Lindsay Murdoch, Jakarta – When district administrators in the Indonesian province of Kalimantan, on Borneo, were asked to launch pilot projects for autonomy, they spent most of the money on luxury offices and official residences.

They also issued hundreds of new concessions to cut timber in rapidly diminishing rainforests, raising suspicions of more corrupt deals in a multi-billion-dollar industry where corruption is already endemic.

Indonesia's enfeebled Government, worried about holding the fractious archipelago together, has promised to start sweeping decentralisation measures from yesterday.

But the implementation of 15 hastily passed autonomy laws is in doubt amid concerns they will encourage corruption, deter foreign investment and lead to overspending and excessive borrowing or taxation by local authorities.

Mr Andi Mallarangeng, a former adviser to the Government on autonomy, and now a consultant to the United Nations Development Program, says regional autonomy is vital to hold Indonesia together.

But many local authorities, and even a number of central government ministers, are ill-prepared to put it into operation.

Many of the local legislators ... "think autonomy means a chance for them to impose taxes on everything, be it dead or alive," Mr Mallarangeng said.

Many of the laws still do not have government regulations to back them up. "There will be many areas that do not know how much their budget is and how to draw up a regional budget," Mr Mallarangeng said.

All of the country's 364 regencies, or districts, have been promised control of health, education, co-operatives, forestry, trade, agriculture and mining from January 1. Jakarta will maintain its authority on foreign affairs, defence, the economy, justice and religion.

But companies with businesses in the provinces are worried that regional officials will be even more corrupt than those they have had to deal with in Jakarta.

The International Monetary Fund last month delayed a $US400 million loan to Indonesia because it wanted Jakarta to take tougher action to prohibit local governments from borrowing directly from overseas. The World Bank warned recently that the devolution of large amounts of money to inexperienced local government is open to abuse.

The mining industry is so worried about having to deal with corrupt local officials that exploration throughout the country has virtually stopped and the viability of existing projects is in doubt.

In South Kalimantan corruption has reached such a staggering level that illegal mining is almost as big an industry as legal operations. "The corruption taking place now makes dwarfs the Soeharto era," said one mining industry expert, who asked not to be named.

The Government's main aim in passing the autonomy laws is to try to placate growing separatist sentiments. But it has failed to produce promised special autonomy packages for the most troubled of its provinces: Aceh and Irian Jaya, also known as West Papua.