69193 COUNTRY PARTNERSHIP STRATEGY FOR INDONESIA FY2009-2012 Investing in Indonesia’s Institutions for Inclusive and Sustainable Development The last Country Assistance Strategy (CAS) Report No. 27108-IND was discussed by the Board on November 25, 2003, and the last CAS Progress Report No. 36856-IND was dated September 5, 2006 Currency Equivalents Currency unit: Rupiah (Rp) as of July 21, 2008 US$1 = Rp. 9, 148 Fiscal Year Until March 31, 2000: April 1 to March 31 Until December 31, 2000: April 1 to December 31 From January 1, 2001: January 1 to December 31 ii Vice President This Country Partnership Strategy was prepared James W. Adams, World Bank under the guidance of Joachim von Amsberg (Country for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Farida Khambata, IFC Director), by a team led by Preeti Ahuja, Wolfgang Fengler, Joel Hellman was co-TTL of the CPS until Country Director March 2008. The core team included Vincent S. Da Joachim von Amsberg, World Bank Cruz, Peter Milne, Satiriantinah Bur Rasuanto and the Adam Sack, IFC following coordinators: Hans Shrader and Magdi Amin (IFC), Peter Ellis (SD), Menno Pradhan (HD), Imad Task Team Leaders Saleh (OSU). In addition, the following colleagues Preeti Ahuja, World Bank have made important contributions to this strategy: Wolfgang Fengler, World Bank Kundhavi Kadiresan, Christian Rey, Yogana Prasta, Hans Shrader, IFC Rajat Narula, Rajashree S. Paralkar, Shaun O. Moss, Magdi Amin, IFC Suresh K. Khosla, Pantja Widdarini, Bakti Sudaryono from OSU; Sonia Hamman, Hongjoo Hahm, Sally Burningham, George Soraya, Scott Guggenheim, Joe Leitmann, Louise F. Scura, Ilham Abla, Erman Rahman, Susan Wong, Tim Brown, Mario Boccuci from SD; Vincente Paqueo, Mae Chu Chang, Clauda Rokx from HD; William Wallace, Shubham Chaudhuri, P.S. Srinivas, Vivi Alatas, Staffan Synnerstrom, Peter Rosner, Enrique Aldaz-Caroll, Soekarno Wirokartono, and Tim Bulman from PREM unit; Aliya Husain and Zafar Ahmed from PREMPR; Marlyn Caluag from CASU and Paramita Dewi, Wilza Samakoen and Erisa Dian for the logistical support. The IFC team integral to the development of this CPS was led by Adam Sack (Country Manager). Particular thanks go to advice on governance, anti- corruption and institutional reform provided by Daniel Kaufmann, Sanjay Pradhan, Anthony G. Toft, Steven Burgees and Kai Kaiser. Finally, special thanks are extended to World Bank Group development partners for their contributions. ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities JRF Java Reconstruction Fund ADB Asian Development Bank KKPPI National Committee on Policy for Bappenas State Ministry of Development Accelerating Infrastructure Provision Planning KPK Corruption Eradication Commission BAWASDA Badan Pengawasan Daerah (Local MDF Multi-Donor (Trust) Fund Government Audit Agency) MDGs Millennium Development Goals BNPB National Disaster Management Agency MIC Middle Income Country BOS School Operational Assistance MoF Ministry of Finance BPK State Audit Agency MoNE Ministry of National Education BPKP State Development Audit Agency MoT Ministry of Trade BPS Central Bureau of Statistics NGO Non-Government Organization CAE Country Assistance Evaluation NPPO/ National Public Procurement Of�ce/ iii CAS Country Assistance Strategy LKKP Lembaga Kebijakan Pengadaan Pemerintah COUNTY PARTNERSHIP STRATEGY CCT Conditional Cash Transfer CDD Community-Driven Development PDAMs Urban Water Utility Companies CIF Climate Investment Funds PEACH Public Expenditure and Capacity Harmonization CIR Country Impact Review PLN State-owned Electrical Utility CPS Country Partnership Strategy PNPM National Community Empowerment CRMR Country Results Monitoring Review Program CSO Civil Society Organization PNPM- National Program for Community DGH Directorate General of Highways Rural Empowerment in Rural Areas Project DHS Directorate General of Human PNPM- National Program for Community Settlement Urban Empowerment in Urban Areas Project DWR Directorate General of Water PPP Public-Private Partnerships Resources REDD Reduce Emissions from Deforestation DPL Development Policy Loan and Degradation DSF Decentralization Support Facility RPJM Medium-Term Development Strategy EITI Extractive Industries Transparency SISWA System Improvement through Sector Initiative Wide Approaches GAAPs Governance and Anti-Corruption SOFEI Decentralization Support Facility for Action Plans Eastern Indonesia GDP Gross Domestic Product SMEs Small and Medium Enterprises GFMRAP Government Financial Management SPADA Support for Poor and Disadvantaged and Revenue Administration Project Areas IBRD International Bank for Reconstruction STATCAP Statistical Capacity Building Project and Development TA Technical Assistance IDA International Development Association USDRP Urban Sector Development and IFC International Finance Corporation Reform Project ILGR Initiatives for Local Government WBG World Bank Group Reform Table of Contents EXECUTIVE SUMMARY vii CHAPTER I: INDONESIA’S INSTITUTIONS MATTER FOR DEVELOPMENT OUTCOMES 1 Indonesia has succeeded in consolidating its post-crisis achievements 2 Indonesia is now better placed to meet its development challenges 3 Indonesia’s medium term outlook is favorable but there are downside risks 5 Development outcomes depend on the quality of Indonesia’s institutions 6 CHAPTER II: THE STRATEGIC APPROACH – INVESTING IN INDONESIA’S INSTITUTIONS 9 Lessons 10 Approach 10 Selectivity 11 Principles and Practices 12 iv Instruments 12 CHAPTER III: THE WBG PROGRAM – CURRENT CORE ENGAGEMENTS 13 for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Cross-cutting Engagement 1: Central Government Institutions and Systems 16 Cross-cutting Engagement 2: Sub-national Government Institutions and Systems 17 Core engagement 1 – Private Sector Development 18 Core engagement 2 – Infrastructure 19 Core engagement 3 – Community Development and Social Protection 20 Core engagement 4 – Education 21 Core engagement 5 – Environmental Sustainability and Disaster Mitigation 22 Other Engagement areas 23 CHAPTER IV: PROGRAM IMPLEMENTATION 25 The need for a flexible �nancing envelope 26 Cooperation with other stakeholders/partnerships 27 Trust funds 27 Knowledge engagements 27 Implementation and management principles 29 Addressing the risk of fraud and corruption in WBG-supported programs 29 Results management framework 30 Managing for risks 30 FIGURES Figure 1: Indonesia: per capita income, government debt, poverty; unemployment 2 Figure 2: The CPS approach: Investing in Indonesia’s Institutions 11 Figure 3: Investing in Indonesia’s institutions: current core engagements 14 Figure 4: World Bank resource transfer to Indonesia 26 Figure 5: Determining the �nancing envelope 2009-12 26 TABLES Table 1: Indonesia 2004-2011 – Key macroeconomic indicators and projections 5 Table 2: Indonesia’s debt position and projections 6 Table 3: Enhancing institutional effectiveness through strengthened accountability and 15 capacity in the WBG core engagements Table 4: National government institutions - Illustrative outcomes supported by WBG 16 Table 5: Sub-national governments - Illustrative outcomes supported by WBG 18 Table 6: Private sector development - Illustrative outcomes supported by WBG 19 Table 7: Infrastructure - Illustrative outcomes supported by WBG 20 Table 8: Community Development and Social Protection - Illustrative outcomes supported by 21 WBG v Table 9: Education - Illustrative outcomes supported by WBG 22 COUNTY PARTNERSHIP STRATEGY Table 10: Environmental Sustainability and Disaster mitigation - Illustrative outcomes supported 23 by WBG Table 11: Core engagements: Alignment of instruments 28 BOXES Box 1: Key facts on the impact of rising oil and food prices 3 Box 2: Use of the term “institutions� 10 APPENDICES AND ANNEXES 33 Appendix 1: Cross-cutting and Core Engagements 34 Appendix 2: Results Framework 40 Appendix 3: Progress towards the MDGs 49 Appendix 4: Poverty and Inequality in Indonesia: Summary of Recent Poverty Assessments 50 Appendix 5: 2008 Doing Business Rankings 52 Appendix 6: Toward Enhanced Environmental Sustainability and Disaster Risk Management 53 Appendix 7: Environmental Indicators (Little Green Data Book 2008) 56 Appendix 8: Country Assistance Strategy FY04-08 Completion Report 57 Attachment A (Results Framework Completion Matrix) 68 Attachment B (Planned Lending Program & Actual Deliveries FY04-FY08) 77 Attachment C (Projects Closed During CAS FY04-08 Period) 79 Attachment D (Key Non-lending Program & Actual Deliveries FY04-FY08) 80 Appendix 9: Civil Society Consultations 82 Appendix 10: Addressing the Issue of Fraud and Corruption in WBG Supported Programs 84 Appendix 11: Management of Trust Fund Operations 87 Attachment A (Trust Funds Portfolio) 90 Attachment B (Key Active Trust Funds) 91 Annex A2: Country At-A-Glance 92 Annex B2: Selected Indicators of Bank Portfolio Performance and Management 95 Annex B3: Indicative IRBD Lending Program, FY09-12 96 Annex B3: IFC Investment Operations Program 97 Annex B4: Summary of Non-lending Services (Planned Key Activities (FY09-12)) 98 Annex B5: Social Indicators 100 Annex B6: Key Economic Indicators 101 Annex B7: Key Exposure Indicators 102 Annex B8: Operations Portfolio (IBRD/IDA and Grants) 103 Annex B8: IFC Committed and Disbursed Outstanding Investment Portfolio 104 Map of Indonesia IBRD No. 33420RI 105 vi for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons EXECUTIVE SUMMARY This Country Partnership Strategy (CPS) for FY2009-12 outcomes. For this reason, “Investing in Indonesia’s marks Indonesia’s re-emergence as a con�dent middle- Institutions� is the theme of the CPS. This focus also income country (MIC) that has graduated from IDA, recognizes that WBG �nancing now represents such a and is enjoying a rising regional and global standing. small share of Indonesia’s national budget that it can With a Government that is demanding dependable and only make a demonstrable impact if it leverages a much timely support for its own development priorities and larger share of Indonesia’s own public spending or its poverty-reduction agenda, this CPS positions the private investment. World Bank Group (WBG) to respond better to these challenges, thereby ensuring the WBG’s continued Building on the governance focus of the WBG relevance in the new Indonesia. Country Assistance Strategy for 2004 to 2008, this CPS emphasizes engagements with government Ten years ago, Indonesia was in the middle of an counterparts and other stakeholders who are committed extremely severe economic crisis. Today, Indonesia is to addressing critical governance and institutional a different country. It has embarked upon a far-reaching challenges. With this approach, the WBG wants to institutional transformation and has become one of the support success stories of replicable institutional region’s most vibrant democracies. Its sub-national reform. As such, the emphasis of the �nancing and vii governments are now major players in service delivery. knowledge program will continue to shift towards The �ght against corruption has moved to the center directly supporting successful or promising priority COUNTY PARTNERSHIP STRATEGY of the Government’s program and relevant institutions programs of the Government. This approach aims to have been strengthened. improve existing government programs, strengthen the institutions involved, both state and non-state, and In social and economic terms, Indonesia has also encourage others to replicate them. seen much progress. Its real GDP has been growing at 5 to 6 percent annually since 2002. Prudent �scal The application of this “institutional lens� will itself management and a strategy of �scal consolidation have provide a focus for the WBG program: investment, continued the signi�cant reduction in government debt together with advisory and analytical services, will levels. Inflation has largely been kept under control and be concentrated on the institutions, sectors, systems Indonesia has a strong balance of payments, with record and programs where this approach is most likely to exports. Public investment has steadily increased over succeed. In addition to its cross-cutting engagements the past �ve years. Poverty has declined and public to strengthen central and sub-national government services are receiving additional resources, including institutions and systems, this CPS identi�es �ve through community-driven development programs. thematic areas that are expected to form the core of the WBG’s engagement: (i) Private Sector Development; While Indonesia is doing well it could be doing far better (ii) Infrastructure; (iii) Community Development and across the areas of poverty reduction, service delivery Social Protection; (iv) Education; and (v) Environmental and governance. In 2007, nearly half of Indonesia’s Sustainability and Disaster Mitigation. population was still either poor or had per-capita consumption levels of less than one-third above the However, this list of core engagements is dynamic national poverty line. Employment growth has been and some of these areas may change, especially as slower than population growth. Public services remain Indonesia will be holding general elections in 2009 and inadequate for a middle-income economy. Many the Government’s medium-term development plan regions, especially in eastern Indonesia, are lagging (RPJM) for 2010-2014 will be launched in 2010. The behind and Indonesia is doing particularly poorly in a WBG’s capacity to implement this strategy will therefore number of health and infrastructure related indicators. depend on a degree of flexibility in its program and also As a result, Indonesia may yet fail to reach several of its on its capacity to build and maintain relationships in MDG targets. other areas where new opportunities may emerge. In meeting these challenges Indonesia’s main constraint Implementing this strategy will also require some flexibility today is not a lack of �nancial resources but the need in the WBG’s �nancing instruments and envelope. The for effective and accountable institutions that can two factors that will determine the level of engagement, translate available resources into better development demand and performance, are prone to change across sectors, particularly in view of the upcoming elections, and cannot be predicted with accuracy for the entire CPS period. However, the Government’s results in implementing the reform agenda, including through development loans, Indonesia’s strong macroeconomic progress and Indonesia’s �nancing needs, together make a strong case for reversing the decline in recent years in the International Bank for Reconstruction and Development (IBRD) exposure. A notional annual IBRD investment of about US$2 billion is expected. Actual annual lending volumes could vary signi�cantly up or downwards, but will be commensurate with continued robust macroeconomic performance, �nancial stability and momentum on key reforms. IFC expects to invest about US$300 million annually in the priority sectors of �nance, infrastructure and commodity-based supply chains. The investment program is expected to grow in the event of an acceleration of reform in private infrastructure provision. Trust funds and grant �nancing through trust funds will viii continue to be an integral part of the WBG program. The majority of trust funds will be aligned with the WBG’s core engagement areas. Trust funds also allow for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons for knowledge engagements outside these areas and support the harmonization and alignment of funding from various development partners behind core government programs. While the share of the WBG’s �nancial contribution to Indonesia’s development is expected to decline as the economy expands, knowledge partnerships will become ever more important. The WBG will build on its existing program of analytical and advisory services, and align this program with its core engagements. In doing so the WBG will also ensure that analytical and technical support strengthens national institutions and country systems and, increasingly, will have this type of work led by, and based within, Indonesian institutions. This CPS is designed to use the WBG’s limited resources to better meet Indonesia’s needs and aspirations as a middle-income country. By leveraging Indonesia’s own institutions, the CPS aims to help the country to move to the next phase of its ongoing and incomplete transformation — a phase that once complete will allow Indonesia to take its place among Southeast Asia’s most successful economies. CHAPTER 1 INDONESIA’S INSTITUTIONS MATTER FOR DEVELOPMENT OUTCOMES COUNTY PARTNERSHIP STRATEGY FY2009-2012 Investing in Indonesia’s Institutions for Inclusive and Sustainable Development Indonesia has emerged a very different country Indonesia has succeeded in today compared with the country that endured consolidating its post-crisis deep economic and political crises a decade ago. achievements It has embarked upon a far-reaching institutional transformation and has become one of the region’s After a turbulent �rst �ve years following the crisis, most vibrant democracies. The �rst phase of this Indonesia began to consolidate its democratic transformation, from 1998 to 2003, was a period of institutions with the parliamentary election in April radical political and economic change, typi�ed by 2004 and the �rst ever direct presidential election in democratization and the largest ever decentralization mid-2004. Susilo Bambang Yudhoyono (SBY) won of government. The second phase, from 2004 to 2008, 61 percent of the vote in a second-round run-off on was a period of consolidating democratic institutions a platform based on promises to �ght corruption, and returning to political and macroeconomic stability, jumpstart the economy, and ensure social cohesion most notable in Indonesia’s �rst direct presidential and stability. Given that President SBY’s own Democrat elections in 2004 and in its debt levels falling to below Party is in a minority in Parliament, the Government has 35 percent of GDP. As a result, Indonesia resumed chosen to govern on the basis of a broad consensus higher levels of growth and has now re-emerged as a that has promoted stability. con�dent middle-income country (MIC). Sub-national governments have become major players Despite these achievements, Indonesia’s transition is in service delivery and their role in public investment far from complete. Poverty levels fell quickly in the years and economic development is increasing. Indonesia’s after the crisis, but have been almost stagnant since almost 500 provincial, district and city governments 2002 (Figure 1). In order to achieve the standards of now undertake nearly 40 percent of public spending. service delivery and private sector investment required Decentralization contributed to the calming of 2 to reach its full potential, Indonesia needs to improve separatist sentiments and regional conflicts and the its institutional effectiveness, particularly in the areas Government received international praise for signing a of accountability, corruption control and capacity. for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons peace agreement in mid-2005 with separatist rebels Better development outcomes now largely depend in Aceh, ending a three-decade conflict. There has on addressing fragmentation, capacity weaknesses, also been a marked reduction in tensions in Central capture and corruption in Indonesia’s institutions. Sulawesi, Maluku, and Papua. A number of sub- Figure 1. Indonesia: per capita income, government debt, poverty, unemployment GNI per capita, US$ (PPP) Central Government Debt to GDP Ratio, % 5000 100 4000 80 3000 60 2000 40 1000 20 0 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Poverty Rate, % Unemployment Rate, % 25 35 33.4 29.6 30.6 20 30 27.9 28.1 25.1 25 24.1 15 15 10 20 11.2 10.3 9.1 9.7 9.9 9.1 10 8.1 5 5 Yout h All 0 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2001 2002 2003 2004 2005 2006 2007 Source: World Bank staff calculations, BPS (SAKERNAS labor force surveys). Note: Central Government Debt to GDP Ratio was recalculated in 2000. Poverty data were only available on an annual basis from 2002 onwards. national governments have undertaken major reforms Indonesia has a strong balance of payments, with of their public sector systems, introducing among record exports, and achieved a current account others performance-based budgeting and one-stop surplus of US$12.7 billion in 2007. This has contributed public services. to a sizeable accumulation of of�cial international reserves, which approached US$60 billion in mid-2008, The macro-economy continues to be strong; however providing Indonesia with a cushion against external there are areas of concern. In the context of a slowing shocks. With �scal consolidation, public investment global economy, Indonesia’s economic growth has steadily increased over the past �ve years. Private accelerated to a 10-year high of 6.3 percent in 2007; investment has only more recently recovered and thereafter revised downward to 6.0 percent for 2008. although it still remains below pre-crisis levels, it is Domestic demand, particularly private investment, rising fast. Following the crisis, investment rates fell has been the main driver of recent growth rates. Real from 30 percent before the crisis to a low of 19 percent GDP has been growing at 5 to 6 percent annually since of GDP in 2002. In 2007, Indonesia’s investment rate 2002 and, in 2005 per-capita real GDP for the �rst was 25 percent of GDP. time exceeded the level reached in 1997, immediately prior to the crisis. The Government’s prudent �scal Faced with one of the world’s most devastating management and a strategy of �scal consolidation natural disasters in recent history — the December have continued the signi�cant reduction in government 2004 earthquake in Aceh and the resulting tsunami debt levels, which are estimated to fall to 32 percent — the Government staged an appropriate response by end-2008. To date, inflation has achieved year-to- and the reconstruction effort is now making steady year increases of 11 percent in June due in part to the progress. The lessons from that disaster have been increase of fuel prices averaging over 125 percent in applied successfully in a number of other major 2005, and over 28 percent in May 2008 (Box 1). disasters Indonesia has had to face, most notably the earthquakes in Nias and Yogyakarta in 2005 and 2006, 3 respectively. COUNTY PARTNERSHIP STRATEGY Box 1. Key facts on the impact of rising oil and Indonesia is now better placed to meet food prices its development challenges • International oil prices doubled since Indonesia has re-emerged with increasing regional mid-2007 and food prices increased 20 and global standing. It now has the possibility to percent over the �rst half of 2008, a scale join the ranks of the world’s strongest economic of increase not seen since the 1970s. performers and, if Indonesia can sustain growth rates • Since 2004, Indonesia has become a net close to those of India, China or Vietnam, the world’s importer of oil but remains a net exporter of fourth most populous nation can make poverty history energy. Indonesia has announced plans to within a decade. High and inclusive growth would help leave OPEC in 2009. replicate the economic and social dynamism of other • Despite record high oil prices, oil and gas Asian countries that attract national and international revenues have hardly increased but regular investments and nurture innovation. Building on revenues have been performing strongly. its existing economic and political fundamentals, • Despite a 28.7 percent increase of fuel Indonesia today has the opportunity to create this prices in May 2008, energy subsidies are virtuous cycle of sustainable and inclusive growth. likely to exceed US$15 billion in 2008 if oil prices stay substantially above US$100 Success, however, is not guaranteed. The next phase of per barrel. Rising fuel prices have in part, its transformation is likely to be even more challenging impacted adversely the domestic electricity than the last one, because Indonesia will have to enter supply. into a period of second generation reforms. It will • The poor have been hurt by rising food need to provide services such as more sophisticated commodity prices because they spend infrastructure, and secondary and tertiary education, more than half of their consumption as well as a sustainable health insurance system. If resources on food. Indonesia fails to address these second generation • High commodity prices also present reforms there is a risk that it will fall into the middle- opportunities for Indonesia, particularly for income trap — squeezed between the innovations of net producers of agricultural goods and high-income countries and the low labor cost of low- minerals. income countries. The consequences of this could include stagnant poverty levels, the depletion of natural resources, relative isolation and rising threats to social cohesion. Which of these paths Indonesia follows will largely The open unemployment rate rose from 9.1 percent in depend on how successful it is in improving its 2002 to 10.3 percent in 2006, and fell back to 9.1 percent governance — broadly de�ned as the ability of its public in 2007. Non-participation rates have also risen, and institutions to effectively work for the common good.1 youth unemployment remains high, while median wages Indonesia’s transition has come a long way in terms have remained the same since the crisis. In agriculture, of the public’s voice and the state’s stability. Future productivity levels remain low and growth is stagnating. success now depends on making progress in improving Only about 30 percent of Indonesia’s growing labor the quality of Indonesia’s institutions, particularly in force appears to have made the transition to what might the public sector. This includes improving regulatory be considered high-value-added activities. quality, the rule of law, and the control of corruption through more accountability, as well as enhancing As part of its poverty reduction program, the institutional capacity. For sustainable, inclusive growth, Government is scaling up its community-level Indonesia will have to ensure effective implementation infrastructure support by consolidating over 50 CDD of key reforms to the investment climate to both permit programs into a National Community Empowerment the private sector to drive growth and to increase Program (PNPM-Mandiri) and increasing its the capacity of public institutions to deliver public investment. This program will be instituted in every goods and share the bene�ts of growth. These are village and urban community of the country by undoubtedly challenges of enormous proportions. 2009-10 in a major effort to enhance inclusiveness in Indonesia’s growth. The Kecamatan Development Program and the Urban Poverty Program on which Poverty and unemployment PNPM is based have successfully established The poverty rate has fallen by about one percentage community-based, community-driven approaches to 4 point per year since 2003 and reached 17.8 percent poverty alleviation and realized their intended results in 2006 falling further to 16.6 percent in 2007 (see in terms of physical outputs, institutional development, Appendix 4). The percentage of people living on less improved governance and increased incomes. They for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons than US$1-a-day was already below the MDG target by will now need to be integrated more effectively with 2006. Yet in 2007, nearly half of Indonesia’s population sectoral service delivery programs. was still either poor or had per-capita consumption levels of less than a third above the national poverty Following the adjustments of fuel prices in 2005 and line. These “near-poor� households are vulnerable to 2008, the Government is also considering further cuts expenditure shocks, which can drive them into poverty. in regressive subsidies and reallocating the additional Between 2003 and 2004, 40.5 percent of initially poor funds to targeted cash transfer programs designed to households escaped poverty, but over one-third compensate the poor. of the households that had not been poor fell into poverty. Indonesia’s progress towards the millennium development goal to promote gender equality and Social services empower women (MDG 3) is shown in Appendix 3. The Government has been investing additional Indonesia has done extremely well in narrowing the gap resources in public service provision to address between male and female enrollment rates in primary capacity weaknesses and the resulting poor and secondary schools. However, much remains to development outcomes. Infant and child mortality rates be done. Women’s health issues including maternal have been falling steadily, and there has been good mortality rates, continue to pose a challenge. New progress on primary and secondary enrollment rates. issues are resulting from decentralization and rapidly There is also some recent evidence of improvements increasing migration of female workers. Women also in the learning achievements of children as recorded in continue to lag behind men in the labor market and in the 2003 and 2006 Program for International Students terms of the percentage of earned income. Addressing Assessment (PISA) mathematics assessments. these challenges will be all the more important as surging food and other commodity prices — coming at Much effort is still required to ensure that Indonesia a time of record high international oil prices (Box 1) and meets all MDG targets (see Appendix 3). Since 2002, coinciding with an unfavorable international economic child malnutrition rates have stagnated and in some environment — are likely to affect poor and near-poor provinces increased. Maternal mortality rates, already households disproportionately. the highest in the region, have not improved. Sewerage coverage (estimated at 1.3 percent) is among the lowest is Asia. The Government is in the middle of the ________________________________________________ 1 decentralization of public services. Many of the gaps in For a full de�nition of governance and anti-corruption, see the GAC-Strategy: Strengthening World Bank Group Engagement on the provision of basic services are due to the dif�culties Governance and Anti-Corruption, March 2007, World Bank. in rebalancing the roles of provincial and district level http://www.worldbank.org/html/extdr/comments/ governancefeedback/gacpaper-03212007.pdf governments in service provision, and shifting the impacted by considerable governance challenges. The public sector’s role from a provider to a regulator and Government recognizes the importance of essential monitor of private health services. infrastructure to promote private sector activity, both through public sector investments and public-private Indonesia is also one of the countries most affected partnerships (PPP), and set up a National Committee by avian influenza and a potential source country of on Policy for Accelerating Infrastructure Provision a possible human flu pandemic, as well as of a highly (KKPPI) in 2005. While KKPPI has been successful in infectious trans-boundary animal disease. As such, preventing non-compliant projects from materializing, Indonesia is a prime candidate for better surveillance it has yet to make a signi�cant breakthrough in for human influenza-like illnesses. developing transparent and competitive PPP projects. Investment climate and infrastructure Environmental challenges Investment rates are improving, but are still below Indonesia has begun to play an important international pre-crisis levels and in certain key sectors such role in environmental sustainability issues. Two thirds as mining, as well as in policy areas, such as labor of Indonesians live in rural areas and are directly or reforms, much progress is still needed. Indonesia indirectly dependent on communal land, and coastal ranks low in several global comparative indicators and environmental resources that are being depleted of the investment climate, including Doing Business rapidly. The other third is affected by environmental (see Appendix 5). The Government has taken steps conditions in urban areas, such as water and air to address different aspects of the investment climate pollution, flooding, congestion and noise. Indonesia is through policy reform packages covering key areas of prone to a range of natural and man-made risks, as concern of private investors, such as taxes, customs, well as the impacts of climate change. investment frameworks, and the �nancial sector, and 5 has promulgated Law No. 25 of 2007 for improving Deforestation rates in Indonesia are among the highest the investment climate; but several challenges remain. in the world, with substantial emissions of greenhouse COUNTY PARTNERSHIP STRATEGY Institutional capture is a major obstacle in this area, gases, as a result. In part, this is the result of the with many reforms still to be implemented effectively influence of vested interests contributing to illegal and evenly on the ground. logging. Mitigation efforts and corruption control are crucial, and the Government is working to set up the Improving the quality of Indonesia’s infrastructure is institutional framework, coordinating mechanisms another essential aspect of strengthening Indonesia’s and �nancial as well as programming capacity for competitiveness. Road congestion is expected to pose addressing climate change. In the coming years, signi�cant challenges and electricity system capacity substantial new funds and instruments will become has been unable to meet growing demand. Retail tariff available to address global public goods. Indonesia is levels remain below cost in almost all infrastructure in a unique position both to influence how these funds sectors, discouraging investment in critical sectors such are used and to tap into these funds to strengthen its as power and water. There continue to be considerable own mitigation and adaptation efforts. operational and �nancial problems to overcome and land acquisition procedures for infrastructure projects remain cumbersome and often inequitable. Indonesia’s medium-term outlook is favorable but there are downside risks The challenges confronting the transport sector range from weaknesses in capacity, unavailability of long- Indonesia is expected to weather the current global term �nancing, to regulatory issues. As in many other slowdown reasonably well. Growth is projected to parts of the world, the Indonesian transport sector is slow to 6.0 percent in 2008 before gradually returning Table 1. Indonesia 2004-2011 – Key macroeconomic indicators and projections Actual Projected 2004 2005 2006 2007 2008 2009 2010 2011 Real GDP growth (%) 5.0 5.7 5.5 6.3 6.0 6.4 6.7 6.7 Exports (GNFS) (US$ bn) 84.2 99.8 115.0 130.4 152.6 164.1 180.0 200.2 Imports (GNFS) (US$ bn) 71.3 91.3 95.5 108.5 117.9 123.2 132.6 143.0 Current account balance (US$ bn) 3.3 0.3 9.9 11.0 8.5 4.9 1.6 -1.3 Budget de�cit (% of GDP) -1.0 -0.5 -0.9 -1.3 -1.8 -1.6 -1.3 -1.0 Consumer price index (% change) 6.2 10.5 13.1 6.5 12.5 8.0 6.0 6.5 Growth of M2 (%) 8.1 16.4 14.9 18.9 11.4 14.4 13.1 12.6 to trend growth rates approaching 7.0 percent. These have also had adverse impacts on inflation, the �scal projections anticipate some slowing in export growth balance and income distribution. And further increases from recent rates, but foresee domestic demand and in commodity and oil prices pose risks if the �scal especially investment and consumption remaining and distributional effects are not managed properly. robust as the economy’s momentum from 2007 carries Indonesia’s budget de�cit so far has remained into 2008. at sustainable levels, despite the pressures from ballooning energy subsidies, in part because of the Indonesia is less exposed to external shocks than government’s decision to reduce fuel subsidies in late other economies in the region. Its trade share (the May and in part because government revenues have ratio of imports plus exports to GDP) is relatively small grown signi�cantly since late 2007. But the budgetary even accounting for its size, at about 50 percent of costs of energy subsidies and measures to protect GDP. Firms largely �nance their investment through consumers from increases in food prices threaten retained earnings. The banking sector is in sound Indonesia’s hard-earned �scal discipline. shape and is relatively unexposed to developments in troubled �nancial markets elsewhere. The structure Though Indonesia’s gross �nancing needs are still high and destination of Indonesia’s exports also protect its because of the maturity structure of its existing debt, external sector from the current downturn. Indonesia’s Indonesia has been able, through prudent �scal policy, exports are increasingly directed towards emerging to bring its public debt to GDP ratio to levels well below economies, particularly those in Asia. Almost two- what had been forecast �ve years ago at the time the thirds of Indonesia’s exports are primary products and last CAS was prepared. Projections indicate that this the prices of these, while projected to decrease from trend is likely to continue. recent highs, are likely to remain high into the next decade, according to World Bank forecasts. 6 Development outcomes depend on the However, turmoil in the global economy and the quality of indonesia’s institutions possibility of a prolonged and more severe global for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons slowdown makes any projection highly uncertain. Today, the main constraint for Indonesia’s development External developments will determine the degree to outcomes is not a lack of �nancial resources but which Indonesia’s growth moderates in 2008 and the the need for its institutions to translate the available speed of recovery in 2009 and beyond. Commodity resources into better development outcomes. prices stabilizing near current levels are likely to induce Indonesia’s institutional reforms have made advances ongoing production growth, while minimizing both the in several important aspects of governance. In the past domestic and international disruption flowing from the ten years, the voice of the Indonesian public has been changes in relative prices. However, further increases considerably strengthened, through civil society and in the price of oil are likely to threaten external demand free media organizations, as well as through democratic growth, as well as weaken the Government’s �nances. elections. Delivering better development outcomes Meanwhile, further turbulence in international �nancial now depends largely on improving government markets would likely limit demand for Indonesia’s effectiveness through strengthening accountability and exports and limit investment growth through more capacity at all levels, as well as ensuring that much of expensive credit, weakened con�dence among future growth is driven by private sector development. domestic investors, and more costly �nancing for the Government. Institutional capacity High commodity prices have so far had a positive Indonesia faces a challenge in that a large number impact on Indonesia’s terms of trade, on its current of government agencies are fragmented and account and on its growth. As a resource rich country have overlapping authorities, hampering ef�cient Indonesia stands to bene�t in many ways from the decision-making. The implementation of the current commodity boom. But high commodity prices institutional framework governing the division of roles, Table 2. Indonesia’s debt position and projections Estimate Projected 2004 2005 2006 2007 2008 2009 2010 2011 Total debt outstanding disbursed (US$ m) a 137,026 130,651 128,736 136,640 137,458 146,611 151,687 158,277 Net disbursements (US$ m) a -5,630 -2,440 -13,417 -10,118 -9,667 -6,366 -7,453 -5,886 Total debt service (US$ m) a 31,519 34,361 30,669 26,981 28,783 25,209 23,661 22,952 Total outstanding government debt to GDP (%) 59.7 47.1 38.5 34.5 31.3 29.6 27.7 26.3 Notes: a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short-term capital. responsibilities and resources between the national has made major advances over the past �ve years in and local governments remains incomplete. These establishing a sound legal and administrative framework challenges are particularly severe in the infrastructure for the modernization of public �nancial management sector. In the new Indonesia, power has been dispersed in line with good international practice. to many actors, without establishing clarity on their Despite these positive steps, these long-standing respective roles and responsibilities. As a result, it issues require more time if they are to be thoroughly often takes longer to reach decisions on important addressed and effectively tackled. Indonesia’s investments and to implement them subsequently. government agencies require even stronger �duciary control systems, rules and methods for ensuring The capabilities of Indonesia’s civil servants also transparency of information, and effective investigative need upgrading in various areas to enable them to and disciplinary capabilities. There is also a lack of perform their functions effectively. This is particularly adequate frameworks for measuring and monitoring true for local governments as decentralization has results, and social accountability mechanisms that dramatically increased their responsibilities without solicit, assess and ensure implementation of client commensurate improvements in capacity. Local-level feedback on performance. social service delivery particularly suffers as a result. These are the result of weaknesses in recruitment While some of the lagging areas are the result of and training systems, inef�cient allocation of civil inef�cient government structures or lack of capacity, servants, a compensation system that is not entirely in some instances deliberate institutional capture transparent or merit-based, and the absence of stifles reform and fosters corruption. In Indonesia’s as credible sanctions for low performance and corruption. yet incomplete transition, some government and non- Incentive structures are not conducive to initiative or government agencies are still beholden to powerful cooperation. In addition, the “command and control� interest groups. As a result, they can interfere with type of management practiced during the Soeharto the efforts that the Government and the country as a 7 years has broken down in many areas, but modern whole are working towards, in order to achieve better management principles have still to be applied. development outcomes. COUNTY PARTNERSHIP STRATEGY In response to these challenges, the Government is The next phase in Indonesia’s transition will depend piloting public sector reforms of speci�c systems in on tackling all of these organizational and institutional selected ministries, agencies and localities. The reforms issues. There now exists an opportunity to support involve strengthening human-resource capacity, this next phase of institutional transition as many revising standard operating procedures, clarifying job government agencies have taken ownership of these descriptions and job grading, enhancing performance reforms. Institutional change and reform will now incentives through greater pay and promotion require working with and through institutions where linkages, and improving human-resource management opportunities for supporting such change exist, functions. The reforms also seek to strengthen policy identifying committed reformers, where and when they research and analysis within government ministries arise, and providing them with dedicated support. and agencies. The State Minister for Empowerment of State Apparatus (Kementrian Negara Pendayagunaan Aparatur Negara/PAN) intends to extend these reforms to other public sector institutions. This is a strategy that uses a phased approach to prevent disrupting standard practices and routines in the initial stages, before demonstrating noticeable improvements in public sector performance via the pilot reform programs. Institutional accountability In its �ght against graft and corruption, the Government has strengthened a number of anti-corruption institutions. High-level corruption investigations and, indeed, prosecutions have become increasingly common. The Government is beginning also to implement important reforms in key systems for public �nancial management, public procurement, business regulation, auditing, and monitoring and evaluation. Although these measures rarely make headlines, they often have an important and lasting impact on the opportunities and incentives for corruption. Indonesia Inves ng in Indonesia’s Ins tu ons 8 for Inclusive and Sustainable Development CHAPTER 2 THE STRATEGIC APPROACH INVESTING IN INDONESIA’S INSTITUTIONS COUNTY PARTNERSHIP STRATEGY FY2009-2012 Investing in Indonesia’s Institutions for Inclusive and Sustainable Development Lessons of the CAS was deemed to be broadly on track, there were delays or limited progress in achieving several of This Country Partnership Strategy (CPS) is anchored the CAS outcomes. In this regard, the assessments in the World Bank’s East Asia and Paci�c Regional note that the WBG should have focused on a smaller Strategy2 and in the WBG’s strategy for Middle Income set of objectives. Countries. Indonesia presents the WBG, an opportunity to partner with a country, of enhanced regional and global standing; an opportunity for the WBG to Approach contribute to government efforts at accelerating and sharing gains in growth and socio-economic prosperity. This CPS marks Indonesia’s re-appearance as an This CPS is based on consultations with government advancing (IBRD-only) mid-level country. It recognizes and non-government institutions (see Appendix 9 on that fostering inclusive, sustainable growth in a civil society consultations) as well as lessons and competitive middle-income Indonesia requires recommendations from assessments including the strong and effective institutions and therefore seeks World Bank Country Assistance Evaluation (CAE), the a different model of engagement based on a genuine IFC Country Impact Review (CIR), the work underlying partnership. The Government demands dependable the Country Results Monitoring Review (CRMR), and and timely support for its own development priorities the CAS Completion Report (CAS-CR). and its poverty-reduction agenda. Reviews of the WBG program call for more focus and consolidation. Today, The assessments consider that the WBG’s policy, the WBG’s �nancing represents a very small share of investments and analytical support have contributed investments in Indonesia and leveraging its impact to the Government’s successes and achievements, depends on whether it can be applied to improve notably macroeconomic stability, institutional reforms development outcomes of far larger government 10 and provision of some core services, including programs and private sector investments. through the Development Policy Loan (DPL) series, For all these reasons, the focus of this Country for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons the community-driven development (CDD) programs, and education sector interventions. The WBG was Partnership Strategy for 2009 to 2012 is on investing in also effective in using its role as a key convener Indonesia’s institutions (see Box 2 for a de�nition of the of development partners in response to disasters term “institutions�). The WBG will support Indonesia in and played a signi�cant role in providing quality the implementation of its own programs and solutions for timely analysis and advice, and in building effective addressing its development challenges. In the process, partnerships. However, overall the WBG’s investment �nancing Box 2. Use of the term “institutions� support has been limited, relative to Indonesia’s needs for more and higher quality investments. A combination This CPS uses the term “institutions� to denote of the perceived high transaction costs of following arrangements and organizations, not only of WBG procedures, lagging counterpart commitment the State (government, the legislature and the in some areas, and inadequate government capacity judiciary at all levels i.e. national, provincial and in some sectors, has led to slow project preparation district), but also private sector actors, �nancial and implementation, and delayed the realization institutions, civil society and community-based of outcomes. A number of rural and social service organizations (CSOs and CBOs), academia delivery projects (e.g., in agriculture and health) have (including, in particular Indonesian universities), also struggled to meet their objectives. Infrastructure think-tanks, professional organizations and was cited among the areas where far more progress is the media. The main focus of the CPS is on needed. The reviews unanimously stressed the need improving accountability and building capacity for greater improvements to the investment climate. of select state and non-state organizations to The linkages between analytical and advisory activities meet Indonesia’s development objectives. (AAA) and other WBG operations need strengthening as well. The strategy recognizes the importance of strengthening both the capacity and The WBG’s own managerial, operational and accountability of key executive institutions (e.g., administrative systems in Indonesia have been strained ministries and agencies), as well engagement by the signi�cant expansion of the WBG’s program, with non-executive institutions of government especially the growth of the activities supported by (e.g., audit, parliament). At the same time, trust funds. Thus, although the overall implementation the CPS recognizes that non-government counterparts can play an important role in ________________________________________________ 2 Securing the Future: Supporting Shared and Sustainable Growth enhancing accountability. in the East Asian and Paci�c Countries and Beyond; April 24, 2008. it intends to leverage relationships and investments ownership and sustainability. Thus the CPS seeks to to bring about broad-based policy, institutional and foster success stories based on Indonesian institutions systemic reforms. All WBG engagements will thus be leadership, and thereby contribute to strengthening viewed through an “institutional lens� and selected further their effectiveness, credibility and performance. on the basis of their contributions to strengthening The WBG will encourage the replication of these Indonesia’s institutions and systems, particularly those successes to maximize the impact of the partnership. of the public sector (Figure 2). The implementation of this approach requires the WBG This CPS is a natural progression from the last to deepen its understanding of Indonesian institutions Indonesia Country Assistance Strategy (CAS) for and their challenges, such that the WBG is able to 2004 to 2008. Many elements of the CPS approach identify where it may be in a position to contribute to have been applied in the past and formed the basis the emergence or replication of such success stories for some of the WBG’s most successful programs and and for it to provide customized products. This in turn partnerships in Indonesia. This CPS maintains the requires a shift from an emphasis on transactions strong emphasis on governance, as did the previous towards a genuine partnership based on long- CAS, as good governance continues to remain the single term institutional relationships and trust. Taking full most important issue for development in Indonesia. advantage of the existing opportunities also requires However, while the last CAS served as an agenda- consolidating the current wide range of WBG-�nanced setting document at a time when the Government’s projects and advisory activities. A crucial component focus on governance issues was still emerging, the of this CPS approach will be to invest in Indonesia’s CPS seeks to strongly align behind and help implement knowledge institutions. The WBG will support the Government’s own reform priorities. Indonesian universities and think-tanks to develop and expand Indonesia’s analytical foundations for Today, the Government has made good governance development (see Chapter 4). 