Down to Earth IFIs Update
No. 3, April 2000
IMF suspends lending to GoI until conditions met
In April, the International Monetary Fund postponed the release of the next tranche of US$400m of its three year, $5 billion loan to Indonesia. The Fund cited delays in the country's implementation of the IMF-agreed economic programme.
The tranche was initially scheduled for disbursement on April 4 but may be held up until late May unless 42 new IMF deadlines, imposed in April, are met. Although this has no immediate problems for trade and import financing, the economic recovery could be weakened as the Rupiah and Stock Market suffer and financial inflows are scared away.
The IMF said 108 conditions had not been met by March 31 as required in the Letter of Intent signed in January. The IMF and WB apparently approved the postponement of fuel subsidy reductions until June and set new deadlines for:
- Legal action against shareholders of banks taken over by the Indonesian government in 1998
- Measures on bank restructuring and privatisation
- Provision of money for a special corruption investigation team
- Measures to stimulate the government bond market.
The rescheduling of US$5.8 billion of Indonesian sovereign debt by the Paris Club of creditor nations has been made contingent on the successful completion of an International Monetary Fund review by June 5 at the latest. The IMF review team is to arrive in Jakarta on April 21, earlier than expected, and the IMF said it was 'optimistic' it could resume lending to Indonesia by late May.
Protestors on Streets of Washington for IFI meetings
Thousands of protesters descended on Washington this month for the spring meetings of the IMF and World Bank at the agencies' USA Headquarters. Police resorted to tear gas and made over 700 arrests in order to control protestors. Finance ministers had to be brought in early and some, including the French finance minister, were unable to attend some meetings as protestors blocked roads. The disruptions followed last year's WTO protests which brought together a wide range of grievances against globalisation to the U.S. capital. Leaders of the international agencies are blamed for the perpetuation of poverty, the destruction of the environment and are accused of being led by the interests of multinational corporations and international banks. Even larger protests are planned for September at the Autumn IFI meetings in the Czech Republic. The Autumn meetings are where most decisions are made. For more information see:
US Congress report very critical of IMF and World Bank
The US Congressional International Financial Institution Advisory Commission has released its findings, capturing headlines with its unanimous call to radically downsize the IMF and the Bank and to immediately cancel large amounts of debt. The report of the Commission, better known as the "Meltzer Report" after its chairman Alan Meltzer, serves as a striking confirmation from the mainstream of what progressive critics of the Bretton Woods Institutions have been saying for the last 25 years. Among the most important claims in the huge amounts of critical literature that the report supports are the following:
- instead of promoting economic growth, the International Monetary Fund institutionalises economic stagnation;
- the World Bank is irrelevant rather than central to the goal of eliminating global poverty;
- both institutions are to a great extent driven by the interests of key political and economic institutions in the G-7 countries particularly, in the case of the IMF, the US government and US financial interests;
- the dynamics of both institutions derive not so much from the external demands of poverty alleviation or promoting growth, but from the internal imperative of bureaucratic expansionism or empire building.
The full Meltzer Report is available at http://phantom-x.gsia.cmu.edu/IFIAC/Report.html
This is an abridged version of an article by Waldon Bello, 'Meltzer Report on Bretton Woods Twins Builds Case for Abolition' Focus on the Global South, April 2000.
IMF 'run by third rate economists' who made Indonesia crisis 'deeper, longer, harder'
Chief Economist and Vice President of the World Bank from 1997 to 2000, Joseph Stiglitz, heavily critised the IMF for its role in Indonesia in an article this month. Stiglitz said that the IMF is a secretive organization that 'undermines the democratic process by imposing policies' and is full of 'third-rank students from first-rate universities' that are 'more likely to have first hand knowledge of five-star hotels than of the villages that dot the countryside.' On the role of the IMF in Indonesia specifically Stiglitz noted; 'As the crisis spread to Indonesia, I became even more concerned. New research at the World Bank showed that recession in such an ethnically divided country could spark all kinds of social and political turmoil. I suggested that the excessively contractionary monetary and fiscal program could lead to political and social turmoil in Indonesia. But none of these arguments mattered. The IMF pressed ahead, demanding reductions in government spending. And so subsidies for basic necessities like food and fuel were eliminated at the very time when contractionary policies made those subsidies more desperately needed than ever. The IMF believes that the recession's end is a testament to the effectiveness of the agency's policies. Nonsense. Every recession eventually ends. All the IMF did was make East Asia's recessions deeper, longer, and harder.'
The full article is available at http://www.thenewrepublic.com/041700/stiglitz041700.html
News in Brief:
Corruption In World Bank Local Projects 'systematic' says WB Director
Mark Baird, World Bank Indonesia Director said this month that 'corruption in the Bank's local projects is so systematic and so well-hidden that it's not easy to get your hands around it.' Baird's words followed comments by Indonesia Corruption Watch (ICW), an independent monitoring agency, that 20% to 30% of all development aid in Indonesia is being wasted. One example it gave was a US$255 million World Bank loan to improve living standards in 20,000 villages. 'Often, structures were simply covered with fresh paint and streets were cleaned. In most villages, the officials picked their own relatives as suppliers', according to Corruption Watch investigator Husni Thamrin.
For full story see 'Time to Scale Back in Indonesia? The World Bank rethinks its role', Business Week, April 17. (See http://www.businessweek.com)
New IMF Head decided
Horst Koehler of Germany will take over as Head of the IMF when Michael Camdessus retires. This follows several months of bickering between the EU and USA over who should head the agency.
Koehler has said he would prefer modest changes in the IMF roles and not the radical prescriptions offered by the recent U.S. congressional commission. (See above)
Conservation Fund set up by World Bank
A Conservation Enterprise Fund (CEF) has been started with a loan of US$1m from the International Finance Corporation (part of the World Bank). Conservation International (CI), a US-based NGO, will act as a financial intermediary responsible for locating, screening, lending and monitoring investments to small businesses which use natural resources sustainably but profitably. CI has agreed to make 8 investments by September 2000. Conservation International's objective is to redirect economic forces to support conservation in the world's richest and most threatened ecosystems. (See http://www.conservation.org)
Campaigning Opportunities:
World Bank prepares new three year plan for Indonesia
The World Bank is drawing up plans for its new Country Assistance Strategy (CAS) - the Bank's three year strategic plan for Indonesia. The Bank in Jakarta says it is determined to make the process as public and transparent as possible. Leading the CAS 'participatory consultations' is Paul McCarthy. His e-mail is pmccarthy@worldbank.org or Tel. +62 (0)21 5299 3000 (World Bank Office in Jakarta)
This IFI update is published by Down to Earth, the International Campaign for Ecological Justice in Indonesia.
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