Communication from the Commission to the Council and to the European Parliament "Developing closer relations between Indonesia and the European Union"
Date: 2000-02-02
Institutions: European Commission
Subjects: EU Member State, Indonesia, aid policy, cooperation policy, international cooperation

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 2.2.2000
COM (2000) 50 final

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND TO THE
EUROPEAN PARLIAMENT

"DEVELOPING CLOSER RELATIONS
BETWEEN INDONESIA AND THE EUROPEAN UNION"

1. INTRODUCTION

2. POLITICAL DIALOGUE

2.1 Indonesia's Role in the Region

2.1.1 A Key Player in the Asia Pacific Region

2.1.2 Future Relationship with East Timor

2.2 Human Rights

2.3 Anchoring Democracy, the Rule of Law and Good Governance

2.3.1 Constitutional Reform

2.3.2 Role of the Armed Forces

2.3.3 Rule of Law, Legal & Institutional Reforms and Access to Justice

2.3.4 The Judicial System and the Legal and Regulatory Framework

2.3.5 Good Governance

2.4 Stability and Cohesion of Indonesia

2.4.1 Preserving Indonesia's Cohesion

2.4.2 A Society of Tolerance

3. ECONOMIC AND TRADE RELATIONS

3.1 Trade

3.1.1 Multilateral Trade

3.1.2 Bilateral Trade

3.1.3 General System of Preferences (GSP)

3.2 Recovering from the Crisis

3.2.1 The Challenges of Economic Recovery

3.2.2 The Role of International Financial Institutions (IFIs)

3.2.3 Future Investment Policy

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3.3 Restructuring the Economy

3.3.1 Good governance

3.3.2 Banking System Reform

3.3.3 Economic Regulations

4. SUSTAINABLE DEVELOPMENT

4.1 Social Development Background

4.2 Poverty Alleviation

4.3 Promoting better environmental performance

4.4 Forests and the Environment

4.4.1 Forestry and EU Action

5. FUTURE APPROACH

5.1 Political and Security Matters

5.2 Economic and Trade Relations

5.3 Raising the EU Profile in Indonesia

5.3.1 Developing a Dialogue with the Authorities

5.3.2 Promoting EU Visibility in Indonesia

5.4 Focussing support for development

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1. INTRODUCTION

Relations between the EU and Indonesia are now three decades old. As an ASEAN founding
member, Indonesia was involved in the ASEAN-EU dialogue launched at the first ministerial
meeting between the two sides in 1978 and was a signatory to the EC-ASEAN Co-operation
Agreement of 1980. Indonesia has been a major player in the ASEAN context, but the East
Timor issue has put a strain on the EU’s relationship with Indonesia, and, by extension, with
ASEAN, for several years. However, Indonesia’s renunciation of its territorial claim to East
Timor has now created a new situation that enables the EU to take a fresh and more
comprehensive look at Indonesia and its relationship with the Union.

Indonesia has also recently embarked on the most far-reaching change in its history post-
independence, with the holding of free and fair elections leading to a democratic government.

It is now time to establish the EU as a partner of substance for Indonesia, which is the world's
fourth most populous country, has its biggest Muslim population and plays a key strategic
role in the region. Indonesia's stability is important to the region and it has the potential to
play a major role in promoting peace, stability and democratic values in Asia. In past decades,
it had achieved impressive progress in economic
and until the recent economic crisis,
development, reduction of poverty and improvement of social conditions. Europe's economic
ties with Indonesia are already considerable in terms of trade, investment and business
presence, but they could still be improved. Indonesia will represent even greater opportunities
in the future.

This Communication identifies ways in which the EU can help the Indonesian government
and people face up to their immediate political, social, economic, developmental and
environmental challenges and build a renewed, intensified and multi-faceted relationship with
a democratising Indonesia.

In taking advantage of these opportunities, the EU will need to give appropriate attention to
promoting improvements in human rights, which are a prerequisite both for a democratic
society and for sustainable development.

2.

POLITICAL DIALOGUE

2.1. Indonesia's Role in the Region

2.1.1.

A Key Player in the Asia Pacific Region

Indonesia is a key player in the Asia-Pacific region. Europe should seek to strengthen both
bilateral consultation and regional cooperation. Indonesia also has a decisive role in the
ASEAN process, not only because it is the largest member, but also because of traditional
respect for Indonesia’s international stance, in particular in the Non-Aligned Movement. Its
relations with Japan, China and Australia also have an impact on ASEAN’s relationship with
these countries.

The EU’s relationship with Indonesia has been framed by the EU-ASEAN partnership.
Indonesia has also been an important partner in ASEM. The ASEAN Regional Forum (ARF)
of which the EU is a member, provides a framework to discuss security issues.

4

In the past, EU's dialogue with Indonesia to promote common interests in these fora has been
rather limited when compared to that with other ASEAN members such as Thailand and the
Philippines. The change in Indonesian leadership opens new avenues for dialogue on:

- Promotion of security in the region, e.g. South China Sea, strengthening the ARF, small
arms;

- Enhancement of the EU-ASEAN Dialogue: the resumption of the EU-ASEAN political
dialogue will need positive support from all ASEAN members to ensure that it leads to
substantial discussions on major issues,

- Promotion of concepts of democracy and human rights in the region: Indonesia is one of the
ASEAN members contributing to the current evolution towards democracy and concern for
human rights. The EU should support the impetus such members can give to creating a more
open political dialogue within ASEAN. Given that Indonesia has in the past been seen as a
role model for Burma, positive developments in Indonesia should be used to encourage
increased democracy and respect for human rights there.

2.1.2 Future Relationship with East Timor

One of the most pressing issues for EU consideration should be the establishment of a
peaceful and consensual partnership between Indonesia and East Timor. Open borders and
free trade between East and West Timor will be important for the future development of both
parts of the island. There are promising signs: the visit of Xanana Gusmao to Jakarta and
conciliatory language on both sides. However, slow progress on the repatriation of East
Timorese refugees from West Timor and the enquiry on human rights violations in East
Timor are less encouraging. On the former, co-operation with the Indonesian authorities is
improving and it is hoped that this difficult situation will be resolved soon, as promised by the
Indonesian Government. The success of the latter will depend very much on the co-operation
between the UN Commission of Enquiry and the Indonesian Human Rights Commission
(KomNasHAM).

