JAKARTA – Indonesia's president has apologised for the raging forest fires that have blanketed its neighbours Singapore and Malaysia with thick smog in Southeast Asia's worst air pollution crisis in 16 years.

President Susilo Bambang Yudhoyono said Indonesia was doing everything it could to contain the fires on the island of Sumatra, including the deployment of military aircraft to waterbomb the blazes, and has earmarked around 200 billion rupiah ($20 million) to handle the disaster.

The week-long environmental crisis, which has seen air pollution in Singapore and Malaysia reach hazardous levels, is damaging tourism and businesses in both countries and could result in a bigger economic impact than the 1997 haze crisis which cost an estimated $9 billion.

"As the president, I apologise and seek the understanding of our friends in Singapore and Malaysia," said President Susilo Bambang Yudhoyono in a news conference late Monday.

After a week of thick smog, air quality in Singapore's financial centre has significantly improved with the pollution index remaining under "unhealthy" levels since the weekend. It hit a record of 401 on Friday afternoon, a level considered potentially life-threatening for the ill and the elderly.

Kuala Lumpur on Tuesday was still shrouded in haze, while Singapore's skies were pretty clear with the pollution index reading in the low 40s.

Indonesian police on Monday arrested two farmers for illegally starting fires to clear land in Sumatra, the first detentions linked to the slash-and-burn blazes, but police said the farmers were not linked to any of the eight companies the government suspects are responsible for the fires.

The parent companies of those firms included Malaysia-listed Sime Darby, which has denied wrongdoing.

"We arrested two farmers in Riau who were clearing their land by burning. They were not working for anyone but just clearing their own land," said Agus Rianto, deputy spokesman for the national police.

Under Indonesian law, any company or person involved in an illegal forest fire faces up to 10 years in prison and fines of up to 5 billion rupiah ($503,800).