Document of CIRCULATING COPY The World Bank IO BE RETURNED TO REPORTS DEK FILE COPY FOR OFFICIAL USE ONLY ETURN To Repor No.P-1793 REPORTS DESK WITHIN ONE WEEK| REPORT AND RECOMMEND ION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF INDONESIA FOR A FOURTH EDUCATION PROJECT March 16, 1976 | Thi docmenzt has a restrict 3d diStribUtslind may be used by recipients only in the pe|lfl"m of ther ffiia dtie. tsconalefits May not otherwise be disclosed without World akatoiftOl Currency Unit = Indonesia Rupiah (Rp.) US$1.00 = Rp 415 1 Rupiah $0.0024 1 million rupiah = $2,410 Government of Indonesia Fiscal Year April 1 - March 31 FOR OFFICIAL USE ONLY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF INDONESIA FOR A FOURTH EDUCATION PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Indonesia for the equivalent of $37.0 million to help finance the Fourth Education Project. The loan would have a term of 25 years, including six years of grace, with interest at 8-1/2 percent per annum. PART I - THE ECONOMY 2. The latest economic report on Indonesia "Indonesia: Development Prospects and Needs" of April 15, 1975 (708-IND) described and analyzed the structure of production and incomes, the recent changes in the avail- ability of resources, and the medium and longer-term outlook for the In- donesian economy. Coumtry data are shown in Annex 1. 3. In 1969, at the start of Indonesia's First Five-Year Plan, the per capita income of the Indonesian population was probably no higher than half a century ago. A majority of the population lived below a mini- mum welfare standard, especially on Java. Most were dependent exclusively or primarily on agriculture, where farms were generally very small. Under- employment was widespread. While the inflation of the mid-1960s had been overcome, infrastructuare was still in very poor condition. 4. The Government's efforts during the First Five-Year Plan period (April 1, 1969 - March 31, 1974) were successful in putting the economy on the road towards dievelopment. Most physical objectives were achieved or nearly so, and there was very substantial rehabilitation of run-down infrastructure and Government enterprises in agriculture and manufacturing. Foodgrain production increased by 4 million tons during the Plan period at an average rate of 5 percent per annum. Investments increased at a very fast rate, rising from 9 to 19 percent of GNP. While 57 percent of Govern- ment development expenditures were financed from abroad, the reliance on foreign financing was much less than the level of nearly 80 percent foreseen in the Plan. Real GDP increased at an annual rate of over 7 percent. GNP per capita in current prices reached about $130 1/ in 1973. The Government programs for the labor intensive rehabilitation of infrastructure and other measures created substantial incomes and employment. However, given the annual increase in the labor force of about one million, one cannot be con fident that the employment situation improved during the First Plan period, and from available information it is difficult to judge the extent to which the poorest section of the population shared in the gains of development. 1/ World Bank Atlas basis. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - 2 - 5. The Second Five-Year Plan (April 1, 1974 to March 31, 1979) builds on the achievements of the First Plan. While the First Plan dealt mainly with the urgent needs for stabilization and rehabilitation under conditions of great scarcity of resources, progress has been such that the Second Plan can give much more weight to such problems as employment, increasing the produc- tivity and incomes of the poorest sections of the population and the poorest regions, population control, education and health. The Plan identifies a number of specific low-income target groups and, in general, adopts an employ- ment oriented development strategy. It aims at a continued growth in invest- ment, needed both because capital intensity will tend to increase as the rehabilitation phase draws to an end, and because more socially-oriented investments will be made. Overall, the Plan expects GDP to grow at 7.5 percent per annum. 6. Over the decade 1961-71, Indonesia's population grew by 2.1 per- cent a year. However, as a result of changes in the age, distribution and declining mortality, the current growth rate is estimated at 2.5 percent. Even under the most optimistic assumptions with regard to a decline in fer- tility, the growth rate would come down only gradually, and the population would nearly double by the end of the century. While Indonesia still has substantial unutilized land reserves in the Outer Islands, these are limited in relation to the expected population increase. Since 1969, the Government has been operating and gradually extending a successful family planning program. The number of acceptors has been increasing rapidly. The Second Plan foresees a progressively more vigorous and comprehensive attack on the population problem. 7. During the years 1976-79, average annual additions to the labor force are estimated at 1.2 million, increasing to more than 1.4 million in the years 1980-85. In addition, substantial underemployment exists, and there is the risk that even relatively simple technological improvements may adversely affect existing employment. The Second Plan's projections show that employment growth would approximately keep pace with the growth in the labor force, but even this may be too optimistic. Thus, the magnitude and the employment content of the investment program needs to be further enlarged and strengthened if an appreciable increase in employment and the real earn- ings of labor - and thus a wider spread of the benefits of development - is to be attained. 8. Towards the end of 1973, when the Second Plan was being finalized, prospects for resource availability improved dramatically. In line with other OPEC countries, the Government raised the export price of oil in successive stages from $3.70 per barrel in April 1973 to $12.60 per barrel in July 1974. Early in 1974 (and again in 1975) the Government also suc- cessfully renegotiated the contracts with foreign oil companies, enabling it to retain a greater share of the oil income. As a result, the net contribution of the oil sector to the balance of payments and Government revenues was expected to increase very considerably; a large increase in foreign exchange reserves and a budget surplus were anticipated for 1974/75.1/ 1/ Indonesian fiscal year April 1, 1974 - March 31, 1975. - 3 - 9. By October 1974, foreign exchange reserves had risen by $650 mil- lion from nearly $1.0 billion at the beginning of 1974/75 and Government revenues were exceeding the levels originally estimated. The Government authorized much higher levels of expenditures, mainly for development, which reflected the improved revenue prospects. However, the recessionary condi- tions in the industrial countries began to affect the volume of oil exports and production by the middle of the year. Indonesia's high quality oil tended to become overpriced ]/ as world oil demand slackened and output declined from an average of 1.45 miLlion barrels per day (bpd) in the first half of 1974 to 1.31 million bpd in the second half. Proceeds from non-oil exports also started to decline as prices, and in some cases export quantities, fell. 10. In October 1974 also, the first signs appeared of what turned out to be a substantial financial overextension by PERTAMINA, the national oil company. PERTAMINA had undertaken a large and diversified investment program financed to a substantial extent by short-term borrowing. In the third quarter of 1974/75, it started withholding part of the corporate oil tax it had collected on behaLf of Government from the foreign oil companies; by the end of the fiscal year a total of Rp 346 billion ($830 million) had been so withheld and used to meet PERTAMINA's financial obligations. Early in 1975, PERTAMINA failed to meet payments due to some foreign banks and the Government stepped in and took decisive action. It banned all independent foreign bor- rowing by PERTAMINA and other Government enterprises and gave Bank Indonesia the sole authority to contract foreign obligations, instructed Bank Indonesia to provide the funds needed to meet PERTAMINA's external obligations, under- took a comprehensive review of the oil company's investment projects and began the process of reducing and re-plannning the company's investment program and of cancelling and renegotiating many of the related procurement contracts. 11. The combination, in the last half of 1974/75, of slackening receipts from exports of oil and other products and of the need to meet PERTAMINA's short-term obligations resulted in a loss of the foreign ex- change reserves gained in the first half of the fiscal year. By March 31, 1975, these reserves were at the same level as at the beginning of April 1974. 12. The balance of payments situation did not improve in the first half of 1975/76. With continuing recessionary conditions in Indonesia's principal markets, exports failed to increase while imports rose again (about 30 percent on an annual basis). Debt service payments on behalf of PERTAMINA were very large (about $1.0 billion). As a result, Indonesia's foreign exchange reserves declined by a further $480 million, despite sub- stantial capital inflows, including two syndicated public cash borrowings (totalling $575 million) from the international capital market. 1/ The premium on I]ndonesian oil has recently been reduced by the Government's decision to raise the price of its main crude by 1.5 percent (to $12.80) as compared with the 10 percent increase in the price of Saudi Arabian light crude agreed at the meeting of OPEC in September 1975. - 4 - 13. For 1976, balance of payments prospects appear distinctly more favorable. Signs of recovery from the recession have appeared in some indus- trialized countries, commodity prices seem to have bottomed out and oil ex- ports from Indonesia have increased in recent months. Rice import needs are smaller and fertilizer imports have been stopped due to the sizeable stocks now on hand. Prices of some other imported commodities have fallen. Service on PERTAMINA's debt is much smaller and the Government has recently raised another cash loan amounting to $425 million. Some build-up of foreign exchange reserves is expected in the second half of the fiscal year. 14. Budgetary revenues in 1974/75 were much lower than had been anti- cipated at the middle of the year, partly due to the withholding of oil revenues by PERTAMINA and partly to the shortfall in oil exports in the second half of the year. The budget was, however, still in balance by year's end as the Government reduced or deferred expenditures. The budget for 1975/76 is balanced. Revenues, as well as current and domestically financed development expenditures, are now expected to be about 10 percent lower than originally budgeted, but still about 30 percent higher than in the previous year. 15. In spite of the shortfall in budgetary revenues, and the adminis- trative difficulties involved in implementation of some projects, total development expenditures in 1974/75 were Rp 770 billion ($1.9 billion) double that in the previous year. In 1975/76 they are expected to reach Rp 1.4 trillion ($3.3 billion), including foreign financing of projects, totalling about $1.0 billion and fertilizer subsidies amounting to $350 million. This is about three times the actual expenditure in 1973/74; even when adjusted for price changes this represents a near doubling. 