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Financial flows and the environmental strategy in Indonesia in the 1990s

Environmental lobbying in Indonesia has traditionally been done by pressuring the Indonesian state on one hand and the donor countries and global funding agencies such as the World Bank and IMF on the other hand.

Executive Summary

In the end of March 1992, unilaterally the Indonesian government decided not to accept further financial assistance from Holland. The Indonesian government considered the Dutch government of having intervened too deeply in its domestic political affairs, in relation to the case of Dilli massacre in East Timor. The decision shocked the Dutch government which had been providing financial assistance to Indonesia since Suharto government came to power in 1967. In fact, Holland played a very important role in the formation of IGGI (Inter-Governmental Group on Indonesia), a multilateral organization dedicated solely to provide financial assistance for Indonesia, and was the Chair of the IGGI in 1992. Upon request from the Indonesian government, IGGI was disbanded, and the World Bank formed a new consortium called the CGI (Consultative Group on Indonesia) to take over IGGI's role. Holland was not invited to join the CGI, and it has not become a member until today.

The incident above showed that by early 1990s, the power of multilateral and bilateral financial assistance, and aid provided by the IMF and the World Bank, had somewhat dissipated. By that time, Indonesia had been able to attract a lot of foreign private investments, in forms of foreign direct investment and increasingly in forms of portfolio investment, which had enabled it to refuse Holland's financial assistance and persuaded the World Bank to replace IGGI with CGI. However, ongoing liberalization of the economy has once again put Indonesia in a vulnerable position. Unable to overcome the current monetary crisis that started in August 1997, which has made the value of rupiah against US dollar decline more or less by 50%, the Indonesian government has once again turned to the IMF to provide financial assistance. The power of IMF and the World Bank over Indonesia has resurged in parallel with the integration of the country into the global economy that is going through a process of liberalization.

Environmental lobbying in Indonesia, especially in the whole decade of the 1980s, has traditionally been done by pressuring the Indonesian state on one hand and the donor countries and global funding agencies such as the World Bank and IMF on the other hand. And the established pattern of political pressure is hard to reframe. Before the environmental movements were able to adjust their strategy in response to the sharply increasing private foreign financial flows in the second half of 1980s and the first half of 1990s, now they experience the resurging power of the IMF and the World Bank. What will be the strategy that allows environmental movement to make use of the leverage of private (foreign) capital, amidst the resurging power of the IMF and the World Bank that has hit back with a vengeance, to help promote the agenda of sustainable development?

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