Down to Earth IFIs Update

The Japanese Ambassador Yutaka Iimura, US Ambassador Ralph L. Boyce, Italian Ambassador Maria Greco (representing the European Union) and World Bank Director Andrew Steer visited Aceh from 13-15 January 2003 to demonstrate the support of the international community for the peace process in which the Indonesian government and the Free Aceh Movement (GAM) have agreed to end the conflict and begin post-conflict reconstruction in Aceh. This visit was a follow-up to the Preparatory Conference on Peace and Reconstruction in Aceh held in Tokyo on 3 December 2002. The donors participating in this conference agreed to provide economic aid to support the implementation of this agreement. The agreement was discussed in more detail at the CGI meeting 21-22 January 2003.

During this visit, the delegation met with both legislative and executive local government bodies, the Joint Security Committee, GAM, Muslim religious leaders, civil society representatives, humanitarian aid workers and the business community, as well as the Co-ordinating Minister for Political and Social Affairs, Susilo Bambang Yudhoyono. The delegation agreed that the most appropriate economic development model for Aceh was community-based development using a participatory approach, such as the Kecamatan (subdistrict) Development Programme pioneered by the World Bank and currently in progress. This is in keeping with the principles expressed by the donor community that there is a strong relationship between economic development and the peace process, meaning that not only can the peace process improve economic development but also that economic development can bring peace.

The World Bank alone has allocated US$8 million for a community aid programme. These funds have been provided as a follow-up to the Cessation of Hostilities Agreement of 9 December 2002. The World Bank will increase its aid to US$15 million if the initial stages of the programme run smoothly. This assistance programme will be carried out using a participatory development approach which the World Bank believes has proved successful in reaching the poor. The aid from the Bank will focus on building schools, clinics and irrigation systems in 5,000 villages in Aceh. It is intended that the community will be involved in the construction of this infrastructure.

Given the high level of corruption in Aceh and the tense situation caused by the arrest of activists from non-governmental organisations (NGOs), can a community-based development programme really succeed in Aceh? Especially since a strong civil society is one of the main requirements for the community-based development approach.

For more information, contact:

• Embassy of Japan, Jakarta, Hiroshi Matsuura 0811-806458 (matsuura@eoj.ntt.net.id)
  
• US Embassy, Jakarta, Tim Gerhardson – 021-3435-9523 (gerhardsonte2@state.gov)
  
• EU Presidency, Embassy of Greece, Jakarta, Maria Zissi, DCM – 021-520-7776 (grembas@cbn.net.id)
  
• World Bank Office, Jakarta: Thomas Walton – 021-5299-3052 (twalton@worldbank.org), Aceh:
• Mohammad Al-Arief – 0811-183611 (malarief@worldbank.org)
  
• Media Advisory, 23 March, 2002, World Bank www.worldbank.or.id

Resolutions from the CGI meeting in Bali 21-22 January 2003

This CGI meeting in Bali was the postponement of the meeting scheduled for the end of October 2002. The Indonesian government and CGI members agreed to postpone the meeting due to the Bali bomb incident on 12 October 2002.

At this, the 12th CGI meeting, creditor countries hoped to assist Indonesia cover the national budget deficit through the injection of new funds. In 2001, the CGI pledged US$3.14 billion of aid in the form of loans and US$568 million in the form of grants and technical assistance. However, the Bali bomb incident worsened the economic situation in Indonesia with the result that on 31 October 2002 the government and the DPR (Indonesian parliament) agreed the need for a stimulus package worth Rp5.9 trillion. If this package was not made available, then economic growth in Indonesia would fall from 5% to 4 %. The CGI itself asked the Indonesian government to increase its development expenditure for the economic sectors which had been negatively affected by the Bali bomb. In the draft agreement, the CGI agreed to an expenditure of Rp54.5 trillion for construction, agricultural development and social welfare.

The CGI itself was of the opinion that the Indonesian government should begin to reduce its dependency on overseas loans to cover its national budget deficit. However, attempts to obtain financial resources within the country, for example through selling off of assets (privatisation and divestment), were not possible as political and economic stability could not be guaranteed. Because of this, at the 1 November 2002 meeting, the CGI pressed the Indonesian government to immediately implement economic reform in order to increase market confidence.

The CGI, which is made up of 32 main creditors, including 21 countries and 11 multilateral lending institutions, such as the World Bank and the Asian Development Bank (ADB), agreed that the total loan to be approved by the CGI would be strongly dependent on progress on economic reform, including macro-economic stability and reduction in inefficiency in the form of corruption and state monopoly. In order to achieve this, the CGI requested that the Indonesian government redouble its efforts to improve the investment climate in order to stimulate growth and decrease poverty.

The 12th CGI meeting in Bali was attended by 11 ministers and representatives of civil society in Indonesia. This meeting noted that significant progress has been made in stabilising the economy but that there is still a substantial agenda to be addressed i.e. corruption, improvements in governance, problems in the forestry sector, and legal reform. The donors also praised the government's handling of the peace process in Aceh and the Bali bomb incident.

