Indonesia’s Mandalika Project Reveals the Dark Side of AIIB Lending 

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Indonesia’s Mandalika Project Reveals the Dark Side of AIIB Lending 

The Chinese-led bank’s governance model emphasizes rapid and flexible infrastructure financing, making it easier for clients to dodge higher rule-based standards.

Indonesia’s Mandalika Project Reveals the Dark Side of AIIB Lending 

Mandalika International Circuit in Mandalika, Lombok Island, Indonesia, Nov. 18, 2021. The racetrack was built by forcing villagers off their land and bulldozing their homes, often without compensation.

Credit: AP Photo/Achmad Ibrahim

Before their home was destroyed, Suryadi lived with his family in a beautiful house he had built himself. Raised in a small farming and fishing community along the southern coast of Indonesia’s Lombok Island, Suryadi had saved for years to prepare the land and buy the construction materials; his wife sent money back during her tenure as a migrant laborer in Malaysia. In small plots beside his house, Suryadi and his relatives cultivated bamboo, coconuts, jackfruit, papaya, blueberries, and more. They planted flower gardens, and the income from selling bouquets along the beach was enough to pay for their daughter’s schooling.

Then the bulldozers came.

For generations, Suryadi’s family had lived in Ujung – one of many tiny villages scattered along the shoreline in Mandalika, an area formally designated as a “Special Economic Zone” in 2017. Ujung sat on a tract of land selected for construction on the Mandalika International Street Circuit, a state-of-the-art, 18-turn motorcycle track on the Grand Prix race circuit designed to host Formula One racing. The vigorously promoted racetrack, which hosted its first international events in 2021, is the crown jewel of the Mandalika Urban Development and Tourism Project – one of 10 “new Balis” under the Indonesian government’s ambitious plan to boost tourism. In addition to the racetrack, the Mandalika project seeks to transform the area into an integrated tourist destination featuring parks, resorts, and luxury hotels.

The lead implementer of the Mandalika venture is the Indonesian Tourism Development Corporation (ITDC), a state-owned enterprise operating under Indonesia’s Ministry of State-Owned Enterprises. The majority of the project’s financial backing has come from the Chinese-led Asian Infrastructure Investment Bank (AIIB), which to date has provided $248.4 million in loans – equivalent to 78.5 percent of the Mandalika project’s total funding.

Established in 2016 and headquartered in Beijing, the AIIB’s stated aims are to promote sustainable growth and development through selective financing of regional infrastructure projects. In practice, its involvement in Mandalika has perpetuated the widescale, forced eviction of indigenous populations, while cutting off hundreds from access to their main forms of livelihood.

Suryadi’s village was demolished within four days. By the spring of 2021, the ITDC was rushing to begin construction on the MotoGP circuit in time for an inaugural race scheduled in the fall. The urgency was pressed upon local villagers, who were powerless to resist. ITDC officials dictated their terms on a green clipboard: If you wish to qualify for compensation, they urged, sign here. There was no real choice; the evictions would take place either way. No signature, no payment.

In April, a construction crew descended upon Ujung in a fleet of cranes, rollers, and dump trucks, accompanied by heavily armed military police and state security forces. In its hasty implementation, the excavation intruded upon old graves, forcing villagers to watch as the long-buried bones of their ancestors cracked and crumbled under the hot sun. They gathered above the graves in small circles, helpless, crying.

The day after Suryadi’s home was flattened, he returned to the site where the house he built once stood, now a packed mound of yellow-brown dirt. He had prepared a sign on a piece of cardboard – “This land has not been paid” – and he staked it into the ground.

“As good citizens, we support the plans for development,” he explained in a video recording of this small act of defiance. “We agreed to be evicted because ITDC and the government promised us they will pay for our houses.” Then his declaration became a plea. “When the construction has started, when the development is done, don’t forget us. Don’t forget the ordinary people.”

Like Suryadi, many ordinary people in Mandalika risk being forgotten. Since October 2019, the area’s indigenous Sasak communities have endured a relentless series of aggressive land grabs and forced evictions tied to construction on the MotoGP circuit. When local residents and human rights groups organized protests and actions to defend their land, they encountered intimidation, threats, and even violent assaults from government-backed security forces.

Responsibility must be distributed beyond the direct perpetrators, to the institutions enabling their abuse. The AIIB and other investors “cannot look the other way and carry on business as usual,” declared a panel of United Nations investigators in 2021. “Their failure … is tantamount to being complicit in such abuses,” the U.N. panel said. Yet, instead of upholding its own environmental and social standards, the bank has continued to deny allegations and shirk responsibility.

