Japan strives to protect its investments in RI

Japan strives to protect its investments in RI

TOKYO (AFP): As the crisis in Indonesia deepens, Japan is moving to protect its firms struggling to do business in one of its most important investment targets in Asia.

Indonesia, recoiling from a wave of riots and soaring prices sparked by the collapse of the rupiah, has imported many Japanese goods and Japanese banks have bet heavily on the country.

The country is the second largest target of Japanese direct investment in Asia after China, receiving US$30 billion in 1996, according to the Japan External Trade Organization.

It is also the Asian country most dependent on yen loans.

Tokyo said Friday it would extend $1 billion in trade insurance to Jakarta. It has already promised 70 billion yen ($560 million) in loans to Indonesia and has pledged $5 billion as part of a rescue package under the International Monetary Fund.

"I understand there are risks involved with trade insurance. However, what is necessary for us is to move ahead and do something," said Katsuhiro Nakagawa, vice minister for international affairs, at Japan's Ministry of International Trade and Industry

The insurance will run for two years and will be used to protect Japanese exporters trying to keep their businesses afloat. In addition Japan is to consider extending 300 billion yen ($2.4 billion) in loans through the Export-Import Bank of Japan to struggling Asian nations by the end of March.

"Japan is trying to deflect the criticism that has been thrown at it," said Russell Jones, chief economist at Lehman Brothers Japan.

Japan's ruling Liberal Democratic Party released an economic package Friday, in a move to spur its sluggish economy. Although there was little of surprise for its own economy and a marked lack of spending promises, the party did suggest moves towards stabilizing currencies in the region.

Tokyo's idea of an Asian monetary fund, a regional equivalent of the International Monetary Fund which has led crucial bailouts for many of the crippled Asian economies, was quickly shot down by Washington last year.

"The Liberal Democratic Party will study the establishment of a common currency system for the Asian region or more active use of the yen currency," it said.

Although the party gave no details of how the system might work, one senior official said: "It would be nice to make the yen like the euro although it will be very difficult."

Any kind of stabilization was likely to be some form of standby credits, channeled to Japanese corporates in Asia in an effort to limit damage, Jones said.

Indonesia in particular "could be a trigger for another downward spiral in the region" if the crisis is allowed to continue unchecked, he said.

The proposal may also involve attempting to peg the rupiah or other weak currencies to a basket of currencies, including the yen, said Brian Rose, economist at SBC Warburg.

"The idea is that these Asian countries pegged their currencies to the dollar even though they are more and more dependent on Japan for trade in the region.

"That probably doesn't make as much sense as it used to," he added.

Japan has joined Europe and the United States in recent days in dismissing Indonesia's plan to peg the rupiah to the dollar through a currency board system.

"Japan has a lot of exposure in the region, it has lent a lot of money in Asia. Even the private sector is interested in making sure that it doesn't go down the tube," Rose said.

"In the longer term it is hard to see Japan stopping its investments anywhere in southeast Asia."