The emphasis on the forestry sector in the loan agreement referred back to the Letter of Intent (LoI) of 2001. This responded to the crisis in the forestry sector concerning illegal logging and the livelihoods of communities living around the forests, and also the issues of forest fires and the clearing of conservation areas. The Inter-departmental Committee on Forestry (IDCF) was formed to address the following:

• Restructuring of forest-related industries;
• Debt management in the forestry sector;
• Forest fire prevention/control;
• Decentralisation of forest management;
• Deforestation.

At this meeting, donor countries promised to disburse loans of US$2.7 million in the 2003 financial year, with the agreement that the Indonesian government would undertake the following:

• Improve the investment climate in order to stimulate growth and reduce poverty;
• Implement a poverty reduction strategy;
• Undertake legal reform as the key to increasing investor confidence, for example through the establishment of an Anti-Corruption Commission;
• Implement fiscal decentralisation. In principle the CGI is satisfied with progress on decentralisation and will implement the on-lending mechanism as part of the fiscal decentralisation programme. For this it is important to again revise the Law No. 22/1999 and Law No.34/2000 in order to support fiscal decentralisation. This revision process must be undertaken through a public consultation process;
• Due to the disappointment over the lack of efforts to address issues in the forestry sector, wider collaboration should be established between stakeholders, perhaps including those outside of Indonesia in order to address these forestry issues. Both donors and civil society stressed the importance of transparency and monitoring of all aspects of forestry, including increased control over the police and the military. The problems in the forestry sector are closely inter-related with timber smuggling, corruption and human rights abuses. In line with this, the Indonesian government asked all CGI member countries not to import illegal timber.

Co-ordinating Minister for Economic Affairs, Dorodjatun Kuntjoro-Jakti, stated that several agenda items will be prioritised:

• Encouraging investment, non-oil exports, and development of employment opportunities;
• Supporting fiscal sustainability in order to address domestic and foreign debt issues;
• Preparing the strategy needed for Indonesia to end its economic recovery co-operation with the IMF once the programme finishes at the end of 2003;
• Managing debt recapitalisation;
• Maintaining, rehabilitating and building vital infrastructure.

In order to do this, the government will:

• Form a National Team for Investment and Non-oil Exports which will be under the President;
• Form a Co-ordination Team comprising the Co-ordinating Minister for Economic Affairs, the Finance Minister and the Governor of the Bank of Indonesia, in order to prepare an exit strategy after the economic recovery programme of the IMF concludes at the end of 2003;
• The Minister for Economic Affairs, Dorodjatun Kuntjoro-Jakti, has already told the business community about the establishment of these teams in order to request their support and trust so that these teams can be more effective in addressing micro and operational issues.

For further information about the CGI meeting, contact:

Ms. Rajashree S. Paralkar, Country Officer, telp (202) 458 9050, fax:(202) 522 1671, e-mail: rparalkar@worldbank.org
The World Bank Jakarta, Mr. Mohamad Al-Arief, Communications Officer, telp (021) 5299-3084, fax: (021) 5299-3111, e-mail: mailto:malarief@worldbank.org.
. The Ministry for Economic Affairs, Indonesia Tel: (021) 380-8384 Fax: (021) 344-0394 Website: http://www.ekon.go.id

INFID's comments on the CGI meeting in Bali
INFID, as one of the Indonesian non-governmental organisation involved in the CGI meeting in Bali, made the following comments on the meeting to discuss Indonesia's debt:

• Poverty in Indonesia can only be overcome if the CGI changes its analytical model on the debt and economic situation in Indonesia, and also changes the structure and policy of the CGI itself;
• The problems in Indonesia are a result of the inappropriate policies of the IMF and the World Bank which have actually increased Indonesia's total debt, for example through the bank recapitalisation programme, the divestment of assets, and privatisation;
• In order to address the debt issue, the Government of Indonesia must be independent in its debt negotiations with the CGI;
• The debt problem cannot be overcome unless the privatisation programme requested by the IMF is cancelled or at least revised;
• The decision of the Indonesian Bank Restructuring Agency (IBRA) and the Financial Sector Policy Committee (FSPC) to restructure the debt of forestry sector companies has in fact assisted large companies (conglomerates) that are causing forest destruction in Indonesia. Because of this, it is preferable for industries which rely on forest resources for their raw materials to be closed down rather than restructured.

Source: INFID Statement to the CGI Meeting in Bali 21-22 January 2003. For more information, see: www.infid.or.id
DTE Factsheet No 24, July 2004 http://dte.gn.apc.org/Af24.htm A Summary of INFID's Position Paper on the CGI; and Factsheet No 19, Special CGI 2001 Edition http://dte.gn.apc.org/Af19.htm
The Statement by Forest Watch Indonesia regarding the CGI can also be obtained from Togu Manurung at mtogu@indo.net.id

Planned Meeting of the Extractive Industry Review 24-29 March 2003 in Bali

The Extractive Industry Review (EIR) was established in 2000 by the President of the World Bank in response to criticism from NGOs over the negative impacts, both social and environmental, arising from oil, natural gas and mining projects. The aim of the EIR is to assess the conditions that have to be met if the World Bank is to continue supporting these extractive industries (see also DTE Factsheet No. 20 and Factsheet No. 21on EIR and Update 29.

