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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