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Korea, Indonesia Agree to Sign CEPA with Arrangement of US$10 Bil. Currency Swap
Korea-Indonesia Deals
Korea, Indonesia Agree to Sign CEPA with Arrangement of US$10 Bil. Currency Swap
  • By matthew
  • October 14, 2013, 05:54
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Korean President Park Geun-hye and Indonesian President Susilo Bambang Yudhoyono.
Korean President Park Geun-hye and Indonesian President Susilo Bambang Yudhoyono.

 

At a press conference held at Merdeka Palace in Jakarta on October 12, Korean President Park Geun-hye and Indonesian President Susilo Bambang Yudhoyono unveiled an agreement to finalize negotiations on the Comprehensive Economic Partnership Agreement (CEPA) and conclude it within this year. 

Korea and Indonesia began negotiations on the CEPA in July 2012, but there has been little progress since then. The CEPA is intended to boost trade and strengthen overall economic cooperation. 

Through the CEPA, the two presidents agreed to increase annual trade volume to US$50 billion by 2015 and U$100 billion by 2020. Last year, Korea-Indonesia trade volume was about U$30 billion.

In addition, Korea and Indonesia signed an agreement for a won-rupiah currency swap worth US$10 billion. The agreement was made between South Korea’s Finance Minister Hyun Oh-seok and his Indonesian counterpart during a meeting in Washington on September 12 (local time). The two financial ministers were there to attend the annual meetings of the International Monetary Fund and the World Bank. 

The agreement, for which Indonesia asked Korea, can be interpreted as a countermeasure against the inevitable tapering of US monetary easing. With uncertainties over US monetary tapering, emerging economies including Indonesia have been struggling to curb excessive cross-border capital outflow and currency weaknesses. Consequently, the currency swap is now expected to help Indonesia reduce its vulnerability to capital outflow. The two countries also agreed to use the currency swap line in settling payments linked to bilateral trade, reducing their dependence on the US dollar. 

As for Korea, the agreement will lend support to the country’s growing role as a regional fiscal safety net. The meeting of finance ministers and central bank heads of G-20 countries in Washington on October 12 (local time) decided to hold a G-20 conference in Seoul in December to discuss how to enhance regional fiscal arrangements. 

Korea’s finance ministry said that the central banks of the two nations will officially sign the swap deal “sooner or later.” The currency swap line will expire in three years, and it could be renewed if both sides agree. 

Earlier this year, Indonesia signed currency swap deals of US$15 billion with China and US$12 billion with Japan.