Tough talks await Indonesia in Japan

Tough talks await Indonesia in Japan

By Kornelius Purba

TOKYO (JP): Japanese Prime Minister Junichiro Koizumi and
Indonesian President Megawati Soekarnoputri are to meet here on
Thursday after both leaders held separate talks with U.S.
President George W. Bush in Washington.

Megawati, the leader of the country with the world's largest
Muslim population, went ahead last week with her scheduled visit
to Washington despite the Sept. 11 tragedy.

On the other hand, Koizumi held a hastily-arranged meeting
with Bush on Tuesday after postponing his long-planned visit to
Indonesia and three other member countries of the Association of
South East Asian Nations (ASEAN) following the terrorist attacks.

After winning the hearts of U.S. leaders, Megawati will have a
a more convincing stature in her talks with Japanese political
and business leaders, including Koizumi, finance minister Seijuro
Shiokawa, foreign minister Makiko Tanaka, Keidanren leaders and
top executives of Japan's major corporations.

But the situation during her four-day visit in Tokyo is
completely different from the warm reception she received from
the Bush administration due to her wholehearted support for the
U.S. people and government in fighting terrorism.

She received a significant increase in financial assistance
from the Bush administration and investment pledges from American
enterprises to help strengthen Indonesia's economic recovery.

In Tokyo, however, she is welcomed by a gloomier economic
situation.

Japan, Indonesia's largest sovereign creditor, is suffering a
prolonged recession with an unemployment rate reaching 5 percent
and declining exports.

It is not difficult today to find homeless people in affluent
areas like Ginza, Kasumigaseki or Otemachi in Tokyo.

However, wooing more financial aid and private-sector
investment from Japan is the primary objective of Megawati's
visit as her government has inherited a weak economy and foreign
and domestic debts amounting to almost US$150 billion.

"We are now facing the third most difficult period in our
history after the Meiji era and our military defeat in World War
II. We are mired in a very crucial moment in terms of our
economy," senior Japanese diplomat Minoru Shirota told The
Jakarta Post on Tuesday.

Shirota said it was very likely that Megawati would ask for
some relief for Indonesia's huge debt burdens. Shirota has years
of experience as a diplomat in Jakarta and is still in charge of
Indonesian affairs as regional coordinator of the foreign
ministry's Second Southeast Asian Division,

He indicated that Megawati's senior ministers might ask for
debt reduction although he also strongly reiterated Megawati's
own commitment to honor the previous government's commitments to
Japan.

"A hair cut or debt reduction is not a solution. It may
provide relief in the short term, but once your demand is met the
international market will soon lose its confidence in your
government," said Shirota in fluent Indonesian.

According to the Japanese Embassy in Jakarta, until March this
year Indonesia had cumulatively received 3.6 trillion yen in
loans from the Japan Bank for International Cooperation (JBIC)
and 4.2 trillion yen in other forms of official assistance.

Japan has also provided 203 billion yen in grants and 228
billion yen in technical assistance.

Japanese loans accounted for $2.7 billion of the $5.8 billion
of Indonesian debt principals due to mature in March, 2002, which
were rescheduled under the Paris Club II agreement last year.
However, the government has hinted at the need for another
package for rescheduling debts maturing within the next two
years.

"I can assure you that the Japanese government is firm in its
position against giving any hair cuts or debt reductions," said
Kansuke Nagaoka, deputy director of the loan aid division of the
foreign ministry.

However, before asking for such serious concessions from its
donors, the Indonesian government must first prove that it
deserves what it is asking for.

Indonesia should first achieve significant progress in
eradicating corruption, believed to have wasted a good portion of
foreign aid, including funds from Japan.

"We know that Soeharto and his cronies abused (foreign aid and
financial assistance)," said a senior Japanese official, who
spoke on condition of anonymity.

"But you just let them live freely without ever trying to
take back the money from them and use it for your development.
Clean up your house first before sharing the blame with us for
your debt disaster."

Japanese companies, which make up the largest foreign investor
in Indonesia, have also been complaining of what they consider
unfair treatment.

They accuse the Indonesian government of giving better
treatment to U.S. businesses than to Japanese in the case of
business disputes.

Currently, there are four Japanese-funded projects waiting for
debt settlement from Indonesia: Petrochemical company PT Chandra
Asri, which involves Marubeni Corp., Paiton power plant,
involving Mitsui, Tuban petrochemical plant and the Tanjung Jati
B power plant. The projects either involve Japanese firms or are
mainly financed by Japanese creditors.

Chandra Asri is facing a complicated situation in resolving
its $700 million debt to a Japanese consortium, led by Marubeni.

The government has changed its promises to Marubeni at least
three times in the last two years.

In the latest development, the Indonesian Banking
Restructuring Agency (IBRA) is even considering selling out the
company to U.S. investor Goldman Sachs.

Marubeni has been so frustrated that it might ask for
Koizumi's assistance to convey its message to Megawati during
their bilateral talks.

"Your government treats Chandra Asri in such manners because
the company only involves Japanese investors and creditors. That
would not be the case if American business interests were
involved," said a Japanese businessman who has closely monitored
the Marubeni case.

Megawati has a higher profile in Tokyo after her successful
U.S. visit. Japan also realizes that her government needs strong
assistance to revive its economy.

However, her negotiations with Japanese leaders will be much
tougher compared to her meeting with the Bush administration.
Japanese private companies are also waiting to know her vision
concerning their presence in Indonesia before making new business
plans in Indonesia.

The writer is a staff writer of The Jakarta Post.