• Kyodo

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Japan and Indonesia have started negotiations on a bilateral currency swap agreement as part of an initiative among Asian nations to promote financial stability in the region, an international financial source said Tuesday.

Officials from the two countries held the first round of negotiations in Jakarta last Wednesday and Thursday in the hope of wrapping up the talks at an early date.

Tokyo and Jakarta began the negotiations under the so-called Chiang Mai Initiative, which is designed to create a network of bilateral currency swap accords among the 10-member Association of Southeast Asian Nations plus Japan, China and South Korea.

The planned network is aimed at bolstering East Asian nations’ defenses against the kind of borrowing that led to the Asian financial crisis of 1997 and 1998.

At that time, most of the region’s currencies were artificially tied or pegged to the dollar. As those links grew more tenuous, the currencies became no-risk vehicles for investors betting against them.

Most of the currencies are now free-floating.

Accelerating efforts to complete the network will be a key topic for discussion at a meeting Friday in Shanghai of finance ministers from the ASEAN Plus Three nations.

Japan has already signed swap arrangements with South Korea, Thailand, the Philippines, Malaysia and China.

It has also been in talks with Singapore since early March.

Although they are close to striking a deal, Beijing and Seoul will not be able to announce their accord in Shanghai, also the venue for the annual meeting of the Asian Development Bank from Friday through Sunday, the source said.

In addition to a pact with Japan, China has another swap agreement with Thailand. South Korea has also been holding negotiations with Malaysia, the Philippines and Thailand.

Finance ministers from ASEAN, Japan and South Korea have been meeting since 1999. ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

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