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Down to Earth IFIs Update

No 33, July 2003

Japan: Indonesia's largest bilateral donor

During the CGI meeting of 22-23 January, Japan reiterated its commitment to continue to support Indonesia's reform efforts by:

  1. supporting structural reform in the energy sector. Aside from making a Special Yen Loan for the "South Sumatra-West Java Gas Pipe Development Project" that was agreed upon and signed on 21 January 2003 (around US$ 400 million), the Japanese delegation also announced three new Yen Loans to the value of US$ 730 million.
      (1) US$ 120 million for the Surabaya Airport Development (II) project;
      (2) US$ 460 million for the Muara Karang Gas Powered Electricity Power Station project and;
      (3) US$ 150 million for the Muara Tawar Gas Powered Electricity Power Station project.

  2. making a contribution of up to US$ 1.5 billion to make up the shortfall in the annual state development budget based on IMF estimates for the 2003 fiscal year and in accordance with the Paris Club II bilateral agreement. In addition, Japan will make a contribution of around US$ 730 million via disbursement of the yen loan, which will take the form of untied loans and grants. In total, Japan will make a contribution of US$ 2.23 billion – a third of the total external financing sum of US$ 6.3 billion for the 2003 fiscal year.
One loan which will be disbursed via Overseas Development Assistance (ODA) is for irrigation in Eastern Indonesia, under the Small Scale Irrigation Management Project set up in 1990. In May 2003, the largest irrigation dam in Sumbawa (Nusa Tenggara Barat), the Batu Bulan Dam, was inaugurated. Japanese funding will be used in the irrigation project in order to raise productivity in the agricultural sector.

Japanese funding to Indonesia is focused on infrastructure development programmes aimed at encouraging investment in the private sector. Does this indicate that Japanese loans are made more with Japanese than Indonesian interests in mind?

CGI report may be accessed at or
Japanese Embassy in Indonesia:

Rescheduling of the ADB Annual Meeting

The ADB's 36th annual meeting was originally scheduled for 21-22 May 2003, but has been rescheduled with a change of venue to Manila (ADB HQ) on 30 June 2003. However, because of the SARS problem and tightening of immigration policies, the ADB has decided not to invite observers, NGOs, private sector representatives and the media.

Outside of the meetings facilitated by the ADB, Friends of the Earth International (FoEI) together with the German Working Group on the ADB held a meeting facilitated by ASIENHAUS. During this meeting, participants from Asia made their presentations and put forward critical questions to the German Development Ministry. This meeting was held on 27 May between 11.00 to 17.00 in Bonn, Germany, and a report on this meeting may be obtained by contacting Dorothy Guerrero by telephone on +49-0201-8303811 at Asienhaus or by e-mail at

More information may be obtained from the ADB website:
Information about ASIENHAUS may be obtained from their website at:
FoEI Bulletin (Friends of the Earth International) concerning financial institutions No. 23 June/July 2003 at:

Framework for Tripartite Cooperation: ADB, Government and NGOs

The ADB has agreed to a medium-term strategy and action plan with the aim of strengthening tripartite co-operation between the ADB, government and NGOs, as laid out in the document, "ADB-Government-NGO Co-operation: Action Framework 2003-2005." The main strength of this document according to Rolf Zelius, Chief Compliance Officer and Deputy Director General of ADB's Regional and Sustainable Development Department, is pressure for the implementation of ADB policy to be adaptive and sensitive to the differences of its member states. This tripartite co-operation framework has been funded by the ADB and the Australian and British governments.

More than 500 NGO, government, private sector and ADB representatives took part in the development of ideas and the identification of cooperation priorities during 14 workshops which were held in Asia and Australia between May and November 2002.

The aim of this co-operation is to raise the levels of co-operation between the ADB, NGOs and Governments in order to reduce poverty levels in the Asia Pacific region and to implement collaborative efforts for the promotion of pro-poor sustainable growth, social development and good governance.