16. Preliminary figures indicate that the high growth rate achieved during 1969-73 was maintained in 1974. At constant 1973 prices, gross domestic product rose by 7.5 percent in 1974. Partial indicators seem to point to slower growth of output in 1975. The inflation rate was very high in the first part of 1974 as, among other factors, world inflation was transmitted through both export and import channels, but abated somewhat later in the year, partly as a result of the Government's stabilization measures in April 1974. Nevertheless, for the year as a whole it reached 40 percent. While still considerable, the average inflation rate for 1975 is expected to be only half of 1974's, or about 20 percent. 17. In the aftermath of the PERTAMINA development, the Government is faced with problems which, although serious, are surmountable. The review of PERTAMINA's projects has resulted in cancellation or renegotiation of many contracts and reductions in project scope and size. 1/ The Government 1/ The planned capacity of the Krakatau Steel plant, for example, was reduced from 2,000,000 to 500,000 tons per year and the existing supply iontracts were reduced by $750 million. - 5 - has more recently undertaken a hroader review of projects iitiiat(-d by various Covernment departments mid other State entities in ain effort to bring future expendit:ures in line with avaiLable resources and the prior- ities set out in the Second Plan. It is screening very carefully any major new programs or projects, since considerable resources will be needed in the next year or two for the completion of projects already initiated. 18. A longer-term effect of the recent financial difficulties will be on the country's external public debt service obligations during the rest of the decade. Debt service payments over the next several years will be much larger than previously envisaged, as a result of the large borrowings by the Government in the current fiscal year. Debt service in 1975/76 is now estimated at $50C million, which would be more than 10 percent of offi- cially projected net oil and other exports. Debt service payments on all loans contracted to LDecember 31, 1975 may reach about one billion dollars by 1978 before declining as shorter-term maturities are paid off. This is about $500 million more per year than the payments projected on the basis of debt outstanding at the erd of 1974. With debt service obligations on these borrowings substantially higher than expected earlier (about 12 percent of exports in 1978), the margin for further borrowing on other than semi-con- cessional terms has now become much more limited. The amounts, terms and purposes of future borrowing therefore need to be kept under continuous careful review. 19. While the recent balance of payments and budgetary difficulties have upset some of the Government's plans, the long-term prospects for Indonesia's development remain good. The country has a substantial poten- tial for further productive investment, employment and income growth. In agriculture, a vigorous pursuit of on-going programs in irrigation, devel- opment of new plant varieties and technical services, provision of credit and current inputs, etc., promises to yield high returns. In addition, there are opportunities for the development of new areas, of food and tree crops - partly in conjunction with a rapidly growing transmigration program. The industrial potential is good, both for modern capital-intensive natural resource-based activities and for more labor-intensive, partly export-oriented industries. PART II - BANK GROUP OPERATIONS IN INDONESIA 20. As indicated in Part I, Indonesia's plans emphasize a need to undertake a large investment and development program designed to provide productive work opport:unities (with resultant increased incomes) for its presently underemployed and growing labor force. Substantial external financing, on concessLonal and semi-concessional terms, as well as a consid- erable volume of technical assistance, is also required. The Bank is planning to increase its lending to Indonesia and, in particular, to support projects designed to: improve agricultural credit, research and extension; rehabili- tate and expand irrigation systems; increase the production and distribution - 6 - of fertilizer; assist transmigration and nucleus estates; increase non-agri- cultural employment in small towns and rural areas by the establishment of small-scale industries; and rehabilitate and expand urgently needed trans- portation and other infrastructure. 21. As of March 15, 1976, Indonesia had received 37 IDA credits total- ling $561.8 million and 10 Bank loans amounting to $461.0 million. At that date, IFC investments totalled $58.4 million. At the end of 1974 the Bank Group accounted for about 4 percent of Indonesia's total outstanding public debt; by 1978 it is expected to acccount for 12 percent of total outstanding public debt and 5 percent of public debt service obligations. A summary statement of IDA credits, Bank loans and IFC investments as of January 31, 1975 and notes on the execution of ongoing projects, are contained in Annex II. This is the fourth loan proposed for Indonesia this year and, if approved, along with the proposed fourth highway project, would bring total IBRD commitments since June 30, 1975 to $270 million. 22. To date, agriculture accounts for just over one-third of all Bank lending to Indonesia, including four IDA credits for estate rehabilitation, six for the rehabilitation and expansion of the irrigation systems, two for fisheries, and one each for seeds, beef cattle, sugar and smallholder tea and rubber. In the industrial sector, the Bank Group has assisted in three projects to expand PUSRI's fertilizer production capacity, three for develop- ment finance companies (Government-owned and private) which play a major role in fostering the growth of industrial enterprises, and one for the Pulo Gadung industrial estate. Loans and credits have also been extended to the transpor- tation, education, telecommunications, tourism, power, population, urbaniza- tion and water supply sectors, and four credits have been made for technical assistance to aid the Government in preparing and formulating its development programs and projects. 23. In the field of education Indonesia has received three credits to- talling $24.4 million for projects with manpower development and equity ob- jectives. The first credit made in 1970 financed the construction of five centralized workshops (TTC) to strengthen practical instruction for fifteen satellite senior secondary schools. The Second Education Project (1972) aims at upgrading and expanding middle leval agricultural training. The third project (1973) will contribute to the improvement of basic education through the testing, production and distribution of 138 million primary school text- books and the training of teachers. Although there have been some delays in the implementation of these projects, the first project will be completed on schedule and the overall progress on the remaining two is generally satisfac- tory. Details of the implementation of these projects are given in Annex II. 24. Bank lending to Indonesia started with an IDA Credit in 1968 for irrigation rehabilitation; almost half of all loans and credits have been made since mid-1972, with lending on Bank terms commencing in June 1974. Disbursements on loans and credits are prevailing at satisfactory levels. The Indonesian authorities have become increasingly aware of the delays - 7 - in project execution caused by cumbersome procedures and the need to establish an effective control system in BAPPENAS (The National Development Planning Agency). At the Government's request, the Bank has arranged for assistance under the Fourth Techn:ical Assistance Credit (Cr. 451-IND) to help set up a monitoring and control system which it is hoped will lead to better project administration. 25. Future Bank lending gives high priority to the agricultural sector through support of projects to increase rice and other crop production in the Inner and Outer Islands, and the expansion of resettlement efforts on the latter. In addition, the program provides for further socially-oriented projects in the fields of urban development and population. Projects for agricultural extension, power, shipping, ports, sugar, fertilizer production, irrigation and nutrition are expected to be ready for presentation in the next few months. PART III - TEC(HNICAL AND VOCATIONAL EDUCATION IN INDONESIA 26. In Indonesin the formal education system comprises six years of primary education, sixt years of secondary education divided into a lower and upper cycle and three to five years of higher education. The Presidential Decree No. 34/72 has delegated the authority for formal education to the Department of Education and Culture, whereas the Department of Manpower, Transmigration and Cooperatives is responsible for non-formal training, and the National Institute of Administration (LAN) is in charge of civil service training. 27. The technical education and vocational training system comprises four levels ranging from training of semi-skilled workers to graduate engi- neers. At the professional level engineers are trained in the engineering faculties of 18 universities and in two institutes of technology. Sub-pro- fessional training of technicians has been conducted so far at eight tech- nical academies (Grades 13-15) and eleven business study academies (Grades 13- 15), all scheduled to be closed shortly. Skilled workers are trained at 440 senior secondary technical schools (STM, Grades 10-12) and eight secondary technical schools (Grades 9-12). These institutions are under the jurisdic- tion of the Department of Education and Culture. Semi-skilled workers and operatives are trained in vocational training centers (PLK) and mobile train- ing units (MTU) (both without grade structures) under the jurisdication of the Department of Manpower, Transmigration and Cooperatives. Technical second- ary teachers are trained in ten technical faculties (FKIT, Grades 13-17) of teacher training institutes. 