11 one of its own priorities. The demand put on the CPS is now to allow for practical ways of implementing the COUNTY PARTNERSHIP STRATEGY governance agenda in alignment with the Government’s Selectivity strategy. It seeks to do so by putting “investing in Indonesia’s institutions� at the center of the WBG’s Consistent with the regional and country partnership work, using this governance focus to determine those strategy, the WBG will engage and apply its areas and sectors in which the WBG will engage. resources to areas and sectors that are signi�cant for Indonesia’s stakeholders, where there remain vital Underlying this strategy is an understanding that needs, in which reform opportunities arise, where successful institutional change in a large, diverse, there is an unambiguous demand from Indonesia’s dynamic and democratic middle-income country such key stakeholders, and where the WBG will have the as Indonesia tends to be government-initiated and - capacity to deliver: led, and may initially have to be limited in scope and to speci�c areas (sectors or regions). The application • Signi�cance: The area of engagement reflects a of proven institutional and systemic reforms can be government priority; gradually broadened to other areas to ensure greater • Need: Development challenges are vital; Figure 2. The CPS approach: Investing in Indonesia’s Institutions Development Outcomes Government Programs Institutional Lens Core Engagements WBG Support • Opportunity: Partner institutions (government and/ • Social accountability mechanisms to leverage or non-government) are committed to institutional voice and participation; change; • External transparency and greater access to public • Demand: Indonesia’s key stakeholders considers information, as well as where feasible, complaints the WBG as a partner of choice; and handling and/or dispute resolution mechanisms for • Capacity: The WBG has a comparative advantage greater accountability; and an understanding with other partners on • Monitoring and evaluation systems that measure respective roles, areas of support, and the possibility institutional performance to enable accountability of leveraging resources through cooperation. for results; • Mechanisms for rewarding good performance The consequence of applying all of these criteria is within the allowable framework of Indonesia’s civil that there will be areas and sectors that may have service guidelines; important needs but where the WBG will not become • Procurement, �nancial management and control or no longer remain very active. In some of these areas systems to improve cost-effectiveness and to the WBG may continue to maintain an engagement, ensure that funds are used for the intended albeit at a lower level, in order to be in a position to purposes; and foster successes at a later point in time, should the • Internal audit and investigative mechanisms to hold opportunity arise. civil service appointees directly accountable for any misuse of funds. Principles and Practices Institutional Capacity In order to enhance institutional capacity, engagements The partnership between the Government and the will build or strengthen some or all of the following: 12 WBG is based on: (i) focusing the overall WBG support directly to the Government’s own development • The legal and regulatory framework; strategies, policy objectives and priority programs, as • Operational, technical and administrative policies, for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons reflected in the medium-term development plan (RPJM, procedures and standards; or Rencana Pembangunan Jangka Menegah), annual • Organizational structures, including clarity in plans and annual state budgets; (ii) using Indonesia’s de�nitions of roles and responsibilities; own systems and procedures to the maximum extent • Management, information and evaluation systems, possible, establishing additional safeguards and as well as implementation, technical and evaluation measures in ways that strengthen country systems and capacity; procedures where this is not feasible; yet (iii) continuing • Planning and budgeting capacity; to put a strong emphasis on �duciary controls, • Research and analytical capacity, including to accountability and technical excellence for ensuring support policy formulation; and high quality support and good governance; (iv) making • Knowledge and information sharing, including on effective use of existing capacities and harmonizing international best practice; support for capacity development accordingly; and • Market supporting institutions such as credit (v) supporting government efforts to strengthen the bureaus and quality standards. consolidation and alignment of development resources for enhanced development outcomes. Instruments The WBG’s engagements will be designed to promote the effectiveness of institutions for achieving stronger The partnership will be implemented by the WBG in: development outcomes. The speci�c combination of (i) using its �nancial instruments to co-�nance slices actions, systems and mechanisms the WBG supports of government budgeted priority programs, �nancing in each engagement area will depend on speci�c private sector investments, and using new instruments requirements and conditions. The programs over the where appropriate; (ii) providing flexible, on-demand CPS period, will build on the WBG’s experience in services, quick-response policy notes, in-depth strengthening accountability and enhancing capacity, analytical and knowledge work, and on-the-ground both of which will be deepened in the core areas of advisory and technical assistance in priority areas, with WBG engagement (see Chapter 3). a particular emphasis on multi-disciplinary and multi- partner teams; and (iii) continuing to seek and take Institutional Accountability advantage of opportunities to work together with other The WBG will strengthen, where possible, the development partners to better align policy, analytic incentives and processes to promote accountability and �nancial support with government-led strategies for increased government effectiveness. In general, and priorities. the CPS engagements will help build or strengthen some or all of the following: CHAPTER 3 THE WBG PROGRAM CURRENT CORE ENGAGEMENTS COUNTY PARTNERSHIP STRATEGY FY2009-2012 Investing in Indonesia’s Institutions for Inclusive and Sustainable Development Based on the Government’s development plans advisory activities program will be aligned with the and CPS consultations, the WBG has identi�ed �ve �nancing program in these seven core engagements. In thematic areas of engagement that are expected to addition, the AAA program also allows for continuation form the core of the partnership strategy, together with of knowledge-centered engagements in non-core two sets of cross-cutting engagements to strengthen areas (e.g., health, where a substantial knowledge central and local government institutions and program has been developed). systems (Figure 3). These engagements are currently supporting the Government’s priority programs with Indonesia’s fundamental development priorities are the primary aim of strengthening the effectiveness of not expected to change in the short term. However, Indonesia’s institutions. Each of these areas represents the Government’s medium-term development plan a combination of �nancing and analytical and advisory (RPJM) for 2010-14 is yet to be drafted and the results activities that the WBG will provide in support of the of the 2009 elections may present new or different Government’s programs. priorities and opportunities for engagement. The WBG’s capacity to respond to emerging demands The WBG’s engagements in these areas are at different and changing requirements will therefore depend on stages of maturity, which is reflected both in the depth a degree of flexibility in its program, both within its of the dialogue, the types of activities supported and core engagements and in other select areas currently the speci�city of the results expected. The WBG has, outside these core programs. for example, long-standing engagements in support of central government institutions and systems, private What does “Investing in Indonesia’s Institutions� mean sector development, education, and community- in practice for the program of the WBG? Indonesia based poverty reduction efforts, but its engagements is facing two fundamental institutional challenges; in support of local government institutions and weaknesses in accountability and capacity, both of 14 systems, infrastructure or environmental sustainability which have speci�c characteristics and offer different and disaster mitigation efforts, are still developing. The entry points for reform (see Chapter 2). The CPS WBG recognizes that moreover there are areas where aims to help address these two challenges through for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Indonesia’s needs are great, but where counterparts the WBG core engagements. The speci�c types of are not suf�ciently committed to institutional reform, or interventions depend on the nature of the sector, the where there is limited demand for the WBG to become existing entry-points and the maturity of the individual engaged. In line with the selectivity in approach pursued engagement. The following table illustrates how the via this CPS, the WBG will limit its engagement in such WBG will promote effectiveness through strengthening areas. accountability mechanisms and enhancing capacity in its core engagement areas (Table 3), the subsequent Even with an increased �nancing program, the quality sections describe the nature of the engagement and of the WBG’s knowledge engagement will de�ne the the expected contribution of the WBG to Indonesia’s medium-term relevance and development impact in development outcomes.3 Indonesia. During this CPS period, the analytical and Figure 3. Investing in Indonesia’s institutions: current core engagements Central Government Institutions and Systems Local Government Institutions and Development Outcomes Systems Government Programs Private Sector Development Environmental Sustainability Institutional Lens Community Development and Disaster Mitigation and Social Protection Core Engagements WBG Support Infrastructure Education ________________________________________________ 3 See Annexes B3, B4 and Appendix 10 for details of the lending and non-lending program to be supported within each of the engagement areas. Table 3. Enhancing institutional effectiveness through strengthened accountability and capacity in the WBG core engagements Cross-cutting Sectoral Engagements Engagements Central Sub-national Community Environmental Government Government Private Development Sustainability Institutions Institutions Sector Infrastructure Education and Social and Disaster and and Development Protection Mitigation Systems Systems Strengthening institutional accountability, via: Building social accountability mechanisms into the design of projects to leverage voice and participation Promoting external transparency and access to information for greater accountability. Enhancing monitoring and evaluation systems. Establishing mechanisms for rewarding good performance within the allowable framework of Indonesia’s civil service guidelines. Strengthening procurement, �nancial management and control 15 systems to improve economy,, ef�ciency, and effectiveness in COUNTY PARTNERSHIP STRATEGY use of public funds. Strengthening internal audit and investigative mechanisms. Strengthening institutional capacity, via: Strengthening the legal and regulatory framework. Strengthening operational, technical and administrative policies, procedures and standards. Strengthening organizational structures, including clarity in de�nitions of roles and responsibilities. Strengthening management, information and evaluation systems and enhancing implementation, technical and evaluation capacity. Evaluating and enhancing planning and budgeting capacity. Building research and analytical capacity, including to support policy formulation. Sharing knowledge and information on international best practices. Note: ■ Light cells represent ongoing (CAS) and future (CPS) engagements. ■ Dark cells representing the areas of expected/future (CPS) engagements. Cross-cutting engagement 1: central institutions, and strengthening managerial, operational government institutions and systems and technical policies, as well as procedures and standards in data collection and analysis. Capacity will Driven by key reformers in Government, Indonesia is also be strengthened by supporting improvements to making solid progress in improving the effectiveness the regulatory framework, developing national capacity- and accountability of central government institutions building programs and establishing professional and systems. In this vital cross-cutting engagement, procurement units in implementing agencies with a the WBG will play a full and active role in supporting the focus on areas of WBG engagement. Government’s quest to maintain the reform momentum. Where appropriate examples shine through, the WBG The Development Policy Loan (DPL) series will will encourage the replication of these successful continue to be at the centre of WBG support to engagements in other government agencies that show central government institutional and systems reform. strong commitment towards improving institutional Supported by parallel �nancing from the Government effectiveness. of Japan and the Asian Development Bank (ADB), DPLs have helped the Government’s efforts to The WBG will build on its already strong relationships reduce inef�cient public expenditures, strengthen tax and dialogue with the Ministry of Finance (MoF), the administration and debt management, enhance the State Ministry of Development Planning (Bappenas) competitiveness of the �nancial sector and implement and the Central Bureau of Statistics (BPS). Cognizant governance and �duciary reforms. Underpinned by of the real progress made over the past few years and a large AAA program co-�nanced by development keen to sustain the impetus, the WBG will also enhance partners, DPLs have also supported key reforms to its partnerships with Indonesian institutions that are improve the business climate and service delivery. responsible for ensuring oversight, accountability, 16 and the rule of law, and are leading the �ght against The next generation of DPLs will build on strong corruption, including the Corruption Eradication relationships with the reform-minded economic ministries and support Indonesia’s central government for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Commission (KPK), Attorney General’s Of�ce, the state audit agencies (BPK and BPKP) and local government in strengthening effectiveness of its systems. Key audit agencies (BAWASDA or Badan Pengawasan elements include building capacity in planning and Daerah), relevant Inspector General units of partner budgeting, revenue and expenditure management, agencies, and the recently-established National while speci�c measures relate to public procurement, Public Procurement Of�ce/ Government Institution auditing, monitoring and evaluation, and research and for Procurement Policy (NPPO/LKPP - Lembaga analysis for better policy formulation — all drawn from Kebijakan Pengadaan Pemerintah, responsible for the Government’s own policy packages. Meanwhile, focused and coordinated planning and development accountability and the control of corruption will be of strategies and policies for public procurement). strengthened through enhanced monitoring and These partnerships aimed at bolstering institutional evaluation systems, �nancial control systems, and audit effectiveness will take the form of analytical and and investigative mechanisms to hold bureaucrats advisory services, policy dialogue, reform projects and accountable for the funds under their control. loans. The WBG’s engagement will also operate through Accountability will be enhanced through continued the Government Financial Management and Revenue strengthening of public �nancial management and Administration Project (GFMRAP) and the future data systems. This will include strengthening audit and Statistical Capacity Building Project (STATCAP), investigative mechanisms, enhancing monitoring and which are �nancing investments in technological evaluation systems that measure performance within modernization, capacity-building and change Table 4. Central government institutions - Illustrative outcomes supported by WBG Indonesia’s longer-term objectives Development outcomes at end-FY12 Strengthen central government • Improved results orientation in the budget process. institutions and systems to enhance • Timely and reliable �nancial reporting through effective operationalization of the TSA. public �nancial management and • Improved tax administration via increased number of: accurate registration records; governance to increase the development audits of taxpayer declarations. Reduced tax arrears. impact of priority budget expenditures. • Improved quality and timeliness of key statistics produced by BPS, e.g., national accounts, poverty data • Improved public procurement regulatory framework; procurement capacity at national and provincial levels; and quality of procurement audits and effectiveness of sanctions. management. The State Treasury and Budget System Experience with support programs for sub-national (SPAN) project will improve accountability through a governments has revealed obstacles to implementation new automated treasury system. Over the CPS period, at the central level: no single central government agency institutional effectiveness through expanding the is in a position to oversee project implementation from accountability and capacity of the tax administration start to �nish. Limited capacity in central government system will be enhanced via the Project for Indonesian agencies in dealing with the MoF in budget preparation, Tax Administration Reform (PINTAR) project. These managing internal budget approvals and execution, projects directly reinforce changes to the underlying and supporting �eld-level implementation are also institutional, incentive and organizational frameworks signi�cant issues. Capacity weaknesses at local for core functions of the MoF, BPS and other related levels often exacerbate the problems. Another lesson institutions, including �scal-policy formulation, is that for successful strengthening of institutional budgeting, treasury, internal audit, procurement, accountability at all levels, the involvement of local revenue dispute resolution and legislative oversight. parliaments, CSOs and media is crucial. Civil service reform will support the updating of the MoF organizational roadmap, the implementation of Over the CPS period, the WBG will engage with future phases of the human resources management a limited number of sub-national governments reform strategy at the MoF, and the rolling-out of MoF that demonstrate a clear commitment to tackling reforms to other ministries. accountability and capacity challenges. The aim will be to improve the overall development impact through The MoF and the WBG will also embark upon a promoting well-targeted and sustainable public substantial program of analytical and advisory spending by making development planning more services to support the economics ministries in overall responsive to constituents and by enhancing public public �nancial management reform efforts, including �nancial management capacity. Support will be based budget formulation, resource allocation and budget on technical assistance and the co-�nancing of sub- 17 implementation. A good part of these efforts are national expenditure programs. The Bank Group is supported by trust funds. One example of this is the also seeking ways to �nance subnational entities (such COUNTY PARTNERSHIP STRATEGY Initiative for Public Expenditure Analysis (IPEA), which as provinces, cities or local water utilities- PDAMs) seeks to enhance transparency and accountability through the joint Bank-IFC subnational initiative in public �nancial management and build the (�nancing could potentially be provided through local Government’s research and analytical capacity in banks or through support to local bond issuances). support of improved policy and budget formulation. IFC is working with local governments focusing on Another aims to enhance transparency in the oil, gas, reducing investment climate obstacles, including in the and mining sector, where the WBG is supporting the local regulatory framework, and on fostering capacity adoption of the Extractive Industries Transparency to forge effective public-private partnerships. Several Initiative (EITI). of the programs include components to support local CSOs in order to improve access to information and to enhance social accountability. The WBG will continue Cross-cutting engagement 2: sub-national to draw attention to inspiring and innovative success government institutions and systems stories in sub-national government reforms and to encourage their replication. The empowerment of local governments has been one of Indonesia’s most remarkable achievements in the The WBG approach is illustrated by two complementary past ten years. As a result, Indonesia’s almost 500 sub- programs: in selected, reform-minded provinces and national governments now manage close to 40 percent districts a program that is disbursed against local of all public spending and have become crucial players governments’ outputs will provide the opportunity in ensuring that Indonesia meets its future development to strengthen �nancial controls and monitoring and goals. Since local elections, provinces and districts/ evaluation systems; and, in the same provinces, trust cities are now headed by of�cials directly accountable funds, �nanced by AusAID, the Netherlands and to their electorate. Many of them have implemented other partners, provide for analytical and advisory radical and innovative reforms with the aim of enhancing services through the Public Expenditure Analysis institutional capacity and accountability, and, in some and Capacity Harmonization (PEACH) program. cases, of encouraging private sector development The program seeks to support the assessment and at the local level. Development partners now have a improvement of the effectiveness of local planning and multitude of local reformers they can engage with, and budgeting processes. Sub-national public expenditure promising initiatives are flourishing. analyses has become a powerful tool to enhance transparency in the provinces where PEACH has The challenges are however, considerable. The needs, been implemented. PEACH programs are demand- opportunities, demand, as well as the WBG’s capacity driven, tailored to the needs of local governments and to respond all vary greatly across the archipelago. implemented by them, together with local Indonesian research institutions, enhancing collaboration and consolidate this progress and help support the private analytical and implementation capacity of both local sector in becoming the driver of broad-based growth governments and local universities. The WBG and in Indonesia. In particular, the WBG is well-placed other development partners will continue to engage to help ensure that the public sector is no longer a with many of these local stakeholders through the bottleneck but instead provides an environment that Decentralization Support Facility for Eastern Indonesia nurtures private sector development. (SOFEI), which has established a strong network of reformers across the region. The experiences with Building on synergies between IFC and World Bank the ongoing programs will help inform and improve the teams, the WBG has established strong relationships design and scope of future WBG support. with key Indonesian partners that shape the investment climate. These include the Ministry of Trade (MoT), the The WBG will reinforce and consolidate ongoing Coordinating Ministry for the Economy, and �nancial partnerships that seek to enhance local government sector regulators (such as Bapepam-LK). This is a capacity through existing �nancing programs, such crucial area of progress, as institutional capture in as Initiatives for Local Government Reform (ILGR), the public sector will seriously hamper the private the Urban Sector Development and Reform Project sector development that Indonesia so badly needs. In (USDRP), and Support for Poor and Disadvantaged addition to budget support from the DPL series, these Areas (SPADA). In addition, the Decentralization Support partnerships are also based on analytical, advisory Facility (DSF) brings together a number of development and monitoring work, as well as institutional capacity- partners, including AusAID, DFID, and the Netherlands, building. with a broad mandate to engage Indonesian institutions essential to the local accountability framework, such Support is being provided to the MoT to deliver as legislatures, media and NGO networks. The DSF effective services in formulating and implementing 18 will continue to be the main mechanism for deepening domestic and international trade and investment WBG relationships with the key central institutions policies, implementing these policies, negotiating trade that set and regulate the environment in which local agreements, and managing the human resources and for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons governments operate. Relevant WBI expertise will operations of the Ministry. Mobilizing trust funds, the also be leveraged to complement the WBG’s efforts WBG has established a team of advisers to provide to strengthen the accountability and capacity of sub- direct support on the ground to MoT. Although there national institutions. are signi�cant obstacles, these initiatives are showing promise. Additionally, IFC will help to facilitate business formalization and market access for new private sector Core engagement 1 – private sector entrants by working to reduce obstacles both at the development national and sub-national levels, improving market linkages covering urban and rural producers, and Private sector-led growth will be vital to Indonesia’s helping small and medium enterprises (SMEs) better competitiveness regionally and globally, and will also understand market requirements and the bene�ts be key to the Government’s success in addressing of adopting new standards and practices. The WBG some of the gaps in service delivery. In some areas is furthermore supporting the establishment of an the public sector can be prone to institutional capture, innovative infrastructure �nancing institution that will whereby private business interests seek to protect their help to accelerate private investment in infrastructure. advantages and place obstacles in the way of potential The WBG will also continue to strengthen the capacity competitors. The results can undermine ef�ciency of regulatory and supervisory institutions, such as and innovation, and waste investment opportunities. Bank Indonesia, by providing analytical and technical The Government recognizes this and has been taking support to reform efforts, and supporting the monitoring appropriate measures to build the required business and evaluation of the impacts of reforms. environment for a strong and dynamic private sector, including launching a series of comprehensive policy The WBG will continue to work closely in the �nancial reform packages over the past few years. Private sector – with the World Bank assisting in policy investment rates are now beginning to recover in formulation and implementation and IFC focusing on Indonesia, and there are exciting opportunities to investments in the sector, for strengthened access to Table 5. Sub-national governments - Illustrative outcomes supported by WBG Indonesia’s longer-term objectives Development outcomes at end-FY12 Strengthen decentralized local governments • Improved LG systems and processes for better planning, resource allocation and and institutions to increase the impact of budget implementation public spending. • Improved standards of service delivery in both urban and rural areas. �nancial services aimed at greater competitiveness The four agencies with which particularly strong and inclusive growth. WBG’s capacity building efforts partnerships are currently envisaged are the Directorate in the sector will continue; this support has been General of Highways (DGH), the Directorate General of largely �nanced using trust funds (including the ASEM Water Resources (DWR) and the Directorate General of (Asia Europe Meeting) trust funds). The Government Human Settlement (DHS) — all at the Ministry of Public recognizes the systemic importance of the banking Works — as well as the state-owned electricity utility sector and has recently begun receiving World Bank (Perusahaan Listrik Negara, or PLN), which, together support (along with AusAID) on crisis management with some major energy companies, has signaled its protocols. Policy discussions on the impact of the willingness to rebuild a new partnership with the WBG. sector of recent global credit market turmoil as well Infrastructure development in Indonesia, even within as of domestic monetary and �scal policies continue. individual sectors, will require strengthened coordination The authorities have been considering detailed across government agencies, including line ministries, analytic work in the sector – including the possibility SOEs, and the MoF, Bappenas and the Coordinating of a Financial Sector Assessment Program (FSAP). Ministry for the Economy. The WBG will support the Policies and programs to increase access to �nancial strengthening of this inter-agency dialogue. services for a larger segment of the population, SMEs, and innovative public-private partnerships in this area, The WBG’s investments in Indonesia’s infrastructure will also be supported. institutions aim to promote effectiveness through greater accountability and capacity. The WBG’s strategy is designed to support key components Core engagement 2 – infrastructure of Indonesia’s cross-sector infrastructure reform agenda, including reforms aimed at increasing the The development of large-scale infrastructure is transparency and ef�ciency of the Government’s crucial to Indonesia’s progress on almost every front spending and strengthening inter-governmental 19 over the CPS period. Despite signi�cant challenges, a �scal relations; reforms for promoting public private window of opportunity now exists to capitalize on the partnerships within a transparent, credible framework; COUNTY PARTNERSHIP STRATEGY need for a breakthrough - the importance of which is sector agency capacity-building; and reforms that widely recognized by government and private sector foster accountability. The WBG will support this reform counterparts. Focusing on three main sub-sectors, platform via a series of policy loans jointly with ADB the WBG will support institutions, both public and and the Government of Japan. private, in �nding more effective solutions to bridge the �nancing gap in infrastructure in a sustainable way, In the energy sector, the WBG’s strategy will focus and help strengthen the accountability and capacity of on strengthening the technical, managerial and institutions to deliver better infrastructure outcomes. operational capacity of state institutions. The aim will be to improve ef�ciency, in support of a more effective The WBG will provide �nancial and advisory support targeting of electricity subsidies in the short term and for the Government’s own infrastructure �nancing the development of a sustainable pricing policy over plan as set out in the current RPJM and work with the medium term. In addition, the WBG will support those institutions committed to reform and good improvements to the institutional framework with the governance. This support includes a substantial aim of increasing private investments in Indonesia. The program of investment lending bolstered by a recently envisaged Bank investment �nancing program will seek launched infrastructure policy loan (I-DPL) series, as to reduce the local and global environmental impacts well as model PPP investments by IFC. The support is of the sector and focus on clean and renewable energy expected to cover the roads, energy and water sectors such as geothermal power investments, pumped (irrigation, as well as water and sanitation services) storage, improved coal technologies, and power through I-DPLs and co-�nancing arrangements to transmission and distribution projects, including gas promote infrastructure investments. distribution. Table 6. Private sector development - Illustrative outcomes supported by WBG Indonesia’s longer-term objectives Development outcomes at end-FY12 Enhance the environment for private sector • Strengthened private and �nancial sector through: better regulatory frameworks; development to foster accelerated growth improved investment climate; stronger �nancial institutions; improved market access; and poverty reduction. business linkages and partnerships. • Improved capacity of select sub-national governments to support business operations. • Improved regulatory environment and interagency coordination in the development of investment policies • Strengthened institutional structure and capacity of the Ministry of Trade for more effective trade policies. In the roads sector, the Bank’s engagement with the community-driven development and poverty reduction Government has included support for the design of a programs. This support transcended the dif�cult years road asset management framework, transport network after the crisis and the outcomes obtained have led to development plans and enhancement of planning these programs being rolled out on a national scale capacity at provincial and kabupaten (district) levels. by the Government. Working with the Government to IFC plans to support the private �nancing of toll roads ensure continued progress towards poverty reduction by offering long term capital and sharing best practice goals, and achieving equity and inclusiveness across from other countries, in order to assist the Government regions, remains a top priority for the WBG. develop and roll out international standard concession agreements, and follow up with �nancing for a select With this aim, the WBG will continue to support number of model transactions. The WBG will continue Government in the design and effective expansion to strengthen the institutional framework at the national of programs that promote more inclusive growth and regional levels, including �duciary, operational, and social protection, and that also enhance the technical, and management systems and capacities accountability of elected of�cials and service providers. of counterparts in support of Government’s efforts to This will include CDD and conditional cash transfer improve road quality and capacity. Such measures to (CCT) programs. Support consists of a combination of improve effectiveness, increase accountability and �ght co-�nancing and analytical and advisory work, much corruption in the sector are essential for the continued of which will be funded through trust funds. The CPS and timely implementation of infrastructure projects, support for improved institutional effectiveness will several of which have been plagued by weak execution, be mainly focused on the Coordinating Ministry for and procurement, corruption and collusion issues in People’s Welfare. the past. This support will be given in partnership with ADB, AusAID and the Government of Japan, the three The CPS approach inherent in the partnership between 20 key development partners in the sector. Support for the Government and the WBG is built around the increased private sector participation and effective National Community Empowerment Program (PNPM- decentralization of implementation and management Mandiri), which is based on the well-performing for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons of the transport sector will also continue. Kecamatan Development Project (KDP) and the Urban Poverty Project (UPP) models — programs in which In the water sector, the WBG will support strengthening the WBG has had a long-standing engagement. Over of the legal and regulatory framework and enhancing the past ten years, these programs have developed technical, operational and management capacities, many features to enhance institutional effectiveness including for select water utilities (PDAMs). There will through accountability mechanisms and capacity- be a focus on adapting irrigation, dam and reservoir enhancing strategies that are now being adopted by design operations to meet new climate change other projects, not only across Indonesia but also conditions and productivity requirements. In sanitation abroad. and community based water services, the Bank supported PAMSIMAS project focuses on building Accountability mechanisms include simple and capacity to plan system integration for centralized, practical procedures for �nancial control, information community and household sanitation, and make long- disclosure, feedback, complaints, follow-up and term �nancing available to municipalities for sanitation resolution. Performance-based rewards are applied infrastructure development. Such �nancing could be at the community level to tap into existing social offered where local institutions are keen to implement accountability mechanisms, and this is reinforced by cost-recovery plans for sustainable operations and independent monitoring through CSOs and the media. maintenance. The entire program is designed to generate demand for good governance at the grassroots’ level. Core engagement 3 – community In terms of enhancing capacity, the program makes development and social protection large up-front investments in the training of community facilitators, strengthening their skills in areas such as The World Bank through its decade-long support monitoring and evaluation, planning and budgeting, has contributed to the Government’s successful as well as project implementation. They are taught Table 7. Infrastructure - Illustrative outcomes supported by WBG Indonesia’s longer-term objectives Development outcomes at end-FY12 Strengthen decentralized local governments • Increased and better quality national and sub-national government spending on and institutions to increase the impact of infrastructure through improvements in subsidy policy, incentives framework, and public spending. expenditure planning and budgeting. • Increased private investment in infrastructure through the establishment of a �scally sound, credible and transparent PPP framework. to use participatory methods and to ensure that the Government’s transformation of the education sector communities understand basic accounting, planning — a transformation that is fundamental if Indonesia and management principles. The program makes is to compete effectively with its regional peers. This extensive use of local expertise for technical inputs engagement will cover the entire spectrum in education and assessments, thereby strengthening capacity and — from early childhood education and development expanding experience at the community level. to higher education and teacher upgrading — through advisory services, as well as trust-funded activities The WBG will co-�nance a slice of PNPM-Mandiri, and investment projects. supporting the program’s expansion to an estimated US$2 billion annual government investment. With The World Bank’s engagement in education is strongly PNPM-Rural and PNPM-Urban ongoing, repeater focused on improving the effectiveness of state and projects are expected to extend the PNPM program non-state institutions by strengthening accountability, to all 70,000 communities across Indonesia by together with measures aimed at enhancing capacity 2009/2010 — early on in the CPS period. The WBG of state institutions, school heads, staff, and parents. is also providing support to the Government in its The WBG’s strategy is designed to support key efforts to bring supply-side initiatives from health, components of the Government’s education reform education, rural development and other sectors under agenda, including building social accountability the PNPM umbrella to maximize complementarities mechanisms, promoting external transparency and for poverty reduction. In addition, through a WBG access to information, and enhancing monitoring and trust fund, other development partners support a evaluation systems. Important areas will also include wide range of analytical and advisory services to enhancing planning and budgeting capacity, and promote broader institutional reforms. These aim to building the MoNE’s own analytical capacity to support strengthen accountability and enhance capacity of the better policy formulation. community-level planning process in key institutions 21 and systems, such as dispute resolution and relating For example, the World Bank intends to support the to property rights. Government through a System Improvement through COUNTY PARTNERSHIP STRATEGY Sector Wide Approaches (SISWA) program. In the �rst Support for addressing gender issues has been stage of the SISWA — with signi�cant �nancial support incorporated into key �nancing and analytic/policy from the Netherlands Government and the European advice programs. These includes: support for Commission — the World Bank will co-�nance the women via the PNPM; a study on remittances offering Government’s School Operational Assistance (BOS) recommendations for making formal transfers easier program. This program builds on MoNE’s initiatives to for women and undocumented migrants; a labor better manage its education funding. through improved market assessment that will among others, include an information, better monitoring and evaluation, and examination of the impact of labor market policy on more streamlined, standardized practices. The BOS job opportunities for women; the use of trust funds to program funds important expenditures in the education support programs to empower female household heads sector in ways that empower school managers to develop group-based revolving funds and improve and enhances ownership through schools-based livelihoods; and the support of women’s cooperatives management. At the central level, the new BOS KITA to enhance their access to markets. program will help to build government accountability and capacity in order to better monitor, manage and align basic education funding. At the local level, the Core engagement 4 – education program will improve governance and accountability, and support districts and schools in their management, Over the CPS period, the World Bank’s support for the operational and technical functions, in line with education sector will continue to be based on its close Indonesia’s decentralization strategy. The program partnership with the Ministry of National Education will contribute to raising the awareness of parents (MoNE) and the Ministry of Religious Affairs. This and the local community, introducing measures to core WBG engagement aims at supporting the improve transparency, information flows and decision- Table 8. Community Development and Social Protection - Illustrative Outcomes Supported by WBG Indonesia’s longer-term objectives Development outcomes at end-FY12 Reduce poverty levels and improve equity • Improved socio-economic and local-level governance conditions of the urban by improving livelihoods and service delivery, and rural poor through wider implementation of poverty reduction and community and decrease remaining pockets of high- empowerment programs. level poverty. • Public expenditures made more pro-poor by reallocating savings from subsidies towards strategic targeted interventions and successful implementation of Conditional Cash Transfers making, and also support operational improvements projects, including mobilizing �nancing support for to streamline procedures. The sectoral support such projects; help improve environmental standards will additionally seek to strengthen human resource in critical sectors such as palm oil; and promote capabilities via improvements to medical/health sustainable forestry practices of private �rms with education in the country. the aim of enabling Indonesia to participate in global carbon markets. Core engagement 5 – environmental The WBG will continue deepening the relationships sustainability and disaster mitigation established with Bappenas and the local governments of Aceh, Nias and Yogyakarta in supporting selected Indonesia has emerged as a leader on climate-change elements of the Government’s actions to strengthen issues. At the same time, the country is faced with some natural disaster resiliency. The rebuilding of Aceh and serious challenges on environmental sustainability Nias will continue for the CPS period through the MDF, and natural resource management fronts. This also as will the JRF activities for Yogyakarta and Central presents opportunities to Indonesia to bene�t from Java. A second-phase MDF will support the Aceh new international investment instruments designed to region to transition from post-tsunami reconstruction scale-up funding to help countries in their efforts to towards sustainable economic development, an address climate change, and to undertake appropriate important part of which will be through strengthening mitigation and adaptation programs. In both areas local capacity. Over the CPS period, the WBG will – in the WBG has expertise to place at the Government’s consultation with Government and other partners – disposal. Meanwhile, the WBG will continue with its also provide requisite support to Indonesia to respond major role in disaster reconstruction, while helping to to other natural challenges. reduce Indonesia’s vulnerability to natural disasters. 