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Indonesia budgets to end violence, economic crisis

JAKARTA: Indonesia's bruised young government unveiled its first budget on Thursday, promising to fight what some fear could be a losing battle to end religious violence and repair a shattered economy.

It pledged to work to end corruption and economic hardship, which most analysts see as the root of the constant unrest that is blocking recovery from more than two years of savage recession across the huge archipelago of more than 200 million people.

"We are in a difficult situation, one where we need a real social safety net to lift the dignity and value of our nation," President Abdurrahman Wahid told parliament on the three-month anniversary of his election.

Most foreign tourists have fled Lombok, some to the main Indonesian resort island of Bali, just 30 km (20 miles) away.

Arson and looting continued during the night on Lombok despite warnings by police they would shoot rioters on sight.

The latest surge of violence was keeping at bay foreign investors, who are crucial to Indonesia's hopes of recovery.

But the government said there could be no quick recovery.

"We are facing options which are not easy to choose," said Vice-President Megawati Sukarnoputri, who read the budget speech to parliament in place of the almost blind Wahid.

"It is obvious that we have to take short-term safety measures first, not only for the sake of overcoming a chain of crises, but also for the sake of building a platform from which we move forward," she said.

The budget predicted three percent gross domestic product growth of 3.8 percent in the period April-December the government is changing its budget to align with the calender year after zero growth in the current year.

But it all also predicted heavy dependence on foreign loans to kickstart the economy, rebuild an almost destroyed banking sector and soothe its restive provinces with more money.

Several Indonesian provinces especially those wealthiest in natural resources are pressing Jakarta for a far greater share of what they produce.

The government said they could have more but warned against big provinces being too greedy at the expense of poorer ones.

Megawati's speech stressed the importance of giving the impoverished masses who account for most of the world's fourth largest population a chance to pull themselves up.

The government promised to stamp out corruption, for long endemic in Indonesia, improve a bloated, inefficient and underpaid bureaucracy, and establish the rule of law.

Jakarta won near instant international support.

As the budget was announced, the government also said it had agreed on a new economic plan with the International Monetary Fund.

The so-called letter of intent is needed to release a fresh tranche of money from the IMF, which is leading a more than $45 billion package to help Indonesia recover from prolonged economic and political crisis.

Visiting U.S. Treasury Secretary Lawrence Summers promised that Washington would hand Indonesia more aid as long as Jakarta pressed ahead with economic reforms.

"One can perhaps imagine a situation in which other economies in the region perform better than Indonesia for some period of time," Summers told a business lunch in Jakarta.

"But it is inconceivable that the region as a whole could prosper in the years ahead without an open, stable and vibrant Indonesia," he said.

He also said the major official creditors were prepared to give Indonesia "generous" debt rescheduling terms and that international financial institutions would lend Indonesia up to $10 billion more over the next three years.

The United States has been at the forefront of international cajoling to push Indonesia's first democratically-elected government into a position where it can institute real reforms after decades of despotic and corrupt rule.

Its U.N. ambassador, Richard Holbroke, last week warned a recalcitrant military that any attempts to undermine Wahid would leave Indonesia an international pariah.

Wahid himself, in an interview with foreign reporters on Wednesday, dismissed warnings of an imminent coup, saying he trusted most of his generals.

But the continuing violence was unnerving investors far more than any weaknesses in the economy, and Indonesia's financial markets took only marginal relief from what was seen generally as a well-structured budget.

"I'm quite comfortable with the (budget) targets. It's the political situation that I'm not comfortable with," said Endarto Weltam, vice president of treasury at the Industrial Bank of Japan in Jakarta.-Reuters