DOWN TO EARTH, March 1999

Mr James Wolfensohn,
The World Bank,
1818 H Street NW
Washington DC 20413
30th March 1999

Dear Mr Wolfensohn
        We are writing to express our concern about the continuing negotiations between the IMF/World Bank and the Government of Indonesia over further loans. In particular, we share the concerns of many Indonesian NGOs about the direct and indirect effects of these loans on Indonesia's forests and the tens of millions of forest peoples. It would appear that the IMF/WB loans seek to alleviate Indonesia's economic (and political) crisis via an export-led model which depends on accelerating the exploitation of Indonesia's natural resources.

We understand that conditionalities attached to loans can be used to promote environmental protection and the rights of indigenous communities. However, the conditionalities for the forest sector under the first Policy Review Support Loan (PRSL1) and those proposed for its replacement (PRSL2) and the forest Sectoral Adjustment Loan (SAL) largely confirm the status quo. Local communities, predominantly on the Outer Islands, will continue to be deprived of the rights to land and the rights to manage natural resources according to traditional, sustainable practices.

Furthermore, there are real dangers for the growing democracy movement (and for the Bank's credibility) if the Bank continues to pour large amounts of money into a transitional government which has no legitimacy in the eyes of the majority of the Indonesian public and within which deeply-rooted corrupt practices are still the norm.

We would like to draw your attention to several specific issues:

  1. We welcome the fact that the WB/IMF have recognised that new policies and practices are long overdue in the forests sector and propose that long-term change can be brought about through consultation with all stakeholders. However, the key issue is not simply maintaining or increasing forest productivity to solve Indonesia's economic crisis. It is to secure the sustainable livelihoods of forest dwelling and adjacent communities. To the best of our knowledge, all current proposals and consultations have been based on the paradigm of state control of forest lands and the continuation of large-scale industrial forestry in Indonesia. If the Bank is genuinely committed to sustainable development, adjustment lending conditionalities on forests should be based on a new paradigm of community ownership and mangement rights to forest lands and resources. Such proposals have been made by the Communication Forum for Community Forestry (FKKM), an independent body comprising leading researchers, policy analysts and practitioners from government and non-government agencies, academic institutions and the forestry industry.

  2. As part of the general 'reform' agenda and in order to comply with IMF/WB conditionalities, the Department of Forestry and Plantations has introduced new regulations on forest utilisation, including new directives on co-operatives and community forests (PP6/99 and SK 677 HKM). These changes have been pushed through very quickly and may have little or no lasting value. Quite apart from the question of the legitimacy of the present Indonesian government, the whole process 'puts the cart before the horse'. Like all existing forestry legislation, these new regulations are dependent on the 1967 Basic Forestry Law which is currently being redrafted. Once a new Forestry Law has been passed, it will be necessary to revise all supplementary regulations again. We question whether this is what the World Bank intended under PRSL1 and the effectiveness of funding such activities.

  3. The new forest utilisation regulations do not provide any guarantee of genuine community participation in forest management or enhancement of local people's rights to access the natural resources on which they have traditionally depended. For example, the recent government directive on community forestry (SK 677/1999 HKM), differs only from its predecessor (SK 622/1995) in that it covers rights to manage timber rather than non-timber forest products; grants usage rights for 35 rather than 20 years; and involves the establishment of co-operatives. The basic tenet that the state has overall control of the forest remains unchanged. Also, since few indigenous communities have the skills, finance or legal knowledge to set up and run officially recognised co-operatives, these are likely to become vehicles for urban-based entrepreneurs to gain access to forest resources.

