Report: Is Indonesia's debt to Norway illegitimate?

This report deals with Indonesian environmental and development projects financed by Norwegian development funds and export credits under dictator Suharto's reign in the 90s. The report reveals ambitious plans, failed projects, Norwegian business interests and Indonesian illegitimate debt. It also underlines the importance of immediately launching a complete review of all outstanding loans to Norway.

In December 1995, the Republic of Indonesia signed two agreements on environmental projects with the Norwegian companies Indonor and Oceanor. This report shows that the projects failed, they never benefited the Indonesian people, and that Norway clearly has a responsibility for the failure.

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The projects in question were financed through the Norwegian Mixed Credit Scheme, receiving a grant component from the aid budget, and guaranteed for by the Norwegian Export Credit Agency, GIEK. This happened at the same time as the Norwegian government announced the Asia-Plan. The government would provide financial support and act as a door-opener for Norwegian companies willing to invest in Asia. Suharto's Indonesia was one of the prioritized countries, and transfer of environmentally friendly technology was one of the sectors targeted. Overall, seven mixed credit agreements with a total contract value of 198 million USD, mostly involving environmental technology, were signed with Indonesia during this period.

The majority of the contract value was financed through export credits. This part has to be reimbursed by the Indonesian state. As per December 2008, the Republic of Indonesia has close to 100 million USD in outstanding debt, originating from these seven projects.

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In this report, SLUG explores two of these projects in depth: Indonor's wave power project and Oceanor's marine environmental monitoring, forecasting and information system called «Seawatch». By relating these findings to the concepts of illegitimate debt and responsible lending, SLUG wants to place illegitimate debt and lending practices on the political agenda by exploring which mechanisms in Norwegian industry and development policy lead to debt accumulation in poor countries. The report shows that Norway, despite broad political agreement and high ambitions to fight illegitimate debt and promote responsible lending, continues to collect illegitimate debt claims from the people of Indonesia.

The question of responsible lending is more relevant than ever. Many Norwegian export industries are struggling as a result of the global financial crisis, and Norwegian jobs are threatened. Part of the government's response has been to increase the use of export credits in order to support exposed export industries such as the shipbuilding industry. Also, in the ongoing climate change debate, one of the main discussion points is how to finance climate adaptation and transfer of environment technology to developing countries. SLUG is worried that the industrialized nations aim to solve the climate crisis we have created through financial mechanisms that will lead poor countries further into debt.

Download the report here.



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