22 The WBG will support building national and local The WBG will continue to focus on strengthening government capacity for assessing disaster damage, policy formulation and strategic planning capacity losses and needs; assessing capacity to absorb for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons for more effective environmental and natural catastrophic events; supporting development of a social resources management and disaster risk reduction. protection system to manage sources of vulnerability; Enhancing accountability and �ghting corruption are and designing instruments for �nancial risk transfer also particularly important in this sector. The WBG’s and flexible risk �nancing. The mainstreaming of risk- engagement around environmental sustainability and reduction in the development process will include disaster mitigation involves several state and non-state strengthening Bappenas capacity in preparing the interlocutors. In government, the partners include a national action plan, strengthening the capability of range of ministries and agencies dealing with cross- BNPB and designing a framework for disaster-risk cutting climate change issues, including the recently insurance with the MoF. launched National Climate Change Council (Dewan Nasional Perubahan Iklim), as well as Bappenas and A key upcoming disaster risk reduction initiative is the the National Disaster Management Agency (Badan Jakarta municipality’s (DKI Jakarta) three-year river- Nasional Penanggulangan Bencana, or BNPB) on dredging program, the Jakarta Emergency Dredging disaster mitigation and recovery. The WBG will draw Initiative (JEDI). The WBG will assist DKI Jakarta to from an active network of CSOs to continue fostering locate grant �nancing for capacity-building within the social accountability and participatory mechanisms. municipal administration for the effective operation and management of the flood-management system. IFC will play a catalytic role in private sector engagement in climate change mitigation and adaptation efforts To encourage environmental sustainability, the through its analytical and advisory work. It will seek WBG will support measures promoting effective and investments in geothermal and energy ef�ciency transparent use of resources. Global best practice Table 9. Education - Illustrative outcomes supported by WBG Indonesia’s longer-term objectives Development outcomes at end-FY12 Improve: access to basic education to • Increased number of basic education teachers who meet mandated academic achieve MDGs; education quality to quali�cations. enhance competitiveness and inclusiveness • Improved ef�ciency and equity in the use of resources to increase access to basic education. • Improved training programs and higher education system through institutional accreditation; regular tracer studies to gauge effectiveness of training. • Improved information and better implementation, monitoring and evaluation of education funding. and lessons will be applied in assessing alternative Review which was launched jointly with central development and policy paths for ‘green growth’. The ministries and local stakeholders in May 2008. The WBG’s policy dialogue will seek to mainstream the health PER and future health sector analyses will discussion of climate change (with attention to both provide analytical inputs for the elaboration of the mitigation and adaptation challenges) across a range health reform agenda and sectoral development of actors, through the preparation and dissemination priorities. While no new lending for the health sector is of information to raise awareness about carbon currently considered, the Bank remains engaged in the emissions, Indonesia’s environmental vulnerability and health reform agenda. import of relevant policies. Similarly, the WBG remains engaged in agriculture. The WBG will support coordination and facilitate For example, the Bank is supporting the Farmer partnerships with the private sector and civil society Empowerment through Agricultural Technology and for the implementation of the National Action Plan Information Project, part of a Government effort to for Climate Change. One example is the Indonesia revitalize the agricultural sector. Empowerment of Forest Carbon Alliance. The Government is working farmers through improved information networks, in collaboration with a multi-disciplinary alliance of community agribusiness development, enhanced NGOs and research organizations — supported by linkages between research and extension is expected the international partners including the WBG — to to result in increased diversi�cation, higher farmer develop and pilot a framework and program to Reduce incomes and agricultural competitiveness. Another Emissions from Deforestation and Degradation example is the Land Management and Policy (REDD). The WBG will also assist Indonesia in making Development Project, which aims to contribute to use of the substantial funds and instruments that are the government’s objectives of poverty reduction, becoming available to address global public goods, economic growth and sustainable land resource such as Climate Investment and the Adaptation Funds, utilization. In particular, the project seeks to help 23 as well as global carbon markets. improve land tenure security through registration, issuing of titles, and enhancing local government COUNTY PARTNERSHIP STRATEGY capacity to undertake land management functions Other engagement areas with greater ef�ciency and transparency. There are other important areas that may present promising opportunities over the CPS period and beyond. The WBG will continue to invest some resources in these areas in order to maintain and build on existing relationships and foster knowledge partnerships, including through the use of trust funds. While these may not be core engagements at the present time, there could be a change in status if government counterparts and other stakeholders demonstrate a clear commitment to addressing critical governance and institutional challenges. One example of this type of engagement is the World Bank’s support for a comprehensive review of the health sector and an in-depth assessment of its performance. The �rst result of this engagement has been the production of a Health Public Expenditure Table 10. Environmental sustainability and disaster mitigation - Illustrative outcomes supported by WBG Indonesia’s longer-term objectives Development outcomes at end-FY12 Strengthen Indonesia’s capacity to adapt to climate • Implementation of policies and pilots to reduce emissions from deforestation change and address environmental challenges and environmental degradation. including development of integrated disaster • Strengthened disaster risk reduction in development planning and management (improve disaster risk preparedness, administration. mitigation measures, and post-disaster recovery and reconstruction responsiveness) Inves ng in Indonesia’s Ins tu ons 24 for Inclusive and Sustainable Development CHAPTER 4 PROGRAM IMPLEMENTATION COUNTY PARTNERSHIP STRATEGY FY2009-2012 Investing in Indonesia’s Institutions for Inclusive and Sustainable Development Indonesia’s public debt has declined from more than expenditure programs. With Indonesia’s access to IDA 80 percent of GDP in 2000 to a projected 32 percent in ceasing in June 2008, and provided the full potential 2008. Its IBRD (International Bank for Reconstruction of the proposed �nancing program is realized, there and Development) debt has been declining as well could be a signi�cant increase in IBRD lending volume since 2001, as agreed between the Government and over this CPS period (compared to the previous CAS) the Bank. IBRD debt service/exports ratio is projected reversing IBRD’s declining exposure to Indonesia. to decline from 2.9 percent in 2003 to 1 percent in 2008, while Indonesia’s share of total IBRD exposure also declined from 8.8 percent in FY03 to an estimated The need for a flexible �nancing 6.7 percent in FY08 (IBRD’s exposure to Indonesia has envelope declined from US$11.8 billion in FY2000 to US$6.4 billion by the end of FY08). In view of the substantial During this CPS period, the Government’s annual borrowing at the time of the �nancial crisis, and budget is projected to exceed US$100 billion. Financing Indonesia’s high debt levels, it was appropriate that from development partners will continue to decline in the Bank’s exposure should fall, as IDA commitments relative signi�cance. The IBRD pricing reform positions increased. Hence, with high levels of repayments and the WBG better to respond to Indonesia’s demand reduced borrowing by Indonesia, net transfers have for flexible support. In order to maximize the WBG’s been negative since 2000 (Figure 4). As Indonesia’s operational ef�ciency, the lending program will make reforms progressed, exhibiting strong Country Policy use of a variety of instruments, as appropriate: and Institutional Assessment (CPIA) scores, improved independent sovereign credit risk ratings, and rising • DPLs: policy-base lending focused on structural �nancing requirements, commitments increased reforms and cross-cutting issues, as well as high- signi�cantly over the last CAS period. In FY08 about level sectoral reforms (e.g., Infrastructure DPL); 26 US$1.3 billion was provided as loans and credits (of • Co-�nancing of successful government programs which some US$1 billion was on IBRD terms). through sector-wide approaches; • Repeater projects and additional �nancing to scale for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Despite Indonesia’s success in debt reduction, up and broaden the impact of well performing the country’s gross �nancing needs are estimated projects; and to exceed US$21 billion in 2008 and stay around • More innovative and competitive instruments and that level in subsequent years. The Government products, including new �nancial risk-management views WBG loans, particularly DPLs, as a way to and debt-management instruments. simultaneously reinforce the reform agenda and meet in part Indonesia’s gross �nancing needs. This, This strategy calls for an approach of flexible �nancing combined with Indonesia’s macroeconomic progress, support that allows the WBG to take maximum advantage re-emergence as a mature MIC and strong relationship of opportunities to engage, while also minimizing risk. with the WBG, establish the basis for increasing IBRD On the basis of current demand and performance, resource flows — by extending the successful DPL a notional annual IBRD investment of about US$2 series and the CDD program. The CPS also aims billion is expected. Actual annual lending volumes to provide the strategic framework for revitalizing could vary signi�cantly up or downwards, but will be the WBG’s investment �nancing portfolio, including commensurate with continued robust macroeconomic through co-�nancing and strengthening of government performance, �nancial stability and momentum on key Figure 4. World Bank resource transfer to Indonesia Figure 5. Determining the �nancing envelope 2009-12 Net flow, US$ million Upper Bound 400 WBG exposure 200 Policy-Based Loans, driven by criteria for successful engagement 0 and performance on policy reforms -200 Lending program -400 under sound economic policies -600 -800 Investment Loans, driven by criteria for successful ngagement -1000 2000 2001 2002 2003 2004 2005 2006 2007 Lower Bound (US$500 million per annum) reforms, and be determined by careful management of advantage. The majority of TFs will complement IBRD exposure (see Figure 5). Actual annual lending other WBG support in the current core engagement volumes will depend on the Government’s appetite areas of this CPS by providing valuable AAA and for Bank borrowing vis-à-vis other sources of �nance, technical assistance (TA) (Table 11). They support the and country performance. The lower bound and harmonization and alignment of funding from various reduced lending volumes would result in the event of development partners behind core government a signi�cant weakening of the macroeconomic stance; programs. The most signi�cant trust funds �nance substantial back-tracking on the reform program; or reconstruction work in Aceh, Nias, Yogyakarta and poor implementation of WBG-supported projects. Central Java. The remaining TFs and grants will Under such a scenario, WBG support could be limited to �nance AAA and TA, as well as some small-scale or �nancing only poverty programs, basic social services, pilot activities, outside the current core engagement and critical infrastructure needs. The upper bound areas. In line with its commitment to using Indonesia’s of the lending envelope, subject to IBRD exposure own systems and procedures to the extent possible, considerations, will also take into account the level of the WBG is committed to gradually moving towards progress in the key reforms, including those supported more recipient-executed trust funds. by the DPL series. The WBG’s TF portfolio (currently over US$1 billion) has IFC has a committed investment portfolio of US$695 been expanding signi�cantly, and the range and variety million in Indonesia, of which 57 percent is invested in of TF arrangements have increased the complexity of �nancial markets project, 24 percent in agribusiness and managing the TF program. As a result, existing systems 17 percent in manufacturing. In FY07, IFC committed and processes for the use of TFs are struggling to US$278 million to seven projects. IFC expects to invest keep pace with this expansion. Recent policy changes about US$300 million annually in the priority sectors of for TFs approved by the World Bank Board have �nance, infrastructure and commodity-based supply created an enabling environment for strengthening the 27 chains. The investment program is expected to grow operational effectiveness, management and oversight in the event of an acceleration of reform in private of the Indonesian TF program. In order to ensure the COUNTY PARTNERSHIP STRATEGY infrastructure provision, further progress in �nancial effectiveness and sustainability of the TF program, sector reform including the non-bank �nancial sector a new management framework is therefore being and further improvement in the investment climate. pursued as part of this CPS. Its main elements are: Close partnership with the WBG will be essential to creating the policy and institutional environment for • Applying CPS selectivity criteria (see Chapter 2) to increased IFC investment. TFs to ensure improved strategic �t; • Reducing transaction costs, strengthening portfolio Cooperation with other stakeholders/ management and mitigating risks through: greater partnerships standardization and application of clear modalities; clari�cation of accountabilities; and development of A number of key development partners will continue new harmonized tools for TF negotiations, execution to leverage the Bank’s technical, managerial and and oversight. Common standards and tools for �duciary capabilities on the ground to advance on setting and allocating management fees, �nancing shared objectives. This is reflected by a robust set of categories, and development-partner reporting strategic partnerships, most notably through bi/multi- will be pursued. The WBG is also taking steps to lateral trust funds and co-�nancing arrangements. enhance the TF portfolio management and oversight Major WBG partners continue to include the Asian capacity within the Indonesia country team. Development Bank (ADB), the Australian Government, the European Commission (EC), as well as the Japanese, Royal Netherlands and UK Governments. Knowledge engagements These partnerships can be expected to remain strong over the CPS period. The knowledge partnership agenda has long been central in the WBG’s support to Indonesia and, in line with experience in other MICs, the importance Trust funds of this partnership is certain to grow over the CPS period. Indeed, knowledge partnership will be key Trust funds (TFs) and grant �nancing continue to the successful implementation of the CPS and, to be an integral part of the WBG program. With in some areas, the most important vehicle for WBG Indonesia transitioning to IBRD status in FY09, from engagement. a ‘blend’ status (with access to both IDA and IBRD resources) under the previous CAS, TFs will play an The CPS will build on the WBG’s existing AAA and ever important role, but will be used more strategically TA program, which currently includes: (i) analysis that and in accordance with the World Bank’s comparative supports government’s development agenda (e.g. poverty assessments and PERs); (ii) policy notes, think policy and institutional reform decisions. The WBG pieces for knowledge generation and background will use trust funds as appropriate, to respond to such papers; and (iv) hands-on TA. These activities will be demands in a timely way while also ensuring continued used to underpin the core WBG engagements, while focus on quality. also allowing for continued and active involvement in areas outside the core engagements. During the CPS- IFC’s Advisory Services will work closely with the period, the WBG will continue to deliver on the full World Bank on national and sub-national policy and spectrum of knowledge products with the trend shifting regulatory reform. These efforts will include policy towards tailor-made, just in-time products. There advice, assessments and technical assistance. In all will also be a stronger emphasis on dissemination of its efforts, IFC will look to incorporate the voice of the products in Indonesian language. private sector into the policy discussion. This may be through public-private dialogue or through feedback to The WBG will pay special attention to systematic the appropriate government institutions on its policy- planning and prioritization of AAA including TA. Greater making efforts. The IFC’s Advisory Service Program effort will be made to integrate the WBG’s AAA and TA is an increasingly important part of IFC’s engagement with investment services, and maximize harmonization in Indonesia and manages bilateral trust funds of over and coordination with the aim of reducing transaction US$40 million to provide policy advice, consultation, costs. Shifting the emphasis from transactions to and technical assistance in support of sustainable and relationships also means that demand for AAA in core broad-based economic growth. engagement areas may be informal and at short notice, for example, taking the form of requests for expert In delivering the knowledge program, the WBG will advice and discussions, presentations of international also invest in Indonesia’s knowledge Institutions. experience, speci�c policy notes, or reports to support Future AAA and TA should be as much as possible led 28 Table 11. Core engagements: Alignment of instruments4 for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons National Sub-national Private sector Infrastructure Community Education Environmental government government development Development Sustainability and institutions institutions and Social Disaster mitigation and systems and systems Protection Lending DPL series; DPL series; IFC I-DPL series; PNPM co- BOS-KITA Climate Change PINTAR; LG DAU/DAK investments; Roads �nancing Co-�nancing/ DPL (or CC STATCAP; support; Infrastructure improvement & SISWA component in DPL); PFM/Civil IFC sub- Finance Facility; maintenance; Jakarta Emergency Service national Water utilities Dredging Initiative; �nancing reform, Energy IFC investments reform and delivery; IFC investments TF5 and Public DSF, IFC IFC Advisory IFC Advisory PNPM TF Basic Climate Change Grants Financial Advisory Services; MDTF Services Education Trust TF, IFC Advisory Management Services for trade and Fund Services, Extension Multi-Donor investment of Aceh & Nias Trust Fund MDF; 2nd window of MDF for Peace Building Activities AAA6 PEFA; CPAR; Justice for the IFC Advisory Infrastructure Poverty Education Low Carbon growth PER; DPR; Poor, PEACH services; Development Assessment; Sector PER, strategy; REDD Commodity (LG PER Investment Review; Water KDP Research Teacher Study, Aceh and Prices program); climate survey; Supply and program; CCT; Management Nias PER; Aceh Inter- Trade Sanitation Pro-poor jobs and Education Peace Program; governmental Facilitation; strategy; CDD Sector Aceh Poverty analysis; Financial Sector User Fee Assessment; Assessment & Capacity assessment Support to Economic updates Enhancement Education for Eastern RENSTRA Indonesia ________________________________________________ 4 See Appendix 10 and Annexes B3, B4 for details of the lending and non-lending program to be supported within each of the engagement areas. 5 In addition to the new/forthcoming TFs listed here, a fuller list of major ongoing TFs is available in Appendix 10. 6 In addition to AAA products speci�ed here, a range of just-in-time, on demand policy advice, capacity building and other TA will be provided over the course of the CPS. by, and based within, Indonesia’s government or non- for key processes. There will also be regular pipeline government institutions, academia and think-tanks. discussions and systematic, regular portfolio reviews Over the CPS period the WBG will encourage national with Bappenas and the relevant line agencies. These learning institutions, particularly universities and think- portfolio reviews will phase in an assessment of key tanks, to play an increasingly important role in the trust funds and the grants portfolio. Follow-up by delivery of knowledge, while shifting its own role from responsible parties on outstanding issues will be one of active research and implementation towards central to enhanced portfolio management. A greater advice and quality control. focus on the results and impacts of the WBG-supported programs will also be implemented, building on the �rst joint results management review undertaken in 2007. Implementation and management principles Addressing the risk of fraud and Reflecting Indonesia’s re-emergence, this CPS entails corruption7 in WBG-supported some signi�cant changes in the way the WBG team programs in Indonesia is structured and operates. Achievements in building and developing effective relationships with The Government has been making progress recently in institutional partners will be recognized. The WBG’s the �ght against corruption as indicated by improvement existing portfolio will be revisited to ensure that all in 2007 across key governance dimensions8, including operations support the CPS approach of investing in the control of corruption and the rule of law. However, Indonesia’s institutions. considerable challenges remain, as epitomized by the slow progress in implementing the legal and judicial As of end-June, 2008, the World Bank’s active reform agenda. Thus, the WBG-supported programs �nancing portfolio comprised 27 projects with total in Indonesia continue to require strong anti-corruption 29 net commitments of over US$2.9 billion. Nearly 30 measures and �duciary frameworks. The CPS builds percent of the total number of projects were rated ‘at on the CAS, which set out innovative governance COUNTY PARTNERSHIP STRATEGY risk’ while some 17.5 percent of the total commitments and anti-corruption measures, and it seeks to further were deemed to be ‘at risk’. The percentage of ‘at risk’ strengthen these mechanisms and their effectiveness. projects (by number and commitments) has increased from 15.4 percent and 10.9 percent, respectively as of A recent internal review of the Governance and Anti- end-FY07. Several other projects are rated marginally Corruption Action Plans (GAAP) mechanism included satisfactory. Risk factors include weaknesses in project in WB-supported projects, has revealed important management, corruption and misuse of funds, delays lessons; notably, more needs to be done to strengthen in counterpart funds release by the Government, slow government ownership and the implementation of disbursements, procurement problems, and monitoring these plans. As a result, going forward, the WBG and evaluation issues. Improving project performance will work to ensure that the plans are relevant to will be a priority. Efforts to improve portfolio quality, in government partners’ own anti-corruption efforts as addition to remedial measures underway will include well. Bolstering national ownership and institutional restructuring of the marginally satisfactory and problem capacity-building for enhanced accountability and projects to bring their implementation back on track, improved performance — already one of the elements with a focus on containing commitments at risk. The of the anti-corruption commitment of the last CAS — issues will also be addressed actively through follow- will be at the center of the implementation of this CPS. up on speci�c areas of weakness, e.g., counterpart The WBG will focus on applying the good governance funds release, application of remedies for misuse and anti-corruption principles and practices together of funds, and procurement, �nancial and project with the Indonesian partner institutions for a broader, management improvements. Additional efforts will be more sustainable impact. made to intensify joint project/program supervision with government and other partners, and to build in In addition to incorporating robust mechanisms and implement strengthened participatory and/or and tools to safeguard �duciary responsibilities, independent monitoring and evaluation measures, as and while still relying on its own investigative and appropriate. sanctions processes, the WBG will support and Indonesian clients have expressed concerns around ________________________________________________ the non-�nancial “transaction costs� inherent in WBG- 7 “Fraud and/or corruption� refers collectively to fraud, corruption, �nanced assistance, in line with those increasingly collusion, coercion and obstruction as de�ned in the Bank’s Guidelines on Preventing and Combating Corruption in Projects voiced by a number of other MIC clients. Several Financed by IBRD Loans and IDA Credits and Grants. See also initiatives to improve the ef�ciency and processing Strengthening World Bank Group Engagement on Governance and times of internal WBG administrative processes are Anti-Corruption, March 2007, World Bank. 8 underway. Targets and service standards will be set Source: Kaufmann D., A. Kraay, and M. Mastruzzi 2008: Governance Matters VII. thereby strengthen those of the Government. For this that determine the opportunities for engagement. In purpose, the WBG will provide technical assistance unfavorable conditions, the WBG portfolio may not be to government agencies investigating corruption exposed to risk, but it may be very limited. The key allegations, such as the KPK, BPKP and BPK or the broader risks are highlighted below: relevant Inspector General units of partner agencies. Political risks: The electoral process is now well Making greater use of the Government’s own institutionalized across the different levels of anti-corruption mechanisms will contribute to the government. The 2009 elections are likely to be synergies between IFC’s and the World Bank’s anti- competitive and there is a risk that the elections will corruption measures, especially in the important area give incentives to the partners in the government to of supporting regulatory reform that reduces rents strengthen their political appeal by distinguishing and the capture of public assets. The WBG will also themselves, hampering the capacity to jointly pursue leverage demand-side anti-corruption measures dif�cult reform programs. However, the elections will and lessons arising from CDD projects, to inform the also put pressure on the administration to deliver design and implementation of other programs that it demonstrable results, especially in its priority areas supports. Building on the opportunity offered by the of infrastructure development, governance reform, Government’s own focus on good governance, the community development, social protection and the WBG approach therefore is moving from a largely investment climate. At the same time, elections can transaction-oriented approach to an institutional one. open up the political space for reform as new leaders with a new mandate seek solutions to advance their agenda. Results management framework Socio-economic risks: Indonesia’s resilience to external 30 The CPS seeks to leverage WBG activities in support of shocks has increased, macroeconomic fundamentals the Government’s development and reform programs. are strong and its Government is in a better position to address economic risks than in the past. However, for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons While this approach renders the measurement of the direct impact of WBG activities even more dif�cult, several socio-economic risks remain. Indonesia’s it reinforces the objective of supporting Indonesia’s growth over the past three years has been driven by its efforts at policy and institutional transformation. The export performance. A global growth and trade slow- appended results framework is furthermore designed down would translate into lower Indonesian growth as to reflect the flexibility inherent in the CPS’ approach: direct exports to affected markets fall, indirect exports the variations across different engagements in the (commodities) to the region fall and international framework are indicative of the different stages of markets remain volatile. Depending on the magnitude maturity, with some partnerships and programs being and duration of the slowdown, this could also slow job well advanced (e.g., Ministry of Finance and public creation in Indonesia, with a particular impact on the �nancial management) with more clearly de�nable poor. Another potential risk in this situation could come and measurable targets, while others (e.g., Ministry of from a sudden reversal of �nancial assets held in the Environment and the climate change agenda) are at Indonesian stock and bond markets. Such an event relatively early stages. The results framework will be would feed into the exchange rate fluctuations and monitored and updated periodically. The dialogue with inflation, raising domestic tensions. Finally, Indonesia Bappenas around program results will be continued, has suffered from major natural disasters of various strengthened and may be broadened to include kinds in the recent past, with signi�cant social costs. other key partners. These assessments will serve as Although better prepared than in 2004, the country guidelines for any necessary course corrections and remains vulnerable to these disasters. feed into the CPS Progress Report scheduled for Board presentation in FY11. Risk of anti-debt sentiment: Concerns over the use of foreign �nancing to support the Government budget continue to generate opposition to foreign loans, in Managing for risks particular from, but not limited to, civil society groups. Anti-debt sentiment also exists in the legislature, where Investing in Indonesia’s institutions requires a close several key political parties, despite having explicitly engagement with the partner institutions and the agreed to program lending, hold positions designed flexibility to modify the program in line with the opening to limit foreign debt exposure. Such sentiment raises — or closing — of opportunities for working with and potential risks for budget support operations as the through these institutions. The implementation of legislature seeks to play a stronger role in overseeing this approach will itself mitigate risks because the foreign borrowing. decision to engage will depend on timely and informed assessments of the likelihood for success. However, Reform implementation risks: Even where there is the approach subjects the WBG program to the factors clear political will to tackle institutional reforms, the reformers themselves can sometimes be overwhelmed by the extent and complexity of the task in the face of vested interests, and entrenched organizational cultures and behaviors. Capacity to develop and implement complex institutional reforms also remains a problem at all levels. It is precisely because of these implementation risks that the CPS is designed around institution-building to provide the technical assistance and co-�nancing support for the design and implementation of the government’s own reforms. Governance and corruption risks: Fiduciary risks remain signi�cant. Investing in larger government-led programs, may increase the risks of the WBG being associated with a program which may be tainted by corruption. For this reason, the WBG proposes to apply this approach only to areas where the authorities are committed to reform and anti-corruption measures and only where the WBG can build on a long-standing engagement; the WBG will also support measures to strengthen accountability and build �duciary capacity in counterparts. For the WBG’s own portfolio, the governance and anti-corruption safeguards already in place will continue to be improved, and will also provide 31 stronger coverage of the TF portfolio of activities. COUNTY PARTNERSHIP STRATEGY WBG performance risks: Indonesia has access to an increasing number of sources for meeting its �nancing and technical assistance needs. As a result, the Government is seeking higher performance standards, and the WBG is striving to deliver on these fronts. In so doing, the WBG is aiming at quicker response times in the preparation and implementation of projects, more flexibility in the lending program, simpli�cation of WBG procedures, greater alignment with the country’s own systems, and stronger tailoring of the analytical and advisory products to the needs and timeframes of the Government. The design of this CPS and its implementation will attempt to mitigate the impact of these risks for the WBG. Not only will the flexibility that the approach requires allow the WBG to reduce the risks in its engagements, but it will also ensure that the new partnership between the World Bank Group and Indonesia lives up to its potential. Inves ng in Indonesia’s Ins tu ons 32 for Inclusive and Sustainable Development APPENDICES AND ANNEXES COUNTY PARTNERSHIP STRATEGY FY2009-2012 Investing in Indonesia’s Institutions for Inclusive and Sustainable Development Appendix 1. Note 1: Cross-cutting Engagement 1: and the public. Over the CPS period, reform of the tax Central Government Institutions and administration system will be supported by the Project Systems for Indonesian Tax Administration Reform (PINTAR). The World Bank has had an increasingly strong Trust fund program. Through trust funds, the WBG is engagement since 2004 in supporting central providing complementary technical assistance and government institutions, particularly the Ministry of analytical services, particularly to the core economic Finance and Bappenas, in public sector reform through ministries. These Trust Funds include a €14.3 million policy-based and investment lending, as well as a Public Financial Management Multi-Donor Trust Fund substantial TF and AAA program. �nanced by the European Commission and the Dutch Government, and a €20 million Dutch Institutional Lending. There are two programs that have de�ned the Development and Capacity Building Trust Fund, which World Bank’s lending engagement in this area since supported the implementation of the CAS 2003-08. In 2004, and that are expected to provide the backbone particular, the Dutch Trust Fund has been providing of this engagement during the CPS period as well. First, support to the Initiative for Public Expenditure Analysis the World Bank has provided four consecutive DPLs (IPEA), which supported the Government in the since December 2004 (DPL1-4). The DPL program allocation and implementation of national and sub- has increased from US$300 million (DPL1) to US$600 national budgets, and a local justice sector reform 34 million (DPL4), and is expected to reach US$700 in FY09 program (“Justice for the Poor�). (DPL5). DPLs have been the World Bank’s main vehicle for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons to support core institutional reforms in the area of public AAA and policy dialogue. Through trust funds and �nancial management and resulted, among others, in its own resources, the WBG has produced a large the establishment of a Treasury Single Account, an number of agenda-setting flagship reports as well improved accounting system and the setting-up of an as on-demand policy notes and advice, all of which independent National Procurement Of�ce.9 form part of a broader knowledge engagement in the reform of core public sector institutions. The Second, the World Bank has supported the flagship reports include Spending for Development implementation of public sector reforms, particularly in – Making the Most of Indonesia’s New Opportunities the Ministry of Finance through the Government Financial (PER 2007) and bi-annual economic updates. Other Management and Revenue Administration Project reports include the Public Expenditure and Financial (GFMRAP). GFMRAP1 (US$65 million)10 was approved Accountability Assessment (PEFA 2008), an Education in conjunction with DPL1, and has been complementing Expenditure Review (2007), and a Health Expenditure DPL support for reforms in public �nancial management. Review (2008). A Development Policy Review (DPR) More speci�cally, GFMRAPs are �nancing investments has been produced in conjunction with this CPS. All in technological modernization, capacity-building and of these outputs are part of an engagement to support change management. These projects directly reinforce economic and sectoral ministries in public sector changes to the underlying institutional, incentive and reform, as well as budget formulation, allocation and organizational frameworks for core business functions implementation. The future knowledge engagement will of the MoF and other related institutions, including deepen WBG support to budget reform and Indonesia’s �scal policy formulation, budgeting, treasury, internal anti-corruption institutions. The WBG will also support audit, procurement, revenue dispute resolution, and Bappenas in preparation of a background study for the legislative oversight. The future Statistical Capacity Government’s next Medium-Term Development Plan Building Project (STATCAP) will replicate a similar 2010-14 framework. institutional reform investment in the Central Bureau of Statistics (BPS), thereby strengthening the supply of economic and social data available to policy-makers Note 2: Cross-cutting Engagement 2: Sub-national Government Institutions and Systems ________________________________________________ 9 The WBG seeks to expand its support for the core The DPL program has also supported reforms in the Investment Climate and Service Delivery (see engagements on private sector issue of institutional reform and governance at the development and poverty). local-government level. Under a decentralization 10 Comprising US$55 million from IBRD, US$5 million from IDA, framework, priority will be given to making development and US$5 million from PHRD (Poverty and Human Resources Development - Japanese Global Trust Fund). planning more responsive to constituents, improving public �nancial management, and strengthening the Note 3: Core Engagement 1: Private Sector accountability of local governments. Support will be Development based on technical assistance and the co-�nancing of sub-national expenditure programs, along with possible Lending. The World Bank’s work in the investment direct engagements with the larger municipalities. climate, trade and �nancial sector areas is a core element of the Bank’s flagship DPL lending program. Lending. The WBG approach includes a loan to In support of the proposed CPS, additional lending �nance a share of local governments’ expenditures, opportunities could be identi�ed in these areas, as to be disbursed against local governments’ outputs. agreed with Government. In the �nancial/infrastructure Preliminary discussions, including the identi�cation sector, the Bank is preparing a US$100 million loan to of local governments that will be engaged in the support the establishment of an infrastructure �nancing project, are underway. The WBG will also strengthen institution that can help accelerate private investment ongoing partnerships through continuing engagement in infrastructure. This is an innovative engagement in existing lending programs, such as Initiatives for involving the Bank and IFC (which will take an equity Local Government Reform (ILGR), the Urban Sector stake in the institution) as well as a number of other Development and Reform Project (USDRP), and development partners in addition to private investors. Support for Poor and Disadvantaged Areas (SPADA). Additional demand-driven investment lending support In addition, the WBG will start working more closely may be provided in areas where institutional restructuring with the largest municipalities in order to support their and strengthening needs are identi�ed through ongoing speci�c growth and development challenges. AAA/TA activities. Trust fund program. Through the AusAID-East Asia and Trust funds program. Through trust funds, the WBG Paci�c Infrastructure for Growth Trust Fund, the WBG is providing complementary technical assistance, will provide technical and analytical support to key policy advice and capacity building in the areas of 35 ministries to review sub-national government �nancing, investment climate, trade and �nance to core economic in addition to supporting the role of sub-national ministries, sub-national government and organizations, COUNTY PARTNERSHIP STRATEGY governments in addressing growing urbanization and institutions engaged in economic growth and and housing provision. Analysis of the constraints development programs. Appropriate support to sub- on developing a market for municipal borrowing will national governments for fostering an environment explore a range of issues, such as revenue sources, conducive to the development of SMEs will be provided. laws and regulations, incentives, borrowing capacity, IFC trust funds include an estimated US$40 million over and creditworthiness. In relation to this, an assessment �ve years raised from a suite of bi-lateral governments of Indonesia’s regional urban development will focus as well as IFC, for IFC Advisory Services to engage in on the contribution of major urban centers to regional broad ranging economic development initiatives. The and national economic growth, as well as the delivery of Bank is contributing through the Dutch Trust Fund to services to the population. Improve the Investment Climate and the Dutch Program to Improve Trade Policy in Indonesia, amounting to AAA and policy dialogue. Development partners will US$3.9 million and US$2.5 million, respectively. The fund analytical and advisory services to selected local Bank is also setting up a Multi-Donor Trust Fund, initially governments through the Public Expenditure Analysis valued at US$7 million. This facility aims to strengthen and Capacity Harmonization (PEACH) program in GoI institutions (such as the Ministry of Trade and the order to assess and improve the performance of their National Team for Export and Investment Promotion, planning and budgeting processes. In addition, the or PEPI) in managing effectively and ef�ciently the Decentralization Support Facility (DSF) brings together a challenges of improving trade competitiveness, number of development partners with a broad mandate the investment climate, and the �nancial sector by to engage Indonesian institutions essential to the local supporting organizational reform, improving HR accountability framework, such as legislatures, media training management, setting up specialist teams and and NGO networks. The WBG and other development providing TA and policy advice to support reform and partners will continue to engage with local governments restructuring efforts. through the Decentralization Support Facility for Eastern Indonesia (SOFEI), which has established a strong AAA, TA and policy dialogue. This program is network of reformers across the region. WBG resources supported through the Bank’s own resources leveraged will also complement the above trust fund activities in substantially by TF resources. Flagship products that set support of a series of policy notes. Policy discussion multi-year reform agendas with analysis that underlies will be fostered through the dissemination of the notes several government reform packages (e.g., the non- and in the form of multi-stakeholder workshops for bank �nancial institutions report and the forthcoming discussion of �ndings, recommendations, and follow- report on improving access to �nancial services) and on activities. flagship reports on special issues (e.g., the ESW report on the impact of high commodity prices on Indonesia’s development strategy) are one form of engagement. Trust fund program. Through the AusAID-East Asia Another is rapid-response on-demand policy notes that and Paci�c Infrastructure for Growth Trust Fund, the support emerging issues in the investment climate, trade WBG will be providing technical and analytical support and �nancial sectors. Lastly, ongoing policy dialogue to key ministries to review the role of the Government and inputs to ongoing reform efforts being undertaken in housing provision. The WBG will offer support to by the Government are high-impact activities that will both central and sub-national governments in the continue to be supported. Key counterparts to this development of a policy and strategy for the provision work are the Coordinating Ministry for the Economy, of housing opportunities to low-income residents in the Ministry of Trade, Bapepam-LK, Bank Indonesia, urban areas. Particular focus will be on the condition and other relevant agencies. Close interaction with, of housing and land markets (supply and constraints), and inputs to, the �nancial industry, private sector access to housing �nance, and an analysis of the and self-regulatory bodies are also important areas of current slum environment (including population density engagement that will continue. and geographical distribution). AAA and policy dialogue. The WBG primarily works with Note 4: Core Engagement 2: Infrastructure four agencies on infrastructure policy development: the Directorate General of Highways (DGH), the Directorate The WBG will provide �nancial and advisory support General of Water Resources (DWR) and the Directorate for the Government’s infrastructure �nancing plan as General of Human Settlement (DHS) — all at the Ministry set out in the RPJM. Key sectors covered through a of Public Works — as well as the state-owned electricity series of Infrastructure DPLs (I-DPLs) and co-�nancing utility (Perusahaan Listrik Negara, or PLN). WBG will pooled-funding arrangements include energy, roads, continue to engage the DWR and the DHS to enhance and urban infrastructure, such as housing, water supply policies in support of increased access to affordable 36 and sanitation. piped water and urban sanitation. In addition, as transportation is one of the most rapidly rising sources Lending. WBG support includes a substantial program of Greenhouse Gas (GHG) emissions, the WBG will work for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons of investment lending to the following key projects: to appraise the current situation and key policy actions that need to be taken to improve air quality and reduce • Investment lending support for the energy sector emissions. Actions achievable through legislation and will focus primarily on clean and renewable �nancial incentives will be identi�ed in a brief policy note, energy technologies including geothermal power as well as other dissemination materials appropriate for investments, pumped storage, advanced coal the media, public pressure groups, car manufacturers, technologies, power transmission and distribution and NGOs. projects, gas distribution projects, and rural electri�cation. Strategic investments will seek to facilitate PLN’s institutional re-organization and Note 5: Core Engagement 3: policy reforms that will enhance ef�ciency and Community Development and Social reduce PLN’s cost of supply. Protection • Urban infrastructure development will focus on several key issues, such as water and sanitation The WBG will continue to support the Government improvements, and low-income housing. Water in its efforts to reduce poverty and to ensure equity management projects will increasingly target and inclusiveness across regions. Despite impressive priority issues, such as flood mitigation and dam macro-economic growth rates over the past several operations improvement. In sanitation, the WBG’s years, poverty remains high in Indonesia with 36 million ongoing PAMSIMAS project, for rural and peri-urban people or 16.7 percent below the national poverty populations, focuses on building capacity to plan line (US$1.55/day) and almost half the population (49 system integration for centralized, community and percent) below US$2/day (2007). Indonesia continues household sanitation, and make long-term �nancing to under-perform compared with its neighboring available for sanitation infrastructure development. countries in terms of access to quality healthcare, water • The Directorate General of Highways’ (DGH) well- and sanitation, education and other basic services. de�ned maintenance program for the national road network, as well as clear objectives for the WBG support consists of assistance on the macro- condition of the network, made it a good candidate economic growth side as mentioned in other parts for partnership in the implementation of development of this CPS, as well as the service delivery and direct programs in regional and national road operations. poverty programming dimensions. The latter will be Road improvement projects will focus efforts on achieved through a combination of co-�nancing loans, strengthening �duciary, operational and management AAA, and technical assistance and policy guidance on capacities of local counterparts, and improve the poverty reduction strategies and programming. Major pace of implementation in ongoing projects. government counterparts include the Government’s National Poverty Commission, led by the Coordinating • Ten different evaluations and studies for PNPM- Ministry for People’s Welfare, as well as Bappenas and Mandiri to evaluate its poverty impact, cost the Ministries of Finance, Home Affairs, Public Works, effectiveness, inclusiveness, and various aspects Social Welfare, Education and Health. of its operations. • Technical guidance and policy advice regarding Lending. The National Community Empowerment poverty reduction strategies and reforms, as well as Program (PNPM-Mandiri) is the Government’s flagship oversight of the two World Bank loans, PNPM-Rural national poverty reduction program. It was built upon and PNPM-Urban. the previous 10 years of successful experience with the • Technical assistance and evaluations of the pilot World Bank’s Kecamatan Development Program (KDP) CCT programs and social protection in general. and Urban Poverty Program (UPP). For 2008-09, the • Assessments of other major poverty reduction program includes two WBG SILS totaling US$409 million programs. as well as national and local government counterpart • Several randomized experiments related to poverty funding and other community development programs targeting and governance. equaling about US$1.8 billion. Other smaller poverty • Monitoring and evaluation capacity building with reduction programs are being folded into the PNPM- Bappenas and other ministries. Mandiri in order to make poverty programming at the • Analytical work and technical guidance related to community level more streamlined and coordinated. national employment policies. PNPM-Mandiri currently covers almost 70 percent of the • Improved poverty measurement and statistical sub-districts in the country; by 2009, the Government capacity building. expects the program to cover all sub-districts and cities. This program is planned to continue until 2015, and the WBG and other donors will be supporting these Note 6: Core Engagement 4: Education efforts through repeater loans. 