Robert Go, Nusa Dua – International donors have pledged US$2.7 billion in fresh aid to cash-strapped Indonesia this year, despite ongoing concerns about its inability to implement crucial economic reforms.

To be fair, the donors in the Consultative Group on Indonesia (CGI) who ended a two-day meeting here praised some achievements of President Megawati Sukarnoputri's government.

Mr Jemalud-din Kassum, the World Bank's vice-president for East Asia and Pacific, said: "Indonesia's need is diminishing as its fiscal deficit is falling steadily." Mr Daniel Citrin, who led the International Monetary Fund (IMF) team, said "significant" achievements last year laid "a solid foundation for Indonesia's economic recovery from the crisis".

Lenders lauded Jakarta's faster asset-disposal schedule, its success in keeping a tight state budget and in establishing macroeconomic stability.

CGI members also singled out the ceasefire agreement with Aceh separatist rebels and Jakarta's efforts to manage the effects of last October's Bali blasts.

But there was underlying frustration and disappointment among donors with the pace of reforms, particularly in dealing with issues like corruption, forestry problems and the legal system.

Mr Joseph Eichenberger, vice-president of the Asian Development Bank, another major lender, said: "While some positive steps have been taken, major and fundamental concerns have only deepened." He pointed to issues such as Indonesia's legal system and the fact that the country's banks were still not lending capital to Indonesian businesses. "The centrality of these issues for Indonesia's future, and the urgency for clear public-sector actions and leadership, cannot be overemphasised," he said.

CGI members also closely scrutinised Indonesia's track record in reforming its courts, but they said progress has been slow and inadequate.

"The continuing weakness of the legal and judicial system undermined efforts to deal with systemic corruption, to encourage investments, and to ensure the basic rights of Indonesians," they said in a statement.

As an illustration of the extent of the problems here, it was learnt that only US$1.8 billion of the US$3.1 billion pledged by donors last year actually got disbursed. This was due, in part, to the country's failure to meet conditions attached to the aid money.

A World Bank source told The Straits Times: "The government said they didn't need some of that money, but some projects never got off the ground due to corruption concerns and other issues." The World Bank also said it is no longer supporting any forestry programmes in Indonesia after the government showed continued inability to reduce corruption in the sector and to stop illegal logging activities.

An additional worry, some donor representatives said, was the raucous political system and how political considerations have the potential to derail key economic reforms.

With leading politicians already jockeying for position ahead of the 2004 election, such concerns could further reduce the government's ability to push through unpopular economic measures, such as price hikes for fuel and utilities.

Jakarta already cancelled a hike in telephone rates and rolled back fuel and electricity price increases after sustained demonstrations, and criticism from Ms Megawati's political rivals.

Asked why donors continued to grant and lend money to Indonesia despite the lack of fundamental changes in the country, a Western diplomat said it was because there was no choice but to continue the flow of aid. "Without this aid, Indonesia will be in a dangerous position, and we all know this," he said.