The Economist October 21, 2000

Indonesia trades promises for money

JAKARTA

WHEN Indonesia deals with foreign donors these days, the talks are much like a hostage negotiation. If the donors do not pay up, many innocent people will suffer; yet there is no guarantee that forking out the cash will make any difference. Once again, the donors have decided that it is wiser to pay, and on October 18th they pledged $5.33 billion for 2001. In exchange, Indonesia repeated its pledges to reform its economy and to get tough with the militia groups operating in West Timor. The donors will hope for the best.

Indonesia's economy remains hobbled by the effects of the region's 1997-98 recession. Of the $5.33 billion pledged by the Consultative Group for Indonesia, a forum for the country's donors, some $4.8 billion - a combination of loans and grants-will help to finance next year's budget deficit. Nearly a third of this will come from Japan. Some of the remaining $530m will go to Indonesia's burgeoning collection of civic groups. All of this aid is separate from an earlier loan, of $5 billion over three years, negotiated with the IMF.

A refusal by the donors to pay up was not unthinkable. After three United Nations workers were killed in West Timor in September, some donors threatened to hold back assistance. The incident has poisoned relations between Indonesia and western countries, along with the World Bank and the UN itself. The militias, which are blamed for much of the violence in West and East Timor, were set up and backed by the Indonesian army. They were driven out of East Timor after it gained its independence last year. But critics of the Indonesian government have been outraged that militias are still operating in the Indonesian half of the island, and occasionally cross into East Timor to make trouble. Some of the 100,000 refugees in West Timor feel terrorised by the presence of the militias.

The donors will be encouraged that a UN team plans to visit West Timor in November. They will also monitor Indonesia's promise to improve the lives of its 210m people. One reason why the more reluctant donors muted their criticisms is that anti-western nationalism is on the rise in Indonesia. Better to hold their tongues than be accused of making things worse.

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