2.2. Human Rights

The transitional Habibie government had already launched reforms to overcome the severe
shortcomings of the past. Since May 1998, these have included steps towards freedom of the
media1, the release of most political prisoners and a partial investigation of past human rights
violations, including those in East Timor. The government has ratified several international
human rights instruments. The National Commission for Human Rights, KomNasHAM
(Komisi Nasional Hak Asasi Manusia), has become a more effective instrument
for
including land and labour disputes, allegations of
investigating human rights violations,
killings, disappearances and torture. Some of
its published findings have identified
responsibility for human rights violations, including those in the province of Aceh, where the
involvement of the armed forces has been established. A similar test case for the credibility of
KomNasHAM will be the final conclusions it draws from the acts of violence that occurred in
East Timor and the follow-up of its findings by the authorities.

1The Law on Freedom of Public Expression, passed by the Parliament in August 1999, but not yet enacted into
law, is still challenged as a constraint, as one could arguably maintain that no such regulation is needed at all.

5

Violations of human rights also remain of concern in those provinces where the government –
while being responsible for maintaining security – is faced with aspirations for some kind of
regional autonomy or independence.

Nevertheless, the clear commitment of the present government to develop a culture of respect
for human rights and break with pst abuses is evident, inter alia, in the appointment of a state
minister for human rights and the release of the lst remaining political prisoners by
parliamentary and presidential pardon.

Equally important, questions of
stakeholders in forested areas and the rights of indigenous people must be addressed.

the environment,

for human rights of

respect

local

The EU understands that Indonesia's human rights policies and practices need to be
considered in a long-term perspective. Experience shows that establishment of respect for
human rights, democratic principles, the rule of law and good governance in the institutions
and structures of state and society is a gradual process. Community support therefore needs to
be based on a long-term programme-based rather than a project-based strategy.

Possible approaches could include a permanent dialogue with the government, regular
contacts with the National Human Rights Commission and with NGOs, as well as
programmes to raise the awareness of human rights and the institutional capacities of civil
society. In a country the size of Indonesia, overall improvements will not occur overnight and
need to take into account the socio-economic situation and culture of the country.

2.3. Anchoring Democracy, the Rule of Law and Good Governance

Indonesia is currently undergoing a process of fundamental change and democratic reform of
the state and its relationship with civil society. This transitional phase, together with the
economic and social impact of the economic crisis, have created a fragile and volatile
situation.

The EU acknowledges that reforms to establish democrataic principles, the rule of law and
good governance are of course a demanding task for any country. Such reforms are a long-
term projects, because they require not only legal acts but also changes in the institutional set-
up and management of public affairs to ensure their application. In this context, the EU
welcomes Indonesia's ratification of ILO-Conventions covering freedom of association,
collective bargaining, non-discrimination and the elimination of forced and child labour and
trusts that
these
Conventions.

the Indonesian authorities will ensure effective implementation of

The parliamentary elections of 7th June 1999, which were held freely and to international
standards, demonstrated Indonesia's commitment to democracy. The result of the elections
expressed clearly and credibly the will of the electorate to change course. Indonesians had a
chance, for the first time in their history, to change their government peacefully. Many newly
founded political parties were able to compete. Another milestone in democratic development
were the presidential elections of 20th and 22nd October 1999. The broad-based composition of
the new government reflects the desire to break with the past.

Formal elements of a democratic and responsible government are now in place. But the
leadership's good intentions are being met with resistance from the supporters of the old
structures within the bureaucracy and the army. The main challenge for Indonesia now

6

consists in giving substance to the new democratic structures and strengthening their
institutional capacities, without risking functional and regional clashes.

2.3.1. Constitutional Reform

One of the most pressing questions is the future division of power between central
government and the provinces. Unrest in some regions is a challenge to Indonesia's stability
and the preservation of its national territorial integrity. Indonesia must find a balance between
demands for equity and recognition of cultural differences at local and regional levels and the
need for coherent national policies and a co-ordinated and fair transfer and allocation of
resources between the regions and the central government.

2.3.2.

Role of the Armed Forces

Even after constitutional amendment, the Armed Forces still occupy non-elected seats in
Parliament. Under the previous regime, a fundamental tenet was the dual function (“dwi-
fungsi”) of the military, given responsibility for both defence and national security. The latter
gave the army a decisive political role. Formally, the dual-function concept has not been
abandoned. But attempts are being made to convert the Armed Forces into a professional
defence organisation. Tensions between the newly elected government and the armed forces
have increased. A start to re-position the military domestically has been made recently by
separating them from the police. The EU welcomes this. In the recent past, other Southeast
Asian countries have successfully demonstrated how to disengage the armed forces both from
civil administration and from politics.

In the EU's view, all partners should support this process, which needs to consider the will of
the electorate rather than old sensitivities.

2.3.3.

Rule of Law, Legal & Institutional Reforms and Access to Justice

The primacy of law is a fundamental principle of any democratic system, as it allows the
protection and promotion of human rights and provides a more secure environment for
private-sector trade and investment. It places limitations on the power of the State, implies a
clear and transparent legal and regulatory framework for governmental action and requires
effective means of enforcement and of recourse for citizens to defend their rights.

The Habibie administration began a reform process, but fell short of implementing many of
these initiatives. The new government has expressed the clear intention to continue on the
path of legal reforms. It has not yet set out all elements of comprehensive policy. This might
take some time given the complexity of the Indonesian legal and political system2.

The government's treatment of allegations against
significant because of their symbolism.

former President Soeharto will be

2In public and private law (including commercial law, the Dutch system of civil law predominates. During the
last two decades other influences have affected legislative initiatives. For example, in matters of commercial
law, the Indonesian government has sought assistance from various common law jurisdictions, particularly the
US and Australia. In matters of family law and family property, traditional systems, including Islamic law, are
often present.

7

2.3.4.

The Judicial System and the Legal and Regulatory Framework

Delivering justice requires the existence of an independent judicial system that, in turn,
creates confidence. There is a lot of domestic pressure to tackle the issue. The envisaged
creation of a single independent Bar Association, with a clear Code of Conduct for practising
lawyers, and the power
to dismiss lawyers perpetrating corrupt practices or other
infringements, would be another important initiative.

The EU should support, through close collaboration with the government, the establishment
of a fully independent judiciary and offer support for institutional capacity strengthening.
A review of the legal framework - in particular, of economic laws - seems essential. At
present, the basic structure and content of commercial
legislation in Indonesia is very
incomplete and there is a serious lack of expertise and trained personnel to reform, upgrade
legislation in these fields. The IMF's new letter of intent on Indonesia
and implement
apparently stresses the need to upgrade the commercial
legal structure (bankruptcy,
competition, finance, etc.) and on the role of the Attorney General's Office in that respect.
The Attorney General is developing a proactive programme of legal reform, in addition to his
role as investigator and prosecutor. So far, this has included the proposal for the creation of a
new Human Rights Tribunal. Support for the Attorney General and his office is a priority.