A number of recommendations made include:

Does this tripartite framework for cooperation represent efforts to include NGO aspirations in all ADB policy, or is it more concerned with seeking legitimation for the ADB by asserting that its policies accommodate NGO aspiration.

Further information may be obtained at
or contact Ayun Sundari, External Relations/Civil Society Liaison Officer, ADB Indonesia Resident Mission +62 21 2512721,
email: or

WALHI Position Statement: APP Debt

On 12 May 2003 in Jambi, Walhi and representatives from the Victims of the Pulp and Paper Industry, NGOs, individuals concerned with forests and journalists issued a joint statement calling for public involvement in negotiations concerning the restructuring of the pulp and paper industry. This statement was made in connection with the planned negotiations of the 11 creditor countries involved in the pulp and paper producer Asia Pulp & Paper (APP), which has nominated the German Chancellor, Gerhard Schroeder, as its representative to Indonesia for discussions on restructuring APP. The statement says that the APP debt is not only owed to the 11 APP creditor nations, but also to the Indonesian people themselves.

The Indonesian Bank Restructuring Agency (IBRA) has rejected the suggestion by the creditors that if there is a default on the debt, then 75% of four APP units will immediately come under creditor ownership by way of guarantee. The BPPN has rejected this suggestion because it is believed that foreign creditors aim to control the pulp and paper trade.

The position statement may be read at:
Other sources:

Donor support to Aceh

As a result of the failure of May's Tokyo meeting on Aceh, a military emergency was declared under Presidential Decree No.28/2003. This was issued one day after the meeting failed, on 18 May.

The governments of the US, European Union, Japan, United Kingdom and New Zealand regretted the failure of the meeting, but stated their understanding of the Indonesian Government's desire to maintain Aceh as part of the Republic of Indonesia. The Japanese government stated that it was prepared once again to act as facilitator of meetings between GAM and the Indonesian government.

Japan also gave assistance for (1) food to the value of US$ 5 million via the World Food Program (WFP); (2) fast-return projects for the people of Aceh; (3) increasing local government capacity in Aceh and; (4) re-starting projects that have been delayed. The development of such projects since the enactment of military operations in Aceh remains unclear.

Meanwhile, the World Bank's Sub-District Development Programme, implemented via the Indonesian government, is still running in Aceh.

The Jakarta Post, Mei 2003.
Kompas, May 2003
Bisnis Indonesia, Thursday 8 May 2003

Extractive Industry Review (EIR)

Aside from the four planned Extractive Industry Review consultation workshops, a fifth additional workshop will be held in order to evaluate the role of the World Bank Group in the Extractive Industry in the Middle East and North Africa (MENA). The workshop will take place in Marrakech, Morocco, 29 June - 2 July 2003.

For further information contact: Roberta Lovatelli (tel + 1 202 473 5839)
or see the website

EIR Eminent Person Emil Salim, has sent a letter in response to the walk-out by civil society groups from the Asia Pacific consultation process in Bali last April (see DTE IFI Update No.32). This 5-page document replies point by point to the objections put forward by civil society in their letter of withdrawal from the EIR consultation process in Bali.

Emil Salim's letter may be read in full at:

Disbursement of IMF Loans

On 11 June 2003, the Indonesian government, represented by the Minister for Economic Co-ordination, Dorodjatun Kuntjoro-Jakti, the Minister of Finance, Boediono, and the Governor of the Bank of Indonesia, Burhanuddin Abdullah, signed a supplementary Letter of Intent (LoI). This is concerned with pushing forward implementation of the economic programme policy as a condition of IMF loan disbursement. This supplement summarises results of efforts to restore faith in the market and increase growth, strengthening the rupiah, lower levels of inflation, increasing financial reserves and the growth of a sustainable economy.

Data concerning macro economic indicators may be found at: or or

The supplement, addressed to the IMF Director Horst Köhler, has already been agreed by IMF board, and the next tranche of US$ 450 million will be disbursed either at the end of June or early July 2003.

