VZCZCXRO9656
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #0311 0541042
ZNR UUUUU ZZH
R 231042Z FEB 09
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 1566
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS COLL
RUEHKO/AMEMBASSY TOKYO 3023
RUEHBJ/AMEMBASSY BEIJING 5911
RUEHUL/AMEMBASSY SEOUL 5379
RUEHGP/AMEMBASSY SINGAPORE 6461

UNCLAS JAKARTA 000311 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR EAP/MTS, EAP/EP, EEB/IFD/OMA 
TREASURY FOR IA/TRINA RAND AND LOIS QUINN 
NSC FOR E. PHU 
DEPT PASS FEDERAL RESERVE SAN FRANCISCO FOR CURRAN 
SINGAPORE FOR S. BAKER 
TOKYO FOR R. KAPROTH 
 
E.O. 12598: N/A 
TAGS: EFIN ECON EAID EINV ID
SUBJECT:  JAPAN ANNOUNCES LARGE ASSISTANCE PACKAGE FOR INDONESIA 
 
REF: A) 08 Singapore 947 B) Jakarta 264 C) Jakarta 227 
¶1. (SBU) Japan agreed to guarantee Indonesian yen-denominated 
government bonds and doubled its bilateral currency swap agreement 
with Indonesia on February 21 on the margins of the ASEAN Plus Three 
Finance Ministers meeting in Phuket, Thailand.  The state-backed 
Japan Bank for International Cooperation (JBIC) has agreed to 
guarantee up to $1.5 billion in Government of Indonesia (GOI) 
Samurai Bonds (yen-denominated bonds issued in Tokyo) as part of a 
broader, World Bank-led contingent financing package.  The World 
Bank package provides budget support if the GOI is unable to raise 
funds in financial markets at reasonable rates.  If the 
JBIC-guaranteed bonds are unsuccessful, JBIC will provide up to $1.5 
billion in direct loans to the GOI, according to World Bank staff 
and Japanese Ministry of Finance staff in Singapore.  Japan also 
increased its bilateral currency swap agreement under the Chiang Mai 
Initiative (CMI) with Indonesia from $6 billion to $12 billion to 
assist in meeting potential short-term balance of payments 
difficulties. In addition to Japan, Indonesia has a $4 billion 
bilateral currency swap agreement under CMI with China and a $2 
billion bilateral currency swap under CMI with Korea, according Bank 
Indonesia officials.  (Note: Under the CMI, Indonesia can only 
access 20 percent of these swaps without participating in an IMF 
program. End note (Ref A).) 
¶2. (SBU) President Susilo Bambang Yudhoyono and Foreign Minister 
Hassan Wirajuda requested two forms of bilateral support from the 
United States during their recent meetings with Secretary Clinton. 
First, Indonesia requested a bilateral currency swap.  (Note: In the 
US, the Board of the Federal Reserve independently decides to extend 
bilateral currency swaps. End note.)  Second, the GOI reiterated its 
request made in a letter to Treasury Secretary Paulson in 2008 that 
the USG participate as a bilateral donor to supplement the World 
Bank-led contingency financing package.  On January 13, the Treasury 
Department replied that the USG would not be able to contribute 
bilateral resources to supplement the multilateral facility at that 
time.  However, the Treasury Department advised the USG would 
consider supporting the use of its multilateral resources through 
the World Bank package when it went to the World Bank Executive 
Board.  (Note: The World Bank Executive Board will consider the 
Public Expenditure Support Facility Development Policy Loan with 
Deferred Drawdown Option on March 3, according to the current 
schedule. End note.) 
¶3. (SBU) Indonesia's economic outlook continues to deteriorate and 
the IDR remains vulnerable to capital flight.  Economic growth in 
the fourth quarter of 2008 was healthy, at 5.2% year-on-year (yoy), 
but significantly below market and GOI expectations of 5.7% (yoy). 
With slumping exports and ebbing domestic demand, most forecasters 
expect GDP growth to slow below 4% in 2009 (Ref B).  Analysts also 
warn that rising non-performing loans in the banking sector and a 
contraction in the supply of foreign currency lending may undermine 
confidence in Indonesia's economic resilience, putting pressure on 
the currency and government bond yields (Ref C). 
¶4. (SBU) Signs of fiscal and balance of payments stress increased in 
February.  The IDR has depreciated 2.5% since the beginning of 
February and 28.5% over the past six months.  The yield on ten-year 
GOI bonds rose to 13.94% on February 20, up 215 basis points since 
February 2.  Despite this pressure, Indonesia continues to eschew 
requesting IMF assistance, including the IMF's Short-term Lending 
Facility, due lingering distrust of the IMF from the 1997-98 
financial crisis and worries about political fallout during the 
upcoming election year. 
HUME