At stake is more than the fate of Mandalika’s displaced local communities. Through the AIIB and other initiatives, China is advocating a new form of multilateralism, centered around its own rules and influence. The AIIB’s governance model emphasizes rapid and flexible infrastructure financing, making it easier for clients to dodge higher rule-based standards on disclosure, consultation, and environmental and social standards. Such a strategy clashes with the principles of electoral democracies, which intend for infrastructure to serve citizens’ needs rather than trample on their rights, while creating greater vulnerabilities for political capture and corruption.

Awareness of such dangers is beginning to gain traction. Earlier this year, the U.N. issued its third communication condemning the rights abuses in Mandalika – an unprecedented level of engagement for such a development project. Even the bank’s member countries are waking to the extent of its malpractices. This month, Canada’s Finance Minister Chrystia Freeland announced a review of Canada’s involvement in the AIIB. The move comes after the public resignation of the AIIB’s head of global communications, a Canadian, who stated the organization is “dominated by Communist Party members and also has one of the most toxic cultures imaginable.”

In Lombok, the AIIB’s due diligence and transparency failures can be traced to the very beginning of its involvement. Before approving the Mandalika project in December 2018, the AIIB instructed the ITDC to conduct a comprehensive land assessment. The ITDC submitted a report stating that 92.7 percent of the selected land for development was “clean and clear” from conflicts, which became the grounds on which the AIIB approved funding. Yet this number is a gross oversimplification – if not outright misrepresentation – of the true conditions in Mandalika.

Land conflicts remain a serious problem across Indonesia due to voids in formal land titles, limited recognition of customary land rights, and incomplete official records. Lombok Island, in particular, carries a history of violent land seizures tied specifically to tourism investments, and enforced through coercion and aggression by state security forces. Prior to the AIIB’s approval of the project, protests and land clashes intensified in Mandalika as the ITDC and Indonesian government accelerated their involuntary land acquisitions.

Since 2019, Just Finance International (JFI) and its local community partners have repeatedly disputed the ITDC’s claim of 92.7 percent “clean and clear” land, and requested that the AIIB and ITDC disclose their methodology. During one meeting with the AIIB in 2019, bank representatives told JFI that they had conducted an audit and would disclose its findings. Despite this offer, and multiple attempts at engaging the bank since, no disclosure has been made.

Since the Mandalika project broke ground, grievances against indigenous populations – and breaches of the AIIB’s own written safeguards – have continued. In a survey released earlier this year, JFI worked together with the Indonesia-based Coalition for Monitoring Infrastructure Development to interview 105 affected community members. More than two-thirds of villagers felt intimidated or coerced by Indonesian security forces during the land acquisition process. 82 percent stated they would not have given their consent for the development project, while to date, only 15 percent of respondents have received any form of compensation at all. These findings plainly contest the AIIB’s self-declared commitments to ensure “broad community support has been obtained from the affected Indigenous Peoples,” or else require proposed development activities to be “excluded from the project.”

Since 2020, the AIIB has tried to cite COVID-19 as a cause for delay in the permanent resettlement process, though the pandemic appears to have had little impact on the project’s accelerated schedule of evictions and land seizure. To this day, the bank remains idle and complicit through ongoing waves of involuntary resettlement and forced evictions.

After their home was demolished in the spring of 2021, Suryadi, along with his wife and kids, endured two weeks living inside makeshift tents. Eventually, they joined 14 other families from Ujung at a temporary relocation shelter, where they have been awaiting more stable resettlement for the past two years. At the shelter, housing units are little more than cramped boxes made from thin plaster walls, joined under a ribbed tin roof. The quarters are packed tight against one another: one family cooking a meal with chili peppers will cause their neighbors’ eyes to water. Yet even the ability to stay here remains precarious. In April, an ITDC official told Suryadi that further evictions from the temporary shelter were forthcoming after the Eid holidays. The ITDC official did not specify when.

Up and down the pristine curves of the Mandalika shoreline, indigenous peoples from the nearby villages of Bantik Bantar, Muluk, and Gerupek similarly face the unpredictable seizure of their homes and imminent disruptions to their livelihoods. With few other options, many of Suryadi’s neighbors in Ujung have become harvest workers in Samba, one island over. Some of his relatives have pleaded with the ITDC for odd shifts as security guards. Suryadi occasionally picks up work at a parking lot in Mandalika, frequently earning less than one dollar a day. If his family is evicted again from the temporary shelter, he does not know how he will support them, or where they can even go to live.

“We know we have no hope,” he recently said. “But we still try to defend our rights.”