Unfortunately, the bail-out package will reduce the Suharto government's incentive to reform by relieving the pain of financial failure. Certainly the regime won't do anything about them unless forced to do so. Yet today Indonesia is likely to do only the minimum necessary to receive aid. Were Jakarta instead left to its own devices, it would have to adopt all of the reforms necessary to recondition its economy and reassure foreign investors, who tend to be more careful with their own cash than are international aid bureaucrats with tax monies from industrialized states. The expectation of a subsidy encourages people to act irresponsibly.
International aid has similar effects.
Of course, if U.S. taxpayers are lucky, Indonesia won't need their money, and if it does, like Mexico it will repay their loans. But even such a best case won't be costless since credit isn't free. When Washington channels billions of dollars to a foreign kleptocracy like that in Indonesia, it diverts resources from other uses, such as investment by entrepreneurs in America. Since the administration has proved that it is addicted to wasting taxpayers' money, Congress should intervene to say no. But blocking U.S. participation in the Indonesian bail-out isn't enough.