In brief... DTE 72 - March 2007

Down to Earth No. 72 March 2007

CGI creditor group disbanded

Indonesia's creditor group, the Consultative Group on Indonesia, has been disbanded after President Susilo Bambang Yudhoyono said it was no longer needed. The January announcement was officially welcomed the World Bank, former CGI chair and one of Indonesia's three main creditors alongside the Asian Development Bank and Japan. Indonesia's Finance Minister Sri Mulyani said Jakarta now preferred bilateral lending agreements, which could be made without political costs and without going through "a long, meaningless ceremony". She said that foreign loans would still be needed but that budget deficits would covered by a range of measures, including issuing state bonds and privatisation of state assets.

A consortium of creditors and donor countries to Indonesia, the CGI was established in 1992 to replace a similar consortium, the Inter-Governmental Group on Indonesia (IGGI). The CGI was a grouping of around 30 bilateral and multilateral creditors, including the World Bank, Asian Development Bank, IMF and the governments of industrial states such as Japan, the USA, UK, which met to evaluate Indonesia's performance and set conditions for economic management, as well as agree loan commitments. (See DTE's IFI factsheets No 19 and No 32 for more background).

Last year, Indonesia secured CGI commitments worth US$5.4 billion in loans and grants. In September, the country's total external debt stood at USD 128 billion (of which 77 billion is owed by the government) - a figure which has been declining slowly from the economic crisis level of USD 151 billion in 1998. Indonesia's debt-to-Gross domestic product (GDP) ratio remained high last year - at an estimated 42 percent last year, although it is predicted to fall this year.

However, tens of millions of Indonesian remain in poverty, while a politically well-connected elite continues to control the bulk of the country's capital. Anti-debt campaigners are calling for Indonesia's illegitimate or 'odious' debt to be cancelled. The International NGO Forum on Indonesian Development (INFID) recently criticised Indonesia's full repayment of its debt to the International Monetary Fund, whose economic prescriptions during the financial crisis, contributed to the huge debt problems. (Jakarta Post 30/Jan/07, www.kau.or.id; www.infid.org; Bank of Indonesia statistics at www.bi.go.id; Antara 15/Jun/07; 25/Jan/07; World Bank statement, 28/Jan/07).

World Bank fails the poor

A report by the Bank's Independent Evaluation Group in December noted that, despite increased spending on poverty programmes, poverty increased between 2005 and 2006. In Indonesia, cash compensation has been handed out to offset higher fuel prices. But rice prices also increased by over 30 percent by early 2006. Poor families spend about a quarter of their income on rice, so poverty rose.

Meanwhile, a study by the United Nations University showed that the richest 2 per cent of people in the world own more than half of all household wealth, while the poorer half of the global population control just 1 per cent. The researchers defined wealth as the value of physical and financial assets less debts. Using data for the year 2000, the study calculated that global household wealth amounted to $125 trillion that year, or roughly $20,500 per person. But the average wealth was much higher in Japan ($181,000) and the United States ($144,000) than it was in India ($1,100) or Indonesia ($1,400), and that differences in wealth were greater than differences in annual income. (http://www.bicusa.org/en/Article.3041.aspx?, http://www.unu.edu/media/archives/2006/files/mre44-06.pdf.)

Plans for 3 more pulp & paper plants

PT Garuda Kalimantan Lestari intends to set up a 1.2 million tonne capacity pulp plant with a chemical plant producing chorine and caustic soda in Ketapang, West Kalimantan. PT Kaltim Prima Pulp & Paper wants to set up a similar sized pulp factory, costing Rp15.8 trillion (US$1.5 bn), probably in East Kalimantan. Meanwhile PT Tjiawi Kimia plans to invest Rp2.59 trillion (US$25 million) in building a tissue paper factory in Serang, Banten.

The three companies are planning to invest Rp34.2 trillion (US$3bn) according to Indonesian Investment Board data for 2006. In addition, Surabaya-based tissue company PT Suparma is investing Rp65 bn in expanding its 15,000 tonne production capacity. A possible 300,000 tonne kraft paper plant in Tanjung Jabung Barat, Jambi is also mentioned. The Department of Industry is reported to have set a 6.8% increase as the target for the paper and printing industry this year.

These proposals fly in the face of a 2005 CIFOR report which recommends that no more forest should be converted to pulpwood plantations (HTI). An analysis of data from five large-scale pulpwood plantations in Sumatra shows that the economic costs are far higher than the economic benefits to the government - by a factor of thirty! On this basis, the conversion of 1.4 million ha of forest in Jambi, Riau and North Sumatra to pulpwood plantations will cost Indonesia US$3bn in total. (Bisnis Indonesia 15/Jan/07; www.cifor.cgiar.org/publications/pdf_files/WPapers/WP30Maturana.pdf)

BP's Tangguh LNG project

The giant liquid natural gas (LNG) project being developed by BP in Bintuni Bay, West Papua, is moving towards commercial production. A recent development is the approval of the financing of two Russian tankers to a total of US$400 million by Tangguh's international creditors. The tankers will be under contract to ship LNG to Asia and the United States, when the project comes on stream in 2008. The combination of Russian tankers to be built in a South Korean shipyard, plus financing by Japanese, Australian and French banks (amongst others) to ship gas from a British-based multinational company to China and the United States, highlights the international nature of this controversial mega-project to exploit Papua's resources. (Reuter, 4/Oct/06)