Posted by: Hendra Siry | 1 June, 2009

Govt to Use Climate Loans to Cover State Budget Deficit

The government has continued to raise foreign loans, citing climate change as the cause, but said Thursday the loans would be used to service the budget deficit. The move immediately sparked criticism from environmental activists who said it was the responsibility of rich nations to help both developing and poor nations finance climate change mitigation.

“The government needs to find alternative channels of finance, including grants or carbon trading. Foreign loans should be used as the last resort to fund climate change reduction policies,”  WWF-Indonesia climate change program director Fitrian Ardiansyah said Thursday. The National Development Planning Board (Bappenas) said the French and Japanese governments have expressed commitment to increasing their climate change loans to Indonesia this year.

“We are still discussing the amount, but both France and Japan have agreed to provide US$100 million toward climate change reduction measures this year,”  Bappenas director of forestry and water resource conservation Basah Hernowo told The Jakarta Post. “The government will use the money to cover the budget deficit,” Basah said.

This year’s budget deficit is set to be Rp 139.5 trillion ($13.47 billion), or 2.5 percent of the GDP. He said the Finance Ministry and Bappenas were still drafting policy on how to use the loans, which would be offered by foreign lenders. The government received a $200 million loan from the French financial institution Agence Francaise de Development and a $300 million loan from the Japan Bank for International Cooperation last year to help combat climate change.

The government has admitted that acquiring foreign loans was easier under the pretext the money would be put toward environmental policies. “The loans for climate change issues have cheaper interest rates compared to other foreign loans,” Basah explained. Indonesia is one of the nations most vulnerable to the severe impacts of climate change, threatening the lives of millions of people, including those living in coastal areas.

Climate change is also expected to boost the frequency of natural disasters such as flooding, landslides and water shortages, jeopardizing the agriculture sector on which millions of Indonesians depend for their livelihood. Basah said the government would set up a climate change trust fund to pool all foreign aid allocated for climate change.

The government is set to announce details of the trust fund during a climate change meeting in Bonn, Germany, next month. President Susilo Bambang Yudhoyono set up the Climate Change National Council (DNPI) as Indonesia�s focal point for climate change issues. However, it remains unclear whether the DNPI will collect foreign funds for climate change mitigation.

The DNPI said it had received commitment from many countries to provide money to help Indonesia deal with climate change, including the United States which promised to provide a $2.8 million grant to protect biodiversity. The German government pledged $30 million, while the Australian government allocated $30 million toward helping reduce greenhouse gas emissions.


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