By Stephanie Fried*
May 2001
Indonesia is, by far, the Asian Development Bank's largest client country. In 1969, the ADB made its first loan to Indonesia for an irrigation project. By 2000, Indonesia owed the Bank over $16 billion. This paper represents an attempt to assess the ADB's record in Indonesia, based entirely on the Bank's own documents. It includes assessments and summaries in the Bank's own words of over half a billion dollars worth of ADB loans to Indonesia. The shocking conclusion is that if we utilize the standard of project success as defined by the 2000 bipartisan Congressional International Financial Advisory Commission (the Meltzer Commission) "project sustainability" it appears that at least 70% of Indonesia's ADB projects are not likely to produce lasting economic or social benefits for the country -- a disaster for heavily indebted Indonesia.
In 1993, when Indonesia's debt to the ADB totaled $10 billion, auditors rated
a mere 57% of the Bank's Indonesia projects that it had assessed between 1966
and 1993 as "Generally Successful." This reflects the average "Success"
rate of ADB projects throughout the Asia-Pacific region as documented in the
March 2000 "Report of the [ADB] President to the Board of Directors on
1998 Evaluation Activities and the Twenty-First Annual Review of Evaluation
Reports." The 2000 President's Report finds that "in both 1998 and
1999, just under 60% [of the loans audited] were generally successful, 30 percent
partly successful, and the remainder unsuccessful."
If we assume, for the moment, that ADB projects rated "Generally Successful"
actually were successful, and if we extrapolate these numbers to the $16 billion
of debt generated by Indonesian ADB projects through 2000, this would mean that
by 2000, close to $5.9 billion of Indonesia's debt load was generated by largely
unsuccessful, wasteful, or harmful projects. This does not include the additional
matching counterpart funds that the Government of Indonesia spent directly on
ADB projects or corresponding "sister institution" loans, i.e., from
the World Bank, export credit agencies, and other lenders for projects involving
ADB finance.
However, such an assumption most likely greatly understates the failure of ADB
investments to provide lasting economic and social benefits to the Indonesian
people since, by the ADB's most recent estimate, half of the projects rated
"Successful" are, nevertheless, of questionable sustainability. That
is, they do not provide long term economic benefits either during or after the
lifetime of the project. Again, from the 2000 President's Report:
"The Operations Evaluation Office uses four criteria to measure project
and program success: relevance, efficacy, efficiency, and sustainability. It
is in the fourth category, sustainability, where many otherwise successful endeavors
are found wanting. More than half of the Project Performance Appraisal Reports,
Technical Assistance performance audit reports, and reevaluation studies from
1999 discuss sustainability issues. While it is to be expected that the unsuccessful
projects would be questioned on the grounds of sustainability, half of the generally
successful projects and several of the generally successful TAs were as well.
These projects, programs, and Technical Assistance covered practically all sectors:
agriculture and natural resources, physical infrastructure, social infrastructure
and a range of countries in all four country groups."
MEASURES OF SUCCESS
Last year's bi-partisan Congressional International Financial Institution Advisory Commission (the Meltzer Commission) found, in its assessment of multilateral development finance, that project sustainability determines whether or not a project provides lasting, long term economic and social benefits. The Meltzer Commission considered the lack of project sustainability synonymous with project failure and found sustainability to be a much more important indicator of failure or success than what the ADB calls "General Success" or what the World bank calls "Successful Outcomes."
If the "Successful" rating of the ADB's Indonesia projects has been
overstated, or merely reflects the provision of ADB "inputs" during
a loan period and does not reflect actual project sustainability, then the level
of wasted funds is likely to be much higher. Given that, in 2000, the ADB's
Operations Evaluation Office found that half of all audited projects rated "Successful"
by the Bank were of questionable sustainability, there is a considerable likelihood
that, more than 70% of Indonesia's ADB projects will fail to produce lasting
economic or social benefits to the country. This is a clear disaster for the
heavily indebted Indonesian economy, given that unsustainable and failed projects
are potentially the equivalent of $11.36 billion of Indonesia's $16 billion
in ADB debt.
Of the Indonesian projects evaluated by auditors in 1993, the "agro-industry
sector" made up the majority of ADB loans. A total of $2.9 billion in loans
had been made for 71 projects, representing 40% of the Bank's projects in Indonesia.
