After the tsunami: more disastrous debts?

Down to Earth No 64  March 2005

Will the tsunami disaster bring a greater debt burden for Indonesia's future generation?

An international summit to raise funds for relief in countries affected by the Indian Ocean tsunami, was held in Jakarta on January 6th. United Nations secretary general Kofi Annan called for $977 million in immediate funds for the next 6 months' emergency relief for tsunami victims. Pledges amounting to US$2 billion had already been coming in from some 44 countries, the biggest from Japan, with US$500 million (Financial Times 3/1/05). Less than a week later, donors had pledged $717 million for immediate emergency relief alone - a total that UN officials said was an unprecedented response to a natural disaster (WB 13/Jan/05).

On top of the government pledges, public appeals had raised millions of dollars, as ordinary people responded to the scenes of devastation and human suffering on their TV screens. In the UK, the tsunami appeal launched by the Disasters Emergency Committee, an umbrella group of 12 charities, raised £60 million in its first week. A total of £300 million had been donated when the appeal closed at the end of February ( 27/Feb/05).

Along with the pledges, however, came the questions about the money - where would it come from? How could it be used effectively? What about the high levels of indebtedness of tsunami-affected countries?

At the Jakarta meeting, Kofi Annan pleaded for the US$2bn pledged to be fresh money, and not diverted from existing aid budgets (Guardian 6/Jan/05). Past experience has shown that pledges are often 'recycled' from existing aid and that initial promises of aid fail to materialise once the media spotlight has moved on. A spokesman from the UN Office for the Coordination of Humanitarian Affairs (OCHA), which is leading the response to the disaster, told the Guardian "The figures look much higher than they really are. What will end up on the ground will be much less". Another OCHA staff member said "A lot of the money will be swallowed up by the military or will have been diverted from existing loans". Exactly a year before the Asian tsunami, the Bam earthquake disaster in Iran elicited pledges of US$1.1bn, but only US$17.5m was actually sent (


Call for debt relief

As leaders began to think about debt relief as a means of assisting the affected countries, there was also concern that such measures may substitute the necessary additional spending. Oxfam cautioned that any debt relief needed to be additional to aid, while the Jubilee Debt Campaign said there was a fear that if debt cancellation was given, measures to provide resources for eliminating extreme poverty and meeting the Millennium Development Goals (MDGs) would be abandoned. (Financial Times 3/Jan/05; see DTE IFIs Factsheet 36, for background on the MDGs and Indonesia).

In the run up to the Jakarta aid summit, the idea of debt relief for tsunami-affected countries had already been raised by European countries, including Britain and Germany. TheFinancial Times reported that British Chancellor Gordon Brown would back calls to write off some of the debts of the worst affected countries and that Britain wanted to announce a deal on debt relief at the 'Paris Club' meeting of Indonesia's creditors later in January (FT 3/Jan/05). German Chancellor Gerhard Schroeder said he expected the G8 to be able to agree a programme of debt reduction, but it was too early to say whether this would be a moratorium or a debt write-off (FT 6/Jan/05).

NGOs too, had begun to renew calls for a solution to Indonesia's long-standing debt burden. Less than a week after the disaster, the International NGO Forum on Indonesian Development (INFID) pointed to the fact that Indonesia's US$134.85 billion debt, would cripple the country's ability to finance emergency relief and recovery programmes in Aceh and North Sumatra. In a statement entitled "Indonesia needs more than debt moratorium to recover from the biggest human tragedy: Tsunami in Aceh and North Sumatra", INFID called for:

  1. debt relief for Indonesia and other affected countries to allow them space for prioritising reconstruction and recovery programmes;
  2. emergency aid from the international community to be in the form of grants not loans;
  3. negotiations for a comprehensive debt solution;
  4. transparency and accountability on the part of the Indonesian government in the channelling of aid to Aceh, North Sumatra and other affected areas. (INFID statement 31/Dec/04)

This and subsequent statement by INFID welcomed the offer of a debt moratorium, but only as a 'breathing space' for Indonesia to access funds for emergency relief and recovery in the tsunami-hit zones and to allow room for negotiations on a sustainable solution to the debt (see INFID statement


Debt cancellation

Meanwhile, Jubilee South, a south-based civil society network on debt, launched an international petition calling for unconditional debt cancellation for all affected countries. "In the face of this massive destruction, northern and international creditors should not continue to hold South peoples in bondage for debts that have, in large part, only contributed to their impoverishment and deprivation." The petition called for immediate debt cancellation in addition to emergency relief operations and rehabilitation. It called on southern governments not to prioritise debt service: "Stop paying onerous and illegitimate debts! Prioritize relief and rehabilitations, basic social services, clean and safe water and other human development programs!" (Petition circulated by Jubilee South: In the face of Debt and Disaster: Long-lasting Relief for the Peoples of the South!


