Reuters - South Korea said it signed a bilateral local currency swap arrangement with Indonesia on Thursday, which could help shield the two countries from future financial market turmoil and capital flight.

"This arrangement is designed to promote bilateral trade and further strengthen financial cooperation for the economic development of the two countries," a statement from the Bank of Korea said.

"In particular, the arrangement will also ensure the settlement of trade in local currency between the two countries even in times of financial stress to support regional financial stability."

The agreement, where either South Korea or Indonesia can swap 10.7 trillion won for 115 trillion rupiah, was agreed by finance ministers and central bank chiefs last year in Washington.

It will be effective for three years and can be extended by mutual consent.

The annoucement comes several days after South Korea said it signed a similar swap agreement with Australia worth some $4.5 billion, bringing the total worth of South Korea's non-dollar currency swap agreements to $80.6 billion.