Down to Earth IFIs Update 25, March 2002

The World Bank is in the process of drafting a new Rural Development Strategy (RDS). The strategy articulates the Bank's priority goals and objectives in rural development and how these will be accomplished.

It is important that the new RDS strongly reflects the Bank's commitment to poverty reduction, emphasizing participatory processes at the local level and the peoples' priorities at national and regional levels. Key areas that the new RDS should address:

As a public institution, the Asian Development Bank has yet to make itself more accessible to its stakeholders and to the public in general by making information about Board members and Management staff available. To date, the ADB Directory is only available at the Bank Information Center (BIC) website http://www.bicusa.org/mdbs/adb/adborg.htm. BIC is an independent non-governmental organization that seeks more transparency at the multilateral development banks. Among the MDBs, the World Bank is the only one that has made its directory available to the public.

The ADB directory at BIC's website reflects the new ADB organizational structure.

Citizen groups are encouraged to directly contact parties in the ADB Board and Management with questions and issues that the Bank needs to know and/or address.

As Indonesia's electricity consumption is expected to double in 2010, assuming demand grows by an average 8% annually over the 2000-2010 period, the Indonesian state-owned electricity company, PLN, needs USD 10 to 15 billion in power investment over the next five years to prevent a power shortage. This need was estimated by PLN President Director, Eddie Widiono.

PLN has its eye on loans from development agencies such as Asian Development Bank, Japan Bank for International Cooperation (JBIC), and the World Bank's International Bank for Reconstruction and Development (IBRD), as well as from private foreign investors. The donors and investors, however, feel strongly that the country first needs to prove its creditworthiness and have a firm legislative system to ensure that investments will not result in severe losses, as were experienced after the Asia financial crisis hit Indonesia in 1997. Also, there is no independent assessment of whether the PLN's growth projections are realistic.

(Source: Dow Jones Newswires, February 5, 2002; The Jakarta Post, February 7, 2002)

The World Bank and Asian Development Bank signed a Memorandum of Understanding (MOU) for co-ordination and division of labour between the two institutions in their operations in the Asia-Pacific. The two Banks have been criticised for duplication and competition in their activities, creating problems and confusion for borrowing country governments and civil society groups. The Banks claim that the MOU will allow closer consultation between the two institutions and harmonise their operational procedures and processes toward higher efficiency and effectiveness at country and institutional levels.

Indonesia is restructuring its World Trade Organization (WTO) Negotiation Team, to include several experts before the next WTO Round Talks in June 2002. Several directors general from government departments will be included as well. The team will be chaired by Minister of Industry and Trade, Rini M. Soewandi.

In the past, Indonesian WTO negotiation teams consisted of only government officials and representatives of the Indonesian Chamber of Commerce and Industry. None of the teams included experts in WTO issues. These teams have been heavily criticized for poor performance during WTO meetings. They are also blamed for failing to articulate the people's interests.

There are no official nominees for the team experts. However, sources mentioned that the Ministry of Industry and Trade had proposed economists Djisman Simandjuntak and Mari Pangestu and former Indonesian ambassador to WTO, Hasan Kartadjoemena.

Presidential Decree No. 18/2001 which appointed the current WTO Team will be revised by June 2002 to formally set up the new Team, just in time for the June 2002 Talks. The WTO has given its members until June of this year to set out their positions on the service sector, which it proposes to liberalize.

Squatters in Jakarta, West Java, and Banten provinces will receive a Japan Social Development Fund (JSDF) grant of USD 2 million. The money will not be given to the government but will be directly channelled to the squatters. The government will help only in the process of improving the living conditions of squatters. The Director of Housing and Resettlement at the Ministry of Resettlement and Regional Infrastructure acknowledged that the government's efforts to evict illegal squatters from several prohibited areas have failed, as squatters keep returning.

The government has yet to disclose the details of the JSDF program and how participation, distribution and transparency mechanisms will be established and implemented in the program.

The Indonesia Law Center has recently launched its website www.indonesialawcenter.com. Managed by experienced legal practitioners, the website provides information and legal services online. It offers online consultation on detailed Indonesian legal issues, an online law library listing recently-approved laws and regulations as well as those under preparation/deliberation, and online registration for intellectual property rights.

This website is perhaps the most comprehensive online information available on Indonesia legal issues. However, the majority of the information is available only in Indonesian: a major hurdle for foreign users who would most likely have the highest demand for such information.

CIFOR Report Reveals Manipulation of IBRA by Indonesian Forest and Plantation Debtors

A new report by the Center for International Forestry Research (CIFOR) reveals the manipulation of the Indonesian Banking Restructuring Agency (IBRA) by the Barito Pacific and Salim groups, two major forest and plantation companies in Indonesia. The report is titled "Forgive Our Debts: Manipulation of IBRA by Forest and Plantation Debtors; The Latest Chapter in Indonesia's Rentier Economy."

During Soeharto's era, a number of private business groups with substantial activities in the forest and estate crop sectors received enormous amounts of financial capital from the government. When Indonesia was hit by the Asia financial crisis, these companies underwent financial difficulties and were unable to pay back their loans. All of them went to the IMF-sponsored IBRA for debt treatment. The government has vowed to recover these loans, while in fact it has forgiven part or all these loans.

The report identifies two main negative consequences of this decision by the government. First, the government's forgiveness of huge amounts of these debts – amounting to USD 5 billion for Barito Pacific and Salim – is purely a transfer of money from Indonesian taxpayers and depositors to these two groups. To the extent that there are more socially useful things that could have been done with this amount of money, Indonesia incurs a net welfare loss. Second, if the loans originally borrowed by the two groups have been harboured in overseas bank accounts and holding companies (of which economic sleuths have identified dozens) instead of being spent, at least part of this capital will eventually make its way back into the destructive forestry and plantation activities of the two groups.

The report offers recommendations on reclaiming the lost money and efforts to control the adverse impacts on the forestry and plantation sectors in Indonesia.

Strong Association Between Oil & Mineral Dependence and Poverty Found in Recent Oxfam America Study

Oxfam America published in October 2001 a report titled "Extractive Sectors and the Poor", written by Professor Michael Ross of the University of California at Los Angeles. The report examines how states that rely on oil and mineral exports address the concerns of the poor. Its central finding is that oil and mineral dependence are strongly associated with poverty, and poor states' performances are related to corruption, authoritarian government, government ineffectiveness, military spending, and civil war. Yet international financial institutions such as the World Bank continue to promote these industries for poverty reduction purposes.

To address the problems, Oxfam calls for oil- and mineral-dependent states to diversify their economies and specify in advance how the resource revenues are to be used to alleviate poverty. It also calls for the World Bank Group and OECD states to take measures to help this process and only offer extractive sector assistance to states that have become democratic and have demonstrated a commitment to fighting poverty.

This report is timely in that it provides input and analysis for the ongoing World Bank Group-sponsored Extractive Industries Review (EIR) (see Factsheet 20 and Factsheet 21).

This IFI update is published by Down to Earth, the International Campaign for Ecological Justice in Indonesia.
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