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Down to Earth IFIs Update

No. 21, November 2001

Tough Negotiation Expected at Paris Club III Meeting

In November 2001 the Paris Club donor countries will meet for the third time since 1998 to negotiate Indonesia's request to reschedule USD 2.6 billion in debt principle and interest payments. Indonesia must receive the debt rescheduling in order to maintain the state budget deficit at a manageable level of 2.5 percent of gross domestic product. The negotiation is going to be challenging for Indonesia's economic team as donor countries scramble for funds to avoid falling into recessions made worse by the September 11 tragedy. Donor countries may pressure Indonesia to repay its debt on time and slash allotments for new loans -- a discussion to be held during the Consultative Group for Indonesia meeting, also in November 2001.

IMF Representative to Indonesia, David C.L. Nellor, however, said that in the past many countries have received both principal rescheduling and interest rescheduling. According to Nellor, delaying interest payments is possible provided that Indonesia follows the IMF's reform program.

(Source: AFX-Asia, October 23, 2001; The Jakarta Post, October 24 and 27, 2001)

Indonesia to Sell Good Governance and Populist Programs in the CGI Meeting

More than 30 multilateral and bilateral donors under the World Bank-led Consultative Group on Indonesia (CGI) will meet in Jakarta on November 7-8, 2001. Dorojatun Kuntjoro-Jakti, the Indonesian Economic Coordinating Minister, disclosed that the government's economic program next year would concentrate on corruption eradication, job creation, small and medium enterprise empowerment and poverty alleviation. The government was also planning to allocate 24 percent of its budget to education.

Minister Dorojatun was hoping that soft loans and grants would form a large part of the loans to be pledged in the upcoming CGI meeting. Indonesia is seeking around USD 3.3 billion in new loans from the meeting.

To woo the donor countries' support, the government has addressed key areas that have become key areas of concern of the donors. President Megawati, for example, mentioned in the Third Forestry Congress in late October 2001 that the unmeasured and extraordinary exploitation in the forestry sector has resulted in degraded land and damage to the ecosystem. She also said that this conveys the message that there is something wrong in the way Indonesia manages forests, and after years of rampant logging, it is time for change. Meanwhile, Finance Minister Boediono has recently announced that the Indonesian government would form an inter-ministerial team to speed up the privatization of state-owned companies -- one of the key conditions of the IMF reform package.

(Source: AFP, October 25, 2001; The Jakarta Post, October 27, 2001)

ADB-Funded Gas Pipeline Project Delayed

The state-owned gas distribution company, PT Perusahaan Gas Negara (PGN) is facing a serious contractual penalty if gas transmission to Singapore does not start by November 2003. PGN originally received USD 88 million in loans from the Asian Development Bank (ADB) and USD 93 million from the European Investment Bank (EIB) to develop a gas network in Batam. The project was then changed into the development of a gas pipeline between Grissik-Duri in South Sumatera to Batam. Some USD 90 million in unused loans from the Japan Bank of International Cooperation (JBIC) for the original project have been cancelled.

PGN has signed a gas sales contract with Singapore but it still needs to find a strategic partner to invest at least USD 250 million to develop the pipeline from Batam to Singapore. The company is also considering debt financing if it fails to find a partner willing to pay this much. PGN hopes to award procurement tenders for the pipes and gas compressors by the end of the year and begin construction of the first leg in April 2002, just in time to meet the deadline. However, the ADB will not approve the tender awards unless the entire funding requirement has been fully met.

The ADB classifies the loan as Environment Category B project. It is unclear how the Bank assessed the environmental, social, and economic viability of the project. With the changes in the project, it also remains to be seen whether the Bank has reassessed the environmental impacts and categorisation. If the construction is delayed and therefore PGN fails to keep the contract with Singapore, Indonesia faces the possible penalty payment. Indonesia has already been paying a commitment fee -- fees that borrowing governments pay for undisbursed approved loans -- to the ADB for this loan.

