Japan will support Indonesia’s new leadership, but will “keep a careful watch” as Jakarta tries to achieve social stability and economic recovery, Prime Minister Ryutaro Hashimoto said Thursday.

“Japan will closely watch how things develop,” the prime minister told reporters one hour after President Suharto announced his resignation, apparently adopting a neutral stance over the resignation and the inauguration of former Vice President Bacharuddin Jusuf Habibie as the new president.

“I think President Suharto has decided (to resign) after taking into account the desires of the Indonesian people, the need to stabilize the society, and many other factors,” Hashimoto told reporters in the Diet building.

Hashimoto indicated that an agreement on economic reforms signed between Indonesia and the International Monetary Fund may be reconsidered.

The social unrest in Indonesia can be attributed to Suharto’s decision to increase the financial burden on the public in line with the IMF agreement, Hashimoto said.

Hashimoto said it is hoped that Japanese businessmen and others who left Indonesia due to the worsening situation will be able to return to the country.

In a written statement, Hashimoto expressed his gratitude to the departing president for efforts made over the past 30-plus years to foster Tokyo-Jakarta relations.

Hashimoto said he appreciates Suharto’s work during his long tenure to develop Indonesia and to improve the country’s international status. “In addition, we would like to express our heartfelt respect for his tremendous contribution to enhancing peace and stability in the world as one of the leaders of the Association of Southeast Asian Nations,” Hashimoto said.

Indonesia is the largest recipient of official development assistance from Japan, totaling 215.2 billion yen in 1997. The cumulative amount of Japan’s ODA to Indonesia up to 1996 reached $13.4 billion.

Japan and Indonesia also maintain strong ties in trade. Japan’s exports, centering on automotive components, totaled $10.23 billion in 1997, up 12.6 percent from the previous year. Indonesia’s exports to Japan came to $14.71 billion, down 3.6 percent. Indonesia supplies about 40 percent of Japan’s liquefied natural gas.

Japan has also pledged the biggest contribution — $5 billion — to a $43 billion international bailout package compiled by the International Monetary Fund for Indonesia after the start of Asia’s financial crisis.

Japanese political parties, by and large, welcomed Suharto’s decision to step down. They also expressed hope that the domestic turmoil will be settled soon.

Shinto Heiwa (New Peace Party) released a statement saying that Suharto’s resignation was unavoidable to deal with the unrest in the country.

The largest opposition party, the Democratic Party of Japan, said it is important that the Indonesian government implements political reforms by holding discussions with the public to stabilize the internal situation.

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