Singapore and Indonesia working on S$13.8 billion bilateral financial agreement

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To support monetary and financial stability in both countries, Singapore and Indonesia will be working out a US$10 billion (S$13.8 billion) package, comprising bilateral local currency swap and United States-dollar denominated repurchase agreements.

This was announced on Thursday (Oct 11) by Prime Minister Lee Hsien Loong who met with Indonesian President Joko Widodo at the third Singapore-Indonesia Leaders’ Retreat.

Singapore's Prime Minister Lee Hsien Loong and Indonesian President Joko Widodo witnessing the signing of the Bilateral Investment Treaty by Singapore's Trade and Industry Minister Chan Chun Sing and Indonesian Foreign Affairs Minister Retno Marsudi in Bali on Thursday (Oct 11).

Both leaders discussed a range of issues, including the review of the double taxation agreement between the two countries, and how the pact will help provide the right infrastructure and incentives for business leaders to invest.

They also spoke about the uncertain external economic environment which has affected many financial markets. Mr Lee said: “We have tasked our two central banks, which means the MAS (Monetary Authority of Singapore) on our side and the Bank of Indonesia on their side, to work out and conclude a bilateral financial arrangement soon.”

MAS managing director Ravi Menon said both sides are having preliminary discussions and details of the US$10 billion agreement “should be out soon”.

He explained that currency swaps or the repurchasing of the US dollars by central banks only happen when either party requests for it, but the vast majority are usually standby arrangements that serve to instill confidence in the market.

The current instability in financial markets arising from the normalisation of US monetary policy has sent capital moving out of emerging markets, including Indonesia. That has sent the Indonesian rupiah tumbling to its lowest level in two decades.

“Some outflow of emerging markets is perfectly normal and to be expected. But you just want to make sure it does not become a snowballing effect, that it does not become overdone. The most important reason for doing this… to build confidence in the region in the current climate of financial market turbulence,” Mr Menon said.

He also added that Singapore wants to make sure Indonesia is well-placed to ride out this period of fund outflows due to Singapore’s investments and business interests in the country.

“Indonesia has been feeling a little bit more of the pressure in the currency markets. … This we regard as something temporary because of the temporary nature of the situation that emerging markets are facing. We are pretty confident that Indonesia will emerge from this well within a year,” Mr Menon said, adding that the macro fundamentals of Indonesia are sound and its policy responses are judicious.

Singapore also has currency swap agreements with the central banks of China and Japan, and these agreements are renewed every three years.

Mr Lee — who is on a two-day visit in Bali —and Mr Widodo also witnessed the signing of several agreements, including the bilateral investment treaty which sets out rules on how Indonesia should treat investments and investors from Singapore and vice versa.

In a joint press statement by both countries, Mr Lee said the bilateral investment treaty “will encourage greater flows of investments into Indonesia”. Separately, Singapore’s Ministry of Trade and Industry said it would give companies greater certainty and confidence, as their interests are protected.

Singapore has been the top investor in Indonesia since 2014, with US$8.4 billion (S$11.6 billion) invested in 2017.

Singapore’s trade with Indonesia totalled S$59.4 billion in 2017, making Singapore Indonesia’s third largest trading partner after China and Japan. Indonesia is Singapore’s sixth largest trading partner after China, Malaysia, the United States, Hong Kong and Taiwan.

This is the third Leaders’ Retreat between both countries. The previous one was held in Singapore on Sept 7 last year, commemorating 50 years of diplomatic relations between both countries.

Mr Lee said he had a “fruitful discussion” with Mr Widodo on how both countries can deepen cooperation.

For example, Mr Lee said both leaders talked about how adjusting incentives and rules, such as the minimum investment amount, can encourage companies to invest in the Kendal Industrial Park and Nongsa Digital Park.

Kendal Industrial Park, which was launched at the 2016 leaders’ retreat and located at Central Java, is a project by Sembcorp Development and PT Jababeka of Indonesia. It is supported by the governments of both countries.

Nongsa Digital Park at Batam was launched in March this year to develop Batam as a “digital bridge” between Singapore and other Indonesian cities.

Both countries are also looking to develop a fellowship programme for regional leaders in Indonesia, which will be called the Rising Fellowship. Mr Lee said he hopes young leaders from various Indonesian provinces can come to Singapore and learn from one another.

Mr Lee also offered his condolences on the recent earthquakes and tsunami which devastated Central Sulawesi. A 7.5 magnitude earthquake and a tsunami struck the Indonesian island on Sep 27, leaving more than 2,000 people died.

In addition to deploying two aircrafts to send humanitarian assistance and assist with rescue efforts, Mr Lee said that many Singapore groups and non-governmental organisations have been actively fundraising to support relief efforts.

“Singapore stands with Indonesia during this difficult time. We are confident that these affected areas in Indonesia will make a quick and strong recovery,” he added.

On Thursday, a magnitude-6 earthquake struck off the Indonesian islands of Java and Bali, killing three people in Java and damaging some buildings while causing panic among residents.

Tremors were felt in Bali, where the Singapore-Indonesia Leaders’ Retreat is held concurrently with the annual meetings of the International Monetary Fund and World Bank.

Writing on Facebook, Singapore’s Defence Minister Ng Eng Hen, who is part of the high-level delegation accompanying Mr Lee, said he was woken up in his hotel room by a brief tremor but “apart from the lampshade swaying, everything else seemed fine”.



Under the bilateral investment treaty, Singapore companies operating in Indonesia would enjoy greater protection and have recourse to international arbitration when business disputes arises, and vice versa.

The pact would allow investors from both countries to enjoy non-discriminatory treatment, compared to other foreign and local investors, as well as fair and equitable treatment, and full protection and security based on customary international law.

Investors would also be protected from illegal expropriation, and be compensated for losses arising from war, armed conflict and civil strife. Apart from the freedom to transfer capital and returns, investors can also submit dispute claims on behalf of their company’s local branch in the host country.

Among the other agreements which were inked, cruise company Genting Cruise Lines and Indonesian state-owned terminal operator PT Pelabuhan Indonesia signed a memorandum of understanding to explore further development of the port facilities at Celukan Bawang, northern Bali, and beyond.

There were also agreements to facilitate the adoption of advanced manufacturing technologies in Indonesia, and lower barriers of entry for financial technology (FinTech) companies to enter each other’s markets and collaborate on FinTech learning.

This article was contributed by TODAYonline.

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