Down to Earth IFIs Factsheet Series

No 31, November/December 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.

"Return of Infrastructure Mega-projects"

On 10 July 2003, the World Bank Executive Council agreed to a new scheme for the funding and development of infrastructure - roads, dams, bridges, ports, trains, electricity, telecommunications, water and gas - by launching the Infrastructure Action Plan (IAP). Under this scheme, the World Bank will apply more effective development instruments and infrastructure funding which will include collaboration between the private and public sectors.

James Wolfensohn, President of the World Bank, emphasized the importance of infrastructure as the main agent of development. Infrastructure is the first condition for attracting Foreign Direct Investment (FDI) in strategic sectors such as mining, minerals, gas and forestry. Bearing in mind that these kinds of mega-projects have caused environmental damage and unjust treatment of local communities, this plan needs to be studied critically. What is behind the IAP?

Infrastructure Action Plan

The Context for Change: Attaining the Millennium Development Goals and the Reduction in Private Sector Investment

The Executive Body of the World Bank claims that this Infrastructure Action Plan (IAP) represents an important and appropriate step in responding to global developments and the needs of World Bank member states. This new scheme links the role of infrastructure with the attainment of the Millennium Development Goals (MDG) that were agreed by world leaders in 2000.

Nemat Shafik, World Bank Vice-President for Infrastructure, has stated that the IAP also represents changes of in infrastructural development thinking within the World Bank itself. Throughout the 1980s, the World Bank's involvement in infrastructural development tended towards "bricks and mortar" investments. During the 1990s, the World Bank's involvement in infrastructural development focused more on efforts to prepare a business environment that would encourage the business sector to provide infrastructure. The approach adopted tended towards increasing infrastructure service mechanisms that were in accordance with such needs. The World Bank believed that these mechanisms would be easier to integrate with strategies for policy and regulatory change as well as increase institutional capacity.

In the 1990s, alongside these changes, the interests of the private sector and investment increased. World Bank borrowing increased to 104%, International Finance Corporation (IFC) investment increased 88% and Multilateral Investment Guarantee Agency (MIGA) guarantees also increased 30-fold. The IFC and MIGA are those arms of the World Bank that support investment in the private sector, particularly in the extractive industries (see IFI No.16 October 2001,). Unlike the IBRD and the IDA, the IFC and MIGA do not make loans to states but rather to private companies that have projects in the third world and former Soviet Union states. MIGA, which was established in the 1980s, provides long term non-commercial insurance for the protection of foreign investment from factors that cannot be predicted. In Indonesia, MIGA projects have included Freeport McMoran's gold and copper mine in West Papua.

However, in 2000, a decrease in private sector interests in infrastructure was indicated by a fall in private investment that fell from US$ 128 million in 1997 to US$ 58 billion in 2002. Thus, the decrease in private sector interest in infrastructure provision and services showed that private sector financing was no longer sufficient.

IAP: Principles and Planned Activities

Satisfied with the infrastructure service provision through private sector funding model, the Bank agreed to encourage the involvement of the private sector as the best way to increase the efficiency of infrastructure provision and services. As far as the World Bank group is concerned, it is not strategic to leave infrastructure provision and services to the public sector, which is inefficient and lacks an agenda for change.

The Bank has said that it will continue to support the public sector wherever it shows good service provision. In this "support of public sector funding" it is as if the World Bank allows the setting of prices based on the subsidy principle. However, the Bank encourages price setting that takes into account operational costs and within a specific time frame it is best if the price set is based on end-user costs.

The desire to maintain existing mechanisms in the private sector whilst bearing in mind the decrease in private sector investment, means that the IAP aims to provide an agenda for infrastructure provision and services that are more flexible, including aspects of collaboration between the public and private sector. By taking into consideration the difference between private sector interest in investment and the capacity of public sector institutions in each member nation, the implication is that there will emerge a number of different infrastructure payment models.

Because of this, the World Bank Group has prepared comprehensive management tools (the Action Plan - AP) that will guide the World Bank in infrastructure provision and services over the next 2-3 years (from the fiscal year 2004-2006). Over these three fiscal years there are three basic guiding areas:

  1. The preparation of mechanisms with which to respond to the requests of World Bank member nations in relation to infrastructure funding. Nemat Shafik has identified a number of states that will obtain additional funding for infrastructural development, including Indonesia, China, Laos and Vietnam in the Asia Pacific region.
  2. The rebuilding of the knowledge base in order to strengthen working analysis in diagnosing infrastructure problems in member states. The Bank has already prepared tools for measuring infrastructure provision and development known as Recent Economic Development Infrastructure (REDI). REDI provides diagnostic tools with which to identify investment opportunities in the infrastructure sector, institutional potential and member state policies. These diagnostic tools are standardized in order to allow for comparisons between member states.
  3. The preparation of institutional instruments by establishing a new cross-sectoral department. This new department will be responsible for creating more efficient cross-sector collaboration in order to encourage public-private sector co-operation; to make suggestions on the drafting of regulations and a market structure which is competitive and supports infrastructure; to create an operational working framework in order to support infrastructure payments (covering risk mitigation, local market capital, guarantees etc.); establish a subsidy scheme in accordance with output and develop a framework for analysis that links infrastructure services, growth and poverty.

Collaboration Schemes that Support the IAP

There are a number of collaboration schemes that are and will be supported by the IAP, including:

IAP and Environmental Damage

A report written by Environmental Defense, Friends of the Earth and International Rivers Network describes the IAP as "big is beautiful again and mega-projects are back in style". In other words the IAP provides the space for the return of mega-projects and glosses over the reality that the World Bank's experience (as well as the experience of the likes of the IFC and MIGA) with large scale projects has been very controversial in respect to the environmental, economic and social damage that they have created. The report of these NGOs demonstrates in a detailed way how environmental damage, social tensions, corruption and repression have occurred due to high risk World Bank projects since the 1980s. In particular dams, projects that affect tropical forests as well as oil, gas and mining investment. World Bank documents do not refer to how these issues occurred and how the risks may be prevented.

Furthermore, the IAP does not provide a space for other alternative projects and programmes that have a smaller social, economic and environmental impact, such as community-based programmes. Within the IAP scheme, community-based programmes are no longer considered strategic.

The IAP also does not explain how this strategy of focussing on private sector funding or public-private sector partnership will impact on poverty reduction. The dualism of the World Bank is evident when its states that it will continue to focus on private sector payments for infrastructure provision, but that it will also facilitate the public sector AS LONG AS IT IS EFFICIENT. But the Bank will continue to push the public sector to set output based prices (i.e. not subsidised). How about the water, electricity, telecommunications and fuel sectors? The role of the World Bank in pushing a privatisation agenda has already demonstrated that privatisation results in price increases for the poor (See IFI Factsheet 28, March 2003, on water privatisation,).


In a Wall Street Journal article, Michael Phillips stated that the IAP scheme further highlights the fact that the World Bank group does not really care whether infrastructure is in public or private hands as long as the infrastructure in question is run in accordance with nothing other than business logic. So, is this scheme really aimed at poverty reduction as part of the MDG? Or is it intended to further accelerate the privatisation agenda and bring back industrial mega-projects without having to face civil society resistance?


World Bank Website:

More information concerning the cooperation scheme may be accessed at:

World Bank Infrastructure Action Plan, World Bank

A Civil Society Response to the World Bank's New "High Risk/High Reward' Strategy, International Rivers Network

Bretton woods Project : www/

For more information about the Millennium Development Goals may be accessed from the UNDP website (

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