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Down to Earth IFIs Update

No. 18, August 2001


IMF Pleased by Megawati's Economic Team

Indonesia's new President, Megawati Soekarnoputri, seems to have pleased foreign donors including the International Monetary Fund (IMF) with a new economic team headed by Co-ordinating Minister for Economic Affairs, Dr. Dorodjatun Kuntjoro-Jakti. Until recently, Dr. Kuntjoro-Jakti was the Indonesian Ambassador to the US. He is known as an effective communicator and has a wide network in Washington. He is confident that the IMF Board will sign the release of the next US$ 400 million loan instalment (part of the US$ 5 billion bail-out package) by the end of August, 2001. A special mission headed by the IMF Asia-Pacific Deputy Director Anoop Singh is in Jakarta from August 20 24 to discuss the draft Letter of Intent (LoI) with the Indonesian Government.

Sources in the Indonesian Government and the Fund say that the new LoI will focus on key issues including the privatisation of state-owned companies, banking reform and the programs and targets of the Indonesian Bank Restructuring Agency (IBRA), debt rescheduling, and the budget deficit. This focus is in line with the Fund's new strategy of avoiding long lists of conditionalities which cannot be properly implemented in the given time because borrowing governments lack the capacity and the Fund does not have the skills and knowledge to support and supervise.
Although cautious, investors perceive the disbursement of the IMF's US$400 million loan as a sign of stability and real reform. This new feeling may be reflected in the market. Since Megawati took her office, the Rupiah has strengthened more than 27% against the US dollar.

(Sources: Dow Jones News Wires, July 23, 2001; The Straits Times, August 11, 2001; The Straits Times, August 21, 2001).


Creditors Likely to Give Debt Rescheduling and "Haircut" to Indonesia

Having been criticized for being insensitive to Indonesia's excessive debt burden and its inability to pay the matured debts and interests, international creditors have recently shown signs of considering debt rescheduling and reduction, known as a 'haircut'. As of January 2001, Indonesia's overall outstanding overseas debt stands at 140.2 billion dollars. This debt is comprised of USD 74.2 billion in sovereign debt and USD 66 billion in private sector debt, according to the central bank. This total debt is approximately equal to the country's gross domestic product (GDP).

Debt rescheduling and reduction will probably be in the agenda of the next Consultative Group on Indonesia (CGI) meeting in November 2001. Representatives from civil society groups are expected to be present at the CGI meeting, as at the meeting last year.

In the meantime, on July 5, 2001 one hundred Indonesian Parliamentarians wrote to the IMF and the World Bank demanding the write-off of all loans that the two institutions had given to the New Order corrupt regime.

(Source: Koran Tempo, August 11, 2001).
Contact; infid@nusa.or.id regarding the Parliamentary Letter to the IMF and World Bank.


Dr. Emil Salim Heads World Bank Review of Extractive Industries

Dr. Emil Salim, the former Indonesian Minister for Population and the Environment, has been appointed by the World Bank to head a consultative review of the World Bank Group's role in the extractive industries.

The review was proposed by World Bank President Wolfensohn during the Bank's Annual Meetings in Prague in September 2000. It is intended to provide a wide range of stakeholders -- including government, business and industry, NGOs and civil society representatives -- with the opportunity to discuss both the role of the World Bank Group in these industries, as well as key issues related to the oil, gas, and mining sectors.

Civil society groups would like to be consulted on the terms of reference for the review. Many groups are cautious, as the review team will include representatives from the World Bank Group and the private sector. The Bank claims that this approach is needed to make it as consultative and inclusive as possible. Many groups see the inclusion of these representatives as undermining the independence of the review process.

Concerns have also been raised about the use and effectiveness of such a review. The experience with the World Commission on Dams (WCD) also initiated by, among others, the World Bank -- has not been too encouraging as the multilateral development banks including the World Bank have yet to adopt the WCD's recommendations. This may indicate the Bank's reluctance to incorporate recommendations that may inhibit its current operations. Many are worried that the outcome of this review may also have no real impact on the Bank's operations.

(Source: World Bank News Release No: 2002/029/S)
Contact: Lidwina Joseph at the International Finance Institution (IFC) at ljoseph@ifc.org,
Ana Elisa Luna at the World Bank at abrarros@worldbank.org


World Bank Approach to Land Reform Criticised

The US-based organisation, Food First, has just finished a report entitled "Tides Shift on Agrarian Reform: New Movements Show the Way" that assesses the World Bank's approach to land reform. The report raises concerns about the Bank's reliance on land privatisation and free market forces that have brought civil society into conflict with the Bank. The Bank has taken the lead in promoting and financing comprehensive land tenure reforms in countries including Indonesia. Food First's critique of the Bank includes:

The report instead recommends "reform from below", as exemplified by the Brazilian Landless Movement which has seized 15 million acres of land in recent years.

(Source: http://www.foodfirst.org/pubs/backgrdrs/2001/w01v7n1.html)
Contact: foodfirst@foodfirst.org


IFC lends $5m to Indonesian mining supply company

In July 2001, the World Bank Group's private sector arm, the International Finance Corporation (IFC), approved a loan that will provide with USD 5 million to a local mining service company, PT Dianlia Setyamukti. The loan is intended boost the company' service in excavation and transportation mainly to coal mining companies, such as PT Berau Coal in East Kalimantan, PT Adaro Indonesia in South Kalimantan and its subcontractor PT Pamapersada Nusantara.

