Japan Depends on Southeast Asian Stability

Japan Depends on Southeast Asian Stability

Japan is a major league player in its relationship with
Indonesia, both as a trade partner and in extending development
aid to its Asian neighbor. Japanese Ambassador to Indonesia
Yutaka Iimura discussed his country's perspective on the
Indonesian economy today and what needs to be done to strengthen
it tomorrow, particularly with the end of the International
Monetary Fund (IMF) program looming and the unfavorable
investment climate.

The Jakarta Post: Have you seen some important trends in
the last three years since the ushering in of the first
democratically elected government?
Ambassador Iimura: Since president Soeharto stepped down
in 1998, you have two different dimensions of difficulties, in my
understanding.
One is the recovery from the economic crisis which you
experienced in 1997 and 1998. Many other Asian countries, like
Thailand and the Philippines and some others, had the same
problem -- the recovery from the economic crisis.
On the other hand, a second dimension, which is
particular in your case, together with the economic crisis ...
You started first with political change, namely, first,
democratization, and decentralization, and secondly economic
reforms and social reforms ...
Now with regard to democratization and social and
economic reforms, you have achieved quite remarkable progress in
the last several years. But, still this is not finished, you are
still on the way to transform your country to the new Indonesia.
So, in that sense you still have challenges ahead ...
I would like to stress the importance of two aims: First,
politically and economically, achieving fiscal sustainability;
and secondly also achieving international competitiveness.
In that sense, what is important in the very near future
is whether this country can smoothly graduate from the IMF
program. So, we are watching closely the development of this
country, and Japan is ready and stands by this country in making
the smooth transition in graduating from the IMF, as well as the
transformation into a democratic country.
What is the impact of the present situation on our
bilateral ties?
I would like to answer this question in a more positive
manner, how we are facing challenges in bilateral relations
together. In that sense, we are trying to adapt our bilateral
relationship to the new challenges, which means we would like to
assist and cooperate with Indonesia in facing challenges ...
supporting reforms, supporting it in achieving fiscal
sustainability, supporting it in gaining international
competitiveness.
That means even in terms of Official Development
Assistance (ODA). In the past when we talk about ODA, it only
focused on economic aspects, and also focused on hardware like
infrastructure. Now, for example, we are working with your
country in strengthening the police. We are also supporting this
country in fulfilling the financial gap you have when you draft
the budget.
We have also established an economic policy support team.
We have an Indonesian team and a Japanese team. They have regular
discussions to come up with pursuant recommendations. We are
doing that first. Secondly, Aceh, for example. This is not ODA,
this is not old type economic cooperation, rather this is working
together in resolving the problems of Aceh.
Of course we do not want to intervene into internal
affairs, we support sovereign integrity, and we do not support
the independence of Aceh. But, nevertheless, we feel that we have
a role to play in resolving Aceh's problems.
As you know, this is the year of ASEAN Japan exchange, and in
July it will be Indonesia that hosts cultural exchanges. Now we
want to balance our relationship, which might have been focused
on economic issues (in the past), by strengthening cultural
cooperation.
How is the present situation affecting Indonesia's
geopolitical role in Southeast Asia?
The geopolitical role that Indonesia plays in this part
of the world has not changed. This country is the most populous
Muslim country, it is the core member of ASEAN (the Association
of Southeast Asian Nations), and it occupies a strategic position
in maritime Southeast Asian. So I think this country is the most
important one strategically, not only for Japan but for many
countries in the world.
Unfortunately, because of the economic crisis in 1997 and
1998, there was a stalemate in terms of diplomatic activities
because you had to focus on internal affairs. Now I think this
country is back to its diplomatic role, and this year Indonesia
is the chairman of ASEAN. You have a series of important
diplomatic, starting from the ASEAN summit in Bali in October
and in December in Tokyo. This country is not only recovering
from economic difficulties, but is also back to it diplomatic
core.
Can you mention a country that faces similar problems to
Indonesia?
Well, I have talked about whether there is a comparable
case with Indonesia. I could not come up with a specific country,
but may be as countries from which you can draw lessons, I could
cite as examples Argentina and Brazil, where because of
decentralization, the budgetary fiscal discipline is somewhat
affected.
So after they have fiscal and financial difficulties, so maybe
you also engage in decentralization. In that sense, I think from
the two countries you can draw lessons.
Another country is China, which has been pursuing reforms while
keeping political stability. And China has been successful in
inviting investment.
What advice do you offer investors from your country
intending to establish business in Indonesia?
When I meet with Japanese investors, I always tell them
that this is a country which has vast natural resources, which
has a vast market, and this is a country which is increasingly
integrated into regional structures, the ASEAN.
And I also tell them about the very strong historical ties
between the two countries, and that most Indonesians are
sympathetic to us.
There are a lot of problems and difficulties here, but I
tell them now there is awareness in this country on the
importance of coping with investment issues.
When will Indonesia return to a strong and sustainable
stability?
This is a very difficult question. But if reforms are
successfully conducted, then I don't think it is very far in the
future when we can see the return of the Indonesian economy to a
sustainable stability.
The first sign whether this country will return to a
stable economy is whether it will smoothly graduate from the IMF
(program). And if this country smoothly graduates, that means two
things. One, whether this country will be able to draft a
balanced budget for 2004; we will know in the middle of the year
whether the country will maintain macroeconomic management
discipline or not for next year and afterwards.
The second criteria is whether it can cope with this investment
problems ...

