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Wednesday, July 28, 1999 Published at 13:26 GMT 14:26 UK

Business: The Economy

Indonesia gets $5.9bn aid package

People queued for rice as the crisis hit

Indonesia's economy is to receive a boost as foreign donors have pledged $5.9bn to help rebuild the country.

Indonesia has suffered more than most from the effects of the Asian crisis, with the government estimating that half the population now live in poverty.

[ image: Many people are facing poverty]
Many people are facing poverty
It is also struggling to make the transition to democracy, with the results of the first free election still to be finally confirmed.

The World Bank is coordinating the aid package, with Japan the largest single donor, pledging $1.57bn.

"The government of Japan asked the government of Indonesia to maintain its current attempt at political and economic reform, in particular the promotion of more democratic and fair 'good governance' as well as to implement projects in (an) effective and transparent manner," said Karuo Shimazaki, Japan's representative at the Paris meeting.

Political instability

The Indonesian economy declined by more than 8% last year, while the value of the rupiah plunged by more than 80% on foreign currency markets, increasing the cost of foreign imports like rice.

That has sparked political and religious unrest, with riots between Muslims and Christians, and demands by separatists for independence in several regions.

Another problem is corruption. Although Indonesia is rich in natural resources, many companies were controlled by relatives of the previous Suharto government who operated them for personal gain.

The aid will help the new government overcome its budget deficit and provide a boost in the drive to restructure the economy and provide social support.

But it will be a long time before private sector confidence returns to Indonesia, and the large foreign investments of the past may be harder to restore.

Aid groups had urged a suspension of any foreign assistance until after Indonesia had carried out its pledge to hold a referundum in East Timor on independence.

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