28. Indonesia's technical and vocational education and training system presently fails to produce properly trained technicians, and has inadequate supply capacities at skilled and semi-skilled worker levels. Rural out-of- school youth particu]arly lack access to enough skill training. Technical and vocational training also suffers from low quality because of under-qualified - 8 - teachers, inadequate curricula and lack of appropriate facilities. Two-thirds of the teachers in secondary technical schools and 90 percent of teaching staff in technical academies are on a part-time basis. The root cause of this low quality is inadequate expenditure. Recurrent expenditures per student in In- donesian technical/vocational schools have been among the lowest in the world. The Government increased base salaries of teachers ninefold between 1971 and 1975. The budgeted expenditures for the Department of Education and Culture are Rp. 436 billion under the Second Five Year Plan as compared to Rp. 37 bil- lion allocated for the preceding five year period. However, the accumulated effects of many years of budgetary stringency can be overcome only gradually. 29. An essential condition for the success of Indonesia's development efforts would be an adequate supply of qualified manpower at skilled worker, technician and engineer/technologist levels and, at the base of the manpower pyramid, a work force commanding basic vocational skills. The strengthening and expansion of the Government's resource management capabilities, which would require an effective public service training system, is considered another necessary condition for carrying out the large industrial and infra- structure investment programs Indonesia is envisaging. The existing National Institute of Administration (LAN) is not able at present to provide such training to public servants and would have to be strengthened if it is to fulfill its triple role of research and development, monitoring and central training agent in the field of public administration training. 30. The detailed manpower and training implications of Indonesia's planned ambitious growth have not yet been articulated. However the follow- ing generalizations can be made on the basis of a broad comparison of the likely manpower needs by major skill categories and the available training capacities: (a) the total number of university graduates in engineering/ technology would exceed slightly the available jobs (although there may be shortages in certain fields) whereas properly trained technicians would be in short supply owing to the virtual absence of relevant training institutions; (b) the training capacity for skilled workers would be in- sufficient, leading to large-scale upgrading from the semi-skilled worker level. This in turn would require an expansion of training facilities for basic vocational skills to make up for these losses and also to allow for an increased demand for semi-skilled workers. 31. The Government has identified and is dealing with the shortcomings of technical education. During the first Five Year Plan period (1969-74) it introduced the new concept of centralized workshops and developed new curri- cula for secondary technical education. For the period of the Second Plan (1974-79) and beyond, the following developments are envisaged: - 9 - (a) engineering educiti-n w,.uld he selectively expanded and efforts would be male to increase its internal efficiency; (b) technical teacher training would be concentrated and strengthenecl; (c) senior secondary technical schools (STM) would have their facilities upgraded and re-equipped. In major urban areas centralized workshops would serve groups of STMs. Senior secondary technical education would also profit from better teacher training and the introduction of new curricula; (d) junior secondary technical schools would by 1978 be converted into genera]. schools; (e) the network of vocational training centers and mobile train- ing units wculd be expanded to cover all provinces. PART IV - THE PROJECT General 32. With a view to improving its long-term planning for education and formulating appropriate strategies, the Government undertook a "National As- sessment Study on Education" in 1969-73 with the help of the Ford Foundation and requested Bank assistance to identify projects for priority implementa- tion. An Education Sector Survey Mission visited Indonesia in late 1973 and its report "Indonesia Education Sector Survey Report" (No. 443a--IND), dated February 5, 1975 identified projects for financing from local and external resources. The proposed project is based on the recommendations of this Sector Survey Report and was prepared by a team of experts supp:Lied by UNESCO. A preparatory assistance mission under the leadership of the Bank with partici- pation from UNESCO, ILO, and UNOTC (United Nations Office of Technical Coopera- tion) and financed by UNDP formulated a detailed program of technical assistance. The project was appraised in February/March 1975. Negotiations were held on October 28-31, 1975 in Washington, D.C.; Mr. Soelaeman Soemardi, Chief, Bureau of Education, Law and Religion of BAPPENAS led the Government delegation. 33. The proposed project would have the following main objectives: (a) to help meet the country's requirements of skilled and semi-skilled manpower; (b) to provide disadvantaged rural and urban groups with skills that would enable them to earn additional income. (c) to contribute towards an improvement in civil service training. - 10 - The project items (with their locations shown on the attached map) would be as follows: Additional Enrollment Capacity Output Grades Existing Added Total per annum Department of Education (a) Construction of and equipment for - two technical teacher training faculties (FKIT) 13-17 3,500 /a 2,050 2,050 550 - four centralized work- shops (Technical Train- ing Centers) (TTC) 10-12 14,800 11,900 26,700 3,600 Department of Manpower (a) Construction of and equipment for - seventeen vocational training centers (PLK) n.a. 8,370 11,610 19,980 11,610 (b) Equipment for - one instructor train- ing center n.a. 150 150 300 150 - twenty rural and five urban mobile training units (MTU) n.a. 6,840 9,300 16,140 9,300 National Institute of Administration (LAN) - construction and equipping of new facilities n.a. 2,340 1,100 3,440 1,000 Technical Assistance A total of 104 man-years of specialist services (at a cost of about $52,000 per man-year) and 61 man-years of fellowships for the three government agencies mentioned above. /a Eight of the ten existing FKlT's will be used for other forms of teacher training. Project Institutions 34. (a) Department of Education Technical T'eacher Training Faculties (FKIT): The present low quality of technical teacher training would be raised by consoLidating and strengthening trainirg at two FKIT in Jogyakarta and Padang. The proposed project would construct, furnish and equip new facilities at these insti- tutions sufficient tc enroll 2,050 students. The required staff of 120 teacher-trainers would be obtained through in-service upgrading of present FKIT personnel, initially with the help of technical assistance specialists. Internal efficiency would be improved through careful selection of entrants by means of an examination open to general and technical senior secondary school graduates. In order to simplify the curricula, reduce equipment needs and lower recurrent experLditure of the FKITs, their entrance requirements in workshop practice woulLd be set equivalent to the level of a graduate from a high-quality senior secondary technical school. To avoid creating a dual system of secondary technical teachers, all technical teacher training will be concentrated, by 1980, in the two FKITs included in the project and eight of the existing FKIT's which are poorly equipped and have low standards will be used for other forms of teacher training (Section 4.09 of the Loan Agreement). Centralized Workshops (TTC): Centralized workshops appear to be the most expeditious and economical way of improving the quality of technical schools in major urban areas. Five such TTCs are being financed under Credit 219-IND. These are Jocated in Bandung, Jakarta and Surabaya, in Java, Medan in Sumatera and Ujung Pandang in Sulawesi. The proposed project includes the establishment of four more centralized workshops in Jogyakarta and Semarang in Java, as well as Padang and Palembang, in Sumatera. They would serve eleven existing feeder senior secondary technical schools (STM) with a total enroll- ment of 11,900 students and an annual output of almost 4,000 skilled workers, almost 10 percent of the country's estimated requirements. The 340 instructors needed for the workshiops would be recruited from teachers already in service who would receive in--service training. 35. (b) Department of Manpower Vocational Training Centers (PLK): The proposed project would help expand non-formal skiLll training by establishing 17 new vocational training centers, four in major urban areas, seven in mid-sized towns and six, which would serve as operational bases for the mobile training units, in small towns. The 17 centers would enroll 11,600 trainees per annum, mostly unem- ployed youths between 18 and 25 years old, preparing them for jobs as for example semi-skilled construction workers, welders, plumbers, motor mechan- ics, carpenters and electricians. Curricula materials have already been developed under the IL0 modular system. The 400 instructors required would come from the specia:L training centers in Bandung and Singosari in Java. Instructor Training Center: The proposed loan would help finance furniture and equipment at the Instructor Training Center in Singosari re- quired to strengthen its teaching program. The equipment would enable up - 12 - to 150 instructors to be trained properly per annum. The vocational train- ing centers and mobile training units in the proposed project would require more than 600 instructors. The combined annual output of the existing Instructor Training Center at Bandung and the Singosari center (300) would be sufficient to meet this demand over a three-year period and to allow for the replacement requirements of the existing vocational training centers and units, presently estimated at 100 per year. Mobile Training Units (MTU): The proposed project would expand the capacity of mobile training units by 9,300 trainees, more than doubling the existing capacity. It would establish 25 new units, 20 for rural areas and five for major urban areas. The 25 units would use vocational training centers as operational bases. About 220 additional instructors would be required and would be recruited from the instructor training centers in Bandung and Singosari. Curricula, following the ILO modular pattern, have already been developed. The MTUs would provide rural and urban, mainly unemployed youths, with basic agricultural and industrial/artisan skills. 