Debt for Development

A proposal from the German NGO, Pro Regenwald, suggests a `debt for development' arrangement, where a percentage of the debt would be channelled into funds controlled or administered by NGO and/or social movements. This would make funds available for small-scale development controlled by groups usually left out of the development process or without access to funds and would prohibit elites, whilst still reducing the debt. (For more information or to comment, contact Hermann Edelmann at


The Paris Club and CGI meetings - and the moratorium

In the event, the Jakarta meeting did not come up with any proposals on debt relief; this was left to the Paris Club, an informal group of rich countries which are owed money by some of the tsunami-hit countries, and the Consultative Group on Indonesia (CGI), the creditor grouping which decides how much to lend Indonesia each year. (See DTE IFIs Factsheets 17,19, 24 & 32) for more background on the Paris Club and the CGI).

According to INFID, the Paris Club meeting on January 12th agreed to offer an 'immediate and unconditional' debt moratorium to the affected countries, with the precise terms for Indonesia to be decided after an assessment of Indonesia's reconstruction and financing needs became available at the beginning of March 2005. The World Bank and the IMF have been charged with carrying out this assessment (see press release at

INFID said that the strings attached to the Paris Club's 'unconditional' offer would make it unattractive to Indonesia's government, which has significantly reduced its ties to the IMF over the past year (see DTE IFIs Factsheets 30 and 32. ) Indonesia owes about US$47.8 billion to Paris Club creditors, with $3.15 bn in principal and $1.36 bn in interest due in 2005, according to Bank Indonesia (AFX 25/1).

Indonesia and other regional leaders welcomed the moratorium initiative at the January 6th aid summit in Jakarta, but Indonesia soon after appeared less that enthusiastic. Foreign minister Hassan Wirayuda led a visit by a special team to Europe the following week to follow up proposals by the governments of Germany, France, Italy and Britain. He said that his government preferred instead a combination of mechanisms, including grants, concessionary loans, trade facilitations and debt swaps. (Source: Financial Times14/Jan/05, Tsunami Declaration 6/Jan/05 on

The CGI, which met a week after the Paris Club, is a 30-member group of bilateral and multilateral donors to Indonesia. Chaired for the first time by the Indonesian government, the meeting agreed on $1.7 billion in aid for reconstruction in Aceh - in the form of US$1.2 billion in grants and $500 million in soft loans. Jakarta says that funding from international donors will make up around half of the funds needed for Aceh's reconstruction, estimated at US$4.5 billion (Rp42 trillion) (AFX 25/Jan/05).The CGI Aceh money is in addition to the US$2.8 billion in new loans to help plug the gap in the government's finances.

At this meeting, on January 20th in Jakarta, the government again indicated it would not take up the Paris Club's debt moratorium offer. One report quoted Coordinating Minister for Economic Affairs Aburizal Bakrie, as saying that Indonesia didn't need a debt moratorium as it had secured pledges of $1.7bn from the CGI (AFX 25/Jan/05). A different report (Jakarta Post 22/Jan/05) cited Bakrie as saying that a debt moratorium, plus commitments for debt swaps from Germany, France and Italy, would be discussed after a full damage assessment of the disaster.


Indonesia's investment potential

So, Indonesia looks set to take on more loans this year as well as make payments on its huge existing debt. (See table 2 for a breakdown of the external debt.) Why is Jakarta seemingly not interested in taking advantage of the 'breathing space' offered by a debt moratorium and starting negotiations on a sustainable debt solution which may include debt cancellation?

One reason is that the government doesn't want to see a further decline in Indonesia's international credit rating or to reduce its prospects of attracting private overseas investment flows into the country. According to foreign minister Wirayuda, Indonesia fears that a moratorium could "affect our good standing in the markets, especially as we now try to attract more foreign investment"(Financial Times 14/Jan/05).

Before the tsunami disaster, President Yudhoyono had already made it clear that he would continue the pro-foreign investment policies of previous governments as a means of rebuilding the economy. These policies, which favour the large-scale exploitation of natural resources, have marginalised millions of Indonesians whose own access to these resources is denied. They have led to widespread and systematic human rights violations, as state security forces are brought in to deal with public opposition to mines, oil and gas installations, plantations, timber operations and other resource extraction projects.

Indonesia held a high-profile 'Infrastructure Summit' late in 2004, as a means of pushing for more foreign investment specifically in infrastructure projects - a move that is in accordance with a renewed emphasis by multilateral agencies such as the World Bank on financing infrastructure projects. NGOs have expressed fears that a return to the days of mega-dams and road projects will bring more environmental destruction and social disruption while pushing aside more sustainable community-based programmes. (See DTE IFIs Factsheet 31.) (Coordinating Ministry for Economic Affairs Press Release Jan/05 via Joyo Indonesia News).


