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Rejection of Debt for Climate Change Response

Amid the International Forest and Climate Conference held in Oslo, Norway, anagreement has been reached between Indonesia and Norway to work togethertowards reducing greenhouse gas emissions caused by deforestation and forestdegradation. The Norwegian government has pledged USD 1 billion worth of grantas a form of its direct payment for greenhouse gas emissions cuts by 2013. TheIndonesian government on the other hand is committed to refrain from issuing newpermits for forest and peatland conversion in the next two years.

Grants related to climate change are projected to reach substantial amounts. Asidefrom Norway, many other developed countries are also expected to provide grantaid aimed at financing measures to prevent global climate change. In light of this,grant cooperation should become the priority of the Indonesian government.

The Indonesian government instead, has secretly entered into a new debt

agreement. In efforts to mitigate climate change, Indonesia has opted to yet againsecure additional loan from the World Bank worth USD 200 million, JapanInternational Cooperation (JICA) worth USD 300 million, and Agence Francaise deDevelopment (AFD) for USD 300 million. As such, President SBY’s earlier statementto only seek grant aid for climate change financing is indeed an outright public lieas it is apparent in the revised state budget for 2010 that the government hasobtained additional debt for financing climate change from the World Bank, JICA,and AFD.

This is indeed a regrettable policy given that the government can avail itself toample opportunity for securing grant aid for climate change, and also due to severalother considerations. First, additional debt will increase the budget’s burden. Thegovernment’s debt currently reaches more than Rp 1588.02 trillion (source: StateDebt Trend, Edition May 2010, Directorate General of Debt Management, Ministry of Finance). Although the government claims that the proportion of debt has reducedto below 30% of GDP, the fact remains that the debt burden puts a heavy strain onthe state budget. In the revised 2010 state budget, principal payment amounted toRp 110 trillion while interest payment totaled Rp 115 trillion (statement fromFinance Minister Agus Martowardojo, 25 May 2010); much higher than the Ministryof National Education’s expenditure of Rp 61.476 trillion and the Ministry of Health’sspending of only Rp 22.429 trillion or that of the Ministry of Forestry amountingmerely at Rp 4 trillion.

Government’s assertion of a reduced debt to GDP ratio of 30% will ultimately justifyfor securing new loans such as the debt to finance climate change mitigationmeasures. In the future, there will always be the likelihood of the governmentseeking more new debts as several advanced nations and multilateral institutionssuch as the World Bank at the same time are also in need of more funds. Withoutdebts, funds managed by these institutions will continue to shrivel as a result of inflation and for institutions such as the World Bank the absence of debtors will leadto financial loss.

8/9/2019 INFID, ICW, WALHI, Prakarsa's Statement (Rejection of Debt for Climate Change Response)

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Second, development policy loans essentially entail activities which are in fact thegovernment’s routine responsibilities that can be done without relying on loans.Policy change associated with efforts to deal with the impact of climate change ispart of the government’s routine responsibility, thus it should be implemented evenwithout debt.

Third, policies financed by debt will only create new loans in the future. Thedevelopment of a 10,000 MW power plant using renewable energy (geothermal,wind, solar and hydro) will result in the securing of debt worth USD 900 million fromthe World Bank, ADB, IFC and Japan.

In response to this new debt policy on climate change, ICW, Walhi, Prakarsa andINFID hereby stand by the following statements:

1. Debt for climate change response was entered into without any transparencyand without going through any public consultation process. The public wasonly made aware of the policy after the World Bank publicized it through itsofficial website. Transparency was overlooked as the public was denied the

opportunity to build resistance toward the policy. Transparency was onlyallowed for the finalized policy and not since the early stage of the policyformulation process involving the government with the World Bank and othercreditors.

2. This debt is an unnecessary burden considering the substantial amount of grants made available by developed countries. By entering into debt,Indonesia has instead allowed creditor countries and multilateral agenciessuch as the World Bank to reap benefits.

3. This debt is utilized to formulate government regulations. How can thecountry justify the issuance of presidential regulations or ministerial policiesfinanced by foreign debt? The debt is undeniably pointless as many policieshave previously been issued even without the availability of debt.

4. This debt is unnecessary and thus must be brought to an end. Thegovernment must immediately cancel the debt agreement.

8/9/2019 INFID, ICW, WALHI, Prakarsa's Statement (Rejection of Debt for Climate Change Response)

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Policy Action Matrix

Policy Area Indicator

Mitigation

Forest Conversion and Mitigation

Peatland Conservation In 2011, a Presidential Regulation will be

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issued on peatland management tominimize carbon emissions

Implement policies to heighteneffectiveness of peatland managementpursuant to the Presidential Regulation

Reduced Emission from Deforestationand Degradation

2010

Establish the National Registry for REDD

Establish a framework on forestry fiscalmanagement

Forest management and governance 2010

Monitor government performancerelated to timber legality

Design of transfer mechanism to provideincentive to local governments withregard to emissions reduction

2011

Strengthen the monitoring andevaluation framework on timber legalitypolicies

Formalization of an inter-governmentaltransfer system on forestry management

2012

Evaluation of the inter-governmentaltransfer mechanism to finance localgovernments’ efforts in forestconservation

Mitigation in the Energy Sector

Renewable Energy Development 2010

Improve on the policy framework forgeothermal promotion

Issue a draft compensation policy forgeothermal power

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2011

Continue with policies on geothermaldevelopment

Review the impact of ministerial policies

on renewable energyEnergy Efficiency 2010

Prepare a master plan for energyconservation

2011

Implement the energy conservationmaster plan

Energy Pricing 2010

Finalize the roadmap for power subsidypolicies

2011

Apply policies based on the roadmap

Adaptation and Disaster Preparedness

Water Resource Sector 2010

Continue with a review on the future of

water resource in Java2011

Finalize the masterplan for watershedareas in Java by implementing existingministerial regulations

Agricultural Sector 2010

Evaluate on the agricultural sector’sperformance on climate changeadaptation

2011

Continue with the 2010 program andscale up measures on agricultural sectoradaptation toward climate change

Disaster Risk Management 2010

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Continue with the establishment of theRegional Disaster Response Agency(BPBD) in all provinces

2011

Implement the Disaster Risk ReductionProgram

Marine and Fisheries Sector 2010

Finalize the plan and budget for applyingthe Indonesian Global Ocean ObservingSystem (INAGOOS)

2011-2012 :

Continue with the implementation of INAGOOS

Apply the coastal community resiliencestrategy in dealing with the impact of climate change

Cross Sectoral and Institutional Issues

Mainstreaming Climate Change in theNational Development Program

2010

Issue the Presidential Regulation onAction Plan to reduce emissions by 26%

2011

Drafting of the provincial action plan fora 26% emissions cut

2012

Integrate the climate change programinto the Regional Medium-TermDevelopment Plan at the district level

2011

Prepare the Nationality AppropriateMitigation Action (NAMA) in accordancewith the Medium-Term DevelopmentPlan and ICCSR

Policy Coordination and FinancingScheme for Climate Change

2010

Apply an innovative funding mechanismthrough the Indonesia Climate Change

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Trust Fund (ICCTF).

Design an inter-governmental fiscaltransfer mechanism to provide incentivefor local governments in tackling climatechange issues

2011

Continue implementing and supportingprojects funded by ICCTF

2012

Finalize on the inter-governmentaltransfer mechanism on climate change