JAPAN: Worried Tokyo Steps Up Pressure on Indonesia

By Suvendrini Kakuchi Reprint | | Print |

Analysis - Suvendrini Kakuchi

TOKYO, Mar 17 1998 (IPS) - To optimists, Japanese premier Ryutaro Hashimoto’s just-finished trip to Indonesia may just be the right Asian pressure needed to prod President Suharto into hastening economic reforms.

To the more cynical, Hashimoto’s visit shows the extent to which Japan’s economic interests are endangered by Indonesia’s tussle with the International Monetary Fund (IMF) over carrying out the terms of its 43 billion U.S. dollar bail-out package.

In all likelihood, the two observations are correct. By any measure, Hashimoto’s two-day visit to Jakarta, which ended Sunday, is unprecedented in Japan’s normally low-key diplomacy.

Taking the initiative in prodding other Asian countries to comply with international demands, like that of the IMF, is not something that discreet Japan does every day.

Analysts note that dire economic conditions in Thailand and South Korea — the latter’s economy is closely intertwined with Japan’s — did not elicit a similar response from Tokyo.

“Both Thailand and South Korea needed IMF intervention. Of course, they took a different stance on Indonesia by accepting IMF conditions. But still, Japan was not in the forefront as it is in Indonesia,” said Kayako Kitamura, an Asia specialist at the Institute of Developing Economies here.

Hashimoto left Indonesia — which has just sworn in a controverisal Cabinet with a mix of technocrats, President Suharto’s daughter and friends — with at best vague pledges from Suharto to honour economic reforms he had twice pledged in agreements with the IMF.

On Sunday, Hashimoto said he sees Indonesia as a “country that lives up to any undertaking that it enters into”. He said he accepted Suharto’s words “with much weight”.

At the same time, Suharto reportedly told Hashimoto that while he would carry out the terms of the IMF package the international community needed to be “flexible” in Indonesia’s dealing with its worst crisis in decades.

Last week, the IMF postponed the release of a 3 billion dollar tranche for Indonesia due to supposed footdragging by Jakarta and pending ongoing talks with Suharto’s new Cabinet.

Analysts agree that no major headway emerged from the Suharto- Hashimoto talks, but add it is premature to judge the results of the Japanese leader’s summit diplomacy.

During Hashimoto’s visit, Japan’s top officials met with key Indonesian officials like Vice President Bacharuddin Jusuf Habibie and Cabinet members like industry and trade minister Mohamad Hasan.

Others say Hashimoto’s visit may be seen more positively in Indonesia, at a time when some Indonesian officials and intellectuals have been saying the IMF’s recent moves had been motivated mainly by the United States.

“There seems to be only a few people whose comments President Suharto will listen to, and Hashimoto is one of them,” a foreign ministry official was quoted as saying in the Nikkei, Japan’s largest financial daily.

Some say Jakarta may welcome Japan’s advice more than that of the U.S. or Europe. Hashimoto’s trip may produce more results than the string of visits by western officials, not least because Japan sent no less than its premier to talk to Suharto, they add.

Hashimoto’s move underlines how Japan, Asia’s most powerful economy, is taking a more aggressive attitude on Indonesia’s crisis due to the two countries’ close ties nurtured for decades.

Japan is the biggest donor to Indonesia and the biggest bilateral contributor to the IMF bail-out package.

Indonesia, with its large oil reserves, is considered the most important trading partner for Japan in South-east Asia and Japan leads in Indonesia’s trade volume.

Japan is also the largest investor in Indonesia. Over the last 10 years when the two countries’s economies were at their heyday, Japanese companies sank in 25.13 billion dollars up to 1997. That makes up 14.5 percent of total foreign direct investment in Indonesia.

Japan’s trade with its Asian neighbours has already been hit by the region’s crisis. Exports to South Korea, Indonesia and Thailand fell by 20 to 40 percent in January, while imports from Indonesia and Thailand were also below usual levels.

Finance ministry figures show that exports to Indonesia, which has been forced to cut overseas purchases after the collapse of its currency, have slumped 18.3 percent. Imports have fallen by 16 percent.

Japanese companies are worried about their investments as the Indonesian economy flounders. If Indonesia declares a moratorium on external debt payments, Japanese firms would not be able to take foreign currency out to buy raw materials and components, or repatriate their profits.

Kitamura says another concern for Japan is the difficulty that Indonesian firms are having in paying loans to Japanese banks, themselves saddled with a severe credit crunch at home.

Japanese banks have lent 23.2 billion dollars to Indonesian companies, accumulated during the flood of Japanese investments in the high growth years. Some analysts say a substantial amount of Japanese loans will be unrecoverable.

But some Japanese experts are unhappy that economic concerns have taken priority in Japanese diplomacy toward Indonesia at this time.

If Japan is concerned about reforming Indonesia’s economy, Hashimoto should have held more discussions about public discontent over Suharto’s reelection and his Cabinet, Kitamura said.

The ‘Asahi Shimbun’ newspaper says Japan is not doing enough for reform in Indonesia by skimming over political issues, saying true leadership in Asia must be one that values stable democracy as well.

As things stand, Kitamura says, Tokyo is not indicating on whose side it is on — that of growing public opinion for change, or Suharto and his family.

Overseas aid experts are upset that Hashimoto promised emergency loans for medical and food supplies to Indonesia.

Though meant to help ordinary Indonesians, such aid signals to Suharto that Japan approves of his policies despite Tokyo’s statement that it would not yet release promised loans of up to 155 million dollars, they say.

Said one aid analyst: “This is the wrong message, and Tokyo’s initiative in Indonesia is under question.”