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Down to Earth IFIs Update

No 36, March 2004



IFI Strategic Planning for Indonesia

Three of Indonesia's largest donors - the World Bank, Asian Development Bank (ADB) and Japan - have announced the assistance strategies for Indonesia over the next few years.

World Bank 2004-2008
In December 2003, the World Bank Group announced its new Country Assistance Strategy (CAS) for Indonesia that has already been agreed with the Indonesian Government following extensive public consultation programme. The CAS has already been agreed by the World Bank Council of Directors and the relevant documents have been made public (see www.worldbank.or.id).

The CAS proposes a case-based borrowing strategy involving around USD 450 million, which may be increased to USD 850 million per year in 2007. According to this new strategy, the largest part of the loan is intended for local-level poverty reduction oriented projects. However, the borrowing limit set by the World Bank will be dependent on local government ability to fulfil borrowing conditions based on good governance criteria and performance.

Over the last three years World Bank loans have averaged at around USD 400 million per annum, well below pre-2001 borrowing levels. This reduction is related to the high levels of corruption by the Indonesian government. Over the next five years, the World Bank aims to increase its lending despite the fact that corruption is still high, bearing in mind the high poverty index, even though Indonesia is rich in natural resources. In order to overcome this, the World Bank's Director for Indonesia, Andrew Steer, has stated that the World Bank will include the issue of good governance and corruption as loan conditionalities. If they are fulfilled, loans will be increased to USD 1.4 billion per annum. Around a third of all loans (± USD 230 million per annum) are given in the form of credit from the International Development Association, that may be repaid over a period of 35 years without interest, but which are accompanied by an administrative fee of 0.75% on the undisbursed balance.

All World Bank assistance - whether in the form of technical and analytical assistance, loans, IFC and MIGA activities as well as donor coordination - will respond to problems with improving the investment climate and the creation of public services that respond to the needs of the poor, as well as good governance. The main priority areas are:

  • Improving the climate for high quality investment, through macro-economic stability, encouraging private competition, infrastructural development and the creation of jobs for the poor and farmers/agricultural workers.
  • Making service delivery responsive to the needs of the poor, including health, education, agriculture, irrigation and other public services.
  • Improvements in governance, including development planning, strengthening of local government and financial control.

The World Bank will manage the projects that it is funding through analysis, policy proposals, technical assistance, strategic partnerships and capacity-building in order to systematically increase the standards of good governance at each administrative level where the World Bank has partners. In order to achieve this, the following four business `platforms' have been agreed upon: Σ The Community Driven Development Platform: around 25 percent of the loan.

  • The Local Services Platform: around 40 percent of the loan.
  • The Public Utility Platform: around 15 percent of the loan.
  • The National Lending Platform: around 20 percent of the loan.

In response to this, Danang Widoyoko of Indonesian Corruption Watch has stated that the World Bank must stop the loans until the Indonesian Government has demonstrated it is making genuine efforts to eliminate corruption. The facts indicate that corruption within government is still rife - there has been no significant change in the situation in Indonesia, yet the World Bank continues to make loans.

Sources: www.worldbank.or.id
The New York Times 2 December 2003 Contact:
Mohamad Al-Arief +62-21-5299-3084
malarief@worldbank.org

ADB 2004-2006
Over the next three years the ADB plans to disburse loans to a maximum of USD 3.27 billion to Indonesia. However, this programme is very much dependent on a timely implementation of the reform programme by the government and the resolution of a number of problems related to the implementation of projects funded by loans. According to the coordinator of the ADB programme, Shiladitya Chaterjee, this programme represents an equal combination of poverty reduction and assistance to promote economic growth.

The loan programme as described in the Country Strategy and Program Update 2004-2006 has been agreed by the ADB Director. At the same time, the ADB has also agreed to a technical assistance programme of USD 12-14 million per annum in order to support the loan programme. It is hoped that the loans and technical assistance will support economic policies in the lead up to and post IMF programmes.

The ADB loan programme will be implemented in 30 projects covering four main areas:

  1. Agriculture and Natural Resources, including irrigation development, soil rehabilitation, flood management in Java, water resource management, fisheries and coastal resources and rural development.
  2. Energy and Transport, including road improvements, inter-island transportation, airport improvements and air quality improvement.
  3. Social Infrastructure, including clean water provision and urban infrastructural development.
  4. Industry and Finance, including assistance for state-owned enterprises, costs for local government funding, social security development and small- medium businesses.

At the end of 2003, the ADB was still providing technical assistance of USD 3 million for four studies in the field of agriculture in 14 countries, including Indonesia. The total research funding of USD 8.4 million is intended to eliminate poverty, increase the standard of living of farmers and improve food security in the countries in question. Three international agricultural research consultation groups - the International Rice Research Institute (IRRI), the World Fish Centre, and the International Center for Agriculture Research in Dry Areas (ICARDA) - will fund part of the USD 3.4 million research costs and the remainder will be borne by the agricultural research bodies in the respective countries.

Sources:
Kompas 24 October 2003
www.adb.org/Media/Articles/2003
www.thedailystar.net/2003/11/13

Japan
The Japanese Government has made a commitment to provide Indonesia with loans of USD 880 million via the Consultative Group on Indonesia (CGI). This sum represents a quarter of the total loans provided by the CGI members.

