Microsoft is discussing with the Indonesian government ways to legalize all of the software being used within government ministries

But a firm agreement on any issue has yet to be reached, he added, reacting to numerous reports that the company had signed a piracy amnesty with the government.

"Microsoft Indonesia and the Government of Indonesia are still looking at how Microsoft can help on several things related to [intellectual property]," said Ari Kunwindodo, vice president of Microsoft's Indonesia unit, in a telephone interview. "There is no decision or no commitment yet."

The talks follow a meeting between Bill Gates, Microsoft's chairman and chief software architect, and Susilo Bambang Yudhoyono, President of Indonesia, in the U.S. recently.

"Compliance is only one component," Kunwindodo said of the follow-up talks. "When Bill met [the Indonesian] president they talked about several things including education, intellectual property rights and an invitation to set up a research center."

A lot of the work Microsoft does in Indonesia supports the government's push to narrow the so-called digital divide, he said. For example, Microsoft offers free licenses for its Windows operating system to a project that refurbishes used business PCs for re-use and the company is involved in training teachers in the use of information technology.

On the issue of piracy, Kunwindodo said Microsoft is already working with several government departments on the use of legal software. To what degree the government is relying on unlicensed software is unknown because a government-wide IT audit has yet to be completed.

"One of the action items the government has is to itemize all the PCs and software they are using so based on this knowledge we can discuss what Microsoft can do," he said.

Piracy more generally in Indonesia is a major problem, according to the most recent data from the Business Software Alliance, a grouping of the world's largest software makers.

In 2004, 87 percent of all software in the country was pirated, according to the BSA. That ranked Indonesia number 5 on the BSA's global piracy ranking. Top of the list was nearby Vietnam, with a piracy rate of 92 percent, followed by Ukraine, China and Zimbabwe.

However, the BSA estimated that software piracy in the U.S. cost publishers around 36 times more in lost sales opportunities than piracy in Indonesia.

Indonesia is one of a handful of countries in which Microsoft recently began selling its Windows XP Starter Edition, a tailored and slightly cut-down version of Windows with local language support and a lower price tag.

Initial response to the software has been cool, said Kunwindodo. That's partly because it's designed to run on computers based on Intel Corp.'s Celeron processor and many PCs in Indonesia are Pentium-based. Microsoft is working with PC makers to launch low-cost Celeron PCs based on the Starter Edition OS to introduce into the local market, he said.