2.3.5. Good Governance

The EU is encouraged that good governance,
including the fight against corruption,
particularly in government procurement, is a top priority for the new government, especially
in the area of public procurement. Almost all of the problems faced by Indonesia at present
can be linked to the absence of a system of good governance and the rule of law. Overall, a
political environment with efficient, transparent, and accountable institutions is needed to
anchor democracy, raise confidence in public decision-making and bring about economic
recovery.

One of the great difficulties facing the new administration will be the reform of the civil
service, since almost all branches have problems of overstaffing and lack of skills. Lack of
resources and the reluctance of civil servants to accept change are likely to hamper the
government's reforms. In this context, the importance of well-founded decision-making, based
on scientific evidence and research, should be underscored.

Over the past decade, the EU has developed a clear policy and expertise for promoting good
governance and co-operates closely with its international co-operation partners. Given the
Indonesian Government’s determination to progress in this area, the EU could offer technical
assistance. This should be co-ordinated with other international donors and achieved through
mechanisms set up, chaired and driven by the Indonesian Government. The programme
should be accompanied by actions designed to strengthen the monitoring capacity of civil
society organisations.

To make participatory democracy sustainable, actors from civil society have to be effectively
organised. Indonesia has a large number of social organisations at grass root level. Within the
limits of the previous political system, their work concentrated mostly on social aid. Some of
these organisations are already delivering valuable contributions to the strengthening of civil
society. To complement its government-level dialogue with Indonesia, the EU should build
for contacts between
the capacity of these organisations and could act as a catalyst
effectively-run NGOs, business associations,
trade unions and academic and research
institutions.

8

2.4. Stability and Cohesion of Indonesia

Throughout its history, Indonesia has always had to cope with ethnic, religious and regional
tensions3, but they have considerably intensified in the last two years. They represent one of
the major challenges the new government has to address in the short-term. In particular calls
for independence in Aceh and, to a lesser extent
in Irian Jaya pose an immediate and
explosive problem. Fears are widespread that, after the East Timor experience, any new cases
of devolution may signal the break-up of Indonesia.

2.4.1 Preserving Indonesia's cohesion

Indonesia seeks support from the international community for its territorial integrity. This call
has already received a positive answer from the USA, ASEAN and East Asian partners who
backed non-violent efforts to end Aceh’s separatist unrest, and supported President Wahid´s
view that Aceh should not be offered independence.

Equally, the current EU position is to support Indonesia’s territorial integrity (see Presidency
Declaration 25.11.99), and to call for a peaceful settlement of the current Aceh crisis.
Indonesia’s cultural diversity within a sole entity can be an asset: the European experience is
a good example. ASEAN efforts to deepen regional integration should also be taken into
account. In order better to respond to the devolutionary aspirations of its member countries'
regions, ASEAN may wish to develop a stronger regional dimension, as the Union has done.

An important step forward will be the setting up of a comprehensive and balanced framework
for a degree of autonomy for provinces. Discussion of decentralisation and/or genuinely
federal elements has been far from conclusive, given the diverging points of interest at
national level (need for co-ordination of the transfer of resources, national cohesion) and at
provincial level (provinces rich or poor in natural resources but with aspirations towards
regional autonomy, etc).

2.4.2 A Society of Tolerance

Ethnic and religious unrest is another crucial issue. Despite shortcomings in the past, it was
able to achieve the coexistence of the Islamic majority with many other religions. Recently,
political instability has heightened religious tensions, in particular in Ambon and other parts
of the Mollucas where the decades-old policy of transmigration, intended to alleviate the
demographic pressure from overpopulated areas, has contributed to ethnic and religious
tension. Ethnic problems are also of particular importance for the Chinese minority, which is
regularly targeted by rioters during periods of civil unrest because of its economic success.
Ethnic unrest has in the past even caused refugee problems for neighbouring Papua New
Guinea.

These are matters of grave concern, and the Union has on a number of occasions called on the
Indonesian Government to resolve these problems peacefully and to work out conciliatory
approaches. The appointment of a minister of settlement and territorial development indicates
a shift with regard to internal resettlement policy.

3Indonesia, the fourth most populous country in the world, has a population estimated at 210 million people and
a territory composed of 17,506 islands, stretching over one tenth of the equator. The population is mainly
Malay/Indonesian with Melanesians in Irian Jaya and the eastern islands and with a 3% ethnic Chinese minority.
Indonesia is 87% Muslim, 10% Christian and 3% Hindu/Buddhist

9

Special responsibility for Ambon has been given to Vice President Megawati Soekarnoputri,
who visited the region, together with the President. Their joint statement on reconciliation
deserves the full support of the EU. The Commission (ECHO) is resuming humanitarian aid
to displaced people in the Mollucas.

Fundamental rights including the rights of minorities should be an essential part of any future
political dialogue with Indonesia with a view to supporting a constructive approach to this
problem.

3.

ECONOMIC AND TRADE RELATIONS

3.1. Trade

Indonesian trade remained sluggish in 1998-99, even with the stimulus of currency
depreciation. Indonesian sources show that, after a decline of 9% in 1998, exports were down
3.5% year-on-year in January-October 1999, even though oil and gas have been selling at
record prices. Imports declined by 7.1% year-on-year in January-October 1999, after a large
fall in 1998. This stagnation of imports is related to the fall in investment and the weakness of
the domestic supply of credits to the industrial sector.

3.1.1. Multilateral trade

Indonesia is an influential member of the WTO and plays a key role within ASEAN on
multilateral trade issues. Since the conclusion of the Uruguay Round, Indonesia appears to
have faithfully implemented its commitments. A discriminatory regime on cars was
successfully challenged by the EU and other WTO4 and has been amended. Indonesia was
able to play a constructive role in the run-up to the Seattle ministerial conference and was
among those developing countries with which the EU worked in order to secure a balanced
and broad-based package of results. Priorities for Indonesia in the WTO include better market
access for textiles and clothing products, the review and tightening of anti-dumping rules, and
additional flexibility for developing countries in a number of areas. The EU has an interest in
furthering the discussions with Indonesia on matters of common interest in the WTO, and in
more intensive cooperation, both bilaterally and in EC-ASEAN and ASEM for a, to facilitate
the launch of a new WTO trade round designed to meet the interests of both sides.

3.1.2. Bilateral Trade

The EU is a prime trading partner for Indonesia. It is the largest destination for Indonesia’s
exports other than oil/gas5 and it is the number one supplier of goods to Indonesia. The
booming Indonesian economy in the 80’s and 90’s had a particularly great impact on EC-
Indonesia trade with total two-way trade exceeding
8.29bn) -
a more than eight-fold increase since 1980.