IFC's senior Executive, Akil Abduljalil said that the IFC supports the private sector and firms that are export-oriented. PT Dianlia Setyamukti received the IFC loan on the grounds that the company supported the mining industry. He further stated that the loan also indicated IFC's commitment to help Indonesia recover from its economic crisis.

Mining industries, including the Indonesia's, have poor environmental and social record. Conflicts with local communities on land acquisition and environmental impacts are rampant. It is not clear how the IFC justifies its support to Indonesia's mining sector as it must comply with the World Bank Group's social and environmental standards.

(Source: Jakarta Post, July 5, 2001)
For further information on IFC, see DTE Factsheet 14, August 2001 and DTE Factsheet 15, September 2001.


Kedungombo-affected Communities Demand Proper Compensation

The communities affected by the World Bank and Japan Exim Bank-funded Kedungombo Dam in Central Java have not given up their struggle for justice. On August 21, 2001, about 300 affected people urged the Governor of Central Java to review the compensation given to the dam-affected communities. They demanded the creation of a team consisting of representatives from the government, affected communities and independent NGOs to review the land acquisition and compensation scheme. Although Governor Mardiyanto failed to meet the villagers, government representatives agreed to arrange a meeting with the affected communities. No specific date and agenda have been agreed upon.

About 5,300 households (approximately 25,000 people) were relocated in 1985 to make way for the dam. They were given compensation of Rp 250 to Rp 300 per square meter (the equivalent to USD 0.03 at current value) even though the Minister of Domestic Affairs at that time, Mr. Supardjo Rustam, said that the compensation was Rp 3,000 per square meter. There are allegations of massive corruption. Affected communities were forced to accept the low compensation rate despite their protests. If they refused, they were called 'communists' a label widely used by Soeharto's New Order Regime to stigmatise Indonesians challenging the government's oppressive policies and actions.

(Source: Detikcom August 21, 2001)


US Loan Requested for Food Security

Indonesia has requested loans from the U.S government to finance rice and wheat purchases. The Indonesia's National Logistics Agency (BULOG) Chairman, Widjanarko Puspoyo, said that Indonesia is seeking a U.S. loan to finance purchases for next year's rice. BULOG hopes that it can obtain a loan under the U.S. Public Law 480 program that would enable it to buy 350,000 metric tons of rice next year in expectation of next year's dry spell that may slash the domestic rice harvest. Public Law 480 is a soft commodity loan program for developing countries.

The US government has also extended a USD 15 million commodity loan to two private Indonesia flour millers to enable them to buy US wheat at attractive interest rates.

BULOG admits that although the stronger Rupiah will encourage the entry of cheap imported rice which will hurt domestic rice farmers, it cannot do anything to control the imports. The rice sector has been liberalized, so anyone who can pay the 30% import duty can import rice.

In the meantime, under the Regional Autonomy Law, a number of district governments have imposed water fees on farmers even though the umbrella Water Resource Act is still at draft stage. The existing fees that some farmers are having to pay are already as high as production costs. It is not yet clear whether or not farmers can afford the additional water fees and still continue operating their farms. The World Bank is sponsoring national water resource restructuring through a USD 300 million Water Resource Sector Adjustment Loan (WATSAL).

(Source: Dow Jones Newswire, August 13, 2001)
Contact: Yayasan Duta Awam (YDA) dutaawam@bumi.net.id
or the Bank Information Center nwidagdo@bicusa.org on water fees and WATSAL.


Calendar of Events around the IFIs and Indonesia

World Bank Policy Reviews and Revisions
The Bank is undergoing a number of key policy reviews and revisions. These are important for civil society because these guidance documents for Bank's operations are the only standards to which the Bank can be held accountable when there are problems with the impacts of its project and program lending.

New World Bank Environmental Strategy launched
In July 2001, the World Bank Board of Directors approved a new environmental strategy that failed to appease its critics. The Bank states the initiative aims to further integrate environmental protection into its projects and programs. The lending agency's critics welcomed the effort but said it is insufficient in correcting the negative impact of the Bank's private-sector loans.

The Thirteenth Replenishment of IDA (IDA13)
The International Development Association (IDA) is the arm of the World Bank that provides credit at zero interest to poor countries. Every three years, the IDA funds need replenishing by donors. Before the replenishment, IDA donors and borrowers hold discussions with the Bank on policy issues. These include IDA eligibility, differentiation of terms, determination of IDA allocations, and also broader policy issues. IDA negotiations provide civil society groups the opportunity to influence the decision making. Discussions on the replenishment of IDA 13 are currently underway. Two meetings took place in February and June 2001. The third and fourth IDA 13 meetings are planned for October and December 2001. Civil society groups should contact their government representatives to convey their concerns and be given access to the outcome of the discussions.

The Paris Club to Reschedule Indonesia's debt
Creditor nations will meet again on September 10, 2001 in Paris.
The Club is set to revive a debt rescheduling deal of USD 2.8 billion for Indonesia.

World Bank/IMF Annual Meetings 2001
The Annual Meeting this year will be held in Washington, DC. on September 29-30, 2001.
For information from NGOs, visit www.bicusa.org.
For information from the World Bank, visit http://www.imf.org/external/am/2001/index.htm.

The next Consultative Group on Indonesia (CGI) Meeting
This will be held in early November 2001 in Indonesia. Both Jakarta and Yogyakarta have been mentioned as possible venues for the meeting.



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

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