  4. The process of drafting the new Forestry Law has been long and tortuous. The procedure is complicated by the existence of two committees - both answerable to the Minister of Forestry and Plantations but operating for the most part in parallel. The 'reform committee' established by the Minister and closely linked to the Communication Forum for Community Forestry (FKKM), is an independent team of academics, NGOs, industry representatives and department officials. It produced a draft in mid-1998 which included some recognition of traditional (adat) rights over forests. This draft was considered by representatives of the major bilateral aid donors and NGOs through the Consultative Group on Indonesian Forestry (CGIF) meeting late last year. However, there is also a 'structural committee' which comprises Department officials and is not open to consultation. This committee, which works with legal experts to draft both the new Forestry Law and supplementary regulations, is operating under a very different paradigm within which releasing control of forests to local communities is not a priority. It is this committee which will produce the final draft which goes forward for Ministerial approval and thence to the Indonesian parliament (DPR).

  5. There is a real danger that a new Forestry Law is being pushed through without proper consultation, especially as the need to comply with the conditionalities of PRSL1 is felt more keenly and as the Indonesian election date gets closer. NGOs were invited to the CGIF meeting and the Bank is to be congratulated on holding a meeting with NGOs earlier this year. Nevertheless, one such meeting is hardly genuine consultation of all stakeholders. What is more, the version of the new Forestry Law which researchers, NGOs and donors commented on at that event is not the one which is currently being used within the Department of Forestry and Plantations. In November 1998 the 15th draft was being circulated for comment. By February 1999 the draft under consideration was the 22nd version. It is not clear how much consultation, if any, took place on the interim drafts.

  6. Any new Forestry Law or 'mapping the forest estate' drawn up solely by the Department of Forestry and Plantations is fundamentally flawed because other Indonesian government agencies also have responsibility for land use planning. The delineation of responsibility between these bodies is not clear. In 1982, 143 million hectares was designated 'state forest land' by the Department of Forestry and categorised as 'Production Forest', 'Protection Forest' and 'Conversion Forest' (TGHK), but the delineation of these domains was not carried out in accordance with the Department's own regulations and was never even completed. In 1992 the Central Planning Agency BAPPENAS was given authority to draw up a land use structural plan for every region (RTRWP). This did not involve any public consultation since there were no implementing guidelines for community involvement until late 1998. Within the last few years the Indonesian government has ordered provincial governments to produce an integrated plan (padu serasi). So while the government can now point to land use plans, there are grave doubts about the quality of the land use planning which has been an office-based paper exercise with no consultation with local communities or field checking on actual land use.

  7. The World Bank has made much of its commitment to transparency and consultation with all stakeholders and we welcome the consultation document entitled "World Bank Involvement in Sector Adjustment for Forests in Indonesia - the issues" which we received last November. However, most Indonesian NGOs only received detailed information about the proposed conditionalities for PRSL 2 at a very late date - far too close to the end of March deadline for proper consideration and consultation. It is essential that stakeholders - particularly civil society groups - have sufficient time to study Bank documents and formulate a response, particularly since the most recent version differs from previous ones.

  8. To the best of our knowledge, the Bank has still not instituted policies for environmental assessment and public disclosure concerning its fast disbursing Structural Adjustment Loans. There is a clear need for an assessment of the effect of previous loans on both environment and local people - especially the indigenous communities of the Outer Islands - given the contentious nature of forestry and agriculture issues. Furthermore, it would seem logical to expect the World Bank to monitor and take action on the inconsistencies in the January 1998 IMF package e.g. promoting foreign investment in oil palm plantations on the one hand and reducing forest conversion rates to environmentally sustainable levels on the other.

  9. Down to Earth and our Indonesian colleagues do not understand why the World Bank is pressing for a second Policy Review Support Loan (PRSL2) when it is clear that the Government of Indonesia has not fulfilled the conditionalities attached to the first loan (PRSL1) and the Social Safety Net Adjustment Loan ( SSNAL). For example, the Reforestation Fund has yet to be subjected to an independent audit, without which it cannot be properly included within the Indonesian National Budget. Indeed, since the Reforestation Fund was estimated to stand at Rp2.3 trillion in late 1998 (approx US$200,000,000) it is questionable whether further World Bank loans are necessary or appropriate.

  10. It is no secret that serious questions have been raised within the Bank about accountability for the funding already disbursed through PRSL1 and SSNAL. The Bank must ensure that the Indonesian government is fully accountable to the Indonesian public for all spending under PRSL, SSNAL and other sectoral loans, since - in one form or another - it is the Indonesian people who make the repayments on these loans.

