Versi Bahasa

Down to Earth IFIs Factsheet Series

No 29, May 2003

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.

'Post-conflict' Aceh


The Aceh Peace talks in Japan on the 18th May have failed.
The Indonesian government declared martial law on the 19th May.
The Indonesian Armed Forces immediately commenced a military operation costing Rp. 1.7 trillion (approx. 200 million US dollars), paid for from the 2003 state budget.
Violent incidents in Aceh have reportedly increased.
As this report is written, 18 civilians including two 12-year-old children have been reported killed by the Armed Forces in Bireuen district.

SNO 133, INFID, 22 Mei 2003
Guardian, 22 Mei 2003

Since 1976, Aceh has been at the centre of world attention due to the lengthy conflict between the Free Aceh Movement (GAM) and the Indonesian government. Over this period, 10,000 victims have been recorded, children have lost their parents, the education system has been neglected, the number of widows has increased, infrastructure has been destroyed and public confidence has been lost.

Ceasefires and negotiations have been attempted but it has proved difficult to come to agreement between the two parties. Following a long process of negotiation, a light at the end of the tunnel emerged with the signing of the "Cessation of Hostilities Agreement (CoHA)" between the Indonesian government and GAM. This agreement was mediated by the Henry Dunant Centre (HDC) on the 9 December in Geneva, Switzerland.

This event marked a sea change in 'development' in Aceh. Donor agencies began to consider how Aceh might be developed. What sort of development programmes did these agencies envisage? How might they be implemented in the context of a post-conflict Aceh?

Poverty in Aceh: Conflicts over Natural Resource Management (NRM)

The conflict has resulted in poor health and education services and the destruction of homes, as well as the disruption of distribution channels for goods and services by 'bandits'. The conflict has also caused a decline in public confidence and an increase in suspicion at many levels, not only between the government and GAM but also between the public and the government, and also within the local communities and within the government itself. Conflict has arisen not only between GAM and the military/police but also between the military and the police themselves.

The conflict in Aceh is centred around the management of natural resources which are potential sources of revenue, i.e. oil, gas and forestry. The companies Mobil Oil Indonesia (MOI) and PT Arun are the precursors of other large-scale petrochemical companies, such as the fertiliser company PT PIM, AAF, and the paper mill PT Kertas Kraft Aceh. The presence of these companies has led to the establishment of the Lhokseumawe Industrial Zone. PT Arun (liquefied natural gas processing) alone has a turnover of US$ 7 million a day.

Conflicts over natural resource management, leading to environmental damage, are caused not only by the corruption and monopolistic practices of the central government and the local government of Nangroe Aceh Darussalam (NAD), but also by the 'battle' that is going on between the military, the police and GAM for a share in these business sectors. The military have already developed business interests in several sectors, such as forestry, oil and gas, as well as transportation, including the provision of security services to multinational companies. Trade in illegal timber is carried out by the government, the military, the police and GAM.

What donor programmes are there already in Aceh?

The situation in Aceh has both encouraged donor agencies to implement humanitarian and development programmes while at the same time resulting in the postponement or halting of some such programmes. Before the signing of the CoHA, donor programmes in Aceh included:

What is the donor agency perspective on the development of post-conflict Aceh?

Donor agencies and the government held an initial meeting "The Preparatory Conference on Peace and Reconstruction in Aceh" in Tokyo on 3 December 2002, to develop a framework of guidelines and agreements for donor development in post-conflict Aceh. The donor agencies represented included USAID, UNICEF, WHO, OCHA, UNDP, WFP and IOM.

Donors attending the meeting agreed on the importance of multilateral donor dialogue with the inclusion of Civil Society Organisations (CSO), emphasising the importance of participation and consultation in the reconstruction of Aceh and the development of democracy, with the following priorities:

At this meeting, the following guidelines on development of Aceh were drawn up for donors and the government :
  1. Support humanitarian and development programmes that will provide rapid results for peace as a prerequisite for the guarantee of subsequent development.

  2. The government and donors should unfreeze funds for health, education, road construction and irrigation programmes and the Minister of Finance should undertake a revision of the state budget allocation. In the past, disbursement of donor funds for such projects in rural areas has been delayed due to difficulties with monitoring in the field.

  3. Use tried and tested programme mechanisms to reach the poor. The programme that has proved effective in reaching this target group is the KDP (Kecamatan Development Program) because the programme planning, implementation and monitoring are all carried out by the communities themselves. Thus all donor programmes in Aceh should use this mechanism.

  4. Support independent monitoring of socio-economic development programmes. Independent monitoring by civil society organisations would both evaluate the implementation of the peace accord and also encourage a better climate for investment.

  5. Effective use of resources. Even though the budget allocation for NAD from the central government is the 4th highest in the country, these funds have proved insufficient due to a high level of corruption. Due to a fear that the funds for public services in education and health are likely to decrease, donor agencies need to establish programme mechanisms which can overcome 'leakage' of funds.

  6. Increase public transparency and accountability. In order to overcome suspicion, all programme funds for Aceh should be publicised and available to all sectors of society. Donor agencies must ensure programme planning, implementation and monitoring guarantees public participation and transparency.

  7. Monitor and improve the climate for investment. Donor agencies believe that an important factor in peace building in Aceh is the development of a strong and efficient private sector. Thugs, operating in a number of sectors in the absence of a justice system, open up further opportunities for criminals and result in a decrease in investment from big business. Therefore, there needs to be an assessment of the investment climate in Aceh which covers not only big business but also local enterprises.

