After a four-year stint as USAID Indonesia director, William M. Frej, who managed to get US$1.2 billion aid for Indonesia, is leaving the country this week. Frej sat down with The Jakarta Post's Abdul Khalik recently in Jakarta to share his experiences and views. The following are excerpts of the interview:

Question: How do you view Indonesia? What is the role of USAID in molding the current Indonesia?

Answer: Now Indonesia is a strong democracy, with the last direct presidential election the largest election ever held anywhere in the world, and the U.S. government, through USAID, was a big part of that, contributing $25 million to this effort. The whole move for decentralization is very positive, and from my perspective, decentralization is the future of Indonesia. Our program has contributed significantly to the whole decentralization effort.

We are working right now in seven provinces, and supporting over 400 local governments in developing capacity building so that they are able to manage their respective areas. We're helping the management of the fourth largest country in the world through local governance.

What is your opinion of economic developments after the 1998 financial crisis?

The financial meltdown in 1998 had a very devastating impact on Indonesia and all the other countries throughout Asia and created a negative downturn on the world economy. Yet, looking now at President (Susilo Bambang) Yudhoyono's economic team -- Budiono, Sri Mulyani and Mari Pangestu, who were all former participants, in one form or another, of the USAID programs -- Yudhoyono has developed one of the strongest financial teams anywhere in the world.

I think the economy now is really reflecting that although there still needs to be some significant changes. Economic growth needs to attain over the 6 percent level throughout the years. The formal sector is very strong but jobs are still not being created. There are still a lot to be designed, and I know the government is now focusing on that. Jobs creation is very important for the continuation of the economy.

Many said 6 percent growth is not enough to cut unemployment. What can Indonesia do to achieve a higher growth?

Indonesia needs to create a more conducive environment to bring in foreign investment. The domestic market can't support the domestic economy at the stage it is right now. The Finance Ministry talked about 5.7 percent growth. They would like 6 percent growth but it's not going to happen this year. Many of us looking at this economy believe that Indonesia could be at the 8 percent growth level if foreign investment increases in this country.

But to attain that 6 percent plus level, the legal regulatory system for business development for engaging foreign investors has to be strengthened. Corruption obviously is still a problem in this country. It's much better than it has been. But the perception of the foreign investors still is that the legal regulatory framework in this country is still weak.

What laws do you refer to when talking about the regulatory system?

Well, I refer to the legal framework, for instance, the new commercial law, that's being developed right now. We're watching closely what's happening in the Supreme Court because it is undertaking a number of actions that relate directly to business development in this country. We have advisers working directly with Minister Sri Mulyani and Mari Pangestu in terms of looking at the constraints under existing legislation that need to be changed to enhance foreign investment coming to this country.

What about the current labor law? Many say it is an obstacle to new investment.

The labor law in this country is clearly an obstacle. Many private industries have said that it is regressive as opposed to progressive. It is an impediment to economic development here.

What about USAID's role in tsunami recovery and the country's other natural disasters?

International aid has really played a very significant role in managing disaster assistance. I was responsible for coordination of all the U.S. government's assistance. Tsunami assistance has changed the hearts and minds of Indonesians. We're very proud of what we and the U.S. military have done in helping relief and reconstruction efforts in Aceh. Yesterday, we were in Banda Aceh with Kuntoro Mangkusubroto and Governor Irwandi finalizing the contract for the completion of the Banda Aceh to Meulaboh road. We've just signed an $8 million contract for the joint Indonesian-Korean consortium to finish a very important road for Aceh economic development.

I'm very proud of our government and USAID's role in providing the assistance, which I think is one of the most significant aspects of our program. Really, looking at the last 55 years of our role here in Indonesia, we have a lot to be proud of in terms of our assistance to Aceh.

How do you see the reconstruction process in the province?

Reconstruction probably is going to be so much slower than anticipated. However, looking at the magnitude of the problems, we're very pleased with what we have done. I think overall, BRR (Aceh-Nias Rehabilitation and Reconstruction Agency) and its leadership have done an extraordinary job. They will be working until 2009, and Kuntoro has assured that their job will be done in 2009. From a USAID perspective, we have a great deal of compliments for Kuntoro's leadership of BRR. And really, the whole system of governance that Irwandi is managing, and we have full confidence in that team to continue to meet the objectives that they laid out soon after the tsunami.

How do you see the management of international aid by the Indonesian government?

We have a very close relationship with all Indonesian key ministries. They're all very engaged in a partnership with us in planning to deliver assistance throughout the country. Right now, I am managing a $1.2 billion five-year assistance program here. It is one of the largest USAID programs anywhere in the world, including $400 million for Aceh. And unlike other donors, our program is a little different, we do not direct our funds through the central budget (APBN). We work in partnership with local governments, and the central government counterparts primarily deliver our assistance through technical assistance. We have over 400 technical advisers in different capacities throughout Indonesia.

Beside tsunami recovery, what other sectors is USAID involved in?

We're working right now in four different areas. We are assisting in developing and supporting the basic education system for Indonesia. In 2003, President Bush in Bali announced $157 million in educational assistance. Since then, we have developed the program that's working with secular schools, pesantren, madrasah and the entire public school system throughout the country. We're working right now at over 3,000 schools, which will be extended to 7,000 schools at the end of the program.

You have to set up an educational system that works. Today, Indonesia ranks last in quality of education throughout Asia. It used to be much higher, and it will be back at the highest level we believe in the coming years.

We have an over $300 million program in basic human services. Under that, we are supporting the environment and health. We have large programs in HIV-AIDS, avian influenza, child and motherhood care, TB, malaria, as well as very substantial environmental programs, which are right now covering everything from forest preservation to clean water for the poor.

Third is democracy and decentralization. Fourth, we have an $80 million five-year effort in economic growth. (The Jakarta Post)