Groups Warn IMF, World Bank That Proposed Loans Will Worsen Indonesian Crises

In a letter sent today to the heads of the World Bank and the International Monetary Fund (IMF), an international coalition of environmental, development, and human rights groups warned that current and proposed loans totaling tens of billions of dollars to Indonesia may worsen the country’s economic meltdown and deepen an environmental and social crisis of unprecedented proportions. The 55 groups, representing six million members and supporters in nineteen countries, are increasingly concerned that the IMF and World Bank are supporting the second biggest public bailout in history without sufficient political will, consistency, and monitoring to ensure that the Suharto regime will undertake even the most elementary reforms.

“We are deeply concerned over the IMF’s lack of success in disbanding government approved monopolies and cartels,” said EDF scientist Stephanie Fried. “Monopolies such as the plywood, paper and rattan cartels have caused massive environmental and social destruction and engendered huge economic inefficiencies.”

The January, 1998 IMF letter of intent with the Indonesian Government explicitly calls for removing “all formal and informal barriers to investment in palm oil plantations.” Fried said that “a significant part of last year’s disastrous Indonesia forest fires were associated with plantation expansion, and there are reports of attempts at forced plantation establishment on the forested lands of indigenous peoples in Borneo in the wake of the IMF letter of intent.”

“The IMF and World Bank will lack all credibility in calling for greater financial transparency and accountability in Indonesia and East Asia if they do not undertake reforms to carry out the same principles in their own operations, starting with the bail-out package in Indonesia,” said EDF senior attorney Bruce Rich.

The letter called upon the World Bank and IMF to hold Indonesia to its initial agreement with the IMF. The agreement would dismantle environmentally and socially harmful cartels and monopolies involving trade of plywood, rattan, paper and other non-food commodities and halt subsidies for mega-projects which should include those that threaten two million hectares of tropical forest in Kalimantan (Borneo) and Irian Jaya. The letter warned that explicit encouragement of investment in palm oil plantations by the IMF risks fueling further burning of forests associated with expansion of plantations, exacerbating an ongoing environmental catastrophe. In addition, the groups urged the Bretton Woods Institutions to promote greater transparency in their current operations in Indonesia. Two proposed billion dollar quick- disbursing loans of the World Bank are currently exempt from its own environmental, social and information disclosure directives. The IMF’s call for greater transparency in Asian economies will lack credibility if the Fund does not undertake long overdue reforms to make its own operations more open.

The letter from the 55 NGOs, including leading Indonesian research and advocacy groups, notes that two huge proposed plantation projects that receive Indonesian government subsidies will “have disastrous implications for tropical forest resources, the sustainability of indigenous local economies, and risk expanding forest fires that will damage not just national but regional economic well being.”