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Down to Earth IFIs Update

No. 13, March 2001

Indonesia in Permanent Debt Trap as Relations with IMF Stagnate

Confusion reigned in the stand-off between the IMF and Indonesian government (GoI) in March. Indonesian officials said an IMF delegation was scheduled to arrive imminently whilst Vasuki Shastry, a spokesman for the IMF, said that he had no information about any such visit. Indonesia denied reports from Washington that a critical meeting between chief economics minister Rizal Ramli and top IMF officials yielded little progress, describing the talks as positive. Ramli said that the IMF funds were ‘not vital’ and President Wahid led a strong attack on the IMF, who he blamed for forcing the government to end fuel subsidies – a move that will trigger unpopular price hikes.

The IMF is currently withholding a $400 million tranche of loans to Indonesia, due to be transferred last December, amid concerns the GoI isn't moving fast enough on economic reforms. The IMF is unsatisfied about four issues -- borrowing by newly empowered regions, sale of bank stakes, the central bank law and corporate debt restructuring principles.

Meanwhile the World Bank released a report in March that noted US$9 billion left Indonesia in capital flight last year. This is twice the amount borrowed from the CGI.

The disagreement with the IFIs has increased fears of further defaults on Indonesia's huge debt, now put by Morgan Stanley Dean Witter at $US262 billion or 170 per cent of GDP. This increase is a result of rising interest rates and the falling Rupiah. In a report released in March, the investment bank said Indonesia was a ‘prime candidate’ for a ‘permanent debt trap’, in which a rising proportion of its economic output was devoted to servicing domestic and foreign debt. It said that already in 2000, 8 per cent of GDP was spent on servicing external liabilities, and 40 per cent of the central government's operating expenditure was used to service central government debt. To get out of this debt trap, Indonesia would have to reduce its public and external debt, excluding short-term foreign debt, to less than 70-80 per cent of GDP.

Source: Reuters, March 8, 2001; Dow Jones Newswires, February 5 and March 8, 2001; Reuters, February 22, 2001; Sydney Morning Herald, February 24, 2001

NGOs to call for aid boycott if forest law not enforced

Four Indonesian non-governmental organisations have threatened to call for a boycott by Indonesia's aid donors unless the government puts an immediate stop to illegal logging and the destruction of the country's forests. "We will prompt our foreign NGO networks to pressure members of the Consultative Group on Indonesia (CGI) not to give loans to Indonesia unless the government firmly enforces the forestry laws," said Binny Buchori, the executive secretary of the International NGO Forum on Indonesian Development (INFID) and the spokeswoman for the four NGOs. The other three NGOs in the coalition are Forest Watch Indonesia, the Indonesian Forum for the Environment (Walhi) and Community Based Forest Supporter Consortium (KPSHK).

The CGI, which in October pledged US$4.8 billion in new aid for Indonesia, is due to meet in April (see below) to evaluate the progress of the loan program, including Indonesia's pledge to crack down on illegal logging.

The CGI includes the World Bank, the International Monetary Fund, the Asian Development Bank and 30 donor countries led by Japan, members of the European Union and the United States.

Indonesia has promised the CGI it will put an end to illegal logging and impose a moratorium on the conversion of natural forest areas to industrial forest and plantation areas. The government established an interdepartmental committee on forestry in June with the task of addressing these problems. Togu Manurung, the director of Forest Watch Indonesia, pointed out that more than eight million hectares of forests were converted into plantation areas in 2000.

Source: Jakarta Post, February 16, 2001

CGI meeting, Jakarta

The CGI will meet in Jakarta from April 21 until April 24. Follow-up will be given to the results of the previous CGI meeting, held in Tokyo. The most important topics on the agenda are: fiscal decentralisation, illegal log trading and poverty alleviation programmes. The government is currently drafting a regulation on fiscal decentralisation that concerns the monitoring of the transfer of funds from the central government to the local administration, as well as the use of funds by local administrations.

Source: Jakarta Post, March 14.

Debt in Forestry Mailing List

A new email list will collect and distribute news clippings on Indonesian debt issues, primarily topics related directly and indirectly to the forestry sector. Debt-En will comprise of articles in English and Debt-In in Bahasa Indonesia.

To subscribe to Debt-En send an email to:
To subscribe to Debt-In send an email to:

USA Congress Pushes For Deeper IFI Reforms

Members of a Congressional commission which last year recommended radical changes at the World Bank and International Monetary Fund (IMF) have been urging the new USA Bush administration to push for deeper reforms at the institutions. The 11-member commission, better known as the Meltzer Commission, described the World Bank and three regional development banks as costly, inefficient, bureaucratic and unable to carry out their mission of poverty alleviation under current structures.

It recommended leaner, development banks limited to core areas such as technical assistance and administering poverty alleviation grants instead of loans to the poorest countries. The Meltzer Report, released last March, castigated the IMF for bailing out emerging markets with massive injections of money in times of crisis. It recommended that there be a clear division of labour between the Bank and IMF, with the IMF focusing solely on short-term crisis lending, and collecting and disseminating financial data to its 182 members to mitigate the risk of crises. Now, the political environment has changed and all eyes are on how the government of George W. Bush will deal with the IFIs and what it will do with the recommendations of the Meltzer Commission. Some fear the report could become the U.S. blueprint for future reforms of the institutions, in which the U.S. holds majority shares.

Source: Inter Press Service, March 9, 2001.

NGOs say "No Aloha to the ADB"

The ADB annual meeting will be in May in Hawaii. See websites below for ADB's accreditation and registration information; media articles on issues related to the ADB AGM 2001; problems in ADB policies and projects; and the Declaration by 38 Peoples’ Networks during last year's ADB AGM in Chiang Mai, Thailand. A Peoples’ Agenda of Events is to be posted soon.

ADB Watch
Bank Information Center
International Rivers Network:
Environmental Defense:
Environmental Media Services:

World Bank Institute Conference on illegal logging

A World Bank Institute conference on strengthening legal mechanisms to stop illegal logging (Forest Law Enforcement - hence now called 'FLEC' in Bank-speak) is planned. This is to be a big regional event involving 10 Asian countries including China and Japan and will culminate in ministers signing an agreement on illegal logging at the final meeting planned for Indonesia in September 2001. There will be a pre-FLEC meeting in Jakarta on 2-3 April, 2001.

World Bank and Involuntary Resettlement

The World Bank has posted a revised draft version of its Involuntary Resettlement policy on its website.
You can find it by going to, then click on "policies", then on "involuntary resettlement."

The Bank says that this is being posted for "information" only. In other words, there is no formal comment period. Bank Management plans to send this draft policy to the full Board of Executive Directors for approval in the near future. The Operational Directive (OD) 4.30 on Involuntary Resettlement is being changed to an Operational Policy/Bank Procedure (OP/BP) 4.12. The Bank claims that there are no changes being made to the policy, that it is just being "refomatted" or "converted" from an OD into the OP/BP format. However, a review of the draft shows that there are in fact numerous substantive and procedural changes which will have serious adverse impacts on local people who are affected by World Bank projects. There is particular concern about how the proposed changes will affect the rights of indigenous peoples or ethnic minorities, land tenure, and people affected by parks and protected areas.

For more background information, including earlier draft versions of the policy, correspondence about the policy changes, and comments on the last draft, visit the website of the Center for International Environmental Law,

IFI Indonesian Offices websites

World Bank

Please note: there is no IFI factsheet this month

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

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