Japan's commitment is divided into two: USD 660 via the CGI, which will be taken from the Japanese Government's Official Development Assistance (ODA) facility. The remaining USD 220 million is in non-CGI payments in the form of export credit.

In addition, the Japanese Government is also providing a Yen loan of 104.6 billion Yen (USD 967 million) which will be used to fund seven infrastructure projects in Indonesia, including development of the electricity sector, railways and sea-ports.

Japanese assistance to Indonesia cannot be separated from cooperation between Japan and ASEAN. Japanese interests in Indonesia are founded on Indonesia's position as one of Japan's sea transportation routes for Japanese products and as one of the most important sources of Japanese energy needs, particularly gas.

Shinichi Nishimiya, Deputy Director General of the Japanese Foreign Office Bureau for Asia and Oceania stated at the tenth meeting of the ASEAN heads of state and Japan in Tokyo on 11-12 December 2003 that Japanese loans to ASEAN countries were in the form of ODA and focussed on human and natural resources. Japan hopes that the economic gap between the ASEAN countries will be reduced. As far as Indonesia is concerned, Japanese commitment is of great importance in the midst of the financial uncertainty since the ending of the IMF programme.

Meanwhile, at the end of this year, Japan will still sign a contract to provide a USD 243 grant to fund clean water provision in Sleman District (Yogyakarta) and the rehabilitation of two small reservoirs in Madura. These three projects aim to increase the income of the local inhabitants and increase access to clean water which is currently severely limited. These are projects that have been signed directly by the implementers at local level and not via central government.

Sources:
Kompas, 30 October 2003, 22 November 2003, 12 December 2003
Suara Merdeka 12 December 2003

The announcements made by the three main IFIs are very important to Indonesia, which is currently still in a state of uncertainty over payment of national expenditure since the ending of the IMF programme. The funds that will be provided by the three IFIs come with similar conditions to those of the IMF. Economic growth, security and improvements in the legal system are all pre-conditions that are still in force. Even without opting for the IMF monitoring programme, Indonesia's economic and political performance will still be under the control of IFIs, because these institutions are applying strict loan conditions.

Sources:
Kompas 30 October 2003, 28 November 2003

Final Results of the Extractive Industries Review
2003 saw the end of the Extractive Industries Review (EIR) that began in 2000. The review was aimed at making a critical response to the question, "are extractive industries projects consistent with the World Bank Group's overall objective of achieving poverty alleviation through sustainable development?" It was in the form of a series of consultation dialogues and research involving governments, NGOs, indigenous peoples' organisations and peoples' organisations impacted by such projects and labour unions, industry, academics, international organisations and the World Bank Group.

In December 2003, the Extractive Industries Review Secretariat published its final report. This was based on the results of consultations in five regions, research in six areas, field trips to four project locations, relevant international conferences and informal consultations with global stakeholders.

The report, entitled, "Striking a Better Balance" makes a critical assessment of the role of the extractive industries in the areas of development, human rights and the environment. The team makes a number of important recommendations to the World Bank, including that it should:

  • Increase its efforts at poverty reduction and protection of human rights;
  • Cease to invest in coal extraction globally;
  • Phase out investment in oil production by 2008;
  • No longer fund oil and mining projects without the consent of indigenous peoples;
  • No longer fund mining industries that result in pollution of rivers and seas.

As a follow-up process, the report recommends a global consultation in 2005 in order to assess whether the World Bank has succeeded in `moving the using the extractive industries onto a sustainable development path that contributed to poverty alleviation worldwide'.

In conjunction with the publication of the final EIR report, Friends of the Earth International also published the results of its independent review of the impact of the World Bank's involvement in the extractive industries. During its review of 11 case study locations, FoEI found global and local resistance to large-scale mining projects funded by the IFIs. Based on its findings, this independent study recommends that the World Bank cease funding oil and coal projects in developing countries and urges the IFIs to consider human rights and the rights of local people in the extraction of natural resources. The report can be viewed at http://www.foei.org/media/2003/handsoff.html)

Civil Society Organisations held a strategic meeting on 14-15 December 2003 in Lisbon to discuss the involvement of IFIs in the extractive industries and to discuss ways to ensure that the World Bank Group will fully implement the recommendations that came out of the EIR process. The final report was officially submitted to the President of the World Bank in January 2004 and the World Bank's response was due be announced in March 2004, but has been delayed.

Sources:
www.eireview.org
www.worldbank.org
www.ifiwatchnet.org
www.foei.org

Extractive Industries Transparency Initiative
In December 2003, the World Bank officially endorsed the Extractive Industries Transparency Initiative. The World Bank has promised to work together with developing nations and private companies to find ways of publishing the accumulated revenue from investments in the oil, gas and mining sectors. Rashad Kaldany, director of the World Bank Group's Department for Oil, Gas, Mining and Chemicals said that this would underscore on and widen the role of the World Bank Group to ensure transparency, accountability and contribute to sustainable development impact.

Source:
www.worldbank.org
Financial Times 20 November 2003


Update LKI diterbitkan oleh Down to Earth, Kampanye Internasional untuk Lingkungan Hidup yang Berkeadilan di Indonesia.

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