Whitehall fears over aid-for-trade

Britain's overseas aid policy and the use of taxpayers' money to secure arms contracts will be questioned in a forthcoming official report.

In an echo of the Pergau Dam affair, the National Audit Office (NAO), the public spending watchdog, is expected to expose the way taxpayers' money, ostensibly intended for the world's poorest countries, was used to win arms contracts with Indonesia for some of Britain's biggest companies.

Imminent publication of the report, which centres on six Whitehall departments and agencies, is being greeted with alarm in Government circles.Ministers fear a repeat of the row over Pergau where state aid to a dam project in Malaysia was seen to have been a pre-condition for a huge arms contract.

Any backlash over the NAO study could threaten three upcoming potential deals between Britain and Indonesia: an order for Lynx Helicopters from Westland; Blindfire radar from GEC-Marconi and a further 40 Scorpion tanks from Alvis.

The NAO will focus attention on the apparent link between state aid and a previous large order from Britain, for Hawk jets made by British Aerospace. Part of the reason for delaying the report was the prosecution of three peace protesters for vandalising one of the Indonesian Hawks at the BAe works.While the Hawks are used to train pilots, human rights campaigners and supporters of the rebels in Indonesian-controlled East Timor allege they were used to raid villages on the island.

The NAO report will examine the correlation between Aid and Trade Provision (ATP) with military orders, including the Hawks.

Campaigners, notably Ann Clwyd, the Labour MP and Safer World, the anti- arms pressure group, have argued that Indonesia is not one of the world's poorest countries and should receive no British assistance.

The campaigners go further, claiming the British aid is not used to assist the most needy people in Indonesia but is used, instead, to win arms deals.

Some of the ATP cash was used to finance the Indonesian propaganda machine. In 1990, the Government agreed to provide pounds 26.9m in ATP to a project to build high-frequency transmitters near Jakarta and Ujung Padang. Opponents of President Suharto's regime claim the transmitters have been used to send government propaganda to East Timor.