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.