Versi Bahasa

Down to Earth IFIs Update

No. 9, October 2000

CGI Lends another US$4.8 - Two-thirds to pay Suharto era debts

The Consultative Group on Indonesia (CGI) donors agreed at their meeting in Tokyo on October 18, to Indonesia's request for $4.8 billion of new loans to be used in 2001. An extra $540 million in technical grants and support for Indonesian non-governmental organisation was additionally pledged.

Two-thirds (at least US$3bn) of the new loans will be used to pay next year's interest servicing on old loans. The pledge had been widely expected despite criticism by the World Bank and other major donors of the Jakarta government's handling of the situation in West Timor. The Government of Indonesia (GoI) says it needs the aid to help it plug a forecast budget deficit of nearly $6 billion next year.

Some pivotal donor groups - notably the United States and the World Bank - have explicitly tied aid promises to Indonesia's willingness to curb the activities of pro-Indonesia militias operating in West Timor.

The European Union tabled a report highlighting the extent of illegal logging still happening in many of Indonesia's remote "protected" regions and Indonesia was also given an ultimatum of one month to present a detailed action plan on urgent forestry issues and to jointly review progress on its implementation in April 2001.

However, Japan, Indonesia's biggest aid donor, declined to apply any real pressure. Japan has extended most of the loans as it has done in previous years. Much of Japan's oil and gas passes through Indonesian shipping lanes, so it has a big interest in maintaining stability. Japan also added a further US$540 million to its US$ 1.66 billion contribution in the $4.8 billion CGI package.

The media failed to report a very unusual conditionality in the World Bank's Press Release (No. 091, October 18) "Donors have agreed to hold a mid-year interim CGI meeting in Jakarta six months from now on, while the next CGI is tentatively planned to be held at the same time next year - also in Jakarta. This means that the GOI is kept on a short leash because implementation of commitments is often loose.

Indonesian activists and members of parliament have called on the CGI to forgive some of the nation's massive foreign debt, much of which is a hangover from the Suharto era. A coalition of Japanese and Indonesian pressure groups protested at the CGI meeting in Tokyo. As delegates' cars swept through the venue gates, the activists held aloft banners reading "To support the government is to support the military too" and "Link aid with human rights."

The CGI comprises 21 countries and 13 institutions. The CGI was formerly called the IGGI and was set up when Suharto came to power to finance the New Order. CGI member countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Britain, Germany, Italy, Japan, New Zealand, Norway, South Korea, Spain, Sweden, Switzerland and the United States. The CGI also involves the World Bank, the International Monetary Fund, the Asian Development Bank, the Kuwait Fund for Arab Economic Development, the Saudi Fund for Development, the Nordic Investment Bank and the Islamic Development Bank.

(Sources: Jakarta Post October 18 and 19; Sydney Morning Herald October 21; Inter Press Service October 19)

Commitments - CGI Loans in 2001

Japan US$ 1.7 billion
World Bank US$ 1.1 billion
Asian Development Bank (ADB) US$ 1.3 billion
USA US$ 0.3 billion
Others US$ 0.4 billion

The CGI 2000 Website is at: c98f6a38d56cd554725696800137c13?OpenDocument

Ten Alternatives to CGI, IFIs and more debt - next month's factsheet!

Does the GoI need to borrow US$4.8bn in 2001? Next month's (November) fact sheet takes a look at 10 alternative sources of finding US$4.8bn within Indonesia and the advantages/disadvantages of each. The fact sheet will also examine Indonesia's debt and it's implications.

In Brief. . .

IMF Tells Wahid To End Rice Subsidies By 2002

The IMF First Deputy Director, Stanley Fischer has told President Wahid to maintain subsidies for rice prices no longer than 2002. Indonesia's National Logistics Board, BULOG, sets a floor price for unhusked rice through stock retention, typically buying 10% of the national crop. Wahid said rice prices would revert to a "market mechanism" in 2002, but didn't give further details. Wahid said rice farmers, who make up the backbone of Indonesia's largely rural population, must adapt to free-market conditions by 2002 when they will lose the protection of subsidies. The IMF typically opposes subsidies as market distortions. However subsidies remain highly sensitive in Indonesia and rice farmers called earlier this year for a clampdown on imports to protect domestic prices.
(Dow Jones Newswires, October 16)