16.5 bn in 1997 (

8.27bn v.

€

€

€

However, the financial crisis provoked a sharp decline in EC exports to Indonesia (53% in
1998 and 23% year-on-year in the 1st semester of 1999). There was an increase in value of EC
imports from Indonesia (7% in 1998) but a decline (-11% year-on-year) in the first semester
of 1999. The EC registered a bilateral
5 bn trade deficit in 1998. This trade deficit is an
essential EU contribution to the recovery process and the EU has acted fully in line with the

€

4report of the panel on Indonesia: certain measures affecting the automobile industry, 2.7.99 ref. WT/DS64/R
5Japan buys most oil/gas

10

April 1998 ASEM trade pledge. A “new trade pledge” towards Indonesia would be a strong
political signal of support to the Indonesian Government's efforts to deal with its country's
economic problems.

There is significant potential to expand trade, in both goods and services, which can be
developed through a continuous focus on the opening of markets. Meanwhile, discussions
should start on current market access issues between both partners with a view to stimulating
two-way trade flows. Such discussions are foreseen in the EC-ASEAN framework and could
be developed in a bilateral Senior Officials' Meeting (SOM) framework.

3.1.3. General System of Preferences (GSP)

In 1997, Indonesia ranked as the third biggest beneficiary of EC GSP overall and the biggest
ASEAN beneficiary. Around 55% of its trade with EU received GSP status at that time.
However, the total graduation of Indonesia, for three crucial product sectors - wood, footwear
and animal fats and oils - in January 1998, had a significant impact on its potential market
access to the EU. This unfortunately coincided with the peak of the economic crisis in the
region. This graduation was based on 1992 figures for the development index and 1993
figures for trade data and it does not, therefore, reflect the impact of the crisis on Indonesia
exports. Furthermore, a revision of the graduation mechanism, which was foreseen for 1999,
was postponed to 2000. This would take account of the 1999 figures which would more
accurately reflect the adverse effects of the economic crisis than those which would have been
used in the 1999 review. As regards wood, Indonesia could examine the possibility of using
the incentive schemes introduced in 19986, which offer additional benefits to countries that
respect standards relating to the sustainable management of tropical forests (ITTO). To date,
Indonesia has failed to indicate interest
in these schemes, However, assistance to help
Indonesia progressively apply these standards could be envisaged in the framework of the EU
forestry programme.

3.2 Recovery from the crisis

Prior to the crisis, the Indonesian economy had made remarkable progress. From the sixties to
the nineties, Indonesia was one of only three economies in the world to move from the bottom
of the world's economic growth tables to the top. This brought with it a substantial reduction
in poverty and significant social progress, particularly in the fields of education and health.

This growth was, however, partly based on weak banking and financial systems which were
also, together with cronyism and corruption, root causes of the financial crisis throughout the
region. In the case of Indonesia, the poorest of the affected countries, the economic and
political systems were yet more fragile and untransparent. The change provoked by the crisis
in the political system was also more dramatic than in the other countries of the region and, as
a result, Indonesia was the worst hit of all. It is also the country whose recovery has been the
most difficult and the slowest.

3.2.1 The Challenges of Economic Recovery

The main challenge is the establishment of a new democratic political regime to provide the
country with renewed stability. The holding of free and fair elections and the designation of a
government that should respond to the widely expressed desire for change have created the
fundamental conditions for recovery. But there is still a long way to go.

6Council Regulation (EC) N° 1154/98 of 25 May 1998.

11

The government needs to address macroeconomic challenges swiftly and rigorously,
particular, the following:

in

- reforming and recapitalising the financial system,

- containing the levels of sovereign and foreign debt, particularly foreign sovereign debt,

- eradicating corruption and cronyism and replacing them with the rule of the law.

The new Indonesian Government seems decided to focus its economic policy on these
challenges. It will need the help of international partners, in particular IFI’s, to push forward
the necessary reforms.

3.2.2 The Role of International Financial Institutions (IFIs)

The current state of Indonesia's public finances is serious. Containment of the country's
national debt is a major challenge. The need for fiscal stimulus to support the economy and
the escalating cost of bank clean-ups put further pressure on public funds. The World Bank
has warned that public debt could rise to about 100% of GDP in 2000, up from only 24% in
mid-97. IFI support is therefore needed more than ever. Furthermore, IFI will play a decisive
role in advising the Indonesian Government in economic, social and administrative reforms.
The Union, with its Member States being major contributors to the IFIs, and itself an
important donor, has a role to play in order to ensure that the right support is given under the
right conditions. The IMF has been holding discussions with the Indonesian Government on
these points, and a letter of intent was signed on 20 January, setting out a clear reform
programme. It is understood that due attention has been given to the social cost of such
reforms. This is an important factor, as an earlier reform plan combined with political
frustration triggered social unrest in May 1998.

In this context, the EU should strengthen its co-ordination with the IFIs and in particular, the
World Bank and Asian Development Bank. A regular co-ordination mechanism in Jakarta for
Heads of Mission (HOMs) and IFIs would bring substantial benefits for both sides.

3.2.3 Future Investment Policy

New investments in the private sector are badly needed to revitalise the economy. But
available data up to the third quarter of 1999 suggest that investment has not yet started rising
from the subdued level of 1998. This is reflected in EU exports of machinery and capital
goods to Indonesia, which continued to fall throughout the first half of 1999.

EU direct investment in Indonesia was significant prior to the crisis, reaching an average of
550 Mio in the years 1995-1997. According to the Indonesian Investment Coordinating
Board, the EU has been the largest investor in Indonesia since the recording of FDI data
started in 1967.

€

In terms of investment policy, the current administration have shown a clear commitment and
has given top priority to attracting new foreign capital.That said, previously closed sectors
(e.g. transportation, warehousing, tele-communications) have gradually opened up to foreign
investment since mid-1999 while other sectors have become more friendly towards FDI. A
further opening-up of the financial services area to foreign services suppliers, notably in the
banking and insurance fields, may help the Indonesian government reshape a stronger
financial sector and provide it with the requested diversity, liquidity and stability. Lastly,
efforts should be made in terms to improve current accountability practice.

12

Several sectors still remain restricted or closed to FDI, but the new administration is expected
to continue the drive towards more openness to FDI.

Given the Government’s commitment and the prominence of the EU as an investor in
Indonesia, the exchange of views between Europe and Indonesia on these policies should be
enhanced, in particular at the level of senior officials (SOM). Fora for dialogue with Indonesia
on investment are also available within ASEM (the Investment Experts Group) and in the EC-
ASEAN framework.

