Dow Jones Newswires October 9, 2000

UN Deaths Overshadow Indonesia Aid Mtg, But Reforms Key

By TOM WRIGHT

JAKARTA -- September's murder of three U.N. aid workers by militia in West Timor will cast a dark shadow over a meeting next week between Indonesia and its foreign aid donors in Tokyo.

Washington is championing a move to link Indonesia's appeal for $4.8 billion in budget aid to progress in controlling pro-Jakarta militia. The militia are angered by the U.N.'s role in East Timor independence last year.

But other donors, including the Japanese hosts of the Consultative Group on Indonesia, or CGI, meeting Oct. 17 to Oct. 18, are less willing to see financial aid linked to security concerns, people involved in the talks say.

But, behind diplomatic wrangling over West Timor, the bulk of discussions during the two-day donor meeting will focus on the country's failure to reform its ailing economy.

Donors agree that Indonesia must push ahead with sales of assets taken over by the state from the broken financial system, rather than rely mainly on foreign donor loans to fund its growing budget deficit, said Mark Baird, the World Bank's Jakarta representative.

"Donors will obviously be keen to see that the overall economic program is on track," he told Dow Jones Newswires.

"Budget support should be used to support this program - not compensate for shortfalls in revenues from asset sales and privatization, nor from excessive subsidies," he added.

The Oct. 17-18 meeting comes amid a growing row between Indonesia and the World Bank, which is organizing the CGI, over the nation's largest-ever debt restructuring.

Both the World Bank and the International Monetary Fund are concerned a proposed $2.7 billion bailout for the Texmaco Group, which analysts say favors the company's owners at the expense of the government, could set a bad precedent.

Donors are increasingly disappointed with Indonesia for failing to set out clear guidelines for the sale of assets taken over following the 1997 financial collapse.

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