News Analysis: Japan PM's visit to Indonesia to bolster economic ties between two countries

2013-01-19 03:49:10 GMT2013-01-19 11:49:10(Beijing Time)  Xinhua English

By Zheng Shibo

JAKARTA, Jan. 19 (Xinhua) -- The two-day official visit of Japanese Prime Minister Shinzo Abe to Indonesia that will end Saturday is aimed at strengthening economic relationship with ASEAN as Japan is struggling to exit from deflation and recession, said a professor on politics in Indonesia's State Islamic University.

Premier Abe arrived here Friday afternoon for a two-day official visit on the last leg of his three-nation swing to Indonesia, Vietnam and Thailand. "Premier Abe's visit aims to strengthen the already good bilateral economic relationship between Indonesia and Japan," Bahtiar Effendy, a professor on politics in Indonesia's State Islamic University, told Xinhua.

Effendy said the economic relationships between the two countries are far more important than political and security ones. Japan has maintained a steady relationship with Indonesia for five decades. The two countries signed a joint statement on establishing strategic partnership in 2006.

A year later, Indonesia President Susilo Bambang Yudhoyono and Japanese Prime Minister Shinzo Abe, during his first term, concluded the Indonesia-Japan Economic Partnership Agreement which came into force in 2008.

"Indonesia has a huge market for Japan to explore and maintaining a good economic relationship with Indonesia is certainly important for Japan," Effendy said.

Japan is Indonesia's largest trading partner. Bilateral trade between the two countries was valued at 53.15 billion U.S. dollars in 2011, which was higher than the 42.75 billion U.S. dollars a year earlier. Latest data from Indonesia's Central Statistics Regency show that trade volume between Japan and Indonesia reached 44.86 billion U.S. dollars during the first 10 months of 2012.

Indonesia's population of 240 million people is a huge market for Japanese cars, motorcycles, electronics and services as Indonesia's rapid economic growth over the past few years has turned middle-class households richer. Indonesia's economy expanded 6.29 percent in the first three quarters last year despite the continued gloomy global economy. The country's economy is expected to grow 6.5 percent in 2013 supported by buoyant domestic consumption and increasing middle- class households.

Ibrahim Yusuf, Chairman of the Executive Board of Indonesia Council of World Affairs, agreed with Effendy, saying that Japanese economic development has not been in good track for years and increasing its investments in Indonesia can benefit Japan and help in its recovery. "Japan is looking at the South now; it is moving its focus from the U.S. and Europe to Southeast Asia," Yusuf said, adding that the region's economies have been resilient last year as compared with the anemic growth and even recession in some Western countries. Japan's economy has been mired by deflation and stuck in its fourth recession since 2000.

Earlier Xinhua's Tokyo bureau reported that Japan's gross domestic product (GDP) shrank by 0.9 percent in July-September last year. This decline in GDP is equivalent to an annualized 3.5 percent drop, signaling that the world's third largest economy is slipping back into recession.

Japanese businessmen have increasingly looked at Southeast Asia, especially Indonesia, as its manufacturing base due to the low wages in the region as well as to cope up with the strong yen. Indonesia's relatively open economy has attracted billions of dollars worth of infrastructure spending, debt forgiveness and refinancing through Japanese government agencies and private businesses.

Japan is Indonesia's second biggest source of foreign direct investment (FDI) after Singapore, with Japanese companies putting 1.8 billion U.S. dollars in investments in the January-September period last year following a 1.5 billion U.S. dollars FDI in 2011.

Japan agreed last October to help Indonesia build 45 infrastructure projects including roads, railways, harbors, airports and power plants to be completed by 2020 with the total worth of 43 billion U.S. dollars. Japan is a major donor of development aid to Indonesia and has provided billions of funding to the country through Japan International Cooperation Agency.

In 2009, Japan's financial assistance to Indonesia reached 113.9 billion yen (some 1.3 billion U.S. dollars). Sudrajat, former Indonesian Ambassador to China and the Vice Chairman for the Association of Indonesia-China Economic, Social and Culture Cooperation, told Xinhua that Indonesia is an important source of commodity and raw materials to sustain Japan's development, adding that no other countries could immediately replace Indonesia as a supplier of raw materials for Japan.

Japan, the world's second largest nickel user, highly relies on imports from Indonesia for more than 50 percent of its nickel ore needs. In 2011, 48 percent of Indonesia's liquefied natural gas ( LNG) exports also went to Japan.

Despite the traditionally close economic relations with Japan, Indonesia has been trying to strengthen the relationship with other Asian major powers like China and maximizes its economic interests in the region. "Indonesia is a big potential market for both China and Japan and we are glad to see the competition between them as we continue to benefit from it," Professor Effendy said.

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