Member States are stepping up their efforts to build investment links with Indonesia. There is
a need to co-ordinate the EU business presence. Support for the recently created Europe-
Indonesia Association (EIA) will help to achieve this.

3.3 Restructuring the Economy

Overall, the government’s major task will be to restore domestic and international confidence
in the Indonesian economy by establishing new and effective policies that break with the past
in most fields. The Union can bring a lot of experience to this process and assistance could be
envisaged where needed. Some areas for particular attention would be:

3.3.1 Good Governance

One of the most
important means to attract more investment, achieve sound economic
development and ensure best value for taxpayers money, is to implement good governance.
See section 2.3.5.

3.3.2 Banking System Reform

Indonesia’s Bank Restructuring programme is proceeding. Many reforms have been carried
out, but the challenges that remain are still daunting. The IMF and World Bank have
successfully used their influence on several occasions to keep the process on track. The Bank
Bali scandal tarnished the Indonesian Bank Restructuring Agency's (IBRA) image. A recent
shift of control over IBRA from the Finance Ministry to the President himself is designed to
increase the agency’s independence. The estimated cost of recapitalisation is enormous with
the eventual total cost in the region of 60% of GDP. EU support to banking restructuring has
been given through the IFIs, ASEM Trust Fund, EFEX, and Member States' assistance.

3.3.3 Economic Regulations

The framework of economic law in Indonesia is very weak, and needs extensive reform and
upgrading. The lack of an operational system, together with widespread corruption within the
judiciary has led to disrespect for the legal system. General recourse to irresponsible lending
has seriously restricted credit for valid business operations. While business activity should be
pursued by the private sector, the government needs urgently to put in place a strong legal
framework for economy, providing for accountability and encouraging good business
practices. This should be accompanied by an immediate start to the privatisation of the assets
held by IBRA, which have a face value of about 80% of Indonesia’s GDP. Particular areas of
the law which required attention are bankruptcy (together with settlement provisions these are
needed to return to a healthy corporate society), competition law and financial regulation and
intellectual property rights. Improvements in enterprise monitoring and accounting practices
are also required. In these areas, Europe has considerable experience which could be usefully
exploited in co-operation initiatives with Indonesia.

13

4. SUSTAINABLE DEVELOPMENT

4.1 Social Development Background

The Soeharto administration (1965-1998) deliberately focused on development and made
impressive social and educational advances. Poverty was reduced in absolute and relative
terms. Urbanisation advanced, with a high standard of housing and public infrastructure.
Population growth was steadily reduced to a rate of 1.7 % p.a., a remarkably low figure that
was achieved without any coercive measures. From the ranks of the world's poorest nations in
the 1950s and early 1960s, Indonesia entered the middle-income range, with per-capita GDP
exceeding 1.100 $ by the mid 1990s. Other significant achievements included health care, life
expectancy and literacy. This progress in social development was halted or even reversed as a
result of the crisis and was aggravated by a severe drought. In 1998, the economy contracted
by 13.6%, in comparison with the average annual economic growth of 6.5% that Indonesia
experienced in the period from 1967 to 1997. It seems that the urban lower and middle classes
were most affected by the decreasing demand for labour and shrinking real wage levels.
Given its initially less favourable position, the rural population fared relatively better. Of
great concern is the increase in unemployment and its detrimental effect on conditions of
employment. The Indonesian government has addressed this problem and succeeded in
creating additional jobs, but it is obvious that annual economic growth rates below 5 % will
be insufficient to ease the unemployment/underemployment problem.

To counter these negative effects, social safety net programmes were introduced in 1998 with
the help of the World Bank. The value of these is uncontested by all political parties, given
the millions below the poverty line, the large number of school children in danger of leaving
education for good7 as well as their importance for subsidising food and medical care. The
implementation of these programmes has been controversial and criticised because of
financial leakage diversion and inadequate monitoring.

Pending the resolution of the Bank Bali problem, international financing institutions have put
on hold all fast-disbursing budget support. This included loans to the Social Safety Net
Programme. As the Indonesian government has agreed to disclose the audit-report of the
incident, IFIs are in a position to resume their support, although valuable time has been lost.

The EU should give increased support to the social sector. To avoid the shortcomings of the
past, dialogue among the various groups concerned must be improved as must
the
administration at national and provincial level. In the long term, a comprehensive system of
social security could be envisaged.

In the longer term and to avoid economic downturns having such a negative social impact, the
EU should help Indonesia to set up some independent basic social insurance schemes, to
provide, for virtually all workers minimum unemployment and/or pension benefits as well as
basic medical insurance. This would avoid the massive move into poverty of laid-off people
in the case of economic crisis. Such schemes will also contribute to poverty alleviation by
reducing vulnerability of people who are close to the poverty line. Such schemes must be
placed outside the enterprise to ensure that in case of bankruptcy, they do not disappear with
the enterprise itself. Europe has a long and diverse experience in this field which could be of
great interest for Indonesia.

7Primary school enrolment appears to be stable at approx. 95 %, secondary enrolment dropped slightly from 54.4
to 53.2 %, although public expenditure on education decreased sharply between 1996 and 1998.

14

4.2 Poverty Alleviation

The crisis and the severe drought in 1998 increased the poverty rate from 11% in 1996 to 14-
20% in 19988. In urban areas, the poverty level roughly doubled (from 3.8%). In rural areas it
increased significantly in absolute numbers to around 17.6%. Overall economic inequality
seems to have changed little, but a detailed assessment shows very different regional and
social patterns. Poverty increased more in urban than in rural areas. Java was more affected
than the other islands. The agriculture and construction sectors, which employ poorer
segments of the population, were more vulnerable. Surprisingly, the urban middle class was
also strongly affected. It remains however unclear to what extent
the severe recession
Indonesia had a differential impact on men and women - information on this will be important
for optimal targeting of poverty alleviation.

The Government of Indonesia helped to cushion some of the negative effects by providing
subsidised food.

The ASEM Trust Fund that was set up specifically to address financial and social reform
problems stemming from the crisis has also been a valuable tool for Indonesia. It has
permitted rapid implementation of a series of advisory actions relating to key social policy
issues. The EU has contributed substantially to the Fund9. The
4.5 million so far allocated to
Indonesia has included projects in areas such as school grants, rapid poverty assessments,
medical assistance and utilities.

€

Given the proven effectiveness of the expertise provided via the ASEM Trust Fund, the EU
should consider providing additional resources, including possibly through an extension of the
ASEM Trust Fund. In general, prospects for a social dialogue between the EU,
the
government and NGOs on both sides, should be explored.