36. (c) National Institute of Administration (LAN) The proposed project would construct training and auxiliary facili- ties (library and accommodation for 200 boarders) sufficient to enable the consolidation of all LAN's training activities in one location. Enrollment would increase by 1,100 places, or about 50 percent and training would include these major courses: (a) in-service training for senior civil servants, (b) pre-service training for Government officers, (c) training of instructors for Government agencies and (d) specialized language and secretarial courses. The future training activities would emphasize functions that have arisen out of the Government's increased involvement in the process of economic and social development (such as general planning, financial analysis, program/project design, implementation and evaluation), rather than the traditional regulatory functions. Curricula, including Indonesian case studies, would be developed as an integral part of the project. The development of a plan for civil service training is urgently required. Disbursement for civil works, furniture and equipment for LAN would therefore be contingent upon the preparation and submission to the Bank for comment of such a plan (Part 4 (f) of Schedule 1 of the Loan Agreement). Technical Assistance 37. A total of 104 man-years of specialist services and 61 man-years of fellowships would be needed for strengthening management capability, pro- gram development and staff training. Of this total UNDP is financing four man-years of specialist services for initial implementation and agreement has been reached for aid from the U.K. Government to provide 24 man-years of specialist services for the centralized workshops. The remaining technical assistance would be financed out of the proceeds of the loan, as follows: - 13 - (a) Department of Education: 30 man-years of specialist services for curriculum and staff development and 41 man-years of fellowships; (b) Department of Manpower: 35 man-years of specialist services and 14 man-years of fellowships for strength- ening management and supervision capability; and (c) National Institute of Administration: 11 man-years of specialist services and six man-years of fellowships to develop curricula and a civil service training plan and to train staff. Specialist services would cover three phases: (a) the initial preparation of work programs (6 months); (b) assistance in establishment of institutions (2-3 years); and (c) assistance in initial operation of the institutions (2-3 years). Cost Estimates 38. The estimated costs of the various project items are given in detail in Annex III. The total cost (including contingencies and projected price increases) would be about $65.0 million, of which about $37.8 million, or about 58 percent, would be in foreign exchange. Physical contingencies and projected price increases would amount to about $19.2 million (or about 30 percent of the total project cost). Financing Plan 39. The proposed financing plan provides for Bank assistance to finance 98 percent of the foreign exchange component of the project; the remaining for- eign requirements would be financed by the U.K. Government. The details of the financing plan are shown below: Total UK All Gov't. Bank & UNDP Sources -$ million- ---$ million--- A. Department of Education 12.90 14.60 - 27.50 B. Department oE Manpower 10.88 14.30 - 25.18 C. National Institute of Administration (LAN) 2.67 1.60 - 4.27 Total Capital Costs 26.45 30.50 - 56.95 D. Technical Assistance (TA) 0.73 6.50 0.80 8.03 TOTAL PROJECT COSTS 27.18 37.00 0.80 64.98 - 14 - Project Implementation 40. Administration. The existing project unit in the Department of Education charged with implementation of the first education project (Credit 219-IND) would be responsible for administration, financial control and liaison with the Bank for the components under the Department of Education. To carry out the additional workload, the Government has appointed additional staff to the unit. 41. A project unit recently established in the Department of Manpower would be responsible for the implementation of the components under the Department of Manpower. The Deputy Chairman of LAN has been appoined Project Implementation Officer for the LAN component and would be supported by a committee of LAN staff. 42. Financing and Execution of Technical Assistance. A 12-month prep- aratory assistance project, covering the salaries of a project coordinator and three team leaders, was started in January 1976 financed by UNDP with the Bank as Executing Agency. Agreement had been reached in principle that the preparatory assistance would be followed by UNDP financing of the full technical assistance program. However, recent financial constraints have prevented UNDP from funding the full project and the required technical assistance would therefore be financed from the proposed loan. Should UNDP funds become available for this purpose at a later date the corresponding amount of the loan will be cancelled. It is expected that the technical assistance component would be administered through UNESCO, ILO and UNOTC for the project components related to the Departments of Education, Manpower and LAN respectively. Completion of these agreements satisfactory to the Bank would be a condition of disbursement for the respective project component. (Paragraphs 4 (b) (c) and (d) of Schedule 1 of the Loan Agreement). 43. Professional Services. The Departments of Education, Manpower and LAN (in consultation with the Department of Public Works and Power), have appointed qualified consultants on terms and conditions acceptable to the Bank to carry out design and supervision of civil works. The consultants would work under the supervision of the respective project units through the project architects. 44. Sites. The sites for the proposed project institutions have already been selected and most of them purchased; the acquisition of the remaining lands is expected to be completed soon by the Government. 45. Performance Monitoring. The Government would establish a perform- ance monitoring system in all the project institutions to collect information, in accordance with guidelines agreed with the Bank, on the following aspects (Section 3.06 of the Loan Agreement): (a) external performance: employment status of graduates/ trainees including data on occupation sector and place of employment; - 1 5 - (b) internal performance: dropout-reputitLon rates, results of trade tEStS or otlher skill measurements; (c) course demand: application/admission ratios, requests by industry and Government agencies for courses; and (d) workshop discipline: accident rates. 46. Implementation Schedule. In order to ensure that the Droposed project will be executed without delay, the agreement of the Government has been obtained to an initial implementation schedule with specified timing of critical steps in project implementation. The project is expected to be completed by 1980. Procurement 47. Contracts for civil works (excluding those for the sub-project of the Department of Manpower) and equipment and furniture (except those below US$50,000 equivalent) would be awarded following international compe- titive bidding in accordance with the Bank's Guidelines. In bid comparison, domestic suppliers of equipment, furniture and vehicles would be allowed a preferential margin oE 15 percent or the actual customs duty, whichever is lower. In addition, a 7-1/2 percent margin of preference would be given to domestic contractors Eor purposes of bid comparison for civil works. Small contracts for equipment and furniture and the contracts for civil works for the smaller and often more remote Department of Manpower schools would be awarded on the basis of competitive bidding advertised locally following Government's normal procurement procedures which are satisfactory to the Bank. Some items will be purchased off-the-shelf on the basis of a minimum of three price quotations. The details of the arrangements for procurement are given in Annex III. Disbursement 48. The proposed loan of $37.0 million would be disbursed on the basis of the following percentages: (a) 100 percent of the foreign expenditures for directly imported equipment and vehicles; (b) 95 percent of the ex-factory cost of locally manufactured equipment and vehicles, excluding sales taxes; (c) 65 percent of the total cost of imported and locally pro- cured equipment purchased off-the-shelf; (d) 100 percent of the foreign expenditures on technical assis- tance; (e) 40 percent of total expenditures on civil works; - 16 - (f) 40 percent of total expenditures on consultants' ser- vices; and (g) 30 percent of the total expenditures on furniture. The estimated disbursement Schedule is shown in Annex III. Disbursement is expected to be completed by the end of 1980. 49. In order to speed up project implementation, consultant architects have already been appointed; it is therefore proposed that expenditures for their services after December 1, 1975 be reimbursed from the loan. The total amount of retroactive financing would not exceed $100,000 (Paragraph 4(a) of Schedule 1 of the Loan Agreement). Benefits and Justification 50. The proposed project would aid the development of technical man- power in Indonesia by: (a) increasing the output of skilled workers through the pro- vision of four centralized workshops for senior secondary technical schools, and by assuring the necessary supply of qualified technical teachers through the simultaneous improvement of two technical teacher training faculties; (b) expanding the capacity for non-formal vocational training at the semi-skilled worker level through the provision of 17 vocational training centers (PLK), and by assuring the necessary supply of qualified instructors through the re-equipping of an instructor training center; (c) providing through the MTUs the basic skills for disad- vantaged rural and urban groups that would enable them to earn additional incomes to improve their livelihoods; and (d) strengthening LAN to increase the supply of better trained civil servants at national and provincial levels, and thus provide for more effective and efficient operation of pub- lic administration. 51. Quantitatively, the project institutions would train each year: (a) about 3,600 skilled workers, or about 10 percent of the estimated requirements; and (b) about 11,600 workers at the upper range of the semi-skilled ,eval, thus more than doubling the existing annual training potential. - 17 - 52. The annual capacity of the rural and mobile training units would increase from about 7,000 to over 16,000 participants. Moreover, the demon- stration effect of the training would spread beyond the group of direct participants. 53. The proposed improvement and expansion of LAN would provide train- ing annually to 270 civil servants in the top category and those to be pro- moted into it. It would reach through pre-service training another 800, about 10 percent of the estimated training requirements for the annual entrants into the intermediate levels. 