37 The World Bank has developed increasingly close ties The other major poverty program that the Bank is with both the Ministry of National Education (MoNE) COUNTY PARTNERSHIP STRATEGY supporting is the Conditional Cash Transfer (CCT) and the Ministry of Religious Affairs (MoRA), with strong program. The Bank provides technical support and engagement in strategic areas of the education sector guidance for the traditional household version of the through a mix of lending, technical assistance and CCT (Program Keluarga Harapan), as well as �nancial policy dialogue. support through the PNPM-Mandiri program and a community version of the CCT. Both programs began Lending. The lending portfolio has grown considerably, in 2007 and are expected to continue in future years. with three projects starting since 2006 and another three projects in the pipeline. Among current projects, Trust fund program. The AAA work and technical the Improving Management of Higher Education for assistance are funded primarily out of two major trust Relevance and Ef�ciency (IMHERE) project (US$117 funds. The PNPM Support Facility was established in million) was launched in 2006 and aims to build early 2008 with about US$40 million in initial commitments capacity for the reform and oversight of the higher from the Dutch, DANIDA, and AusAid. The facility will fund education system and to improve academic quality a variety of evaluations, special studies, and technical and institutional performance. The Early Childhood assistance related to PNPM implementation. In addition, Education and Development (ECED) (US$127 million — a Dutch Trust Fund supports the AAA and technical including US$23 million in Dutch grant �nancing) began work of PREM’s poverty team as described below. A in 2007 and aims to establish about 6,000 community- Dutch Trust Fund provides just under €1.8 million to based ECED sites for children up to six years of age support a range of activities, such as poverty program in targeted poor districts and villages. This project will assessments, data and policy advice, institutional help to level the playing �eld for poor children who capacity-building activities, implementation support for drop out and repeat school due to unequal access key poverty programs (social protection), and results and to early learning opportunities. The Better Education knowledge sharing activities. through Reformed Management and Universal Teacher Upgrading (BERMUTU) (US$195 million, with US$52 AAA and policy dialogue. The poverty AAA work has million Dutch grant �nancing) began in 2008 and is been funded primarily out of trust funds, with Bank targeted to areas that will assist the Government to Budget (BB) supporting core World Bank staff costs. implement the December 2005 Teacher Law, which In the case of PNPM, this allows the limited resources links signi�cant increases in teacher incentives to of trust funds to leverage high returns in terms of policy certi�ed teacher competencies. The project supports guidance, strategic technical assistance, and analytical structures that are critical in the certi�cation and knowledge. AAA and policy dialogue for this CPS period upgrading process. Areas include the accreditation of will consist of: universities, capacity building of teacher cluster groups (which will be instrumental in teacher upgrading) and AAA and policy dialogue. In tandem with lending reform of teacher progression and promotion systems. development and preparation, a broad array of AAA work has been conducted to support the Government in Among projects in the pipeline, BOS-KITA, a proposed key areas, including the Government’s current medium- US$600 million three-year project beginning in October term strategy (RENSTRA), the regulations under the 2008 aims to support a major government program Teacher Law, analytical work on mechanisms for teacher that provides operational funding to primary and junior certi�cation, teacher employment and redeployment, secondary schools across the nation. The project will inclusive education, reaching the vulnerable and strengthen the already existing BOS program through disabled, education management information system, establishing an independent monitoring unit and an quality framework for early childhood education and information campaign. The System Improvements adult literacy. Future formal Economic and Sector Work through Sector-Wide Approaches (SISWA) program is (ESW) is planned for four areas, including (i) Education aimed at gradually moving donor assistance towards Sector Assessment, which will provide the technical a basic education sector support program and is assistance to assist the Government in preparing a intended to be the means by which the Government technically sound “education sector assessment� will eventually (by 2010) align, coordinate and focus all report, which will form an analytical base for the donor assistance to basic education. This proposed formulation of a strategically pertinent and focused program of about US$1 billion (US$200 million World medium-term strategic plan (RENSTRA) for 2009-14, (ii) Bank lending) is being led by the Government with Teacher Quality, focused on helping the Government in the primary partners including the Government of formulating new policies or re�ning existing policies to the Netherlands, the European Commission and improve quality of teachers aimed at improving student AusAID. The Better Employment Knowledge and learning, (iii) Teacher Employment and Deployment, Entrepreneurship to Revitalize Job Access (BEKERJA) which will �ll in knowledge gaps and provide policy 38 (currently proposed amount of US$100 million) is a recommendations that will inform Indonesia’s teacher youth employment program aimed at improving the employment and deployment strategy, and (iv) Early functioning of the labor market for youth by addressing Childhood Development Evaluation, which is a joint for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons key bottlenecks on both the demand and supply side of research between the Early Childhood Development the skills market. The program is under discussion with Unit (ECDU) in the MoNE and the World Bank, with the government counterparts and would include activities purpose of conducting a high quality evaluation of the in support of vouchers for unemployed youth to receive ECED program and providing the evidence required vocational training, and micro and SME �nance. to raise awareness and advocate for early child development and the importance of school readiness. Trust fund program. Two large trust funds are in operation to support strategic policy areas of education. The US$11.1 million Dutch Basic Education Support Note 7: Core Engagement 5: Program has been targeted to the shaping of national Environmental Sustainability and Disaster policy and in the provision of necessary just-in-time Mitigation technical support in critical areas, including: (i) Teacher Management and Quality of Education, (ii) Piloting of Following the Bank’s major role in the reconstruction of Teacher Certi�cation and Teacher Employment and Aceh, Nias and Yogyakarta, the CAS was amended in Deployment policies, (iii) Improving the Accountability, September 2006 to include a disaster risk management Incentive and Support Structures of Basic Education, pillar. This called for the Bank to support new legislation (iv) Education Monitoring and Evaluation, and (v) and institutional arrangements for disaster risk reduction ICT in Education. The €39 million Basic Education (DRR), and integrating DRR in its sectoral work. Joint TA Capacity Trust Fund (BEC-TF) was jointly established was to be provided in key areas, including developing by the European Commission and the Government of national and local government capacity for assessing the Netherlands with the purpose of supporting the disaster damage, losses and needs; assessing capacity Government in improving the delivery of decentralized to absorb catastrophic events, amongst others. basic education. It is also intended to lay the ground Meanwhile, in 2007 the Bank became a major source of and conditions to be met for a major sector-wide support for climate change mitigation and adaptation investment program. These goals will be achieved activities. This engagement involves support for the through targeted analytical work, thematic dialogue in Ministry of Environment in preparation for the Bali COP education between the Government and donors, and 13, assistance to the Ministry of Forestry to develop its capacity development and strengthening of systems for program on REDD, partnership with the MoF to develop planning, budgeting, �nancial management, M&E, and a low carbon growth strategy, and work with Bappenas human resource management. to formulate a national climate change and disaster management adaptation program. Lending. Engagement with climate change is relatively Discussions have been held with development partners new, but a climate change pillar is being developed and the GoI to create a MDTF for climate change, which for the �fth Development Policy Loan (DPL 5) to would support the GoI’s climate change action plan incorporate priority actions related to institutional by �nancing TA, capacity building and pilot activities. consolidation, mitigation and adaptation. This pillar will Once an appropriate government counterpart has been enable the DPL5 to be increased by US$100 million. found, the fund will be activated. Once institutional leadership on the climate change issue has been consolidated and the Bank has a clear Trust funds have been used to respond to major counterpart, it may be possible to consider a stand- disasters and initiate a program for mainstreaming alone climate change DPL series. The Bank is �nancing DRR. The Bank created and manages a US$697 million a growing portfolio of Clean Development Mechanism MDTF for Aceh and Nias for post-disaster reconstruction (CDM) projects and mainstreaming adaptation to through a portfolio of 20 projects, over half of which climate in the overall Bank lending portfolio. Finally, are Bank supervised. Similarly, over US$84 million was the emerging Forest Investment Fund presents an committed to the Java Reconstruction Fund following opportunity to provide Indonesia with concessional the Yogyakarta/Central Java earthquake. Its major lending to support, inter alia, the initial development of community-built housing project is Bank supervised. REDD projects. For DRR, a US$1.25 million grant has been obtained from the Global Facility for Disaster Reduction and For both national-scale disasters (Aceh/Nias Recovery to mainstream DRR in Bappenas, the new and Yogyakarta), the World Bank responded by Disaster Management Agency (BNPB), the insurance reprogramming its lending portfolio to make funds industry, and the Bank itself. available for community-based reconstruction programs. The Bank also has a signi�cant grant-�nanced AAA and policy dialogue. The Bank’s climate change portfolio of projects in both areas. The possibility exists AAA has focused on TA to prepare the national REDD 39 to develop a catastrophic drawn-down option (CAT program and support for the �rst phase of the low DDO) if there is government interest in this new “line-of- carbon growth study. The Bank will focus efforts on COUNTY PARTNERSHIP STRATEGY credit� �nancing mechanism. Enhanced efforts will be the main inputs for the GoI to develop its low carbon made to integrate DRR and climate change adaptation growth strategy and the policy dialogue has sought to into the project cycle. mainstream the discussion of climate change. This has involved: preparing and disseminating information to Trust fund program. Trust funds support the Bank’s raise awareness about carbon emissions, vulnerability climate change program including in the following and relevant policies; working with the Ministries of areas: Finance and Trade on relevant instruments and options for mitigation and adaptation; engaging with Bappenas • REDD: about US$1million in reimbursable on issues of development partnership and adaptation; agreements from the Government of Australia and coordinating with the donor community on �nancial and DFID plus funds from the Bank’s PROFOR to support for Indonesia’s climate change program. At the assist the Indonesia Forest Climate Alliance with local level, the WBG will assist DKI Jakarta’s three- development of the national REDD program. year river-dredging initiative, the Jakarta Emergency • Pathways to Sustainability: US$200,000 from Dredging Initiative (JEDI), to locate grant �nancing for PROFOR which is leveraging over US$2 million capacity-building within the municipal administration. from AusAID and CSIRO to develop macro and micro-modeling tools for Bappenas to understand PREM has taken the lead on AAA, especially in the area better the environmental (including greenhouse gas of disaster �nancing, monitoring of the reconstruction emissions) consequences of different developmental process and economic impact analysis. Outputs in paths. FY08 include the Aceh Poverty Assessment, the Nias • Low Carbon Growth: US$360,000 through an Public Expenditure Review, a stock-taking report Externally Funded Output from AusAID to support One Year after the Yogyakarta Earthquake, bi-annual a low carbon growth study in partnership with the Aceh Economic Updates and the establishment of a Ministry of Finance. Additional resource commitments reconstruction �nance tracking methodology. In FY09, are expected from DFID for this work. the following products are anticipated: An analysis of • An additional grant of US$1-2 million from WASAP is reconstruction results in Aceh and Nias in conjunction being proposed for a pilot study on water-resources with the of�cial end of the reconstruction period, a management in relation to the major source of deepening of economic research and support to other Indonesia’s carbon emissions, namely degraded country teams in responding to disasters and setting peatlands. up M&E. Appendix 2. Indonesia: Results Framework Approach The key development outcomes at the end of the CPS Where core engagements are already moving into a period are included in the following Results Framework. mature phase, the WBG is in a position to be more The variations across these in the framework are speci�c in terms of the outcomes over the CPS period indicative of the different stages of maturity, with some that can be realistically achieved. Hence, the detail partnerships and programs being well advanced (e.g., relating to the outcomes and intermediate indicative Ministry of Finance and public �nancial management), milestones are more developed in the mature while others (e.g., Ministry of Environment and the engagements than in those engagements that are still climate change agenda) are at relatively early stages. in an early phase. In these developing engagements, The following seeks to classify the seven current core outcomes are somewhat less de�nable and therefore, engagements by level of relative maturity: more likely to be based on a range of possible targets or intermediate outcomes. Mature engagements: Cross-cutting Engagement Area 1: Central Finally, it is important to note that the flexibility inherent Government Institutions and Systems in the CPS will also apply to the results framework, with Core Engagement Area 1: Private Sector adjustments to the core partnerships and programs Development also being mirrored in the results framework, as 40 Core Engagement Area 3: Community Development appropriate. and Social Protection for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Core Engagement Area 4: Education Developing engagements: Cross-cutting Engagement Area 2: Sub-national Government Institutions and Systems Core Engagement Area 2: Infrastructure Core Engagement Area 5: Environmental Sustainability and Disaster Mitigation Appendix 2. Indonesia: CPS Results Matrix Indonesia’s Longer-term Intermediate Indicative WBG Modes of Issues and Obstacles Development Outcomes End-FY12 Objectives Development Milestones Engagement Overarching Development Outcomes “The ideal Indonesia is Further improvements 1. WBG support and �nancing are aligned to an Indonesia that is safer to effectiveness national priorities. and more peaceful, just and quality of public 2. Strengthened use of Indonesia’s own and democratic and more expenditures, and systems, procedures and institutions to the prosperous.� strengthened national extent possible. institutions, �duciary and 3. Enhanced harmonization of development State Address of the operational frameworks partners’ support. President of the Republic required for enhanced 4. Contributions toward strengthened public of Indonesia on the Eve of accountability and �duciary controls, accountability, managerial, the Sixtieth Anniversary of increased Government technical and evaluation capacity. Indonesia’s Independence.� effectiveness CROSS-CUTTING ENGAGEMENT AREA 1: CENTRAL GOVERNMENT INSTITUTIONS AND SYSTEMS Strengthen central The budget system 1. Improved results orientation in the budget • Revised program structure Ongoing Financing: government institutions and is input-based, process. Baseline: Budget allocations for RPJM 2010-15 GFMRAP; systems to enhance public excessively detailed based on organization, detailed types of speci�es measurable Institutional �nancial management and inflexible and strictly expenditure, functions, programs and results and targets aligned Development TF and governance to annual, hampering activities; budget documents include to organizational structure (Netherlands); increase the development implementation of multi- macroeconomic projections of aggregate (2010) GFMRAP TF (PHRD); impact of priority budget year projects expenditures and revenues, but the budget • Standing order for virements Governance TFs expenditures for a preparation process remains strictly annual allow spending ministries (Netherlands); PFM competitive, inclusive, and with no reference to forward estimates to reallocate between TFs (PHRD) sustainable Indonesia for outer years. Targets: Results-oriented spending units, activities, programs with measurable results becoming some economic categories Planned Financing: 41 the main units for budget allocation and and location within a given DPLs; PINTAR/ control, with other classi�cations (by program without prior MoF GFMRAP II; COUNTY PARTNERSHIP STRATEGY organization and/or type of expenditure) approval (2012) STATCAP; PFM – being applied selectively at an aggregate • Progress towards a point MDTF level. Data source: Pertinent government where budget documents regulations, including annual budget law; present current budget staff assessments. year estimates and forward estimates for two outer years (continuous) Government cash 2. Effective operationalization of TSA, • Inclusion of major revenue AAA/Others: PER, balances are together with strengthened and timely cash accounts into the TSA DPR;; analysis of fragmented and there plans from the line ministries. Baseline: TSA regime (2008) demand for legal is limited information extended to all expenditure accounts but • Contract signed for reforms; commodity available for ef�cient not yet to the revenue side. Very rudimentary procurement of new price analysis; CEM/ management of cash; cash planning that is not based on expected Treasury and Budget system sector analysis; treasury operations disbursements. Targets: Comprehensive (2008) support to RPJM; are currently managed TSA coverage of all major government • Progressive inclusion of policy notes; poverty through fragmented cash balances, including the revenue side. remaining cash balances assessment data collection and Maximum 10% deviation in line ministries’ of central government consolidation systems quarterly cash plans compared with actual institutions into the TSA which have limited cash flows. Data sources: MoF accounts regime (continuous) capacity to produce quarterly cash plans, government regulations; • Treasury enforces quarterly reliable and timely system manuals, integrated database and cash planning in the line information on budget staff assessments. ministries (2009) execution • Progressive implementation of the Integrated Financial Management System in the Treasury starting with 5 pilot ministries (2010) Controls in budget 3. Effective and reliable implementation of • COSO control framework execution processes State Treasury and Budget System (SPAN) piloted in 3 select line are generally inadequate reform, as evidenced by timely and accurate ministries providing better and could jeopardize �nancial reporting. Baseline: PEFA indicators: understanding of the gains from improvements PI 18 on effectiveness of payroll control is at challenges on internal made in other areas of D+; PI 20 on effectiveness of internal controls control in line ministries PFM over non-salary expenditure is at D+; PI 25 (2009) on quality and timeliness of annual �nancial • On payroll controls, an initial statements is at C+. Targets: PEFA indicators: design of an information PI 18 to rise to C; PI 20 to rise to A; and PI system which links BKN and 25 to rise to A. Data source: Repeat PEFA MDAs is produced (2010) assessment (2012). Indonesia’s Longer- Intermediate Indicative Development WBG Modes of Issues and Obstacles Development Outcomes End-FY12 term Objectives Milestones Engagement CROSS-CUTTING ENGAGEMENT AREA 1: CENTRAL GOVERNMENT INSTITUTIONS AND SYSTEMS Strengthen central Improvements in 4. More ef�cient tax administration • Double entry for registration AAA/Others: PER, government institutions tax administration through: increased number of accurate process introduced (2009) DPR;; analysis of and systems to are hampered by taxpayer registration records in the • Centralized registration system demand for legal enhance public inef�cient registration, registration database using third-party introduced (2009) reforms; commodity �nancial management returns processing, data and call centers; increased number • Registration master �le cleaned price analysis; CEM/ and governance document of comprehensive and risk-based audits of up of erroneous records and sector analysis; to increase the management, and taxpayer declarations; reduced tax arrears duplications (2009) support to RPJM; development impact limitations in the basic through better and more accurate taxpayer • Development of taxpayer risk policy notes; poverty of priority budget IT infrastructure accounts and collection procedures. assessment models (2009) assessment expenditures for a Baseline: (i) 40% accuracy (2007; based • Determination of reliable arrears competitive, inclusive, on total of 11 million taxpayer records); information (2009) and sustainable (ii) regular audits are limited to VAT • Contract for procurement of core Indonesia refunds; (iii) processes to collect arrears tax administration system signed not classi�ed into collectable and non- (2009) collectable items; collection enforcement • Progressive development and is ineffective. Targets: (i) 100% accuracy; implementation of core tax (ii) DGT conducts comprehensive audits administration systems (continuous) expanding the number of returns exposed • Progressive implementation of to compliance programs; (iii) effective risk-based audit management procedures in place to collect arrears (continuous) resulting in reported arrears not exceeding • Progressive development and 5% of declared tax liabilities. Data implementation of systematic sources: AusAID study; staff assessment; collection program (continuous) government regulations. The public 5. Improved regulatory framework; higher • LPKP fully staffed and functional procurement system capacity levels at national and provincial (2008) still has signi�cant levels, and establishment of professional • Revision of Keppres 80/2003 de�ciencies in procurement units in implementing and issuance of national standard 42 terms of improving agencies; improved quality of procurement bidding documents (2008) the regulatory audit and effectiveness of sanctions. • Development of a capacity building for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons framework and Baseline: (i) No procurement law is currently strategy (2008) implementation tools in place and there is no set of national • Support to capacity building as well as capacity standard bidding documents; (ii) there is program providers at the national of procurement no clear capacity-building program and and provincial level (2009) practitioners; percentage of government staff passing • Procurement units established at collusion and corrupt the certi�cation test is still below 15% (mid- selected implementing agencies practices in the 2008); (iii) sanctions on colluding �rms are (2009) bidding process relatively limited and do not apply outside • Strengthening the procurement continue to exist, the implementing agency where collusion audit functions in IGs and BPKP causing leakages and occurs. Targets: (i) Procurement law and (2009) losses in the system associated tools are issued; (ii) capacity- • Revision of the sanctions system building program in place; (iii) sanctions (2009) provide a deterrent for colluding �rms. Data • Procurement law enacted (2010) sources: Staff assessment; government • Professional procurement stream regulations; update of OECD/DAC BIL. is established in implementing agencies (2010) Increasing demand 6. Improved quality and timeliness of key • All sub-districts statistics of�cers for improved quality, statistics produced by BPS, e.g., national equipped with GPS technology timeliness and accounts data, poverty data, etc. Baseline: (2009) responsiveness of (i) Inconsistencies between BPS statistics • Sixty-six city of�ces connected by data availability are from various different sources; (ii) low levels wide area network (2009) hampered by poor of user engagement and con�dence, and • Business process re-engineering ICT infrastructure and (iii) prolonged data production timelines. conducted for 5 product lines data management, Targets: (i) National accounts move from (2010) and inef�cient 1968 System of National Accounts (SNA) • Methodology reviews conducted for business processes to 1993 SNA; decreased discrepancies 5 product lines (2010) between statistics from different sources; • Data warehouse prototype (ii) increased level of user satisfaction and designed and developed (2011) con�dence, and (iii) reduced time lags • Corporate Training Strategy between collection and data dissemination. developed and implemented for Data sources: Dialogue with BPS; reports; new information management staff workshops, user surveys. systems (2011) • Quality assurance mechanisms established and implemented (2011) Indonesia’s Longer- Intermediate Indicative WBG Modes of Issues and Obstacles Development Outcomes End-FY12 term Objectives Development Milestones Engagement CROSS-CUTTING ENGAGEMENT AREA 2: SUB-NATIONAL GOVERNMENT INSTITUTIONS AND SYSTEMS Strengthen Weak capacity of local Improved LG systems and processes for • Ongoing work with Ongoing Financing: decentralized governments (LG) to manage planning, budgeting and delivering services and national government and SPADA; ILGRP; local governments assets and improve service investments. various select rural and USDRP; DSF and institutions to delivery Baseline: Most LGs have poor investment urban LGs on creating a – MDTF; ILGRP – increase the impact planning, budget management, and weak framework for improving MDTF; DSF of public spending implementation capacities. Very few LGs conduct their planning and adequate investment and expenditure planning. resource management Planned Financing: Target: (i) LGs following Bank-supported programs (continuous) DPLs; LG DAU/ prepare detailed medium-term investment • Improving asset and DAK Support; plans (RPJM); (ii) LGs following Bank-supported �nancial resource PNPMs programs execute annual investments as identi�ed management within select in their medium-term plans; and (iii) LGs following LGs (continuous) AAA/Others: Bank-supported programs conduct detailed • Engagement through Strengthening expenditure reviews and prepare capacity NLTA with large inter-governmental enhancement programs. urban municipalities framework; IEC/ Data sources: Medium-term investment plans (continuous) DSF II; Papua PER; submitted to the MoF by LGs. Expenditure • Series of regional-based PEACH management assessments. knowledge-sharing events and policy dialogues to increase awareness and share lessons learnt in areas with limited information access, i.e., eastern Indonesia (continuous) CORE ENGAGEMENT AREA 1: PRIVATE SECTOR DEVELOPMENT Enhance the Financial intermediation is low; 1. Strengthened private and �nancial sector • Banking lending Ongoing Financing: environment for non bank �nancial institutions through: better regulatory frameworks; improved consistently increases IFC investments 43 private sector and capital markets are small; investment climate; stronger bank and non-bank higher than annual in priority sectors; development to type and access to �nance �nancial institutions. inflation rate and LDR IFC Advisory COUNTY PARTNERSHIP STRATEGY foster accelerated limited; limited long-term Baseline: Key �nancial ratios of banks are sound; reaches 70% (2008) and Services Initiative; growth and domestic �nancial resources LDR 60%; 35% of households have access increases 5% annually Investment Climate poverty reduction and lack of local infrastructure to bank accounts; saving, investment and risk thereafter TF (Netherlands) and strengthen �nancing expertise management products relevant to poor and • Steady increase of mutual competitiveness vulnerable population are limited. fund assets and amount Planned Financing: and inclusiveness Targets: Key �nancial ratios of banks remain sound of capital raised through IFC investments and LDR reaches minimum 80%; NBFI assets as equity and bonds market in priority proportion of loans to SME doubled; minimum IPO (continuous) sectors; Private of 45% of households have a bank account; • Mainstreaming the Infrastructure infrastructure �nance institution established and results of national access Finance; bilateral well functioning. to �nance survey in TFs to IFC Advisory Data sources: Bank Indonesia; Bapepam & LK; government policy (2009) Services; trade and access to �nance surveys; BPS. • Higher penetration of investment climate pension and insurance MDTF (continuous) Sub-national government 2. Improved capacity of sub-national governments • Improved monitoring and AAA/Others: processes are slow, to support business operations through evaluation capacity of Investment climate, cumbersome and lacking in introduction of less cumbersome procedures for effectiveness of licensing trade facilitation, transparency business start-ups and licensing. of�ces by districts or �nancial sector; Baseline: Sub-national Doing Business (DB) study provincial government studies on of 15 cities and other baseline studies. (continuous) insurance and Targets: Reduction in time and cost of start-ups • Passage of national laws NBFI; surveys of and licensing of 50% in client cities. that affect and improve access to �nance; Data sources: Internal M&E reviews; WBG Doing national and sub-national policy dialogue Business report. governments’ business on banking licensing processing sector; capacity (continuous) building, and IFC engagement with Policy decisions are taken 3. Improved regulatory environment and • Regular monitoring and micro�nance; IFC without suf�cient analysis of interagency coordination in the development of public announcement Advisory Services alternatives and of their costs investment policies. of company start-up Initiatives on and bene�ts; lack of specialists Baseline: 109 days to start a company; 4 months time (Ministry of Justice); regulatory reform to provide information at to receive VAT refund; 7 days average container VAT refund time (DG and investment the level required; weak dwell time; uncoordinated investment policy. Tax); and container promotion; coordination between research Targets: 50 days to start a company; 2 months to dwell time (Pelindo/JICT) capacity-building units and policy units; complex receive VAT refund; 5 days average container dwell (continuous) initiatives to MoT, regulatory environment time; coordinated investment policy through PEPI; • Progress towards a fully PEPI and other GoI inhibits private sector improved DB rankings. staffed and functional institutions investment; time consuming Data sources: Of�cial data from Ministry of Justice, professional secretariat and costly procedures to Tax Department and Port Authority/Pelindo/ JICT; for PEPI (continuous) establish companies, pay PEPI progress reports; and DB report. taxes and clear imports; weak coordination among government institutions for investment policy Indonesia’s Longer- Intermediate Indicative WBG Modes of Issues and Obstacles Development Outcomes End-FY12 term Objectives Development Milestones Engagement CORE ENGAGEMENT AREA 1: PRIVATE SECTOR DEVELOPMENT (continued) Enhance the Policy decisions are taken 4. Strengthened institutional structure • At least 3 specialist Ongoing Financing: IFC environment for without suf�cient analysis of and capacity of the Ministry of Trade to teams are set up and investments in priority private sector alternatives and of their costs enable it to develop and implement more fully staffed by Ministry of sectors; IFC Advisory development to and bene�ts; lack of specialists effective trade policies. Baseline: Absence Trade staff and advisors Services Initiative; foster accelerated to provide information at of specialist teams that can provide (2010) Investment Climate TF growth and the level required; weak the required level of analysis for policy • Specialist teams (Netherlands) poverty reduction coordination between research decisions. Target: At least 4 specialized are involved in the and strengthen units and policy units; complex teams embedded in their respective DGs development of analysis Planned Financing: competitiveness regulatory environment in the Ministry of Trade providing analytical for policy decisions IFC investments in and inclusiveness inhibits private sector support for the development of domestic (2011) priority sectors; Private investment; time consuming and international trade strategies and for • Sectoral policy/regulatory Infrastructure Finance; and costly procedures to rapid policy response; the teams engage impediments in selected bilateral TFs to IFC Advisory establish companies, pay effectively with their policy counterparts agrifood value chains Services; trade and taxes and clear imports; in the Ministry. Data source: Policies presented to Ministry of investment climate MDTF weak coordination among developed by the Ministry of Trade and Trade (2010). government institutions for progress reports of specialist teams. AAA/Others: Investment investment policy climate, trade facilitation, Transparent and ef�cient 5. Improved access to markets for • Steady increase in �nancial sector; studies linkages among smallholders, Indonesian businesses in select investment in direct on insurance and NBFI; SMEs and rural businesses commodity or industry-based sectors. sourcing by lead �rms surveys of access to and commercial markets are Baseline: SMEs/entrepreneurs/farmers (continuous) �nance; policy dialogue weak have little direct access to large markets. • Business linkages on banking sector; Target: New investment/�nancing for or forums created to capacity building, and SMEs in supply chain; increased SME facilitate lead �rm/SME IFC engagement with contracts with large �rms; increased sales linkages (continuous). micro�nance; IFC Advisory and incomes for impacted �rms; price • Improvement in price Services Initiatives on transparency increases. Data source: discovery mechanisms of regulatory reform and Internal M&E project review. agricultural commodities investment promotion; 44 via warehouse receipts capacity-building initiatives system (continuous) to MoT, PEPI and other GoI institutions for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons • Improving SME competency to comply with market standards (continuous) CORE ENGAGEMENT AREA 2: INFRASTRUCTURE Increase the level Lack of investment in 1. Increased quantity and ef�ciency of • Increase in sub-national Ongoing Financing: and ef�ciency of infrastructure, which has not national and sub-national government budget (APBD) capital Strategic Roads public and private kept pace with economic spending on infrastructure through expenditures by 20% Infrastructure; Domestic investments in growth; investment in improvements in subsidy policy, incentives over 2005 level (2010) Gas Market Development; infrastructure infrastructure fell from about 6% framework, expenditure planning and • 35% of urban population Eastern Indonesia to meet needs of GDP in 1997 to 2% in 2000, budgeting. Baseline: Actual spending with access to piped Transport; WSSLIC III; and strengthen and was only 3.2% in 2005 on national infrastructure was Rp 18.9 water compared with Urban TF (PHRD); Water & competitiveness trillion in 2006. Target: Actual spending on 31% in 2006 (2010) Sanitation TF (AusAid) national infrastructure increased by 25% • 60% of population with over 2006 level by 2010. Data source: access to electricity Planned Financing: MoF. compared with 55% in IDPLs; National Roads 2003 (2010) Maintenance and • 84% of national roads Improvement; Pump remain in good/fair Storage/ Hydropower; condition compared with Dam Operations; Jakarta 81% in 2006 (2010) Flood Control; Private Indonesia’s infrastructure 2. Increased private investment in • PPP transactions Infrastructure Finance; delivery requirements are infrastructure through the establishment of tendered in compliance speci�c investment loans in massive, and beyond what can a �scally sound, credible and transparent with Perpres 67/2005 water, transport, and energy be supported through public PPP framework. Baseline: Private • Private sector �nancial sectors; IIF loans and IFC investment sector �nancial commitments to private commitments to private Investments; IFC PLN infrastructure projects were 0.5% of GDP infrastructure projects Central Java Coal-Fired IPP; in 2005. Target: Private sector �nancial increase to 0.75% of infrastructure TF (AusAID) commitments to private infrastructure GDP compared to 0.5% projects increase to 0.75% of GDP by in 2005 (2010) AAA/Other: Infrastructure 2010. Data source: MoF. sector notes; infrastructure development strategy; IFC Advisory Services Indonesia’s Longer- Intermediate Indicative WBG Modes of Issues and Obstacles Development Outcomes End-FY12 term Objectives Development Milestones Engagement CORE ENGAGEMENT AREA 3: COMMUNITY DEVELOPMENT AND SOCIAL PROTECTION Reduce poverty Around 110 million 1. Improved socio-economic and local level • Improved household expenditure Ongoing Financing: levels and improve people still live under (kelurahan) governance conditions of the urban rates or improved access to KDP; UPP; equity by improving US$2 a day; large poor through wider implementation of poverty economic and social services SPADA; PNPM livelihoods and number of urban and reduction and community empowerment in 7,800 kelurahan (wards) (end TFs (Netherlands, service delivery, rural poor due to lack of programs for income generation or grants for 2009) Australia, DFID); and decrease income and inadequate tertiary level infrastructure. Baseline data and• Infrastructure built is 20% less SPADA TFs (DFID) remaining pockets productive employment targets will be developed as part of Bank- expensive than that built by non- of vulnerabilities opportunities; lack of supported projects and AAA. community based approaches Planned Financing: to strengthen quality service delivery in 80% of participating kelurahan PNPM-Rural; PNPM- inclusiveness to poor people; wide 2. Improved socio-economic and local-level • EIRRs >30% for major rural Urban; PNPMs regional disparities (kelurahan) governance in rural areas through infrastructure types in PNPM Combined; Youth (particularly, eastern wider implementation of poverty reduction kecamatan Employment; PNPM provinces); poor are and community empowerment programs • 80% satisfaction level of TFs vulnerable to shocks and the provision of investment resources to bene�ciaries regarding improved such as food price support productive proposals developed by services and local level AAA/Other: Poverty increases, natural communities, using a participatory planning governance assessment; pro-poor disasters process. Baseline: Poverty rate of 16.7% in • Improved HH expenditure jobs strategy; impact 2007. Target: Poverty level decreased to 12% by rates and improved access to evaluations and 2012. Data source: BPS. economic and social services in studies of PNPM; a minimum of 2,500 poor sub- impact evaluation 3. Public expenditures made more pro-poor districts (2008) of CCT; technical by reducing fuel subsidies and reallocating • Improved HH expenditure support to PNPM; the savings to strategic targeted interventions rates and improved access to guidance to BPS on for the poor and successful implementation economic and social services poverty targeting and of CCT. Baseline: 3.8% of GDP at US$83/ in a minimum of 4,000 sub- strengthening systems bbl. Target: Fuel subsidies decreased by 50% districts (2009). Improved health and resources re-allocated towards pro-poor and education indicators in programs, amongst others. Data source: MoF. 130 kecamatan in 5 provinces through the PNPM Generasi 45 CCT pilot • Performance-based DAK COUNTY PARTNERSHIP STRATEGY introduced • MIS established for checking conditionalities ful�llment of CCT program • Expansion of CCT coverage areas (continuous) CORE ENGAGEMENT AREA 4: EDUCATION SECTOR Improve basic Lack of affordable ECED 1. Improved development of poor children • Increased community-based Ongoing Financing: education to services, particularly for between the ages 0 to 6 in selected provinces: ECED services in selected BERMUTU; Higher achieve MDGs the poor Percentage of malnourished children aged provinces. By 2010, 6000 Education; ECED; on primary 0-6 decreases. Baseline: 27% of children villages have adopted a Basic Education enrollment rates underweight (Susenas 2001). Target: 20%. Data community based approach to Capacity MDTF; and literacy targets source: Susenas, IFLS. delivering ECED services BERMUTU and ECED and improve the Low quality of basic 2. Increased number of basic education • Establishment and utilization of TFs (Netherlands) quality of education education teachers meets academic quali�cation standards for early childhood to enhance mandated by the Teacher Law. Baseline: 30% development services. By 2011, Planned Financing: competitiveness of teachers in primary and junior secondary • ECED standards are issued and BOSs; SISWA 1 & 2; and inclusiveness schools hold S1 degree or more. Target: 70% of used in more than 10 provinces Education TFs teachers hold S1 degree or more. Data Source: • Reduction in absenteeism of Teacher census; Ministry of National Education teachers: Target: to reduce AAA/Other: (MoNE) data. absenteeism to 10 percent from Education sector 19 percent (2002 survey) review and Inef�ciency of spending 3. Improved ef�ciency and equity in the use • Perverse incentives for districts assessment; support resulting from weak of resources to increase access to basic on teacher hiring abolished to RENSTRA; PERs; management of education; inef�ciencies resulting from excess ESW on ECED; higher education at the supply and unequal distribution of teachers education (IMHERE); district and school are reduced: oversupply of teachers as GDLN; BERKERJA; level under incomplete measured by student-teacher ratio (STR) in decentralization basic education is reduced. Baseline: Primary framework STR=20 and junior secondary STR=14. Target: Primary STR=26 and junior secondary STR=22. Data source: Teacher census of MoNE. Indonesia’s Longer- Issues and Intermediate Indicative Development Outcomes End-FY12 WBG Modes of Engagement term Objectives Obstacles Development Milestones CORE ENGAGEMENT AREA 4: EDUCATION SECTOR (continued) Improve basic Lack of affordable 1. Improved development of poor children • Increased community-based Ongoing Financing: education to ECED services, between the ages 0 to 6 in selected provinces: ECED services in selected BERMUTU; Higher achieve MDGs particularly for the Percentage of malnourished children aged provinces. By 2010, 6000 Education; ECED; Basic on primary poor 0-6 decreases. Baseline: 27% of children villages have adopted a Education Capacity MDTF; enrollment rates underweight (Susenas 2001). Target: 20%. Data community based approach to BERMUTU and ECED TFs and literacy targets source: Susenas, IFLS. delivering ECED services (Netherlands) and improve the Low quality of 2. Increased number of basic education • Establishment and utilization of quality of education basic education teachers meets academic quali�cation mandated standards for early childhood Planned Financing: BOSs; to enhance by the Teacher Law. Baseline: 30% of teachers development services. By 2011, SISWA 1 & 2; Education TFs competitiveness in primary and junior secondary schools hold S1 • ECED standards are issued and and inclusiveness degree or more. Target: 70% of teachers hold S1 used in more than 10 provinces AAA/Other: Education degree or more. Data Source: Teacher census; • Reduction in absenteeism of sector review and Ministry of National Education (MoNE) data. teachers: Target: to reduce assessment; support to absenteeism to 10 percent from RENSTRA; PERs; ESW on 19 percent (2002 survey) ECED; higher education • Perverse incentives for districts (IMHERE); GDLN; on teacher hiring abolished BERKERJA; Inef�ciency 3. Improved ef�ciency and equity in the use of spending of resources to increase access to basic resulting education; inef�ciencies resulting from excess from weak supply and unequal distribution of teachers are management reduced: oversupply of teachers as measured of education at by student-teacher ratio (STR) in basic education the district and is reduced Baseline: Primary STR=20 and junior school level secondary STR=14. Target: Primary STR=26 under incomplete and junior secondary STR=22. Data source: decentralization Teacher census of MoNE. framework 46 High parental 4. Greater share of public education resources Increased size and improved cost at all levels of channeled to end-users making basic education management of BOS for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons education. affordable for poor students and increasing secondary education enrolment. 4a. Average annual cost per student in primary and junior secondary for children in poorest quintile decreases. Baseline: Rp 310,296 for primary and Rp 492,586 for secondary per student per year at 2006 prices (Susenas, 2006). Target: Through co-�nancing of the BOS program, Rp 150,000 for primary and Rp 250,000 for secondary per student per year at 2006 prices. Data source: Susenas. 4b. Net enrolment in secondary education (junior and senior combined) increases. Baseline: 57% (2007). Target: Through co-�nancing of the BOS program, increase to 70% (2012). Data source: Susenas. Indonesia’s Longer- Intermediate Indicative WBG Modes of Issues and Obstacles Development Outcomes End-FY12 term Objectives Development Milestones Engagement CORE ENGAGEMENT AREA 4: EDUCATION SECTOR (continued) Improve basic Lack of competitiveness of 5. Improved training programs and higher Improved curriculum in education to graduates of the education education system: higher education institutions achieve MDGs system. and private sector training on primary 5a. Institutional accreditation awarded to higher providers supported by enrollment rates education institutions and private sector training the Department of Higher and literacy targets providers supported by the Department of Education and Non-formal and improve the Higher Education and Non-formal Education in Education in MoNE. quality of education the MoNE. Baseline: 215 private sector training to enhance institutions accredited, and no higher education competitiveness institutions accredited. Target: 430 private and inclusiveness sector training institutions accredited and 5% of higher education institutions accredited. Data source: MoNE data. 5b. Department of Higher Education and Non-formal Education in the MoNE conducts regular tracer studies of university graduates and graduates from job training programs to establish their subsequent position in the labor market. Baseline: Tracer studies not yet in place. Target: Tracer studies in place. Data source: MoNE data. Lack of information, and weak 6. Improved information and better CIMU operating in selected monitoring and evaluation of implementation, monitoring and evaluation regions and on selected education funding. of education funding through the BOS-KITA programs. program. Baseline: No systematic, regular independent monitoring of education funding. Target: A Central Independent Monitoring Unit (CIMU) established and in operation on 47 a sector-wide basis. Data source: MoNE and COUNTY PARTNERSHIP STRATEGY CIMU data. CORE ENGAGEMENT AREA 5: ENVIRONMENTAL SUSTAINABILITY AND DISASTER MITIGATION Strengthen the Competition among national 1. Decrease in the growth of greenhouse • Climate change Ongoing Financing: capacity of the counterparts to lead climate gas (GHG) emissions in the energy sector. coordination mechanism Coral Reef country to adapt change program: unclear Baseline: Continue downward trend in growth established (2008) Rehabilitation to climate change mandates and partners; of GHG emissions intensity for energy sector • Regulations on geothermal (GEF); Ozone and address entrenched fuel and electricity emissions: 1995-99: 4% average annual business issued (2009) Depletion (OTF); environmental subsidies reduce incentives growth; 2000-04: 1.7% average annual • National energy plan Water Resources TF challenges to for energy ef�ciency and growth. Target: Additional 10% decrease in issued (2009) (Netherlands) ensure sustainability renewables; continued growth of emissions intensity during 2005- • Energy law regulations governance problems that 10. Data source: Data from the Ministries of issued (2010) Planned Financing: contribute to deforestation; Environment, Forestry, and National Climate • Climate change actions DPL5; CC DPL; conflicting and decentralized Change Council. Indonesia and Climate incorporated in medium- Forest Carbon land use authority hampers Change: Current Status and Policies,� 2007, term development plan Partnership Facility; ability to manage forest and PEACE/DFID/World Bank. (2010) Forest Investment peatlands • Actions budgeted and Fund; Climate Change under implementation TFs; IFC investments (continuous) • Central Kalimantan AAA/Others: Low peatland master plan carbon growth being implemented strategy; REDD (2009-12) study; DRR for Aceh; • Peatland inventory, Aceh Government baseline and risk analysis Transformation completed (2010) Program (AGTP) Indonesia’s Longer- Intermediate Indicative WBG Modes of Issues and Obstacles Development Outcomes End-FY12 term Objectives Development Milestones Engagement CORE ENGAGEMENT AREA 5: ENVIRONMENTAL SUSTAINABILITY AND DISASTER MITIGATION (continued) Strengthen the Competition among national 2. Policies and pilots to reduce emissions • Ministerial decree and Ongoing Financing: capacity of the counterparts to lead climate from deforestation and degradation being guidelines for REDD Coral Reef country to adapt change program: unclear implemented effectively. program (2008) Rehabilitation to climate change mandates and partners; Baseline: Land-based carbon emissions of • REDD “readiness� (GEF); Ozone and address entrenched fuel and electricity 2,563 million tons CO2 equivalent (2005). achieved (2009) Depletion (OTF); environmental subsidies reduce incentives Target: 2,307 million tons CO2 equivalent. Water Resources TF challenges to for energy ef�ciency and Data source: Data from the Ministries of (Netherlands) ensure sustainability renewables; continued Environment, Forestry, and National Climate governance problems that Change Council Planned Financing: contribute to deforestation; DPL5; CC DPL; conflicting and decentralized Forest Carbon land use authority hampers Partnership Facility; ability to manage forest and Forest Investment peatlands Fund; Climate Change Enhance Possible duplication of 3. Strengthened disaster risk reduction (DRR) • National Action Plan for TFs; IFC investments capabilities to efforts due to the plethora in development planning and administration. Disaster Risk Reduction improve disaster of development partners in Baseline: Existing level of funding for DRR. issued by Bappenas AAA/Others: Low risk preparedness, Disaster Risk Reduction (DRR); Target: 20% increase by 2010. (2010) carbon growth mitigation new Disaster Management Data source: National budget. • Disaster Management strategy; REDD measures, and Agency structure may not have Agency operational (2009) study; DRR for Aceh; post-disaster the capacity to mainstream • Local disaster Aceh Government recovery and DRR management plans Transformation reconstruction prepared (2011) Program (AGTP) responsiveness • Emergency operations to strengthen centers designed and sustainability functional (continuous) 4. Strengthen the institutional arrangement Disaster risk reduction 48 and enabling environment to facilitate policies, legislation and participatory implementation of disaster risk regulations prepared and reduction. Baseline: Current situation is weak implemented in selected for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons and fragmented DRR capacity and policies/ provinces (2011) regulations. Target: Improve capacity and operating framework for DRR in target districts/ provinces by 2012.Data source: Provincial governments. 