Japan to continue support for RI
Fitri Wulandari, The Jakarta Post, Jakarta
The Japanese government remains committed to provide financial support for Indonesia after the latter ends the existing International Monetary Fund program later this year, an envoy said.
"The Japanese government will continue to support the economic reform program of the government of Indonesia. We are ready to provide necessary assistance," Japan's Deputy Ambassador to Indonesia Shigekazu Sato told reporters in a media briefing on Tuesday.
"But, the IMF's role in securing confidence and credibility is undeniable. Therefore, the Indonesian government has to maintain that confidence and credibility," he added.
Top government officials have said that the government would not renew the current IMF program when it ends later this year.
This has raised concern about the condition of the country's state budget as without the presence of the IMF, Indonesia would no longer be able to obtain a debt rescheduling facility from the Paris Club of lender nations. But proponents said that Indonesia would be able to survive the post-IMF era with the current huge foreign exchange reserves of more than US$34 billion, and the healthy macroeconomy.
There are also doubts whether the government could implement a credible economic reform program on its own. The IMF backing of the previous reform program has been essential in securing investor confidence and in lending credibility to the program.
Sato said his government would provide new loans, grants and technical assistance, through the Consultative Group on Indonesia (CGI) as well as through bilateral arrangements.
The Japanese government is also ready to provide policy advisors should Indonesia need to design its own post-IMF economic reform program, Sato added.
Japan is currently Indonesia's top donor country, contributing some $2.23 billion in financial assistance for 2003. This represents a third of Indonesia's total external financing needs of around $6.3 billion.
Asked whether Japan will increase its financial assistance in 2004 if Indonesia goes ahead and ends the IMF program, Sato only said it would be discussed in the future.
However, he expressed confidence that the Indonesian government would manage to maintain budget discipline so that next year's deficit would not be higher than this year's estimate of 1.8 percent of gross domestic product.
"The Indonesian government is committed to lowering the budget deficit and we are watching them. The government should endeavor to cut down expenses and increase revenue so that, it won't need higher international financing," he said.
The government is projecting a deficit of 1 percent of GDP for 2004.
On private investment, the embassy's first secretary on financial affairs Hiroshi Ogushi said Japanese investors were still very interested in investing in Indonesia.
"Big Japanese companies are still interested in putting their money here. They meet regularly with Indonesia's key economic ministers every three months," he said.
But Hiroshi acknowledged Japanese investors were facing several problems particularly legal uncertainty, labor disputes and poor infrastructure.
Although Japanese foreign direct investment (FDI) in Indonesia has been shrinking in value, Japan is still the top investor here.
For the period of 1967 to 2001, Japanese investors cumulatively made up 14.4 percent of the total FDI, ahead of England (12.1 percent) and the U.S. (4.4 percent).
Hiroshi suggested that apart from seeking international financing, the government should maximize domestic revenue such as through the bonds market.
"The bonds market is very healthy and it is a good financing source," he said.