financial cooperation of the East Asian region, saying it will supplement the $19.2 billion Chiang Mai Initiative Multilateralization regional swap deal by bolstering the safety net of the region.
“The two sides agree that such an arrangement will contribute positively to stabilization of the regional financial market and strengthen bilateral economic and financial cooperation to counter the growing uncertainties in the global economy,” the BOK said.
The concern over U.S. fiscal uncertainty was high on the agenda at both the G-20 meeting and the IMF/World Bank meeting. Korean participants - BOK Gov. Kim Choong-soo and Finance Minister Hyun Oh-seok - added their voices to a shared view that the regional financial safety net can work as a “second line of defense,” the Finance Ministry said. The participants also agreed the countries should try to bolster the role of regional financial arrangements so that they can work properly “at the right time,” it said.
“Only when the tide goes out can we see who is swimming naked,” Hyun told the Washington gathering, stressing the need for pre-emptive measures against the possible withdrawal of U.S. dollars, according to the ministry.
Korea is pitching the regional financial arrangements as its own initiative and bidding to make it one of the agenda items to be addressed during the G-20 summit next year. President Park Geun-hye stressed the issue during the G-20 summit in Russia last month.
Hyun said Korea also is discussing new currency swaps with other countries.
The G-20 Seoul Conference, the first G-20 official gathering to be hosted by Korea since the 2010 G-20 summit, will be held Dec. 18-19 at the Shilla Hotel in Seoul, the Finance Ministry said.
BY MOON GWANG-LIP [firstname.lastname@example.org]
More in Economy
Average selling price of Seoul apartments hits 1 billion won
New legislation on online shopping proposed by FTC
Cash is truly king in time of coronavirus
When settling for a studio apartment is too expensive
Bill creates new rental protections for small businesses