Friday, October 15, 2010

Japan’s declining role, influence

In August this year, the powerful and highly respected Corruption Eradication Commission (KPK) raided the Jakarta office of PT Sumitomo Indonesia as part of its investigation into alleged kickbacks in the delivery of used railway coaches from Japan to Indonesia.

In January, the KPK questioned Hideyuki Nishio, the general manager of Sumitomo’s Jakarta office, as a witness in the case of suspect Soemino Eko Saputro, the former director-general of railway affairs at the Transportation Ministry.

Mr. Saputro was also intensively involved in the decision making process of the mass rapid transportation (MRT) development in Jakarta, where several Japanese companies have expressed their interest while JBIC has also stated strong commitment to finance Indonesia’s first subway network.

This raid itself was the first the KPK had ever conducted on a foreign company.
According to the Commission, the transportation cost of the coaches from Japan to Indonesia in 2006 and 2007 had been marked up by Rp 11 billion (US$1.2 million). Indonesia borrowed from Japan to finance the transportation costs. Japan granted the used wagons to Indonesia because Japan prohibited the use of the refrigerant Freon, a CFC, in all public vehicles since 1998.

I do not to intend to discuss legal or moral aspects of the case here. What attracts me more is why only a few Indonesian media outlets, including The Jakarta Post, paid serious attention to the raid despite Sumitomo’s stature as a Japanese giant. I do not know how the Japanese media treated the story, as there are several Japanese correspondents in Jakarta who work for Yomiuri, Asahi, Nikkei, Mainichi and Kyodo.

Perhaps because there are so many mega corruption cases in Indonesia and the amount of the alleged mark-up ($1.2 million) is too small, the story didn’t get public attention. But it is not impossible that the public disinterest in the alleged graft was a reflection of the declining influence of Japan in Indonesia. Its dominant position has been replaced by China and to a certain extent also South Korea.

Many Japanese companies practically abandoned ASEAN, especially Indonesia, after the 1997-1998 Asian financial crisis and relocated their factories to China. Japan put almost of all of its “eggs” in the China basket. Japan is overly dependent on China. And China, which just leapfrogged Japan as the world’s second-largest economy, is successfully filling in the big holes left by Japan.

China is very aggressive in providing turn-key infrastructure projects, at prices often much cheaper than other international companies, including Japan. However, as in other countries, there are growing concerns over the quality. China’s gigantic economy is instrumental in helping the economic growth of ASEAN because of its severe hunger for resource-based imports. Its “generous and non-binding” investments for infrastructure are also very helpful for Indonesia, while the Japanese government still finds it difficult to relax its traditional position in linking financial loan to projects.

Meanwhile, South Korean companies such as LG and Samsung decided to stay in Indonesia and even took big risks in their investment expansion. Now, South Koreans make up the largest foreign community in Indonesia, while the number of Japanese nationals, who used to be the largest, drastically declined.

The golden era of the “mighty yen” has faded after helping countries in Southeast Asia for several decades. Japan was largest money lender and donor through its Official Development Assistance (ODA) for many countries in the world, including Indonesia. Now foreign loans are politically very unpopular and although terms and conditions are much stricter, the Indonesian government prefers to borrow from international markets.

It is encouraging, however, to see the significant return of Japanese companies to Indonesia, although their complaints about poor infrastructure, widespread corruption, legal uncertainties and the power shift from the central government to local governments remain unresolved. We need to remember the old saying that “fishing in murky waters” is often profitable.

Japan will continue to play a key role in Indonesia’s economy. But if we talk to ordinary Indonesians many of them will mention the decreasing attractiveness of Japan. In the 1980s and 1990s, many parents sent their children to learn Japanese and study in Japan. Now it is difficult to find prominent figures in Indonesia who graduated from Japanese universities. Why? It is not just because mastering Chinese is a more promising prospect, but also because Japan gives little opportunity for non-Japanese workers to get into high positions in Japanese companies. Toyota, of course, is very different.

Many, if not most, Indonesians who work in Japanese corporations can only reach mid-level careers and the same situation can probably also be seen in other countries.

While Japan faces a declining population, many wonder why its companies still rigidly cling to such old fashioned management styles. It is very important for them to follow the policies of other industrialized countries in luring global workers to their firms.

Singapore is a good example in recruiting the best brains by providing scholarships, lucrative jobs and citizenship to brilliant youth from neighboring countries. So far, Japan remains very hesitant to deregulate its tight immigration policies.
We need a strong Japan. It has contributed much for our development in the 1980s and 1990s. But Japan needs to readjust itself with the current global changes. And I have no doubt about her capacity and capability to meet the new demands.

Now when Japan returns to the region, but it is already a bit late. Countries like Indonesia may ask, “Why do you return after ignoring us for years?” Japan needs to know it has hurt its smaller neighbors and it is not easy to cure the pain especially because China is also luring them with expensive gifts.

Kornelius Purba, staff writer at The Jakarta Post.

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