Mega seeks free trade pact with Japan

Indonesia wants to cut tariffs and scrap import quotas to expand trade with Japan, which is its biggest export market.

Taking the cue from other Asian countries, Indonesia has initiated talks with Japan to sign a free trade agreement (FTA) as it seeks ways to resuscitate its ailing economy.

In a bid to strengthen economic ties with Japan, the government wants to lower tariffs and get rid of import quotas with a view to pumping more money into Indonesia by further increasing the already large trade volumes between both countries.

Coordinating Minister for Economic Affairs Dorodjatun Kuntjoro-Jakti told reporters in Tokyo, where he is accompanying President Megawati Sukarnoputri on a four-day official visit, that the Indonesian leader will propose formal talks on the matter when she meets Japanese Prime Minister Junichiro Koizumi.

The Straits Times understands that the proposal is in its early stages and both sides are setting up a ‘joint study group’ to look at the feasibility of an FTA and setting up a timetable for implementation.

A Finance Ministry insider said: ‘Given the existing trade flows between both countries, it won’t take long to come up with an agreement, probably the next few months. There is so much potential to expand trade.’

Japan is currently Indonesia’s biggest export market with shipments totalling US$14.4 billion (S$25.2 billion) in 2000.

Close economic ties are also underlined by the fact that Indonesia is Tokyo’s largest supplier of liquefied natural gas and lies close to major maritime shipping routes through which Japanese products are transported to customers in Europe and the Middle East.

Another indication of economic cooperation lies in the fact that Japan is Indonesia’s biggest aid donor.

Mr Dorodjatun first raised the issue officially when he met officials from the Asian Development Bank last week.

He made it clear then, as he did in Tokyo on Monday at a press briefing attended also by Ms Megawati, that Indonesia wanted to join other Asian nations in sealing a pact with Japan.

Japan signed its only free trade agreement last year with Singapore. Malaysia, the Philippines and South Korea are also seeking free trade agreements with the world’s second biggest economy.

Indonesia’s decision to sign an FTA with Japan comes on the heels of Jakarta’s announcement yesterday that it would not consider extending the International Monetary Fund (IMF) programme to safeguard macroeconomic stability.

The US$5 billion IMF programme, which was introduced in the aftermath of the 1997-1998 currency crisis, is due to end this year.

After meeting Japanese Finance Minister Masajuro Shiokawa at the state guesthouse yesterday, Ms Megawati disclosed that her administration was leaving the IMF programme. She said: ‘We have obtained Parliament’s approval to leave the IMF. We want to stick to this stance while paying attention to social, economic and political stability.’

Local media reports yesterday quoted Finance Minister Budiono as saying that after the IMF programme ended, the government would no longer receive debt rescheduling facilities from the Paris Club of creditors. Spending would be managed carefully to avoid a deficit.