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Down to Earth IFIs Update

No 29, October 2002

World Bank Report Warns Environmental Problems and Social Unrest Threaten Poverty-Reduction Goals

The World Bank's World Development Report 2003 titled "Sustainable Development in a Dynamic Economy" claims that the next 50 years could see a fourfold increase in the size of the global economy and significant reductions in poverty, provided that governments act now to avert a growing risk of severe damage to the environment and profound social unrest. Without strong policies and institutions, social and environmental strains may derail development progress, leading to higher poverty levels and a decline in quality of life.

The report suggests that new alliances are needed at the local, national, and global levels to better address these problems. The burden for development must be shared widely. Rich countries must further open their markets and cut agricultural subsidies that depress incomes of third-world countries. Governments in the developing world, in turn, must become more accountable and transparent, and they must ensure that poor people are able to obtain secure land tenure and access to education, health care, and other basic services. The report says that the next few years offer the opportunity to shape investment patterns in a way that will lead to more efficient use of natural resources, greater protection of the environment, and deep reductions in poverty.

The report was released on August 21, 2002, during the World Summit for Sustainable Development (WSSD).

The World Bank is currently inviting comments for the 2004 World Development Report, which will investigate how countries can accelerate progress towards the Millennium Development Goals (MDGs) by making services health, education, water, and sanitation work for poor people. According to the World Bank, success in reaching the MDGs will depend not just on faster economic growth and increased resources, but on the provision of these services. Corruption, inadequate monitoring, administrative logjams, and weak incentives are the main reasons that these services often fail to reach poor people. New approaches to solving these problems will be explored in the report.

World Bank websites: and
World Bank press release, August 21, 2002.
World Bank Research E-News.

Draft Revised ADB Inspection Policy to be Discussed by ADB Board in December 2002.

The most controversial policy review process of the ADB is approaching a critical stage. The draft revised policy, or w-paper, is subject for Board discussion in early December, 2002. The policy review was triggered by a seriously flawed process of inspection on the Samut Prakarn Wastewater Management Project in Thailand, the only Inspection case for the Bank to date (see DTE Factsheet 22 for more background). Bank Management denied nearly all Inspection Panel findings and allegedly advised the Thai government not to cooperate in the Inspection process. The Board meeting on the case was said to be the fiercest Board discussion in ADB history.

The Inspection is one of the two accountability mechanisms that affected people and the public can use to demand the Bank's compliance with its own policies. External stakeholders have long been concerned that the policy is not accessible for lay people due to strict requirements such as the mandatory use of English in filing claims, the required Bank policy violation citation, and a required analysis of how the policy violation has adversely affected communities. The process is necessarily lengthy, and the policy does not provide tools to enforce remedial changes required to address the concerns. This is proved in the Samut Prakarn case where no significant change has been made on the project. The lack of enforcement has undermined the Bank's accountability and credibility.

The w-paper slated for discussion by the Board must address the following key issues for the policy to be effective:

Bank Information Center
Asian Development Bank

IMF Delays Review of Indonesia's 7th Letter of Intent. CGI's Amount of New Pledged Loans Still Under Discussion.

The International Monetary Fund (IMF) has delayed the review of the 7th Letter of Intent (LoI) agreement between Indonesia and the Fund. The Fund's resident representative in Indonesia, David Nellor, said that Indonesia has yet to implement several key reform programs. Observers believe that key areas include corruption-combating efforts, legal reform, privatization, and divestment of state assets.

Indonesia's Chief Economic Minister, Dorodjatun Kuntjoro-Jakti -- speaking in early October -- was optimistic that the delay would not affect the country's economy. Minister Dorodjatun said that the rupiah exchange rate had remained stable in spite of all the upheavals in the country and internationally. He further disclosed that the process of fulfilling the 7th Letter of Intent target would continue, though several provisions would be difficult to fulfil.

The Minister believed that the delay to the 7th Letter of Intent Review would not affect the 12th Consultative Group on Indonesia (CGI) meeting initially planned for October 28-29 in Yogyakarta but now rescheduled to early 2003 due to the bomb attack in Bali. The CGI is expected to use the Indonesia-IMF cooperation program as a reference but not as a basis to decide whether or not new loans are to be extended.

Prior to the Bali bomb attack, under the 2003 draft state budget, it was thought that the government would ask the CGI for USD 2.8 billion in loans. Now, the additional time prior to the CGI meeting will enable a considered evaluation of the consequences of the Bali attack for Indonesia's economy and budget. The Government and local representatives of CGI members announced that they had agreed to meet informally at the end of October in Jakarta to assess external financing needs for Indonesia's 2003 budget and to consider any additional steps needed to maintain the momentum for reforms. Last year Indonesia received a pledge of USD 3.13 billion in new loans.

