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.