A special fund to compensate former Indonesian government employees and pensioners in East Timor expects to make its first payments next month, a founder of the fund said Monday.

Lakhan Mehrotra, Jakarta ambassador for the UN Mission of Support in East Timor, said he expects the start of payments will act as an incentive for up to 40,000 East Timorese still in Indonesian West Timor to return home.

He told AFP he hopes the initial disbursements will also encourage additional donations because the fund, created last November, has not obtained the ten million in contributions considered the minimum for its viability.

The current contributions of 5.5 million dollars will allow initial payments to pensioners and some other employees of the former Indonesian administration in East Timor, Mehrotra said.

The fund, administered by the UN development agency in East Timor, requires approval of the new East Timor government before disbursements begin, he said.

"Subject to their approval we should be starting in October," said Mehrotra, who established the fund with Indonesia's Co-ordinating Minister for People's Welfare, Yusuf Kalla. Mehrotra estimated about 16,000 East Timorese, a large number of them pensioners, could receive the first payments.

Pensioners stopped receiving their Indonesian benefits once East Timor became independent on May 20 after a period of UN administration.

The new fund is considered a key incentive for enticing former government workers still across the border in Indonesia to return home.

"The key to solving the issue of the refugees once and for all is to pay some kind of compensation," said Ana Gomes, Portugal's ambassador to Jakarta who recently returned from the West Timor towns of Kupang and Atambua, where she visited the refugee camps.

Most of those who remain in West Timor are soldiers, police, teachers and other former government officials and their families who continue to receive Indonesian salaries, Gomes said.

Returning soldiers already receive a lump sum payment from the Indonesian military, she said, but the others – a majority of whom want to go home – are reluctant to do so without also getting financial compensation to replace the Indonesian salaries they would no longer receive in East Timor, one of Asia's poorest nations.

"My plea has always been that this is a humanitarian problem," Mehrotra said.

Indonesia has already provided two million dollars to the fund. The rest of the 5.5 million received so far has come from Australia, Portugal and the European commission.

"We have appealed to many other donors," Mehrotra said. "I won't say that it's satisfactory but I'd say that it's a good start."

Those remaining in West Timor are the last of at least 250,000 East Timorese who fled or were forced across the border as part of a scorched-earth policy carried out by Indonesian security forces and their militias after East Timor's 1999 vote for independence.