Asia Pulse, October 4, 2002.
The Jakarta Post, October 7, 2002.
Dow Jones Newswire, October 7, 2002.
The World Bank press release, October 16, 2002

ADB Loans USD 56 Million for Farmer Income Improvement Project.

The Asian Development Bank approved in August 2002 a USD 56 million loan to Indonesia for the Poor Farmer Income Improvement through Innovation Project. The project will be implemented in about 1,000 villages in the Blora and Temanggung districts in Central Java, Donggala in Central Sulawesi, Ende in East Nusa Tenggara, and East Lombok in West Nusa Tenggara. According to the ADB, the project will enhance poor farmers' capacity to adopt innovative agricultural production and marketing methods by better targeting village-level public investments, providing farmers with access to information, and reorienting the focus of agricultural research to the needs of marginal rain-fed areas. The project plans for non-governmental organizations, working through elected village facilitators and supported by government and private agencies, to help farmers to identify innovations and undertake the necessary public investments to support the farmers to be able to adopt the innovations. The project will set up directly-elected village project investment committees (VIPCs), inter-village forums, and district coordination committees to approve, implement, and monitor the investments. The beneficiaries' self-administered projects will receive up to USD 30,000 per village.

The project, which is classified as B environment category, is worth USD 70.92 million. The ADB loan comes from the soft-lending window Asian Development Fund (ADF). It will have a term of 32 years, including a grace period of eight years, with an interest charge of one percent per annum during the grace period and 1.5 percent thereafter. The Agency for Agricultural Research and Development of the Indonesian Ministry of Agriculture is the project's executing agency.

It seems that this project is modeled on the World Bank's Kecamatan Development Project (KDP) which is considered a success in generating local initiatives' ownership of self-selected, designed, and supervised projects at the local level. It is not yet clear, however, how the lessons learned from KDP have been considered in this ADB project to ensure stronger outcomes from the project.

Asia Pulse, August 16, 2002.
ADB website

Mr. Mandar Jayawant, Rural Development Specialist, Southeast Asia Region., phone (632) 632 6910.

World Bank's Extractive Industry Review Consultation for Asia Pacific Stakeholders Scheduled for November 19-23.

The Extractive Industries Review (EIR) was launched by the World Bank Group in 2001 as a response to civil society pressure on World Bank President Wolfensohn during the Bank/IMF Annual Meeting in Prague, 2000, where bank operations in the extractive industries were highly criticized for being environmentally and socially flawed and irresponsible. The Review aims to discuss its future role in the extractive industries with concerned stakeholders to produce a set of recommendations that will guide the involvement of the World Bank Group in the oil, gas, and mining sectors. (See Facsheet 20 & Factsheet 21 for background)

The EIR's Regional Workshop for Asian and Pacific countries was planned to take place from November 19-23, 2002 in Bali. However, it is yet to be decided if the dates and venue remain the same as the Bali bomb atrocity may affect the original plan. This is the third workshop in a series of four. It was preceded by the regional consultations for Latin America and the Caribbean in April, and for Eastern Europe and Central Asia in June 2002. The Bali consultation will draw together representatives from all stakeholder groups and the countries in the Asia-Pacific region where the World Bank Group is engaged in extractive industry operations. The workshop will be attended by 25 participants from civil society (10 NGOs, 10 indigenous peoples, and 5 labour unions), 15 from industry, 15 from government, 10 from the World Bank Group, and 5 from academia.

The EIR lets civil society groups self-select the representatives of civil society to the workshop. WALHI in Indonesia and the Tebteba Foundation have taken the initiative to facilitate the self-selection process. Recent information indicates that the response from the civil society groups to participate in the workshop has been limited. Some groups have decided not to take an active participation role in the process. A guideline in the self-selection process for civil society participants set by WALHI and the Tebteba Foundation is as follows:

The EIR Eminent Person, Dr. Emil Salim, visited Papua New Guinea (PNG) for the first project site visits to the Lihir gold mine, the Misima gold and silver mines, and the Kutubu oil project. In November, Dr. Salim will be visiting the Chad-Cameroon Petroleum Development and Pipeline Project.

The EIR has also commissioned four research projects on issues around the relationship between indigenous peoples, the extractive industries, and the World Bank; the linkage between World Bank and IMF-supported structural adjustment programs and subsequent trends in the extractive industry sectors; the impact of the World Bank Group's social and environmental policies on extractive companies and financial institutions; and community perspectives on World Bank Group investments in the extractive industries.

World Bank Extractive Industries Review website
Email by Fabby Tumiwa, dated October 10, 2002.

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

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