Rejection of Debt for Climate Change Response

Amid the International Forest and Climate Conference held in Oslo, Norway, an
agreement has been reached between Indonesia and Norway to work together
towards reducing greenhouse gas emissions caused by deforestation and forest
degradation. The Norwegian government has pledged USD 1 billion worth of grant
as a form of its direct payment for greenhouse gas emissions cuts by 2013. The
Indonesian government on the other hand is committed to refrain from issuing new
permits for forest and peatland conversion in the next two years.

Grants related to climate change are projected to reach substantial amounts. Aside
from Norway, many other developed countries are also expected to provide grant
aid 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 again
secure additional loan from the World Bank worth USD 200 million, Japan
International Cooperation (JICA) worth USD 300 million, and Agence Francaise de
Development (AFD) for USD 300 million. As such, President SBY’s earlier statement
to only seek grant aid for climate change financing is indeed an outright public lie
as it is apparent in the revised state budget for 2010 that the government has
obtained 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 to
ample opportunity for securing grant aid for climate change, and also due to several
other considerations. First, additional debt will increase the budget’s burden. The
government’s debt currently reaches more than Rp 1588.02 trillion (source: State
Debt Trend, Edition May 2010, Directorate General of Debt Management, Ministry of
Finance). Although the government claims that the proportion of debt has reduced
to below 30% of GDP, the fact remains that the debt burden puts a heavy strain on
the state budget. In the revised 2010 state budget, principal payment amounted to
Rp 110 trillion while interest payment totaled Rp 115 trillion (statement from
Finance Minister Agus Martowardojo, 25 May 2010); much higher than the Ministry
of National Education’s expenditure of Rp 61.476 trillion and the Ministry of Health’s
spending of only Rp 22.429 trillion or that of the Ministry of Forestry amounting
merely at Rp 4 trillion.

Government’s assertion of a reduced debt to GDP ratio of 30% will ultimately justify
for securing new loans such as the debt to finance climate change mitigation
measures. In the future, there will always be the likelihood of the government
seeking more new debts as several advanced nations and multilateral institutions
such as the World Bank at the same time are also in need of more funds. Without
debts, 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 lead
to financial loss.
Second, development policy loans essentially entail activities which are in fact the
government’s routine responsibilities that can be done without relying on loans.
Policy change associated with efforts to deal with the impact of climate change is
part of the government’s routine responsibility, thus it should be implemented even
without debt.

Third, policies financed by debt will only create new loans in the future. The
development 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 from
the World Bank, ADB, IFC and Japan.

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

1. Debt for climate change response was entered into without any transparency
and without going through any public consultation process. The public was
only made aware of the policy after the World Bank publicized it through its
official website. Transparency was overlooked as the public was denied the
opportunity to build resistance toward the policy. Transparency was only
allowed for the finalized policy and not since the early stage of the policy
formulation process involving the government with the World Bank and other
creditors.

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 agencies
such as the World Bank to reap benefits.

3. This debt is utilized to formulate government regulations. How can the

country justify the issuance of presidential regulations or ministerial policies
financed by foreign debt? The debt is undeniably pointless as many policies
have previously been issued even without the availability of debt.

4. This debt is unnecessary and thus must be brought to an end. The

government must immediately cancel the debt agreement.
 Policy Action Matrix

Policy Area Indicator

Mitigation

Forest Conversion and Mitigation

Peatland Conservation In 2011, a Presidential Regulation will be

 issued on peatland management to
minimize carbon emissions

Implement policies to heighten

effectiveness of peatland management
pursuant to the Presidential Regulation

Reduced Emission from Deforestation 2010

and Degradation
Establish the National Registry for REDD

Establish a framework on forestry fiscal

management

Forest management and governance 2010

Monitor government performance

related to timber legality

Design of transfer mechanism to provide

incentive to local governments with
regard to emissions reduction

2011

Strengthen the monitoring and

evaluation framework on timber legality
policies

Formalization of an inter-governmental
transfer system on forestry management

2012

Evaluation of the inter-governmental

transfer mechanism to finance local
governments’ efforts in forest
conservation

Mitigation in the Energy Sector

Renewable Energy Development 2010

Improve on the policy framework for

geothermal promotion

Issue a draft compensation policy for

geothermal power
 2011

Continue with policies on geothermal

development

Review the impact of ministerial policies

on renewable energy

Energy Efficiency 2010

Prepare a master plan for energy

conservation

2011

Implement the energy conservation

master plan

Energy Pricing 2010

Finalize the roadmap for power subsidy

policies

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 Java

2011

Finalize the masterplan for watershed

areas in Java by implementing existing
ministerial regulations

Agricultural Sector 2010

Evaluate on the agricultural sector’s

performance on climate change
adaptation

2011

Continue with the 2010 program and

scale up measures on agricultural sector
adaptation toward climate change

Disaster Risk Management 2010

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

2011

Implement the Disaster Risk Reduction

Program

Marine and Fisheries Sector 2010

Finalize the plan and budget for applying

the Indonesian Global Ocean Observing
System (INAGOOS)

2011-2012 :

Continue with the implementation of

INAGOOS

Apply the coastal community resilience

strategy in dealing with the impact of
climate change

Cross Sectoral and Institutional Issues

Mainstreaming Climate Change in the 2010

National Development Program
Issue the Presidential Regulation on
Action Plan to reduce emissions by 26%

2011

Drafting of the provincial action plan for

a 26% emissions cut

2012

Integrate the climate change program

into the Regional Medium-Term
Development Plan at the district level

2011

Prepare the Nationality Appropriate

Mitigation Action (NAMA) in accordance
with the Medium-Term Development
Plan and ICCSR

Policy Coordination and Financing 2010

Scheme for Climate Change
Apply an innovative funding mechanism
through the Indonesia Climate Change
Trust Fund (ICCTF).

Design an inter-governmental fiscal

transfer mechanism to provide incentive
for local governments in tackling climate
change issues

2011

Continue implementing and supporting

projects funded by ICCTF

2012

Finalize on the inter-governmental

transfer mechanism on climate change