Economic Ministers, Ramli and Prijadi fall out with IFIs

In separate incidents both Rizal Ramli, Economic Minister, and Minister of Finance Prijadi Praptosuhardjo have had disagreements with IFIs over the last month. Ramli, in his capacity as chairman of the Financial Sector Policy Committee, approved more than US$3.7 billion in debt restructuring for four business groups. The decision on the debt deals was made only two days after he received a joint letter from the IMF and World Bank chief representatives in Jakarta urging a second, independent opinion on the deals before they were finally approved. The debt deals were with companies controlled by the Suharto family and included Tirtamas, Texmaco, Kiani Lestari (owned by Bob Hasan - currently on trial for corruption) and Banten Java Persada Groups. These agreements were criticised for a lack of transparency and for their allegedly being too much in favour of the debtors.

Prijadi Praptosuhardjo, speaking at the Annual Meeting of the Governors of the IMF and the World Bank in Prague, said Indonesia has expressed a strong concern over the increasing tendency of the Bank to involve itself in non-socioeconomic matters of its member countries. Prijadi urged the World Bank not to get involved in such issues and instead to adhere strictly to its mandate. He did not describe which of the World Bank's moves that were unwelcomed by the Indonesian government. (Asia Pulse, October 11)

RI to appoint an IMF executive director

Indonesia will represent the Southeast Asian nations, excluding the Philippines, on the International Monetary Fund's executive board of directors starting in December 2000. There have been rumours that Bank Indonesia deputy governor Miranda Goeltom had been selected to become the Indonesian IMF director. There have been calls for the government to terminate its agreement with the IMF following in the footsteps of neighbouring Thailand, which also accepted an IMF-sponsored economic programme after the 1997/8 financial crisis but terminated it this year. The IMF agreed early this year to provide the current GoI with some $5 billion in loans. The Fund has so far disbursed some $1 billion.
(Jakarta Post, September 22)

IFC cannot guarantee Indonesia govt bonds

The Indonesian government's plan to issue international bonds was thrown into confusion this month when the International Finance Corporation of the World Bank group said it could not guarantee Indonesian government obligations, including government bonds, because it is not allowed by its charter to do so. Earlier reports quoting Economic Minister Rizal Ramli said the IFC was ready to guarantee Indonesian government bonds. The IFC helps governments in developing a domestic bond market. An IFC guarantee would aim to raise the bond's rating (at international ratings agencies such as Standard and Poor) and to lower the cost of capital as default is ruled out.

Indonesia's plan to raise coupons on some of its huge bank bail-out bonds to stimulate investor interest might help calm worries about any looming fiscal disaster when the bonds start maturing in a few years. Under the plan, which takes effect next month, the government will allow banks to swap a portion of their recapitalisation bonds, currently bearing coupons of around 12 percent, with bonds carrying rates as high as 15 percent. Indonesia's bailout of some 40 banks, the result of the Asian financial crisis, is one of the world's costliest. It is expected to reach 650 trillion Rupiah ($73.16 billion) when completed. The recapitalisation bonds have burdened the government with massive interest costs, estimated at 55.79 trillion rupiah in 2001 alone. The cost is expected to rise sharply, when the mostly five to 20-year bonds start maturing in large amounts from 2004. One foreign brokerage, for example, has estimated that when substantial amounts of bonds start maturing in 2004, total costs to the government will be 124 trillion rupiah in that year alone. That figure will keep rising, and the main way the government is expected to meet the costs of paying for the maturing bonds is by issuing more. (Reuters, October 19)

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

DTE IFIs updates and factsheets are available in English and Bahasa Indonesia. They can be sent monthly via email (rtf version) free of charge, or quarterly (printed version) with the DTE newsletter. Printed versions are free of charge to existing DTE subscribers and exchange partners.

If you would like to receive the monthly updates and factsheets via email, please send your email address to Please state what language you would prefer. You can choose both languages if you wish.

Office: 59 Athenlay Rd, London SE15 3EN, England, email: tel/fax: +44 207732 7984; web:

   Back to Campaigns    DTE Homepage    Newsletter    Links