4.3 Promoting better environmental performance

During decades of very high economic growth, little attention was paid to environmental
issues. As a consequence, pollution levels are high in many areas. These damage health and
induce excess mortality, especially in urban areas. Poor people, who in general depend more
on natural resources are particularly affected by a degraded environment. The planned
reforms for better governance could offer an opportunity to reform fiscal policy and remove
some environmentally harmful subsidies (on certain very polluting fuels for example).

Moreover, the economic recovery and new investments flows could offer an opportunity to
introduce more environment friendly (or cleaner) technologies and to improve fuel-use
efficiency. The EU has a very rich experience in this field and could provide very valuable
technical assistance to Indonesia.

The financial crisis in Indonesia has exacerbated and created new environmental problems;
there is a real risk that environmental considerations will be relegated to a low priority in the
name of economic recovery. A basic assumption of the Union should be that Indonesia cannot
wait to address environmental problems until the financial situation gets better. The risk of
environmental degradation becoming the cause of the next crisis is too great.

8Data according to the most methodologically reliable sources (World Bank studies, 1998).
9The Commission's pledge of
million (Denmark, France, Italy, Luxemburg, the Netherlands, Finland, Sweden and the United Kingdom).

15 million was complemented by commitments by Member States, totalling

€

€

28

15

Over recent years, the forest fires and subsequent 'haze' problems (see 4.4 below) have
focused attention on the adequacy of Indonesian environment policy in general, including that
related to industrial production, coastal zone management, mining, urban environment, etc.

Indonesia should be encouraged to integrate enviromental considerations into all other policy
areas. Specific areas should include industrial policy (e.g. by encouraging the implementation
of a sound Environmental Impact Assessment regime, notably directed at all investment in
new industrial enterprises); in education, by promoting environmental education at all levels;
in urban development and city planning policy; in transport policy and in rural development
policy. Indonesia should be offered assistance in identifying environmental priorities and
directing resources towards them. Where applicable, relevant EU environmental technologies
will be incorporated into the economic and development co-operation programmes.

Given Indonesia's size and potential environmental impact over the coming decades as
expected economic growth gathers pace, specific global environmental priorities, such as the
mitigation of greenhouse gas emissions, should feature among joint co-operation activities
attracting EU assistance.

4.4

Forests and the Environment

The forests of Indonesia represent 10 % of the world's remaining tropical forests and are
considered to be amongst the richest in biodiversity being home to a great number of species
found nowhere else in the world. Forests play an important economic, social and
environmental role in Indonesia. Their atmospheric carbon sequestration and biodiversity are
globally important.

The threat to the country’s forests predates the economic crisis. Pre-existing problems were
excess processing capacity by the industrial timber industry, over-commitment to production
at the expense of conservation, insufficient forest access rights at the local level, lack of
biodiversity protection and rampant illegal felling of trees. The economic crisis and political
logging and weakened the
transition aggravated these deficiencies, accelerated illegal
economic position of local stakeholders.

Besides illegal logging, fires are the most pressing problem. Forest fires are the manifestation,
in a particular climatic context, of trends in land use practices. The national policy on
industrial plantations is one of the driving forces in the use of forested land. The government
maintains a policy of extending oil palm plantations at the expense of the forested areas.
While this sector is known for its financial performance, its poor adherence to sustainable
land management practices and the encouragement to investments is established. Alternatives
to burning ("slash and burn") still have to be researched and developed.

Indonesia's fires in 1997 were estimated to have caused more emissions of CO
than man-
made sources from North America. Fires burning out of control have caused severe damage
(haze, loss of timber, decline in tourism, etc.). They are also a symptom of deficiencies in
forest management and in the implementation of policies. Already in 1995 the use of fire to
clear agricultural land was outlawed, but because of a lack of political commitment and
budgetary resources the ban was not effectively implemented.

(cid:1)

Indonesia's forests are being felled at a rapid rate, both "legally" in designated forest
conversion areas and illegally in many other areas, even in national parks. The long term
climatic and ecological impact is a cause of serious concern for the global community.
However, the losers in this process are also the many marginalised groups who depend to a

16

greater or lesser extent on forests for their livelihoods and whose interests have often not been
considered.

4.4.1 Forestry and EU action

The new Indonesian government has stated its commitment to reform. A genuine change of
approach in the forestry sector would provide an opportunity for the Commission to
contribute substantially. The EU has chosen forest sector development as one of its top
priorities for support. About 60 % of development assistance to the country's forest sector are
presently being provided through Commission projects. The present EC forestry programme
) consists of a series of six coherent projects that address major issues10 :
(about 106 mio
forest fires, forest management, sustainable harvesting and the preservation of an ecological
the
balance. The area-based forestry projects are already engaged in actions to assist
resolution of conflicts between stakeholders, which can now be more easily achieved at
national and provincial level.

€

Although Commission funded work in the sector is already substantial, additional actions may
need to be considered. A number of problems should be addressed in the near future in co-
operation with other donors (notably the Member States). Among them is the inadequate
provision of counterpart staff to the projects, the sometimes limited involvement of the
beneficiary side, the relatively low sense of ownership and the lack of political follow-
through. The EC should be able to intesify its actions, in particular proceeding as soon as
possible to set up a full Fire Prevention and Control Programme. The problem of Indonesian
logging companies outside their own country - sometimes involved in unsustainable logging
operations abroad - could be usefully included in the dialogue with the Indonesian authorities,
and also in the framework of the ASEAN-EU dialogue.

These problems are largely related to the specific socio-political reality of Indonesia. Solving
these problems will necessitate changes in the way policy decisions are taken and
implemented. Civil society in its various forms will have to play an active role. This process
has already started. It could be accelerated if resources were more effectively channelled and
the extensive experience at the disposal of the Commission and the Member States were
better exploited by the government. A start in this direction has been made by the government
sponsored forest seminar in January 2000.

5. FUTURE APPROACH

The above considerations lead to the conclusion that the European Union should update and
strengthen its relationship with Indonesia. This should be achieved through a step-by-step
approach taking into account the progress realised by the Indonesian Government in solving
internal conflicts peacefully, reforming the economy and in strengthening the country’s
democratic institutions.

In setting out key strategic objectives for a closer relationship with Indonesia, the EU should
focus on a dialogue specific to Indonesia but within the ASEAN-EU partnership. This would

101. Leuser Development Programme (Gunung Leuser National Park, covering 2 mio. ha in North Sumatra and
Aceh), 2. Forest Fire Prevention and Control Project (South Sumatra), 3. Berau Forest Management Programme
(East Kalimantan), 4. Forest Inventory and Monitoring Project (updating national forest resource data and
establishing an integrated information system), 5. South and Central Kalimantan Production Forest Project, 6.
Forest Liaison Bureau (Jakarta).

