Japanese Finance Minister Taro Aso and Bank Indonesia Governor Perry Warjiyo - Photo: Bank Indonesia.

JAKARTA (TheInsiderStories) – Indonesia and Japan on Thursday (12/05) agreed to establish a cooperation framework using local currencies for bilateral trade and direct investment settlement. The agreement was poured through the signing of a memorandum of understanding by the Japanese Finance Minister Taro Aso and Bank Indonesia Governor Perry Warjiyo in Tokyo.

“The use of local currencies for trade and direct investment settlement, which includes, among others, promotion of the direct exchange rate quotation and interbank trading between the Japanese Yen and the Indonesian Rupiah,” both said in a joint press statement.

The cooperation will be enhanced through information sharing and periodical discussions between Japanese and Indonesian authorities, it said.

The collaboration marks a key milestone in strengthening bilateral financial cooperation between Japan and Indonesia. The authorities believe that it will positively contribute to encouraging the use of local currencies for settlement of trade and direct investment between the two countries.

Japan is the second-largest investor in Indonesia. The accumulation of Japanese investment in Indonesia in the last ten years amounted to US$31 billion. The contribution of Japanese companies to exports increased from 18.1 percent to 24.4 percent until the first half of 2019, according to data from the Investment Coordinating Board.

Currently, both countries are in talks to establish a sovereign wealth fund, as it looks to double down on investment and boost economic growth.

Coordinating Minister for Maritime and Investment Affairs Luhut Pandjaitan revealed that Indonesia was considering such a fund after a meeting on Tuesday with President Joko Widodo and Tadashi Maeda, governor of Japan Bank for International Cooperation (JBIC), a Japanese public financial institution, and export credit agency.

“One of the points discussed by Indonesia and JBIC is considering, or in other words leading to an agreement to establish a sovereign wealth fund,” Pandjaitain told reporters without specifying what the fund will invest in nor its scale.

Pandjaitan said the fund he discussed with Japan was different from one agreed with the United Arab Emirates (UAE) in September. That fund, he said, would collect money from overseas investment funds including the UAE, with the aim of attracting $5-10 billion to be spent on infrastructure such as the development of Indonesia’s new capital.

Such funding will be key for the establishment of the new capital in East Kalimantan, as the state budget will only cover 19 percent of the Rp466 trillion ($33 billion) needed for development.

US$1=Rp14,000

Written by Lexy Nantu, Email: lexy@theinsiderstories.com