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I.M.F., United States Move To Sever Ties with Indonesia

By Steven Mufson

and Bradley Graham

President Clinton, citing “gross abuses” in East Timor, moved Thursday to isolate Indonesia by cutting off U.S. military ties, and the International Monetary Fund effectively suspended its multibillion-dollar lending program to the Southeast Asian nation.

Clinton called on the Indonesian government to accept an Australian-led international military force to restore order in East Timor, which voted overwhelmingly in favor of independence in a referendum last week. Clinton said that the United States would back the Australian-led mission, and though Pentagon officials said the U.S. role would likely be limited to airlift, communications and other logistical support, the president did not rule out participation by American ground forces.

“I think the United States should support this mission,” Clinton said. Speaking on the South Lawn of the White House, he added, “a lot of those people, starting with the Australians, have been with us every step of the way for decades now, and I think we have to be involved with them in whatever way we can.”

The sense of urgency for an international peacekeeping force grew Thursday as Western diplomats, East Timorese resistance sources and Vatican media said that a systematic campaign of political assassination appeared to be under way in East Timor. Those killed in recent days include the 82-year-old father of East Timor independence leader Xanana Gusmao; the head of the Vatican-sponsored Caritas charity in the East Timorese capital of Dili; and three priests and nearly 100 other people at a church complex in Suai.

The bloodshed has prompted sharp responses from the IMF and World Bank, which generally do not overtly mix politics with lending decisions. The IMF Thursday said it had put “on hold” a mission scheduled for mid-September; without that visit, its board cannot approve further loans. The IMF had expected to disburse the last $2.2 billion of a $12 billion package over the next 14 months.

“We believe that assistance from international lending institutions is effectively cut off now,” said Undersecretary of State Thomas Pickering said in testimony before a joint hearing of the House and Senate subcommittees on East Asian and Pacific affairs.

World Bank President James Wolfensohn sent an unusual letter to Indonesia’s President B.J. Habibie saying that “for the international financial community to be able to continue its full support, it is critical that you act swiftly to restore order and that your government carry through on its public commitment to honor the referendum outcome.” In past years, Indonesia had been one of the four largest recipients of World Bank assistance.

Foreign assistance has been critical to Indonesia, the world’s fourth-most populous nation, since the financial crisis hit Asia in late 1997. Indonesia’s economy shrank by 13 percent in 1998, but grew by 1.8 percent in the second quarter of this year. Concern over a bank scandal combined with the rising violence in East Timor has driven the Indonesian stock market down by more than 25 percent in local currency and depressed the value of the Indonesian rupiah since June 22.

“It would be a pity if the Indonesian recovery were crashed by this,” Clinton said Thursday.