17

involve a bilateral political and economic dialogue for the advancement of mutual interests,
taking into account the respective regional importance of both partners.

5.1 Political And Security Matters

The EU contribution to the elections11 proved extremely successful and it was very well
received by the Indonesian people. EU support to the democratic process should not stop
there.

(1) The Union should develop a political dialogue with Indonesia, on an equal footing. Its
main purpose would be:

- to share views on regional political and security developments and identify possible co-
operation,

- to support governmental efforts to bring forward necessary reforms and to encourage further
steps towards anchoring democracy in Indonesia,

- to develop a dialogue with Indonesia on human rights.

(2) The Union should pay special attention to promoting good governance and application of
the rule of law, a priority for the Indonesian Government. European assistance could focus on:

- co-operation in the establishment and training of an independent judicial system, including
promotion of respect for human rights and strengthening the Office of the Attorney General;

- support to the reform of the civil service, concentrating on one or two key sectors, of which
one could be forestry, taking into account the EU's leading role as a donor in this area;

- development of contacts between European and Indonesian defence officials;

- strengthening civil society.

(3) Actions designed to reduce cultural and religious tensions should concentrate on:

- humanitarian aid for displaced people or those at risk,

- efforts to promote dialogue and reconciliation taking into account governmental actions, as
well as international and regional endeavours. Special attention should be given to the
involvement of civil society,

- sharing with Indonesia the wide and diverse experience of EU Member States in dealing
with decentralisation and regional change. Exchange of know-how and information on
existing federal systems in Europe could prove a valuable contribution.

(4) For regions seeking devolution, the Union should develop a dialogue with Indonesia and
other international partners to help seek viable solutions that respond both to these regions'
aspirations and to the objective of avoiding the disintegration of Indonesia. Although this
question is an internal policy matter, it has strong potential effects internationally.

11 For the parliamentary elections, significant financial support was given and a large election observation unit,
comprising 136 long and short-term observers, was dispatched to the country. The team's close co-operation with
the administration was appreciated as a substantive contribution to strengthening democracy.

18

5.2 Economic and Trade Relations

Enhancing trade relations should be a key objective of the strategy. In particular:

- The EC has an interest in furthering the discussions with Indonesia on matters of common
interest in the WTO, and should develop more intensive cooperation, both bilaterally and
through the ASEAN and ASEM fora, to facilitate the launch of a new WTO trade round
designed to meet the interests of both sides.

- A “new trade pledge” towards Indonesia, reiterating the ASEM trade pledge would be a
strong political signal of support to the Indonesian Government's efforts to deal with its
country's economic problems.

- Discussions should start on current market access issues for trade in goods and services
between both partners to stimulate two-way trade flows.

- Support for economic recovery should be a priority in the EU's short-term strategy for
Indonesia.

- The EU should strengthen its co-ordination with IFIs12, in particular the World Bank and the
Asian Development Bank. A regular co-ordination mechanism in Jakarta for HOMs and IFIs
would bring substantial benefits for both sides. For the EU, it would ensure better knowledge
of the evolution of the situation and would allow a co-ordinated approach to projects which
correspond to the policies adopted. For the IFIs, it would be an opportunity to integrate EU
contributions more effectively into the overall effort.

- Given the prominence of the EU as an investor in Indonesia, the exchange of views between
Europe and Indonesia on investment policies should be intensified, in particular at SOM13
level in the ASEM Investment Experts Group and in the EC-ASEAN framework.

- European instruments designed to promote investment, such as AsiaInvest, could be useful
for the promotion of European SME investment in Indonesia. Various EC-ASEAN economic
co-operation programmes also exist
to improve the business environment and investor
confidence. The Commission will consider the possibility of stimulating an increased
utilisation of these instruments and programmes in Indonesia through seminars or business
events.

- Given the importance of Community transport legislation, the EU should explore with the
Indonesian authorities the possibility of co-operation on issues such as satellite navigation
(GNSS), air transport economics (e.g. public service obligations and regional air services), air
safety, maritime piracy and other matters of common interest.

5.3 Raising the EU's Profile in Indonesia

Indonesia does not perceive the European Union as such as a major partner and it receives
only limited attention compared with the United States or Japan. The EU is viewed primarily
as a trading bloc and there is little awareness of its supranational nature.

12 Clearly, the consequences of the 3-year reform programme that the government has agreed with the IMF on
20th January 2000, has to be considered. This plan includes far-reaching reforms in the banking sector
(privatisation), in the energy sector, and in the areas of taxation and commercial policies. A detailed evaluation
of this ambitious reform programme and of its repercussions for EU trade and investment should follow.
13Senior Officials Meeting

19

5.3.1 Developing a dialogue with the authorities

The development of an EU-Indonesia bilateral dialogue would enhance substantially the
Indonesian government's perception of Europe and its interest in Indonesia's future. This
could help to position the Union as a major dialogue partner. As with the other original
members of ASEAN, there is no bilateral agreement between the EU and Indonesia. The 1980
EC-ASEAN agreement serves as a framework for economic relations, while the EU-ASEAN
Ministerial Meeting is a platform for political dialogue. The Commission has responded
positively to the Indonesian request to hold regular Senior Official Meetings in the future, as
is already the case with Thailand and Philippines. The question of a bilateral co-operation
agreement with Indonesia, in addition to the existing EC-ASEAN co-operation agreement,
could be considered. The advantages for the EU of engaging in a comprehensive dialogue
with a reform-oriented Indonesian government are obvious. Such a dialogue could even give
an impetus to the EU-ASEAN dialogue.

5.3.2 Promoting EU visibility in Indonesia

The “new strategy towards Asia” already stressed the need to promote a greater knowledge of
Europe in Asia, and vice versa. This makes it necessary for individual Union actors to join
forces in areas such as information, higher education and culture. The Commission and the
Member States could endeavour to develop further common activities "on the ground" in
order to promote this objective. Within the current EC strategy for co-operation in higher
education, various programmes have been launched or are in the process of preparation. They
offer a good basis for enhanced co-operation with Indonesia, but require adequate promotion
in Indonesia to be fully effective.

5.4 Focusing Support for Development

Indonesia’s development assistance needs are enormous. The current level of EC financial
commitments for Indonesia is a great deal less than those of other donors. But total aid
taking account of bilateral aid provided by Member States and
provided by the EU,
contributions to the IFIs, is substantial. The first step should be to maximise the impact of the
total EU contribution by strengthening the Union's global approach to development
cooperation with Indonesia.