What is your government doing to persuade Indonesia to improve
its investment climate?
The Japanese government is asking this government to cope
with investment problem not only by taking and solving concrete,
detailed problems, but also asking this government to set up an
overall framework to cope with investment.
There are three things: One, we would like to see the
establishment of a small action-oriented Cabinet level task force
which will play the role of a locomotive to improve the
investment climate.
Second, we are also asking to lay out a comprehensive
midterm road map, so that investors, from Japanese to domestic
business, can see what would happen in the next several years.
There is a time schedule also. This is very important for
investors, so they can take a decision on investment based on
this midterm perspective. We are also asking for a consultation
mechanism between the government and domestic and foreign
investors.
Thirdly, we have established the economic policy
supporting team, comprising economic scholars from Japan and
their Indonesian counterparts. Investment is one of the most
important topics of their discussion.
What is the Japanese role in resolving conflicts in Aceh?
On Dec. 3, 2002, together with the World Bank, the United
States and European Union, Japan co-chaired the meeting on peace
and reconstruction of Aceh, and the international community in
the Tokyo meeting gave its support for the peace process, and the
reconstruction in Aceh.
Now, concretely speaking, I can cite several examples of what we
have been doing. In terms of emergency assistance, we have
contributed US$5 million for food to be delivered to internally
displaced persons, orphans and widows, and we have started
delivering it working with WFP (World Food Program).
And also we are now planning to launch a community based
development project, like building hospitals, roads, schools,
particularly focused on the peace zones. I had talked about this
to President Megawati. We also sent a team from Tokyo to survey
the need from the midterm perspectives.
For example, due to the security situation there, we were obliged
to suspend our hydropower electric station project and we also
suspended our project in Sabang, Probably there are some other
areas of possible cooperation. At the Tokyo meeting, there was
consensus that the coordination should be conducted in the
framework of CGI, chaired by the World Bank.
Due to its own domestic difficulties and the developments
in the Korean peninsula, isn't it hard to expect Japan to pay
attention to this region?
Because of the North Korea and Iraqi crises, Japanese
public attention is on these problems, but it does not mean that
it denies the importance of Southeast Asia, which has become one
of the most important four pillars for our external activities,
after the U.S., China and European Union ...
Strategically, without the stability of this region, Japan cannot
survive.

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