Japan will provide Indonesia with a total of Â¥150 billion ( US$1.46 billion ) in loans for the country to boost development of vital infrastructure in the coming years.
Industry Minister MS Hidayat said Monday that the loan, made available through Japan's Overseas Development Agency ( ODA ), would help finance dozens of projects under the Metropolitan Priority Area ( MPA ) program, including their feasibility studies. The cooperation under the MPA program was signed by both governments in 2010.
The flagship projects in the program include the development of a port in Cilamaya, Karawang, West Java, and mass rapid transportation ( MRT ) system in Jakarta.
'With all its drawbacks, Indonesia will still attract investment from Japanese firms. That encourages the Japanese government to assist with the development of infrastructure here,' Hidayat said.
Citing Tanjung Priok Port in North Jakarta as an example, Hidayat said that the backlog and inefficiency at the country's main port hampered export and import activities.
The industry minister, along with some other Cabinet members including Coordinating Economic Minister Hatta Rajasa and Trade Minister Gita Wirjawan, headed by President Susilo Bambang Yudhoyono, paid a visit to Japan last week where both sides expressed their intentions to forge closer economic links.
Hidayat said that during a roundtable meeting with a number of top Japanese firms, including Mitsubishi, Toshiba, Marubeni IHI and Inpex, some business executives conveyed their interest in expanding their businesses in Indonesia, injecting between $3.5 billion and $4 billion in multi-year investments.
Toshiba, for example, aims to make Indonesia its regional production base for electronics products, while Marubeni wants to set up a power plant with local firms, including Indika Energy.
This fits the estimate of the Japan Bank for International Cooperation pointing out that Indonesia would become Japan's main investment destination next year, according to Hidayat.
'We ask Japanese investors to disperse their investments outside Java to develop our industries on other islands ,' Hidayat said.
Investments from Japanese firms totaled $2.46 billion in 405 projects last year, while in January-September this year they reached $3.64 billion in 646 projects.
The Industry Ministry's director general for international industry cooperation, Agus Tjahajana, said that during the visit, Indonesia also requested a review of its economic partnership agreements amid rising concern the deal did not benefit both parties equally.
A recent study by the Centre for Strategic and International Studies ( CSIS ) suggested that Indonesia had not taken full advantage of increased market access due to a lack of product diversification.
Exports of manufactured products expanded by 78.08 percent to $12.58 billion in 2011 from 2009, but imports jumped by 97.07 percent to $19.23 billion in the same period, the study reveals.
'We've followed up by sending a formal letter to Japan for the review,' he said.
Overall trade between Indonesia and Japan stood at $52.9 billion last year, with exports from Indonesia amounting to $30.14 billion and imports $22.77 billion. From January to August this year, it settled at $31.24 billion with Indonesia exporting $18.19 billion and importing $13.05 billion.