Versi Bahasa

Down to Earth IFIs Update

No. 2, March 2000

New Report Accuses IMF of Destroying Indonesian Environment

A new report from Friends of the Earth USA accuses the IMF of destroying the Indonesian Environment.

As a result of the financial crisis, Indonesia signed on 5 November 1997, an economic bailout package with the IMF. Together with pledges from the World Bank and the Asian Development Bank, the loan totalled US$43 billion. The IMF's commitment was US$ 11bn of which about half was drawn. GoI has signed two new agreements with the IMF since then: On the 25 August 1998 and most recently on 4 February this year.

The report notes that in the wake of the Suharto era, there were opportunities to change the tide of environmental destruction, particularly of Indonesia's vast forests. IMF policies aimed at creating competitive markets were meant to break trade monopolies, particularly in the forestry sector, eliminating opportunities for corruption and fostering better forest management practices. Unfortunately, these efforts have been ineffective. Only 15% of forest concessions known to have been allocated through corrupt means have been revoked. Illegal logging has increased dramatically as the economic crisis has forced people to use desperate measures to survive. The majority of illegal logging is said to involve timber barons, the military and police, as well as government conservation officials. The result has been threats to existing forest, protected areas and wildlife habitat.

The report recognises that a major problem in these forestry sector conditionalities is that Indonesian civil society groups are excluded from any meaningful process in designing the new forestry sector policy. These groups would be best placed to identify forestry sector problems and to recommend policies to their own government, Indonesian NGOs felt that the time allocated for the process, and consultations, were inadequate. Also the 1999 forestry law focuses on forestry for economic purposes by opening up the sector to competition without ensuring critical issues such as indigenous land rights and regulatory reforms that address forest conservation. Enforcement mechanisms needed to ensure that existing policies achieve their intended goals are woefully inadequate. The budget for management of protected areas has been declining in real terms every year since 1996, and in 1998 budget cuts forced Jakarta, one of the world's most polluted cities, to suspend all environmental programs.

The report continues that while efforts for forest protection have faltered, other IMF economic policy measures threaten to directly undermine the environmental and social health of the region. The IMF's mandate to remove restrictions on foreign investment and exports stands in direct opposition to environmentally sustainable land conversion targets also mandated by the IMF loan agreement. For example, Indonesia's 1998 Letter of Intent supported the expansion of Indonesia's oil palm sector through the removal of barriers to foreign investment. Although oil palm production had slowed in the last two years, due to among other things, heavy export tariffs and expensive start up costs, under the IMF bailout, tariffs were slated to be cut and incentives to producers put in place. As a result, palm oil exports have become much more profitable to the Indonesian producer. At the same time, oil palm production in Indonesia has been identified as a major cause of the conversion of Indonesia's forests to agricultural and non-forest use, leading to increased deforestation.

The Report made the following recommendations to the IMF:

  1. The IMF should be refocused on its original mandate of short-term stabilisation, leaving longer-term loans to other institutions;
  2. The IMF should commission Environmental Impact Assessments as part of all loan agreements.
  3. The IMF should include environmental ministries and civil society groups in consultations;
  4. The IMF should pursue environmental accounting as it does economic accounting;
  5. The IMF should encourage green taxes.
This is an abridged version of Friends of the Earth Report 'The IMF: Selling the Environment' - See

In Brief:

World Bank denies it funded East Timor Militia

A documentary on Australian State-funded TV, SBS, alleged that around US$0.8m of World Bank money was used to pay militias in East Timor around the referendum last year. The World Bank funds were earmarked for welfare and development in East Timor. A World Bank Jakarta Office Representative, Ben Fisher, said they were 'aware of the diversion', but took no action 'for political reasons'. Earlier, World Bank Indonesia, Country Director, Mark Baird had rejected the accusations. On the program, Joa da Silva, a finance official in the former Indonesian government in East Timor, said he personally oversaw these payments to militias. (Reuters Business Briefing, February 18)

World Bank President met by Protestors in visit to Indonesia

Over 100 Indonesian protestors delayed World Bank President, James Wolfensohn, during his February visit to Bandung, believing the bank is a vehicle of corruption and support for Suharto. The bank has come under strong criticism for its relationship with Suharto and the disappearance of funds under the 'New Order' government. The World Bank President said from now on lending programs should be based on consultations with civil society as well as governments and the private sector. Wolfensohn was on his fourth visit to Indonesia in two years following the financial crisis that took the bank by surprise. Wolfensohn met President Gus Dur, private sector leaders and NGOs. He additionally spent some time in a rural village in West Java talking to the poor before flying back to Washington. (Reuters Business Briefing, February 17)

President wants to reduce 'dominating' role for IFIs

Gus Dur said 'We need their support and assistance (of IFIs) but this does not mean their role has to be dominating' at a meeting with Japanese and Indonesian businessmen. (Reuters Business Briefing, February 23)

World Bank calls for closing of OK Tedi Mine

The WB officially called for the closing down of the OK Tedi Mine in Papua New Guinea. This is very significant as it is just across the border from West Papua Indonesia and there are strong parallels Freeport gold mine, soon to undergo another investigation into its social and environmental impacts.

ADB sends US$3.5m to Papua

The Asian Development Bank released US$3.5m to support humanitarian efforts in West Papua. The funds will go to102 villages over three years starting in March 2000. It is unclear how the money will be spent.

(Reuters Business Briefing, February 28)

The World Bank says poverty in Indonesia stabilised, but too high

The World Bank says poverty in Indonesia has stabilised at 21%, compared with the pre-crisis level of 7% in August 1997. The bank believes the present rate is too high. It said roughly half of all Indonesian households have 'more than a 50-50 chance of falling below the poverty line in the near future'. The Indonesian definition of poverty is one of the lowest in the world and UNICEF in Jakarta has calculated poverty in Indonesia is around 60-70% by international standards. (Reuters Business Briefing 28 January)

Important Dates:

April 11-17 IMF and World Bank Group Spring Meetings, Washington USA
April 26-28 World Bank Forestry Policy Review Meeting , Singapore
May 6-8 Asian Development Bank Annual Meeting, Chiang Mai, Thailand

This IFI update 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 monthly via email (rtf version) free of charge, or quarterly (printed version) with the DTE 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 send your email address to Please state what language you would prefer. You can choose both languages if you wish.

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

   Back to Campaigns    DTE Homepage    Newsletter    Links