Newsletter No. 880
News-Analysis
January 23, 2008

 

PRINCE AKISHINO VISITS INDONESIA FOR 50TH ANNIVERSARY COMMEMORATION

Prince Akishino, the second son of Emperor Akihito, traveled down to Indonesia together with his wife, Princess Kiko, to mark the 50th anniversary of Indonesia-Japan relations, and to inaugurate 2008 as the Year of Indonesia-Japan Friendship. The visit was for a full six days.

On the 19th the royal couple met privately with Indonesian President Susilo Bambang Yudhoyono, who intimated that he wants the commemoration of the 50th anniversary to be focused on culture, education, and friendship between the two countries' youths. He stated: “Closer relations between the youths of the two countries are important so they can be expected to inherit and continue the present good relations between Indonesia and Japan.”

The main event was held on the 20th at the “Beautiful Indonesia-in-Miniature Park.” Following that, the prince and princess visited the ancient Central Java city of Yogyakarta and surrounding areas, met the local Sultan Hamengku Buwono X, and visited Gadjah Mada University and the historic Prambanan and Borobudur temples.

A Jakarta Post editorial on the 50th anniversary follows at the end of this Newsletter.

AID AND BUSINESS BRIEFS

A number of smaller stories have appeared in recent weeks about Japan-Indonesia business relations, as well as one story about a new aid package. Below we will briefly acknowledge these developments:

-- A Japan Bank for International Cooperation (JBIC) survey has recently found that Indonesia has risen from 9th place to 8th place as a destination for Japanese foreign investment. Commented an Indonesian diplomat to Antara News: “The latest survey is like the best New Year's present for Indonesia… It is an interesting development because the Japanese investors normally adopted a ‘wait and see’ attitude when it comes to investment in Indonesia.”

-- In December, Japanese truck and bus manufacturer Hino Motors announced that its first-half sales in Indonesia had surpassed those in Thailand to become its largest market outside Japan. The trend of strong sales of Hino’s vehicles in Indonesia was expected to continue. Globally, Indonesia was expected to account for about 15% of Hino’s international sales.

-- In November, it emerged that Japan Petroleum Exploration Company (JAPEX) planned to raise investment up to US$900 million dollars in Indonesia's Kangean oil and gas field in East Java by 2012. The field is targeted to begin production in 2010.

-- Yesterday, Indonesia's state-owned oil and gas company, PT Pertamina, said it has signed a propylene project worth US$283 million with a consortium including Japan's Toyo Engineering Corporation. The project, which is due to be completed by 2010, is expected to more than double Pertamina's propylene output, enabling it to meet rising demand for the product from plastic manufacturers.

-- In the first week of the year, MOFA announced that they would provide a grant of about US$253,000 for a rural development program in Indonesia. In particular, the international project will focus on managing infrastructure -- dams, tree planting, irrigations -- in rural areas in Nusa Tenggara Timur, where people suffer from severe food shortages.

Fifty Years of Japan-RI Relations
Jakarta Post
January 21, 2008

Indonesia and Japan have numerous joint achievements of which they can be proud, as well as new challenges to reckon with as they celebrate the 50th anniversary of their diplomatic relations this year.

Overall, relations and cooperation have advanced in all fields but the most outstanding progress, which directly benefits the Indonesian people, has been made in the economic field. Both countries are well suited for mutually beneficial economic ties -- Japan can supply the technology and financial capital that is badly needed to develop Indonesia's rich natural resources and generate jobs for its huge pool of low-cost manpower.

These numbers tell it all: the Japanese government has been the single largest provider to Indonesia of development assistance, amounting cumulatively to almost US$37 billion as of 2006, consisting of soft loans, grants and technical assistance. Japan has been Indonesia's largest trading partner and Japanese businesspeople have been the biggest foreign investors in non-oil sectors.

Cooperation within the private sector also has been vigorous, as demonstrated by the various business forums regularly held by the Indonesian and Japanese chambers of commerce and industry.

But the challenges now are how to raise this bilateral cooperation to a higher level in all areas. Bilateral cooperation in promoting shared values in democracy, basic human rights and the rule of law at the bilateral, regional and global level remains important. However, much more vital and strategic for the benefits of both nations is stronger economic cooperation.

It is sad to note that the inflow of new foreign direct investment from Japan has been declining, especially since the 1997 economic crisis. Part of the problem lies in the glut of foreign investment in labor-intensive manufacturing due to keener competition from investors from other countries, such as South Korea, Taiwan, Singapore and China.

Japanese investors should have moved up higher on the value-chain of the manufacturing industry, but the barriers seem to have mounted, especially as Indonesia learnt the full-fledged democratic process after the fall of Suharto and launched local autonomy in 2001. The initial excesses of the decentralization of power from the central government to regional administrations caused legal uncertainty that scared off investors in natural resource-based ventures.

Both governments tried to reinvigorate Japanese investments in the country with the launch of a Japan-Indonesia strategic investment action plan in June 2005. However, this plan has failed to woo more Japanese capital because the scheme essentially contains reform measures the Indonesian government must take, while Indonesia's institutional capacity to execute the necessary reforms in taxation, customs, labor, infrastructure and manufacturing competitiveness is lacking.

Both governments again took a bold move to bolster their economic ties by launching the Japan-Indonesia Economic Partnership Agreement (JIEPA) in August 2007.

Both President Susilo Bambang Yudhoyono and then-Prime Minister Shinzo Abe, who signed the agreement on August 20, 2007, believed the new pact would open a new chapter in bilateral cooperation in facilitating trade and investment, as well as the flow of people between the two countries.

Still more encouraging is that the agreement also includes Japan's commitment to help accelerate institutional capacity-building in Indonesia.

Japan will cut to zero import tariffs on almost 90% of Indonesian export commodities under the JIEPA. But the sweeping, deep import tariff cuts -- however crucial they are for expanding Indonesia's share of the Japanese market -- are not enough to bolster trade ties as long as non-trade barriers related to quality standards and customs clearance are not removed.

Here lies the importance of Japan's assistance in capacity building in Indonesia. Without adequate institutional capacity to meet Japan's quality standards for services and goods, Indonesia will simply be unable to tap the wider trade opportunities to be generated under the JIEPA framework.

But again, as with all other bilateral cooperation agreements, the JIEPA is simply a document, a symbol of the political commitment of both governments that has to be translated into well-focused concrete programs for implementation.

The big challenge is that most of the work needed to prepare the ground for the implementation of the economic partnership agreement lies on the shoulders of the Indonesian government.