General Statement on World Bank Structural Adjustment Loans to Indonesia

General Statement on World Bank Structural Adjustment Loans to Indonesia and Why the Suspension on $600 million Should be Upheld

1 August 1999 - Lynn Fredriksson and John Miller, East Timor Action Network / U.S.

All World Bank sectoral and structural adjustment loans to Indonesia should be further suspended until after Indonesia stops paramilitary violence in East Timor, until after a free and fair vote in East Timor, and preferably until after a peaceful transition of government following the presidential elections in Indonesia. Continuing Indonesian military violence in Aceh, West Papua and other areas of Indonesia, as well as East Timor, are of grave concern. Within the last week alone Indonesian forces have killed scores in separate attacks in Aceh.

When Indonesia claims it has met the required 10 of 25 World Bank Complaints, it is essential that several crucial actions be taken immediately by the World Bank before any decision to release further project loans is made. These include should include:

(1) full board discussion of the validity of Indonesia's claims of compliance with each specific Complaint;

(2) full board discussion of additional complaints that could and should be added before any release of further funding;

(3) an adequate period of public comment by Indonesian NGOs; and

(4) the dispatch of a field team of bank staff including the task manager to both Indonesia and East Timor to supervise an independent Bank investigation of Indonesia's claims.

In addition to the 25 World Bank-identified Complaints, severe violations involving the misuse of international assistance have been reported in East Timor as well as in Indonesia. One significant example involves vast quantities of rice provided by World Bank programs in East Timor misused by Indonesian military forces and distributed by paramilitary units. This is totally unacceptable, violating the intention of relief aid and handing human rights abusers another tool of coercion and intimidation.

A recently leaked World Bank OED report illustrates a reluctance to take action on known instances of Indonesian corruption. This report clearly indicates that current loan conditionalities are insufficient. There are obvious problems in communication between mid-level and senior Bank management if certain officials were in possession of such an assessment that doesn't seem to have reached senior officials. Essentially, Bank officials were aware long before their public release of leaked Indonesian occupation government documents spelling out the approved misuse of Social Safety Net funds in at least three regencies in East Timor. These funds were ear-marked to support both pro-autonomy campaigning (in contravention of the May 5 UN agreement) and civilian defense corps (paramilitaries).

The World Bank should continue to withhold the current Social Safety Net Adjustment Loan until after East Timor votes for autonomy or independence. Indonesia should not be rewarded for refusing to live up to its commitments. Under the May 5 UN agreement setting up the vote. Indonesia is supposed to stop paramilitary violence in East Timor, and its officials aren't allowed to campaign.

BACKGROUND

The World Bank may soon decide to release $300 million of a planned $600 million Social Safety Net Adjustment Loan (SSNAL) to Indonesia. Indonesia could announce that its met some 10 of 25 required conditions to release the loan as early as Monday, August 2. The World Bank could release the currently suspended money soon after that.

According to a coalition of over 400 Indonesian and East Timorese organizations, there is evidence of significant abuses of Social Safety Net Funds in East Timor, "most of which are connected to the pro-integration campaigns and the support of pro-integration militias who are proven actors of terror and intimidation towards the East Timorese population." (http://www.etan.org/action/latest/budiono.htm)

Releasing these funds now would certainly send the wrong signal to Indonesia. The World Bank must make clear that aid to Indonesia is contingent on a free and fair UN ballot in East Timor and peaceful transition to East Timor's new political status.

The Indonesian and East Timorese groups say that without donor commitment to the rights of the East Timorese people, "millions of dollars of SSN funds, its implementors and its donors will be directly linked with the terrible violations of human rights in East Timor." The World Bank placed a hold on $600 million in SSNALs to Indonesia -- after approving them in May-- due to concerns about past abuses of SSNAL funds and fears about their misuse during Indonesia's elections. Indonesia has a history of misusing international funds to influence elections.

Indonesian activists requested that the funds be blocked until the establishment of a new government, but the World Bank only agreed to block the funds until the first stage of the June 7 national Indonesian election. The bank listed 25 problems (Complaints) with the SSNAL programs. Indonesia is supposed to fix 10 of them to get half the funds. One of these involved a threat by the Bupati (district head) of Ambeno to withhold poverty aid from villages who failed to attend meetings promoting autonomy for East Timor. Indonesia says they have satisfactorily addressed 10 Complaints and should now get the money. Clearly, they haven't addressed the Complaint pertaining to Ambeno, nor considered many other potential complaints concerning still-occupied East Timor.

On July 17, ETAN urged the World Bank and other donors to postpone any aid until after East Timor votes. "Pledging further financial assistance to Indonesia at this time would send an entirely wrong message to Jakarta, which has failed to stop military-supported paramilitary terror in East Timor, despite its commitments under the May 5 UN agreements," ETAN said in a press release. (http://www.etan.org/news/news99b/postpone.htm).

In June, ETAN urged the World Bank to continue to withhold Social Safety Net Funds (SSNF) for Indonesia due to evidence that these funds are being misused in East Timor. Leaked local government documents from East Timor show that SSNF were approved to pay civil defense units (CDUs), some of which incorporate paramilitary militias whose violent activities threaten to derail the August vote on the territory's political status. One of the regencies filing these documents was Ambeno, already named in one of the 25 World Bank Complaints. ETAN called for an audit of any bank funds used to date in East Timor. The World Bank has yet to respond to that request, but has since pulled its personnel from East Timor due to concerns about their security. (http://www.etan.org/news/news99b/worldbnk.htm)

END

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