POLITICS-JAPAN: Tokyo Nurses A Headache Called Indonesia

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, May 20 1998 (IPS) - Political instability in Indonesia is proving to be a huge headache for Japan, which has long been among President Suharto’s closest allies and a major economic player in the country.

“A solution is critical for Japan because of the strong economic and political ties between the two countries,” said Akihisa Matsuno, who teaches international relations at Osaka University.

Because of its economic and commercial interests, Japan is among those most likely to take a direct hit if the Indonesian economy completely fall apart. But calls are also rising within the country to support the need for greater democratisation in Indonesia.

With its large oil reserves and vast natural resources that make it an accessible and cheap source of raw materials, Indonesia is an important partner for resource-hungry Japan.

Indonesia is the largest recipient of Japanese overseas assistance, taking in more than 26 billion U.S. dollars since 1966. In 1996-97, Japanese aid loans reached 1.4 billion dollars, up from 1.25 billion dollars in 1995-96.

Following the government’s strategy of building economic networks in South-east Asia, Japanese businesses have invested heavily in Indonesia. Estimates of cumulative investment run to some 25 billion dollars.

In 1996 private investment doubled from the previous year to 7.65 billion dollars, the most by any nation. In 1997 this dropped by 29 percent after the plunge in the value of the Indonesia’s currency, the rupiah, but still it remained second only to Britain on Japan’s investment chart.

Japanese investment and aid have been a pillar in the Suharto government’s ability to steer Indonesia toward rapid economic growth in the last few decades, when 8 percent annual growth was not uncommon.

But now Tokyo’s heavy involvement has also become a risk, one that Japan is nervously weighing not least because of the touchy situation of its own financial system and economy.

Japanese banks are worried about the 23.1 billion dollars they lent to Indonesia — and are loathe to see the country collapse into anarchy. The amount comprises the largest part of the 65 billion dollar private sector debt owed by Indonesian firms.

Close economic ties between Japan and Indonesia have also nurtured special, and not always transparent, relationships between Suharto and Japanese politicians.

“A lot of Japanese investment is in companies that belong to Suharto and his relatives, which is another reason why Japan remains reluctant to turn away from him,” explained Kayako Kitamura of the Institute of Developing Economies here.

Many Japanese companies have joint ventures with Indonesian firms in the auto manufacturing, power plant and electronics sector, industries that are closely linked to Suharto family interests.

So far, the Japanese government has used its political clout in Indonesia cautiously.

When international confidence threatened to break up as Suharto dodged commitments made to the International Monetary Fund (IMF), Japanese Prime Minister Ryutaro Hashimoto visited Jakarta in March. The high-level nature of that visit led to a reluctant Suharto renewing pledges to keep to IMF terms.

Japan has poured in key amounts of aid to Indonesia since its economic crisis struck late last year. Under instructions from Hashimoto in January, Japan ordered fresh loans of up to 370.3 million dollars for 1998, in addition to a 148 million dollar special package pledged in 1997.

Now, with Indonesia gripped by daily protests seeking no less than Suharto’s immediate ouster, Hashimoto is coming under intense criticism from human rights activists who want him to use Japan’s clout to pressure Suharto to step down, and to get Tokyo to look beyond short-term economic interests.

“Hashimoto must support democracy in Indonesia,” argued Yoshinori Murai, a development professor at Sophia University.

So far, though, the government is sticking to its policy of supporting Suharto as long as he implements economic and political reform.

Official spokesmen have been cautious in issuing statements. “The situation in Indonesia is tense. We are hoping things will get better,” said a foreign ministry official who asked not to be named.

Japanese officials say Tokyo has learned some lessons from its involvement in Indonesia over the decades.

If the Indonesian situation stabilises, Japan wants to hold talks with Jakarta to “take appropriate action to help the Indonesian economy and society develop smoothly”, Koji Omi, a top official at the government’s Economic Planning Agency, said Tuesday.

But the escalating violence in Indonesia has also shown up the weaknesses of Japan’s policies toward South-east Asian countries, analysts say.

“While Japanese aid and investment have definitely helped in raising living standards in Indonesia and the rest of South-east Asia, Japanese officials are now realising that there are problems as well,” Kitamura pointed out.

She says that Tokyo has learned that aid must not only be geared toward economic development, including infrastructure, but must also support social development.

The government’s aid programmes should also focus more on democracy along with growth in developing countries, she says. “The anger of the poor people in Indonesia is an appropriate lesson,” Kitamura added.

But while a lot of Indonesia’s problems stem from political causes, many here also think that the international community did not earlier on heed warning signs stemming from the social costs of factors like globalisation of financial and economic markets.

In an editorial Monday, the Japanese daily ‘Asahi Shimbun’ criticised Japan and industrialised countries at the G-8 summit over the weekend for not doing enough to address the roots of the Asian crisis.