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March 29, 2009

Indonesia to reduce dollar dependency, boost liquidity
Indonesia has joined a growing list of countries calling for concerted efforts to reduce dependency on the US dollar amid the global drying-up of liquidity, reported the Jakarta Post.

“There should be attempts by all countries to ease their dependency on United States dollars in their transactions … this is a global issue,” Bank Indonesia governor Boediono said Wednesday at the State Palace.

“I myself, and some others too, have proposed that the most practical thing (we can do) now is to expand the availability of SDRs — Special Drawing Rights. This will eventually become a global currency,” he added.

SDRs are a basket of major currencies used in international trade and finance, usually by multilateral agencies.

China has earlier this week called for a new global currency controlled by the IMF, as part of a reform of the world’s financial system which is currently heavily dominated by the US greenback.

China said it would pursue this issue in the upcoming G20 Summit in London.

Boediono spoke to reporters after a meeting with President Susilo Bambang Yudhoyono on the preparations for the summit, which will be held on April 1-2.

The call was made after Indonesia and China inked a 175 trillion rupiah or 100 billion yuan ($15 billion) currency swap on Monday partly as part of an effort to help boost confidence in the rupiah, which has been on a weakening slide of late, against the US dollar.

The swap deal is effective for three years and can be extended with the approval of both partners.

The swap is expected to provide short-term foreign exchange liquidity as well as bolstering the rupiah’s performance, help boost bilateral trade and investment and help stabilize the financial market.

According to the central bank, Indonesia exported $11.5 billion worth of goods to China last year — an 18.9 percent increase from the $9.68 billion booked in 2007 — while importing $15.2 billion from China, a leap of 77.6 percent from $8.56 billion recorded in 2007.

The bank says Indonesia needs more funding to add to the country’s foreign exchange reserves, which stood at $53.9 billion as of March 13, with Boediono saying the central bank  is “open” to the possibility of making similar currency swap agreements with other countries.

Boediono said Indonesia would benefit greatly from similar deals, pointing out that the agreement with China would help to eventually reduce the need for US dollars, as bilateral trade between the two nations could use local currencies under the swap deal.

A reduced need for dollars would mean a boost for the rupiah. BI said the swap line was on top of the multilateral swap arrangement under the Chiang Mai Initiative, under which Indonesia is set to access for forex purposes at least $12 billion from Japan, $4 billion from China and $2 billion from South Korea.


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