Down to Earth IFIs Update

The Indonesian government reached agreement with the IMF on the new Letter of Intent (LoI) on May 19 and now await IMF approval from Washington IMF HQ. IMF country representative John Dodsworth said he expected the IMF Board to approve a $400 million tranche by May 31. Funds will then be disbursed at the beginning of June. The GoI needs IMF executive approval of the latest review by June 5 in order to comply with requirements set down by the Paris Club, the umbrella body for Indonesia's main creditors.

In early April the IMF said it would delay the tranche because of concerns about the progress of Indonesia's economic reform program. The IMF took issue with 42 of the 118 reform items promised in the GoI’s January 2000 Letter of Intent. IMF acting Managing Director Stanley Fischer met President Abdurrahman Wahid in early May and urged him to speed up economic reforms. Almost immediately after the meeting Wahid sacked two economic ministers.

The new program sets a number of new deadlines for June, in particular, to deal with private debtors and to press ahead with the sale of up to US$80 billion in assets acquired by the government as part of its bank rescue package. To implement these measures will mean the bankruptcy of a large number of Indonesian companies as well as reducing government spending and privatising state-owned enterprises.

The International NGO Forum on Indonesian Development (INFID) has called for the new Letter of Intent between the GoI and IMF to be debated in the House of Representatives (DPR). INFID wants the LoI be made public and written in Indonesian language before being signed.

IMF representative Dodsworth has made it clear that the Wahid government had to press on with the agenda regardless of the impact. In particular the status of the delay in controversial fuel price rises remains ambiguous. The rises were postponed indefinitely, with IMF approval, due to fear of fresh outbreaks of civil unrest. However these measures are included in the new LoI.
(Sources: Dow Jones Newswires, May 15; Antara, May 5; Asia Pulse, May 8; Indonesian Observer, May 21)

For new May IMF deal see
http://www.thejakartapost.com:8890/imf_loi_2.htm
For Lanuary LoI see
http://www.thejakartapost.com:8890/imf_loi.htm

Asian Development Bank under fire

The Asian Development Bank ended an unusually stormy annual meeting on May 8th in Thailand, assailed by protesters claiming the bank's policies hurt the poor, and hindered by the US refusal to consider a capital increase for the agency. The USA is concerned that Japan has too much power in the ADB. About 4,000 demonstrators pushed over crowd-control barriers and confronted around 2000 riot police in a protest against the ADB. Most of the protesters were from NGOs or from communities who had lost their land or livelihoods due to ADB-funded projects.
(Sources: Washington Post, May 7; AP, May 7)

Damning internal World Bank report on Indonesian Forestry

The World Bank’s OED (Operations Evaluation Department) has produced a damning report on the Bank’s involvement in Indonesian forestry issues. It rates the Bank’s performance as ‘highly unsatisfactory’ and notes that ‘the rapid pace of deforestation and highly inequitable distribution of the benefits have contributed to significant negative environmental and social impacts.’ The OED Report is one of the six country case studies, which feed into the Banks Review of its 1991 Forestry Strategy. A regional consultation which Indonesian civil society groups attended, was held in Singapore on April 26-28.

The OED Review can be found at http://wbln0018.worldbank.org/essd/forestpol-e.nsf/MainView?OpenView
Down to Earth’s critique of the Review is at www.gn.apc.org/dte/caoed.htm

World Bank Preparing New Environment Strategy

The World Bank Group is preparing a new environment strategy aimed at integrating environmental concerns into its mainstream poverty alleviation and economic development efforts. The draft strategy was presented to the Council of the Global Environment Facility on May 8th. Over the next six months, there will be consultations with client country governments, NGOs, and other partners around the world. (World Bank News, May 9).

Further details at http://www.worldbank.org/environment

New IFI loans disappear in payment of Suharto era debt

A new World Bank report “Indonesia: Public Spending in A Time of Change”, released at the beginning of May, notes GoI’s soaring debt – from a pre-crisis level of 24 percent of GDP to more than 90 percent currently. As a result, the Report says, the government will face fiscal difficulties throughout its term, which ends in 2004.

The total GoI central government debt has risen to US$ 147bn of which US$ 62.87bn is foreign debt. Half of the budget deficit is currently in debt repayments. This is an enormous problem and a real budgetary drain. In February 2000, the CGI aid donors committed up to US$4.7bn of which US$ 3.3bn will be used according to the budget. However, this CGI money (known as Official Capital Movements) will be used mostly for debt payments in FY2000 (!). In other words, new loans are being swallowed up in paying debt interest on old loans.

Instead of finding ways to reduce this huge debt repayment burden, discussion has centred on reducing subsidies on food, fuel, fertiliser and power to cut costs. This is despite the fact that budgeted amount for debt repayment is twice the size of the amount allocated to subsidies, and that reducing subsidies will hit the Indonesian people very hard. The stumbling block to debt repayment reduction or debt cancellation is probably the IMF and other creditors' unwillingness to set what they see as a dangerous precedent. Cancelling debt would be tantamount to accepting guilt for Suharto’s corruption and might give rise to demands in other countries with corrupt leaders that their IFI debts could be cancelled.

Furthermore, it is open to question whether Indonesia needs IFI money at all. Capital controls (such as Malaysia used in the 1998 financial crisis) could more than cover the deficit. Capital flight (or “exported money”) is projected at $4.4 bn for the financial year 2000.

For Budget Data see www.thejakartapost.com:8890/budget2000.htm

Budget	Financial Year 2000
Total Debt Interest Payments	US$ 7.8bn
Total Domestic Subsidies	US$ 4.4bn
Debt Repayments (principal)	US$ 3.3 bn
Official Capital Movements – CGI/donor Money	US$ 3.4 bn
Capital Flight	US$ 4.4 bn
Military Budget (USA State Dept. Estimate)	US$ 1.7 bn

Far reaching ADB Loan to de-regulate and liberalise Indonesian Industry

ADB has announced a loan of US$200m that will be used for far-reaching policy reforms to deregulate and liberalise Indonesian industry. In addition, the ADB is providing two technical assistance grants: US$1.5 million for a task force to Promote Deregulation and Competition and US$2 million for another task force to develop a strategy for Small and Medium Enterprise Development.(Source: ADB News Release No. 23/00, 16/3/00)

Further information on this loan at
www.adb.org/News/2000/pi023-00.asp?news=023

Inquiries to: Rita R. Festin
Tel: (63-2) 632-5881
E-mail: rfestin@adb.org

ADB Indonesia News at
http://www.adb.org/News/newsctry.asp?ctry=INO