David E. Sanger, Washington – The United States today gave Indonesia $1 billion in loan guarantees, free of any conditions concerning human rights abuses surrounding the protests against President Suharto's rule. Almost simultaneously the Pentagon, citing the unrest, canceled a joint training exercise with the Indonesian military.
The two actions underlined how the Administration has been sending seemingly conflicting signals to Mr. Suharto's Government all week. While the State Department has warned Indonesia several times about the dangers of further repression and the kidnapping of dissidents, it has declined to link those warnings to the aid being sent to ease the country's economic crisis.
Both the new loan program and the Pentagon decision were discussed at the White House this morning, in a meeting to review the rising opposition to President Suharto and the sharp price increases for fuel and other necessities mandated by the International Monetary Fund.
Today the students burned an effigy of Mr. Suharto in the streets of Jakarta. But in Medan, where troops were sent in to back up the police in putting down protests that turned violent earlier this week, demonstrations were peaceful.
The billion-dollar loan package put together by the Export-Import Bank of the United States, an independent Government agency that promotes American exports, was signed here today with Indonesia's Finance Minister, Fuad Bawazier. The president of the Ex-Im Bank, James Harmon, said that by helping Indonesia obtain the raw materials it needs to get its factories running again, "we hope to contribute to stability to calm the social situation."
Earlier this week, the Administration backed down from earlier warnings that it might cut off aid and voted for the resumption of loans to Indonesia by the International Monetary Fund.
It argued that Mr. Suharto had finally begun to meet virtually all the economic commitments it made in return for the loans. But in Jakarta there is abundant evidence that most of the major cartels controlled by Mr. Suharto's family and friends, which are supposed to be broken up under the I.M.F.'s reform program, have resurfaced in different forms.
Major investors have been unwilling to put money back into Indonesia until it is clear that a peaceful transfer of power will take place after the the 76-year old Mr. Suharto dies or leaves office. That is one reason the rioting this week sent the Indonesia currency plummeting.
Today, however, Mr. Bawazier said he did not believe that succession was an issue. "We have a system, and everything is quite clear," he said.
The Ex-Im Bank's chief role is to insure that American companies can sell their goods in countries that find it hard to get financing from banks and other private lenders. Typically, the Ex-Im Bank would offer a guarantee to a private bank that the overseas buyer of the American goods will indeed pay back any financing for the purchase, making the lender willing to make the loan.
The American program went ahead only after Indonesia agreed to a second guarantee, that Jakarta would repay Washington in case of any defaults on the loans. But that accord was divorced from the State Department's request earlier this week that Indonesian forces "show restraint" in putting down demonstrations that seem driven as much by anger at the Suharto family as by rage at rising fuel and food prices.
Mr. Harmon said today that he had discussed the loan program with various Administration officials, but received no special guidance.
The Pentagon, clearly worried about its association with the Indonesian military when its troops are suppressing riots and demonstrations, said it was calling off a military training exercise now under way with Indonesia.
Moreover, it is reviewing its entire program of joint command exercises and training with Indonesia, a Defense Department spokesman said. The Pentagon made no formal announcement of the decision. No official would speak on the record.
A White House official argued today that there was no inconsistency in providing further economic aid while pulling back involvement with the military. The American strategy, the official said, is to prevent worsening instability that is triggered by the huge run-up in prices on basic commodities. The prices are increasing for two reasons: the dramatic drop of Indonesia's currency, the rupiah, which makes imports expensive, and the Government's gradual withdrawal of subsidies, which it can no longer afford.
"Our national interest is in seeing the economic reforms go forward," the White House official said. "There is no inherent contradiction between that goal and postponing military exercises until the return of stability."
But senior Administration officials have conceded in recent days that it is a risky strategy. "The bottom line is that there is no way to stabilize the economy without appearing to bolster Suharto," the official said.
Similarly, the military exercises help the United States better understand the Indonesian military – the most powerful institution in the country – while appearing to put the Pentagon on the same side as Mr. Suharto's protectors.
United States forces have held 41 training exercises with the Indonesia military since 1993, including courses in counterinsurgency techniques, psychological warfare and military operations in urban areas.
The existence of these exercises came to light in March, surprising and angering some members of Congress who thought they had banned such activities by cutting off funds under an international training and education program in 1992. However, training continued under a separate program; that program was suspended yesterday.
The first ban was imposed after the Indonesian military massacred more than 270 citizens on East Timor in November 1991.
Many of these training missions involve Indonesia's elite Kopassus forces, the arm of the military suspected of the most serious human rights abuses. The Kopassus troops have been deployed in recent months against protesters in Jakarta.
A Pentagon spokesman who asked not to be named said that a month-long training mission that began May 1 was canceled today "because of the current circumstances prevailing in Indonesia." But they may resume in time for two more exercises scheduled later this year.
"There is no permanent suspension of military activities in Indonesia," he said. " Based upon the current situation, there will be a policy-level review, on a case-by-case basis, of future exercises."