In addition, there are still two monitoring and disbursements of funds due to be made by the IMF in September and December, prior to the end of the IMF Funding Facility Extension in Indonesia for 2003.

The complete LoI may be viewed at


Results of CGI Meeting

On 2 June 2003, the Indonesian Government and CGI representatives held a half-day meeting in Jakarta. This meeting, in preparation for CGI's November 2003 meeting, was attended by representatives from 30 creditor nations and multilateral organisations who met with 17 representatives from the government, civil society organisations and the private sector.

The CGI insisted that although the Indonesian economy was showing signs of improvement, the government still had to take a number of steps to improve conditions for investment, strong growth and poverty reduction. Those attending the meeting agreed that growth sustained thus far could be improved upon if the government were serious in its efforts to deal with corruption, implement legal reform, raise the quality of infrastructure and end uncertainty over tax and other regulations concerned with decentralisation.

The CGI, whose membership comprises of 21 creditor nations and 11 multilateral organisations such as the World Bank and the ADB, is Indonesia's main source of funds for balancing the state budget, aside from the sale of state assets carried out by IBRA through privatisation. This year, the CGI has agreed to a loan of US$ 2.7 billion in fresh money in order to make up the budget deficit of 1.8% of GDP.

In its report, the Indonesian government included progress made in the reform of the forestry sector, but the important issue which was not discussed further in this meeting was the continuation of restructuring forestry sector debts of Rp 22 trillion or US$ 2.5 million by IBRA. This had been agreed to in the CGI meeting of February 2002. According to the agreement, IBRA must notify the public and the IMF of sales of debt, but this has not been done. Moreover, at the end of 2002, IBRA sold a debt of US$ 1.3 billion to Bank Mandiri, which is a state-owned bank. This means that the Indonesian government will not receive any funds from the sale of the IBRA debt because the it was, in effect, bought by the government itself.

The Indonesian Government's press statement to the CGI meeting was the same as the contents of the LoI supplement given to the IMF. In essence, that Indonesia will continue its reform programme in the economic and legal sectors in order to gain market confidence and improve investment prospects. Market confidence is important both to stimulate foreign investment as well as to demonstrate Indonesia's ability to pay off its debts. Indonesia desperately needs this especially as its contract with the IMF is coming to an end, leaving it dependent on bilateral and multilateral loans. Thus far, Indonesia's requests for debt swaps – the 'swapping' payment of debt in exchange for programmes agreed to by donor states, such as forest conservation, education and health – have yet to be agreed upon by donor states.

Indonesian Government and World Bank press release on the CGI meeting may be found at:

Contact person for the CGI meeting:
Ministry for Economic Coordination
Mahendra Siregar tel (021) 352-8384 or email
Bahris Paseng tel (021) 352-1974

World Bank
Ms. Rajashree S. Paralkar (country officer)
Tel. (202) 458-9050 or fax (202) 522-1671
Email :

Information concerning the restructuring of debt in the forestry sector may be found at:
or contact Christopher Barr and Bambang Setiono, Center for International Forestry Research (CIFOR), Bogor

World Bank support for Poverty Reduction

Although Indonesia's agreement with the IMF comes to an end in December 2003, The World Bank will continue to give support to Indonesia, particularly for programmes concerned with poverty reduction. Andrew Steer, Director of the World Bank for Indonesia, stated that the World Bank will increase its loans to City and District level. Previously loans to cities and districts were not sufficient because of a lack of clarity over policy relating to regional autonomy.

Steer said that over the next two months the World Bank will agree to new loans for energy projects to the sum of US$ 140 million; US$ 220 million for poverty reduction projects; US$ 70 million for health projects and US$ 2.04 billion in the form of loans for projects, technical assistance and programmes concerned with the environment, education, poverty reduction and the energy sector. Steer stated that there will be more than 100 cities and districts (of 400) that will receive World Bank loans. The loans will be conditional the implementation by cities and districts of good governance principles, according to World Bank evaluation.
Source: The Jakarta Post, 28 Mei 2003

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

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