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.