54. Despite this expansion of specific segments of the education and training system, training deficits at skilled and semi-skilled worker levels will persist. Since an immediate large-scale replication of the relevant items in the proposed project is ruled out by staff and financial constraints, the economy would have to rely on alternative means to supply the necessary manpower. The upgrading of semi-skilled workers would mainly be used to re- duce the present deficit of skilled workers; the vocational training centers could support this process by concentrating on training workers who are al- ready employed. This would mean that the initial training of semi-skilled workers would have largely to be carried out by private enterprises, with the mobile training units as a supply source for basic skills. These tempo- rary training deficits should *not detract from the important contribution that the proposed project would make to manpower development in Indonesia, by laying the foundation for a modern and efficient system of technical edu- cation and vocational training. PART V - LEGAL INSTRUMENTS AND AUTHORITY 55. The draft Loan Agreement between the Republic of Indonesia and the Bank, the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank, and the text of a draft resolution approving the proposed loan are being distributed to the Execu- tive Directors separately. Items in the Loan Agreement of special interest are referred to in paragraphs 36, 38, 44, 47 and 51 of this report. The draft Loan Agreement follows the general pattern of loan agreements relating to education projects. 56. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. - 18 - PART VI - RECOMMENDATION 57. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Washington, D.C. March 16, 1976 MANNE I Page 1 of li pages TABLE 3A INDONESIA- SOCIAL INDICATORS DATA SHEET LAND AREA (THOU 11HZ) ---------- ------------ INDONESIA REFERENCE COUNTRIES (1910) TOTAL 1904.3 MOST RECENT ARN8LE 167.0 1960 1970 ESTIMATE BANGLADESH INDIA PHILIPPINES * GNP PEAR CAPITX CUSS) 0. 100 1008.0 1.0 220.0 POPULATION ANA VITAL STATISTICS POPULATION (IMIOTR, MILLION) 95.4 115.6 124.4 70.8 530.1 36.9 POPULATION DENSITY PEAR SQUARE KM. 50.0 61.0 65.0 496.0 100.0 123.0 PER SQUARE KM. ARABLE LAND .. 745.0 840.0 350.0 VITAL STATISTICS CRUDE BIRTH RATE PER THOUSANI) 43.0 42.0 42.0 44.0 38.0 45.0 CRUDE DEATH MATE PER TMOUSANI) 21. ~ 1.0 21.0 21.0 16.0 12.0 INFANT MORTALITY RATE (/THOU) 125.0 a .. 140.0 101 8. LIFE EXPECTANCY AT BIRTH (YRS) 48.0 41. 0 51.0 4 8.0 I10.0 56.0o GROSS REPRODUCTION RATE 2. .2 3.1 3.1 2.9 3.3 POPULATION GROWTH MATE (Z)- TOTAL 2.1 2.0 2.0 2.? 2.3 3.0 URBAN .. 3.6 3.2 ..4.0 4.0 URBAN POPULATION (1 IF TOTAL) 15.0 17.0 18.0 . 20.0 3 2.0 AGE STRUCTURE (PERCENT) 0 TI 14 YEARS 42.1 44.1 44.1 * 42.0 43.1 1S TO 64 YEARS Ss.4 53. 6 5 3.4 .. 55.0 5 3.4 65 TEARS AND OVER 2. 5 2. 5 2.5 ..3.0 3. 5 AGE DEPENDENCT RATIO 0.8 0.9 0.9 ..0.8 0.9 ECONOMIC DECENOENCY RATIO 1 . 3 1.5. 1 .2 1. 5 FAMILT PLANNING, ACCEPTORS (CUMULATIVE. THOU) . 2 36.2 4860 8 .2 .. 2 76. 9 USERS CZ OF MARRIED WOMEN) ... . 0 EM PLOTYMENT TOTAL LABOR FORCE (THOUSAND) 06 600.0 . 401C0.O 22 3 00. 0 221000.0 lb 12300.0 LABOR FORCE IN AGRICULTURE (Z) 68 .0 . 6 2. 0 11.0 71I. 0 51. 0 UNEMPLOYED (I OF LAROR FORCr) 5.4 2. 0 5a . 4 3.0 /c 1.0 INCOME DISTRIBUTION O OF PRIVATE INCOME REC-D BY86T HIGHEST S% OF POPULATION 42... 1.TI 25.0 / HIGHEST 200 OF POPULATION . .4237 5.1L LOWEST 2aZ OF POPULATION ... .79: 7 ~ 41 3 /d LOWEST 401 CF POPULATION ... 16Zi 31 DISTRIRUTION IF LAND OWNERSHIP I OWINED AT TOP 101 IF OWNERS 48.0/ .. 34.0 I OWNED BY SMALLEST 101 OWNERS 3.0 . 1.0 HEALTH AND NUTRITION POPULATION PER PHYSICIAN 61000.0 27650.0 23880.0 7600 4 6000.0 POPUATIO PERNURSING PERSON sol801.0 69610. 0 62000. 11. POPULATION PER HOSPITAL BED 1 350.0 17 20. 0 1450.0 e 120 .0 162 0.0a 85 0. 0 PEA CAPITA SUPPLY OF - CALORIES CZ OF REQUIREMENTS) 89.0 89.0 8 3.0 . 9 3.0 0 5.0 PROTEIN (GRAMS PER DAY) 43.0 43.0 38.0 . 53.0 45.0 -OF WHICH ANIMAL AND PULSE 15.0 L 14.0 t.. 6.0 22.0 CEATH RATE (/THOU) AGES 1-4 ... . .. .0 EDUCATION ADJUStED ENROLLMENT RATIO PRIMARYT SCHOOL 60.0 r 7.0 80.0 50. d 79. 119.0 SECONDARY SCHOOL 60 12.0 1B.C 15.0,~ 28.00 45. 0 YEARS or SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) 12.0 12. 0 1 2. 0 10.0/k 12 .0 1 0. 0 VOCATIONAL ENROLLMENT (I IF SECONDAWRY) 200 28.0 28.0 1.0 6. 0 /e 10. 0 /a.b ADULT LITERACY RATE Ii) 61.00 /a 6 0.0 /b MOUSINAG PERSONS PER ROOM (AVERAGE) . 1.6 OCCUPIED DWELLINGS WITHOUT PIPED WATER (I) . 44. 0 L2... 66. 0A ACCESS TO ELECTRICITY (I OF ALL DWELLINGS) .. 64.C .2 3. 23.0 RURAL DWELLINGS CONNECTED TO ELECTRICITY (1) ... 9.0 6. 0. 6. CONSUMPTION RADIO RECEIVERS (PER THOU POP) 1.0 114.0 . 6. 21.0 45.0 PASSENGER CNRS (PER THOU POP) 1 .0 2.0 3.0 1. 0 1.0 8. 0 ELECTRICITY (KWH/YR PER CAP) 19.0 20. 0 2 3 .0 11.0 011 I.0 2 35. 0 NEWSPRINT (RD/YR PER CAP) 0.2 0.2 0. 2 .0.3 1.2 L SEE NOTES AND DEFINITIONS ON REVirRSE ANNEI I Page 2 of I pages NOlES Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961, for 1970 between 1968 and 1970, an,d for Most Recen,t Eetiaate between 1971 & 1973. v-aThe Philippi..s hac been selected as an, objetive country for its ge-graph-nl sinilarity and beas f its apparent advan-ed stage of scono..ic development. INDONESIA 1960 /a Excludes West Iria; &b 1963; /, 1961-63. 1970 /a Registered applican,ts for work. MOST RECENT E.STIMATE, /a Uaeployed workes seeking their firet job; /b 10 years and over, ability to read and write in either Latin or no-Latin eharantere; / Inside only. WGANISDESH 1970 /a 1966-67, households; &b Regiatered, not all practicing in tSv country; /c Governe,ent hospital establishasots only; /d ApprPxisate enrollast as pernentage of population in 6-10, and 11-15 age groups respectively; /e UP to end of second laval. INDIA 1222 /a Ratio of population under 15 and 60 and over is lakor force age 15-59 years; /b AID estiante of labor force in age group 15-59. IBRRD report gives a figure of 160.6 dillion based en 1971 population census. The difference is doe to changes is the definition of a worker. In the 1971 census, persons were classified only on the basis of their samn atvte. This led in the exclu-ion of several categories such an housewives; /c Registered applicants for work; /d 1967-68, households; /i 1965. PHIIPINES 1222 /a Public education only; /b 1967; Is. Isports only. 59 March 17, 1976 DEFPNrrTIONS OP SOCI%L INDICATORI 1usd Are- (thou k.7 PoPulation per nureing parses - Population div,ided by senbor of pra-ci- Toctol Ttoca -ofece area casprising ised area sod island waters. cieg mal.eand feme1e greduata -orse, "traised" or "certified"soe, Arabl. - Plot r.enst esjeeof lend area used teeporerily or persanestly aend auiliary personnel with training or aeperiene.. for cultivation, eatre,mrket aend bitches gardens or to lie fellow. Population per hospital bed - Population divided by soaker of hospital beds available is pohlio esd private g.eer al sd epecialised bospi- GN5P per ...eit. (00$) - GNP percepita estimetes at eeket prices.. ceIec- tl and rehabiilcait on centers; secludes nursing bases ad establish- laced by s.ee conersion method as World Reek Atlas (19 72-74 basis). mats for custodial end preventive care Per cpita suoey of calories (7. of resuiremeets) - Computed fran PPoriacinu and vital statistics energy equivoleot of met food supplies ailble is ountry per Papniacton (aid-yr. million) - As of Joly f irst' it sot aveilable, ayOraga cepita pser dy; avilable suppliee com,prise d-etic production, of two eod-yeor estimate.- leporistee e.. porcs, and changes in stock; set supplite oclude uniau,l feed, aseds, quastitiee used is feud process. tog end losses Population density - Per sosare he. - Mid-year populstion Par squaet kilo- is distribution; requirements were estimated by Fko base.d on phyci- meter (100 hectures) of total area. clogical seeds for eos-sa activity end health considering environ. Population density- par usuare he of arable land - Computed as above for mental temperature, body weights, age sod see distributions of arabl. lend only. population, and allowing 107. for waste at household level. par capita supply of protein (em c day) - Protein con tort of per vital statistics capita sat supply osmdprdy net supply of feund is defioed a Crude birih rate per thousand - Sonual live births per thosu-nd of mid- abovo; requir-emets for all coutrisaetablished by LEPDA Econaic yea popolucion, oucaily fioe-year averoges endisg in 1960, 1970 and Research Services provide for a miniso allowamee of h0 genes of 1975 for doosioping c-ontr ies. tatal protein per day, and 2$ grams of uni-al aed pulse protoic, of Crods deoch rata p-r thouuund - Annual deaths per thousand of aid-year which 10 grams should be animal Protein; these. atedards are lowe population; usually five-year averages ending is 1960, 1970 and 1971 thee those of 71 grons of total protein and 23 gr-a of acted pr- for developing cuontries tisi as an average for the world, proposed by FAO in the Third World Infant norcaficy rate f/thou) - Annual deaths of infests under one year Food Survey. of age per thousan.d live births. Per capita proteim uopply frmn animal sod pulse - Protein supply of food tics ecpectancy et birch (yr.) - 'verage en-hor of years of life rmi-derived from eiasand pulses in gram Per day. r.g at birth; usc1ly fice-yesr averages ending in 1960, 1970 and Death rats f/thou) ages 1-4 - Aesal deaths per thoneand in age group 1-4 19 75 fur do-elopiog countrios years, to chil1dren Is this age group; suggosted as an indicacoc of Cross r-p-d-ction rate. -A-erage nunber af live dau5htsrs. a u.m. will Jal.urrition. bear in her ocr--alreproductive period if she roperie...es present ago- specific fertility rates; us-ully five-year averges endieg he 1960, Education 1970 and 17 for decaloigcutes Adjuse oiet rtio-prmr scho- isrollmet of all agesa Pouition irowth rt (7.) -_cocc - Compound es..uaI groth rates of aid- percentage. of primr -ohool-Ug poplto;icuehhlrnuo yearpoplatin fr 150-bcu, 1960-70,ad15 tomot reent year. h-li years but adjuated fur different lengths of primary eduction; .poolutiu- growth rata (I)-uru - Compute like grow-th rate of local for countries with seiversal sdc..atiae, esro1lmeec may emced 1007. populotion ; different definitius- of urban sres asy affect compare- sines soy pupil. see below or above the official sahol1 age. bibity of data among contries. Adjusted enroleec ratio - secondary school - Caspuced as above; second- Pra opo.siution (7. of total) - Ratio of urban to ftal. population ,say educa.tion requires at least four years of approved primary lostruc- differeni deficitioss of urban areas may affect cmparability ofdate ties; provides gene.ral, voca tional or teacher training i-atructione for among countries pupitls of 12 to 17 years of age; sorreaponde-ce caurees are genrall1y Age structure (Percent) -Children (f-lb years), working-ago (15-64 yasra), escluded. and retired (hi years and aver) aspercentages of mid-year population. Years of acholini orovided (irst esd secon d levels) - Total years of Age depende-ryrcn- Ratio ofPopolation under 15 sod 65 and over to schaoliog; asoodery leve, vocetional inscroction may he parciaiiy thoseof ages 15 chrough 64. or c-pletely occluded. Ecosanic dependency rotin Ratio of population -eder 15 and 65 and ever i'oeational enroIllment (. of o..condery) - Vonationa1 institutions include to the labor force isag group of 15-6i years. technical, industrial or other program which operate