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Feb. 22 (Bloomberg) -- Japan will provide as much as $1.5 billion of financial support to Indonesia to guarantee that nation’s first sale of yen-denominated bonds and fund an emergency loan program.

The debt, known as samurai bonds, will be guaranteed by the state-owned Japan Bank for International Cooperation, according to a statement released after Shinsuke Suematsu, Japan’s parliamentary secretary for finance, met with Indonesian Finance Minister Sri Mulyani Indrawati yesterday in Phuket, Thailand.

The economic downturn in advanced nations in the wake of the worst financial crisis since the Great Depression is spreading to emerging economies. Indonesia’s economy expanded at the slowest pace in more than two years last quarter as the global recession crimped demand and reduced prices of the nation’s palm oil, rubber and electronics exports.

“Further diversification of financing sources is welcome,” said Helmi Arman, an economist at PT Bank Danamon Indonesia in Jakarta. “This would help stem concern over rupiah bond supply this year”

Japan is also ready to take part in a so-called joint contingent loan facility for Indonesia through JBIC, the statement said. Indonesia is discussing creating the facility with the World Bank and Asian Development Bank as well as other nations, according to the statement.

The two nations also agreed to increase the size of an existing bilateral swap agreement, formed under the Chiang Mai Initiative, to $12 billion from $6 billion, the statement said.

Japan’s support will “contribute to the stability of the Indonesian economy” and complement the nation’s foreign reserves, Mulyani said in the statement.

Earlier this month, Japan said that JBIC would extend loans to financial institutions in developing countries, particularly in the Asian region, to help companies obtain access to trade finance. Japan also agreed this month to give the International Monetary Fund access to an extra $100 billion, boosting that lender’s ability to ease financial strains in developing countries.

Samurai bonds are yen-denominated bonds sold in Japan by overseas borrowers.