IMF/East Timor

[Robert Weissman <rob@essential.org>]

IMF warns Indonesia over East Timor, Bank Bali
Date: Thu Sep 09 17:30:13 CDT 1999

   HONG KONG, Sept 9 (AFP) - The International Monetary Fund (IMF), whose
loans are helping Indonesia stave off financial collapse, warned Thursday of
possible sanctions over the East Timor crisis.
   IMF Asia-Pacific director Hubert Neiss also renewed warnings about the
Bank Bali controversy which has mired government and banking officials in
scandal.
   "The events in East Timor are first of all a large human tragedy and the
international community including the IMF cannot be indifferent to that,"
Neiss told Cable News Network (CNN) here.
   "We don't make empty threats and we haven't threatened to cut off
funding. But we have to work under the right conditions," he said.
   "An IMF programme can only be successful if there is the necessary
internal as well as external support to the efforts."
   Neiss said no decision had yet been made on suspending the IMF-led
multi-billion-dollar bailout for the Indonesian economy which was agreed in
December 1997.
   But he indicated Indonesia would have to take action not only over East
Timor but also over the Bank Bali scandal if the next review of the bailout
was to go smoothly.
   He said an IMF mission due to arrive in Jakarta in mid-September was
"presently on hold."
   "We have to study the situation, what is the best and also the most
feasible time to start with the next review discussions. A decision has at
this point not yet been made."
   The IMF's First Deputy Managing Director Stanley Fischer described the
situation in Timor as "a political disaster," Thursday in Washington.
   The resolution of it would "be inevitably taken into account," he added.
   The World Bank, which is also supporting the Indonesian economy, reminded
Jakarta on Tuesday that during an aid donors' meeting in July it had
promised to abide by earlier agreements to enforce security in East Timor.
   "Following through on the statement ... is a critical component of the
policy commitment of the government of Indonesia, setting the context in
which the program of international assistance agreed in July is to be
realized," the World Bank said.
   Neiss said the Bank Bali case along with fallout from East Timor could
scupper Indonesia's faltering economic recovery.
   "It certainly it is a major case of corruption and therefore very
important for the IMF. Remember, the IMF programme from the very beginning
had anti-corruption measres as a major element," he said.
   The Bank Bali case, involving a huge "commission" of some 80 million
dollars paid to a former deputy treasurer of the ruling Golkar party, has
been rocking Jakarta financial markets since it emerged in July.
   Indonesian newspapers have alleged that the commission, since repaid, was
intended to partly bankroll President B.J. Habibie November election bid.
   Bank Bali says it paid the money to recover loans it had paid to three
banks closed down by the government. Three officials involved in Indonesia's
bank restructuring drive are among those under police investigation.
   Neiss repeated calls he made last month for an independent investigation
into the controversy to be speedily concluded to reassure foreign investors
about the government's sincerity about economic reform.
   "There are two problems: there is a major banking scandal and there is
East Timor and both have deteriorated the market situation. Once this is
resolved we expect Indonesia will rejoin the (Asian) recovery", he said.
   The Indonesian Chamber of Commerce said Thursday that multilateral
lending to Indonesia could be suspended temporarily over East Timor, but
that a full trade embargo was unlikely to get backing from Asian trading
partners.
   With pressure mounting on Indonesia to allow foreign peacekeepers to
restore order in East Timor, US Defense Secretary William Cohen said
Wednesday Indonesia faced "serious financial consequences" if it failed to
halt the violence by army-backed militia groups in the territory.


Canada says IMF-World Bank should reconsider aid to Indonesia
Date: Thu Sep 09 19:50:10 CDT 1999

   AUCKLAND, Sept 10 (AFP) - Canada on Friday urged the IMF and the World
Bank to reconsider their assistance to Indonesia because of its failure to
restore order in East Timor.
   Canadian Foreign Minister Lloyd Axworthy also said his government wanted
to see stronger United Nations action to end the bloodshed in the territory,
caused by pro-Jakarta militiamen and Indonesian military opposed to
independence from Indonesia.
   East Timor voted overwhelmingly to sever ties with Jakarta in a
UN-organized referendum August 30.
   Speaking to reporters here at a meeting of the Asia-Pacific Economic
Cooperation (APEC) forum, Axworthy was asked if the International Monetary
Fund and the World Bank should cut off aid to Indonesia, which has outraged
world opinion by refusing to accept an international peacekeeping presence
in East Timor.
   "This has to be on the table and should be looked at," he said. "I am
glad the IMF is reconsidering aid and perhaps there should be other
assessments on what can be done."
   Both the IMF and the World Bank, which have committed billions of dollars
to help shore up the Indonesian economy, have made clear their concern over
events in East Timor.
   IMF Asia-Pacifc director Hubert Neiss on Thursday told CNN that "we
haven't threatened to cut off funding."
   "But we have to work under the right conditions. An IMF program can only
be successful if there is the necessary internal as well as external support
to the efforts."
   He added that no decision had yet been made on suspending an IMF-led
multibillion dollar bailout for Jakarta that was approved in Deccember 1997.
   Axworthy also praised a US decision to freeze military-to-military aid to
Indonesia.
   "The fact that the United States is doing this is an important step
because they are clearly the heavyweight when it comes to supporting the
Indonesian military and hopefully the message will start getting through to
the army in Indonesia that their lack of respect for the United Nations rule
has a price to pay."
   He said Canada was now awaiting a report from a five-member UN delegation
that has been in Jakarta to assess the situation.
   "We are going to take a very hard look at the report that comes back from
the United Nations delegation ... and see what action can be taken to
toughen up the UN stand on the matter to get a degree of order back in East
Timor."