5. Public awareness program implemented to • Five-year strategic promote a culture of safety. Baseline: Currently development plans no systematic quality public awareness are developed and program. Target: Increased public awareness implemented by provincial by 2012. Data source: Provincial governments. government (2011). • Public awareness programs developed and implemented (2011) Appendix 3. Indonesia: Progress Toward the MDGs Performance with regard to the MDGs has been mixed. facilities has increased dramatically, although it still Of the eight Millennium Development Goals (MDGs) tends to be low for the poor. Other indicators are less listed in the table below, the majority are on track. positive, however. Reductions in malnutrition have In 2006, the percentage of people living on less than stagnated since 2002, undermining the progress made US$1 a day was substantially below the MDG target of in the other indicator in the poverty alleviation goal, and 10.3 percent. There have been notable improvements maternal mortality fell by only 20 percent between 1993 in educational attainment at the primary school level. and 2005, probably insuf�cient to meet the MDG target Also, net primary enrollment remains high, including by 2015. Finally, despite recent progress, access to when assessing the gender balance. Under-�ve child improved sanitation also remains signi�cantly short of mortality is falling steadily. Access to improved water the MDG target for the environment goal. Indonesia’s progress towards achieving its MDGs Goal Targets 2015 Target Value As of On track 49 1. Eradicate extreme Halve the proportion of people living under US$1 per day (indica- 10.3 8.5 2006 Yes COUNTY PARTNERSHIP STRATEGY poverty and hunger tor: proportion of people living under US$1 a day) Halve the proportion of people suffering from hunger (indicator: 19 25.8 2005 No prevalence of malnutrition) 2. Achieve universal Ensure that all children can complete a full course of primary edu- 100 93.2 2005 Yes primary education cation (indicator: net enrollment in primary school) 3. Promote gender Eliminate gender disparities in primary and secondary education, equality and empower preferably by 2005, and in all levels of education no later than 100 99.7 2005 Yes women 2015 (indicator: net enrollment girls in primary school) 4. Reduce child mortality Reduce by 2/3 the under-5 child mortality rate (indicator: no of 33 46.0 2005 Yes U5M per 1,000 live births) 5. Improve maternal Reduce by 3/4 the maternal mortality ratio (indicator: MMR per 105 307 2005 No health 100,000 live births) 6. Combat HIV, malaria Have halted, by 2015, and begun to reverse the spread of HIV/ Insuf�cient information and other diseases AIDS and other major diseases (indicator: HIV/AIDS prevalence) Have halted, by 2015, and begun to reverse the incidence of TB Not available 262 2005 Yes (indicator: TB prevalence per 100,000) 7. Ensure environmental Halve, by 2015, the proportion of people without sustainable sustainability access to safe drinking water (indicator: proportion of people with 86 77 2004 Yes access to safe water) Halve, by 2015, the proportion of people without sustainable access to basic sanitation (indicator: proportion of people with ac- 73 55 2004 No cess to basic sanitation) By 2020, to have achieved a signi�cant improvement in the lives of Insuf�cient information at least 100 million slum dwellers Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental Insuf�cient information resources 8. Develop a global part- In cooperation with developing countries, develop and implement nership for development strategies for decent and productive work for youth. (indicator: Not available 30.6 2005 No youth unemployment rate) Appendix 4. Indonesia: Poverty and Inequality in Indonesia: Summary of Recent Poverty Assessments Indonesia stands at the threshold of a new era. After growth, social services, and public expenditures. the historic economic, political, and social upheavals Each of these prongs addresses one or more of the at the end of the 1990s, Indonesia has started to regain de�ning features of poverty in Indonesia: vulnerability, its footing, becoming one of the world’s emergent multidimensionality, and regional disparities. In other economically viable countries. Poverty levels that had words, an effective poverty strategy for Indonesia has increased by over one-third during the crisis are now three components: at pre-crisis levels. • Making Economic Growth Work for the Poor. Nevertheless, the challenge of reducing poverty in Economic growth has and will continue to be, Indonesia remains one of the country’s most pressing fundamental to reducing poverty. Making growth issues. The number of people living below US$2/ work for the poor is simultaneously key to linking day comes close to equaling all those living on or the poor throughout various parts of the Indonesian below US$2/day in all of the rest of East Asia besides archipelago to the growth process whether it is China. Recently, there was an unforeseen upturn in across the rural-urban space or across the various the poverty rate. This reversal appears to have been regional and island groupings. So it is fundamental caused primarily by a sharp increase in the price of rice to addressing the issue of regional disparities. To 50 between February 2005 and March 2006 which largely address the vulnerability characteristic of poverty accounted for the increase in the poverty headcount associated with the dense concentration of income for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons rate to 17.75 percent. One positive recent development, distribution in Indonesia, anything that can shift however, is that poverty fell to pre-tsunami levels in this distribution to the right will rapidly reduce the Aceh (see Box 1). incidence of and vulnerability to income poverty. • Making Social Services Work for the Poor. The Indonesia has a golden opportunity to reduce poverty delivery of social services to the poor, whether rapidly. First, given the nature of poverty in Indonesia, by the public or private sector, is essential to focusing attention on a few priority areas could deliver addressing poverty in Indonesia. First, this is key in some quick wins in the �ght against poverty and low addressing the non-income dimensions of poverty. human development outcomes. Second, as an oil and Lagging human development indicators, such as gas producing country, Indonesia stands to bene�t the high maternal mortality rate, must be tackled in the next few years from increased �scal resources by improving the quality of services that are made thanks to higher oil prices and reductions in fuel available to the poor. This goes beyond levels of subsidies. Third, Indonesia can harness still further public spending: it is about improving systems of bene�ts from its ongoing processes of democratization accountability, service delivery mechanisms, and and decentralization. even government processes. Second, the nature of regional disparities transcends income disparity Poverty in Indonesia has three salient features: (i) Many and is largely reflected in disparities in access to households are clustered around the national income services which, in turn, result in disparities in access poverty line of about PPP US$1.55-a-day, making even to services which, in turn, result in disparities in many of the non-poor vulnerable to poverty; (ii) The human development outcomes across regions. income poverty measure does not capture the true Thus, making services work for the poor is key to extent of poverty in Indonesia; many of those who may addressing the problem of regional disparities in not be income poor could be classi�ed as poor on poverty. the basis of their lack of access to basic services and • Making Public Expenditure Work for the Poor. poor human development outcomes; and (iii) Given the Besides economic growth and social services, the vast size of and varying conditions in the Indonesian Government, by targeting public spending to the archipelago, regional disparities are a fundamental poor, can assist them in countering income and non- feature of poverty in the country. income poverty. Public spending can be used for helping those who are vulnerable to income poverty An analysis of poverty, its determinants, and through a modern system of social protection that Indonesia’s history in reducing poverty points to three augments their own efforts to deal with economic ways to �ght poverty. The three means for helping uncertainty. Also, public spending can be used to people lift themselves out of poverty are economic improve human development outcomes- hence, tackling the non-income multidimensional aspects • As democracy takes hold, the Government is being of poverty. Making expenditures work for the poor transformed from one where social services were is particularly pertinent now given the increased delivered centrally to one that will rely more on local �scal space that exists in today’s Indonesia. governments. The priority for making services work for the poor is stronger capacity of local governments Three transformations are taking place in Indonesia, and better incentives for service providers. each of which can be more or less pro-poor. Policy • As Indonesia integrates internationally, its measures that can make these changes rapidly reduce systems of social protection is being modernized poverty include: so that Indonesia is both socially equitable and economically competitive. The priority for making • As it grows, Indonesia’s economy is being public expenditure work for the poor is to shift from transformed from one with agriculture as its intervening in markets for commodities that the poor mainstay to one that will rely more on services and consume (such as fuel and rice) to providing targeted industry. The priority for making this growth work income support to poor households, and using the for the poor is a friendlier rural investment climate, �scal space to improve critical services such as principally through better rural roads. education, health, safe water, and sanitation. Box. Poverty in Aceh Priorities for alleviating poverty in Aceh include: 51 • Longer-term development efforts should COUNTY PARTNERSHIP STRATEGY focus on the poorest areas of Aceh, in The 2004 Indian Ocean earthquake and tsunami particular those in the rural interior and more caused devastating damage and loss in Aceh, remote areas. both in economic and human terms. Poverty • Any poverty alleviation strategy should in Aceh increased slightly in the aftermath of focus on increasing the productivity of the the tsunami, from 28.4 percent in 2004 to 32.6 agricultural and �sheries sectors. percent in 2005. This occurred against falling • In order to avoid any renewal of the conflict, poverty levels in the rest of the country. In which has been closely linked to natural- 2006, poverty fell to 26.5 percent below the resource wealth, the Government of Aceh can: pre-tsunami levels suggesting that the rise (i) diversify the economy away from natural in tsunami-related poverty was short lived resources; (ii) increase the transparency of and reconstruction activities most probably the distribution and use of revenues; and, (iii) facilitated this decline. ensure the rule of law. • The Government of Aceh should invest in a Nevertheless, poverty remains signi�cantly strong civil service that ensures an ef�cient higher than the rest of Indonesia. Aceh has allocation of resources, as well as the experienced very low or negative growth provision of quality public services. for most of the past three decades, lagging • The Government of Aceh should scrutinize behind Indonesia and North Sumatra for most spending patterns, such as the increased years. Poverty in Aceh is predominantly a rural spending on government administration and phenomenon, with over 30 percent of rural the civil service wage bill. households living below the poverty line. There • The Government of Aceh should continue appear to be two overlapping but distinctly its high levels of investment in education, vulnerable groups: the structurally poor, i.e. increasing the ef�ciency of spending. those that were poor before the tsunami; and • Better planning is necessary to match the “shocked� who suffered loss of private identi�ed needs and allocation of resources goods and assets due to the tsunami. in key sectors. Appendix 5. Indonesia: Doing Business 2008 INDONESIA Ease of doing business (rank) 123 East Asia & Paci�c GNI per capita (US$) 1,420 Lower middle income Population (m) 223.0 Starting a business (rank) 168 Protecting investors (rank) 51 Procedures (number) 12 Extent of disclosure index (0–10) 9 Time (days) 105 Extent of director liability index (0–10) 5 Cost (% of income per capita) 80.0 Ease of shareholder suits index (0–10) 3 Minimum capital (% of income per capita) 38.4 Strength of investor protection index (0–10) 5.7 Dealing with licenses (rank) 99 Paying taxes (rank) 110 Procedures (number) 19 Payments (number per year) 51 Time (days) 196 Time (hours per year) 266 Cost (% of income per capita) 286.8 Total tax rate (% of pro�t) 37.3 Employing workers (rank) 153 Trading across borders (rank) 41 Dif�culty of hiring index (0–100) 72 Documents to export (number) 5 52 Rigidity of hours index (0–100) 0 Time to export (days) 21 for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Dif�culty of �ring index (0–100) 60 Cost to export (US$ per container) 667 Rigidity of employment index (0–100) 44 Documents to import (number) 6 Nonwage labor cost (% of salary) 10 Time to import (days) 27 Firing cost (weeks of salary) 108 Cost to import (US$ per container) 623 Registering property (rank) 121 Enforcing contracts (rank) 141 Procedures (number) 7 Procedures (number) 39 Time (days) 42 Time (days) 570 Cost (% of property value) 10.5 Cost (% of claim) 122.7 Getting credit (rank) 68 Closing a business (rank) 136 Strength of legal rights index (0–10) 5 Time (years) 5.5 Depth of credit information index (0–6) 3 Cost (% of estate) 18 Public registry coverage (% of adults) 20.5 Recovery rate (cents on the dollar) 12.6 Private bureau coverage (% of adults) 0.2 Appendix 6. Indonesia: Toward Enhanced Environmental Sustainability and Disaster Risk Management Environmental Sustainability and Disaster Management sources. Finally, there has been relatively little planning have been identi�ed as the two themes/areas that or investment in mitigation. would be key to strengthening GoI’s efforts towards sustainable development over the next years. To date Government strategy. Various government strategies are in Indonesia, the World Bank has only had a limited relevant to this theme including: (a) the National Action engagement with these two areas, particularly with Plan Addressing Climate Change that was launched respect to Climate Change, and plans to step up its by the Ministry of Environment at the Bali COP13 in presence over the next three years to respond to GoI’s December 2007; (b) an interministerial strategy to request for support, enhance the Government’s relevant reduce emissions from deforestation and degradation strategy and use EAP’s comparative advantages. that was also proposed at Bali; (c) the national energy strategy; and (d) the Ministry of Finance’s intention to develop a low carbon growth strategy. Environmental Sustainability Bank and other key donor assistance. The international Nature and extent. Climate change is receiving more community is seeking ways to respond to this growing attention in Indonesia now than ever before. Political commitment to address the causes and consequences 53 leaders are adjusting to the realization that the country of climate change. Financing for CDM projects is the world’s third largest emitter of greenhouse gases. has been actively promoted by Austria, Canada, COUNTY PARTNERSHIP STRATEGY Local and national stakeholders are energized by the Denmark, Japan, The Netherlands, and the World possibility of avoiding deforestation with support from Bank, since Indonesia rati�ed the Kyoto Protocol, but international payments. Society is contemplating the with limited results. More recently, the possibility of risks and options for how a vulnerable country can reducing greenhouse gas emissions through avoided adapt to the effects of climate change. And Indonesia deforestation has captured the imagination of the is increasingly in the international spotlight as host of Ministries of Environment and Forestry. In response, this year’s COP 13 (Bali, December 3-14, 2007). Australia has announced an A$200 million Global Initiative on Forests and Climate with a geographic Development impacts (health and livelihoods). While focus on Indonesia. The World Bank and donor Indonesia is likely to experience modest temperature partners are developing a Forest Carbon Partnership increases, climate change will result in more intense Facility that would have an initial capitalization of rainfall and sea-level rise. Potential development US$300 million dollars and likely include Indonesia as impacts include: (a) increased threats to food security; a pilot partner. (b) declining agricultural productivity; (c) inundation of productive coastal zones and communities; (d) loss of Strategic gaps in government strategy and/or donor farming and coastal livelihoods; (e) consequences for response. Until the second quarter of 2007, climate water storage (water reservoirs, electricity generation, change was primarily the responsibility of the Ministry drinking water supply); (f) intensi�cation of water- and of Environment and the main focus was on CDM vector-borne diseases; and (g) deterioration of coral projects. Since then, the issue has garnered the ecosystems. attention of the President and key ministries such as Economic Coordination, Finance, Forestry and Trade, Root causes. Indonesia’s high level of greenhouse and ensuing donor support. Perhaps the greatest gas emissions is being driven by deforestation, forest remaining gap is that government policy in the energy �res and degradation of land, especially peat swamps. sector has yet to incorporate or align itself with the Underlying these emissions are good forestry climate change agenda. policies and legislation, but weak implementation and enforcement. Also, initiatives such as expansion Proposed World Bank initiative(s) and rationale. The of biofuel production and revitalization of forest World Bank is one of several actors that have been industries may exacerbate emissions if they are not active in climate change issues over the past �ve years. carefully planned. Emissions from the energy sector This has included: (a) implementing activities with the are relatively small but rapidly growing also following GEF climate change mitigation program; (b) raising GOI’s pursuit of a coal-�red power expansion program awareness about CDM opportunities; and (c) actively and barriers to the development of renewable energy developing CDM projects for carbon �nancing. Given the context described above, there is now a unique through the Environment/NRM coordination group opportunity to increase the Bank’s engagement and in Jakarta, about the establishment of a multi- effectiveness in helping Indonesia to tackle climate donor initiative/fund on natural resources; growing change issues. Each of the following strategic pillars donor interest by Australia, Germany, the UK and builds on one of these comparative advantages others around climate change issues in Indonesia with the objective of supporting Indonesia’s ability provides an incredible opportunity to move this to understand and respond to the key challenges initiative forward. Once established, this Fund can presented by climate change. serve not only as a �nancing mechanism but also a forum for donor coordination as well as policy • Pillar 1: Setting the context of the debate. The Bank dialogue between the GoI and the international should use its convening and analytical powers community on issues of climate change and natural to help stakeholders in Indonesia understand resource management. the issues and options faced by the country in mitigating and adapting to global warming. The two Impact and monitorable indicators. Monitorable flagships for this pillar are (a) a recently-completed indicators would include: state-of-the-art synthesis of the most recent and reliable information on Indonesia and climate • Lower CO2 emissions per capita and per US$ of GDP change (emissions, impacts and policies), and (b) a • Reduction in annual rate of deforestation study of options for low-carbon growth that is being • Reduction in total ha/year destroyed by forest �res planned with the Ministry of Finance for 2008-09. In • Ha/year of restored or protected peatlands addition, the Bank will be assessing carbon, energy • Lower CO2 emissions per GWh of electricity produced and climate linkages as part of its work to prepare • Increase in percentage of energy supplied by the Country Environmental Analysis. renewable sources 54 • Pillar 2: Focusing on avoided deforestation and • Percentage of Bank projects that have incorporated degradation. As forest and peatland degradation adaptation measures are the overwhelming sources of Indonesia’s for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons greenhouse gas emissions, it is sensible to begin the approach in this area. The objective in this Disaster Management area should be to help Indonesia develop and implement its strategy for reducing emissions Nature and extent. Due to its geographic positioning, from deforestation and degradation, both through composition and demography, Indonesia and its technical assistance and �nancing of pilot projects. population are highly vulnerable to disasters. Between Beyond avoided deforestation, other aspects of 2003-2005 alone, the national disaster agency (Bakornas) climate change should be addressed through: counted 1,430 disasters, including flooding and (i) Continuing to increase the CDM portfolio for windstorms (accounting for 70 percent of all disasters), carbon �nancing; ii) Using the energy and transport landslides and geological disasters (earthquakes, programs to promote clean fuels and technologies; tsunamis and volcanic eruptions). In addition, the and (iii) Addressing longer-term issues of country is prone to drought, forest �res, epidemics and adaptation through the Bank’s infrastructure anthropogenic (technological) disasters. projects, development policy lending (including the possibility of a stand-alone climate change DPL in Development impacts (health and livelihoods). Major partnership with Japan and the ADB) and disaster events such as the 2004 Aceh tsunami and the 2006 management support. Yogyakarta earthquake result in the loss of thousands • Pillar 3: Mobilizing resources and support. As of lives and billions of dollars. Nearly 170,000 people a multilateral development bank, WBG has died in the tsunami with US$4.5 billion in damages and unparalleled access to human, �nancial and losses; over 5700 people perished in the earthquake technical resources, including international good and economic costs were estimated at US$3.1 billion. practice. The WBG should bring this comparative The local development impact of these extreme events advantage to help advance work on climate change is enormous, requiring major reconstruction of housing, in Indonesia, e.g., by “climate-proo�ng� the Bank’s infrastructure and the economy. Equally important but investment portfolio. The Bank has already mobilized less well-known are the dozens of smaller monthly nearly US$2 million in technical assistance for: (a) disasters that result in deaths, injuries and economic preparing the REDD methodology, strategies and hardship. pilot portfolios (with the Ministry of Forestry, DfID and Australia); (b) initiating the low carbon growth Root causes. Natural disasters are caused by largely strategy (with the Ministry of Finance); and (c) uncontrollable forces such as the movement of tectonic enhancing the national adaptation strategy (with plates or the eruption of magma through the earth’s KLH and UNDP). During 2007, the Bank has been crust. However, exposure and vulnerability to disaster in discussion with the international community, risk are more controllable. Exposure to risk is increased with poor spatial planning and natural resource Central Java earthquake, avian flu, Jakarta floods, management. Vulnerability to risk is greater when there etc.). The Bank needs to capitalize on the new is low public awareness, inadequate infrastructure, policy and existing resources to ensure that the poor enforcement of standards such as building codes, Bank can effectively respond to future disasters etc. Greater exposure and vulnerability to risk factors and integrate disaster risk reduction as part of the increases the loss of life and property from disasters. lending and grant portfolio (this could be done in tandem with the integration of adaptation to Government strategy. In 2006, Indonesia issued a climate change). Planned Key Outputs: a) creation national action plan for disaster risk reduction (DRR) of virtual disaster management team, drawing on that seeks to: (a) ensure that DRR is a national and local �eld and headquarters expertise, for knowledge priority; (b) identify, assess and monitor disaster risks and sharing, coordination and rapid response; b) enhance early warning; (c) use knowledge, innovation training and raising awareness about OP/BP and education to build a culture of safety and resilience; 8.00 and disaster risk reduction; c) facilitation of (d) reduce underlying risk factors, and (e) strengthen disaster risk reduction expertise and resources for disaster preparedness for effective response. In March task teams that are actively interested in including 2007, the national parliament approved the Disaster disaster preparedness and mitigation as part of Management Law that codi�es this plan, sets out their ongoing and planned operations; responsibilities for DRR as well as disaster response at • Supporting external partners to reduce and the local and national levels and modernizes institutional manage disasters. The OPCS paper, “Toward arrangements for disaster management. a New Framework for Rapid Bank Response to Crises and Emergencies,� calls on the Bank to Bank and other key donor assistance. Donor assistance promote a proactive approach to reducing disaster for disaster response in Indonesia has been signi�cant, risk in high-risk countries and to work with all especially for major events. Post-tsunami resources development partners to mainstream risk reduction. 55 from bi- and multilateral donors as well as international The Government of Indonesia has recently issued and local NGOs amounted to over US$5 billion. a National Action Plan for Disaster Reduction COUNTY PARTNERSHIP STRATEGY Support for DRR has been much less signi�cant, with (2006-2009) and the House of Representatives technical assistance and pilot initiatives being provided (DPR) is deliberating on a bill concerning disaster by UNDP, DfID, Germany, Japan, the U.S., Red Cross management. UNDP, with support from DfID, is agencies, and NGOs. developing a program on “Safer Communities through Disaster Risk Reduction in Development.� Strategic gaps in government strategy and/or donor Thus, there is a mandate and opportunities to response. The Indonesia Country Assistance Strategy support external partners in reducing and managing Progress Report (September 2006) identi�ed “Disaster disasters. Planned Key Outputs: (a) mobilization Risk Management� as a fourth pillar for the CAS of resources from the Global Fund for Disaster because: (a) Aceh and Nias will require ongoing heavy Reduction and Response (GFDRR); (b) speci�c engagement, especially in 2007-08; (b) lessons from support for preparation of the new National Action the post-tsunami reconstruction are being applied Plan 2010-2014 (Bappenas), capacity building for to recovery work in Yogyakarta and Central Java; (c) disaster management agencies and developing a Indonesia has become the epicenter for Avian and framework for catastrophic risk insurance (Ministry Human Influenza risks; and (d) these events, together of Finance); and (c) coordination with development with the country’s high level of hazard vulnerability partners, e.g., active participation in the UN Technical and growing importance of adaptation to climate Working Group on Disaster Risk Reduction. change, reinforce the pressing need for a disaster risk management framework. This will entail efforts Impact and monitorable indicators. Some critical to build internal capacity for disaster risk reduction indicators would include: and response as well as strategic support to external partners for reducing and managing disasters. • Responsiveness and operational utility of the virtual disaster management team Proposed EAP initiative(s) and rationale. The internal • Incorporation of DRR elements in 50 percent of new and external components would be: lending operations and retro�tting of measures in 25 percent of existing portfolio • Building internal capacity for disaster risk reduction • Mobilization of resources (US$1 million ++) of and response. The Bank has a new policy on Rapid GFDRR and other funds for internal and external Response to Crises and Emergencies (OP/BP 8.00, activities January 2007). The last two years have provided the • Completion of at least one external partnership World Bank in Indonesia with intensive experience on either disaster response or risk reduction (with in responding to a range of emergencies and crises Bappenas, disaster risk management agencies (Aceh and Nias tsunami & earthquake, Yogyakarta/ and/or Ministry of Finance) Appendix 7. Indonesia: Environmental Indicators Indonesia EAP LMC Population, total (millions) 220.6 1884.4 2256.8 Urban population (% of total) 48.1 41.5 46.5 GDP (current US$) (billions) 287 3056.6 4013.6 GNI per capita, Atlas method (current US$) 1260 1633 1789 Land area (sq. km) (thousands) 1812 15871 27977 Agricultural land (% of land area) 26.4 50.8 42.1 Irrigated land (% of cropland) 12.4 .. 26.3 Forest area (% of land area) 48.8 28.4 26.5 Annual deforestation (% of change) .. .. .. Nationally protected areas (% of total land area) 14.3 12.1 12.8 Mammal species, total known .. .. .. Mammal species, threatened .. .. .. Bird species, total known 1604 .. .. Bird species, threatened 121 .. .. GEF bene�ts index for biodiversity (0 = no biodiversity potential to 100 = maximum) 90 .. .. GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 3.9 3.3 3.6 Energy use (kg of oil equivalent per capita) 814 1182 1216 Combustible renewables and waste (% of total energy) 28.5 15.5 12.8 Energy imports, net (% of energy use) -46.7 0.1 -14 56 Electric power consumption (kWh per capita) 509 1492 1502 Electricity production from coal sources (% of total) 40.7 70.4 56.9 for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons CO2 emissions (kg per 2005 PPP $ of GDP) 0.6 0.9 0.8 CO2 emissions (metric tons per capita) 1.7 3.3 3.4 PM10, country level (micrograms per cubic meter) 96 73 69 Passenger cars (per 1,000 people) .. 14 21 Renewable internal freshwater resources per capita (cubic meters) 12867 5022 5769 Annual freshwater withdrawals, total (% of internal resources) 3 .. .. Annual freshwater withdrawals, agriculture (% of total freshwater withdrawal) 91 .. .. Improved water source (% of population with access) 77 79 81 Improved water source, rural (% of rural population with access) 69 70 71 Improved water source, urban (% of urban population with access) 87 92 93 Improved sanitation facilities (% of population with access) 55 51 55 Improved sanitation facilities, rural (% of rural population with access) 40 36 39 Improved sanitation facilities, urban (% of urban population with access) 73 72 76 Mortality rate, under-5 (per 1,000) 36 31 37 Adjusted savings: gross savings (% of GNI) 27 44.5 39.4 Adjusted savings: consumption of �xed capital (% of GNI) 10.1 10.1 10.2 Adjusted savings: net national savings (% of GNI) 16.9 34.5 29.2 Adjusted savings: education expenditure (% of GNI) 0.9 2.1 2.5 Adjusted savings: energy depletion (% of GNI) 11.5 6.7 10.4 Adjusted savings: mineral depletion (% of GNI) 2.6 0.6 0.6 Adjusted savings: net forest depletion (% of GNI) .. 0 0 Adjusted savings: carbon dioxide damage (% of GNI) 0.9 1.2 1.2 Adjusted savings: particulate emission damage (% of GNI) 1.2 1.3 1.1 Adjusted net savings, including particulate emission damage (% of GNI) 1.6 26.8 18.4 Legend: LMC (lower middle income), EAP (East Asia and the Paci�c) Source: World Bank, Little Green Data Book (2008) Appendix 8. Indonesia: CAS Completion Report Date of CAS: October 29, 2003 Report No. 27108-IND Date of CAS Progress Report: September 5, 2006 Report No. 36856-IND Period covered by the CAS Completion report: FY0 This CAS Completion Report reviews the The Government’s medium term framework for poverty implementation and effectiveness of the World Bank reduction was laid out in the RPJM (medium term plan), Group’s (WBG) Country Assistance Strategy (CAS) representing the country’s development vision for for Indonesia for FY04-08 (Report No. 27108-IND) 2004-09 and in the Interim Poverty Reduction Strategy approved on October 29, 2003. A CAS Progress Paper (I-PRSP). The three national development goals Report (CASPR) was completed in September 2006 for 2004–2009 were outlined in the RPJM as realizing (Report No. 36856-IND). The CASPR made some a safe and peaceful Indonesia, a just and democratic adjustments to the original CAS with respect to the Indonesia, and a prosperous Indonesia. outcome indicators, extension of the CAS by one year to FY08 from the original completion date of FY07, and addition of a fourth focus area to respond to the CAS Objectives emerging needs of the Government. The CAS was designed to support the Government’s short-term and medium-term agendas. It identi�ed 57 Indonesia’s Longer-Term Strategic two primary constraints towards meeting these goals: COUNTY PARTNERSHIP STRATEGY Goals (i) a weak investment climate, and (ii) lack of quality service delivery to poor people. Progress in these At the time of CAS preparation, Indonesia was still areas was further hindered by the underlying problem in the process of transitioning from an autocratic, of weak governance. The Bank’s strategy was to centralized economy to a democratic, decentralized support Indonesia in its efforts to strengthen the one. The Government had been successful in restoring investment climate and improve basic service delivery macroeconomic stability and reducing poverty to the while addressing the core issue of governance. The pre-crisis levels. Despite this, the number of poor Bank faced additional challenges in responding to the in Indonesia was high and many others remained unprecedented series of natural disasters (the Aceh vulnerable to falling under the poverty line as a result earthquake and tsunami of December 2004, Nias of an adverse shock. Progress towards meeting earthquake of March 2005, Jogyakarta earthquake in the MDG outcomes was also slow. Delivering basic May 2006) and the increasing concern over the spread public services in a decentralized framework was an of Avian Human Influenza (AHI). Thus, a fourth focus opportunity, but also posed a challenge. Although area on enhanced disaster risk management was Indonesia had begun to address governance and included in the CASPR. These four became the main corruption issues, these reforms were marred with slow pillars of the CAS. implementation due to weak institutional capacity. Pillar 1: Addressing the Underlying Issue of The short term agenda of the Indonesian government Governance11: “KKN� (corruption, collusion and was framed by its decision not to renew the IMF program nepotism) was noted as the key constraining factor in after its completion in December 2003. Instead, it achieving the country’s development goals. As a result, prepared a comprehensive economic package of time- this ‘Governance CAS’ mainstreamed governance bound policy actions to be implemented in the short activities throughout the Indonesia program. term (18 months). The economic package - or the ‘white Addressing the core issue of governance was focused paper’ - covered the core areas of macroeconomic around making development planning more responsive management, �nancial sector reform, and policies to to constituents, establishment of a well-regulated and restore investment and growth. It was comprehensive, transparent system of public �nancial management but ambitious, especially to be implemented during an at all levels of government, effective implementation election year. of decentralization, and putting in place a credible and impartial justice sector, and focused attention to ________________________________________________ safeguarding Bank-supported activities and associated 11 In the original CAS, governance was included as a third pillar. resources. Given its overarching nature and cross-sectoral nature, it was re-formulated as the �rst pillar in the CASPR. The CAS Completion Matrix (Attachment A) however, retains it as the third pillar. Pillar 2: Improving the Climate for High Quality outcome is dif�cult because the WBG plays a small Investment: To improve the investment climate, the role in Indonesia’s development aid framework and World Bank Group’s (WBG) assistance was focused some country outcomes are slow to materialize. in �ve areas: maintaining macroeconomic stability, fostering a stronger and diversi�ed �nancial sector with more equitable access, supporting the environment for Pillar 1: Addressing the Underlying a competitive private sector, refurbishing infrastructure, Issue of Governance and creating sustainable income generating opportunities for poorer households. Country Progress Combating corruption is the top priority of the current Pillar 3: Making Service Delivery Responsive to the Poor: administration and credible efforts were made by the The Bank’s efforts were directed towards accelerating Government to deepen the institutional and regulatory the attainment of key MDGs in education and health and framework for addressing corruption issues including improving education and health outcomes for the poor. money laundering activities, freedom of information, and whistleblower protection. Several new independent Pillar 4: Disaster Risk Management: Rebuilding Aceh institutions have been created in the last several years and Nias, responding to the Jogyakarta and Central such as the Anti-Corruption Commission, Judicial Java earthquakes, and strengthening government Commission, Financial Crimes Task Force, Commercial effectiveness to curb the spread of AHI formed the key Court, Ombudsman, Election Commission, and the support areas of the disaster risk management pillar. Special Investigative Team for Corruption Crimes. These institutions are functioning, though with various degrees of effectiveness. Successful prosecutions CAS Outcomes have been made against former ministers, business 58 leaders, sitting governors, judges and legislators. Although the implementation of the CAS has largely Hundreds of corruption investigations into high level been on track, the effectiveness of delivered activities of�cials have been approved by the President. The for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons as measured by the outcome indicators has varied. special crimes case load of the Attorney General has The country performance and the results of the Bank’s increased by nearly six times in the past �ve years. program have been mixed with good progress and These are key outcomes related to Indonesia’s �ght strong Bank support for economic management, against corruption. The improvement in Indonesia’s education, community development and post-disaster governance indicators as reflected in ‘Governance reconstruction, and less effective results in the health Matters VI’ suggests that these processes are having and infrastructure (including water and sanitation) considerable impact13. Laws and regulations have sectors and at the local government level. been passed on asset declarations of state of�cials, anti-money laundering, criminalization of corruption The 2007 CAE recognized that the “Bank-supported offences, state �nances, treasury, procurement, state programs have made important contributions in audit, and accounting standards. More recently, supporting the restoration of macroeconomic stability, Indonesia has joined the World Bank and UNODC and in helping Indonesia to return to the pre-crisis (United Nations Of�ce of Drugs and Crime)-supported income levels and to reduce poverty after the sharp StAR (Stolen Asset Recovery) initiative. Though it increase experienced during the crisis�12. The review is too early to declare victory on the governance found that measured against the Bank’s objectives, the agenda, there are already clear indicators of progress. Government’s success in achieving macroeconomic However, progress in judicial and legal reforms has stability, the careful �scal management, and the been disappointing. progress made in the legislative and institutional frameworks in many areas all represented important Civil service reforms were also launched with a delay achievements. The report noted, however, that the starting with the full-scale reorganization at the Ministry transition has not yet put in place the fundamentals of Finance (MoF) to deal with budget formulation and required to move to the next level in terms of growth, execution, tax and customs regulations, etc., that are poverty reduction, and social progress. In particular, often the very foundation of opportunities to engage the report found that improvements are needed in the in corruption. In 2006, the Government continued its investment climate. program of extending modern tax of�ces with a major expansion to medium-sized tax of�ces and through the As always, measuring the direct link between the beginning of a reorganization of the central tax of�ce to Bank’s speci�c contributions and a speci�c country support the longer-term tax reform agenda. ________________________________________________ 12 Indonesia: Country Assistance Evaluation, IEG, June 2007, pp v. 13 Kaufmann D., A. Kraay, and M. Mastruzzi, 2007: Governance Matters VI: Governance Indicators for 1996-2006. The implementation of Indonesia’s ‘big-bang’ building capacity for improved local governance, decentralization of 2001, which has led to the creation accountability and transparency while maintaining of some 440 local governments, remains complex and the focus on poverty reduction programs at the continues to pose multiple challenges with effective decentralized level. As part of ILGRP preparation, local execution of the administrative and �scal responsibilities level poverty reduction strategies were formulated in now vested in these local authorities. On-granting and 15 kabupatens after public consultations. The Bank on-lending decrees that were approved in the early currently �elds the largest comprehensive biannual days were amended, but continued to pose constraints survey of public service delivery and corruption in for provision of sub-national resources by development Indonesia’s 440 districts, allowing it to track the impact partners, including the World Bank, during the CAS of decentralization on governance outcomes over time. period. The roles and responsibilities at each level of However, slower-than-expected implementation of the government are still not fully clari�ed, leading to slow �rst generation local government projects because implementation of programs and inef�cient service of issues related to on-lending and on-granting delivery at the local level. has delayed achievements of outcomes related to strengthening local governance. Bank Contribution Most importantly, over the CAS period, the WBG During the CAS period, the Bank had limited regained some of the credibility it had lost during the interventions in the justice sector. A noteworthy Soeharto years and was successful in reestablishing contribution has been at the community level through the and strengthening partnerships with several key Justice for the Poor (non-lending) program. Activities reform-minded stakeholders. It was envisaged during under this program have contributed to strengthening CAS preparation that the entire lending and non-lending access to judicial services at the local level, focusing program will be designed to strengthen accountability particularly on the poor and marginalized sections of and transparency through two approaches: (i) the society. The program also looked into different 59 greater public participation in policy making and conflict situations proposing different informal dispute policy monitoring processes across different levels resolution processes. At the national level, the Bank COUNTY PARTNERSHIP STRATEGY of government, and (ii) enhancing the capacity of has supported the Anti-Corruption Commission (KPK) institutions responsible for implementing governance in its initial dif�cult phase of existence and together reforms. The earlier CAS had built a good foundation with IMF, built the legal basis for the KPK, helped on which to expand the governance agenda (e.g., �eld- ensure due process in the selection of the members, based governance advisor, and the establishment of and supported the newly established commissions an in-house anti-corruption committee). In particular, in being operational. This led to an increase in the the Indonesia team greatly ramped up the focus on number of successful investigations and prosecutions safeguarding Bank supported activities against fraud including for some high pro�le cases. and corruption issues, inter alia by including mandatory Governance and Anticorruption Actions Plans (GAAPs) as part of the Project Appraisal Document for Pillar 2: Improving the Climate for High projects approved over the CAS period. However, the Quality Investment implementation experience and monitoring of GAAPs have been mixed across the portfolio. Country Progress Most of the time bound actions of the Economic Package Bank advice for transparent and accountable public were met on time enabling a smooth exit from the IMF �nancial management (PFM) led to new legislation program. Three policy packages were issued in 2006 and regulations on State Finances, State Treasury, on the investment climate, �nancial sector reform, and and State Audit. Through the Government Financial infrastructure. A comprehensive policy package was Management and Revenue Administration Project issued in 2007 outlining 168 speci�c reform measures (GFMRAP), this enabled the reorganization of the MoF, to be undertaken by December 2008. strengthening accountability, eliminating overlap and duplication of functions, and allowing the MoF to focus The 2006 CASPR reported that the fundamental more effectively on its core functions. weaknesses in the investment climate were being gradually addressed, leading to higher con�dence The Bank is playing a leading role in supporting and stronger sovereign credit ratings. In response to decentralization through the management and improved policies, growth was rising, albeit slowly, and administration of a multi-donor Decentralization poverty was falling. Although banking sector health Support Facility (DSF). IFC Advisory Services showed improvement, the CASPR pointed to a need improved the investment climate by working with for greater �nancial sector diversi�cation. district governments on licensing and other regulatory reforms. A �rst generation of local government projects Good macroeconomic and �scal management and under implementation (ILGRP, USDRP, SPADA) are a favorable external environment have strengthened Indonesia’s economic foundation. Gross Domestic established in MoF. Two infrastructure summits were Product (GDP) growth was 5.5 percent in 2006 and 6.3 organized by the Government and attracted good percent in 2007. Government debt fell from 80 percent participation from the private sector. However, lack of of GDP in 2000 to an estimated 35 percent of GDP by bankable projects has limited actual follow through via 2007, well below the 60 percent target speci�ed in the PPP tenders. Although there has been some private State Finance Law – a major achievement. A key driver sector participation in the power sector, annulment of of recent growth has been a recovery in investment the Electricity Law in 2002 posed a policy issue with with the investment to GDP ratio increasing from 22 considerable price distortions affecting the energy percent in 2004 to 25 percent in 2007. Inflation rates sector/energy utility’s ability to operate effectively. (up until the recent fuel and commodity price hikes) Institutional and regulatory improvements in the water had decelerated and the �nancial markets had become and sanitation sector have been the least successful; increasingly con�dent as reflected in the upgrading of the lack of progress within the Government on issues Moody’s and S&P bond ratings in 2006. As a result of around arrears of PDAMs (public water utilities) has the sharp reduction in fuel subsidies in 2005, as well impeded provision of lending support by the Bank and as declining debt service payments and increasing other development partners to these entities. revenues, Indonesia created additional “�scal space� of US$15 billion annually. Equivalent to around 4 percent Bank Contribution of GDP, this is the largest increase in additional �scal One year into CAS implementation, Indonesia was resources since the oil revenue windfall of the 1970s. successful in meeting the CAS high case triggers. As However, higher food prices are driving overall inflation a result, budget support through a series of DPLs was which is now 7.4 percent as food inflation is 10.4 percent resumed in 2004 and four DPLs have fully disbursed (February 2008, year-on-year). Higher oil prices create for US$1.9 billion. The Bank’s �rst DPL was linked to a �scal drain – fuel and electricity subsidies are likely the Government’s short-term agenda as outlined in 60 to be close to or above US$20 billion in 2008, higher the Economic Package and contributed to the smooth in nominal terms than the levels that led to the price exit from the IMF program, thus helping to boost adjustment in 2005. con�dence. Together, the DPLs have contributed for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons signi�cantly to the Government’s policy reforms in the At the height of the �nancial crisis, nearly 80 percent areas of macroeconomic stability, investment climate, of the banking system was effectively owned by the service delivery, public �nancial management, and Government. A major accomplishment during the post- anti-corruption. crisis period was the sale of all the formerly publicly owned banks to largely credible foreign investors. The IFC’s program of investment went through three distinct share of state-owned banks in the overall banking phases before, during and after the crisis and were system has gone down by 10 percent since 2003 and strongly impacted by the governance environment. now stands at 36 percent. Regulation and supervision IFC’s investment commitments averaged about of the banking system has improved dramatically. US$109 million per year before the crisis, focused Prudent lending to the private sector (learning from the mainly on manufacturing opportunities not linked to crisis) and rapidly growing Small and Medium Enterprise the Government. During the crisis years (FY98-00), (SME) and consumer lending are now the strengths of IFC focused on restructuring its problem investments the system. In the private sector, all major obstacles and/or protecting its investments from contentious faced by businesses have declined consistently since sponsors or other creditors who were not interested 2003, including the reduction in business start-up time in following the principle of fair burden sharing among from 168 days in 2003 to 105 days in 2007. Percentage �nanciers of companies in �nancial distress. It was a of businesses identifying tax administration as a challenge for investors, including IFC, to enforce legal moderate, severe and very severe problem decreased rights in the aftermath of the crisis due to the weak from 57 percent to 38 percent, while those identifying judicial system. IFC’s