In view of these points, we would like to support the demands of Indonesian NGOs and ask you to take the following measures forthwith:

  1. Impose a moratorium on all new IMF/WB loans - at least until the proposed Indonesian elections in June this year - including the postponement of the PRSL2 and forestry and agricultural SAL. This is essential, not least because the Bank will be providing a transitional government with funding that could be used to engineer the outcome of the elections. In the absence of democracy, the Indonesian public have no means of forcing the government to take account of their views on the substantial debt burden which the past and current regime have imposed on them.

  2. Press the Indonesian government for full compliance with the conditionality on PRSL1 before any negotiations on PRSL2 and other loans continue. The Bank should review this carefully to ensure that changes are not merely cosmetic. It is crucial that the World Bank looks carefully at the content and quality of each government action - particularly new regulations and legislation - and the process by which this was achieved. Using the conditionality framework as a simple checklist is not acceptable.

  3. Ensure that there is genuine, full consultation with civil society representatives while any new loan agreements are being drafted (to include PRSL2, SNNAL and all other sectoral loans). Sufficient time must be allowed for this.

  4. Make available, as widely as possible in English and Bahasa Indonesia, the agreements and conditionalities for all adjustment lending. This is necessary in order that the Indonesian public, including NGOs and other civil society groups, fully understand the purpose of the loans, the chain of accountability and the terms of disbursement and repayment.

  5. Enforce rigorous monitoring of all IMF/WB loans to Indonesia to promote proper accountability in the use of these funds. Evaluation and audit documents should also be made publicly available once they have been approved by the Bank.

  6. Prioritise the demands of forest dwellers and adjacent communities. In the past two months there have been important national gatherings of representatives of peasant farmers (SPSI, Medan, February 1999) and indigenous peoples (AMAN, Jakarta, March 1999). Their demands for the recognition of their land rights and their rights to manage resources must form the basis of Indonesian forest reform.

  7. Stop pressing the Indonesian government to pass a new Forestry Law within the next few months. Instead of a quick technical mapping exercise on 'the forested estate' there must be an inventory of customary (adat) lands or tenurial systems in Indonesia. Such inventories have never been carried out, but both are essential before any rational decision can be made about regulating forest use.

  8. Press for full consultation on and approval of the draft decree on the recognition of customary lands (Pengukuhan dan Hak Pengelolaan Wilayah Masyarakat Hukum Adat) as an interim measure. Through this regulation, indigenous communities should be enabled to produce maps of their customary (adat) lands and given the rights to manage their forests through whichever institutions they prefer (which may or may not be co-operatives).

  9. Take into proper consideration the Bank's own policies on land rights, environmental protection and resettlement in all structural adjustment lending. In many programmes it has funded in the past, the Bank has side-stepped its obligations under Operational Directives 4.20 (Indigenous Peoples and Land Rights) and 4.30 (Resettlement) where these have been at odds with Indonesian government policy - for example, on transmigration and support for the nucleus-estate smallholder system.

In conclusion, we would remind you of the commitment made in the Bank's public statement on conditionality and adjustment lending in late 1999: "To produce the needed changes in policies and practices to bring these new approaches to forests to reality will require a strong consensus between stakeholders in the sector - the Government, academics, NGOs and community groups, reform-minded forest industries, and large donors….. It is also important to emphasize that the role the Bank seeks in the Indonesian forests sector is that of a partner to other stakeholders."

The recognition of customary (adat) rights to ownership, utilisation and management of forest lands and resources is fundamental to the reform process. Down to Earth believes that conditionality can be a tool to promote democracy and sustainable development, but that the current process and policies will continue to fall short of these aims while the voices and rights of the Indonesian government and forestry industry are given priority over those of the forest community.

Yours sincerely,

Frances Carr
Down to Earth, London

cc      Dennis de Tray, outgoing Director WB, Indonesia
         Mark Baird, incoming Director WB

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