The changes occurring in Indonesia are attracting the attention of all the major players who
share an interest in seeing reforms being undertaken as swiftly as possible. Co-ordination is
required in order to ensure that
future EU co-operation complements other donors’
contributions.

An EU approach to supporting sustainable development in Indonesia could focus on a number
of targets:

(1) In order to address the needs of target groups suffering from the impact of the crisis, social
safety net programmes such as family planning, support to maintain children in school,
mother and child health/nutrition, and support to the NGO network14 should be prioritised in
future actions.

(2) The Union should also pay special attention to the question of poverty alleviation, in
particular in problem areas such as the Mollucas and West Timor. This could involve small-

14i.e. the Community recovery Programme of the World Bank

20

scale rural development projects, small enterprise and agri-business development, water &
sanitation for rural communities, and community health and education. The Cairo conclusions
should be taken into consideration in particular as regards women's role in social and
economic development.

(3) A key priority for the EU will remain sustainable natural resources management, in
particular with regard to forestry, where the EC and Member States have already established a
solid background of co-operation in Indonesia. This applies to effective conservation of areas
with significant bio-diversity and measures to improve the sustainability of forest production
management. In that context, but not exclusively focusing on forest research, the development
of the scientific research capacities of Indonesia should be strengthened.
is well
demonstrated that sustainable development requires investment in clean technologies, best
practices and improved natural resource management capabilities.

It

It is obvious that the Commission’s limited financial resources allotted to Asia put constraints
on its future actions in clearly defined priority areas. However, an additional effort should be
made in order to upgrade its co-operation to a level consistent with Indonesia’s needs.

The political situation would now appear to allow the establishment of a proper programming
in particular on sustainable
dialogue between the Commission and the government,
development.

The Council is invited to adopt this approach and to invite the Commission, Member States,
business and other actors to co-operate in pursuing it.

21

FINANCIAL STATEMENT

1.

TITLE OF OPERATION

Communication from the Commission: "A Strategy for closer relations between
Indonesia and the European Union".

2.

BUDGET HEADING(S) INVOLVED

- B7-20

Food aid and support operations

- B7-21

Humanitarian aid

- B7-30

Co-operation with Asian developing countries

- B7-60

Community measures to support NGOs

- B7-61

Training and promotion of awareness of development issues

- B7-62
countries

Environment, health and the fight against drugs in the developing

- B7-63

Population and demography in the developing countries

- B7-64

Specific aid schemes in the field of development

- B7-65
and assessment of Community aid

Measures to combat fraud in the co-operation sector and management

- B7-70

European initiative for democracy and human rights

- B7-87

Promotion of commercial relations

- B8-01

PESC

3.

LEGAL BASIS

PVD/ALA Regulation, Democracy and Human Rights Regulation, etc.

4.

4.1

DESCRIPTION OF OPERATION

General objective

Communication from the Commission to the Council and the European Parliament
which outlines the key elements of a strategy for the development of closer relations
between the EU and Indonesia into the new millennium.

22

4.2

Period covered and arrangements for renewal

5.

5.1

5.2

5.3

CLASSIFICATION OF EXPENDITURE OR REVENUE

Non-compulsory expenditure

Differentiated appropriations

Type of revenue involved

The projects launched under the Communication will not engender any specific
revenue.

6.

TYPE OF EXPENDITURE OR REVENUE

– 100% subsidy

7.

FINANCIAL IMPACT

The present document, in itself, has no direct financial impact. The cost of individual
action for most of the credit lines possibly concerned will be decided and calculated
on a case by case basis.

7.1

Method of calculating total cost of operation (relation between individual and
total costs)

7.2

Itemised breakdown of cost

Commitment appropriations EURO million (at current prices)

Breakdown

year n

n+1

N+2

n+3

n+4

n+5
and
subs.
yrs

Total

7.3

OPERATIONAL EXPENDITURE FOR STUDIES, EXPERTS ETC. INCLUDED IN PART B OF
THE BUDGET

Commitment appropriations EURO million (at current prices)

23

year n

n+1

N+2

n+3

n+4

Total

n+5
and
subs.
yrs

– Studies

–Meetings of experts15

– Information
publications

and

Total

7.4

Schedule of commitment and payment appropriations

On request, following appraisal of the project by the Commission departments and
up to an amount not exceeding the appropriations to be entered under the relevant
budget headings, in each annual budgetary procedure.

8.

FRAUD PREVENTION MEASURES

– Specific control measures envisaged

– The Indonesian authorities and the Commission will apply the normal control
measures in the implementation of projects, as foreseen by each financing
agreement and contract.

9.

9.1

ELEMENTS OF COST-EFFECTIVENESS ANALYSIS

Specific and quantified objectives; target population

– Specific objectives: links with general objective

– To be defined on a case by case basis.

– Target population: distinguish for any individual objectives; indicate the end-
beneficiaries of the Community's financial contribution and the intermediaries
involved.

– To be defined on a case by case basis.

9.2

Grounds for the operation

– Need for Community financial aid, with particular regard for the principle of

subsidiarity

15Costs satisfying the criteria in the Commission communication of 22.4.1992 (SEC (92)769)

24

– To be defined on a case by case basis.

9.3

Monitoring and evaluation of the operation

– Performance indicators selected

To be defined on a case by case basis.and included in each financing agreement
and contract.

10.

ADMINISTRATIVE EXPENDITURE (SECTION III, PART A OF THE BUDGET)

This section of the financial statement must be sent to DGs Personnel and Administration and
Budge; DG Personnel and Administration will then forward it to DG Budget with its opinion.

Actual mobilization of
the necessary administrative resources will depend on the
Commission’s annual decision on the allocation of resources, taking into account the number
of staff and additional amounts authorized by the budgetary authority.

10.1

Effect on the number of posts

Type of post

to be assigned to

Staff
managing the operation

Source

Duration

Permanent
posts

Temporary
posts

Additional
resources

Existing
resources in
the DG or
department
concerned

Officials
temporary staff

or

A
B
C

Other resources

Total

If additional resources are required, indicate the pace at which they will have to be made
available.

25

10.2

Overall financial impact of additional human resources

Amounts

Method of calculation

EURO

Officials

Temporary staff

resources
budget

Other
(indicate
heading)

Total

The amounts given must express the total cost of additional posts for the entire duration of the
operation, if this duration is predetermined, or for 12 months if it is indefinite.

10.3

Increase in other administrative expenditure as a result of the operation

EURO

Budget heading

Amounts

Method of calculation

A-701 (missions)

Total

The amounts given must correspond to total expenditure arising from the operation if its
duration is predetermined or expenditure for 12 months if it is indefinite.

The costs will be covered by existing resources.

26