Down to Earth IFIs Update 12, February 2001

The World Bank announced in January that it will cut its annual $1.2 billion loan programme to Indonesia to US$400 million per year due to concerns over Indonesia’s debt burden. At present the World Bank has 56 on-going projects in Indonesia.

NGOs remain concerned over the debt burden, transparency, forestry projects and resettlement issues.

A third of new loans will come from the International Development Association (IDA) and therefore be interest-free, and have repayment terms of up to 40 years. These more generous terms reflect, according to the Bank, reflect a movement away from the crisis approach and towards a medium term poverty alleviation strategy. The IDA is the World Bank’s concessional lending arm. Indonesia’s qualification for IDA loans reduces it to the category of one of the world’s poorest countries. Indonesia has become eligible through having per capita income estimated at US$580 per year.

STOP PRESS (February 26, 2001)

The Indonesian economy is in 'Debt Trap' according to leading international bank, J.P. Morgan, and facing a debt 'crisis' according to the World Bank.

More in next month's newsletter.

The World Bank and IMF continue to be at odds with the GoI over fears that newly empowered districts and provinces are not ready to deal with financial matters. A World Bank official described the situation as "the fear that one Suharto will be replaced by 350 Suhartos" (see also DTE 48 for more on regional autonomy news).

Indonesia's recent troubled relationship with the IMF in particular has entered what one diplomat called "no man's land," despite a recent meeting in Davos, Switzerland, between Deputy Managing Director Stanley Fischer and economics minister, Rizal Ramli. The IMF money is not crucial to Indonesia at the moment, as foreign reserves have risen to $30 billion, equal to six months' imports mainly due to high oil prices. But all loans are indirectly tied to the IMF's seal of good housekeeping.

Sources: Jakarta Post 29 January; Associated Press January 31; Dow Jones Newswires January 31, 2001.

The World Bank’s Jakarta office has now set up a “corruption and fraud investigating unit” with a hot line to take calls and a team to follow up on investigations.

On a visit to Jakarta last year, World Bank President James Wolfensohn said there had been estimates that 10% to 40% of World Bank loans to Indonesia had been squandered due to corruption under Suharto. But Wolfensohn added misuse of bank funds had been reduced (indicating it has not been eliminated) after Suharto's downfall in 1998.

The World Bank is an institution in crisis with staff living "in fear" of the organisation's autocratic boss, James Wolfensohn, according to a leaked memo. At a time when the bank is coming under unprecedented criticism from protesters opposed to globalisation and from rightwing Congressmen in the US demanding budget cuts, the document provides a savage indictment of the world's largest development institution. The memo accuses the former Wall Street banker of being "isolated from reality", intolerant of dissent, and quick to humiliate senior managers in front of outsiders. "The atmosphere of fear that pervades the bank is based on numerous day-to-day experiences of staff and managers in their interaction with Mr Wolfensohn," it says. "He does not practise the values and behaviours he espouses for the rest of us."

The bank is also facing a budget crisis which is putting staff jobs at risk, according to the memo. In 1997 Mr Wolfensohn promised western governments he would overhaul its management systems in return for three years of extra funding. The budget is to be reduced to 1997 levels this year, but the memo says the new management systems are not working and that staff cuts will have to be made to pay for new projects personally sponsored by Mr Wolfensohn.

The German “Erlaßjahrkampagne”, which grew out of the Jubilee 2000 campaign, is currently making the first steps to launch a debt relief campaign for Indonesia in the years 2001 and 2002. This will target the next meeting of the Paris Club in 2002, that will again negotiate the rescheduling of Indonesia’s debt. Contact INFID for details.

The World Bank's private sector lending arm, the International Finance Corporation (IFC), is confident of final victory in a drawn out bankruptcy case which highlights the trouble creditors have getting Indonesian debtors to pay up. The IFC has been haggling over $13 million owed to it by PT Panca Overseas Finance for two years and eventually filed a bankruptcy petition on September 6 after negotiations failed. The IFC has a six percent stake in Panca, which is majority owned by PT Panincorp and has a total debt of $235 million, spread among 19 creditors.

Note The Far Eastern Economic Review should have been credited in last months DTE IFI newsletter as the journal that broke the headline story. See http://www.feer.com

A closed-door meeting between CEOs of leading pesticide/biotech companies and World Bank President James Wolfensohn in early December received strong opposition from Pesticide Action Network North America and 14 other NGOs. NGOs criticized the Bank's decision to exclude public observers and to explore partnership opportunities with companies which have notoriously poor track records on environmental issues.

New Freshwater Action Network
A new network has been launched to support NGO advocacy around freshwater issues. This Freshwater Action Network will initially focus on preparations for various international meetings, including the International Freshwater Conference (Bonn 2001) and the World Summit on Sustainable Development, 2002. It will also promote improved policy and campaigning co-operation between NGOs from different sectors and regions by circulating information on international policy processes.

Danielle Morley, Freshwater Action Network WaterAid, 27-29 Albert Embankment London, SE1 7UB, UK
Email: daniellemorley@wateraid.org.uk

In early January a meeting was held in Washington to discuss the latest World Bank forest strategy. The Technical Advisory Group (TAG), a body which includes representatives of NGOs, governments and research institutes, met to conduct in-depth discussion of what the new forest strategy and policy should contain. TAG members set out a number of concerns with the process and with the content of the documentation.

A letter sent after the meeting to the World Bank and the World Conservation Union (IUCN) - contracted by the Bank to facilitate consultations around this process - condemned "a failure of transparency" in the review process. It pointed out that the Bank had gone back on its assurance that the draft strategy document "will be widely disseminated and discussed with key stakeholders". Apparently because of difficult internal discussions the Bank decided not to make the draft documents available. Even TAG members were sent them only late on Christmas Eve, leaving just a few days at the beginning of January to discuss them.

The letter and other interventions appeared to have rapid results: the materials were posted on the Bank's website and it was announced that external comments would be accepted until 15 February. These comments will then be fed into the final documentation which goes to the Bank's Operations Policy Committee and then Board in March and April. Forest Peoples' Programme (a TAG member) is encouraging groups to take advantage of this opportunity.

The Bank's new policy framework has some good analysis and suggestions, for example, to assess the negative impacts of some structural adjustment loans on forests. However the proposals for dealing with these are widely seen as inadequate. Among identified concerns are:

The World Bank's resettlement policy recently suffered from a similar breakdown in agreed process. The Bank again promised that it would make available "a summary of the comments received, the actions taken in light of the comments, and the reasons for taking these actions". This did not materialise in time for two Bank Board discussions of the proposed new policy, prompting letters of complaint from the Forest Peoples' Programme and the Center for International Environmental Law.

Because of these recent process breakdowns and signs that the Bank is trying to claim that safeguard policies are too expensive to implement, FPP and others have taken action. A letter has been prepared stressing that strong, unambiguous and mandatory safeguard policies are the only mechanism available to citizens and project beneficiaries to hold the World Bank and its clients accountable for their operations.

World Wide Fund for Nature (WWF) have set out new proposals for assessing the environmental consequences of macro-economic reforms. The proposed Environmental Impact Assessment (EIA) process aims to "ensure that reforms are designed and implemented with full awareness of their consequences, both positive and negative". Recent World Bank studies show that only 37 per cent of adjustment loans contained even a paragraph about environmental impacts. And the macroeconomic models being developed within the Bank for use in PRSP* countries are still very reliant on orthodox economic assumptions.

*PSRP = poverty strategy reduction papers - for countries under extended structural adjustment, civil society is consulted on IMF policy.

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