Jakarta – Indonesia appeared to back down yesterday from a multi-million dollar fight with the United States after Washington threatened to seize Indonesian assets abroad.

The US government is demanding that Indonesia pay it US$290 million (S$490 million) after the new reformist government refused to honour a contract with an American-owned power company concluded during the authoritarian regime of former President Suharto.

US ambassador to Indonesia Robert Gelbard said his government was "dismayed" at a statement by Indonesia's Finance Minister, Mr Bambang Sudibyo, earlier this week that Jakarta did not have enough money to pay its debt.

Mr Gelbard told Dow Jones Newswires the move may affect future investment in Indonesia by US companies just as President Abdurrahman Wahid struggles to pull the world's fourth most populous nation out of its worst economic crisis in a generation.

Yesterday, Mr Bambang backtracked on his earlier statement saying he was now ready to negotiate with the US. "Indonesia wants to solve this case by negotiation," he said.

The dispute began when Indonesia's state-owned power company PLN backed out of a contract with US-based CalEnergy International to pay for millions of dollars worth of electricity delivered from CalEnergy's geothermal power station in West Java. CalEnergy International is a subsidiary of Omaha-based MidAmerican.

The dispute was taken to an independent arbitration panel, which ordered PLN to pay CalEnergy US$572 million. The company refused. CalEnergy then sought and received remuneration from the US Overseas Private Investment Corp (Opic), an arm of the US government that insures the investments of many American companies in third-world countries. Opic has since threatened to seize Indonesian assets abroad if the government fails to settle the claim.

Mr Bambang said the contract, negotiated under the Suharto regime, was tainted by the endemic corruption that characterised the former strongman's administration. Mr Suharto was forced from power in a violent student uprising in May 1998.

Mr Bambang's initial statement unnerved foreign investors, particularly as Mr Abdurrahman and his senior Economic Minister Kwik Kian Gie have sought to stress a conciliatory approach to re-negotiating contracts made during the Suharto regime.