To achieve this, the EIR organised 5 regional Consultation Workshops attended by representatives from the government, industry and civil society from Latin America and the Caribbean, Eastern Europe and Central Asia, Africa, Asia-Pacific, and the Middle East and North Africa, together with the World Bank. These workshops were open dialogues to discuss projects in the oil, gas and mining sectors sponsored by the World Bank. The workshops, which were dominated by NGOs, called on the World Bank to pull out of these extractive industry projects. The results of the workshops can be seen in the EIR report (www.eireview.org).

The workshops that have already taken place are:

1. For Latin America and the Caribbean in Rio de Janeiro, Brazil, April 2002
2. For Eastern Europe and Central Asia in Budapest, Hungary, June 2002
3. For Africa in Maputo, Mozambique, January 2003

The fourth workshop for the Asia Pacific region to be held in Bali 24-29 March 2003 has been postponed following the outbreak of hostilities in Iraq*, while the date and time for the Middle East and North Africa regional workshop has yet to be determined. These meetings address the question: "Can the oil, gas and mining industries support sustainable development, and is this consistent with the World Bank's mission of sustainable development and poverty alleviation? If the answer is yes, how can this be achieved?"

In addition to these consultative meetings, there will also be field visits to several extractive industry projects in each region where the World Bank Group is, or has been, involved. In Indonesia, there will be two field visits: to Freeport McMoRan; and to Pama (PT Pamapersada Nusantara, a mining contractor company... (Source: http://www.walhi.or.id).

The NGO community has rejected the entry of the World Bank and its agencies into the extractive industry sector. At the international level, the Friends of the Earth (FoE) network is opposing the involvement of the World Bank in extractive industries through the campaign "World Bank Out of Mining, Oil and Gas". At the same time in Indonesia, JATAM and WALHI have rejected the additional debt and the support of the World Bank to the mineral mining industry. These NGOs believe that mineral resources should be managed by the Indonesian state for the benefit of a large proportion of its people.

An independent global workshop will be held in Oxford (UK) in April 2003 to provide an opportunity for Indigenous People's groups to present their experiences of extractive industry projects funded by the World Bank in their areas.

Contact: info@fppwrm.gn.apc.org

*The EIR meeting in Bali has been postponed due to concern over the safety of representatives from the World Bank and other international financial institutions, following the attack of America and her allies on Iraq. Latest news is that the meeting is planned to take place in Bali 26-30 April 2003.

Sources and additional contacts:

www.eireview.org
Prof. Dr. Emil Salim, Eminent Person: esalim@eireview.org Tel: +62 21 831 0574
Bernard Salomé, Head of Secretariat: bsalome@eireview.org Tel: +62 21 831 0574; +1 202 473 4432

Third Meeting of the World Water Forum in Kyoto 16-23 March 2003

The World Water Forum was held on 16-23 March 2003 in three cities in Japan - Kyoto, Shoga and Osaka - to discuss the global water crisis. At the moment, one in four people in the world suffers from a shortage of drinking water and one in three does not have adequate sanitation. This meeting, organised by the World Water Council, the Japanese government, the World Bank and the Asian Development Bank (ADB), was attended by more than 8,000 participants comprising government officials, scientists, NGOs and academics from five continents.

The result is global action concentrating on four main issues: developing a new water ethic, securing funding, improving water management for security and world peace, and focussing attention on developing countries. In addition to the water crisis, issues discussed in this meeting included other problems associated with food security, agriculture, the environment, sanitation, and poverty.

The President of the World Water Council, Dr Mahmoud Abu-Zeid, stated that the WWC will strive to provide aid worth US $800 billion over three years for water conservation, sanitation, agriculture, hydro-electric power development, and management of water reserves. He also stressed that the poor must be the main priority in efforts to improve access to water and sanitation.

Also during this meeting, Wouter Lincklaen Arriens of the ADB called upon developing countries to prioritise the water sector when promoting economic growth and poverty alleviation. However, he said, it is preferable that governments do not depend on financial aid from donor agencies and overseas investment to pay for water management.

The ADB itself stated that it will make available grants of US $10 million to address water shortages in Asian urban areas through the UN Habitat programme. An additional US $500 million will be provided over the next five years in the form of loans for sanitation and water projects in Asian cities. In addition to these programmes, Prof. John Soussan, Programme Co-ordinator for the ADB's Rural Water and Poverty Action Initiative explained that the ADB has an initiative that is more focussed on rural communities suffering from water shortages.

The meeting discussed the role of the private sector in improving financial and management efficiency, together with tariff systems to guarantee returns on investment. The Indonesian government itself justified the need for privatisation of water resources management in its "Indonesian Country Report" presented at the meeting.

Further information can be found at:

www.kompas.com
www.bisnis.com
www.thejakartapost.com