Grants or loans?

There is a real concern that the international response to the tsunami, while offering some short term advantages, could lead to a greater debt burden for Indonesia in the medium to long term. This would make it harder to lift tens of millions of Indonesians out of poverty and make the Millennium Development Goals even less attainable. According to World Bank figures, poverty levels were 17.4 percent in 2003, or about 37.50 million people. In January this year, however, the figure was much higher: the Bank told the CGI that more than 110 million Indonesians can now be categorised as poor, with a daily income of less than US$2 (Asia Pulse/Antara 24/Jan/05).

The Indonesian government announced targets of gross domestic product (GDP) growth of 6.6%, a reduction in the unemployment rate to 5.1% from the current 10%, and a halving of the poverty rate to 8.1% by 2009 at the recent CGI meeting (Jakarta Post 22/Jan/05).

According to Economics minister Bakrie, Indonesia's debt service payments for 2005 amount to US$5.5 billion, and the target debt-to-GDp ratio for 2005 is 60% (AFX 15/Jan/05).

The high levels of poverty and debt have prompted NGOs to call for genuine donations for Aceh and North Sumatra - money in the form of grants, not loans.

Yet some of the pledges made already are in the forms of loans, as can be seen in table 1 - including US$500 million through the CGI, AUS$500 million in interest-free loans from Australia; and interest-bearing tied and untied loans from Spain (Directorate of Bilateral Overseas Funding, Bappenas 17/Jan/05).


Debts on tsunami-destroyed projects should be written off

Head of economic affairs at the non-governmental group, Professional Civil Society (MPM), Dradjat Wibowo, said debt-funded projects in Aceh and North Sumatra amounted to over US$5billion, including roads, irrigation, telecommunications and small-scale plantations. The Meulaboh to Banda Aceh road, for example, financed by Japan and European countries, was totally destroyed in places and damaged to varying degrees in others. He recommended that the debt for projects which had sustained 60% and above damage should be written off and that payments on debts for projects damaged less than this should be reduced or subject to a moratorium.

Dradjat criticised the government for hurriedly agreeing new loans with the ADB when many countries had offered debt relief or moratorium initiatives. (detikcom: MPM kecam MoU utang RI-ADB,


Tackling corruption and promoting peace

Concerns over aid accountability, raised by INFID, have been echoed by many Indonesian and international aid agencies as well as governments and multilateral institutions contributing to the relief effort.

Japan's Ambassador Yutaka Iimura said "we request accountability in the coordination of aid for Aceh.." Japan is Indonesia's biggest bilateral donor in the CGI and has pledged $177 million for Aceh (Jakarta Post 22/Jan/05).

The new President, Susilo Bambang Yudhoyono, was voted in on promises to tackle corruption - but many people remain sceptical that change can be effected rapidly and that SBY is the right person to deliver it.

Accounts of military corruption of aid already filtering in from the ground, indicate the problems ahead. There have been reports of military personnel using the disaster as a business opportunity, by forcing tsunami victims to pay for aid, for example. This would come as no surprise to Aceh's population whose natural and economic resources have been exploited by the military for decades. The military's involvement in illegal logging, for example, is an open secret (see DTE 63). Aceh, which has been inflicted with inflated levels of military and police personnel for years, is known as one of Indonesia's most corrupt provinces.

Indonesia is consistently ranked one of the most corrupt countries in the world by Transparency International. Last year, it was considered to be the fifth most corrupt nation, suggesting that reforms since the ousting of former President Suharto in 1998 have failed to reduce corruption significantly in the country. Indonesia's Minister of Finance, Yusuf Anwar, responded to Transparency International Indonesia's most recent report, by saying "I don't care" (INFID SNO 21-18 Oct/04 & 24/Feb/05).

It is generally believed that at least 30% of overseas aid channelled through the government fails to reach its target due to corruption. An October 2003 World Bank report found that "corruption flourishes in Indonesia because there is little likelihood of being caught and even less of being punished." It said that "the agencies charged with enforcing the rules are weak, poorly funded and ill-equipped and riddled with corruption"(Far Eastern Economic Review 29/Jul/04).

This year's Country Governance Assessment Report by the Asian Development Bank (ADB) found that law enforcement agencies and the judiciary are among the state institutions most prone to corruption (Jakarta Post 25/Feb/05).

The January CGI meeting saw donors calling again for drastic measures to eradicate corruption. Indonesia's Supreme Audit Agency (BPK) has announced that it will collaborate with donor countries to audit all financial aid channelled to Aceh, starting from April, after an ADB-sponsored conference is held (INFID SNO 17/Feb/05). However, it remains to be seen how much of the CGI's US$1.7 billion will be used for the benefit of the victims and how effectively it will be monitored and accounted for. 


