Information in: Español - Français - Deutsch - Português - Russian - Japanese - Svenska - Italiano - Suomi

Pulp & Paper

SUMMARY: Double Destruction
The Role of ECAs in Indonesia's Forests:
From Pulping the People to Looting for Palm Oil while Destroying U.S. Jobs

By:
Inge Altemeier,
Feri Irawan (Walhi Jambi),
Stephanie Fried, (Environmental Defense)
Rivani Noor (Walhi Jambi)1

May 2002

The Case of APRIL/Raja Garuda Mas and APP/Sinar Mas

During the 1990s, Export Credit Agencies from Japan, Germany, Sweden, Finland, Austria, Denmark, Canada, Italy, and the United States competed with each other to underwrite the extraordinary eight-fold expansion of the Indonesian paper and pulp sector. Unfortunately, whether from the viewpoint of financial due diligence, environmental protection, or human rights, the Indonesian paper and pulp sector was an extraordinarily risky investment, built largely on the premise of the availability of illegal sources of timber. To make matters worse, ECA support led to the participation in these extraordinarily risky endeavors by one of the oldest paper machine manufacturers in the United States, the Beloit Corporation and its parent company, Harnischfeger, which then went bankrupt largely as a result of exposure to the Indonesian paper and pulp market, costing thousands of jobs and eliminating millions of dollars of revenue from the tax base of the city of Beliot. Beloit's Finnish competitor then took over much of Beloit's American operations, reducing competition in this sector to the point that the Justice Department was called in to investigate anti-trust implications. The ripple effect of ECA support for ill-advised Indonesia ventures would be felt from the forest communities of Indonesia to working communities across the United States.

The damage done to the Indonesian environment and forest dwelling peoples by ECA-supported investments in the paper and pulp sector continues to be immense. This report documents not only the damage done by two of the largest ECA-supported paper and pulp companies, but also the "collateral damage" brought about by the ability of Indonesia's paper and pulp conglomerates to easily attract foreign capital -- often as a result of the ECA "seal of approval" for their paper and pulp branches - and then to utilize this capital for the massive expansion of their oil palm operations, leading to additional severe environmental and human rights problems. This report chronicles the "double destruction" -- via the paper and pulp sector and the palm oil sector -- of Indonesia's forests and forest peoples by ECA-supported conglomerates.

We focus on two of Indonesia's most powerful paper and pulp and oil palm conglomerates: the Asia Pacific Resources International Holdings Ltd (APRIL)/Raja Garuda Mas Group and Asia Pulp and Paper (APP)/Sinar Mas Group and their operations in Sumatra. We demonstrate how the efforts of ECAs have been supported by the International Monetary Fund, the IFC, the World Bank (IBRD), and the Asian Development Bank in the "double destruction" caused by Indonesia's paper and pulp and oil palm sectors. This report presents the words and experiences of villagers, farmers, and indigenous peoples in Jambi and Riau, Sumatra, Indonesia who have been living face to face with the twin destructions brought about by the pulp and palm oil sectors.

The Double Destruction scenario works as follows:
-Tropical forests, often owned and occupied by indigenous and other forest dwelling peoples or located in protected forests, are seized and logged; the timber is largely destined for ECA-supported pulp mills;
-The remaining brush is cleared by fire or other means; Indonesia's "fires of the century" were linked to palm oil and pulp plantation establishment;
-Instead of planting fast-growing pulp trees in the clearcut regions, the ECA-backed pulp conglomerates set up oil palm plantations;
-They then move on to seize and log additional forests to supply the pulp mills, and will not be meeting their needs from pulp plantations, as claimed in reports to shareholders.

**********************************************************
The Beloit Saga: APP, ECA's, and the Bankrupting of America's Oldest Paper Machinery Companies

The headline of the U.S. Export/Import Bank's February, 19, 1997 press release proudly proclaimed, "ExIm Bank backs $176 million Beloit sale to Indonesia: Supports Hundreds of Wisconsin, Illinois Jobs." US ExIm had agreed to provide over $130 million of guarantees for the sale of two paper-making machines to the APP conglomerate for their use in the Indah Kiat and Tjiwi Kimia mills.

In the press release, Jeffery Grade, who -- before his fall from grace -- was the CEO of Beloit's parent company, Harnischfeger Industries, gushed, "This is an excellent example of how ExIm Bank assists American businesses in securing orders and jobs for our country. c There were hundreds of jobs at stake at Beloit cWe were up against some formidable foreign competitors, and Ex-Im Bank financing made the difference."

"This is what Ex-Im Bank's mission is all about," said Ex-Im Bank's Director and Chief Operating Officer Julie Belaga. "We protect U.S. jobs by stepping in where an export wouldn't go forward without us, where competitive financing would not be available to our exporters without an Ex-Im Bank guarantee."

Ex Im's 1997 press release went on to quote two congressmen: Jerry Kleczka, "who strongly supported the export by the Beloit unit of Harnischfeger which is located in his District" and who said, "The timing of the Bank's consideration of the Harnischfeger loan application was crucial to the company's competitiveness in the process. I was glad to be able to facilitate the communication between the company and the Bank."

The press release quoted Illinois Congressman Don Manzullo: "Nowhere, in any other manufacturing sector do we see purer competition. Outside of Beloit Corporation, there are only two other paper-machine manufacturing companies in the world - one in Finland, and one in Germany. This deal gives Beloit Corporation a foot-up in the fast-growing Asia market."