new investment operations during customs and trade regulations as a moderate, severe the crisis years were limited to supporting existing and very severe problem decreased from 51 percent to client companies with support to complete ongoing 32 percent during the same time. Indonesia has also projects whose original �nancing plan could not be improved its ranking in the Doing Business indicator, followed because the banking system had collapsed moving up from 135 out of 175 surveyed in 2007 to 123 during this period. During the crisis years, IFC’s out of 178 in 2008. However, rigid labor laws continue investment operations averaged only one project per to discourage new hirings in the formal sector. year with an average �nancing commitment of US$16.9 million. During the post-crisis years, IFC’s investment Improvements in the environment for infrastructure operations have recovered to pre-crisis levels, and investment have been mixed with low private sector have recently expanded in line with improvements in involvement. A national committee on Policy for the governance environment and investment climate Accelerating Infrastructure Provision (KKPPI) was reforms. IFC averaged four projects, with US$103.3 established in 2005 and a Risk Management Unit was million of commitments per year, which gradually increased through FY07 when IFC committed US$278 achieve breakthrough on the large un�nished agenda million in seven projects – two in agribusiness, three in relating to infrastructure and PPP policy reforms. A the �nancial sector, one in general manufacturing and set of roads, gas and energy, and irrigation projects services, and one in education. are being implemented, but implementation progress has been slow. Thus, while the WBG has become During the CAS period, the focus of Bank’s �nancial a strong partner with the Government with regards sector program became more selective with non- to infrastructure, and its expertise is being heavily bank issues moving to the center stage in an effort to relied upon, the pace of large-scale infrastructure improve the investment climate. The Bank’s support investment interventions needs to be accelerated. The related to pensions, debt markets, and capital market IFC Board approved a US$50 million loan to PGN (gas infrastructure has been instrumental in encouraging transmission, distribution and wholesaling). This was a Bank Indonesia to be serious about meeting �rst joint IFC-Bank team sub-national fund transaction international standards. IFC has also increased its in Indonesia, and the �rst globally with a utility company engagement in the �nancial sector. IFC approved three majority-owned by a national government. The long-term Indonesian Rupiah loans to commercial WBG also supported the two infrastructure summits banks in Indonesia totaling US$305 million. These organized in Jakarta in 2005 and 2006, but they failed loans were directed to SMEs in Indonesia. IFC is to attract a good number of PPP projects. also supporting the bank consolidation process. The number of commercial banks remains over 130, which The WBG’s support for increasing sustainable income the authorities hope to reduce to about 70 through creating opportunities for the poor was led by its raising capital requirements. IFC has engaged with coastal zone management program - the largest Bank- a few of them to facilitate and participate in their �nanced coral reef management program (COREMAP) consolidation. IFC’s Advisory Program has built the in the world. It includes 416 island communities, capacity of rural banks and micro �nance institutions, covering 2.6 million ha or 25 percent of coral reefs in 61 which is now being complemented by investments. the region, and has contributed to improved awareness IFC has worked with six women’s cooperatives, 153 and practices in the coastal communities. Under the COUNTY PARTNERSHIP STRATEGY farmers’ groups, and rural banks in Bali and Eastern Farmer Empowerment and Technology Improvement Java. IFC is contributing to the creation of the �rst (FEATI) project, outcomes have been impacted by wholesale micro�nance institution. preparation and startup delays in the project. IFC’s Advisory Services have contributed to visible results in Private sector development has also been a focus for a number of sectors, including increases in seaweed the Bank Group. The Government passed three reform farmers’ incomes, maize farmers getting access to packages on investment climate policy issues alone in �nance (many for the �rst time), and small Indonesian which WBG inputs were incorporated. IFC Advisory businesses selling sustainably harvested wood as Services began work in Indonesia in 2003 and it has furniture into developed markets. collaborated with IBRD and FIAS on Investment Law reform. Achievements include an average two-thirds reduction in the time and cost of business licensing Pillar 3: Making Service Delivery at select sub-national districts saving businesses an Responsive to the Poor estimated US$10 million annually; promulgation of a national guideline supporting the development of Country Progress effective licensing of�ces; and, the implementation Progress towards achieving the MDGs in the education with the province of Aceh of a new model for investment sector has been stronger than that in the health sector promotion. MIGA continues to use its online services as noted in the 2006 CASPR. With decentralization, to assist Indonesia to attract foreign direct investment regional governments have become the dominant by pro�ling potential investment opportunities in the players in service delivery and are now spending country. Along with the dialogue undertaken as part of almost the same amount as the central government. Doing Business indicators survey and the preparation However, the 2007 Public Expenditure Review of bi-annual investment climate surveys, the WBG has highlighted the inef�cient resource allocation in the been able to elevate the agenda on investment climate health sector. Coupled with weaknesses in capacity right up to the Presidential level. and governance challenges, public health service delivery remains poor, and is burdened by quality Slower progress has been made in refurbishing and access issues. Net enrollment rates at primary infrastructure, which remains a key impediment to school have increased and a Teacher Law to improve improving the investment climate and delivering teacher quality and deployment has been approved. basic social services. A �rst Infrastructure DPL in the In the health sector, utilization of health services has amount of US$200 million was approved by the Bank’s gone up, and so has the percentage of births attended Board in December 2007, which together with a Public by trained health workers. However, translation of Private Infrastructure TA project (PPITA), seeks to help this into lower maternal mortality rates has been slow. Although operational water supply systems have been Government in increasing birth deliveries by trained established in about 1,206 villages covering some 3 health workers and improving the immunization million villagers, the progress in improving sanitation coverage for BCG and measles vaccine. However, services has been inadequate. The recent (2006) vaccination coverage for others (DPT, polio and HepB) Bank-�nanced household survey covering nearly has failed to improve. The Bank recently started 13,000 households in 32 districts across 29 provinces getting engaged in HIV/AIDS dialogue, especially in revealed that 70 percent of Indonesians surveyed the province of Papua where the risks are high. responded that health services have improved since 2001; more than 72 percent cited improvements in In April 2007, the Government announced plans for education services; and more than 55 percent cited scaling up the long-running suite of Bank-supported improvements in administrative services. Poverty rural and urban CDD programs (Kecamatan rate has declined to 16.6 percent as of September Development Project, KDP, and Urban Poverty Project, 2007 following a peak of over 23 percent in 1999 as UPP) as its national-level poverty reduction strategy. a result of the �nancial crisis (17.4 percent in 2003). The two programs represent the largest Bank-�nanced Recently, the Government announced several major CDD program in the world, covering 48 percent of new poverty reduction initiatives, and in August 2006, villages (some 38,000) with a focus on the poorest. the Government launched the �rst nationwide poverty These projects have been successful in increasing reduction program comprising two pillars: the National access of the poor (including women and vulnerable Program for Community Empowerment or Program community members) to tertiary socio-economic Nasional Pemberdayaan Masyarakat (PNPM); and, a infrastructure and other services. The KDP and UPP pilot Conditional Cash Transfer (CCT) Program. model has also helped improve local level governance by involving communities directly in a participatory, Bank Contribution empowering, and transparent framework. The model 62 Through its education sector dialogue and analytical is also being used effectively to support post-disaster work, the Bank supported the development of the reconstruction in Aceh-Nias and Jogyakarta. Government’s “Strategic Priorities in Education for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Development Medium Term Program 2005-2009� (RENSTRA) which is now the basis of a major sector- Pillar 4: Disaster Risk Management wide program that is under preparation. The Bank also piloted the Early Childhood Development (ECD) Country Progress programs which are now being scaled up. These The Government responded quickly and comprehensively programs have been shown to have substantial to the Aceh earthquake and tsunami tragedy of impacts on helping children from poor families to December 2004. The �rst task was to prepare a Damage get higher grades in primary and secondary school. and Loss Assessment involving all the major donors and The Bank administered National Education Reform led by Bappenas. It was completed in a few weeks with Program (Netherlands and EC �nancing) was a loss estimates totaling nearly US$4.5 billion. It was catalyst for the Bank to re-engage in the education presented to the Consultative Group meetings in January sector in Indonesia, and it has continued to provide 2005 as the basis for mobilizing international �nancial extensive analytical support for policy formulation, support. This was then followed by the preparation development of the next RENSTRA for 2009-14, the of a more detailed Master Plan for Rehabilitation and introduction of the new teacher upgrading law, and Reconstruction, also led by Bappenas and involving the delivery of the ECD project. The Bank, with support donor community. A major accomplishment was the from the same donors, established a Basic Education creation of the Special Reconstruction Agency (BRR) Capacity-Building Trust Fund (BEC-TF) to support the and its immediate staf�ng with well known and credible implementation of RENSTRA. Indonesians. It was formally established in April 2005 and became operational a month later. In the health sector, the performance of the Bank lending interventions has been mixed, with only Critical to the reconstruction process was the agreement partial realization of expected outcomes. Several on the peace accord between the Government and the of the completed projects were not successful (with GAM (Gerakan Aceh Merdeka) ending the decades- sustainability unlikely), mainly due to limited capacity long conflict that had caused nearly 15,000 deaths and to carry out reforms and also complicated by the tremendous suffering to the people of Aceh. The MOU ambiguities created by decentralization with regard to sealing the peace agreement was signed on August 15, the roles and responsibilities of local governments vs. 2005 and was a strong basis for post-conflict peace- higher levels of government. The three Bank-�nanced building. In addition to contributing to the delivery of Provincial Health Projects (PHPs) aimed at improving post-tsunami support, the end of this conflict has led health outcomes by strengthening the capacity of to an improvement in the quality of life and outlook for districts, provinces and the center in managing a Aceh’s future development. decentralized health system. They have helped the Over the last two years, Indonesia has emerged as the is the largest single donor in the environment sector epicenter for Avian and Human Influenza (AHI) risks. The focusing on improved waste management services risks arise from the large size of the country, extensive and protection of forest resources. The progress is not holdings of poultry by millions of households, high-risk as good for the land titling project –over 121,590 titles farming practices, and a decentralized administration have been distributed (by May 2008) to the population, with weak capacity. As of January 30, 2008, 101 people compared to the target of 600,000 by June 2008, as have died from AHI. Government response has been the National Land Agency (BPN) has faced challenges generally viewed as slow and uncoordinated although in implementing the project as designed. The project in recent months its public awareness campaign seems design and establishment of targets were carried out to be reaching most of the country’s population. in a short period to respond to the catastrophe; an additional complicating factor, particularly in the earlier Bank Contribution phase has been the dif�culty in obtaining data. The Bank played an instrumental role in the preparation of the Damage and Loss Assessment, Master Plan for Immediately after the tsunami, IFC management Reconstruction, setting up of the BRR, and for mobilizing approved an allocation of US$2.5 million to support funds from the donor community. The Damage and the relief efforts by the private sector in all tsunami- Loss Assessment was led by the Bank team on the affected countries, through a matching grant program. donor side and was prepared in less than four weeks In Aceh, IFC contributed resources to three private after the tsunami. At the Government’s request, the sector companies - GE, Sampoerna and Cascal – to Bank initiated, designed, and drafted the founding provide clean drinking water for the population and legislation and provided continuous TA and support develop temporary schools for displaced children. IFC during the �rst few months of BRR’s existence. The also provide US$1 million and secured US$5.5 million Aceh Multi-Donor Fund (MDF) with current pledges of from AusAID to establish an IFC Advisory Service close to US$700 million - the largest post-disaster fund program in Aceh. The program has established an 63 in the Bank – is considered a best practice mechanism Investment Outreach Of�ce to support private sector for donor coordination in response to natural disasters. investment, with IBRD provided policy advice to the COUNTY PARTNERSHIP STRATEGY MDF’s close coordination with the BRR and the local Governor of Aceh on private sector policy issues, government (newly elected Aceh Governor) has supported the livelihoods of shrimp farmers by helping contributed greatly to its success. The Bank also to improve yields, and helped to improved business restructured three ongoing IDA projects (US$20 development services. million) to include reconstruction components and mobilized JSDF grants (US$7.8 million) for emergency The participatory approaches of CDD projects involving support. Additionally, reconstruction components were civil society, communities, private sector and other included in two new projects that were delivered to the local organizations have also helped provide post- Bank’s Board in FY05 (US$15 million). conflict assistance. KDP was the only Bank project operating in Aceh during the conflict period and its MDF-�nanced projects have delivered support in network of facilitators played a crucial role in reaching the recovery of communities, infrastructure and out to the community in the immediate aftermath of the transport, capacity building and governance, and 2004 tsunami devastation. The project also facilitated sustainable management of the environment. Further, the re-integration of GAM rebels. the MDF covered the important cross-cutting issues of environmental protection and sustainable Reconstruction experience in Jogyakarta has also been recovery. The overall process of reconstruction is remarkable. Less than one year after the devastating well underway with 85,000 new houses completed by earthquake in May 2006, almost 150,000 houses (more September 2007, of which 4,400 were by the Bank. In than half the total needed) were rehabilitated, most at low addition, 4,050 houses have been rehabilitated. Other cost and with strong community participation. The Bank accomplishments include: 43 community health clinics also used its convening power in the aftermath of this and 282 schools built or repaired; 846 bridges repaired; tragedy to help bring together several key development 2,330 kms village roads and 199 km of urban roads partners around a US$84 million Java Reconstruction rebuilt; 1,211 irrigation and drainage projects in rural Fund (JRF). The Government also implemented a new areas and rehabilitation of 178 kms drainage in urban Disaster Management Law in March 2007 to prepare areas; 1,148 clean water systems and 1,032 sanitation and respond more effectively to disasters. units built by the Bank. Over 11 million workdays were generated through the Bank-supported infrastructure work as of August 2007. The community based housing Bank Performance reconstruction program (REKOMPAK) in Aceh has functioned remarkably well and has been adopted by This section reports on the Bank’s performance the Government as the model for post-disaster housing measured by the Bank’s own internal performance interventions in Central Java and Jogyakarta. The MDF indicators for the portfolio, and reports such as PSRs, ISRs, CRMR, OED evaluations and the CAE (see projects (by commitments) is currently at 21 percent. Attachment A, CAS Completion Matrix). Effectiveness The associated risk factors include weak capacity for of non-lending services, including trust fund project management, procurement delays, corruption mobilization, is also discussed. and misuse of funds, delays in releasing counterpart funding, and monitoring and evaluation. The Bank Lending Deliveries addressed these by restructuring projects, canceling During the CAS period, 23 IBRD/IDA projects were loans, continuous dialogue with the Government delivered for a total of about US$4 billion (see on counterpart funds, assisting the Government in Attachment B). Of this, US$0.9 billion (24 percent) resolving the misuse of funds, and providing support was on IDA terms; and US$2.1 billion was for program to strengthen the Government’s procurement team. support. PREM delivered the largest share of new loans at 49 percent (�ve operations, including four DPLs), During the CAS period, IFC has committed US$935 followed by the Sustainable Development Network at million in 43 projects. As of March 30, 2008, IFC’s 45 percent (15 projects, including the IDPL operation), outstanding exposure in Indonesia is US$709 million in and Human Development Network at 6 percent (three 27 institutions (US$694 million for IFC’s own account). projects). The lack of clarity and commitment by The average loan risk rating was 3.6, an improvement some counterparts on pipeline projects to a very high over a year ago when it was 3.8. The average risk drop rate – between FY04 and FY08, 13 projects were rating on the equity side, as of the same date, was 3.8, dropped costing US$3.33 million in sunk preparation an improvement from a year ago when it was 4.0. costs. The average project preparation period was 35 months indicating that the decision to drop majority Non-Lending Services of these projects was made at an advanced project The WBG’s AAA program has evolved over time in line preparation stage. In addition, about a dozen projects with the country’s emerging MIC status (see Attachment 64 that were included in either the CAS or the CASPR D). The program focus shifted from a more structured were not prepared (i.e., they did not have an approved ‘formal’ report preparing activities to responding to AIS and did not incur any preparation costs). high-impact, just-in-time requests from the Government for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons that largely required TA rather than detailed analysis and report preparation. Dissemination also improved Portfolio Quality with more and more reports and policy notes being As of April 2008, the Bank’s total portfolio stands at 24 translated in Bahasa Indonesia and distributed to a projects with total net commitments of US$2.5 billion wider country audience for greater impact. and undisbursed balance of US$1.8 billion. Portfolio performance has been mixed with a disbursement ratio An important contribution by the WBG in the early of 17 percent. Proactivity index is maintained at 100 CAS period involved preparation of a Policy Notes percent, but realism index is only at 40 percent. This Package for the incoming government in 2004 mixed result is due both to inadequate government consisting of 20 policy notes. The Package was the capacity and internal Bank ‘hassle’ factors. While the WBG’s initial “calling card� in discussions with the new 2006 CASPR noted that important gains have been President and his Cabinet and proved to be useful to achieved in overall portfolio quality, it also noted some key Ministers in developing their respective “100 day risk factors and emphasized the need for continued plans� at the President’s request. Particularly worth hands-on management. The FY06 CPPR and the initial highlighting is the Bank’s analytical input and ‘behind �ndings of the FY08 CRMR have also identi�ed major the door’ engagement and advice which resulted in risk factors affecting the portfolio quality: weaknesses the Government reducing the highly regressive fuel in project management, corruption in procurement of subsidy in 2005, as well as their decision to reallocate goods and services, misuse of project funds, delays in most of the saved funds to health, education, village budget approvals and releases, lack of procurement infrastructure, and implement an unconditional cash planning and timely procurement actions, slow pace transfer (UCT) program. of disbursements, and weak M&E. These portfolio reviews offered several actions and recommendations. The INDOPOV program played an important supporting As noted earlier, GAAPs have now become a role for the government agencies on their poverty standardized component of all projects, normally agenda with a three part agenda that reviewed and serving as an annex to the PADs and subsequently provided policy advice on pro-poor growth, pro-poor incorporated into project operational manuals. spending and services for the poor. The Justice for the Poor program has been another key highlight of the Thirty-six Bank projects closed between FY04 and Bank program. It has helped to develop strategies for a April 2008; of which 27 have been evaluated by IEG bottom-up, demand driven approach to justice reform (see Attachment C). Of the projects evaluated, building popular constituencies to demand justice and 74 percent are rated satisfactory or marginally push for necessary reforms to legal institutions. The satisfactory on outcome. The ratio of “at risk� to total Bank was able to re-engage in two important sectors (education and environment) through its AAA program. has leveraged over US$40 million in grant resources Through programs such as the Forest Law Enforcement to support IFC Advisory Services which focused on and Governance (FLEG) and the Program for Pollution sustainable economic growth and development, with a Control Evaluation and Rating (PROPER), the Bank geographic emphasis on Eastern Indonesia. Program has reengaged in the areas of natural resources and areas include access to �nance for the underserved, environmental management, leading to many more investment climate reform, agribusiness linkages, initiatives, including supporting the Government to sustainable wood supply chain and handicrafts. Since prepare for the landmark international Climate Change 2003, IFC Advisory Services have contributed to Conference in Bali in December 2007, under the aegis an improved investment law, a reduction in the time of the United Nations Framework Convention on and cost of business licensing at select sub-national Climate Change (UNFCCC). districts, and increased access to �nance for small borrowers. The IFC Board has already committed IFC’s Advisory Services plan to continue work on US$10 million to PENSA for the next �ve years to the investment climate, access to �nance, supply catalyze a renewed multi-donor partnership. chain development and plan to add programs on environmental sustainability and infrastructure. A Strong partnerships are also being forged using other review of the largest Advisory Service project, PENSA, instruments. Joint policy reform operations have seen indicated that continued investment into PENSA would ADB, Japan and the Bank teaming up in support of the lead to even higher impact with implementation of more Government’s policy reform agenda through the co- robust management processes. In response, IFC has �nancing of the Bank’s DPLs. Sector wide approaches consolidated of�ces and closed programs that were are being strengthened in education with the not likely to yield strong systemic impact. Netherlands and EU as key co-�nanciers. The Banda Aceh of�ce, initially set up through Dutch TF funding, Much of the WBG’s work is now done in partnership continues to be a stronghold for partner coordination 65 with local research institutes, other donors, NGOs, and and dialogue and has contributed to strengthening the in close collaboration with the Government. Over time, implementation of the MDF projects on the ground. COUNTY PARTNERSHIP STRATEGY the Bank and its partners have pursued a programmatic approach to research and technical assistance, Partnerships with Civil Society Organizations (CSOs), identifying key issue areas in Indonesia’s development NGOs, and parliamentarians were also strengthened path and framing a set of activities to provide analysis, during the CAS period. The Bank has taken every policy recommendations and other support. opportunity – either through lending or non-lending – to reach out to the NGO/CSO community. In the Country Dialogue, Partnerships and Aid immediate aftermath of the tsunami, the Bank worked Coordination closely with the NGOs that were part of the KDP project Partnerships with donors have remained strong, to provide relief services. The Bank, through the WBI, allowing the WBG to leverage signi�cant amounts of has also provided capacity building activities for local �nancial and human resources for CAS implementation. governments and for parliamentarians. Indonesia is the largest user of Trust Funds (TFs) in the Bank. Total active grants amount to US$1,245 million consisting of 186 active grants (see Attachment A). The biggest single TF is the Aceh-Nias MDF with total Overall Assessment and Lessons contributions of about US$700 million. The TF programs Learnt have contributed signi�cantly to the CAS objectives. The obvious outputs and outcomes include: pooling of Despite the uncertainties surrounding project resources for joint strategies and actions (education), preparation and delayed implementation of some greater responsiveness to unanticipated needs as in projects, on balance the implementation of the CAS post-disaster recovery efforts (Aceh-Nias MDF and has been satisfactory. The effectiveness of the JRF), provision of high quality research, policy dialogue WBG’s activities as measured by the portfolio quality and knowledge dissemination (Netherlands Institutional and outcome indicators has varied depending on the TF, DSF, INDOPOV). The TFs have helped the Bank, sectoral context, cross-cutting challenges, and the the Government and development partners toward Bank’s own internal ‘hassle factors’, but good progress the goals of the Paris Declaration – harmonization, has been made in a number of the CAS focus areas. alignment and results. The availability of TF �nancing has allowed a marked increase in the WBG’s analytical The Bank recognized its shifting role of supporting an and advisory services, especially allowing the WBG emerging MIC agenda. During the CAS period, WBG to mobilize the right skills to respond to just-in-time interventions moved towards supporting a country-led government requests. They have also supported more and owned policy agenda consistent with Indonesia’s enhanced supervision than restricted Bank budgets emerging status as a MIC. The Bank was well positioned would normally allow for complicated projects. IFC to advise the Government on several issues, furthering its relationship and reputation with the Government as The Bank was effective in using its role as the key a “go to� partner on policy issues. A substantial effort convener to respond quickly and ef�ciently to post- was made to drive home emerging policy messages to disaster reconstruction and other emerging requests. policy-makers and to opportunistically engage, either The Bank’s role became evident during the immediate through lending or non-lending, in entry-points for a post-tsunami/earthquake period when the Government change (e.g., education, environment, fuel subsidy asked the WBG to lead a coordinated donor effort reduction, UCT, CCT). Very important was the WBG to address the reconstruction in Aceh, Nias, and team’s foresight in identifying problems to focus on Jogyakarta. The WBG’s contribution towards this is before these were widely recognized as challenges, and the hallmark of the CAS period. The Bank has also the Bank’s flexibility to respond quickly to government emerged as an influential player in facilitating donor requests and needs on demand. support for the Government’s education sector agenda. CDD projects continue to achieve results on the ground. The two Bank-�nanced CDD programs (KDP and UPP) The WBG’s strengths for implementing the CAS were were central to the enhanced service delivery and largely in its skilled and expert staff that could be tapped inclusive growth agenda of the CAS. They have been into in a short time (e.g., post-tsunami/earthquake successful in delivering small-scale infrastructure, and support), capacity to manage large donor TFs (MDF, basic services to poor communities. These have built DSF, BEC), bring global experience and apply it within or rehabilitated schools, health center facilities, water the local context (e.g., UCT, CCT), mobilize support for and sanitation systems, roads, bridges, markets and private investment (IFC), and a large corps of national electri�cation systems and are contributing to providing staff and consultants for provision of local knowledge employment, building capacity and deepening local and know-how. governance. 66 Less progress has been made in the infrastructure DPLs contributed strongly to advancing cross-cutting sector which remains a key impediment to improving reforms. The Bank team helped to design a home- the investment climate and delivering basic social for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons grown program for the Government resulting in a services. Although the Government was committed smooth IMF exit. The Bank’s �rst DPL was linked to improving infrastructure, results on the ground have to this program, thus helping to build con�dence. not been very impressive and substantial gaps remain. With Indonesia successfully meeting the CAS high And while the WBG has engaged in this sector with case triggers, budget support through a series of a comprehensive lending and non-lending program, DPLs was resumed in 2004 and four DPLs were fully its support has not led to expected outcomes, in disbursed for US$1.9 billion. A �rst sectorally oriented particular for attracting private sector investment. The Infrastructure DPL was also approved by the Bank’s sector also continues to be plagued with corruption Board in December 2007. They have contributed issues in Bank-�nanced projects, which has delayed signi�cantly to the Government’s policy reforms in the project preparation and implementation and has areas of macroeconomic stability, investment climate, serious implications for the future project pipeline. service delivery, public �nancial management and anti-corruption, as well as pursuing the agenda on The local government ‘platform’ approach outlined infrastructure and PPP policy reforms. in the CAS has not worked well as evidenced by the lagging performance of the �rst generation of related Strong donor partnerships leading to trust fund projects. A key constraint has been the lack of clarity in mobilization allowed the WBG to re-engage in some the roles and responsibilities at the district, provincial sectors, and to deepen ongoing support in other and national levels of government. The challenges sectors. Partnerships with donors have remained in the implementation of revised on-lending and on- strong, allowing the WBG to leverage signi�cant granting decrees were another detrimental factor amounts of �nancial and human resources for CAS impacting the implementation of the ILGRP, USDRP, implementation. The availability of TF �nancing has and SPADA. Moreover, the health sector in Indonesia allowed a marked increase in the WBG’s analytical, has been relatively slow to adjust to the country’s technical assistance, and advisory services. For decentralization and transfer of service delivery example, the Bank has emerged as an influential player functions from the central to the local governments, as in facilitating donor support for the Government’s indicated by lack of improvement in related outcomes. education sector agenda. However, the administrative costs associated with managing a large portfolio of Lack of clarity and strong commitment by the TFs need to be assessed, and the strategic focus of Government has led to delays in project preparation the TF portfolio enhanced further. On the operational and high costs of dropped projects. Lack of long- side, there is a need to better integrate TF resources term planning and inadequate co-ordination among with Bank budgets and programs. various government agencies led to an uncertain environment for project preparation. Regular and coordinated dialogue with the Government (Bappenas, MoF and line ministries), and tighter management of lending pipeline are critical to minimize such costs in the future. In addition, there seems to exist a “missing middle� between the DPLs and CDDs. Government commitment and implementation/results have been much stronger for DPLs and CDD projects while a number of investment projects have been facing challenges affecting their full potential. Inadequate government capacity and internal Bank ‘hassle’ factors have led to slow project implementation and delayed realization of outcomes in some sectors. Weaknesses in government capacity to implement projects and delays in counterpart funding, especially at the local level, have partly contributed to delays in project implementation. Ideally, decentralized projects should be executed using the local level PFM framework. However, since the on-lending/on-granting guidelines were not fully developed, these projects were implemented through the national level PFM systems adding to implementation delays. Internal “hassle� factors of dealing with the Bank processes and procedures have also emerged as contributing to 67 delays related to procurement issues, with increased transaction costs for both the client and the Bank. COUNTY PARTNERSHIP STRATEGY Strengthening support to build country systems within the Government’s decentralized framework will be critical to improving project performance. Appendix 8. : Attachment A Indonesia: CAS Completion Report: Results Framework - Completion Matrix Strategic Outcomes Influenced by the CAS Program During the Five Year Period and Longer- WBG and Partner Term Country Expected End-CAS Contributions Issues and Obstacles Progress To Date Outcomes Outcome(s) PILLAR ONE: IMPROVING THE CLIMATE FOR HIGH QUALITY INVESTMENT AND GROWTH Maintain Consolidate macroeconomic • De�cit of 1.2% of GDP • Budget discipline maintained; de�cit Lending macroeconomic stability and focus increasingly on in 2004, 1% in 2005 of 1.1% of GDP in 2007 (done) GFMRAP, DPLs 1-4, IDPL stability the microeconomic foundations of • Reduce debt/GDP • Debt management on sustainable • Inflation below growth ratio to below 40% path; debt/GDP ratio 38% in 2006, AAA 7% • Continued vulnerability to shocks • Non-oil tax revenue to and 34% in 2007 (achieved) Brie�ngs for new Govt ; • Debt to GDP because of high debt GDP up 1% • Non-oil tax revenue was up 2% from CGI Briefs, PERs , DPR ; below 60% • End of Paris Club restructuring • Decrease in tax arrears 2001 to 2005, up 0.8% from 2005 to Debt Management ASEM • Investment as % • Possible decrease in market 2006 (11.5%) (achieved) ; Fiscal policy analysis ; of GDP above con�dence from IMF exit • Tax arrears decreased (done) WTO advice, Fuel subsidy 30% • Weak tax and customs reduction advice • Growth of at administration least 5% • Nascent domestic government TF bonds market GFMRAP • Vulnerable �nancial sector with contingent liabilities to the budget Partners ADB, JBIC, IMF, AusAID debt mgt, USAID trade Goal is to improve effectiveness Fuel prices get closer to Fuel subsidies reduced in March and and targeting of compensation market level October 2005. UCT program was schemes. Engagement in fuel implemented for a year. CCT program 68 subsidies comes to a close with piloted (achieved) the evaluation of the UCT. Original outcome was subsumed under for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons PFM (pillar 3) and performance of CCT schemes Focus was on improving pace Gradual increase in 3.4% of GDP in 2006 and 3.5% in and quality of public spending. capital and social 2007. Including regional spending, total Similarly, outcome was subsumed spending to 3.5% of capital expenditures exceed 7% of under PFM (pillar 3) GDP GDP in 2006 (achieved) Stronger and Weak governance of state banks Increase stability of • State-owned banks’ private IFC/MIGA diversi�ed �nancial was a critical issue �nance sector ownership exceeds 20% for 2 of the • IFC investments in banks sector with • Lack of alternatives to banking • At least 20% private 4 state-owned banks. State bank and non-banking �nancial equitable access sector for access to capital ownership of all state- share of overall banking system is institutions • Weak supervision in banking and owned banks 36% (ongoing) • IFC Advisory Service non-banking sectors • Indonesia in broad • Indonesia taken off the list of non- Initiatives • Public sector domination in bank compliance with cooperative countries of the FATF ownership international standards (done) AAA • Unsustainable blanket deposit • Financial sector safety • BI has made serious efforts to comply Financial sector guarantee net implementation with BCP; others, such as NBFIs, are monitoring • Inadequate access to �nancial continued still lagging behind (slow/ongoing) services for SMEs and poorer • Blanket Guarantee removed as of Partners households September 2006. Coverage on IMF–Strengthening bank • Poorly developed institutional deposits was reduced from Rp 5 supervision and creation investors billion in March 2006 to Rp 100 of �nancial sector safety • Reduction of Blanket Guarantee million in March 2007 (achieved) net to be pursued. • BI role as a lender of last resort has to be enacted by law Recommendations in NBFI report Improve access to • NBFI assets comprise 22.3% of IFC provided a basis for policy dialogue �nance total �nancial sector assets (2006) Advisory Service Initiatives • Weak supervision in non-banking • Increase in non-bank (achieved) sectors was a challenge �nancial sector’s share • Total credit realization by SMEs from AAA • Inadequate �nancial access to of �nancial system commercial banks, as measured by NBFI report SME sector and poor households assets beyond 10% BI, increased by 82% from 2003 to • Weak insurance industry • Number of SMEs with 2005. Loans to SMEs comprised increased access to 52% of total loans (June 2007), �nance compared to 47% in 2003 (achieved) • Strengthen insurance • Pension fund industry re-organization industry regulatory and and restructuring slower than supervisory framework expected and develop a strategy • Resolution of unviable insurance to deal with insolvent �rms slower than expected �rms • Bapepam merged with GDFI. Strengthening of its regulatory and supervisory capacity slower than expected Strategic and Outcomes Influenced by the CAS Program During the Five Year Period WBG and Partner Longer-Term Expected End-CAS Issues and Obstacles Progress To Date Contributions Country Outcomes Outcome(s) PILLAR ONE: IMPROVING THE CLIMATE FOR HIGH QUALITY INVESTMENT AND GROWTH Supportive • Implementing regulations of • Overall improvement • All major obstacles faced by Lending environment for the new Investment Law not in investment climate businesses have declined • GFMRAP competitive private completed • Reduce business consistently, but remain high (ongoing) • DPLs 1-4 sector • Number of licenses in start-up time from • Start-up time for new businesses • IDPL ministries to be reduced 168 (2003) to 30 takes 109 days (2008) (slower than • Transactions costs to business days expected) IFC need to be reduced • More effective tax • Rolling out of tax administration IFC Advisory Service • Weak regulatory frameworks services reforms is on-track: 3 tax laws have Initiatives • Lack of inter-agency been introduced to Parliament and cooperation to remove modern tax of�ces have expanded AAA investment impediments (on track) • Business Environment • Unclear division of labor • 170 local nuisance taxes & fees Surveys (bi-annual) among levels of government were abolished between 2005-06 • Review of draft Customs • Ineffective Competition Agency (ongoing) Law • Lack of clarity & inconsistent •% of businesses identifying tax • Background notes on enforcement of environmental administration as a moderate, severe international best practices regulations and very severe problem decreased for implementing regulations • Poor quality of higher from 57% in 2003 to 38% in 2007 of Investment Law education (skills) (ongoing) • Value chain studies • Average time to obtain VAT refunds • Investment related labor has decreased from 12-18 months market analysis (2003) to 4 months (2008) (on track) • Background notes on trade policy reforms Clearance process to be • More effective •% of businesses identifying customs IFC exclusively computerized customs services and trade regulations as a moderate, IFC Advisory Service • Clear criteria severe and very severe problem Initiatives to implement decreased from 51% (2003) to 32% 69 customs regulations (2007) (on track) Partners concerning use of • Average import clearance time has ILO Youth Employment COUNTY PARTNERSHIP STRATEGY priority, green, and reduced from 8 (2004) to 6 days in Network red lanes stipulated the red lane (preliminary 2007 data) (on track) • Use of lanes part of the investment package issued by GOI (done) Rigid labor regulations Implement flexible labor New draft labor law being reformulated discourage jobs creation in the regulations after delays following strong resistance formal sector by labor unions (slower than expected) Impact of new regulations on • Clarity of functions • Draft amendment to move from investment not yet materialized of central and local negative to positive list for regional governments towards tax items and to restrict the creation private sector of nuisance and/or economically development harmful charges and levies has been • Investment climate completed (on track) in about 40 regions • Implementing regulations for Laws 22 participating in local and 25 is slower than expected services platform projects above the national average Strategic Outcomes Influenced by the CAS Program During the Five Year Period and Longer- WBG and Partner Term Country Expected End- Contributions Issues and Obstacles Progress To Date Outcomes CAS Outcome(s) PILLAR ONE: IMPROVING THE CLIMATE FOR HIGH QUALITY INVESTMENT AND GROWTH Refurbished GOI established a framework to develop Improve the • A �rst Infrastructure Summit that Lending infrastructure infrastructure as a key national priority. The environment for drew a large participation from • Private Provision of Bank supports this program through a DPL infrastructure private investors was held in January Infrastructure TA • Remove policy road-blocks to public and development 2005; a follow-up summit took place • DPLs 1-4 private infrastructure investment. (Increases • Main CAS in November 2006 (done) • IDPL in infrastructure investment was expected to outcome was • A national committee on Policy for be in the order of 1% of GDP over 2007-09) that at least Accelerating Infrastructure Provision AAA • Increase connections in 4 key sectors 5 model PPP (KKPPI) was established in 2005 Infrastructure Summit (Roads, Water and Sanitation, Energy and projects be (done) Telecommunication) successfully • PPP Unit is being established within Partners • Ensure adequate social and environmental tendered KKPPI as a center of technical IFC, MIGA, JBIC, ADB management of infrastructure investment (as expertise in project preparation measured by reviews of sample projects) (ongoing) • Risk Management Unit established Overall in MOF, but needs to become fully • Lack of public �nancing, and poor regulatory operational (slower than expected) frameworks which preclude needed private sector participation • Ill-de�ned government responsibilities with decentralization Key sectors • Impending power shortages • Poor road maintenance • Low density of telecom connections • Bankrupt water utilities 70 Lack of bankable projects limits the number Road sector • Improved institutional arrangements Lending of PPPs • Improved established for toll roads (done) • East Indonesia for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons institutional • Automatic tariff adjustment Regional Transport Focus was in particular on supporting the arrangements to mechanisms for toll roads completed 1, 2 following government objectives: be established (done) • Sumatra Regional. • Reduce the incidence of corruption in public for toll roads • The quality of the road network in Roads Project and private roads projects • Improve the Sumatra has been preserved with • Strategic Road • Establish public �nancing mechanisms to condition of Bank support (corresponding to Infrastructure support sustainable maintenance of the national and about 24,000 km) and subprojects national road network other strategic implemented with Bank support AAA arterial roads have led to more than 1500 km of Infrastructure Sector improved roads and 4500 meters of Study bridges in Eastern Indonesia (done) Partners IFC, MIGA, JBIC, ADB Institutional improvements not yet resulting in a Energy sector • All elements for opening oil and Lending signi�cant increase in the number of actors • Increased gas sector to competition, such as • Domestic Gas Market number of actors regulator and implementing rules Development Since Electricity Law was annulled in 2002, in the oil & gas and regulations are in place; 3rd • PGN Gas Distribution there is a lack of clear vision in the sector sectors party open access is now in effect Project (joint IFC/ • Improved tariff in transmission (with no evidence yet IBRD) structure for gas of new actors); there are at least two • Java-Bali Power sector newcomers (Petronas and Shell) in Project • Partial retail (ongoing) privatization of • Pricing study is completed and IFC & MIGA key infrastructure has been submitted by PGN to the Support to SOEs, e.g. PGN regulator (done) investments • Increased • Partial privatization done for PGN in power and number of actors where share of Govt is 39% telecommunication in power sector (ongoing) • More ef�cient • There has been some private sector AAA power sector participation in power generation: Power Sector Policy Two IPPs came on line in 2006- Paper (funded by 1320 MWs Tanjung Jati B and 600 ESMAP) MW Cilcap Coal Power Plants in Central Java (ongoing) • A 110 MW goethermal plant, scheduled for 2008 (Darajat plant in W. Java), is being tested (ongoing) Strategic Outcomes Influenced by the CAS Program During the Five Year Period and Longer- WBG and Partner Term Country Expected End-CAS Contributions Issues and Obstacles Progress To Date Outcomes Outcome(s) PILLAR ONE: IMPROVING THE CLIMATE FOR HIGH QUALITY INVESTMENT AND GROWTH Refurbished The performance of the Water Water & Sanitation • Project is expected to focus �rst on 3 infrastructure and Sanitation Sector (WSS) The management and PDAMs to be followed by a number has remained stagnant at a operation of 5 PDAMs start of other PDAMs joining the reform historical low investment level of to improve program [Note: it is expected that the about 0.5% of GDP. The overall successful implementation of the �rst estimates of economic losses package will convince other PDAMs due to lack of access to water that debt restructuring under the and sanitation were estimated reform program is possible] (ongoing) at 2.4% of GDP in 2002 • Resolution of PDAM arrears to be initiated, following the enactment of related regulations and issuance of detailed procedures on debt restructuring by MOF (slower than expected) Sustainable Urban and rural 2.5 million new land titles • Distribution of title certi�cates to land Lending income-creating • Uncertain property rights and issued (50% in women’s’ owners in the 9 LMPDP provinces is Land Management Policy opportunities for corrupt land management or joint names) in project- 661,501, as at May 2007 Mid-Term Development Project poorer households • Lack of access to natural assisted areas Review. A further 190,000 titles (LMPDP) resources & coastal certi�cates completed and awaiting resources (e.g., community- distribution. (Number of titles IFC managed forests, coral reef distributed to women and joint owners IFC Advisory Service ecosystems) [husband and wife] not available) Initiatives • Limited access to capital (ongoing) • Unfavorable SME • In Aceh, 121,594 land title certi�cates TF environment have been distributed to land owners, Reconstruction of Aceh • Poor technology and a lack of as of May 2008 (per BPN). (Number Land Administration information among farmers of titles distributed to women and System (RALAS) Project 71 • Irrigation network poorly joint owners [husband and wife] not funded by MDF Grant COUNTY PARTNERSHIP STRATEGY maintained available) (ongoing) • Land administration service delivery standards in place (done) • Land administration course now operating in three universities (done) • National consultative forum for National Land Policy Framework conducted in 2006 (done) • Five local government land management pilots, under MoHA, completed in 2007 (done) Average income of • More than 50% reduction in illegal and Lending target groups of coastal destructive �shing and coral mining COREMAP2 