Indonesia's request for Fed dollar swap said to be rejected

[JAKARTAR] Indonesia, seeking to bolster its defenses against potential financial-market turmoil, found one potential aid cut off when the Federal Reserve denied a request for a currency swap line, according to an official with knowledge of the matter.

The rejection echoes the Fed's decision during the global financial crisis, when it limited swap lines to developed nations and a handful of the largest emerging markets, including Mexico and Brazil. The official asked not to be named as the discussions were private.

Indonesia has also sought China's help, with a request for purchases of Indonesian government bonds, according to a Finance Ministry official's remarks on Thursday. Domestic steps have been taken, with a move late last month to allow the financial regulator to buy both local and foreign-currency bonds.

Fed spokesman David Skidmore declined to comment when asked whether the Fed had denied an Indonesian request for a swap line.

The pressure is on for Indonesia to insulate itself against the risk of capital flight, as emerging economies contend with financial-market turmoil from the risk of Greece exiting the euro to China's stocks volatility. The rupiah has lost about seven per cent this year against the dollar, the most among major Asian emerging-market currencies after the Malaysian ringgit.

Bank Indonesia signed a currency-swap deal with South Korea in March last year worth up to 115 trillion rupiah or about S$11.7 billion at the time, and increased another with Japan in December 2013 to US$22.76 billion. With the swaps, central banks can exchange foreign currency with an agreement to reverse the transaction at a later date.

BLOOMBERG