“The shocking conclusion is that if we utilize the standard of project success as defined by the 2000 bipartisan Congressional International Financial Advisory Commission (the Meltzer Commission) – project sustainability - it appears that at least 70% of Indonesia's ADB projects are not likely to produce lasting economic or social benefits for the country - a disaster for heavily indebted Indonesia.”

Summary

Indonesia is, by far, the Asian Development Bank's largest client country. In 1969, the ADB made its first loan to Indonesia for an irrigation project. By 2000, Indonesia owed the Bank over $16 billion. This summary represents an attempt to assess the ADB's record in Indonesia, based entirely on the Bank's own documents. It includes assessments and summaries in the Bank's own words of over half a billion dollars worth of ADB loans to Indonesia. The shocking conclusion is that if we utilize the standard of project success as defined by the 2000 bipartisan Congressional International Financial Advisory Commission (the Meltzer Commission) -- project sustainability -- it appears that at least 70% of Indonesia's ADB projects are not likely to produce lasting economic or social benefits for the country -- a disaster for heavily indebted Indonesia.

In 1993, when Indonesia's debt to the ADB totaled $10 billion, auditors rated a mere 57% of the Bank's Indonesia projects that it had assessed between 1966 and 1993 as "Generally Successful." This reflects the average "Success" rate of ADB projects throughout the Asia-Pacific region as documented in the March 2000 "Report of the [ADB] President to the Board of Directors on 1998 Evaluation Activities and the Twenty-First Annual Review of Evaluation Reports." The 2000 President's Report finds that "in both 1998 and 1999, just under 60% [of the loans audited] were generally successful, 30 percent partly successful, and the remainder unsuccessful."

If we assume, for the moment, that ADB projects rated "Generally Successful" actually were successful, and if we extrapolate these numbers to the $16 billion of debt generated by Indonesian ADB projects through 2000, this would mean that by 2000 close to $5.9 billion of Indonesia's debt load was generated by largely unsuccessful, wasteful or harmful projects. This does not include the additional matching counterpart funds that the Government of Indonesia spent directly on ADB projects or corresponding "sister institution" loans -- i.e. from the World Bank, export credit agencies, and other lenders for projects involving ADB finance.

Project Sustainability

However, such an assumption most likely greatly understates the failure of ADB investments to provide lasting economic and social benefits to the Indonesian people since, by the ADB's most recent estimate, half of the projects rated "Successful" are, nevertheless, of questionable sustainability. That is, they do not provide long term economic benefits either during or after the lifetime of the project. Again, the 2000 President's Report: "The Operations Evaluation Office uses four criteria to measure project and program success: relevance, efficacy, efficiency and sustainability. It is in the fourth category, sustainability, where many otherwise successful endeavours are found wanting. More than half of the Project Performance Appraisal Reports, Technical Assistance performance audit reports and re-evaluation studies from 1999 discuss sustainability issues.

Last year's bi-partisan Congressional International Financial Institution Advisory Commission (the Meltzer Commission) found, in its assessment of multilateral development finance, that project sustainability determines whether or not a project provides lasting, long term economic and social benefits. The Meltzer Commission considered the lack of project sustainability synonymous with project failure and found sustainability to be a much more important indicator of failure or success than what the ADB calls "General Success" or what the World Bank calls "Successful Outcomes."

If the "Successful" rating of the ADB's Indonesia projects has been overstated, or merely reflects the provision of ADB "inputs" during a loan period and does not reflect actual project sustainability, then the level of wasted funds is likely to be much higher. Given that, in 2000, the ADB's Operations Evaluation Office found that half of all audited projects rated "Successful" by the Bank were of questionable sustainability, there is a considerable likelihood that more than 70% of Indonesia's ADB projects will fail to produce lasting economic or social benefits to the country. This is a clear disaster for the heavily indebted Indonesian economy, given that unsustainable and failed projects are potentially the equivalent of $11.36 billion of Indonesia's $16 billion in ADB debt.

Agro-industry loans

Of the Indonesian projects evaluated by auditors in 1993, the "agro-industry sector" made up the majority of ADB loans. A total of $2.9 billion in loans had been made for 71 projects, representing 40% of the Bank's projects in Indonesia. Seventy percent of the agricultural projects assessed were not "Generally Successful" that is, the auditors rated them "Unsuccessful" or "Partially Successful", a term which appears, upon closer scrutiny of Bank documents, to be a euphemism for "troubled" or "largely unsuccessful." Only eight projects were rated generally successful. The agricultural projects had an average implementation delay of 2.2 years, or a 59% time overrun. Twelve projects had cost overruns averaging 108%, while 14 projects experienced cost underruns of 25%

Accessibility

A few years ago, the ADB announced that it would make its project documents widely accessible to the public. By April, 2001, the Bank's website listed 104 Indonesian projects, of which 19 individual project reports were "clickable" and for which Performance Audit Reports or similar documents were available directly via the internet. It is assumed that the project audit documents posted on the Bank's website represent a non-random sample, in that they are a small portion of existing project documents and are therefore those that the Bank wishes to be made available for public access via the internet.

The Environmental Defense report presents an analysis of documents typical of those posted on the web, chosen to represent categories of projects rated "Generally Successful", "Partially Successful", and "Unsuccessful" by the Bank. A search through the ADB's records of its projects revealed that projects rated "Generally Successful" by the ADB can involve massive unmonitored resettlement components, can be (according to ADB auditors) patently unsustainable, can include projects where "record keeping also seems to have been abandoned" and can be (according to auditors) so poorly structured that rapid deterioration of project infrastructure is inevitable.

For further details please contact Stephanie Fried at Environmental Defense
E-mail: Stephanie_Fried@environmentaldefense.org

The ADB Indonesia website is http://www.adb.org/Indonesia/default.asp

ADB Indonesia project reports are at http://www.adb.org/indonesia