communities from in most of COREMAP1 pilot areas. sustainable reef-based or Public awareness of the dangers of reef-substitute sources coral reef degradation increased from increases by 10% until 2010 39% to 75% (ongoing) • Baseline for COREMAP2 areas have been collected and progress in incomes is expected to be observable once results from the 2008 socio- economic surveys are available (ongoing) • 30,000 villages/cities • 38,000 villages/cities through Lending with improved access to CDD programs have engaged in a • KDP roads, bridges, irrigation participatory planning and �nancing • UPP and other infrastructure process, increasing access to vital • SPADA through participatory infrastructure and water/sanitation • ILGRP planning and �nancing resources (achieved) • Increased household • Villages covered by KDP showing AAA income levels in the signi�cant HH expenditure impact Poverty Assessment targeted 30,000 villages/ as compared to non-KDP areas cities (achieved) TF • KDP • Water Resource & Irrigation • Poverty Reduction Strategic and Outcomes Influenced by the CAS Program During the Five Year Period WBG and Partner Longer-Term Expected End-CAS Issues and Obstacles Progress To Date Contributions Country Outcomes Outcome(s) PILLAR ONE: IMPROVING THE CLIMATE FOR HIGH QUALITY INVESTMENT AND GROWTH Sustainable • Increase in household • An average of 70% of participating Lending income-creating expenditure rates, incomes, households in 3,000 villages • Water Resources & opportunities for and adoption rates of adopting new technologies with Irrigation Sector Mgmt poorer households technologies in 71 project- increases in incomes ranging • FEATI assisted districts from 35-60% from improved • 20% increase in income agribusiness development AAA levels for farmers in the activities (on track) • Rural Investment Climate areas of improved irrigation • 250,000 ha of irrigated area Survey systems bene�ting from improved water • Agricultural Extension management, and some 500,000 Services in Indonesia ha from repairs and rehabilitation • Horticultural Producers and to the physical infrastructure Supermarket Development (ongoing) • Information and Communication Technologies for Rural Development • Issues in Indonesian Rice Policy Partners ADB, DFID, Dutch Trust Fund, JICA, EU, GEF, IDRC, CIRAD PILLAR TWO: MAKING SERVICE DELIVERY RESPONSIVE TO THE POOR Better education In Bank-assisted areas, improved quality, coverage, and utilization of basic education services, outcomes for the 72 poor especially for the poorest 40% Increased Legacy of overly centralized, Improved access to ECED • Increased number of quality ECED Lending for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons proportion of poor unresponsive service provision: services service in targeted poor areas • Early Child Development children who are • Failure to account for from 600 integrated ECD centers Project ready to enter community needs and that were established across 12 • ECED school by the age service quality districts with Bank support as of • BERMUTU of 6 (Enrollment in • Weak monitoring, evaluation 2006 (on track) ECED programs and information dissemination • Increase in level of public �nancing AAA remained at less • Limited funds used sub- for ECED and basic education ECE and Development than 20% from optimally (e.g., pay for inputs, (achieved) sector report 2002 to 2004) not results) • Limited private sector role • Poor targeting and TF accountability of social safety Early Childhood Education net programs • Roles of government levels not clearly de�ned (including for environmental and natural resource management) • Lack of service standards • Weak monitoring and feedback at local level (including on environmental quality) Improvement Impact on actual improvement Improved quality of education • Teacher Law to improve teacher in Indonesia’s in teachers’ quality and services quality and deployment approved performance rebalance of deployment to • Increased number of in 2005 (done) in international be seen accredited HE programs • National Education Standards standardized that are rated A (i.e., meeting Board established in 2005 to set assessment international standards) by standards for teacher certi�cation (e.g. TIMSS) (no an independent panel (done) evidence yet) • Teachers’ standards developed, vetted by Panel of Experts and adopted by October 2007 • 50,000 teachers (out of 2.7 million) pass certi�cation test by 2008 Strategic Outcomes Influenced by the CAS Program During the Five Year Period and Longer- WBG and Partner Term Country Issues and Obstacles Expected End-CAS Outcome(s) Progress To Date Contributions Outcomes PILLAR TWO: MAKING SERVICE DELIVERY RESPONSIVE TO THE POOR Improved health In Bank-assisted areas, improved quality, coverage, and utilization of health services, especially for the poorest 40% outcomes for the poor • Maternal • The decentralization • Increase in utilization rates of • Evidence shows that increased �nancing for Lending mortality rate process in the health health services in targeted priority health programs has translated into • Provincial Health decreases sector suffers from provinces improved services in West Java and Banten I and II from 334 per lack of clarity in roles • Increased % of institutional where increase in utilization of services has • Health Workforce & 100,000 (1995) and responsibilities deliveries assisted by trained been observed between 2001 and 2005. Services (PHP 3) to 307 per between central and health workers However, in other provinces, the poorer ones, • WSSLIC 2 and 100,000 (DHS- decentralized levels • Increased % of childhood evidence has yet to materialize (slower than WSSLIC 3/ 2002/3) • New shocks have immunizations expected) PAMSIMAS • Under 5 child increased the pressure • Improved nutritional status, • The percentage of births attended by trained mortality rate on the Ministry Of especially for children under 5 health workers increased from 66% to 72% AAA decreases from Health to deliver quality • Commence pilot conditional between 2002 and 2004 (achieved) • Decentralization; 60 per thousand services and rapid cash transfer program • Immunization with BCG and measles vaccine • Private Sector live births to 46 responses (avian flu risk, exceeded 80% in 2004 but the percentage Environment, per thousand earthquakes) of children completing DPT, polio vaccine and • PROPER live births (DHS • The fuel-subsidies HepB was less than 50%. Outbreaks of polio • Analytic and Policy 2002/3). Rate provided the sector with were recorded in 2005 (achieved) Basis of HIV Control is at 71 per new resources • CCT program designed and piloted in 7 • Statistical Capacity thousand live • Policies addressing provinces (done) Building Support births among improved service • Health Workforce poorest 40% delivery remain weak and Improving •% of under 5 • Effective design and Services Delivery children who are implementation of • WBI Capacity underweight at public expenditure and Building – 25% in 2004 programs that bene�t Integrated Water 73 the poor needed Resources COUNTY PARTNERSHIP STRATEGY • Local capacity weak Management • Political accountability evolving TF • Persistent funding • Water & Sanitation shortages for Low income • Poor costing & funding Communities strategies • Water & Sanitation • Conflict-induced service disruption Partners ADB, JBIC, JICA, Netherlands, AusAID, USAID, Unesco, Unicef, WHO, EU, DFID, WASPOLA Increase in • Scaling-up the • Increased % of households • Functioning water supply systems have been Lending proportion of successful approach with access to safe drinking established in 1,208 villages (covering 3.04 WSSLIC 2 and population with in access to water is a water and sanitation in 2,500 million villagers) (achieved) WSSLIC 3/ sustainable priority villages and 20 urban areas • CLTS was introduced in mid-2005 in 12 PAMSIMAS access to an • Improving sanitation • Increased % of households communities in 6 districts of Indonesia improved water remains a challenge practicing improved key covered by the Bank’s WSLIC and ADB’s AAA source and proper hygiene practices in target CWSH projects; within 1.5 years, the CLTS Statistical Capacity sanitation (urban/ areas movement spontaneously expanded to over Building Support rural) (no recent 120 communities, nearly 90 of which have data) reached the status of being free of open defecation. Following this excellent community response, WSLIC project decided to scale up CLTS to all its 34 districts starting 2007 (ongoing) Strategic Outcomes Influenced by the CAS Program During the Five Year Period and Longer- WBG and Partner Term Country Issues and Obstacles Expected End-CAS Outcome(s) Progress To Date Contributions Outcomes PILLAR THREE: THE CORE CAS OBJECTIVE: ADDRESSING THE UNDERLYING ISSUE OF GOVERNANCE Development • Lack of political Core group of at least 40 • 12 districts have ful�lled entry and pre- Lending planning is commitment to districts participating in investment requirements of the LG • ILGRP responsive to governance reform local services platform framework. Other 28 are expected to start • USDRP constituents • Poor accountability of projects records signi�cant participation in 2008 in order to graduate in • SPADA political and economic improvements in governance 2010 (ongoing) elites outcomes • Governance performance of LGs is being AAA • Local level governments monitored through GDS (GDS2 results are • GDS2 face a legacy of currently being analyzed and will be available • Measurement overcentralization with for dissemination in 2008; it covers 133 Framework little capacity kabupaten, which constitute a representative for Financial • Weak civil society sample at the national level; preliminary Management of organization and results show a surprisingly high level of Local Governments hierarchical relations at satisfaction (85%) with LG performance on the village level service delivery, but also show a negative TF correlation between cases of corruption and • ILGRP satisfaction level) (ongoing) • Decentralization Support Facility Development Civil society involvement By 2010, all villages in Indonesia 38,000 villages/cities in CDD areas (50% of Lending planning is in government policy- engage in a participatory total) engage in a participatory process of • KDP responsive to making and planning has approach to development planning and budgeting (on track) • UPP constituents increased but is still spotty planning, execution, and • WISMP oversight • ILGRP • FEATI AAA • Poverty Assessment 74 • Project M&E systems for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Partners DfID, ADB, Netherlands, Japan, Partnership for Governance Reform Regulated and Automated Treasury • Automated Treasury Payment • All major government expenditure accounts Lending transparent Payment system is a new system enables accurate and are now zero balanced. Revenue accounts • DPLs 1-4 public �nancial outcome expected to be timely �nancial reporting and are not yet zero balanced. Work on the • GFMRAP management delivered by 2008. More reduces incidence and size of revenue accounts is ongoing (ongoing) than 18,000 commercial idle cash balances • The procurement of the automated treasury IFC bank accounts handled • Consolidate from nearly system is still ongoing and is not expected to IFC Advisory government funds, zero to at least 50% of core be implemented by 2008 (ongoing) Services Initiatives with no standards for government cash operations ef�cient authorization and into TSA AAA management of balances • Governance and • Substantial capacity Decentralization building needed Survey 2 to ensure effective • Forest Governance dissemination across all Initiative levels of government • Environmental • Weak political Dialogue (AMDAL) commitment An ef�cient and • Address root causes • All line ministries prepare • A consolidated �nancial statement for the TF streamlined civil of poor public sector �nancial statements using central government was completed for 2004 World Bank- service governance and new government accounting for the �rst time, and completed again in Netherlands corruption by instituting standards 2005 (done) Trust Fund for civil service reforms • Establishment of national • GOI has launched pilots in Ministry of Finance Decentralization • Bappenas to monitor remuneration commission that and Education with the intent of designing a Technical effectiveness reviews civil service salaries comprehensive CSR program (ongoing) Assistance and and undertake and transparency of pay Advisory Services independent operational packages assessment of the new • Reduced leakage in compensation programs expenditure flows to end- users as measured Strategic and Outcomes Influenced by the CAS Program During the Five Year Period WBG and Partner Longer-Term Issues and Obstacles Expected End-CAS Outcome(s) Progress To Date Contributions Country Outcomes PILLAR THREE: THE CORE CAS OBJECTIVE: ADDRESSING THE UNDERLYING ISSUE OF GOVERNANCE Effective Focus on engaging Greater clarity of functions at Decree PP38 of 2007 de�nes service delivery • Institutional implementation of sector ministries (Health, each level of government responsibility at each level of government. Development decentralization Education, Environment Actual implementation yet to be seen (slower and Public works) in the than expected) Partners preparation of ministerial GTZ, Netherlands, decrees DFID, JBIC, ADB, • Uncertainties in the CIDA delineation of autonomy at different levels of government • Clari�cation of roles and responsibilities for supervision and regulation • Remove DAU hold- Improved mechanisms for �scal • The “second big bang� created additional harmless provisions as transfer transfers to regions of almost 50% (DAU by scheduled in 2008 • Enhanced �scal equalization 64%). The poorest parts of Indonesia have • Increase funds for DAK performance of general been the main bene�ciaries. Ever since, �scal in APBN, especially for purpose transfers (DAU) equalization is not Indonesia’s main challenge social sectors • Implement clear and consistent – spending resources well at the local level is • Speed up transfer of provisions for on-granting and (change in priority) natural resource revenue on-lending donor �nance • The removal of DAU hold-harmless provisions shares (NRRS) to sub- is expected to be implemented in 2008 but national governments since the “second big bang� only plays a minor role in �scal equalization (change in priority) • Ministry of Finance Decree on On-Lending and On-Granting has been issued. The new on-lending framework is piloted under USDRP. 75 But this is still to take off. The on-granting COUNTY PARTNERSHIP STRATEGY framework is yet to be launched under ILGRP (ongoing) Establishment of • Formal justice system Positive trend in the number Investigative Units have been established Lending a credible and lacks credibility among of investigations leading to in IG and are operational. Anti-Corruption • SPADA impartial justice most Indonesians prosecution (increase in Commission and Court are operational and sector • Political commitment investigations by AGO from have taken on several high-pro�le corruption AAA • Signi�cant to reforming legal 1,384 in 2005 (and 1,320 in cases. Law expanding legal mandate of BPK for • Justice for the improvements institutions is very weak 2003) to 1,758 in 2006 and in auditing public �nance passed (ongoing) Poor in corruption • Poor face signi�cant prosecutions from 729 in 2005 • 20 districts (6 in conflict areas) have started • Partnership for perception obstacles in reaching (604 in 2003) to 807 in building networks of paralegal and ALD Governance measures and in the formal justice 2006) assistance. Impact on access is too early to Reform survey -based institutions. • Full compliance with wealth tell (ongoing) • Governance and measurements of • Given more rapid declarations by public of�cials • 2 pilots in progress for establishing network Decentralization popular trust in progress than as established by law of paralegal assistance, alternative dispute Survey 2 court system in anticipated on • Increased % of poorer resolution mechanisms, and legal literacy • Anti-Corruption project-assisted establishment of households and SMEs using training; expansion of pilots expected in 5 Studies areas: Corruption Anti-Corruption legal, paralegal and alternative provinces over next year (ongoing) perception index Commission (KPK) and dispute mechanisms in at least TF and governance Anti-Corruption Court, 40 districts • Governance indicators (TI, end-CAS outcome as • Issue implementing regulations Partnership WBI) point expanded to include on Witness Protection Law and to a slight cases investigated by Freedom of Information Act Partners improvement KPK Partnership for since 2002 Governance Institutional and legal Reform, DFID framework needs further strengthening Strategic and Outcomes Influenced by the CAS Program During the Five Year Period WBG and Partner Longer-Term Issues and Expected End-CAS Progress To Date Contributions Country Outcomes Obstacles Outcome(s) PILLAR FOUR: DISASTER RISK MANAGEMENT Rebuilding a Better Aceh and Nias Restored The main challenge • Decreased number of • 6,267 displaced people (mainly in Aceh Besar and West Lending economic is to address the displaced people living in Aceh) still living in tents and barracks and estimated • CDD projects (KDP, growth (GDP) missing middle tents, barracks and with maximum 20,000 with host families (achieved/ongoing) UPP) and sustainable of district level host families • The process of reconstruction is underway: 85,000 new • SPADA livelihoods infrastructure that • Transparency houses were completed by September 2007 of which will connect houses and ef�ciency of 4,400 were built by the Bank. Additionally, 4,050 houses IFC into communities reconstruction process have been rehabilitated (achieved/ongoing) • IFC Advisory Inflation in line with • Decreased rate of • 43 community health clinics and 282 schools built or Services Initiatives national average Sustaining the unemployment among repaired by the Bank. 846 bridges repaired; 2,330 peace process will tsunami-affected km village roads and 199 km of urban roads rebuilt; AAA depend on meeting populations, ex- 1,211 irrigation and drainage projects in rural areas and • GDS Reduced GAM reintegration combatants and others rehabilitation of 178 km drainage in urban areas; 1,148 • Disaster Risk percentage of needs • Also see Pillar 1 for land clean water systems and 1,032 sanitation units by the Management population living in survey, adjudication and Bank; over 11 million workdays generated through the Framework poverty (household title distribution progress above Bank-supported infrastructure work as of August- expenditure) under MDF Project on 2007 (achieved/ongoing) TF Reconstruction of Aceh • About 10% of individuals aged 15 years or older • MDF for Aceh & Land Administration were seeking or available for work in �rst half of 2007 Nias (housing, System (assessment completed) land, technical • Forest monitoring and • KDP village survey completed covering assessment of assistance, waste protection systems infrastructure and social conditions (done) management, strengthened and • Aceh Public Expenditure Analysis and Public Financial infrastructure and implemented Management in Aceh Report published; Aceh Flood environment) • Community based Damage Assessment completed (done) • KDP for Aceh forest and ecosystem • Separatist group (GAM) reintegration needs. Data 76 rehabilitation for analysis about the forest status completed. The baseline Partners livelihoods and data is: Undisturbed forest 1,562,062 ha (68%); MDF (ADB, Canada, environmental services Disturbed forests (20%); and non forests 283, 836 ha Denmark, EU, for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons implemented (12%) Finland, Germany, • Nurseries established in four villages; rehabilitation of Netherlands, New 280 ha with tree species selected by the communities Zealand, Norway, based on livelihood needs; integrated village spatial Sweden, UK, USA, planning completed in Pisang in A.Selatan. Livelihood Belgium, Ireland) projects based on the water sources identi�ed. Project feasibility studies are being assessed (done) Responding to Yogyakarta & Central Java Earthquake Rebuild housing Reduced number of 2,000 houses have been built through Bank support as of Lending households without a September 2006 and a total of 6,000 houses rebuilt is the Community Based house rebuilt target (on track) Settlement Reconstruction and Rehabilitation Project (CSRRP) TF Java Reconstruction Fund (JRF) Avian and Human Influenza and other Emergent Crises Sustainable Government • A participatory system Government’s public awareness campaign appears to be TF income-creating strategy to respond detects outbreaks and reaching the bulk of country’s population (ongoing) • Avian and Human opportunities for to HPAI threat not responds in 12 districts Influenza Facility poorer households yet clari�ed • Communities trained to undertake quarterly vaccination of poultry in 6 districts Improved Institutional Framework for Disaster Risk Management Strengthened GOI and donors Technical and capacity • Mainstreaming disaster preparedness and risk capacity for have been building support at management under consideration (ongoing) disaster risk responding to national and local level for management the devastating assessing post-disaster disasters, but damage and needs a coordinated pro-active risk management framework needed. Appendix 8. : Attachment B Indonesia: CAS Completion Report: Planned Lending Program and Actual Deliveries, FY04-FY08 (US$M) (US$M) FY CAS Plans IBRD IDA Grant Actual Deliveries IBRD IDA Grant 2004 Coral Reef Rehabilitation & Management Program II 46 26 Delivered in FY04 33 23 Eastern Indonesia Region Transport 2 200 Delivered in FY04 200 Land Management & Policy Development 29 32 Delivered in FY04 33 33 Initiatives for Local Governance Reform 28 32 Delivered in FY05 15 15 Support for Poor and Disadvantaged Areas 45 Delivered in FY05 69 35 Urban Poverty Project 3 113 67 Delivered in FY05 67 71 Urban Sector Development & Reform Program 78 22 Delivered in FY05 45 Catchment Protection (LIL) 3 Dropped 3 2005 Government Financial Management & Revenue Admin 120 Delivered in FY05 55 5 Higher Education Project 65 35 Delivered in FY05 50 30 Kecamatan Development Project 3B (not in CAS) Delivered in FY05 80 80 Domestic Gas Sector Restructuring 85 Delivered in FY06 80 Strategic Roads Infrastructure 200 Delivered in FY07 208 Environment & Sanitation 40 60 Dropped Provincial Health & Nutrition 75 Dropped Sustaining Micro�nance 20 40 Dropped Urban Water Services Improvement 30 20 Dropped 77 High Case COUNTY PARTNERSHIP STRATEGY First Development Policy Loan 200 Delivered in FY05 300 East Java Development Reform Program 175 Dropped Grants MDF- Land Titling in Aceh (RALAS) (not in CAS) Delivered in FY05 25 2006 Early Childhood Education and Development (not in CAS) Delivered in FY06 68 Water Supply & Sanitation For Low Income Communities 3 80 20 Delivered in FY06 138 Farmer’s Empowerment & Technology 40 30 Delivered in FY07 33 60 Strengthening Capacity for Decentralized Education 70 30 Dropped Urban Local Government Reform 2 100 50 Dropped Urban Water Supply 100 Dropped Initiatives for Local Governance Reform 2 100 50 Not prepared Local Community Support Project (KDP4) 50 50 Not prepared High Case Second Development Policy Loan 250 Delivered in FY06 400 West Java Environment Management (APL2) 70 Dropped Energy Sector Project 200 Not prepared Yogyakarta Regional Development & Poverty Reduction 50 Not prepared Grants (not in CAS) MDF- Aceh Forest & Environment Delivered in FY06 21 MDF- Community Based Settlement Reconstruction & Delivered in FY06 85 Rehabilitation MDF- Community Reconstruction through KDP Delivered in FY06 65 MDF- Community Reconstruction through UPP Delivered in FY06 18 MDF- Emergency Rehabilitation of Drainage & Flood System Delivered in FY06 5 MDF- Infrastructure Reconstruction Enabling Program (IREP) Delivered in FY06 42 (US$M) (US$M) FY CAS Plans IBRD IDA Grant Actual Deliveries IBRD IDA Grant 2007 Fisheries Revitalization Project 100 50 Dropped National Agency for Drug & Food Control 40 10 Dropped Catchment Protection 2 50 25 Not prepared Community Based Education for Marginal Youth 50 25 Not prepared Provincial Health & Public Health Functions 30 10 Not prepared Umbulan Spring/Greater Surabaya Water 100 Not prepared Urban Community Development 100 50 Not prepared Water Resources & Irrigation Sector Mgt(APL2) 70 30 Not prepared High Case Third Development Policy Loan 250 Delivered in FY07 530 70 KDP3 Second Phase - Additional Financing (not in CASPR) Delivered in FY07 123 UPP2 Additional Financing (not in CASPR) Delivered in FY07 136 Teacher Management (BERMUTU) 70 70 40 Delivered in FY08 25 62 Government Financial Management & Revenue Administration 2 60 Moved to FY09 120 Private Infrastructure Finance 60 Moved to FY09 60 Urban Water Supply & Sanitation 35 35 Moved to FY09 30 Yogyakarta Earthquake Housing Reconstruction 110 76 Not prepared Grants MDF- Infrastructure Reconstruction Financing Facility 100 Delivered in FY07 100 MDF- KDP Nias 26 Delivered in FY07 26 MDF- SPADA Aceh/Nias 25 Delivered in FY07 25 78 MDF- Roads Lamno-Calang 12 Moved project to UNDP JRF - Transitional Housing Projects 6 Delivered in FY07 6 for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons JRF - Permanent Housing & Community Infrastructure Project 76 Delivered in FY07 70 2008 Fourth Development Policy Loan 500 Delivered in FY08 600 Infrastructure DPL 100 Delivered in FY08 200 National Program for Community Empowerment 100 100 Delivered in FY08 41 191 National UPP (PNPM UPP) 50 100 Delivered in FY08 53 125 Dam Operational Improvement 80 20 Moved to FY09 50 National Roads Improvement 300 Moved to FY09 300 Youth Employment Program 40 40 Moved to FY09 100 Basic Education (SISWA) 120 80 300 Moved to FY10 300 Electricity Access for Rural 100 52 Moved to FY11 150 Infrastructure Guarantee Fund 50 Moved to FY11 300 West Tarum Canal 80 20 Moved to FY11 80 Agricultural Export Competitiveness 70 Dropped CCT to the Poor/DAK for CDD Operations 10 150 Not prepared Appendix 8. : Attachment C Indonesia: CAS Completion Report: Projects Closed During CAS Period (FY04-FY08) Closing Disbursed Cancelled Outcome Sustainability Institutional Date US$M US$M ICR IEG ICR IEG Development Nusa Tenggara Development 09/30/2003 22.06 4.94 U MU Unlikely Unlikely Modest Sulawesi Agricultural Area 12/31/2003 23.10 3.70 U MU Unlikely Unlikely Modest Corporate Restructuring 12/31/2003 6.15 24.50 S MS Likely Non-evaluable Modest Iodine De�ciency Control 12/31/2003 18.77 9.70 S S Likely Likely Substantial Quality of Undergraduate Education 03/31/2004 56.61 9.89 S S Likely Likely Substantial Central Indonesia Secondary Education 06/30/2004 93.06 9.69 S S Likely Likely Substantial East Java & NTT Junior Secondary Education 06/30/2004 87.42 3.90 S S Likely Likely Substantial Sumatra Secondary Education 06/30/2004 93.58 3.42 S S Likely Likely Substantial Urban Poverty 06/30/2004 80.75 0.00 S S Highly Likely Likely Substantial Information Infrastructure Development 06/30/2004 24.89 8.50 S MS Likely Likely Modest Coral Reef Rehabilitation and Management 07/31/2004 6.70 0.20 S MS Likely Non-evaluable Substantial Fifth Health Project 07/31/2004 32.71 11.99 U U Unlikely Unlikely Modest Bepeka Audit Modernization 09/30/2004 14.01 1.77 U U Likely Likely Modest Bali Urban Infrastructure 09/30/2004 72.13 37.87 S MS Likely Unlikely Substantial Water Resources Sector Adjustment Loan 11/09/2004 150.00 150.00 S S Highly Likely Likely Substantial Railway Ef�ciency 12/30/2004 57.39 47.33 U U Unlikely Unlikely Modest Safe Motherhood 12/31/2004 32.27 10.23 S S Likely Likely Modest 79 West Java Basic Education 12/31/2004 99.46 3.76 S S Likely Likely Substantial COUNTY PARTNERSHIP STRATEGY First Development Policy Loan 03/31/2005 300.00 0.00 S Likely Modest Decentralized Agricultural/Forestry Extension 03/31/2005 16.59 0.00 S MU Likely Non-evaluable Modest Bengkulu Regional Development 12/31/2005 12.45 8.05 S S Likely Likely Substantial Sumatra Regional Roads 12/31/2005 178.01 50.00 S MS Unlikely Unlikely Modest Second Development Policy Loan 03/31/2006 400.00 0.00 Library Development LIL 04/30/2006 4.15 0.00 MS MS Sulawesi Basic Education 04/30/2006 62.19 0.00 S S Sumatra Basic Education 04/30/2006 73.86 0.00 S S Eastern Indonesia Regional Transport 06/30/2006 198.58 0.00 West Java Environmental Management 06/30/2006 13.15 0.00 MU MS Unlikely Substantial Early Child Development 12/31/2006 10.85 10.65 MS MU Third Development Policy Loan 03/31/2007 601.29 0.00 Provincial Health II 06/30/2007 75.23 32.00 Global Development Learning LIL 12/31/2007 1.45 0.00 Kecamatan Development II 12/31/2007 331.59 0.00 Provincial Health I 12/31/2007 31.26 3.17 Fourth Development Policy Loan 03/31/2008 600.00 0.00 Infrastructure DPL (IDPL) 03/31/2008 0.00 0.00 Notes: Outcome ratings: HS - Highly Satisfactory; S - Satisfactory; MS - Moderately Satisfactory; MU - Moderately Unsatisfactory; U - Unsatisfactory Appendix 8. : Attachment D Indonesia: CAS and CAS PR Completion Report: Key Nonlending Program and Actual Deliveries, FY04-FY08 CAS PR Plans Notes on Aceh Reconstruction Delivered in FY05 Papua Public Expenditure Analysis Delivered in FY05 Preliminary Loss & Damage Assessment for Aceh Delivered in FY05 Rural Electricity Access Delivered in FY05 Accounting ROSC Delivered in FY06 Aceh & Nias One Year after the Tsunami Delivered in FY06 CGI Brief: Investing for Growth and Recovery Delivered in FY06 ECED Sector Report Delivered in FY06 Information and Communication Technologies for Rural Development Delivered in FY06 Local Environmental Governance (AMDAL review) Delivered in FY06 Local Government Financial Management Delivered in FY06 Non-Bank Financial Institutions Study Delivered in FY06 PRSP Support Delivered in FY06 Public Private Partnerships in Agriculture Delivered in FY06 Rebuilding Better Aceh & Nias-CFAN Report Delivered in FY06 Rural Investment Climate Survey Delivered in FY06 Yogyakarta and Central Java Preliminary Damage and Loss Assessment Delivered in FY06 80 Conflict and Poverty Delivered in FY07 Fuel Savings/Unconditional Cash Transfer Delivered in FY07 for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons HIV/AIDS Delivered in FY07 Improving Rural Productivity Delivered in FY07 Infrastructure Summit Delivered in FY07 Local Government Platform Flagship Delivered in FY07 Migration and Remittances Delivered in FY07 Nias Public Expenditure Analysis Delivered in FY07 Poverty Assessment Delivered in FY07 Public Expenditure Review: Spending for Development Delivered in FY07 Social Protection Study Delivered in FY07 Teacher Management Delivered in FY07 Aceh Poverty and Economic Development Delivered in FY08 Conditional Cash Transfer Delivered in FY08 Governance and Decentralization Survey 2 Delivered in FY08 Public Financial Management Measurement Framework Delivered in FY08 Social Aspects of Poverty Reduction Delivered in FY08 Corruption Monitoring Surveys Delivery in FY08 DPR Delivery in FY08 Employment Study Delivery in FY08 Health Workforce and Improving Service Delivery Delivery in FY08 Country Procurement Assessment Report Delivery in FY09 Aceh BRR Support and Donor Coordination Ongoing Aceh Program Implementation Ongoing Creating a Diversi�ed Financial System Ongoing Good Environment Governance Ongoing Governance Civil Service Dialogue Ongoing Improving Investment Climate Ongoing Improving Service Delivery Ongoing Investment Climate Flagship Ongoing National Governance Flagship Ongoing Reducing Poverty Flagship Ongoing WBI Capacity Building Program for the Government Ongoing Poultry Sector Strategy Dropped CAS Plans Averting an Infrastructure Crisis Delivered in FY04 CGI Brief: Indonesia: New Directions Delivered in FY04 DPR: Beyond Macroeconomic Stability Delivered in FY04 Education in Indonesia: Managing the Transition to Decentralization Delivered in FY04 Forest Policy Strategy Delivered in FY04 Justice and the Poor Delivered in FY04 Making Indonesia Competitive: Promoting Exports, Managing Trade Delivered in FY04 Mining Indonesia’s Wealth Responsibly Delivered in FY04 PRSP Support Delivered in FY04 Investment Climate Flagship Delivered in FY05 Policy Briefs for Incoming Government Delivered in FY05 Regional Expenditure Review Delivered in FY05 Local Government Reforms Flagship Delivered in FY06 Making Services Work for the Poor in Indonesia Delivered in FY06 Public Expenditure Review Delivered in FY06 Aceh RPER Delivered in FY07 Poverty Assessment: Making the New Indonesia Work for the Poor Delivered in FY07 Corruption and Legal Reforms Flagship Ongoing Additional deliveries not in CAS Combating Corruption in Indonesia: Enhancing Accountability for Development Delivered in FY04 Corporate Governance Country Assessment Delivered in FY04 Health and Decentralization Delivered in FY04 Water User Rights Analysis Delivered in FY05 81 Additional deliveries not in CAS PR COUNTY PARTNERSHIP STRATEGY Aceh Stocktaking Report Delivered in FY06 Nonbank Financial Institutions Review Delivered in FY06 Budget Reform Strategy Priorities Delivered in FY07 Horticultural Production and Supermarket Development Delivered in FY07 Appendix 9. Indonesia: Civil Society Consultations World Bank Group Country Partnership Strategy for FY09-12 In preparing the new World Bank Group (WBG) order to avoid adverse impact on the environment, Country Partnership Strategy (CPS) for Indonesia (FY ensure sustainability, and increase ownership, 2009-2012), a focus group discussion was held in the design and implementation of Bank-�nanced Jakarta on February 13, 2008 to elicit inputs from civil projects should factor in local traditions. society groups across the country. Fifteen groups from 4. Information on Bank-�nanced projects should be four regions –Sumatera, Sulawesi, Java, and Nusa easily accessible to the public at the project site. Tenggara— participated in the full-day discussions. There should be a clear complaint mechanism These diverse groups have been active in advocacy that would allow public feedback to be followed and development work, namely in the area of gender through. mainstreaming, democracy building, anti-corruption 5. Community rights and human rights should and governance, sustainable natural resources always be considered in the design, planning, and management, community development, legal reforms, implementation of every Bank-�nanced projects. development research, grassroots capacity building, 6. The World Bank should help reduce Indonesia’s debt and micro-credit. by providing incentives for its forest conservation efforts. Indonesia’s forests are the lungs of the The focus group discussion was facilitated by a team world and people in the developed world bene�t 82 of civil society interlocutors led by Rustam Ibrahim, from its conservation. former director of LP3ES –a respected Jakarta-based 7. The Bank should carry-out environmental for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons development NGO. At the discussion, the World Bank assessment for every investment project, such as team was led by Joachim von Amsberg, Country in infrastructure and natural resources extraction, Director for Indonesia. as they affect the livelihoods of the people. 8. Technical assistance should not be provided as This document summarizes the key recommendations loans, but as grants. from these civil society groups arising from the discussions. B. Partnership with the Central Government Key Recommendations for the World 9. With regard to regional autonomy, some Bank Group government and ministerial decrees are in conflict with the spirit of decentralization. The World Bank A. General Recommendations should help review these decrees and analyze their adverse impact on decentralization in Indonesia. 1. Although the World Bank has a comprehensive Based on the review, the Bank could lay out the Anti-Corruption Action Plan, taking actions against issues and provide recommendations to the central individuals or �rms committing corruption in its government to correct anomalies. projects, or demanding that the Government return 10. The World Bank should devolve the implementation the loan amounts; these measures are not suf�cient of �nanced projects to the district governments. In in �ghting corruption in Indonesia. The World Bank order to improve the ef�cient use of resources, the should ensure that the Government of Indonesia central government should merely play a policy follow-up on these corruption cases through legal making and monitoring role, and should not be the means. The Bank should also prepare a blacklist of executor of Bank-�nanced projects. ministries and regional governments that took part 11. The World Bank should provide technical assistance in corruption in Bank-�nanced projects. for civil service reform. 2. Gender mainstreaming should be an integral part of every Bank-�nanced project design C. Partnership with Regional Governments and implemented consistently. Currently, the participation of women in project decision making 12. The World Bank should provide technical is minimal. assistance to mainstream participatory planning 3. Some Bank-�nanced projects overlook local at the grassroots level. Development projects and traditions, such as customary land rights (hak programs are often weakly coordinated at the ulayat). The World Bank should not separate local grassroots level. An integrated bottom-up approach values in the implementation of its programs. In to participatory planning prepared annually at the grassroots level will reflect the real needs of local transparency. This could be done through communities. technical assistance and capacity building 13. The World Bank should help build capacity of support to umbrella organizations and civil society district level regional governments for both the networks in building and developing self-regulation executive and legislative branches. Of�cials at the mechanisms. This will help encourage the adoption local level need the technical knowledge and skills of a code of ethics and accreditation/certi�cation on drafting regulations, realizing the importance mechanism among the civil society groups that will of academic review, assessing the impact of be self-administered by the umbrella network. The regulations on communities, and understanding grant support for this technical assistance could be the need for harmonization of regional regulations. managed through existing entities supported by the 14. The World Bank should support capacity building World Bank, such as the Decentralization Support of Regional Audit Agencies (Bawasda), especially Facility (DSF). in enhancing their role in monitoring regional 22. Consultations between the Bank and Indonesian �nances. civil society groups should be carried out on a 15. The World Bank should provide technical assistance regular basis, not only in the context of preparing for regional governments in budget preparation to a CPS, but also in the preparation and planning avoid delays in preparing the Regional Development stages of every Bank-�nanced program or project Budgets (APBD). in Indonesia. This could be done through the 16. Successful Bank-�nanced projects, such as the establishment of a regular working group which Kecamatan Development Project (KDP) and the includes representatives of civil society, the Urban Poverty Project (UPP), should be able to Government, and Bank management. The Bank be sustained beyond their project life-cycles. should ensure that regional CSOs, women, and The Bank should build partnerships with regional marginalized groups are well represented in the governments to continue supporting these working group. 83 initiatives through their own �nancing and ensuring that the original participatory approach is reflected COUNTY PARTNERSHIP STRATEGY in their implementation. Participating Civil Society 17. The Bank should urge regional governments to issue Organizations Freedom of Information Acts and other regulations to promote transparency. MATARAM, WEST NUSA TENGGARA 18. Globally, tourism is a sustainable source of growth • KONSEPSI-NTB that spurs local economies. The Bank should assist • MITRA SAMYA regional governments in developing and managing • KOSLATA their tourism sectors. • SOMASI • YKPR D. World Bank’s Engagement with Civil Society PALEMBANG, SOUTH SUMATERA 19. To help ensure that Bank-�nanced projects are free • YAYASAN PUSPA INDONESIA ( PUSAT STUDI from corruption, the Bank should work together PEMBERDAYAAN PEREMPUAN DAN ANAK with civil society groups. Credible groups with clear SUMSEL) track records and knowledge of development could • PERSERIKATAN OWA INDONESIA be empowered to monitor the implementation of • FITRA SUMSEL projects on the ground. These groups should • Women Crisis Centre (WCC) Palembang work independently and report their �ndings to the • WAHANA BUMI HIJAU public. 20. In engaging Indonesian civil society groups at the MAKASSAR, SOUTH SULAWESI project level, the Bank should take into consideration • YAYASAN PELITA DESA their past track records. The Bank should prepare • YAYASAN MASYARAKAT MAJU basic guidelines and standard requirements that are • IPPM (Institut Penelitian dan Pemberdayaan based on competency, capacity and accountability. Masyarakat) As an entity, a civil society group should be a non- • AiLO SULSEL/ Asosiasi LSM/ORNOP SULSEL pro�t organization and not a commercial consulting �rm. Therefore, civil society groups should be JAKARTA treated differently from commercial entities in the • LP3ES procurement process and should be exempted from several regulations, such as Presidential Decree No. 80. 21. The Bank should assist Indonesian civil society groups in improving their accountability and Appendix 10. Indonesia: Addressing the Issue of Fraud and Corruption in WBG Supported Programs14 Now a decade after the fall of the New Order regime, • The WBG must have a clear and consistent whose collapse exposed the tremendous costs of voice raising corruption concerns and promoting corruption for Indonesia’s stability and development, feasible policy responses across all sectors of our the salience of this issue has not yet diminished. operations. Indonesia has taken important steps forward in the • The WBG should select projects to open multiple course of this decade, creating a system of electoral entry points in the �ght against corruption. accountability, opening up the space for an independent • The WBG should build in mechanisms to media and vibrant NGO community, and building a mitigate corruption risks for all projects through new institutional framework to prevent, investigate empowerment, participation and transparency. and prosecute corruption. President Yudhoyono has • Where corruption allegations do arise, the WBG placed the �ght against corruption at the center of his must be vigorous in investigating them and providing governing program. High level corruption investigations disclosure of the results in accordance with the and indeed prosecutions are increasingly common. WBG’s rules and policies. And the Government is beginning to implement important reforms in the key systems for public �nancial These principles, which were designed at a time when management, public procurement, business regulation, the WBG had limited engagement with the Indonesian 84 auditing, and monitoring and evaluation, which although Government on governance and anti-corruption issues, rarely make headlines, often have a far more important led to important changes in the Indonesia program. . for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons and lasting impact on the opportunities and incentives Under the new CPS, there will be an enhanced focus for corruption. Though several international corruption on supporting the Government’s own anti-corruption indicators have shown some positive movement efforts, working in partnership with a range of especially over the last few years, the progress has Indonesian anti-corruption and �duciary institutions. been modest and both public and investor perceptions As such, in addition to protecting Bank-�nanced of Indonesia continue to see corruption as endemic. operations, the WBG’s anti-corruption efforts over the Many claim that decentralization in the absence of a CPS period will be equally devoted to strengthening strong local accountability framework may even have national institutions and systems that will directly worsened corruption at that level or, at the very least, impact a much wider scope of public expenditures. In made it more unpredictable. line with this approach, when corruption allegations do arise in WBG-�nanced programs, the WBG will For the WBG in Indonesia, corruption remains a triple make its best effort to support the Government’s own threat: it undermines progress on the country’s investigative and sanctions processes, in addition to broad development objectives; it is a serious risk to following the WBG’s own investigative and sanctions the effectiveness of WBG assistance; and it weakens processes. Under this CPS, the WBG’s engagement public trust in development assistance overall. One of on anti-corruption will be guided by the following three the most important lessons of the WBG’s experience in principles: Indonesia is that the success of its entire program will be judged by the contribution that our engagements 1) Partner with Indonesian institutions that are leading in all sectors are seen to make towards greater the �ght against corruption. Since the last CAS, the transparency and accountability and by the standards WB has developed strong working relationships of integrity with which that program is implemented. with Indonesia’s key anti-corruption institutions: This has consistently been one of the main messages the Corruption Eradication Commission (KPK), the of the WBG’s CPS consultations with civil society. Attorney General’s Of�ce, the Audit Board (BPK), the Financial Development and Supervisory Board (BPKP), Under the previous CAS, the WBG committed to four the Financial Transaction Reports and Analysis Center key anti-corruption principles across its entire program (PPATK), and the Of�ce of the Ombudsman. Through in Indonesia: trusts funds, the WBG has been able to provide direct ________________________________________________ 14 “Fraud and/or corruption� refers collectively to “fraud, corruption, collusion, coercion and obstruction� as de�ned in the Bank’s Guidelines on Preventing and Combating Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants. technical assistance to strengthening Indonesia’s implementation, and clearly de�ned sanctions and anti-corruption prevention campaign, improving remedies so that small-scale corruption cases can auditing capacity, building capacity to recover stolen be resolved within the framework of the program. assets through the Stolen Assets Recovery initiative, Experience to date has demonstrated that the and, in the oil, gas, and mining sector, to enhancing effectiveness of these GAAPs depends signi�cantly transparency through support for the adoption of the on the degree to which the proposed mechanisms are Extractive Industries Transparency Initiative (EITI). integrated into the relevant Government agency’s own The WB will continue to provide TA/support to the key systems and procedures. To ensure this integration, government agencies (including KPK, BPK), as well as the WBG and Bappenas will carry out regular portfolio undertake efforts aimed at the strengthening of anti- reviews of the implementation of all GAAPs with the corruption advocates and research institutes through participating Government agencies. In addition, GAAPs several initiatives, such as: (1) training and research will continue to be disclosed publicly to allow for civil on measuring the impact of governance and anti- society oversight of anti-corruption mechanisms. corruption programs through randomized evaluations in a long-term research partnership between the Follow-up of corruption allegations in WBG Poverty Action Lab at the Massachusetts Institute supported projects: of Technology and Indonesia’s leading corruption researchers; (2) participatory expenditure reviews Both the GoI and the WB may receive allegations for regional government budgets led by regional of fraud and corruption related to WB-supported universities through the PEACH initiative; and (3) programs and projects. When the WB receives such support for Indonesian research on the identi�cation allegations, it will, subject to its relevant policies and and tracking of rents in various resource flows. procedures applicable to corruption allegations and its disclosure policies and procedures, disclose these 2) Select priority programs for WBG engagements allegations to the GoI in a timely manner. It will also, 85 to support “islands of good governance� in select where it considers it to be warranted, investigate government agencies and regions. The WBG will the allegations for the purposes of possible WB COUNTY PARTNERSHIP STRATEGY work within the framework of the cross-cutting and administrative sanctions. core engagements discussed in the CPS to open up multiple anti-corruption entry points at different If the GoI receives such allegations, the MoF has agreed levels of government and across different sectors. to promptly inform the Bank about such allegations. The WBG will seek to work and support Indonesian The MoF will direct WBG-provided complaints to the partners who demonstrate a clear commitment to relevant GoI investigative and/or audit agency for undertaking institutional reforms to address the follow-up. incentives and opportunity for corruption in publicly �nanced programs. These multiple entry points raise The GoI and the WB have agreed that for the foreseeable the likelihood of achieving demonstrable impact in future the Director General of Debt Management speci�c areas that can be replicated to build success and External Financing, Ministry of Finance will be stories and counter impressions that “nothing can be designated as the GoI focal point for these exchanges done� in an environment of endemic corruption. of information. The focal point may change by mutual consent of GoI and WBG if deemed necessary in the 3) Build into the design of WBG-assisted government future. programs support for the strengthening of Indonesia’s own systems to mitigate corruption risks and handle The WBG will make its best efforts to provide, when corruption allegations. Since 2003, all WBG-assisted requested, technical assistance to GoI agencies government programs have included Governance and reviewing corruption allegations in WBG-�nanced Anti-corruption Actions Plans (GAAPs) as part of the programs, with a view to strengthening the technical implementation arrangements. Prepared together with capacity of relevant Indonesian agencies to investigate the relevant government clients, these GAAPs are corruption allegations. Such agencies may include the intended to assess the risks of corruption inherent in KPK, BPKP, BPK and the relevant Inspectors General such projects and introduce design and supervision of partner agencies. mechanisms executed by the Government to mitigate such risks. Over the past �ve years, these GAAPs have Regular meetings will be