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The Irony of International Loan Deals

By Laode Ida , Jakarta

Jakarta Post, Wed, 11/26/2008

Most third world (underdeveloped) countries receive international aid from

either multinational donor agencies or through bilateral cooperation. To some
extent, this is to accelerate and/or materialize their own development agendas,
while a few countries depend entirely on international funding. Without such aid,
these underdeveloped nations would be struggling to achieve their national
development goals.

There are two categories of international aid: Loans and grants. The amount of
loans provided is usually large, while grants are for small projects. Subsequently,
a nation aims to stimulate related loan-based activities/programs or to gain
support both socially and politically from civil society and other stakeholders
during program implementation.

For the purposes of this discussion, the most important thing to keep in mind is
that beginning with the initial stage, after the two parties (donor agency and
related government officials) have agreed to the basic principles of the
development aid, the cost for project preparation is part of the country's loan.

This stage usually takes more than a year (an average of two years) and involves
very expensive experts (consultants). In other words, the recipient country also
uses the loan to pay for the experts -- who are mostly foreign nationals.

It means that from the beginning of the loan, most of the money tends to be sent
off abroad (to the experts' origins), and only a small amount of the money goes to
local beneficiaries through the local experts.

The question is: Who is involved in the decision-making process and in

management of the loan? To be frank, the loan negotiations and decisions are
always very secret, decided only between the executive side (related officials or
ministers under consultation with the head of state) and donors, whereas the
legislative or representative body and NGOs (civil society communities) are not
taken into account.

It appears that the government/executives are not obliged to involve those two
parties in the loan-negotiating process. It seems that parliament and NGOs
merely need to know the amount and purpose of the loan once the government
reaches an agreement and adds it to the state budget as a funding source for any
development project for the next fiscal year.

This process that does not involve the people's representatives (parliamentarian
and/or civil groups) is very ironic and must be evaluated. Why?
First, the legislative body is mandated to fight for the people's interests in the
policy-making process -- including development agendas.

Generally speaking, due to their positions and daily activities, civic groups are
very close to local communities, and know more about their dynamics, cultures,
interests and demands.

Second, it should be kept in mind that loans are heavy burdens for future
generations. Obtaining loans by using its natural resources as the guarantee
appears to be easy, especially for a country such as Indonesia which is very rich in
natural resources. Many countries as well as donor agencies are interested in
loaning money to such countries and subsequently are involved in this process of

Indeed, loan management in Indonesia (in the reform era) has changed slightly.

It appears that the implementation of loan management in Indonesia has been

improving from time to time particularly in promoting good governance and in
making an effort to eliminate corruption practices within its bureaucracy --
particularly in the relevant executive branches with which the donor agency
works with.

During the past 10 years of Indonesian political transition, many authoritative

elites (executive officials, politicians and businessmen) have conspired to
capitalize on misused funds, requiring best practice intervention from the donor

But, to some extent, I personally think that donor agencies are also trapped by
their own conservative situations. Based on certain requirements, consultant
companies are allowed to join tender and are then listed as permanent business
partners of the donor agency -- regardless of the quality of their work.

Donor agencies are being ambushed by formal qualifications, without paying

more attention to the rising number of better qualified new consultant groups
which consist of more educated people, with high integrity and personal moral

Without reforming consultant involvement within a donor-sponsored project,

donor agency/ies may be seen as misusing funds on loan-based projects.