Japan and Indonesia are discussing setting up a study panel on creating a bilateral free-trade agreement, Japanese government sources said Friday.

An agreement to set up the panel is expected to be announced Tuesday, when President Megawati Sukarnoputri will hold a summit in Tokyo with Prime Minister Junichiro Koizumi, the sources said.

Japan already has an FTA with Singapore and has set up working groups to study FTAs with Thailand and the Philippines.

During the talks, Koizumi is expected to express his support for Jakarta’s economic and social reforms by offering official development assistance, rescheduling debts Indonesia owes Japan and organizing personnel exchanges, an official said.

The leaders are expected to confirm the resumption of preliminary talks on an investment agreement that were suspended three years ago, the official said.

The leaders will take up other regional issues, including the conflict in Aceh, as well as the fight against terrorism, collaboration on nonproliferation of weapons of mass destruction and fighting drug-smuggling, with reference to North Korea.

Megawati and Koizumi will probably issue a joint statement on any agreements they conclude, the official said.

The official said the leaders will sign a document to cooperate on measures to tackle illegal deforestation following the summit.

Megawati, who will be in Japan on a four-day visit beginning Sunday, will be the first Indonesian president to come to the country as a state guest since Suharto in 1968, the official said. Megawati made an unofficial visit as president in 2001 and a private trip in 1989.

During her stay, she will meet Emperor Akihito and Empress Michiko and hold separate talks with Finance Minister Masajuro Shiokawa, Economy, Trade and Industry Minister Takeo Hiranuma and other government representatives.

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