Seventy percent of the agricultural projects assessed were not "Generally
Successful" that is, the auditors rated them "Unsuccessful" or
"Partially Successful", a term which appears, upon closer scrutiny
of Bank documents, to be a euphemism for "troubled" or "largely
unsuccessful." Only eight projects were rated generally successful. The
agricultural projects had an average implementation delay of 2.2 years, or a
59% time overrun. Twelve projects had cost overruns averaging 108%, while 14
projects experienced cost underruns of 25%.
A few years ago, the ADB announced that it would make its project documents
widely accessible to the public. By April, 2001, the Bank's website listed 104
Indonesian projects, of which 19 individual project reports were "clickable"
and for which Performance Audit Reports or similar documents were available
directly via the internet. It is assumed that the project audit documents posted
on the Bank's website represent a non-random sample, in that they are a small
portion of existing project documents and are therefore those that the Bank
wishes to be made available for public access via the internet. This paper presents
a brief analysis of documents typical of those posted on the web, chosen to
represent categories of projects rated "Generally Successful", "Partially
Successful", and "Unsuccessful" by the Bank.
WHEN SUCCESS MEANS FAILURE AND FAILURE MEANS DISASTER
A search through the ADB's records of its projects revealed that projects rated
"Generally Successful" by the ADB can involve massive unmonitored
resettlement components, can be (according to ADB auditors) patently unsustainable,
can include projects where "record keeping also seems to have been abandoned"
and can be (according to auditors) so poorly structured that rapid deterioration
of project infrastructure is inevitable.
The "Partially Successful" category appears to be an ADB euphemism
for "largely unsuccessful" or "troubled", and includes projects
such as a $250 million Food Crop Sector loan where auditors found that the Bank
had failed to carry out the most basic analyses of the implications or impacts
of its policy recommendations, had failed to identify "intended beneficiaries"
of the policy changes and found that "the overall impact of the Program
Loan is not clear" because "there were no performance indicators against
which Program impact could be assessed." This loan also appeared to involve
significant procurement irregularities.
The "Partially Successful" category also includes a $38 million health project where auditors found that "user demand, actual needs, and operating capacities of the hospitals" funded by the project had never been analyzed by the Bank or by the Indonesian implementing agencies, leading to a failure to supply badly needed medical equipment to the hospitals. Auditors found that, despite the Bank's intention of increasing public access to health care via this loan, hospital "bed occupancy rates did not change significantly over the past six years" of the project. They also discovered that it wasn't until six years into the project that the establishment of a system for "benefit monitoring and evaluation", including the collection of baseline data, was discussed. Auditors stated that they "did not have the impression that a functioning Benefit Monitoring and Evaluation system was in place and used by management."
An examination of publicly available ADB documents indicate that the ADB's Unsuccessful
Project category appears to mean "abysmal failure" and includes the
$29.5 million Agro-Industries Credit Project which provided capital to an Indonesian
agricultural bank, Bank Bumi Daya, that it, in turn, was to lend (in seven instances,
representing 35% of project funds, lump sums of more than $1.5 million) to "agro-industries."
This project not only bankrolled environmentally destructive shrimp farms ("all
discharges from the shrimp ponds were directly diverted to the sea without any
treatment") and an "environmentally unsound" animal feed factory.
In addition, according to auditors, 3/5 of the projects failed and 90% of the
projects with outstanding loans defaulted on their loans. The project also sharply
negatively affected the "creditworthiness", such as it was, of Bank
Bumi Daya, itself.
Of the 19 individual project reports posted on the ADB website, eight were initially
appraised as "Generally Successful" and eleven were considered "Partially
Successful" or "Unsuccessful." This paper examines a series of
recent (1996-2000) audit reports and presents a compilation of the ADB's own
comments on projects representing $528.2 million of ADB loans to Indonesia.
Generally Successful:Nusa Tenggara Agricultural Development Project, evaluated
1999, $137.3 million; Marine Science Education Project, Evaluated 1997 (re-evaluated
2000 as "partially successful"), $73.3 million;
Partially Successful: Food Crop Sector Program, evaluated 1997, $250 million;
Health and Population Project, evaluated 1997, $38.4 million
Unsuccessful: Agro-Industries Credit Project, evaluated 1996, $29.5 million;
* Stephanie Fried is a Senior Scientist at the Environmental Defense Fund, Hawaii