Under the deal, Indonesia will be allowed to delay the repayment of the debts and low interest rates will be charged.

The agreement "gives Indonesia the most favourable terms the US government is able to offer", the US embassy in Jakarta said.

"It offers Indonesia breathing room as it continues to recover from the economic crisis."

More expected

The agreement followed France's resent rescheduling of about $380m of debts owed by Indonesia.

Germany is expected to follow suit, perhaps as early as Wednesday, and reschedule $100m debts which Indonesia owes.

The remaining 17 members of the Paris Club creditor nations are also expected to sign bilateral debt rescheduling agreements with Indonesia "before too long", Indonesia's finance ministry said.

Bank sell-off

Separately, Indonesia said it would allow the country's second largest banking group, Commerce Asset-Holding to move forward its bid to buy a majority stake in Bank Niaga.

Last month, the country's bank restructuring agency IBRA said Commerce had put forward a final bid for the bank.

The bid will be considered in several stages, in accordance with Indonesia's banking regulations.