  8. Ensure the sustainability of resources in Aceh. With financial support from donor agencies, the Aceh government would have a good deal of funds but these funds will only be effective if they are accompanied by an increase in the capacity of poor people to make good use of this money. At the moment this capacity is considered weak and it is hoped that it will improve in the post-conflict period.
In the January 2003 report "Promoting Peaceful Development in Aceh" (, there is a clear precondition that some of the funds will only be made available once the peace accord has shown positive results. This includes long-term investment programmes for sectoral projects such as health, education, infrastructure and communication. The aim of this precondition is to improve the mechanism for channelling funds to Aceh from the World Bank, ADB, and JBIC (Japan Bank for International Corporation).

Two programmes considered successful in Aceh in the eyes of the donor community are CRP (UNDP) and KDP* (World Bank). These programmes are considered successful because the benefits have been felt by the majority of communities in a short space of time with relatively little 'leakage' of funds. This therefore formed the basis of the World Bank's argument at the donor's preparatory meeting to "recommend that the development programmes suitable for Aceh are those with mechanisms such as the KDP, i.e. community-based development incorporating principles of participation, transparency and accountability". However, Akatiga's study on the KDP in one village in Subang, Jawa Barat, indicated that decision-making was still dominated by the village elite and the bureaucracy. At the same time, credit programmes were not reaching the poor. Even the system of competition used in the KDP appears to tend to weaken collaboration among community groups.

In the guidelines for donors and government, the importance of economic growth in the peace process is stressed in order that a conducive investment climate be established through infrastructure improvement programmes and improvements in management of local government. However, the guidelines do not sufficiently stress the aspects which have caused conflict, such as natural resource management that takes into account the rights of the people of Aceh.

Will the conflict cease?

Four months after the signing of the peace accord, armed conflict and violent incidents are still occurring. 114 monitors have been forced to withdraw from conflict areas in Banda Aceh, several primary and secondary schools in conflict areas have closed and more than 10,000 residents of Bireun and Aceh Tengah have been displaced again. Refugee camps are in an alarming state with hundreds of displaced people reported to be suffering from diarrheoa, coughs, malaria, fever and skin diseases. Acehnese activists are also still the target of violence from the military.

The Joint Council Meeting planned to end this conflict failed to take place after the government contingent withdrew following GAM's request to postpone the Geneva meeting from the 25 April to the 27 April 2003. Basically, the Indonesian government has stated that it will only undertake moves towards peace if GAM acknowledges the sovereignty of the Unitary State of the Republic of Indonesia (NKRI), while GAM wants independence rather than just autonomy within Indonesia. As a result of the conflict which has not ceased after the signing of the CoHA, the Indonesian government is planning a military operation.

Japan, The European Union, the US and the World Bank have issued a Joint Statement (Press Release, The World Bank, 10 April 2003) calling on both GAM and the Indonesian government to exercise restraint and not resort to violence. In their opinion, the failure of the peace process has occurred because up till now the main players, GAM, the Indonesian government and the Henry Dunant Centre have not been working together in an integrated way. In particular, Yutaka Imura, the Japanese Ambassador to Indonesia, who was also the representative of the donor agencies at the Tokyo conference, stated that they encouraged GAM and the Indonesian government to be consistent in the peace process in line with the principles of the CoHA. He also stated that an end to the conflict in Aceh must be found within the sovereignty of the Republic of Indonesia. The Japanese government sent Senior Vice Minister, Tetsuro Yano, on a peace mission to Jakarta. Japan itself is considering providing additional funds for the reconstruction and rehabilitation of Aceh but Yano stressed that these funds would be provided dependent on progress in the peace process. Japan has already distributed US$ 8 million since the signing of the CoHA.

Rufriadi, an activist in Aceh, stated that the peace accord did not provide an opportunity for civil society to play a role in the process. This is despite the fact that in Aceh there are many community organisations engaged in a peaceful struggle, who take action to achieve peace in Aceh, both in the form of coalitions and forums. These include Duek Pakat Inong Aceh (a womens organization), university students organisations such as SIRA (The Aceh Referendum Information Centre), FARMIDIA (The Islamic Students Forum for Reform in Aceh), SMIPA (The Concerned Islamic Students Solidarity for Aceh), school students organizations such as SPUR (Students Solidarity for the People), NGOs such as Walhi Aceh, Kontras Aceh, LBH Banda Aceh (Legal Aid Foundation), KKTG (The Gender Transformation Working Group), Flower Aceh, Cordova, the Villagers Guidance Institute (Yayasan Pembinaan Masyarakat Desa), and the Acehnese Womens Forum (Forum Perempuan Aceh).

Given that the situation in Aceh is still difficult, how can the development and humanitarian programmes of the donor agencies be implemented?

Promoting Peaceful Development in Aceh, January 2003
The World Bank Indonesia
AFP and,4386,181156,00.html (5 April 2003)
Tempo, 20 April 2003.

*Information on the KDP programme can be found at on the community driven development site.
Also see Factsheet 26
or the draft research report on the KDP programme by Akatiga at

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

DTE IFIs updates and factsheets are available in English and Bahasa Indonesia.

They can be sent via email (rtf version) free of charge, or normal postage (printed version), included quarterly with the Down to Earth newsletter. Printed versions are free of charge to existing DTE subscribers and exchange partners.

If you would like to receive the monthly updates and factsheets via email, please email us. Please state what language you would prefer. You can choose both languages if you prefer.

Office: 59 Athenlay Rd, London SE15 3EN, England, email: tel/fax: +44 207732 7984;

   Back to Campaigns    DTE Homepage    Newsletter    Links