Japan supports RI but presses for reforms

Japan supports RI but presses for reforms

TOKYO (Reuters): Japan, Indonesia's largest creditor, will continue to support Jakarta in the wake of recent deals with international donors but wants the country to press ahead with economic reforms, a government official said.

An official at Japan's Ministry of Finance (MOF) told Reuters late on Monday that he had been encouraged by the new government of President Megawati Sukarnoputri and its reform-minded economic ministers.

"We will continue to support Indonesia, but we would like them to carry out reforms properly," he said.

Although Japan may consider fresh aid to Indonesia in the future, Tokyo will for the time being monitor talks between Jakarta and the International Monetary Fund (IMF), the official said.

Japan will also keep a close eye on Indonesia's progress in implementing economic reforms, and pay special attention to a draft budget for next year to be unveiled on Friday, he said.

Indonesia last week signed a new set of reforms with the IMF, ending an eight-month deadlock and activating a three-year, US$5 billion economic program and debt-rescheduling deal that is deemed vital to the country's recovery.

Once the program is officially approved, the IMF will release a fresh $400 million loan that will pave the way for the crucial signing of the second part of a $5.8 billion debt-rescheduling deal with the Paris Club of official creditors.

Last Thursday, the World Bank approved loans and grants for Indonesia totaling $448 million. Japan also approved grants of $5.5 million for five projects -- including one aimed at improving Indonesia's transportation system -- that will be administrated by the World Bank.

Japan, which holds some $2.7 billion out of the $5.8 billion package, expects talks on the rescheduling deal at the Paris Club early next week to go smoothly, the official said, adding that Tokyo has no problem with the deal.

With the Japanese economy on the verge of recession, and with public debt higher than that of any other industrialized nation, Tokyo finds itself under pressure to be cautious about using taxpayers' money for overseas aid.

Indonesia's debt is also a sensitive issue for the Japan Bank for International Cooperation, a semi-government institution whose outstanding exposure to Indonesia stood at around 3.6 trillion yen ($30.34 billion) at the end of March.

As a way of reining in its mushrooming debt, the government has said it planned to cut spending on official development assistance (ODA) by 10 percent in the initial budget for next fiscal year starting in April.