The anti-government riots in Jakarta in July sent shock waves throughout the foreign business community. President Suharto's declaration of a ruthless crackdown on what he called 'subversive attempts' appeared to have contained the disturbances, but the undercurrent of discontent presumably remains and may even have been exacerbated.
The riots, which stemmed from the government-backed ousting of Megawati Sukarnoputri as leader of the opposition Indonesian Democratic Party, appears to have stopped short of crucially shaking the Suharto regime. But it has served as an unmistakable indication of pent-up frustration with the rigorous suppression of dissent that has typified Suharto's 30-year rule.
The question is whether the 75-year-old president will be able to continue without showing any indication of a smooth transition away from the total suppression of activities or ideas that are in disagreement with the government.
Neither Japanese businesses, nor the Japanese government for that matter, seem to have been shaken by the riots in terms of their immediate impact on day-to-day business. Although the Japanese media carried due coverage of the riots, no major voices of concern or protest were heard from the business community. But deep down there is a real sense of unease.
For Japan, Indonesia is an exceptionally important country in Asia for a variety of reasons. And so, for Indonesia, is Japan.
Japan is Indonesia's largest trading partner. In 1995, Indonesia imported US$9.97 billion worth of goods from Japan, while exporting US$14.21 billion to it. It is one of the few countries in Asia that runs a trade surplus with Japan. Nearly 70% of Japan's exports to Indonesia are machinery, while nearly 50% of Japan's imports from that country are fossil fuels.
Japan is also the largest investor in Indonesia and the largest donor of economic assistance.
Tokyo has strongly backed the Suharto government with aid. As a major donor to countries in East Asia, Japan has placed particular emphasis on Indonesia and China. From the beginning of 1990 to the end of 1994, aid to China amounted to US$9.28 billion, slightly less than the US$11.6 billion donated to Indonesia. In the latter part of that period, China overtook Indonesia in terms of aid received. In 1993, it received US$1.35 billion against US$1.15 billion for Indonesia, and in 1994 the respective figures were US$1.5 billion for China and US$886 million for Indonesia.
But those donations to Indonesia far outstripped contributions from other countries. In 1993, for example, Germany, the second most generous donor, contributed US$279.4 million, less than a quarter of the Japanese figure.
The Japanese government's policy is to maintain a high level of development assistance to Indonesia, which still looks for a considerable amount of Japanese aid to cope with problems caused by economic growth.
As with aid, so with investment. Japan has long been the biggest investor in Indonesia. Between 1967 and 1994, US$15.6 billion poured in from Japan, well ahead of the nearest Asian rival, Hong Kong, which invested US$1.2 billion.
In 1993, investment in Indonesia by Japanese businesses plummeted 44.7%, to US$836 million, but bounced right back the following year, to US$1.5 billion, an increase of 87%.
In addition to being rich in terms of natural resources - especially energy sources - and in terms of manufacturing bases for Japanese companies, Indonesia has particular importance in terms of security because of the country's geography and its population of around 200 million. Japan is especially concerned with the archipelago that contains key waterways - the Straits of Malacca and Lombok - which are used by oil tankers headed for Japan from the Middle East.
For these reasons, it is essential for Japan that its relations with Indonesia remain friendly and that the country's internal stability is assured.
The relationship between the two countries, in economic as well as political terms, rests heavily on Suharto's regime. The Japanese government's policy towards Indonesia has been unquestioned support for both the 'stability' and 'development' of the country that are pursued as national goals by the military-backed Suharto government.
Indonesia's status in the Southeast Asian region also means a lot. As the Japanese government's firm backing for the Association of Southeast Asian Nations (ASEAN) shows, this region is of crucial importance to Japan's Asia policy as a counterweight to China and also as an economic backyard.
Indonesia is a cornerstone of the seven-nation ASEAN, which is expected to expand within a year or two into a 10-nation group, through the inclusion of Cambodia, Laos and Myanmar. Ever since the Vietnam War, it has been on Japan's foreign policy agenda to promote integration of Indochina and Myanmar into ASEAN.
Japan has good reason to be sensitive about the stability of Indonesia. In January 1974, Japan became the target of a riot in Jakarta during a visit to the capital by Japan's then-prime minister, Kakuei Tanaka.
It was the worst disruption of order since Suharto came to power in 1966. Offices of Japanese companies in the capital city were attacked and Japanese-made cars were set on fire. Tanaka had to be rescued by helicopter from his hotel and whisked away to the airport.
Japan's overwhelming economic presence in Indonesia was undeniably the cause of the riot. But beneath the surface was popular resentment against the privileged ethnic Chinese businessmen who were closely tied with the political and military establishment and who were getting wealthier by conducting business with Japanese companies. One author called the three-way relations a 'holy alliance'.
Japan's postwar economic relations with Indonesia began with the payment of war reparations to the country, which amounted to US$223 million in goods and services over a 12-year period from 1958, plus US$400 million in loans over 20 years.
Since these goods and services were to be Japanese-made, Japanese companies competed fiercely for contracts and there were allegations of scandals involving Indonesian officials and Japanese politicians.
After Suharto took over as leader following the bloody counter-coup in 1965, Japanese businesses turned to tying up with ethnic Chinese business interests which, in turn, forged close connections with the Suharto regime.
Since these Chinese business people have no ambitions to seek political power, they have always been safe partners for Suharto. Japanese businesses becoming partners of the Chinese groups have indirectly served to support the Suharto regime.
But the recent riots in Jakarta must give Japanese businesses, and the Japanese government, pause for thought, especially coming so soon after the announcement and abrupt establishment of the so-called 'national car' scheme a few months ago, a move that angered the Japanese car industry and upset the government.
The scheme blatantly favours Suharto's third son, Hutomo Mandala Putra ('Tommy'), whose company has been granted sole 'pioneer' status, and appears so outrageous that the Japanese government has repeatedly asked Indonesia to reconsider it. These calls have been in vain, because Suharto himself made the decision and nobody dares try to persuade him to change his mind despite the international criticism.
Japanese officials say that in view of the close and - so far - very smooth relations between the two countries, it would be with the very greatest reluctance that Japan would bring the case before the World Trade Organisation, but that may eventually be the only option left.
The Suharto family's unabashed pursuit of business profits is well known, but this particular case is too brazen to be ignored from the standpoint of international rules. Indeed, it may even be interpreted as a sign that Suharto is losing sight of the bigger international trade picture.
Masahiko Ishizuka is editorial writer responsible for regional issues on Nihon Keizai Shimbun.