JAKARTA, Sept 25 (Reuters) - Corruption, bureaucracy and heavy-handed security forces remain obstacles to economic development in Indonesia's tsunami-hit Aceh province, the head of the agency charged with rebuilding the region said on Monday.

The police and military still operate according to rules drawn up to counter a separatist insurgency even though there has been peace since last year, said Kuntoro Mangkusubroto, director of the Aceh reconstruction agency, or BRR.

"How do we sustain it in an environment full of irregularities, where security forces and the police do not behave well, how are you going to invite investors?" he asked foreign businessmen at a meeting in Jakarta.

He cited an example in which a Sri Lankan businessman and a foreign geologist on a research mission were detained by police recently for visiting remote Aceh areas without a permit.

The insurgency ended with the signing last August of a peace pact between the government and the rebels.

Mangkusubroto said creating a business-friendly climate and overhauling a corrupt system were some of the challenges Aceh faces in the coming years.

International agencies and countries have already put $4.6 billion into the reconstruction of Aceh -- on the northern tip of Sumatra some 1,700 km (1,000 miles) northwest of Jakarta -- after it was hit by a devastating tsunami that left up to 232,000 people dead or missing in a dozen Indian Ocean nations.

Mangkusubroto said progress in the reconstruction effort had been "encouraging".He said all basic infrastructure would be in place by 2009 and all 128,000 new houses for displaced tsunami survivors would be complete by the end of next year.

The reconstruction agency is under fire after a leading Indonesian anti-graft group charged last month that there were financial irregularities in five BRR projects worth 23.9 billion rupiah ($2.6 million).

Some BRR officials said the report was inaccurate and could affect disbursement of funds from foreign donors. Mangkusubroto has said several staff were being investigated.

Corruption is endemic in Indonesia although the BRR has taken a number of steps to try to minimise or eliminate it in the recovery effort.

AlertNet Sep 29

TOP