S. Korea, RI agree to currency swap plan

Seoul, Dow Jones

South Korea and Indonesia agreed on Monday to a bilateral currency swap arrangement for US$1 billion, South Korea's Ministry of Finance and Economy said.

The central banks of the two countries will use their international reserves to help one another should one of them face a liquidity crisis.

The two central banks plan to sign the agreement by the end of this year, the ministry added.

The currency swap is part of the May 2000 Chiang Mai Initiative agreed upon by the Association of Southeast Asian Nations (ASEAN), of which Indonesia is a member, and China, Japan and South Korea to prevent a repeat of the regional financial crisis that took place in 1997-1998.

The currency swap scheme is aimed at linking the international reserves of the 10 ASEAN countries with those of the three dialogue partners, through a set of bilateral pacts.

South Korea has already signed bilateral agreements with five countries in the region: Japan, China, Thailand, Malaysia and the Philippines worth a total of $12 billion.

Early this year, Indonesia secured similar agreement with Japan. The agreement enables Bank Indonesia to swap rupiah for up to $3 billion with Japan's central bank as short-term liquidity in the event of a temporary shortage of foreign reserves.