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The World Bank published a special report on Monday October 1, 2001 on the economic and social impacts of the terrorist attacks on September 11, 2001. The attacks in the US led to a further slow-down in the economies of the US, Japan, and Europe and this is significantly hurting economic growth in developing countries worldwide. The Bank estimates that between 20,000 and 40,000 more children will die worldwide and some 10 million people will be condemned to live below the poverty line of USD 1.00 a day because of the attacks.
While the International Monetary Fund has been hesitant to predict in numerical terms how growth will be affected by the attacks, the World Bank report paints a specific and grim picture of both the economic implications and the drop-off in private capital flows to emerging markets. OECD countries' growth - initially projected at 1.1% this year and 2.2% next year - has been trimmed down to 0.75% and 1.25%. The report assumes that business will return to normal by mid 2002.
President Wolfensohn's solution to this gloomy projection is greater financial support from bilateral and multilateral sources such as governments and international institutions. He mentioned several strategies to cope with the impacts of the attacks: an increase in international aid of USD 10 billion to USD 20 billion each year to a total of about USD 100 billion more in coming years; the opening of trade for developing countries; continuing coordination of monetary and fiscal policies; and building social consensus for continued reforms. He further mentioned that there was also the need for more social equity and political stability in disadvantaged parts of the world.
The Bank does not specify the title of the report. It claims that it is a preliminary economic assessment and that further work is ongoing.
(Sources: International Herald Tribune, October 1, 2001; World Bank News Release no. 2002/093/S, October 1, 2001)
World Bank and IMF Money To Be Used to Support American Political Agenda
The war against terrorism mobilized by the Bush Administration and supported by the Group of seven major industrial countries - the largest shareholders of the Bank and Fund - will very likely use their influence to channel billions of dollars in loans on easy terms to strategically important countries like Pakistan. Many World Bank and IMF staff believe that Washington's foreign policy goals will now override economic concerns more than ever in determining how and where the dollars are to be spent.
The World Bank and IMF have been in a similar situation before. In the case of Zaire, for example, the Bank and the Fund gave nine IMF and World Bank adjustment loans despite the widespread knowledge of the corruption of Mobutu Sese Seko's regime. On September 29, 2001 the IMF Board approved - as previously scheduled - a USD 135 million loan for Pakistan, the final installment of a one-year USD 600 million adjustment package. IMF officials insisted that their decision was thoroughly justifiable because Islamabad had met most of the conditionalities attached to the loan. However, a senior IMF staffer said that although the Government of Pakistan had kept many of its pledges, it had failed to deliver on others, including tax collection. This, according to the source, had made the chance of board approval only 50-50, prior to the September 11 attack.
Some analysts familiar with Indonesia have predicted that Indonesia may also enjoy an easy access to World Bank and IMF loans as well as a better deal in debt rescheduling and reduction in the near future. Indonesia hosts the largest Moslem communities in the world and Washington needs Jakarta's support in combating terrorism.
(Sources: Washington Post, September 30, 2001; Reuters, September 21, 2001)
World Bank to Extend Indonesia's access to Zero-Interest Credit
In the meeting between Megawati and the World Bank during the Indonesian President's visit to the US in September 2001, the Bank disclosed the possibility of extending access to the resources of the International Development Assistance (IDA). The IDA is an arm of the World Bank that provides less developed countries with no-interest loans, a longer grace period and a repayment period of 35 years.
Indonesia had been granted temporary access to these funds since the country was hit by the economic crisis. However, the Bank was hesitant to continue providing this access to Indonesia because its economy was considered in better shape than, for example, African or South Asian countries. Some critics have said that Indonesia should have had greater access to IDA given that its low per capita income meets the criteria. However, the Indonesian government seems reluctant to further pursue this due to the problem of being known as an IDA recipient. IDA countries are mostly poor countries with the lowest economic capability in the world. Such a label is perceived as discouraging to foreign investors.
Because IDA funds are usually attached to more stringent conditionalities than IBRD funds, Indonesia may have to work harder in the governance sector, including tackling corruption problems. Megawati's administration does not have a strong track record in this area. Her recent decision to appoint a non-reformist Attorney General indicates a lack of commitment to combat massive corruption and problems in the judicial system. A recent blow to Megawati is a supreme court decision quashing the graft conviction and jail sentence of Tommy Suharto, fugitive son of the former President Suharto.
