EU to get tough with Indonesia at ASEM

EU to get tough with Indonesia at ASEM

BRUSSELS (AFP): The European Union will use this week's Asia- Europe Meeting (ASEM) in London to step up the pressure on Indonesia to accept the International Monetary Fund's (IMF) terms for releasing new funds from its US$43 billion bailout package.

The EU also sees the April 2-4 summit as a chance to signal its commitment to helping the region emerge strengthened from the current crisis, notably through the launch of an ASEM trust fund to help restructure Asia's banking sector.

There is growing concern here that a breakdown in the ongoing negotiations between the IMF and Indonesian President Soeharto on an economic reform package could be the trigger for a fresh downturn across the region

Fears that Japan could be heading into recession, fueled by last week's record jobless figures, have enhanced this risk, despite the much-improved position in South Korea and Thailand, EU officials believe.

"We are not in a position where anyone can afford to take risks with confidence," said one, underlining the importance of a deal between Jakarta and the IMF.

The EU will not however be able to deliver its message to Soeharto in person. The 76-year-old ruler has snubbed the London summit, opting instead to send new vice-president B.J. Habibie in his place.

Foreign Ministers from the 15 EU and 10 Asian states that make up ASEM meet in London on Wednesday to prepare the three-day summit and put the final touches to a statement on the financial crisis.

An agreement on the wording of the declaration has so far proved elusive.

The EU has made it clear it will only approve the statement if it places strong emphasis on the need for further trade and investment liberalization as the way out of the crisis -- an approach that countries like Indonesia and Malaysia have deep reservations about.

A proposal for the summit to issue a call for a new "millennium", round of world trade negotiations is also still the subject of dispute because of Japan's reluctance to commit itself.

The trust fund that will be launched at the summit is designed to finance a network of experts to provide Asian countries with technical assistance on issues such as corporate governance, supervision, company law and accounting standards.

Weak regulation is widely seen as having contributed to the culture of 'crony capitalism' that is the root cause of the current crisis.

Britain, France and the European Commission have so far committed a total of US$30 million to the trust fund. Britain, which first proposed the fund, believes it needs around $50 million to be viable and will be pressing other EU states to put their hands in their pockets this week.

"It is a drop in the ocean compared with the billions EU countries have committed to Asia through the IMF," said a British official.

"But it will be very visible and that should help to combat the perception in Asia that Europe has stood back and done nothing."

The London summit is also expected to agree on action plans to promote investment and trade between Europe and Asia.