Within two years of this announcement - largely as a result of highly risky and failed Indonesian paper and pulp investments -- the Beloit Corporation, established in 1858, and its parent company, Harnischfeger, established in 1884, would be bankrupt. Beloit's Finnish competitor would take over much of Beloit's American operations, reducing competition in this sector to the point that the Justice Department was called in to investigate anti-trust implications. The ripple effect would be felt throughout working communities across the United States.

By August of 1999, Harnischfeger had cut 2,800 jobs and company stock was rated "the S&P's worst performing stock for the year."2 A Beloit customer in Washington State who had ordered a $45 million dollar paper-making machine in 1998 and who, two years later, was still waiting for delivery, summed it up, "How they can self-destruct in a couple of years is almost beyond comprehension."3

Beloit City Council members were stunned and calculated that the potential loss of jobs for employees who are taxpayers, homeowners and a part of the community "would be devastating."4 Beloit Jones Corporation shocked the residents of Dalton, Massachusetts by closing its plant and firing 258 workers.5 Beloit's Blackhawk Plant in Rockton, Illinois and its Perform Pro Pipe Roll Shop in Beloit, Wisconsin announced the elimination of 350 jobs.6 Beloit announced the discontinuation of its funding for operations in the United Kingdom, Italy, and Austria.7 As another 125 employees were laid off, former CEO Jeffrey Grade sued to obtain a $5.7 million severance package.8 Beloit's operation in Nashua New Hampshire announced layoffs of another 60 - 90 people.9 By April of 2000, Wisconsin's unemployment rate had seen its "biggest jump in almost two years" with the highest rates - by a factor of 4 -- in the Janesville-Beloit region.10 State officials concluded that Beloit and Harnischfeger owed over 300 of their former employees $4.2 million in severance pay.11

Beloit's Finnish competitor Valmet, mentioned in the ExIm press release took over key Beloit assets in Wisconsin and elsewhere -- despite Congressional anti-trust and job-loss concerns -- and renamed its operation "Metso USA".12 Mitsubishi Heavy Industries and Canada's Laperriere and Verreault, Inc purchased Beloit's papermaking equipment, and pulp and finishing units. By June, 2001, it was estimated that as a result of the Beloit Corporation bankruptcy, the city of Beloit lost $5,970,900 in property tax base and $1,664,000 in personal property tax base which had provided support for city, county, state, school district and college operations.

Export Credit Agency guarantees had made it possible for an American company to leverage private sector investment under extraordinarily risky environmental, social, and financial conditions without any requirement of significant due diligence. As the risks came home to roost, not only did Indonesian farmers and Indonesia's forests pay a heavy price, but the blow was felt harshly by American workers and their communities.

Endnotes:

1. This research was carried out in tandem with ongoing work by NADI, Indoneisa.
Contact information: Inge Altemeier (HornungTV@t-online.de), Feri Irawan (bablas_feri@yahoo.com); Stephanie Fried (stephf@environmentaldefense.org); Rivani Noor (walhi_jfed@yahoo.com or rv_noor@lycos.com).
2. "Harnischfeger buyout offer?", 4/13/99, The Beloit Chronicles - Part II. Collection of newspaper clippings from the Beloit Daily News, the Rockford Register Star, Janesville Gazete, Milwaukee Journal Sentinel, Capital Times of Madison Wisconsin, compiled by Luigi Bagnato, retired from Beloit after 29 years of service. www.finishingnet.com
3. "Beloit customer: "How can they self-destruct in a couple years?", 3/4/00, The Beloit Chronicles -Part IV.
4. "The closing of Beloit Corporation, a major blow.", 8/24/99, The Beloit Chronicles - Part III.
5. "Dalton, MA "shocked" at plant closing," 9/2/99 The Beloit Chronicles - Part III
6. "Big cutbacks at Beloit Corporation," 9/8/99 The Beloit Chronicles - Part III
7. "Beloit Corporation closing down worldwide,"12/19/99, The Beloit Chronicles - Part III
8. "Grade wants $5.7 million," 11/22/999, The Beloit Chronicles - Part III
9. "Nashua lays off 60 to 90 people," 2/19/00, The Beloit Chronicles - Part IV
10. "Wisconsin unemployment rate up," 4/27/00, The Beloit Chronicles - Part V
11. State Representative Dan Schooff reacted to Harnischfeger's claims that it did not have the money to make severance payments: "Harnischfeger has a lot of guts to comaim they don't have enough money to pay their debts to employees, and then come to the Beloit Corp auction and buy hundreds of thousands of dollars worth of equipment," Schooff said. "I can sum their actions up in one word - ridiculous." Citation in "Harnischfeger told to pay $4.2 million to Beloit employees", 9/7/00, Beloit Daily News
12. "U.S. representatives question legality of Beloit bidder," 1/13/00; "concerns about Valmet monopoly", 1/16/00; "Legislatures try to retain Beloit jobs", 1/25/00; "Local and state lawmakers still battle Valmet buyout," 1/27/00, "Valmet purchase could make monopoly,", 2/19/00; "Beloit/Valmet deal may be dalayed by Anti-trust discussion," 2/23/00 The Beloit Chronicles - Part IV

Stephanie Fried, Environmental Defense, at stephf@environmentaldefense.org