Foreign debt ‘mafia’?

The Jakarta Post | Sun, 05/09/2010 11:00 AM | Opinion

President Susilo Bambang Yudhoyono assigned the judicial mafia taskforce to pay attention to certain areas susceptible to corruption such as the police, the judiciary, the Attorney General’s Office, illegal logging, tax evasion and land ownership.

Observers said that there should be special attention paid to foreign debt corruption. Is there really foreign debt corruption?

A study by the National Development Planning Agency (Bappenas) on “the Strategy to Promote the Performance of Foreign Aid” (2004) found indications of project-seeking activities both by

donor agencies and government agencies implementing loan-funded projects.

The study revealed that although there were some successful projects, the absorption level was still low and many of the projects did not achieve the maximum benefits as planned.

There were two main causes why the loan-funded projects could not achieve the maximum benefits.

First, the ownership of the implementing agency was low, or they had no sense of responsibility for the success of the project.

Second, there were mutual interests between the staff of the implementing government agencies and the staff working in the donor agencies.

The staff in the government agencies needed foreign funds for projects in their ministries in order to get more budget allocated as matching funds from the annual state budget. The bigger the budget allocation meant more income for the staff in the ministries.

On the other hand, the staff in the creditor agencies needed more loans for Indonesia. The more loans there were, the more the overhead costs for the creditor agencies would be, which meant job security for the staff in the creditor agencies.

The additional or higher income for the government staff and the job security for the staff in the creditor agencies to some extent become the major purpose of the contract for new loans, rather than for promoting economic growth and poverty reduction in Indonesia.

Foreign loans also involved brokers that were suspected of being involved in illegal activities, and companies that did not perform according to the contracts. The following cases are two of many cases that are suspected as involving the “mafia” in the contract and its implementation.

First, the German warship debt. In 1992, Indonesia purchased 39 ex-East Germany warships from Germany. The warships were old and designed for cold water and short-range operations.

To purchase and repair (in fact, totally overhaul) these old and almost wrecked ships, Indonesia signed several loan contracts with Germany.

The reparation and overhaul of most parts of the ships were done in Germany and in Indonesia.

During the contract process, Indonesia and Germany used third parties. The broker from Germany was later found to be involved in various illegal activities related to public funds fraud and the illegal weapons trade.

Various researches and public media investigations, both in Germany and in Indonesia, proved that these ships were not needed by the Indonesian Navy, as a modern Navy.

The victims in the case were the three national news weeklies in Indonesia (Tempo, Editor and Detik) that exposed the unusual transactions, which were banned in 1994.

Until now, Indonesia is still paying the debt to Germany, while only few of the ships are still used by Indonesian Navy, though with low operational capacity.

The Indonesian people have had to relinquish opportunities to enjoy a better life since the government has had to repay the debts incurred by irresponsible actors from both countries.

Second, the Norwegian wave power plant on Baron Beach. In 1994, the Indonesia and Norwegian governments signed a loan contract for developing a wave power plant on Baron Beach, Yogyakarta. The implementer of the project was a Norwegian company, called Indonor.

The government of Indonesia borrowed money from Norwegian government to pay the Norwegian company to implement the project. The implementing agency from Indonesian side was the Agency for the Assessment and Application of Technology (BPPT). The BPPT paid the total amount to Indonor but, in fact, there was no project at all implemented in the field.

Upto now there has been no indication of any activity on the development of a wave power plant on Baron Beach, although the project has been counted as completed.

Today, the Indonesian government is paying the debt, with interest, to Norway, for a project that never existed.

There are many other cases that indicate fraud and the involvement of a “mafia” in the area of foreign debt, both from the Indonesian side and the creditor agencies side. As a result, the poor of Indonesia have to sacrifice opportunities to climb out of poverty, misery and destitution, since the government budgets that are expected to support their efforts to be free from poverty are used to repay the foreign debts that have no relation at all with the national development agenda.

These cases show that there are foreign loans that are made not to support development programs, but to fulfill the business interests of the “mafias”, both from creditors’ side and the Indonesian government side.

The actors from the creditors’ side do not care whether the debts violate the rights of the people in the debtor countries; they care only about the job security of the agency’s staff and the profits for the “mafias”. If the governments do not cancel these debts, it will mean that the governments too are protecting the “mafias”.

The writer, the executive director of the International NGO Forum on Indonesian Development (INFID), is doing research and advocacy on foreign debt and economic justice.