iedepandeotly Panily Plannin - acceptors cmlt. thou) - Comulacive nombr of or as departments of secondary institutIons. ac-ptors of birth-control devices under auspices of oationul family Adult literacy rate (7.) - Literate adults (able ts read med write) us plann Ing progre since ineption. percen.tage of total adult population aged 15 years and over. Fa.ily planinii - users (7. of carried womeo) - Percentages of married -ease of child-bearing ege (15-44 years) wh. use birth-contre1 devices R.ouing toal carri ed wane insame age grosp. Percus Per soo (averagel - Average somber of persons per room in .cc.pied ca,nvetinu1 dwellings in urbs areas; dwellings eacude ean-pe-.e.eet E. iyost stutures nd -,nnpiedpot Ttal luhor force (thousand) - Econmically ective persons, tecluding Occpied dulio ihu ipe wae ) - Ocuspied conventional dwell- a=ned forces and unemployed hut exclsdlsg hocuew.ivee, students, etc.; tinge is urban and rural ares without iss ide or out side piped water def iteici cc vrious countries are not comparable. facilitiec as percentage oc mu1 oncpied dwllings. Labuc furc- i agiculture (7.) - Agricultural labor ferns (is fanning, Access to el"ntricity (7 faldelns o otnldelin.gs with foety hntieg andfis hing a percentage of mtota labor force, 1eletricity is living quarters as perceet fg total dwellings is urban Unonpioved (7 o elbor force) - Oseployed are usually defised as persona and rural sinus. wh re ableand willing to taRe a Job, out of a job on a gioeo day, Rural Idwellinga co.necred ts electricity (7.) - Computed ua above (or ronaisd our of a Job, and eebtng won for a specified sinimo rura dwell1ings only. period nout c.ce-ding one week; may not he cmparable between csastries duo is .differen t defisition of uneapleyed sod s..sras of data, e.g., Consanotion eopvnnt office statistics, snple surveys, compulsory usonpiyme.stRadio receivera (par thins emp) - All types of receivers for radio broad- des-ra-c- nests to general Public per theusond of population; eacludes on- licnsdt reevr scuties. and in years when registretium of Incom discribucioe - P-eretage of private inme- (hoth in cash and radio set wasis effect; data for r.eet years may nut he coparable kisd) received by rinbe4t 57., richest 207., pour.st 207., end poureet since most coatries abu1ished liteeing. 407Z of population. Paseenier cars (Par then pop) - Passenger cars conprise motor cars satting less than eight persons, secludes onbulances, hearses end military Distribution of iand omoeruhip - Percentages of land uwsd by wealIthiest vehicle.. 157. and poorest 10. of land owner. Electricity (kwh/yr per cue) - Annual cnessption of isdustria.1com mercial, public and private electricity is kilowatt hones per capita, Hsalch and Nutrition geserully based os production data, without allowance for loses. in P.pulution per physician - Population divided by masher of practicing grida but allowing for imports and esporte of electrinity. physiciu.. qualified from a medicaI school at university levelN.. Pewtist (kbe/yr Per cap) - Per capita ans.-I nossoption in kilograsm, estimated crom domestic prodotisn plus net imports of news.print. ANNZX I Page 3 Of 4 pages ECONOMIC INDICATORS GROSS NATIONAL PRODUCT IN 1974 ANNUAL RATE OF GROWrH (%, constant prices) U' .$ .C. % 1%96 -65 1965 -70 1974 GNP at Market Prices 22479 100.0 1.9 4.9 5.6 Gross Domestic Investment 4330 19.3 3.3 11.5 19.2 Gross National Saving 4336 19.3 5.8 5.1 64.8 Current Account Balance *6 0.0 Exports of Goods, NFS 6755 30.0 1.5 7.8 0.5 Imports of Goods, NFS 5527 24.6 0.2 10.9 33.2 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1971 Value Added1/ Labor Force-9 V. A. Per Worker US$ Mln. dln. e- U M Agriculture 4221 44.8 3o.5 69.0 138 65 Industry 1915 20.3 3.0 6.8 638 300 Services 1279 34.9 8.3 18.8 395 185 Unallocated - - 2.4 5-4 4 Total/Average V V7 100.0 1;E T-U 0 100.0 GOVERiOENT FINANCE Central Government 197=7 1.974 1Y73 Current Receipts 1759 17.9 15.0 Current Expenditure 1001 10*2 10.8 Current Surplus 7. 7 14.2 Capital Expenditures 966 9.8 7.3 External Assistance (net) 234 2.4 3.2 MONEY. CREDIT and PRICES 1970 1971 1972 1973 1974 1975 TBIllinn fR4p. outstanding end periodT June Money and Quasi Money 330 469 695 987 1452 1776 Bank credit to Public Sector 57 129 58 37 - 2 - 29 Bank Credit to Private Sector 306 451 555 936 1126 1837 (Percentages or Index Numbers) Money and Quasi Money as % of GDP 9.9 12.8 15.2 14.6 14.8 General Price Index(Sept. 1966'0oo) 612 638 680 891 1253 Annual percentage changes ins General Price Index 12.3 4.2 6.6 31.0 40.6 Bank credit to Public Sector - 5.0 126.3 - 55.0 - 36.2 Bank credit to Private Sector 77.9 47.4 23.0 68.6 20.3 NOTEt All conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 1/ Conversion at an exchange rate of Rp. 390 - US$1. 2/ Total labor force; unemployed are allocated to sector of their normal occupation. IUnallocated0t consists mainly of unemployed workers seeking their first job. not available not applicable ANNE I Page 4 of 4 pages TRADI PAn!;NTS AND CAPITAL FLWS BAIANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1972-74) 1972 1973 1974 US $ Mln % (Millions US $),Est. Exports of Goods, NFS 1757 2957 6755 Rubber 359 9.41 Imports of Goods, NFS 1875 3170 5527 Timber 513 13.4 Resource Gap (deficit = -) - _Z3 TZ8 Palm Oil 93 2.4 Tin 104 2.7 Interest Payments (net) - 46 - 5° - 106 Coffee 84 2.2 Workers' Remittances - - ) . Other Factor Payments (net) - 318 - 543) -1JL6 Net Transfers - 364 - 593 .1222 All other commodities 410 10,8 Balance on Current Account - 82 -W +36 Total 3823 100.0 Direct Foreign Investment 258 290 471 EXTERNAL DEBT, DECEMBER 31. 194 Net MLT Borrowing Disbursements 447 624 1072 US $ MIn Amortization - 70 - 138 231 Subtotal 377 486 841 Public Debt, incl. guaranteed 58W5 Capital Grants *. * . Non-Guaranteed Private Debt Other Capital (net) 181 208) _ 621 Total outstanding & Disbursed Other items n.e.i 928 147) Increase in Reserves (+) 432 325 690 DEBT SERVICE RATIo for 1971/ Gross Reserves (end year) 574 806 1473 Net Reserves (end year) 458 783 1473 Public Debt. incl. guaranteed 7.7 Non-Guaranteed Private Debt Fuel and Related Materials Total outstanding & Disbursed Imports 4 4 4 of which: Petroleum 2 2 1 Exports 877 1348 4556 of which: Petroleum 877 1348 4556 IBRD/IDA LENDING_ (Jan. 31. 1976) (Million US $) IBRD IDA RATE OF EXCHANGE _ _ Outstanding & Disbursed 61.6 315.7 Through JuIy 11 Since Augaat 1971 Undisbursed 386;4 246.1 1. 00 US $0 0027 US 1. 00 = °Rp 415 Outstanding incl. Uadisbursed ;1 1.0 = US $ .02 1. .o = us s .o 1/ Ratio of Debt Service to Exports of Goods and Non-Factor Services, with oil exports net of factor payments and imports of the oil sector not available not applicable March 19, 1976 ANNEX II Page 1 of 14 THE STATUS OF BANK GROUP OPERATIONS IN INDONESIA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of January 31, 1976) Loan/ US$ Million Credit Fiscal Amount (less cancellation) Number Year Purpose Bank IDA Undisbursed Three credits fully disbursed 11.0 154 1969 Highway 28.0 0.2 155 1969 Agricultural Estates 16.0 0.2 165 1970 Electicity Distribution 15.0 0.2 193 1970 PUSRI Fertilizer 35.0 0.1 194 1970 Second Agricultural Estates 17.0 2.6 195 1970 Second Irrigation Rehabilitation 18.5 1.0 210 1971 Telecommunications Expansion 12.8 0.2 211 1971 Fisheries 3.5 0.2 219 1971 Education 4.6 0.7 220 1971 Third Irrigation Rehabilitation 14.5 2.0 246 1971 Seeds 7.5 2.7 259 1971 Tea 15.0 4.3 260 1971 Second Highway 34.0 5.5 275 1972 Third Technical Assistance 4.0 1.0 288 1972 Second Education 6.3 5.6 289 1972 Fourth Irrigation Rehabilitation 12.5 2.3 300 1972 Population 13.2 8.2 310 1972 Development Finance Co. (BAPINDO I) 10.0 1.5 318 1972 IrLter-Island Fleet Rehabilitation 8.5 4.3 319 1972 Fourth Agricultural Estates 11.0 6.8 334 1973 Second Electricity Distribution 40.0 17.1 355 1973 BEtef Cattle Development 3.6 2.8 358 1973 North Sumatera Smallholder Development 5.0 3.1 387 1973 Third Education 13.5 11.1 388 1973 Third Highway 14.0 7.7 399 1973 West Java Thermal Power 46.0 36.2 400 1973 Smallholder and Private Estate Tea 7.8 7.4 405 1973 Sugar Industry Rehabilitation 50.0 32.5 428 1974 Pulo Gadung Industrial Estate 16.5 14.9 436 1974 Private Development Finance Co. (PDFCI) 10.0 8.2 451 1974 Fourth Technical Assistance 5.0 4.4 479 1974 Bali Tourism 16.0 15.3 480 1974 Fisheries Credit 6.5 6.3 514 1975 Jatiluhur Irrigation Extension 30.0 29.5 ANNEX II Page 2 of 14 (Continued) Loan/ US$ Million Credit Fiscal Amount (less cancellation) Number Year Purpose Bank IDA Undisbursed 1005 1974 Railway 48.0 47.0 1040 1975 Jakarta Urban Development 25.0 20.2 1049 1975 Five Cities Water Supply 14.5 13.6 1054 1975 Development Finance Co. (BAPINDO II) 50.0 46.5 1089 1975 Second Fertilizer Expansion 115.0 67.1 1100 1975 Sixth Irrigation 65.0 64.7 1127 1975 Fourth Power 41.0 41.0 1139 1976 Fertilizer Distribution 68.0 64.8 1179 /a 1976 Agricultural Research & Extension 21.5 _ 21.5 Total 448.0 561.8 632.5 of which has been repaid - - 448.0 561.8 Amount Sold 0.1 of which has been repaid 0.0 0.1 Total now held by Bank and IDA (prior to exchange adjustment) 447.9 561.8 Total undisbursed 386.4 246.1 632.5 /a Became effective February 23, 1976. ANNEX II Page 3 of 14 STATEMENT OF IFC INVESTMENTS (as of January 31, 1976) Fiscal Type of US$ million Year Obligor Business Loan Equity Total 1971 P.T. Semen Cibinong Cement 10.6 2.5 13.1 1971 P.T. Unitex Textiles 2.5 0.8 3.3 1971 P.T. Primatexco Indonesia Textiles 2.0 0.5 2.5 1971 P.T. Kabel Indonesia Cables 2.8 0.4 3.2 1972 P.T. Daralcn Textile Manuf. Corp. Textiles 4.5 1.5 6.0 1973 P.T. Jakarta Int. Hotel Tourism 11.0 - 11.0 1973 P.T. Semen Cibinong Cement 5.4 0.7 6.1 1974 P.T. Primatexco Indonesia Textiles 2.0 0.3 2.3 1974 P.T. Monsanto Pan Electronics Electronics 0.9 - 0.9 1974 P.T. PDFCI Devlp. Fin. Co. - 0.5 0.5 1974 P.T. Kamaltex Textiles 2.4 0.6 3.0 1974 P.T. Semen Cibinong Cement 5.0 1.5 6.5 Total 49.1 9.3 58.4 Less: sold or repaid and cancelled 20.2 1.5 21.7 Total now held 28.9 7.8 36.7 Undisbursed (including parti- cipant's portion) 5.4 1.5 6.9 ANNEX II Page 4 of 14 PROJECTS IN EXECUTION 1/ Cr. No. 127: Irrigation Rehabilitation: US$5 Million Credit of September 6, 1968; Effective Date: March 25, 1969; Closing Date: December 31, 1976. It is expected that all civil works will be completed by March 1976. Additional drainage work will be carried out under Loan 1100-IND and tertiary development under the proposed Irrigation VII Project. The closing date has been postponed by one year to allow for payment of late accounts. The adequacy and timeliness of operation and maintenance of completed irrigation rehabilitation projects is presently under discus- sion with the Government. Cr. No. 154: Highways: US$28 Million Credit of June 20, 1969; Effective Date: October 2, 1969; Closing Date: December 31, 1975. Rehabilitation work, of acceptable quality, has been completed. The work accomplished exceeded the project's original target. The program for improved highway maintenance included in the project has been completed. A project completion report is being prepared for issuance before June 30, 1976. Cr. No. 155: Agricultural Estates: US$16 Million Credit of June 20, 1969; Effective Date: December 10, 1969; Closing Date: December 31, 1976. With improvements in management and much higher inter- national prices, particularly for palm oil, prevailing in 1974, the financial position of the estate groups has improved. The field and factory standards have now been raised to a good technical level and the managements have been advised to concentrate on cost control in order to prepare for the time when produce prices may become less attractive. The combined efforts of the management, consultants and IDA missions to review project implementation are yielding good results. The closing date has been postponed to December 31, 1976 to enable payment to con- sultants for services for other rubber estates. