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Down to Earth IFIs Factsheet Series

No 19, Special CGI 2001 Edition

IFIs in Indonesia

This series of monthly factsheets on International Financial Institutions (IFIs) will include information on the World Bank Group, the International Monetary Fund (IMF) and the Asian Development Bank (ADB), focussing on their involvement in Indonesia.

The 2001 Consultative Group on Indonesia (CGI): An Urgent Call for Action

The 11th meeting of the Consultative Group on Indonesia (CGI) was held in Jakarta on November 7-8, 2001. At the meeting, donors expressed concern about the urgent action needed to sustain economic recovery, particularly in light of anticipated external shocks from a worsening global environment. In response to the donors' concern, the Indonesian government said that it would pursue policy actions in these key areas: fiscal sustainability, governance reforms, and the development of a poverty agenda. Despite concern about the lack of action from the government and the poor performance in key areas identified at the previous CGI meeting, donors still pledged to disburse USD 3.2 billion during the January-December 2002 fiscal year—USD 1.3 of which is contingent upon progress in key areas of reform.

What is a Consultative Group?

A Consultative Group (CG) is a World Bank-led group of donors that provides public loans and grants to an applicant country. CGs play a role as a donor coordinator and as a vehicle to work with the applicant government to focus on certain key areas. A CG usually meets once a year, though in some countries that face serious problems, the meetings can be held more than once a year. The CG meetings are pledging sessions in which donor countries and international financial institutions commit loans and grants to an applicant country, usually to be disbursed in the following fiscal year. In CG meetings, donor countries and institutions lay out the concerns that they want the applicant government to address in exchange for the loans and grants pledged at the meeting. In return, the applicant government explains the achievements it has made in the past fiscal year and the policy actions it will pursue in the following fiscal year.

Only in recent years have CG meetings been open to civil society groups as observers. Like governments or international financial institutions participating in CG meetings, civil society group observers present position papers at the meetings. Some borrowing country governments allow civil society participation in CG meetings to demonstrate that there is democracy in the country. CG meetings are one venue that can be used by civil society groups to express their positions and develop rapport with and leverage on their own government and the donors.

The 2001 CGI Meeting

The 2001 CGI meeting took place November 7-8, 2001 at the office of Indonesia's central bank, Bank Indonesia (BI). Mr. Jemal-udddin Kassum, World Bank Vice President for East Asia and Pacific, chaired the meeting. The title of this meeting was "Working Together to Reduce Poverty". The CGI members and observers attending the Meeting were as follows:

Multilateral Donors

Bilateral Donors
  • Australia
  • Austria
  • Belgium
  • Canada
  • Denmark
  • Finland
  • France
  • Germany
  • Italy
  • Japan
  • Republic of Korea
  • Netherlands
  • New Zealand
  • Norway
  • Portugal
  • Spain
  • Sweden
  • Switzerland
  • United Kingdom
  • United States of America
  • NGO Observers

    Key Issues of the CGI 2001 Meeting

    The meeting's discussions revolved around five key issues. The main message that was conveyed by all participants and echoed by observers was the need for urgent action. The CGI meetings (both pre- and full) in the past three years have continuously called for action from the Habibie, Abdurrahman Wahid, and Megawati administrations.

    The CGI meeting in 2001 was preceded by a series of working group meetings that discussed the main topics in the agenda. Prior to CGI meeting, the government and CGI members also organised a consultation meeting with civil society groups in Jakarta, October 25-26, 2001. Fifty three participants from Jakarta and the provinces attended the consultation.

    The five key issues discussed in the 2001 CGI Meeting were:

    1. Economic Stability, Fiscal Recovery, and Small and Medium Enterprises (SMEs)
      Finance Minister Boediono said that the government intended to reduce the debt burden and reach a balanced budget by 2004 while lowering the debt-GDP ratio to 60%. To achieve this, the government will follow a two-track approach: (1) on the budgetary side through significant improvements in tax administration, aggressive asset sales, privatisation of state enterprises, and phased increases in fuel and electricity prices; (2) on the debt burden side through seeking better terms from the Paris Club and other lenders and to explore debt-swaps. In terms of monetary prudence, the government is also committed to price stability through implementing a firm monetary stance, adjusted in the light of international conditions.

      Donors noted that a robust recovery would also need a healthy, functioning banking system and a conducive investment climate supported by good governance and an effective legal system.

      SME development was recognised as important for exports, employment, foreign direct investment, and poverty reduction. The meeting called upon the government to build a conducive and predictable policy environment and to streamline rules and regulations. The ADB and Japan will provide leadership in this area.

    2. Governance and Corruption
      A frank, tough session on governance and corruption took place during the meeting. Present at the meeting were the Ministry of Justice, the Attorney General's Office, the National Police, the Supreme Court, and the Co-ordinating Minister Yudhoyono.

      The donor community conveyed these four messages:

      • Indonesian economic recovery depends on improvement in the justice sector in order to retain social cohesion and stability. The government should consider its reform a national policy priority with a commensurate allocation of political attention and commitment.
      • The reform of the justice sector urgently requires a comprehensive time-bound program, including demonstrable milestones.
      • The process of reform needs strong management and co-ordination by the government. The sector needs to be properly funded and resourced. Donors were willing to support such an effort, but government needs to find resources from its budget.

