No debt rescheduling outside Paris Club mechanism

No debt rescheduling outside Paris Club mechanism

Japan is the largest foreign donor and has contributed the
most in cumulative investment to Indonesia. Japanese Ambassador
Yutaka Iimura shared his views on Indonesia's economic problems,
including on President Megawati Soekarnoputri's recent call for
rescheduling the country's sovereign debts. Following is an
excerpt of Thursday's interview, conducted by The Jakarta Post's
Kornelius Purba.

Question: Could you please comment on the recent economic
talks held by senior government officials of Japan and Indonesia?
Why did it take place before the Sept. 20 runoff?

Answer: This senior officials' talk has been planned since
Foreign Minister Yuriko Kawaguchi and Minister of Foreign Affairs
Hassan Wirayuda agreed in December to hold this meeting.

Regarding the timing, it was only the result of coordination
between the heads of the two delegations. It just happened to
take place before the election. There is no connection between
the timing of the election runoff and the talks.

We feel this meeting was important. So far, we have had
several forums to discuss investment between the two countries.
During the talks, the two sides agreed upon the importance of
improving the investment climate in this country. We also talked
about concrete issues, like taxation, customs, labor and
(Japan's) Official Development Assistance (ODA).

Foreign investors have complained for years about rampant
corruption, labor problems, poor law enforcement and poor
stability, and there is unlikely progress in coming years. How
will foreign investors adjust to this condition?

I don't think progress will be unlikely in coming years. There
will be progress, (and) depending on the political will of the
next government and leadership, this country can improve its
investment climate.

We have strong hopes that the next government will show its
political will and leadership to improve the investment climate,
particularly in the importance of establishing a mid-term road
map to improve the condition of investment, because investors
usually invest on a mid- and long-term basis.

We sincerely hope that, as soon as the new government takes
over, it will show its willingness to cope with this problem and
establish a mid-term road map for investment. Kadin (the
Indonesian Chamber of Commerce) is now drafting a mid-term road
map proposal for the new government. Other international chambers
are also involved in the drafting. The CGI (Consultative Group on
Indonesia) is also working now to prepare a proposal for the new
government.

The improvement of the investment climate covers a broad range
of problems, not only economic issues, but also social problems,
like labor, judicial reform, corruption.

The government has submitted its 2005 draft budget to the
House of Representatives. What do you think are the priorities of
the new government for next year?

Priorities should be decided by the next government. What we
can do is only to give suggestions. In this regard, I would like
to suggest three things.

First, again economic problems, including improvement of the
investment climate, should be one of the top priorities, because
without this you cannot achieve a higher, sustainable economic
growth -- and without higher economic growth, you cannot absorb
the 2.5 million new workforce entering the market. You cannot
solve unemployment and underemployment, so you cannot solve the
problem of poverty.

Second, improving the delivery of social services like
education, and also public health, would be very important. This,
again, is closely related to poverty alleviation. My government
is ready to cooperate with Indonesia to cope with these problems.

Third, consolidating stability. Indonesia has made remarkable
progress not only in the economic arena, but also in the
political arena by moving ahead with the democratization of the
country. But you need to do more to bring about stability, and we
are ready to help Indonesia, like in Aceh.

We have been supporting the peace process in Aceh and if
requested, we will be happy to engage ourselves in the social and
economic reconstruction of Aceh. Also, we are ready to help
combat terrorism.

President Megawati has officially requested the rescheduling
of its sovereign debt. As the largest foreign creditor to
Indonesia, how does Japan respond to this request?

Actually Japan, until Indonesia graduated from the IMF
(International Monetary Fund) in December, was the main
contributor to the Paris Club rescheduling mechanism. I think we
have made quite a large contribution to Indonesia.

But now Indonesia has graduated from the IMF program -- which
means Indonesia has decided not to ask for rescheduling. The
Indonesian debt problem is manageable -- of course, very serious
attention should be paid to manage this problem.

But the decision to graduate from the IMF and not to ask for
rescheduling was the right decision, and we supported this.

We don't think we can agree with the government of Indonesia
on rescheduling its debt outside of the Paris Club mechanism.

What are your views on infrastructure projects in Indonesia?

When we talked about infrastructure projects, it was mainly
about Japan's yen credit. We have been contributing a lot to
building infrastructure in this country.

The process of selecting projects usually starts with a
request from the Indonesian government. Then we proceed with
consultations between the two governments.

Of course, there are several problems in implementing the
projects. The problems are usually caused by problems related to
the economy?, like rupiah financing.

What are your expectations for the next election?

Every time I am asked this by my Indonesian colleagues, I say
there are three things.

One, democratization in this country. We strongly hope the
next election will be conducted peacefully and in a fair manner.
So far, the outcome has been very positive. The Sept. 20 runoff,
we hope it will also be conducted peacefully.

Second, we are neutral. We are ready to work with any
democratically elected president.

Third, we hope the new government will be democratic, reform-
oriented and possesses strong political leadership.

Finally, we tend to forget about this situation: The election
in Indonesia is important not only in domestic politics, but it
also has international implications.

The country makes up 40 percent of the ASEAN population and,
given its strategic location -- as regional integration is in
progress, global competition is progressing -- if Indonesia is
not democratically stable and economically prosperous, it will
have a negative impact on the overall situation in this region
and internationally.