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evalua- tion of strengths and weaknesses in project execution. ANNEX II Page 5 of 14 Cr. No. 165: Electricity Distribution: US$15 Million Credit of October 29, 1969; Effective Date: June 1, 1970; Closing Date: December 31, 1975. The closing date was postponed to December 3], 1975, to allow for payment of small amounts outstanding. The project completion re- port will be prepared in conjunction with that for Credit No. 334. Cr. No. 193: PUSRI Fertilizer: US$35 Million Credit of June 15, 1970 (as amended May 21, 1973); Effective Date: January 15, 1971; Closing Date: December 31, 1976. The urea plant has successfully passed its performance test and is operating at close to rated capacity. The gas gathering and transmission system is also completed and sufficient gas is being delivered to the plant. The closing date has been postponed to December 31, 1976 to allow for delivery and installation of remaining equipment. Cr. No. 194: Second Agricultural Estates: US$17 Million Credit of June 15, 1970; Effective Date: February 9, 1971; Closing Date: June 30, 1976. After initial delays, there have been considerable improvements in management and these, combined with high prices, particular- ly for palm oil, have resulted in the two estate groups being put in a much stronger financial position. On the rubber group (PNP IV) more effort is necessary to improve agricultural standards and tapping methods. With the rapid expansion of investment of the palm oil group (PNP VI), there is a need to employ expertise in financial planning, control and management, which are now the main constraints to efficient development. This estate group is undertaking action in this respect. The closing date has been postponed by one year to allow payment for remaining equipment, civil works and consultants' contracts. Cr. No. 195: Second Irrigation Rehabilitation: US$18.5 Million Credit of June 15, 1970; Effective Date: December 31, 1970; Closing Date: November 30, 1976. Problems of quality and progress of construction still exist, but the project entity assisted by the consultants are tackling these vigorously, and the situation is improving, although not sufficiently to make up for earlier delays. Costs are likely to be double the overall appraisal estimate, due to inflation, but the Government will provide any additional funds required. Completion of disbursements will be about two years behind the original schedule. ANNEX II Page 6 of 14 Cr. No. 210: Telecommunications Expansion: US$12.8 Million Credit of July 13, 1970; Effective Date: February 18, 1971; Closing Date: June 30, 1976. Contracts for all equipment have been awarded. The physical work has been substantially completed. The troposcatter system and the telex installation has been completed. Although Government has increased tariffs, PERUMTEL's financial results are not satisfactory and a review of its financial position is required. The closing date, which had been postponed by 18 months due to delays in the delivery of goods, has been postponed by another six months to allow for payments of outstanding contracts. Cr. No. 211: Fisheries: US$3.5 Million Credit of July 13, 1970; Effective Date: January 15, 1971; Closing Date: June 30, 1976. The credit helps finance the construction of 30 fully equipped skipjack boats, auxiliary facilities and technical assistance. The project is about two years behind the original schedule due to delays in engaging consultants and in executing contracts for the shore facilities. There has been a substantial project cost increase but the project is still expected to be financially viable due to the greatly increased skipjack prices. Government plans to replace the present project management and seek early al- location of the additional funds necessary for full operation. Cr. No. 219: Education: US$4.6 Million Credit of November 6, 1970; Effective Date: January 29, 1971; Closing Date: December 31, 1976. Project implementation in the Department of Education is satisfactory. Civil works for the five Technical Training Centers (TTCs) have been completed. About 90 percent of the equipment has been purchased and about 60 percent delivered and installed. All TTCs will operate at full capacity by January 1976 when the new academic year begins. Over 500 technical teachers have completed or are about to complete their training. Technical assistance financed by the U.K. for the project is also satisfactory. Disbursement has improved considerably. Revised total project cost is now about 40 percent above appraisal estimate. The Government will finance the cost overrun. The project is expected to be completed about three months ahead of schedule. Cr. No. 220: Third Irrigation Rehabilitation: US$14.5 Million Credit of November , 1970; Effective Date: May 28, 1971; Closing Date: June 30, 1977. Construction remains about two to three years behind schedule. The problems which caused this delay - difficulties in preparation of contract document, late financial allocations, heavy rains in the 1973 con- struction season and, more recently, slow response by GOI to high inflation rates and consequent civil works costs overruns - have been mainly overcome, ANNEX II Page 7 of 14 but time lost cannot be regained. Estimated project cost is 50 percent above the appraisal estimate, but with higher rice prices on the world market, the project's economic rate of return remains over 20 percent. The closing date has been postponed by 18 months as a result of project delay. Cr. No. 246: Seeds: US$7.5 Million Credit of May 19, 1971; Effeactive Date: December 7, 1971; Closing Date: Se%p-ember 30, 1977. Significant progress has been made in the construction of the irrigation infrastructure and in land development at the National Seeds Corporation (NSC). Construction is proceeding satisfactorily and is now 70 percent complei:ed. The inadequacy of NSC management at the opera- tional level is reflected in technical production problems, low yields of seed and high costs oF production. Increasing nation-wide production prob- lems caused by prevalent disease, pests and insect losses has resulted in government authorities now giving certified seed production high priority. Cr. No. 259: Tea:: US$15 Million Credit of June 24, 1971; Effective Date: September 17, 1971; Closing Date: June 30, 1978. Agricultural achievements to date have far exceeded appraisal expectations necessitating construction and rehabilitation of three additional factories. Project completion, estimated for December 1977, can probably be advanced by up to one year. Rising costs are creating pressure on available funds and the main challenge for the two PTPs will be to reduce working capital requirements, as well as overhead and indirect costs, and improve labor productivity. Cr. No. 260: Second Highway: US$34 Million Credit of June 24, 1971; Effective Date: August 10, 1971; Closing Date: December 31, 1976. Construction work is about 80 percent finished and should be completed by August. 1976, about one and a half years behind schedule. The delay was caused largely by slow progress in mobilizing contractors, difficulties in equipment delivery, heavy rains and landslides. The closing date has therefore been postponed to December 31, 1976. Design standards for the road sections have been slightly lowered and some savings have been achieved, which, together with other savings have partly offset construction cost increases. Cr. No. 275: Third Technical Assistance: US$4.0 Million Credit of December 29, 1971; Effective Date: February 25, 1972; Closing Date: December 31, 1976. Progress on this project is satisfactory. The closing date has been postponed by another year to complete disbursements for ongoing studies. ANNEX II Page 8 of 14 Cr. No. 288: Second Education: US$6.3 Million Credit of March 9, 1972; Effective Date: June 7, 1972; Closing Date: December 31, 1976. This agricultural training project, being implemented by the Department of Agriculture, is about 16 months delayed because of late appointment of consultant architects, lack of counterpart funds, delays in bid analysis and in awarding contracts. As a result, civil works, which were to be completed already, have not commenced. Furniture and equipment procurement have therefore been deferred. Unlike the physical aspects of the project, the educational aspects are generally on schedule. Total project costs are now estimated to be 90 percent higher than the original estimate. Government has budgeted for the cost overrun. Disburse- ment, which has been slow, should improve since civil works contracts have now been awarded. Cr. No. 289: Fourth Irrigation Rehabilitation: US$12.5 Million Credit of March 9, 1972; Effective Date: May 5, 1972; Closing Date: June 30, 1977. Civil Works and equipment purchases for the main project, Pekalen-Sampean, are proceeding but completion of civil works will be about two years behind schedule. Due to inflation, project costs are likely to be substantially higher than appraisal estimates. Consultants for the various studies are at work with their counterparts. Groundwater investigations have been delayed due to procurement difficulties. The rehabilitation and storage feasibility studies are on schedule. Disburse- ments are also on schedule. Cr. No. 300: Population: US$13.2 Million Credit of April 20, 1972; Effective Date: November 2, 1972; Closing Date: June 30, 1978. Progress of this project is generally satisfactory. Steps are being taken to improve preparation and implementation of project components concerned with communications, research and evaluation. All vehicles have been procured and good progress is being made with equipment procurement. The civil works section of the Project Implementation Unit functions well but is underutilized because of delays in making policy decisions. Construction costs will exceed appraisal estimates by 135 percent. Population Education is now being introduced into school curricula after a successful trial. Despite its limitations, the national family planning program, of which the project is an integral part, is expanding annually. Cr. No. 310: Development Finance Co. (BAPINDO I): US$10 Million