J

apan said Tuesday it would be ready to increase investment here should the Indonesian government remove obstacles hampering economic growth, including power problems and bad roads.

The statement was made at a meeting between the Japan Bank for International Cooperation (JBIC) and the government, held to strengthen relations between two countries.

Both have agreed to establish three working teams, which will focus on macroeconomic and financial cooperation; power projects including independent power producers and geothermal energy; and environmental business projects.

“The domestic economy is still solid, and I think it will be the base for growth,” JBIC president Hiroshi Watanabe told the media.

In every fiscal year, which runs from April to March, the JBIC disperses around US$10 billion for various programs, he said. In the 2008 fiscal year, however, the figure was increased to $15 billion, and in 2009 up to $30 billion — to help cope with the global economic crisis.  Watanabe did not mention how much would be allocated in the 2010 fiscal year (to begin April. 1), but said it would be less than $30 billion allocated last year.

The JBIC has also provided a guarantee of $1.5 billion for the issuance of samurai bonds by Indonesia, of which the government has used about $350 million. The government may issue between $750 million and $1 billion worth of samurai bonds this semester, said Rahmat Waluyanto, the Finance Ministry director general of debt management.

According to Toshiro Nishizawa, the director of the Asia Department II at the Japan Center for International Finance, Japanese firms are cautious about uncertainty in Indonesia’s legal environment, the rigidity of its labor market, and corruption, all of which could hinder their expansion here.

“Despite its potential, there are still obstacles to Indonesia becoming Japan’s most attractive investment destination, and these obstacles need to be removed by the government,” Toshiro said.

The government expects the economy to expand 5.5 percent this year, up from 4.5 percent booked in 2009, on the back of stronger investment and trade.

The areas of focus would be power generation, urban transportation, national and cross-border logistics and water management, JBIC Jakarta chief representative Takanori Satake said. However, in attracting investment from Japan Indonesia would need to compete with its Asian peers including Malaysia, the Philippines, Singapore, Thailand and Vietnam, he said.

The government has said it will speed up the development of infrastructure in Indonesia to reduce business costs. Arianto Patunru, an economist at the Economic and Social Research Institute at the University of Indonesia, said businesses in Indonesia spent up to 14 percent their overhead on logistics expenses, as compared to 4 percent in Japan.

“This shows we are not efficient,” he said, adding that high logistic costs forced businesses to increase prices, which made Indonesian goods less competitive.