(Source: Dow Jones Newswire, July 23, 2001; ADB website

World Bank and IMF Plan to Hold Meeting in Ottawa in November 2001

After the cancellation of the planned annual meetings in Washington, DC on September 29-30, 2001 due to the terrorist attacks on September 11, the World Bank and International Monetary Fund (IMF) have decided to meet in Ottawa on November 17 and 18, 2001. The Ottawa meetings will be on a much smaller scale than typical annual meetings. They will involve only the finance ministers and central bankers who belong to the 24-member International Monetary and Financial Committee of the Fund and the 24-member Development Committee of the Bank, which oversee the institutions.

One of the main reasons the Fund and the Bank want their policy-setting committees to meet is to provide impetus and direction for increased lending, which both institutions expect to make in the aftermath of the September 11 attacks. Developing nations' economies, already hit by the global slowdown, face increasingly dire circumstances in the aftermath of September 11th. Some policy analysts, however, have warned that the meetings are likely to be used by the U.S. and its allies to make use of the Fund and the Bank in supporting their foreign policy agenda rather than merely addressing the global need for economic assistance.

Groups working in the globalization justice movement that had planned to stage massive protests during the September meetings are now shifting their focus towards Ottawa. Their leaders stress that the tactics will remain non-violent.

(Source: The Washington Post, October 18, 2001, or visit
For information on the globalization justice movement, visit or contact

World Bank Approves Revision of Resettlement Policy

The World Bank Board of Executive Directors approved on October 23, 2001 the revision of the Bank's Resettlement Policy, formerly called OD 4.30 and now OP/BP 4.12. Citizens groups worldwide have worked to influence how the old policy should be changed. However, the approved policy still does not include some key principles, such as the need for informed consent of indigenous peoples, the World Commission on Dams recommendations and the principle that that resettled people who lose their land should also be able to receive land as compensation of at least the same quality of their original land (land for land). The issues of voluntary versus involuntary resettlement and of improvement versus restoration of livelihoods were not covered.

The related Good Practices Sourcebook will go to the Committee on Development Effectiveness (CODE), a subcommittee of the Board, for review.

Although the World Bank Board approved the policy, the Board members signalled a need for the Bank to focus much more seriously on implementation, monitoring, and the development of institutional capacities in borrowing countries.

(Source: Center for International Environmental Law at
For further information, contact Dana Clark at

ADB to Finalise its First Environment Policy Draft

The Asian Development Bank (ADB) is currently in the process of formulating its first Environmental Policy. In the development of this policy, the ADB has held a series of public consultations -- including one in Indonesia -- and has accepted comments from citizens groups on the draft.

Revisions are now being made to the draft policy. After its completion, the finished draft policy will be presented to the ADB Board of Executive Directors for approval, probably towards the end of November 2001 or early 2002.

The draft Policy circulated for public comment (for the most recent version of the Policy draft, visit, has the following strengths and weaknesses:


Concerns: Citizens groups have urged the Bank to make public the revised draft Policy which incorporated the comments prior to the Board's approval. They also demand that all comments received be made public, including whether or not they have incorporated. If comments have not been incorporated, the Bank should explain why.

(Source: Bank Information Center at or contact

Contact the ADB Management at or the ADB Board of Directors that represent your country (for complete list of the Board members, visit

Consultations on the Revision of World Bank Policy on Indigenous Peoples Held in Indonesia

The World Bank Resident Staff in Indonesia (RSI) is currently completing a wide range of consultations on the revision of the Bank's Policy on Indigenous Peoples. This is part of the Bank's worldwide efforts to consult citizens groups and other stakeholders on the policy revision.

According to the RSI, each consultation takes two days, with an agenda as follows:

Consultations have been arranged for September and October, 2001 in Jakarta, Jayapura, Makassar, Denpasar, Maumere, Pontianak, Jambi, and Banten with citizens groups and separately with government officials. These consultations are done in the Indonesian language and the revised draft Policy is also available in Indonesian.

Concerns raised by indigenous peoples from countries other than Indonesia throughout the consultation process concerning the new draft Policy include:

Feedback and input provided by Indonesian citizen groups should be made public by the RSI in the near future.

(Source: Bank Information Center (BIC)
Contact Melina Selverston Scher of BIC at and Isono Sadoko of the World Bank's RSI at

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

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