Credit of June 7, 1972; Effective Date: August 10, 1972; Closing Date: December 31, 1976. This credit is fully committed. ANNEX II Page 9 of 14 Cr. No. 318: Inter-Island Fleet Rehabilitaton: US$8.5 Million Crecit of June 28, 1972; Effective Date: October 19, 1972; Closing Date: September 30, 1976. Progress on this project is generally satisfactory. Cr. No. 319: Fourth Agricultural Estates: US$11 Million Credit of June 28, 1972; Effective date: January 30, 1973; Closing Date: June 30, 1981. The physical progress of the project is ahead of Lhe appraisal schedule. The financial position of the estate group is dif- ficult due to an unsatisfactory debt/equity ratio. Measures to improve the situation are under review. Cr. No. 334: Second Electricity Distribution: US$40 Million Credit of September 29, 1972; Effective Date: March 12, 1973; Closing Date: December 31, 1976. The Jakarta distribution program financed from Credits 165-IND and 334-IND (together $55 million) encountered implementation delays due to procurement problems and cumbersome management procedures. As a result the project is two years behind the original schedule. These difficulties have been resolved and recent progress is encouraging. No further delays are therefore expected. Cr. No 355: Beef Cattle Development: US$3.6 Million Credit of January 31, 1973; Effective Date: May 30, 1973; Closing Date: March 31, 1980. Several problems have seriously delayed project imple- mentation. Land acquisition and procurement of cattle and goods have been difficult. Government's budget allocation has been insufficient; and fi- nancial management and coordination have been weak. The last supervision mission undertook a thorough project review and its recommendations, which include major changes in project scope and objectives, are presently under discussion with Government. Cr. No. 358: North Sumatra Smallholder Development: US$5 Million Credit of February 14, 1973; Effective Date: August 13, 1973; Closing Date: December 31, 1981. Project performance, which had suffered from severe fin- nancial and organizational difficulties, has improved greatly. Physical progress is encouraging; rubber planting and rice intercropping are now on schedule. There is some room for improvement in financial management, in which consultants aire assisting. Total project costs are now estimated at about three times the original estimate of US$10 million. Disbursements are expected to be completed ahead of schedule. ANNEX II Page 10 of 14 Cr. No. 387: Third Education: US$13.5 Million Credit of June 1, 1973; Effective Date: August 29, 1973; Closing Date: December 31, 1981. The project is about 10 months behind schedule, mainly due to insufficient top management staff and paper shortages last year. The paper shortage has been overcome and about 32 million text books will be printed by January 1976, about four months behind schedule. Steps are being taken to strengthen project management and to improve arrangements for expert services. Measures to improve project implementation have been discussed and agreed with the Government. The book testing and teacher training programs are on schedule, but their results have not yet been evaluated. Procurement of instructional equipment will be completed by early 1976. Cr. No. 388: Third Highways: US$14 Million Credit of June 1, 1973; Effective Date: June 25, 1973; Closing Date: June 30, 1977. Construction work on the two North Sulawesi road sections in the project was started early in 1974 under two contracts and is now 35 percent completed. Contractors have been delayed mainly because of long mobilization periods and heavy rains. Project costs will likely exceed original estimates (including contingencies) by 57 percent mainly due to sharply escalated prices. The training program has been completed success- fully. Cr. No. 399: West Java Thermal Power: US$46 Million Credit of June 22, 1973; Effective Date: August 28, 1973; Closing Date: June 30, 1978. Bids received for the first two 100 mw units at Muara Karang were about 65 percent higher than estimated at the time of appraisal. This, together with construction cost increases, has resulted in an increase in the total project cost of more than 100 percent. Government will provide the additional funds required. PLN has satisfactorily met the initial targets in its financial recovery plan provided for under the terms of the Credit Agreement. Cr. No. 400: Smallholder and Private Estate Tea: US$7.8 Million Credit of June 22, 1973; Effective Date: November 30, 1973; Closing Date: March 31, 1982. Planting is presently slightly behind schedule but it is expected that targets will be achieved or even exceeded by the end of the 1975/76 planting season. Project nurseries are well organized and field work is proceeding well. Also non-participating farmers have benefitted from the project. Total project costs are estimated to be double the amount originally envisaged and project management is attempting to achieve cost reductions. Due to the high prices for tea (about twice the level ex,'ected at the time of appraisal), the economic rate of return is still sat.Esfactory. ANNEX I1 Page 11 of 14 Cr. No. 405: Sugar Industry Rehabilitation: US$50 Million Credit of June 26, 1973; Effective Date: April 22, 1974; Clo_ing Date: June 30, 1979. In view of the rapid and continuing increase in the cost of sugar factory machinery and the more recent shortage of budgetary funds, the scope of the above-mentioned project has been reduced by the deletion of six minor rehabilitations from the project description. The revised project consists of the major rehabilitation of two factories and the construction of a new factory. Credit funds have been reallocated from the minor to the major rehabilitation and to the new construction. Cr. No. 428: Pulo Gadung Industrial Estate: US$16.5 Million Credit of September 14, 1973; Effective Date: November 13, 1973; Closing Date: December 31, 1978. Despite an increase in construction costs, the project remains financially viable because revenues from the sale of plots has risen proportionately. Construction has fallen behind schedule due to land acquisition problems, but developed land is being occupied as fast as it is made available. While there is still a backlog of applications for industrial plots, the rate of new applications has fallen of-f during recent months and the estate is intensifying its promotional efforts. Cr. No. 436: Private Development Finance Company of Indonesia (PDFCI): US$10 Million Credit of November 2, 1973; Effective Date: March 6, 1974; Closing Date: Dece_mber 31, 1978. After a long start-up period and difficulties in finding and recruiting qualified local staff, PDFCI has now reached the operating stage. Commitments have started and are expected to increase rapidly as PDFCI's own operational capability improves. Cr. No. 451: Fourth Technical Assistance: US$5 Million Credit of January 2, 1974; Effective Date: February 15, 1974; ClosLng Date: December 31, 1976. Progress under the project is satisfactory. Cr. No. 479: Bali Tourism: US$16.0 Million Credit of June 14, 1974; Effe(tive Date: December 4, 1974; Closing Date: AvN&,t 31, 1979. Project implementation has improved after initial diffi- culties. Tender documents for all major infrastructure works were issued in January 1976. The earliest possible completion date has shifted from February 1979 to October 1979. Budgetary allocations as requested by the Bali Tourism Development Corporation for FY76/77 are satisfactory. Negotia- tions with one group of investors are in progress but otherwise investor in- terest appears to be low. Promotional efforts to attract additional investors will be intensified in 1976. ANNEX II Page 12 of 14 Cr. No. 480: Fisheries Credit: US$6.5 Million Credit of June 14, 1974; Effective Date: January 8, 1975; Closing Date: June 30, 1979. After initial delays in project organization and preparation by Bank Rakyat Indonesia (BRI), the project is progressing well. Physical progress is encouraging and lending started in October1975. Disbursements are therefore expected to be on schedule soon. Cr. No. 514: Jatiluhur Irrigation Extension: US$30 Million Credit of October 3, 1974; Effective Date: January 10, 1975; Closing Date: December 31, 1980. The consultants are designing works and preparing contract documents. The first civil works contract is expectd to be let in May 1976, about nine months behind the original schedule. Loan No. 1005: Railway: US$48.0 Million Loan of June 14, 1974; Effective Date: August 16, 1974; Closing Date: December 31, 1978. Procurement of material and equipment, which had been slow due to poor organization and inadequate budget allocation, has now improved. Bids have been received for most items and the bulk of the con- tracts should be signed soon. Passenger traffic in 1975 is slightly lower than in 1974, but still higher than forecast; freight traffic has continued to decline due mainly to poor maintenance and inadequate motive power, which should improve towards the end of 1976. Although tariffs were raised in May 1975, increasing passenger revenues by about 25 percent and freight revenues by about 10 percent, the operating ratio is likely to deteriorate further, as operating costs have continued to rise at a faster rate. Loan No. 1040: Jakarta Urban Development: US$25 Million Loan of September 27, 1974; Effective Date: January 15, 1975; Closing Date: December 31, 1977. Progress on the Kampung Improvement Program has been very good; costs were less than estimated, allowing additional work to be undertaken. Execution of the Klender Sites and Services Scheme is a year behind schedule due to disagreements about site boundaries. Most consultant contracts commenced early in 1976. Loan No. 1049: Five Cities Water Supply: US$14.5 Million Loan of October 31, 1974; Effective Date: May 21, 1975; Closing Date: June 30, 1980. Due to administrative and managerial problems the project is running 8-10 months behind schedule. This delay together ANNEX II Page 13 of 14 with higher rates of inflation than anticipated is expected to increase project costs 20-25 percent above the appraisal estimate. Water Enterprises have now been established in each of the five cities and good progress has been made in their staffing. The anticipated interdepartmental decree which would govern the relationship of the Water Enterprises to the Central Govern- ment's Directorate of Sanitary Engineering has not been issued; it is now proposed to clarify this relationship in a Presidential Decree which is being drafted. Loan No. 1054: Development Finance Co. (BAPINDO II): US$50 Million Loan of November 20, 1974; Effective Date: January 14, 1975; Closing Date: December 31, 1978. Commitments and disbursements initially were slower than expected, but they should increase in the second half of FY76. The progress of this project is satisfactory. Loan No. 1089: Second Fertilizer Expansion: US$115 Million Loan of February 28, 1975; Effective Date: April 29. 1975; Closing Date: August 31, 1978. