JAKARTA, Indonesia (AP) -- Years ago, Indonesia’s foreign minister boldly waved away the East Timor conflict as "a pebble in the shoe." Today, he may rue those words.

With only 850,000 people and little strategic significance, the poor, rugged land is a speck in Indonesia’s vast sweep of tropical islands and water lanes. Yet the chaos there has jarred the nation’s tenuous transition to democracy, jeopardized its economic recovery and tainted its image abroad.

More ominously, the Aug. 30 landslide vote for independence in East Timor, and the deadly rampages by army-backed militias, raise questions about Indonesia’s ability to hold together its far-flung territories.

Foreign Minister Ali Alatas personifies how Indonesia has been humbled in the eyes of the world.

Accustomed to scolding critics of Indonesia’s occupation of East Timor, the 67-year-old veteran diplomat rushed this week to New York to help the United Nations plan the deployment of peacekeepers this weekend.

Pro-Indonesia militia groups have killed hundreds, perhaps thousands, of people since their call to remain part of Indonesia was defeated in the U.N.-organized poll. As many as 200,000 refugees are at risk of starvation, the U.N. said.

Indonesia invaded East Timor in 1975, but it was never able to win over the population. Separatist rebels harassed its patrols from the hills for years.

A reluctant Indonesia accepted the U.N.-approved peacekeepers, largely because of international threats to cut off financial aid.

Maintaining an economic equilibrium is vital for Indonesia. Financial problems triggered social unrest that led to the downfall of authoritarian President Suharto in May 1998. His successor, B.J. Habibie, is loath to let it happen again.

But inviting peacekeepers into East Timor may not be enough to prevent sanctions. Indonesian army units in East Timor are fomenting violence, not quelling it, and have embarassed the government. Indonesia will likely be punished economically if elements in the military disrupt the U.N. operation.

The World Bank, the Asian Development Bank and the International Monetary Fund have already deferred approval of new lending to Indonesia because of alleged financial irregularities implicating Habibie supporters.

Despite democratic reforms, the government remains heavily influenced by the armed forces. Opposition forces triumphed in June 7 parliamentary elections, but they are fragmented and the military could play a big role in a special assembly that meets in November to choose a new president.

"The political power of the military in this country is getting stronger," said Salim Said, an expert on the military. But he cautioned that Gen. Wiranto, the military chief, is unlikely to defy Habibie because he may have his own political ambitions and wants to maintain credibility.

What civilian and military leaders alike are unwilling to tolerate are separatist movements in the resource-rich regions of Aceh and Irian Jaya. Unlike East Timor, the two provinces share a history of Dutch colonial rule with the rest of Indonesia.

But East Timor’s vote on independence, along with the bloody response of pro-Indonesia forces, might encourage separatists. Many provinces want Jakarta to cede them more autonomy.

While there have been small nationalist protests opposing the U.N. mission in East Timor, many Indonesians say it’s time to let go of the troublesome territory.