Indonesia, Japan to hold crucial talks on economy

Dadan Wijaksana, The Jakarta Post/Jakarta

The government will host a high-level discussion on matters concerning the economy with a visiting delegation from Japan on Monday, with a search for ways to improve the investment climate in this country likely to be high on the agenda.

The meeting, to take place when the country is preparing for the second-round presidential election in September, will be chaired by Ministry of Foreign Affairs Director General for Asia Pacific And Africa Makarim Wibisono.

"The Japanese delegation, meanwhile, will be spearheaded by the country's deputy foreign minister, Ichiro Fujisaki," Ministry of Foreign Affairs spokesman Marty Natalegawa told The Jakarta Post on Friday.

Marty declined to disclose the detailed agenda for the meeting, saying only it would form part of government efforts to bolster further the bilateral economic relationship with the world's second-largest economy.

"Japan has always been an important partner for Indonesia in so many ways: economy, trade, investment, and so on," he said, although he did not know whether similar meetings with other countries would also take place in the near future. Japan is the country's largest export market and one of the largest investors here.

However, Dow Jones, quoting a diplomat at the Japanese foreign ministry, reported that discussions would center on seeking clear-cut measures to improve the business environment in the country.

The outcome of the discussions will be in the form of a recommendation, or a list of actions to be carried out by relevant ministries or agencies.

Investment, especially offshore, has been lagging in Indonesia as compared with neighboring countries, mostly due to the adverse business climate here.

Investors have been complaining about various conditions that are detrimental to investment, including a lack of legal certainty, widespread corruption, inefficient bureaucracy and labor disputes. For Japanese investors, who invest mostly in the manufacturing sector, tax-related issues have also become a problem.

Before the crisis, investment was one of the country's main economic growth drivers.

At present, however, it accounts for less than 15 percent of growth in the country's gross domestic product -- an indicator of economic growth -- with domestic consumption contributing more than 75 percent.

Analysts have said that a failure to attract more investors to the country would mean that Indonesia could not achieve more robust economic growth, and would have to settle for a mediocre growth level of 3 percent to 4 percent per year -- as has been the case for the past four years.

While it remains to be seen what output the upcoming meeting can deliver, it should represent a good step toward progress in improving the business and investment environment, especially as Japan has been a long-time major investor in the country.

The latest data from the Investment Coordinating Board (BKPM) says that during the January-July period, Japanese investors topped new investment approvals in the country. Around US$916 million-worth of new investment approvals were recorded from Japan during the period, accounting for about 28 percent of total approved foreign investment, which stood at $3.3 billion.