held with MoF to review incorporated measures such as enhanced disclosure the progress and follow-up actions of corruption mechanisms for project documents and results, investigations and discuss proposed remedies and public complaints handling mechanisms to receive, sanctions; as well as discuss and agree on possible investigate and resolve corruption-related complaints, measures for prevention of recurrence in the future. external oversight measures for key stages of program In the event that the WBG proposes to exercise legal remedies and/or apply administrative sanctions, it will, unless Bank management determines that exceptional considerations arise, explain to MoF the basis for its proposed action and provide MoF with the maximum possible advance notice before taking the action in question. To integrate these principles across the entire range of our partnerships, the Indonesia Country Team will continue to invest substantial resources into mainstreaming anti-corruption measures and initiatives. The Indonesia Country Of�ce includes a Governance Adviser in the Country Management Team to coordinate its anti-corruption relationships and policy dialogue, oversee governance-related operations, advise projects on governance and anti-corruption strategies, and develop a comprehensive research agenda and monitoring framework on governance. A strong �eld-based Operations Support team has been put in place to lead the movement towards a systematic and effective supervision of �duciary practices during project implementation. An in-house Governance and Anti-Corruption Committee will continue to meet 86 regularly with representation across the sectors to serve as a focal point for integrating anti-corruption mechanisms into project design, support and review for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons GAAPs, monitor implementation of GAAPs and liaise with our GoI partners. A Senior Anti-Corruption Adviser will also be added to the staff to work closely with GoI agencies on all aspects of developing and implementing GAAPs and supporting relevant agencies in the investigation of corruption allegations in WBG- �nanced programs. Appendix 11. Indonesia: Management of Trust Fund Operations The ability to mobilize trust fund resources has enabled Fund for Public Financial Management and Revenue the World Bank and other development partners Administration Reform Program. At the other end are to respond to priority needs of the Government of small, ad hoc trust funds to support speci�c activities Indonesia in a timely manner and to explore and address (although these are reducing in number). Examples emerging issues. The dramatic growth of the Indonesia are: Support for supervision of the KDP in Aceh and trust fund portfolio reflects the Bank’s commitment North Sumatra; JSDF: Improving Rural Connectivity to build broader and deeper partnerships with the for Sustainable Livelihoods; PHRD grants for project larger development community. The grant �nancing preparation; IDF grants for speci�c institutional provided under these trust funds are helping Indonesia development activities; and, TFESSD Campaign to to address emerging challenges of transforming and Improve Participation of Women in CDD Programs. strengthening its institutions. The outcomes of these Total portfolio amount of current active trust funds in partnerships include: pooling of �nancial resources for the Indonesia portfolio is about US$1.3 billion with 179 joint strategies and actions – whether it is to provide active grants. The biggest component of the portfolio assistance at the sub-national level or to support vital is the MDF for Aceh and Nias, with total amount of policy and institutional reforms; greater responsiveness about US$492 million (pledges about US$700 million). to unanticipated needs as in post-disaster recovery In terms of volume, Recipient Executed Trust Funds 87 efforts; and high-quality research and policy dialogue. (RETFs) are about 90 percent of the portfolio. Annual new contributions and disbursements over the last COUNTY PARTNERSHIP STRATEGY The Indonesia trust fund program has also helped to three years have been US$150 million and US$160 leverage the Bank’s own knowledge and resources in million respectively. providing support for special strategic thrusts of the Government’s agenda. There are numerous examples where trust funds serve as generators of knowledge, Need for a Shift in Strategic Approach contributing to new development initiatives and allowing the testing of pilot projects that are being replicated on As the supply of grant money continues to increase, a larger scale. Availability of trust funds has allowed a the “opportunistic� approach to mobilizing trust funds marked increase in the Bank’s analytical and advisory to support “donor� projects needs re-thinking. Certain activities, and more comprehensive supervision than quarters in the Government hold the view that some limited Bank budgets would normally allow. In addition trust funds are imposing CGI-like mechanisms, without to the post-disaster support work, among others, joint really contributing to convergence of ideas on critical analytical work is helping to influence areas including development issues or supporting the harmonization policy reforms in education, service delivery, governance, agenda. There is an increasing concern that “donor decentralization, poverty programs, public expenditure projects� are undermining the Government’s own and public �nancial management, and investment interventions, especially if the activities are executed climate. Signi�cant IBRD or IDA �nancing has also been by the donors and the funding is not incorporated in complemented with co�nancing from donor partners for the government budgets. With the thrust of the CPS certain flagship programs such as the KDP. on building national institutions and leveraging good practices on policies in an emerging MIC, there are opportunities to move from “donor projects� to Indonesia Trust Fund Portfolio government-led programs, with the Bank playing the role of a facilitator, convener, and �duciary manager. The Bank’s Indonesia trust fund portfolio has expanded dramatically; at the same time, the variety of trust fund arrangements has vastly increased the complexity of Main Issues to be Addressed managing the program. At one end of the spectrum are large, multi-donor trust funds (MDF) or jumbo trust funds The diversity of objectives, combined with a largely established to implement reconstruction programs decentralized process of mobilizing trust funds, pose and capacity building activities. Examples include: unique challenges in ensuring strategic direction and MDF for Aceh and Nias, Java Reconstruction Fund, selectivity. As the number of trust fund programs Decentralization Support Facility, Basic Education has grown, questions are being raised whether Capacity Building Program, and the EC/Dutch Trust enough selectivity is being exercised across new initiatives, and whether the costs of managing them Global partnerships. Support the environmental, are well understood and taken into account at the time deforestation, natural resource management and commitments are made. governance nexus (where there are opportunities of supplements and buy-downs for mitigation) and help The trust fund program has grown to the point with adaptation planning and incorporating the climate where existing systems and processes have found change agenda using resources such as the new it dif�cult to keep pace with the increasing demands Climate Investment Funds and Carbon Funds. of the Government, donors, and Bank staff. A new management framework is thus being proposed At the same time, the Bank and donors would like to as part of the CPS to ensure effectiveness of the leave the door open for new unspeci�ed issues – an program and make it sustainable. This would require open menu which allows for expansion in areas where changing the way in which the Bank works with the there are reform champions on the government side. Government and the commitment the Bank makes It would also allow for responding to unforeseen to donors, exercising more selectivity in acceptance needs, such as natural disasters and other emergency of trust funds on the basis of alignment with the CPS, situations. cost-effectiveness criteria, streamlined governance structures, and assessment of risks and expected (ii) Government Leadership outcomes and impact. The Bank is working with the Government to ensure full ownership of trust funded programs. In that context, the Bank intends to build upon successful trust fund A Proposed New Management models which have fully engaged the Government in Framework their management structure. Two successful models are: (a) MDF for Aceh and Nias, in which BRR is 88 The main driver for the proposed approach would be responsible for soliciting proposals aligned with the to move away from an opportunistic, donor project Aceh reconstruction plan and then putting them to a approach to an engagement of development partners Government-donor led Steering Committee; and (b) for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons to support existing government programs included in Basic Education Capacity Building Program which has the government’s budget. Such an approach would helped to fund extensive analytical support for policy aim to link priorities of Bappenas, MOF and line formulation to support the Government’s Medium- ministries around the CPS challenges of enhancing Term Education Sector Policy, or RENSTRA. The Bank competitiveness, inclusion, and sustainability in and the Government engage in a thematic dialogue Indonesia. The new framework would focus on aligning based on the analytical work carried out under the the incentives of the Government, donor partners, and trust fund. the Bank to help achieve results on the ground. The main elements of the proposed approach are: Other measures to promote government leadership could include: (i) establishment of a focal point in Pillar 1: Promoting a more strategic approach MOF or Bappenas; (ii) improved reporting for the which focuses on : (i) selectivity of program Government on trust fund portfolio performance; and activities; (ii) government leadership; (iii) creating (iii) transferring to the Government consultant capacity linkages with priorities of Development Partners; and developed at the Bank from trust fund �nancing. (iv) leveraging government programs. (iii) Linkages with Development Partners (i) Selectivity of Program Activities Development partners have also expressed interest Trust funded activities will be aligned with and support in adopting more programmatic approaches to trust key priorities of the CPS. These activities will be on the fund mobilization and management, possibly centered “front burner� of the program going forward: around cross-sectoral themes focused on joint objectives. The Bank intends to take steps to decrease Co-�nancing of core government programs such the number of ad hoc trust funds and approach the as PNPM and SISWA. In addition, opportunities will donors increasingly to sponsor thematic programmatic be explored in other sectors including roads, natural trust funds in line with the Government’s strategic resource management and sustainable energy. directions. Developmental needs and priorities would be identi�ed as part of the sectoral dialogue between Partnerships for strengthening public sector systems. line ministries and donors. Funding requests for the Build upon ongoing justice for the poor, anti-corruption resulting programs would be prioritized and a menu work and PFM reforms. provided to donors after consultations with Bappenas. Modalities for the ensuing trust fund programs would Local government partnerships. Areas of interest be more standardized, with upfront agreements on could be continued support for decentralization and levels of services with donors. The ideal model would local governance through the DSF. incorporate agreed thematic objectives, and broad criteria for allocation of funds, with the Bank authorized Going forward, the increasing mainstreaming of trust to allocate within an annual planning framework. funds into the regular business planning, resource The Bank would also consider organizing an annual management, and quality oversight processes will “Forum� together with the Government to present continue to be an important operating principle. Some funding needs of priority programs. of the key actions being proposed are: (iv) Leveraging Government Programs 1. Creating a Service Center for Trust Fund The mainstreaming of trust funds into the government Management Support in the Jakarta Of�ce. The programming processes is essential and remains a Service Center will have responsibility for: major agenda item for the CPS. The Government has • Quality assurance, M&E at the portfolio already initiated a process to include RETFs and BETFs level, overall donor coordination, oversight, for recipient work in its budgeting process, although standardization of key provisions in agreements a specialized process may be needed to incorporate with donors, dissemination of good practice (e.g., small trust funds which are approved during the in terms of negotiating trust fund support); government �scal year. • Results-based portfolio reviews, including follow- up on risky trust funds and support to complex trust funded operations; and, Pillar 2: Strengthening risk management and • Improved coordination with HR, legal and other controls: While the acceptance of trust funds has support units. strengthened partnerships and brought major bene�ts 2. Encouraging teams to focus on substantive aspects to the Government and the Bank, there are also a of work and ensure staff are not “penalized� for diverse set of risks that accompany the acceptance raising TFs. of �nancing from outside sources. As the Indonesia 3. Improving managerial oversight of consultants in trust fund program has grown, it has become more general and creating an internal research/support 89 important that these risks be understood and managed unit where skills can be tapped with the aim to more explicitly. The key risks identi�ed for the trust move consultants in the medium term from BETFs COUNTY PARTNERSHIP STRATEGY fund program are: to RETFs. 4. Changing the cost effectiveness equation. Recover • Strategy and Policy – standardization, fee allocation, actual costs for complex trust fund programs execution, and �nancing of staff costs; building on the new cost recovery policy for the • Processes and Systems – user-friendly templates, Bank. portfolio management, donor reporting, and 5. Recognizing good achievements in TF management systems enhancements; and donor coordination in promotion decisions for • Administrative and Managerial – including issues of staff and managers. of�ce space, accounting oversight, management of the portfolio; and It is expected that the improved systems and processes • Operational – transparency and the clari�cation will better serve the goals of selectivity and achievement of accountability to enhance con�dence in the of results, as management works to ensure that there Bank’s stewardship of trust fund resources; and are no unfunded mandates. The approach could also development of new tools to help teams negotiating mean turning away some trust funds that are not trust fund arrangements. aligned to the priorities of the Government and to the new CPS. Pillar 3: Improving operational effectiveness and To support the implementation of the new framework, processes: Recent policy changes for trust funds the CMU will develop a Trust Fund Management Plan approved by the Board have created an enabling (aligned with the Regional Trust Fund Management Plan environment to make adjustments to the management as required in the new TF Framework approved by the framework for Indonesia trust fund programs. The Board) in line with speci�c business needs identi�ed challenge for the Indonesia CMU is to develop systems above. The Plan will be developed in a flexible manner which would help to increase ef�ciency and decrease to cater to the needs of the Government, development complexity. To the extent possible, the CMU will partners, and Bank staff. implement a more mainstreamed approach, building on existing operational processes and encourage more coordinated, disciplined trust fund mobilization. Appendix 11: Attachment A Indonesia Trust Fund Portfolio Engagement area Major Donors Environmental Sustainability and Disaster Mitigation Multi-Donor Fund for Aceh and Nias (RETF) 697 EC, Netherlands, DFID, Canada, WBG, Sweden Aceh Response - JSDF (RETF) 8 Japan Java Reconstruction Fund (RETF) 84 EC, Netherlands, DFID, Canada Avian Influenza (RETF) 15 EC, Japan Ozone Depletion Phase-Out (RETF) 37 Multiple donors Global Environmental Facility (RETF) 9 Multiple donors Central Government Institutions and Systems Public Financial Management (RETF) 8 Japan Public Financial Management (BETF) 3 Netherlands Institutional Development (BETF) 25 Netherlands Governance (BETF) 6 Netherlands Sub-national Government Institutions and Systems Decentralization Support Facility (BETF) 20 DFID, AusAID Private Sector Development Smallholder Agribusiness (RETF) 5 AusAID Investment Climate and Trade (BETF) 7 Netherlands 90 Infrastructure Water Supply and Sanitation (RETF) 10 AusAID, Netherlands for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Urban Development (RETF) 5 Japan Water Resources Management (RETF) 15 Netherlands Water & Sanitation (BETF) 3 Netherlands Community Development and Social Protection Poverty Reduction/CDD (RETF) 107 Netherlands, DFID, EC PNPM (RETF) 61 Denmark, Netherlands, DFID, Canada, Australia SPADA (RETF) 5 DFID Education Education - Co�nancing (RETF) 92 Netherlands Basic Education Capacity (RETF) 28 Netherlands, EC Basic Education Capacity (BETF) 13 Netherlands, EC Notes: Figures above represent cumulative commitments and disbursements typically span multiple years (on average �ve years). RETFs are Recipient Executed Trust Funds executed normally by government implementing agencies. BETFs are Bane Executed Trust Funds implemented by the Bank. More than 90 percent of the trust funds are recipient executed (shown as shaded). For example, almost all trust funds for Environmental Sustainability and Disaster Mitigation are implemented by government entities. Appendix 11: Attachment B Indonesia: Key Active Trust Funds Multi-Donor Fund for Aceh and Nias (MDF): Multiple Institutional Development and Capacity Building TF: Donors (US$697 million): The MDF supports the Netherlands (US$25 million): The TF, supplemented by rehabilitation and reconstruction of Aceh and Nias in others, supports governance reforms, improvement of the wake of the earthquake and tsunami of December the investment climate, legal and justice sector reforms, 2004, and the earthquake of March 2005. The MDF civil service reforms, Eastern Indonesia development, serves as a common platform for mobilizing donor and public expenditures. resources and providing �nancial assistance to support the Government’s recovery program using a Better Education through Reformed Management and coordinated framework to channel assistance in the Universal Teacher Upgrading Project (BERMUTU): areas of reconstruction, rehabilitation of infrastructure Netherlands (US$52 million): The TF co-�nances and transport, land titling, capacity building and the BERMUTU Project supported by the Bank. The governance, and sustainable management of the development objective of this grant is to contribute to environment. the improvement of the overall quality and performance of teachers through enhancing teachers’ knowledge of Java Reconstruction Fund (JRF): Multiple Donors subject matter and pedagogical skills in the classroom. (US$84 million): The focus of the JRF is on addressing The TF will contribute to improving teacher competency 91 the reconstruction and rehabilitation efforts following and performance to promote student learning and the Jogyakarta-Central Java earthquake of May thus contribute to the development of quality human COUNTY PARTNERSHIP STRATEGY 2006. The JRF has been funding the reconstruction resources, ultimately leading to a growth in productivity of improved housing, damaged infrastructure, and the improvement of Indonesia’s competitiveness and livelihood conditions for those affected by the in the global economy. disasters. Basic Education Capacity Program (BEC): Multiple Decentralization Support Facility (DSF) I and II: Multiple Donors (US$40.5 million equivalent): The BEC TF Donors (UK, Australia) (US$20 million): The DSF I contributes to the Government’s achievement of and II TFs support the formation and functioning of MDG and EFA goals through good governance in regional and local governments while at the same time education. The purpose of the program is to support promoting a harmonized donor approach to supporting improvements in the delivery of decentralized basic Indonesia’s sub-national governance reform program. education services by local governments and schools They support the partnership among government, the in selected program areas, and by extension, in other World Bank, and like minded donors who are involved locations. in decentralization. Funds are used for analytical and advisory activities to bring together donor policies and practices relevant for decentralization. Annex A2 Indonesia: At-a-Glance Key Development Indicators (2006) Indonesia East Lower Age distribution, 2006 Asia & middle 75+ Paci�c income Male Female Population, mid-year (millions) 224 1,900 2,276 60-64 Surface area (thousand sq. km) 1,860 16,300 28,549 Population growth (%) 1.3 0.8 0.9 45-49 Urban population (% of total population) 48 42 47 30-34 GNI (Atlas method, US$ billions) 316 3,539 4,635 GNI per capita (Atlas method, US$) 1,410 1,863 2,037 15-19 GNI per capita (PPP, international $) 3,950 6,821 7,020 0-4 GDP growth (%) 5.5 9.4 8.8 15 10 5 0 5 10 15 GDP per capita growth (%) 4.0 8.6 7.9 percent (most recent estimate, 2000–2006) Poverty headcount ratio at $1 a day (PPP, %) 8.5 9 .. Poverty headcount ratio at $2 a day (PPP, %) 50 37 .. Under-5 mortality ratem, per 1,000 Life expectancy at birth (years) 67 71 71 100 Infant mortality (per 1,000 live births) 30 26 31 75 Child malnutrition (% of children under 5) 29 15 13 Adult literacy, male (% of ages 15 and older) 94 95 93 East Asia & Pacific 50 Adult literacy, female (% of ages 15 and older) 87 87 85 92 Gross primary enrollment, male (% of age group) 118 115 117 Indonesia 25 Gross primary enrollment, female (% of age group) 116 113 114 for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Access to an improved water source (% of population) 79 79 81 0 Access to improved sanitation facilities (% of population) 60 51 55 1990 1995 2000 2005 Growth of GDP and GDP per capita, % 1980 1990 2000 2006 20 Net Aid Flows (US$ millions) Net ODA and of�cial aid 941 1,716 1,654 2,524 10 Top 3 donors (in 2006): Japan 350 868 970 1,223 0 Australia 48 77 72 185 Netherlands 85 190 144 176 -10 GDP Aid (% of GNI) 1.3 1.6 1.1 0.9 GDP per capita Aid per capita (US$) 6 10 8 11 -20 90 95 00 05 Long-Term Economic Trends Consumer prices (annual % change) 9.5 7.5 3.7 13.1 GDP implicit deflator (annual % change) 31.0 7.7 20.4 13.6 Exchange rate (annual average, local per US$) 627.0 1,842.8 8,421.8 9,159.3 1980–90 1990–2000 2000–06 Terms of trade index (2000 = 100) .. 63 100 76 (average annual growth %) Population, mid-year (millions) 148.3 178.2 206.3 223.9 1.8 1.5 1.4 GDP (US$ millions) 78,013 114,426 165,021 364,459 6.1 4.2 4.9 (% of GDP) Agriculture 24.0 19.4 15.6 12.9 3.6 2.0 3.1 Industry 41.7 39.1 45.9 47.0 7.3 5.2 4.0 Manufacturing 13.0 20.7 27.7 28.0 12.8 6.7 5.1 Services 34.3 41.5 38.5 40.1 6.5 4.0 6.5 Household �nal consumption expenditure 51.4 58.9 60.7 62.0 5.2 6.6 4.5 General gov’t �nal consumption expenditure 10.5 8.8 6.5 8.6 4.6 0.1 8.3 Gross capital formation 24.1 30.7 22.2 24.6 7.7 -0.6 5.4 Exports of goods and services 34.2 25.3 41.0 30.9 2.7 5.9 7.7 Imports of goods and services 20.2 23.7 30.5 26.1 1.2 5.7 9.0 Note: Figures in italics are for years other than those speci�ed. 2006 data are preliminary. .. indicates data are not available. a. Aid data are for 2005. Development Economics, Development Data Group (DECDG). Annex A2 Indonesia: At-a-Glance Balance of Payments and Trade (US$ millions) 2000 2006 Governance indicators, 2000 and 2006 Total merchandise exports (fob) 62,124 103,514 Voice and accountability Total merchandise imports (fob) 33,515 73,868 Net trade in goods and services 29,862 19,539 Political stability 2006 Country's percentile rank (0-100) 2000 higher values imply better ratings Current account balance 23,982 9,937 Regulatory quality as a % of GDP 14.5 2.7 Workers’ remittances and compensation of employees (receipts) 2,380 5,722 Rule of law Reserves, including gold 29,268 43,083 Central Government Finance (% of GDP) Control of corruption Current revenue (including grants) 19.7 19.1 0 25 50 75 100 Tax revenue 11.1 12.3 Source: Kaufmann-Kraay-Mastruzzi, World Bank Current expenditure 15.6 11.5 Overall surplus/de�cit -1.8 -0.9 Highest marginal tax rate (%) Individual 35 35 Composition of total external debt, 2006 (US$ millions) Corporate 30 30 IBRD, 7,423 IDA, 1,318 External Debt and Resource Flows (US$ millions) Short-term, 0 Total debt outstanding and disbursed 141,693 125,846 IMF, 0 Total debt service 16,622 30,675 Debt relief (HIPC, MDRI) – – Other multilateral, 14,851 93 Total debt (% of GDP) 85.9 34.5 COUNTY PARTNERSHIP STRATEGY Total debt service (% of exports) 11.2 24.9 Private, 63,567 Foreign direct investment (net inflows) -7,896 2,877 Portfolio equity (net inflows) -1,911 -340 Bilateral, 38,687 Private Sector Development Time required to start a business (days) .. 97 Cost to start a business (% of GNI per capita) .. 86.7 Time required to register property (days) .. 42 World Bank Group portfolio (US$ millions) 2000 2006 Ranked as a major constraint to business (% of managers IBRD surveyed who agreed) Total debt outstanding and disbursed 11,715 7,423 Economic and regulatory policy uncertainty .. 48.2 Disbursements 1,051 696 Corruption .. 41.5 Principal repayments 761 1,403 Stock market capitalization (% of GDP) 16.3 38.1 Interest payments 950 425 Bank capital to asset ratio (%) 6.0 10.5 IDA Technology and Infrastructure 2000 2005 Total debt outstanding and disbursed 714 1,318 Paved roads (% of total) 57.1 55.3 Disbursements 59 316 Fixed line and mobile phone subscribers (per 1,000 people) 5 23 Total debt service 31 37 High technology exports (% of manufactured exports) 16.2 16.3 IFC (�scal year) Environment Total disbursed and outstanding portfolio 880 462 Agricultural land (% of land area) 25 26 of which IFC own account 480 325 Forest area (% of land area) 54.0 7.3 Disbursements for IFC own account 20 46 Nationally protected areas (% of land area) .. 4.2 Portfolio sales, prepayments and Freshwater resources per capita (cu. meters) .. 12,867 repayments for IFC own account 43 46 Freshwater withdrawal (% of internal resources) 2.9 .. MIGA CO2 emissions per capita (mt) 1.3 1.4 Gross exposure 56 50 GDP per unit of energy use (2000 PPP $ per kg of oil equivalent) 4.1 4.1 New guarantees 0 0 Energy use per capita (kg of oil equivalent) 707 800 Note: Figures in italics are for years other than those speci�ed. 2006 data are preliminary. .. indicates data are not available. – indicates observation is not applicable. Development Economics, Development Data Group (DECDG). Annex A2 Indonesia: Millennium Development Goals With selected targets to achieve between 1990 and 2015, estimate closest to date shown, +/- 2 years 1990 1995 2000 2005 Goal 1: halve the rates for $1 a day poverty and malnutrition Poverty headcount ratio at $1 a day (PPP, % of population) .. 13.9 7.2 .. Poverty headcount ratio at national poverty line (% of population) .. 15.7 27.1 17.8 Share of income or consumption to the poorest qunitile (%) .. .. 8.4 .. Prevalence of malnutrition (% of children under 5) .. 34.0 24.6 29.0 Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) 97 .. 94 94 Primary completion rate (% of relevant age group) 94 96 97 101 Secondary school enrollment (gross, %) 46 .. 55 63 Youth literacy rate (% of people ages 15-24) .. .. .. .. Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) 93 .. 96 99 Women employed in the nonagricultural sector (% of nonagricultural employment) 29 29 32 31 Proportion of seats held by women in national parliament (%) 12 13 8 11 Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 91 66 48 38 Infant mortality rate (per 1,000 live births) 60 48 36 30 Measles immunization (proportion of one-year olds immunized, %) 58 63 72 72 Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) .. .. 230 .. 94 Births attended by skilled health staff (% of total) 32 37 64 72 Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Prevalence of HIV (% of population ages 15-49) .. .. .. 0.1 Contraceptive prevalence (% of women ages 15-49) 50 55 57 57 Incidence of tuberculosis (per 100,000 people) 343 .. .. 245 Tuberculosis cases detected under DOTS (%) .. 1 20 53 Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) 72 .. .. 77 Access to improved sanitation facilities (% of population) 46 .. .. 55 Forest area (% of total land area) 64.3 .. 54.0 48.8 Nationally protected areas (% of total land area) .. .. .. 20.6 CO2 emissions (metric tons per capita) 0.8 1.2 1.3 1.4 GDP per unit of energy use (constant 2000 PPP $ per kg of oil equivalent) 4.1 4.6 4.1 4.1 Goal 8: develop a global partnership for development Fixed line and mobile phone subscribers (per 1,000 people) 6 18 50 184 Internet users (per 1,000 people) 0 0 9 73 Personal computers (per 1,000 people) 1 5 10 14 Youth unemployment (% of total labor force ages 15-24) 8.9 13.4 .. .. Education indicators, % Measles immunization, % of 1-year olds ICT indicators, per 1,000 people 125 100 200 Fixed + mobile subscribers 100 Internet users 75 150 East Asia & Pacific 75 50 100 50 Primary net enrollment ratio Indonesia 25 25 50 Ratio of girls to boys in primary & secondary education 0 0 0 2000 2001 2002 2003 2004 2005 1990 1995 2000 2005 2000 2001 2002 2003 2004 2005 Note: Figures in italics are for years other than those speci�ed. .. indicates data are not available. Development Economics, Development Data Group (DECDG). Annex B2. Selected Indicators* of Bank Portfolio Performance and Management Indicator 2006 2007 2008 Portfolio Assessment Number of Projects Under Implementation a 26 26 27 Average Implementation Period (years) b 3.2 3.7 3.8 Percent of Problem Projects by Number a, c 3.8 11.5 25.9 Percent of Problem Projects by Amount a, c 4.4 7.1 13.9 Percent of Projects at Risk by Number a, d 7.7 15.4 29.6 Percent of Projects at Risk by Amount a, d 4.5 10.9 17.5 Disbursement Ratio (%) e 20.9 20.2 24.9 Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 267 18 Proj Eval by OED by Amt (US$ millions) 23,328.2 1,325.2 % of OED Projects Rated U or HU by Number 24.2 27.8 % of OED Projects Rated U or HU by Amt 22.0 9.9 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank’s country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As de�ned under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank’s portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the �scal year. 95 COUNTY PARTNERSHIP STRATEGY Annex B3. Indonesia: Indicative IBRD Lending Program, FY09-12 Fiscal Year Product Title IBRD US$ (millions) 2009 Proposed Policy Lending 900 DPL5 700 IDPL2 200 Proposed Investment Lending Projects 1,590 BOS (School Operations and Scholarships) 600 PINTAR (GFMRAP2) 145 National Roads (Western Indonesia) Improvement 80 Dam Operational Improvement 50 Urban Water Supply and Sanitation 30 PNPM II (Rural) 250 PNPM II (Urban) 185 Jakarta Emergency Dredging Initiative 150 Private Infrastructure Finance 100 FY09 Total (with Standby Investment Projects) 2,490 2010 Proposed Policy Lending DPL6 IDPL3 Climate Change/other thematic/sector DPL 96 Proposed Investment Lending Projects BOS/ Education SISWA for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Local Government DAU/DAK Support National Roads Maintenance Project PNPM III (Rural) PNPM III (Urban) Pump Storage Hydro-Electric Strengthening Indonesian Statistics (STATCAP) Other Sectoral Projects FY10 Total 1,500 - 2,500 2011 Proposed Policy Lending DPL/IDPL/CC DPL/other thematic/sectoral DPL Proposed Investment Lending Projects Education SISWA PNPM I (Combined Rural/Urban) Other Sectoral Projects FY11 Total 1,500 - 2,500 2012 Proposed Policy Lending DPL/IDPL/CC DPL/other thematic/sectoral DPL Proposed Investment Lending Projects PNPM II (Combined Rural/Urban) PFM/Civil Service Other Sectoral Projects FY12 Total 1,500 - 2,500 Annex B3. Indonesia: IFC Investment Operations Program 2005 2006 2007 2008* Commitments (US$m) Gross 639.6 742.3 873.1 718.3 Net** 491.8 605.9 742.7 703.0 Net Commitments by Sector (US$M) Accomodation & Tourism Services 5.0 3.8 1.3 0.0 Agriculture & Forestry 33.0 88.5 60.4 60.6 Chemicals 160.4 148.1 116.4 100.7 Collective Investment Vehicles 0.0 0.0 0.0 15.0 Education & Services 2.8 2.8 5.2 5.1 Finance & Insurance 158.9 221.2 397.1 390.0 Food & Beverages 61.8 84.6 113.0 106.2 Industrial & Consumer Products 44.2 36.8 32.4 21.2 Oil, Gas, & Mining 0.0 0.0 0.0 0.0 Prof., Scient., & Tech. 1.2 1.0 1.0 0.0 Textiles, Apparel, & Leather 12.4 11.6 11.6 0.0 Transportation & Warehouse 8.3 3.3 0.0 0.0 Wholesale & Retail Trade 3.9 4.2 4.2 4.2 491.8 605.9 742.7 703.0 Net Commitments by Sector (%) 97 Accomodation & Tourism Services 1% 1% 0% 0% COUNTY PARTNERSHIP STRATEGY Agriculture & Forestry 7% 15% 8% 9% Chemicals 33% 24% 16% 14% Collective Investment Vehicles 0% 0% 0% 2% Education & Services 1% 0% 1% 1% Finance & Insurance 32% 37% 53% 55% Food & Beverages 13% 14% 15% 15% Industrial & Consumer Products 9% 6% 4% 3% Oil, Gas, & Mining 0% 0% 0% 0% Prof., Scient., & Tech. 0% 0% 0% 0% Textiles, Apparel, & Leather 3% 2% 2% 0% Transportation & Warehouse 2% 1% 0% 0% Wholesale & Retail Trade 1% 1% 1% 1% 100% 100% 100% 100% Net Commitments by Investment Instrument (%) Loan 60% 80% 84% 82% Equity 13% 7% 5% 8% Quasi Loan + Quasi Equity 4% 3% 2% 2% Guarantee 17% 6% 7% 7% Risk Management 5% 5% 1% 1% Total 100% 100% 100% 100% * As of March 31, 2008 ** IFC’s Own Account only Annex B4. Indonesia: Summary of Non-lending Services Selected Recent Completions and Activities Underway Product Completion FY Audiencea Recent completions Aceh Program Implementation & Sectoral Support 2007 GOV Aceh Public Expenditure Analysis 2007 GOV Anti-Corruption Advice for Sub-national Entities 2007 OTH Averting an Infrastructure Crisis 2007 GOV CDD Platform Support 2007 OTH Conflict and Poverty 2007 OTH Decentralization Technical Assistance and Advisory Services 2007 GOV Developing the Eastern Islands 2007 OTH Fuel Subsidy Policy Analysis 2007 GOV HIV/AIDS 2007 GOV Indonesia Poverty Assessment 2007 GOV Infrastructure Summit Follow-up & Policy Dialogue 2007 GOV Justice for the Poor 2007 OTH LDL Platform 2007 GOV Migration and Remittance Research 2007 OTH Nias Public Expenditure Analysis 2007 GOV 98 Policy Framework for Regional Electri�cation and Rural Access 2007 PUB Public Expenditure Review 2007 GOV for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Raising Rural Productivity 2007 GOV Social Inclusion 2007 OTH Social Protection Road Map 2007 GOV Taking Stock of Decentralization Reforms 2007 GOV Aceh Peace Process-Reintegration and Analytical Support 2008 OTH Conditional Cash Transfer Program Development 2008 GOV Decentralized Support Facility 2008 OTH Governance and Decentralization Survey 2 2008 PUB Social Aspects of Poverty Reduction 2008 OTH Aceh Poverty and Economic Update 2008 2008 GOV Deepening Expenditure Reforms in Indonesia 2008 GOV Land Acquisition and Policy Development 2008 GOV Public Financial Management Performance Measurement Report 2008 GOV Underway Aceh Response TA Facility 2008 GOV Anti-Corruption 2008 OTH Corruption Monitoring 2008 PUB CPAR 2008 GOV Creating a Diversi�ed Financial Sector in Indonesia 2008 GOV Decentralization 2008 GOV Health System Strengthening - Fiscal Space Analysis for the Health Sector 2008 GOV Improving the Intergovernmental Framework 2008 GOV Indonesia Country Environmental Analysis 2008 PUB Indonesia DPR FY2008 2008 PUB Indonesia Health Workforce and Improvement Services 2008 GOV Indonesia Youth Investment 2008 GOV Poverty and Sustainable Economic Development in Aceh (PASEDIA) 2008 PUB Rice Policy Dialogue 2008 GOV Social Protection Road Map 2008 GOV Support for Teacher Management System Reform 2008 GOV Supporting Indonesia’s Anti-Corruption Institutions 2008 GOV a. Government, donor, Bank, public dissemination. Annex B4. Indonesia: Summary of Nonlending Services Planned Key Activities (FY09-12) Product, Grouped by clusters Completion FY Audiencea Central Government Institutions and Systems Indonesia Updates FY2009 2009-12 PUB Policy Notes for the New Government 2009-10 GOV Just-in-time Policy Advice 2009-12 GOV Enhancing Demand for Legal and Judicial Reform 2009 OTH Health Finance & Dialogue 2009 GOV Indonesia’s Development Strategy -- High Commodity Prices 2009 GOV Supporting Post-Conflict Development (DGF) 2009 GOV CPAR 2010 GOV Comprehensive Country/Sector Analysis/CEM 2010 GOV PER 2010 GOV Support to RPJM 2010 GOV Development Policy Review 2011 PUB Sub-national Government Institutions and Systems Improving the Intergovernmental Framework for Enhanced Decentralization 2010 GOV Information, Education & Communication/ DSF II 2010 GOV Capacity Enhancement for Eastern Indonesia: Papua Public Expenditure Analysis and Capacity Harmonization 2012 PUB Program (PEACH) Private Sector Development 99 Improving Indonesia’s Investment Climate, Trade Facilitation & Financial Sector 2010 GOV Infrastructure COUNTY PARTNERSHIP STRATEGY Infrastructure Development 2009 GOV Water Supply and Sanitation 2010 GOV Community Development and Social Protection Poverty Reduction -- Pro-Poor & Poor Jobs Strategies and Programs 2009 GOV Conditional Cash Transfers 2009 GOV National Program for Community Empowerment (User Fee Assessment for CDD) 2009 GOV Support to PNPM/CDD/Rural Programs 2009 GOV Poverty Assessment 2011 GOV Education Education Sector Review 2010 GOV Support to RENSTRA 2010 GOV Environmental Sustainability and Disaster Mitigation Low Carbon Growth Strategy 2009 GOV REDD Study 2010 GOV Aceh Economic Update 2009 - 2012 GOV Aceh Peace Program 2009 - 2012 GOV Local Government Support & Development Partner Coordination 2009-2012 GOV Aceh & Niah PER 2011 GOV Aceh & Nias Poverty Assessment 2012 PUB a. Government, donor, Bank, public dissemination. Annex B5. Indonesia: Social Indicators Latest single year Same region/income group 1980-85 1990-95 2000-06 East Asia & Paci�c Lower-middle-income POPULATION Total population, mid-year (millions) 163.0 192.8 223.0 1,898.9 2,276.5 Growth rate (% annual average for period) 1.9 1.6 1.3 0.9 0.9 Urban population (% of population) 26.1 35.6 49.2 42.4 47.3 Total fertility rate (births per woman) 3.7 2.7 2.2 2.0 2.1 POVERTY (% of population) National headcount index .. .. 16.7 .. .. Urban headcount index .. .. .. .. .. Rural headcount index .. .. .. .. .. INCOME GNI per capita (US$) 530 1,010 1,420 1,856 2,038 Consumer price index (2000=100) 20 44 176 138 138 Food price index (2000=100) 15 37 121 .. .. INCOME/CONSUMPTION DISTRIBUTION Gini index .. 34.4 39.4 .. .. Lowest quintile (% of income or consumption) .. 8.3 7.1 .. .. Highest quintile (% of income or consumption) .. 43.1 47.3 .. .. 100 SOCIAL INDICATORS Public expenditure for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Health (% of GDP) .. .. 1.0 1.8 2.2 Education (% of GDP) .. 1.0 1.0 3.5 4.8 Net primary school enrollment rate (% of age group) Total .. 96 95 93 93 Male .. 98 96 93 93 Female .. 94 93 93 92 Access to an improved water source (% of population) Total .. 74 77 79 81 Urban .. 90 87 92 93 Rural .. 65 69 70 71 Immunization rate (% of children ages 12-23 months) Measles 26 63 72 89 90 DPT 27 69 70 89 89 Child malnutrition (% under 5 years) .. 27 24 13 11 Life expectancy at birth (years) Total 59 64 68 71 71 Male 57 62 66 69 69 Female 60 66 70 73 73 Mortality Infant (per 1,000 live births) 70 48 26 24 27 Under 5 (per 1,000) 109 66 34 29 36 Adult (15-59) Male (per 1,000 population) 368 275 172 165 173 Female (per 1,000 population) 308 219 123 104 108 Maternal (modeled, per 100,000 live births) .. .. 420 150 180 Births attended by skilled health staff (%) .. 37 72 87 86 Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any time before the survey. Source: World Development Indicators database, World Bank - 11 April 2008. Annex B6. Indonesia: Key Economic Indicators Actual Estimate Projected Indicator 2004 2005 2006 2007 2008 2009 2010 2011 National accounts (as % of GDP) Gross domestic producta 100 100 100 100 100 100 100 100 Agriculture 14 13 13 14 13 12 11 11 Industry 45 47 47 47 46 46 46 47 Services 41 40 40 39 40 42 42 42 Total Consumption 71 71 69 71 66 65 64 64 Gross domestic �xed investment 22 24 24 25 26 27 27 27 Exports (GNFS)b 32 34 31 29 31 29 29 28 Imports (GNFS) 28 30 26 25 24 22 21 20 Gross domestic savings 29 29 31 29 34 35 36 36 Memorandum items Gross domestic product (US$ million at current prices) 256,837 286,969 364,612 432,815 485,599 559,994 631,633 722,871 GNI per capita (US$, Atlas method) 1,110 1,260 1,420 1,650 1,930 2,200 2420 2660 Real annual growth rates (%, calculated from 00 prices) Gross domestic product 5.0 5.7 5.5 6.3 6.0 6.4 6.7 6.7 Real annual per capita growth rates (%, calculated from 00 prices) Gross domestic product at market prices 3.6 4.3 4.3 5.1 4.7 5.1 5.4 5.4 Total consumption 6.9 1.3 4.9 6.8 2.5 4.5 4.6 4.4 101 Private consumption 7.5 0.8 4.5 7.4 4.4 4.4 4.5 4.3 COUNTY PARTNERSHIP STRATEGY Balance of Payments (US$ millions) Exports (GNFS)c 84,212 99,760 115,032 130,439 152,570 164,133 180,049 200,236 Merchandise FOB 72,167 86,833 103,514 118,014 139,770 150,946 166,464 186,241 Imports (GNFS)d 71,257 91,319 95,493 108,458 117,888 123,208 132,560 142,972 Merchandise FOB 50,401 69,270 73,868 84,930 88,357 92,404 98,598 105,871 Resource balance 12,955 8,441 19,539 21,981 34,682 40,925 47,489 57,264 Current account balance 3,294 307 9,937 11,010 8,516 4,854 1,637 -1,312 Memorandum items Resource balance (% of GDP) 5.0 2.9 5.4 5.1 7.1 7.3 7.5 7.9 Real annual growth rates ( YR00 prices) Merchandise exports (FOB) 24.0 33.3 48.8 18.6 7.6 8.4 8.6 9.1 Merchandise imports (CIF) 75.1 49.5 11.8 38.6 8.4 9.9 7.9 8.3 Public �nance (as % of GDP at market prices)e Current revenues 17.6 17.8 19.1 18.7 20.0 20.1 20.5 20.9 Current expenditures 18.6 18.3 20.0 20.0 22.1 22.0 21.0 21.0 Budget surplus (+) or de�cit (-) -1.0 -0.5 -0.9 -1.3 -2.1 -0.9 -0.5 -0.1 Capital expenditure -- 1.2 1.6 1.7 1.9 1.9 2.2 2.5 Foreign �nancing -1.2 -0.4 -0.8 -0.6 -0.3 -0.3 -0.3 -0.3 Monetary indicators M2/GDP 45.0 43.2 41.4 41.5 41.0 41.0 41.0 41.0 Growth of M2 (%) 8.1 16.4 14.9 18.9 11.4 14.4 13.1 12.6 Price indices( YR00 =100) Merchandise export price index 115.2 137.9 162.3 183.7 225.0 243.0 268.0 299.8 Merchandise import price index 138.8 207.3 220.4 253.4 273.2 285.1 301.9 321.7 Merchandise terms of trade index 83.0 66.5 73.6 72.5 82.4 85.2 88.8 93.2 Real exchange rate (US$/LCU)f 115.7 114.2 133.8 134.8 136.9 127.3 121.4 113.8 Consumer price index (% change) 6.2 10.5 13.1 6.5 7.5 7.0 6.0 5.5 GDP deflator (% change) 8.6 14.8 13.6 11.5 7.5 7.0 6.0 5.5 a. GDP at market prices b. “GNFS� denotes “goods and nonfactor services.� c. Includes net unrequited transfers excluding of�cial capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. “LCU� denotes “local currency units.� An increase in US$/LCU denotes appreciation. Annex B7. Indonesia: Key Exposure Indicators Estimate Projected Indicator 2004 2005 2006 2007 2008 2009 2010 2011 Total debt outstanding disbursed (TDO) (US$m)a 137,026 130,651 128,736 136,640 137,458 146,611 151,687 158,277 Net disbursements (US$m)a -5,630 -2,440 -13,417 -10,118 -9,667 -6,366 -7,453 -5,886 Total debt service (TDS) (US$m)a 31,519 34,361 30,669 26,981 28,783 25,209 23,661 22,952 Debt and debt service indicators (%) TDO/XGSb 162.7 131.0 111.9 104.8 90.1 89.3 84.2 79.0 TDO/GDP 59.7 47.1 38.5 34.5 28.3 26.2 24.0 21.9 TDS/XGS 37.4 34.4 26.7 20.7 18.9 15.4 13.1 11.5 Concessional/TDO 29.2 28.3 29.8 28.2 36.7 33.8 34.2 34.0 IBRD exposure indicators (%) 25.4 36.1 22.2 20.7 19.2 17.4 16.2 12.3 IBRD DS/public DS 23.2 30.4 12.2 20.6 19.3 17.8 16.8 14.7 IBRD DS/XGS 2.3 1.9 1.6 1.4 1.0 0.9 0.6 0.4 IBRD TDO (US$m)d 8,943 8,132 7,423 6,821 7,161 7,570 8,429 9,645 IDA TDO (US$m)d 996 1,001 1,318 1,550 1,390 1,425 1,447 1,451 IFC (US$m) Loans 492 606 743 703 300 350 400 Equity and quasi-equity /e 85 61 55 72 34 39 45 MIGA 102 MIGA guarantees (US$m) .. .. .. 50 .. .. .. b. “XGS� denotes exports of goods and services, including workers’ remittances. for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. Annex B8. Indonesia: Operations Portfolio (IBRD/IDA and Grants) Closed Projects 300 IBRD/IDA * Total Disbursed (Active) 1,065.99 of which has been repaid 0.82 Total Disbursed (Closed) 26,206.70 of which has been repaid 20,841.88 Total Disbursed (Active + Closed) 27,272.69 of which has been repaid 20,842.69 Total Undisbursed (Active) 1,886.99 Total Undisbursed (Closed) 12.84 Total Undisbursed (Active + Closed) 1,899.83 Difference Between Last PSR Active Projects Expected and Actual Supervision Rating Original Amount in US$ Millions Disbursements a/ Development Implementation Fiscal Frm Project ID Project Name IBRD IDA GRANT Cancel. Undisb. Orig. Objectives Progress Year Rev’d P085133 Govt Finl Mgt & Revenue Admin Project MS MU 2005 55 5 55.14 43.14 10.49 P071318 Coral Reef Rehab and Management II MS MS 2004 7.5 6.21 4.21 P071316 Coral Reef Rehab and Mgmt Prog II MS MS 2004 33.2 23 0.166 37.60 21.77 103 P096921 National UPP (PNPM UPP) # # 2008 52.68 125 180.34 COUNTY PARTNERSHIP STRATEGY P092019 Kecamatan Development Project 3B S S 2005 80 203 34.30 -106.51 -18.65 P003701 ODS I- UMBRELLA S S 1995 36.5526 10.08 10.08 10.08 P097104 BERMUTU MU MU 2008 24.5 61.5 81.00 -2.87 P077175 Domestic Gas Market Development Proj. S S 2006 80 48.21 13.21 P089479 Early Childhood Education and Dev MS MS 2006 67.5 67.04 -0.41 P074290 Eastern Indonesia Region Transp. 2 MS MS 2004 200 1 141.47 121.47 P083742 Farmer Empower. Agric.Tech.&Info MS MS 2007 32.8 60 86.62 5.50 P099757 Geothermal Power Generation Dev # # 2008 4 P085374 HIGHER EDUCATION S MS 2005 50 30 65.32 28.70 P073772 Health Workforce & Services (PHP 3) MS MS 2003 31.1 74.5 65.26 52.94 11.34 P076174 Initiatives for Local Govern. Reform MS MU 2005 14.5 15 16.23 10.74 P063913 Java-Bali Pwr Sector & Strength MS MS 2003 141 97.95 90.90 51.24 P079156 KECAMATAN DEV. 3 S S 2003 45.5 45.5 2.28 0.97 P064728 LAND MANAGEMENT &POLICY DEVT MU U 2004 32.8 32.8 0.164 36.42 21.46 P076271 PPITA MS MU 2003 17.1 4.52 4.52 4.52 P079906 Strategic Roads Infrastructure S MS 2007 208 197.70 -10.30 -0.30 P078070 Support for Poor and Disadvant Areas MU MU 2005 69 35 92.70 53.21 P072852 UPP2 S MS 2002 29.5 206 58.15 -95.56 10.03 P084583 UPP3 S S 2005 67.3 71.4 27.70 -43.79 P071296 USDRP MS MU 2005 45 36.50 7.60 P059477 WSSLIC II S S 2000 77.4 7.92 -0.34 P085375 WSSLIC III S S 2006 137.5 153.56 27.30 P059931 Water Resources & Irr.Sector Mgt Prog S S 2003 45 25 54.36 51.24 24.85 P105002 National Program for Community Empower # # 2008 41.19 190 235.27 Total 1,395.17 1,485.10 48.05 1.33 1,899.83 309.19 103.59 Annex B9. Indonesia: IFC Committed and Disbursed Outstanding Investment Portfolio, US$ Millions FY Approval Company Committed Disbursed Outstanding **Quasi **Quasi Loan Equity *GT/RM Participant Loan Equity *GT/RM Participant Equity Equity 2006 Bank Danamon 149.56 0 0 5 0 59.56 0 0 0 0 2007 Bank International Indo 123.43 0 0 0 0 123.43 0 0 0 0 2008 Bima 0 5 0 0 0 0 3.67 0 0 0 2004 Bona Vista School 0.86 0 0 0 0 0.86 0 0 0 0 2007 Fugui Indonesia 30 0 0 0 0 30 0 0 0 0 2007 Insurance Student Loan 0 0 0 2.46 0 0 0 0 0 0 2004 Medan NP School 1.75 0 0 0 0 0 0 0 0 0 2002 PT Gawi 9.72 0 0 0 1.74 3.57 0 0 0 1.74 1989 PT Agro Muko 0 2.2 0 0 0 0 2.2 0 0 0 1989/ 1994/ 2003 PT Astra 0 0.51 0 0 0 0 0.51 0 0 0 2000/2005 PT Astra Otopart 0 0.7 0 0 0 0 0.7 0 0 0 2000/2002/2004/2005/2007 PT Bank NISP 65 10.66 2.86 0 0 35 10.66 2.83 0 0 1993/1996 PT Bina Danatama 0.02 0 1.03 0 1.92 0.02 0 1.03 0 1.92 2004/2005 PT Ecogreen 45.83 0 0 0 0 45.83 0 0 0 0 1991/1995/1999/2004 PT Indo-Rama 40.8 6.21 0 0 0 40.8 6.21 0 0 0 104 2000/2006/2007 PT Karunia (KAS) 46.52 0 0 0 1.78 46.52 0 0 0 1.78 2000/2006 PT Makro 0 4.21 0 0 0 0 3.71 0 0 0 for Inclusive and Sustainable Development Inves ng in Indonesia’s Ins tu ons 1993 PT Nusantara 0 0 10.61 0 8.25 0 0 10.61 0 8.25 2004 PT Prakars (PAS) 10.75 0 0 0 1.6 10.75 0 0 0 1.6 2006 PT TAS 7 0 0 0 0 7 0 0 0 0 2008 PT TVS 20 0 0 0 0 20 0 0 0 0 1995/2004 PT Viscose 7.88 0 0 0 0 7.88 0 0 0 0 2008 Saratoga Asia II 0 15 0 0 0 0 0.11 0 0 0 2005/2006 WOM 14.84 12.63 0 0 0 14.84 12.55 0 0 0 2004/2006/2007 Wilmar 0 0 0 50 0 0 0 0 50 0 Total Portfolio: 573.96 57.12 14.5 57.46 15.29 446.06 40.32 14.47 50 15.29 * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types. 95° 100° 105° 110° 115° 120° 125° This map was produced by the Map Design Unit of The World Bank. The boundaries, I NDONES IA colors, denominations and any other information shown on this map do not imply, on SELECTED CITIES AND TOWNS the part of The World Bank Group, any judgment on the PROVINCE CAPITALS legal status of any territory, 15° or any endorsement or NATIONAL CAPITAL acceptance of such INDONESIA boundaries. RIVERS MAIN ROADS MYANMAR VIETNAM RAILROADS PHILIPPINES PROVINCE BOUNDARIES 10° 10° INTERNATIONAL BOUNDARIES THAILAND Sulu Sea 135° 140° Banda Aceh L A Y 5° A BRUNEI 5° 1 S Natuna Talaud Medan M Besar I Celebes Is. Tarakan PACI F I C OCE AN Pematangsiantar Sea 24 A Simeulue 19 Morotai 2 Manado SINGAPORE 23 Nias Tanjungpinang Ternate Halmahera Pekanbaru 25 3 Pontianak K AL IM ANTAN Gorontalo Waigeo 0° 26 0° Lingga 20 Samarinda Manokwari Biak 30 Me Padang Palu Sorong Balikpapan Peleng nt Siberut 4 5 Jambi 21 Obi Bangka Yapen aw Pangkalpinang SULAWESI Sula Is. Misool 32 Jayapura SUMATERA Palangkaraya ai Mamuju Ceram 9 Belitung 22 Palembang 27 Amahai Fakfak Is 6 . 7 Bandjarmasin 28 Kendari Buru 29 33 PAPUA Bengkulu Parepare Ambon Timika Puncak Jaya 8 Muna (5030 m) 5° Java Sea Makassar Kai Enggano Bandar 11 Baubau Banda 31 Is. Lampung JAKARTA Serang Sea Aru 0 200 400 Kilometers Is. 12Bandung Semarang Madura PAPUA 10 13 Wetar Surabaya Babar Tanimbar 0 100 200 300 400 Miles 16 Sumbawa Alor Moa JAWA Yogyakarta Is. 15 Bali Lombok Raba Flores NEW GUINEA NEW GUINEA NEW GUINEA 14 Merauke 95° 100° 105° Denpasar Mataram Ende Arafura Sea 18 TIMOR-LESTE 17 PROVINCES: 10° Waingapu Sumba Timor 10° Kupang 1 NANGGROE ACEH DARUSSALAM 12 JAWA BARAT 23 KALIMANTAN TIMUR 2 SUMATERA UTARA 13 JAWA TENGAH 24 SULAWESI UTARA 3 RIAU 14 D.I. YOGYAKARTA 25 GORONTALO 4 SUMATERA BARAT 15 JAWA TIMUR 26 SULAWESI TENGAH 5 JAMBI 16 BALI 27 SULAWESI BARAT INDIAN OCEAN 6 BENGKULU 17 NUSA TENGGARA BARAT 28 SULAWESI SELATAN 7 SUMATERA SELATAN 18 NUSA TENGGARA TIMUR 29 SULAWESI TENGGARA 8 LAMPUNG 19 RIAU KEPULAUAN 30 MALUKU UTARA 15° 15° 9 BANGKA-BELITUNG 20 KALIMANTAN BARAT 31 MALUKU 10 BANTEN 21 KALIMANTAN TENGAH 32 PAPUA BARAT AUSTRALIA 11 D.K.I. JAKARTA 22 KALIMANTAN SELATAN 33 PAPUA 115° 120° 125° 130° 135° 140° AUGUST 2008 IBRD 33420R2