Indonesia-Japan ties
Japan should naturally be the next leg of President Megawati Soekarnoputri's current overseas visit immediately after her summit talks with American President George W. Bush in Washington last week. And bilateral economic cooperation is certainly the primary objective of her talks with Prime Minister Junichiro Koizumi on Thursday, given Japan's role as the single largest creditor, investor and trading partner in Indonesia.
But unfortunately, Megawati is visiting a changed Japan with its economy deep in recession, its feeble banking industry groaning under huge bad debts, unemployment rising to a confidence-damaging level and future economic prospects made even gloomier after the Sept. 11 devastating terrorist attacks in the U.S.
As there are no major, sensitive issues pending between the two countries, both leaders can zero in on ways of further strengthening economic ties and resolving a number of debt problems besetting Indonesia-Japanese joint ventures after the 1997 economic crisis.
Many Japanese companies have complained about what they see as discriminatory treatment by the government, whereby grievances of the more vocal American business community often gain more government attention and quicker redress than do the Japanese, who prefer to go quietly about their complaints.
Topping the list of grievances among Japanese businesspeople and government must be the restructuring of Chandra Asri's US$700 million debts which, after more than 20 months of negotiations and several initial agreements with Marubeni, remain uncertain. What specially hurt Japan is that the petrochemical industry was, in the first place, built after special lobbying from the Indonesian government in the early 1990s. That is why the bulk of the loans to Chandra Asri were derived from Japan's Bank for International Cooperation.
The manner in which the government handled, or rather ignored, Japanese businesspeople's grievances has caused misunderstanding, as if Indonesia had taken Japan for granted in spite of the special relations between the two countries.
Therefore there seems to be a need now for Indonesia to assign special lobbyists, who are capable of engaging Japanese government and business leaders in frank, yet vigorous discussions about bilateral matters, and have the authority to bring up any issues to the attention of those at the highest level in government.
The timing of Megawati's talks with Koizumi could not be better in view of the upcoming annual meeting of Indonesia's creditor consortium (the Consultative Group on Indonesia, or CGI) in Jakarta early next month to decide on new loan commitments for next year.
Megawati could learn, first-hand, Japan's official aid policy now, sounding out Japan's stance on Indonesia's plan to ask for another round of debt rescheduling to reduce debt servicing burdens in 2002 and 2003. It should be noted that about half of the $5.8 billion in Indonesian debt principals due to mature between January and next March, which were rescheduled under the 2000 Paris Club II pact, were Japanese credits.
New soft loans from Japan, as the largest donor, have now become even more vital than ever after the World Bank, which usually contributes one-third of the CGI total commitment, has slashed its annual commitment from $1.2 billion to a mere $450 million.
The problem, though, is that Koizumi rode to power, in part, on his popular calls for the people to brace themselves for several years of painful reform, and Indonesia is supposed to endure its share of the pain, through less aid from Japan. The Japanese government itself has officially announced a 10 percent cut in its overseas development aid next fiscal year to contain its huge budget deficit.
The best way of convincing Japan and other creditors to understand Indonesia's fragile condition and to give more aid, at least during this time of crisis, is for the government to demonstrate that Indonesia -- the government and its people -- also share in the pain.
Sharing the pain means firmer and more effective measures to minimize waste incurred by inefficiency and corruption, by improving fiduciary control -- the management of procurement, and government audits -- and by proving that past problems with corruption are seriously being tackled.
High fiduciary standards have been at the top of creditors' recommendations at previous CGI meetings, especially after the accusation by many critics, notably non-governmental organizations, that the creditors had condoned corruption in Indonesia. But not much progress has been made in this area.