Japanese mission suggests new ideas for Indonesia

Japanese mission suggests new ideas for Indonesia

TOKYO (Reuters): The timing of a special visit to Indonesia by a senior Japanese government official suggests Tokyo may have new ideas on how to help the crisis-hit southeast Asian nation, economists said yesterday.

Japanese Prime Minister Ryutaro Hashimoto sent Vice Foreign Minister Masahiko Komura to Jakarta on Wednesday with a letter for embattled Indonesian President Soeharto.

Tokyo has given few details of Komura's message, but economists said it could not be a mere repetition of comments Hashimoto made last week in a telephone call to Soeharto just before Jakarta agreed a reform package with the International Monetary Fund (IMF).

"The mission could play an important role to let Jakarta know what made it lose the confidence of foreign investors -- political risk," said Takatoshi Ito, professor at Hitotsubashi University.

Other economists said Japan might be ready to offer to help lighten the burden of debt on Indonesia's corporate sector. Falls in the rupiah have sent interest payments skyrocketing.

"If needed, providing a Japanese government guarantee to private loans would be a short-term remedy for the troubled nation," said Seiichi Nakajo, professor at Chuo University.

C.H. Kwan, senior economist at Nomura Research Institute Ltd, said Tokyo might offer such action as a roll-over of loans by private banks to secure Japanese capital flows to Indonesia, on condition Jakarta strictly implemented IMF reforms.

"Japan has a lot of political and economic interests in Indonesia," he said.

Many Japanese firms operated in Indonesia and Japan was a major importer of Indonesian crude oil, he said.

Politically, Japan wanted to maintain good ties with Indonesia, a leading member of the Association of South East Asian Nations (ASEAN) nations, Kwan said.

Hashimoto could be hoping to use the Indonesia mission to make up for his lack of economic ideas at a meeting of ASEAN leaders in Kuala Lumpur in December, said Hiroshi Yamamura, chief economist at NLI Research Institute.

"Prime Minister Hashimoto attended the ASEAN meeting without any tactics for stabilizing the regional economic turmoil," Yamamura said.

"He may have later regretted that and now be willing to take the risk of a stronger yen and a delay in (domestic) fiscal reforms," Yamamura said.

Japan would prefer to rely on domestic measures such as raising interest rates and boosting fiscal spending rather than taking direct action to help Indonesia recover, he said.

Foreign exchange market intervention could also be discussed during Komura's two-day visit, since the former economic planning agency minister was accompanied by officials from the ministries of finance, trade and foreign affairs, economists said.

Japan might support an appreciation of the yen to make the currency an anchor for Asia's financial stability -- a plan some economists said was implied in comments by a senior Finance Ministry official on Wednesday morning.

Vice Finance Minister for International Affairs Eisuke Sakakibara told Reuters that Japan's economic fundamentals were changing and Tokyo was seriously considering the possibility of intervention.

The Bank of Japan (BOJ) might soon buy the rupiah against the dollar to prop up the Indonesian unit after it hit a record 12,000 to the greenback, some economists said.

"Mr Sakakibara's comments may imply the possibility of BOJ intervention on the rupiah in the near future," Yamamura said.

The BOJ intervened in the foreign exchange market to buy the rupiah against the dollar shortly after the announcement of the first IMF-led Indonesia rescue package last October.

The intervention caught forex dealers off guard, albeit briefly, as it was the bank's first on behalf of an Asian currency.