Indonesia must restore law and order: Koehler

Indonesia must restore law and order: Koehler

WASHINGTON (Reuters): International Monetary Fund chief Horst Koehler said on Friday re-establishing law and order in Indonesia was vital to trigger international financing support for the crisis-wracked country.

"If there is not an order which can have control of financing then every money which is spent is lost money, so we need to know what's the basic order in this country in order to implement our strong commitment to work with Indonesia that it can find a way out of the crisis," Koehler told a news conference.

Indonesia has been in a near-permanent state of economic and political siege since falling victim to Asia's 1997/98 financial crisis, prompting an IMF-led bailout.

It is still waiting for a US$400 million tranche of a $5 billion IMF loan -- stalled since December -- to be released.

Its disbursement is a key measure of foreign investor confidence in the country's faltering reform efforts.

A high level IMF mission left Jakarta this week without setting a timeframe for releasing the loan. Instead it made frightening projections about a budget deficit it said could blow out to six percent of GDP from the targeted 3.7 percent, unless urgent measures were taken.

The loan hinges on parliament pushing through a revised 2001 budget slashing the growth forecast to 3.25-3.75 percent from five percent.

Koehler reiterated that the budget was key, but cautioned that while there appeared to be commitment to resolve budget issues -- parliamentary speaker, Akbar Tandjung, has promised speedy debate -- they were stuck in the political mire.

"I think there is commitment and there is also commitment from the Fund to go a long way to support Indonesia, but the budgetary issues are, if you want so, at the core also of the political problem," Koehler said.

The IMF chief offered nothing on whether any talks with Indonesian officials at this weekend's IMF meetings would trigger the loan's release.

Embattled President Abdurrahman Wahid, the near-blind cleric guiding the country on a painful limp from dictatorship to democracy, offered little hope of an immediate resolution to problems earlier on Friday.

He told the sprawling archipelago of 210 million people in a television address that no leader could pull the country out of its present economic mess.

"When I started... the nation was in a sad condition. Even if this nation had 100 presidential changes, nobody could mend the economy," Wahid said in the address read on his behalf by presidential spokesman, Wimar Witoelar.

The 60-year-old Wahid said he had inherited huge problems and appealed to Indonesians to stay calm and urged against violence in Jakarta next week when he is likely to be censured by parliament for his role in two financial scandals.

Law and order

The IMF's Koehler said there was an inextricable link between political stability and financial support and said it was incumbent on Indonesia to deliver it.

"If this is not established, I can't see how support can be efficient. Indonesia deserves support -- will get support -- but there is a need for law and order and this has to be re- established. For the Indonesians themselves, that is their obligation to deliver on that," Koehler said.

Fears over violence this weekend ahead of the censure have helped sink the rupiah past 12,000 to the dollar for the first time since September 1998.

The stock market -- almost devoid of international portfolio investment -- is the worst performing in Asia this year, down 15.8 percent so far.

Critics blame the policies prescribed by the IMF and the conditions for economic reforms attached to its loans for at least part of Indonesia's protracted problems.

Koehler admitted that international institutions may have some responsibility, but said the onus lay with Indonesia.

"I must admit that it's really a tragedy what happens in Indonesia and no-one, including the Fund, can judge itself free of having a bit, a part of responsibility for this tragedy. But we should also not confuse ourselves," he said.

"At the end nothing works and no international support works if there isn't a minimum degree of political stability and... law and order," Koehler said.