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.