Conflict resolution

There have also been calls for international aid to be linked to conflict resolution in Aceh. In a January 5th publication, the Asian Centre for Human Rights said donors should recognise that effective delivery of aid to survivors hinges on peace on the ground in the both tsunami-hit conflict zones of Aceh and northern and eastern Sri Lanka. The Delhi-based group called on aid donors to:

  • urge for a ceasefire between the Free Aceh Movement (GAM) and the Indonesian government so that aid agencies could distribute supplies without intimidation or interference;
  • stop all forms of military operations and demilitarise the areas affected by the tsunami;
  • prohibit the entry of military personnel and other non-state armed personnel into relief camps;
  • establish a system of accountability for the use of aid to ensure that governments do not use the aid money for military purposes or other events and programmes (ACHR Review 12/Jan/05).

Japan and Germany, two of the biggest aid donors, have also linked peace efforts to aid. At the CGI meeting, Japan (which hosted failed peace talks between GAM and Jakarta in 2003) requested that the reconstruction efforts in Aceh also include reconciliation. Earlier, German foreign minister Joschka Fischer said he would urge Indonesian and Sri Lankan leaders to prioritise "national reconciliation". He said Germany's aid pledge of US$664.5 million (ECU500m) was not conditional on conflict resolution, but said his country would check that these leaders' fulfil their public commitments to peace initiatives (Financial Times 14/Jan/05).

Talks between GAM and the Indonesian government have resumed tentatively, with the next round planned in Helsinki in April. GAM has reportedly agreed to drop demands for full independence, but are insisting on the removal of 50,000 troops and police (INFID SNO 24/Feb/05).



Table 1: Who offered what

The following table shows a selection of aid pledges from bilateral and multilateral donors. The data has been compiled from the various press and non-media sources and may not reflect countries' final aid contributions.

Where possible, the table also shows whether these commitments are in the form of grants or loans as this has a bearing on Indonesia's future debt burden (see also 'Grants or loans?' section in text).

Finally, the list includes one corporate donor, ExxonMobil, the US-based oil multinational which operates Aceh's natural gas fields. ExxonMobil has been accused of involvement in gross human rights violations committed by military personnel guarding its installations and is currently subject of an alien tort court case in the US - see DTE 57DTE 50 and for background. ExxonMobil was the fifth biggest US corporate donor to the tsunami relief effort as of January 5th.

Pledge from: All affected countries Indonesia Grant / loan timeframe source
World Bank (CGI)   $300m

of which $125m
Reallocation within existing projects and new funds
Mostly grants and interest-free loans payable in 40 years
2-3 years 

in 2005
Assessing / considering
Bwp 7/1




$126.37m $100m Reprogrammed loan
Grants & loan
- Detikcom (INFID)
JP 22/1
Xhinhua 17/Feb
Japan $500m


- - FT 3/1
JP 22/1
UK $96m - - - FT 3/1
Italy $95m - - - Bappenas
France $64.57 - - - Bappenas
Norway $181.9 $1.64 - - Bappenas
Denmark $47.8m $0.025m - - Bappenas
China $200m - - - Bappenas
US $350m - - - FT 3/1
Netherlands $34m 17.27 - - -
Sweden $75m - - - FT 3/1
ITTO (mangrove rehab) - $30,000 Emergency fund - JP 19/1
Australia A$1bn - - - Gdn 6/1
Germany $664.5m - (Sri Lanka and Indonesia) 5 years FT 6/1
CGI total - $1.7bn 1.2bn grants $500m interest free loans for rehabilitation - JP 22/1
(ExxonMobil) $5m - - - FT 1/6
Sources key: Bappenas: Bantuan Bencana Alam Tsunami Dari Sumber Bilateral dan Channeling PBB 17/Jan/05, Direktorat Pendanaan Luar Negeri Bilateral - BAPPENAS; BwP - Bretton Wood Project; FT: Financial Times; Gdn: The Guardian (UK); JP: Jakarta Post. WB online: World Bank online media briefing



Table 2: Indonesia's external debt (as at Sept 2003, in US$)

Total external debt: 132.762bn
Government 77.093 bn
- bilateral 28.492 bn
- multilateral 28.394 bn
- export credit 17.539 bn*
- leasing 0.325bn
- Commercial 2.343 bn
Private Sector 53.597 bn
Domestic Securities owned by non-residents: 2.072 bn
(Source: World Bank website)
*This includes money owed to UK arms companies, guaranteed by the British government's Export Credit Guarantee agency - see article on Indonesia's debt to UK.