Concerns have been raised that the additional, easy-to-get, and less expensive money that Megawati will receive from IDA loans may just go into the pockets of corrupt officers as happened with former administrations.
(Sources: Reuters, September 21, 2001; INFID Position on CGI Meeting 6-7 November, 2001; AFP, October, 2, 2001; Australian Financial Review, October 3, 2001)
Paris Club Meeting Delayed due to the September 11 Attack
The Paris Club of creditor countries was scheduled to meet in Paris in mid-September, 2001. However, the September 11 attack has postponed the meeting to an uncertain date. The Paris Club meeting would have formalized the rescheduling of USD 2.8 billion debt maturing in March 2002.
IMF Representative in Indonesia, David C.L. Nellor acknowledged that delaying the meeting caused uncertainty. In addition, there are concerns that the U.S. economy - Indonesia's biggest export market - will be further slowed by the impact of the terrorist attacks. These two issues are weighing heavily on the fragile Rupiah. The current Rupiah value is about 10% lower against the US dollar than it was before September 11.
(Source: The Jakarta Post, September 21, 2001)
INFID releases a Position Paper on the CGI Meeting of November 7-8, 2001
The Consultative Group on Indonesia (CGI) will meet in Jakarta on November 7-8, 2001. Details of the meeting agenda are not yet available to the public. The International NGO Forum on Indonesia Development (INFID) - an umbrella organization of about 100 Indonesian and non-Indonesian NGOs working on Indonesian development -- has published a position paper on the coming CGI. Among the recommendations in the paper are:
(Source: INFID Position on CGI Meeting 6-7 November 2001: Reform the CGI, Cancel the New Order Debt, Reform the Military)
Contact: Wiwit Siswarini at INFID wewith@nusa.or.id
World Bank-sponsored "Cities without Slums" Misinterpreted by Local Administration
The Jakarta-based Urban Poor Consortium (UPC) has protested against the misinterpretation of a poverty alleviation program initiated by the World Bank and the United Nations. Indonesia's local administrations are using the "Cities without Slums" Program as a mandate to drive the poor out of cities. Wardah Hafidz of UPC said that city's public order officers have used violence in recent raids against pedicab drivers and street vendors. Despite harsh criticisms from UPC and other citizens groups, Jakarta Governor Sutiyoso pledged that operations would continue to maintain order in the city.
The protest was staged at the World Bank building in Jakarta. In response to the protest, World Bank Acting Director in Indonesia, Vikram Nehru, promised to notify both the World Bank and UN headquarters of the concerns.
(Source: Jakarta Post, October 2, 2001)
New ADB Loan Strategy to Indonesia
The ADB is prepared to lend Indonesia between USD 600 million to USD 1.2 billion annually over the next three years. The conditions that Indonesia needs to meet in order to qualify for the higher end of the lending range are:
(Source: ADB Review, July-September, 2001).
Kedung Ombo Dam Victims Delay the Deadline to Drain the Dam
About 5,000 people affected by the World Bank-funded Kedung Ombo Dam are waiting for the command to drain the dam if their demands to the Central Java Government are not met. However, they have agreed to extend the deadline to avoid adverse impacts to communities in Kudus, Grobogan, and Pati areas downstream from the dam. These communities will suffer from sudden flooding if the dam is drained. A number of the affected communities are now teaming up to develop a plan on how to drain the dam safely. The team has also involved experts in dam construction and technology.
The affected communities are demanding that the Governor of Central Java re-open the Kedung Ombo case and enter into negotiations on land compensation. However, the Provincial and Regency governments both insist that the Kedung Ombo compensation issue is closed. The government has asked the local court to keep the compensation money not yet paid to 662 claimant families. The Government further said that it is running a welfare program which includes the improvement of infrastructure, such as bridges, roads, schools, and the provision of seedlings.
The dam was built in 1987 with loans worth USD 156 million from the World Bank and USD 25.2 million Japan's Exim Bank. Problems of land acquisition and compensation have never been fully resolved. The affected communities suffered from terror, intimidation, and physical violence due to their resistance to the project.
(Source: Koran Tempo, September 10, 2001)
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