      The government acknowledged the weakness of the justice sector and noted that the reform of this sector was a top priority for the country as shown in the State Policy Guidelines and in the National Development Program 2000-2004 (Propenas). Meanwhile, a number of measures have been taken to address some problems, such as the passing of new anti-corruption legislation and a law establishing anti-corruption commission; the training of ad-hoc judges to carry out the mandate of the new human rights courts; and the proposal of an anti-money laundering law.

      Some donors expressed disappointment at the lack of political will shown for change, in human rights abuse and conflicts in Aceh, Maluku, and Poso.

      In terms of forest management, the meeting agreed that progress in tackling the sector's many complex problems has been inadequate. The main obstacle is the establishment and maintenance of effective inter-departmental mechanisms to co-ordinate sectoral policy and process. The government agreed to revitalise the Interdepartmental Committee on Forestry (IDCF) and provide it with the means to receive input from all stakeholders. The CGI members have in the past years organized pre-CGI meetings on forestry issues and will continue to do so in the future to achieve better performance in forest management.

    3. Empowering and Investing in the Poor
      One issue discussed under this topic was that the decentralisation process that is currently taking place in Indonesia could make or break Indonesia's effort toward poverty reduction through changes in accountability relations, fiscal transfers from the central government, tax and regional regulations, and the ability to enforce national standards. The central government needs to strengthen its ability to facilitate and promote effective pro-poor decentralisation.

      In the education sector, the Working Group also wanted to see a clear education sector reform strategy to address issues of quality (high drop-out rates, low attainment levels, and low quality labour market) which perpetuate poverty.

    4. Poverty Reduction Agenda
      The Co-ordinating Ministers for the Economy and People's Welfare will jointly be responsible for developing and implementing a poverty reduction strategy. In the Co-ordinating Minister's words, "The aim of this process is not planning documents, but a locally owned process of strategic change that will improve the enabling environment for the poor and lead to proposals that can be integrated into all aspects of the country's program", for which a Presidential Decree on Poverty Reduction would be issued.

    5. Aid Effectiveness
      The meeting discussed how loans should be used more effectively and efforts to prevent corruption and collusion in foreign loan-funded projects. Donors claimed that they are now dedicating a lot of resources to this objective. Donors said that it is important that the government now moves decisively on the reform of public procurement and financial management. Ensuring aid effectiveness will require greater emphasis on government ownership of the development process and strengthened participation of beneficiaries and civil society in the design and implementation of projects.

    NGO Joint Statement

    The NGO statement read in the CGI meeting also called for the need for action. It said that the response from the Indonesian Government to the multi-dimensional problems did not show a sense of crisis and urgency.

    The NGO statement highlighted four areas of concern:

    The NGO statement concluded with a reminder to the international donor community and creditors that the current crisis in Indonesia cannot be borne alone by the Indonesian government. There was a cosy relationship between the donor community and former President Soeharto's government, which resulted in the accumulation of the debt burden, bad governance, and corruption. Therefore, there should be a shared responsibility by the donor communities and the Indonesian government. To this end, the NGOs demanded that: ( Visit the campains page for three NGO statements on the CGI)

    Follow Up from the CGI Meeting

    The Indonesian government proposed holding more frequent informal meetings with CGI representatives in Jakarta, to allow for an ongoing assessment of progress in key issues. The Working Groups formed to prepare for the meeting are discussing appropriate ways to continue their work to ensure sustained attention to key reform topics.

    The next full CGI meeting is tentatively scheduled for November 2002. The location of the meeting is yet to be decided.

    Binny Buchori, International NGO Forum on Indonesian Development
    Mohamad Al-Arief, Communications Officer, World Bank Office, Jakarta
    Paul McCarthy, civil society specialist, World Bank Office, Jakarta
    Conservation International, Indonesia Program

    World Bank. Eleventh Meeting of the Consultative Group on Indonesia. December 4, 2001.
    World Bank. Consultative Group Meeting for Indonesia. Jakarta, Indonesia. November 7-8, 2001. Documentation for meeting.
    World Bank Resident Staff in Indonesia's website
    NGO Joint Statement to the 11th CGI Meeting. Jakarta, November 7-8, 2001, by INFID, IDe, Yayasan Lembaga Konsumen Sulawesi Selatan, Koalisi Ornop untuk Hutan dan Utang, Wahana Informasi Masyarakat Medan.
    Reuters, October 30, 2001,November 4, 5, 7,9, 2001
    The Jakarta Post, November 6, 7, 8, 10, 12, 2001;
    Dow Jones Newswires, November 7, 8, 2001;
    BBC, November 7, 2001;
    Financial Times, November 8, 2001;
    AFP, November 8, 9, 2001;
    The Strait Times, November 9, 2001;
    The Wall Street Journal, November 9, 2001;
    Australian Broadcasting Corporation, November 9, 2001
    Detikcom, November 8, 2001
    Tempo Magazine, November 13-19, 2001
    Laksamana.Net, November 8, 2001
    Far Eastern Economic Review, November 29, 2001

    This IFI factsheet is published by Down to Earth, the International Campaign for Ecological Justice in Indonesia.

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