Indonesia Could Face Crippling Sanctions : Indonesia: U.S. suspends military ties with Asian nation over E. Timor turmoil.

President Clinton on Thursday suspended military relations with Indonesia and hinted at further steps, including economic and trade sanctions, unless the Southeast Asian nation quickly restores civil order in East Timor or allows an international peacekeeping force to do so.

“If Indonesia does not end the violence, it must invite--it must invite--the international community to assist in restoring security,” the president said. “It must allow international relief agencies to help people on the ground. It must move forward with a transition to independence” for the Indonesian province.

The president’s statement, his toughest language to date on the violence in East Timor, came as U.N. officials reported that Indonesian authorities appeared to be taking steps to rein in rampaging militias in the province.

“Reports from our people [in East Timor] indicate that last night was relatively quiet, perhaps the quietest they have had,” U.N. Secretary-General Kofi Annan said in New York. “But it’s only one day at a time.”

East Timorese voted by an overwhelming majority Aug. 30 to seek independence from Indonesia, which seized the former Portuguese colony in 1975. Before and after last week’s election, the province has been racked by violence as armed and lawless militias opposed to independence have slain an unknown number of civilians and driven an estimated 200,000 people from their homes.

Clinton, speaking to reporters shortly before departing for an economic conference in New Zealand that probably will be dogged by the turmoil in East Timor, warned Indonesian authorities to end the violence or risk sanctions that could bring the near-certain collapse of their stumbling economy.

But, he added, the stakes go beyond respect for the vote in East Timor to encompass Indonesia’s own economic recovery and transition to democracy.

“It would be a pity if the Indonesian recovery were crashed by this. But one way or the other, it will be crashed by this if they don’t fix it, because there will be overwhelming public sentiment to stop the international economic cooperation,” Clinton said.

“One way or the other, the economic consequences to them are going to be very dire,” the president said. “The will of the people of East Timor must not be thwarted.”

The Pentagon said the commander in chief of the U.S. Pacific Command, Adm. Dennis Cutler Blair, notified Indonesia’s defense chief, Gen. Wiranto, of the suspension of military ties late Wednesday.

The United States’ military relationship with Indonesia is relatively minor, consisting mainly of modest training exercises and educational exchanges. But the move marks the first substantive U.S. step against the government of Indonesian President B.J. Habibie since the Aug. 30 referendum.

The U.S. action and Clinton’s tough talk came amid tentative signs in East Timor that Indonesian authorities are curbing the armed bands that many observers say the Indonesian military created and controls.

“It’s quieter today than it’s been all week,” said Yasuhiro Ueki, deputy spokesman for the U.N. mission to the riot-torn province. “I think they’re finally beginning to realize they have to do something about the militias, and given the fragile state of the economy, international pressure clearly is having an effect on their thinking.”

“Of course, that fact that the militias are quiet doesn’t mean they are gone,” Ueki said. “The Indonesian military can turn them on or off as it chooses.”

In Jakarta, the Indonesian capital, Habibie met with a five-nation delegation from the U.N. Security Council and gave the diplomats permission to visit East Timor on Saturday, reversing his government’s earlier position.

But Indonesia’s chief executive reiterated his firm refusal to have foreign peacekeepers deployed in East Timor, though he welcomed other forms of international help.

Meanwhile, in Dili, the provincial capital, water, electricity and communications were restored to the U.N. compound where about 1,000 people continued to seek shelter, fearful that they would be slaughtered if they ventured out. Some supplies sent from Australia managed to reach the compound, which has been surrounded by militiamen, and another 1,000 people who had sought shelter in the compound and a nearby church were able to escape into the countryside.

Some U.N. staff members at the compound left for Australia early today, though volunteers will remain to maintain a significant U.N. presence in the province. Ian Martin, the head of the U.N. mission, will remain.

Martin met with the army’s new commander in the province, who told him that he thought that the violence had peaked.

Nevertheless, there were worrisome signs aplenty in Dili--and U.N. officials acknowledged that they had virtually no information about what was happening outside the city.

When a convoy ventured out of the U.N. compound and attempted to reach a supply warehouse on the waterfront, it was stopped for a second consecutive day. A militia member fired three shots over the heads of the U.N. staff despite the presence of an Indonesian military escort. The trucks turned back.

Fires continued to rage in Dili, where government buildings have been destroyed, homes looted and the armed militia’s menacing presence has been obvious.

Some militia members driving U.N. vehicles moved into West Timor, the neighboring Indonesian province, and began harassing foreigners.

Washington’s decision to suspend military ties affects $550,000 allocated this year for bringing Indonesian military officers to the U.S. for training at such institutions as the Asia-Pacific Center for Security Studies in Hawaii and the military’s language school in Monterey, U.S. officials said. Joint U.S.-Indonesian exercises to deal with humanitarian or natural disasters are also on hold.

There will be no further approvals of commercial sales of U.S. military components to Indonesia, which, according to government statistics, amounted this year to $16 million.

By confining the punitive step to the military relationship, the Clinton administration appeared to be focusing its initial action narrowly and directly at the armed forces, which international observers in East Timor hold responsible for the unrest.

While Clinton hinted that the United States is prepared to exert economic pressure on Indonesia, other U.S. officials went further.

“Future support from international lending institutions is effectively cut off from now,” Undersecretary of State Thomas R. Pickering told a House subcommittee. “If that doesn’t work, we’ll have to reexamine economic, trade . . . and other sanctions.”

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Marshall reported from Washington, Lamb from Jakarta and Goldman from the United Nations. Times staff writer James Gerstenzang in Washington contributed to this report.