International aid donors are meeting on the island of Bali to consider an economic assistance package for Indonesia. The Consultative Group on Indonesia has signaled it is likely to overlook a controversial U-turn in the government's program of economic reform due to concerns over social unrest. Indonesia's international aid donors appear set to approve a $2.5 billion assistance package at their Bail meeting.
There had been concerns that donors might react badly after the Indonesian government Monday decided to reverse hikes in the cost of fuel and electricity.
The price increases had been implemented to reduce foreign debt and balance the budget under pressure from the International Monetary Fund and other international lenders.
But the government was forced to back down in the face of weeks of public demonstrations against the price rises. One government minister said that the protests were doing more damage to the economy than would be done by reintroducing fuel subsidies.
Economist Stefanus Susanto of the Danareksa Research Institute in Jakarta says that most donors are likely to be understanding of the situation. "So far I think on the whole, the donor community is well aware with what the government has to deal with currently. They are also aware of the level of difficulty of what the government has to do. There is not much of a choice for the government. But some donors may have different views with regards to the policy revision," Mr. Susanto said.
Indonesia's economy has barely recovered from the financial crisis of the late 1990s and foreign aid, totaling $20 billion in the last five years, is still a vital stabilizing influence.
It has become even more important in the wake of last October's car bomb attack on the heart of Bali's tourist zone. The attack had a devastating knock-on effect on Indonesia's tourism industry, which used to contribute more than $5 billion a year to the economy.
Few of the 21 bilateral donors and seven international lenders meeting in Bali are likely to want to risk further destabilization of Indonesia, the world's largest Muslim nation, at such a crucial point in the war on terror.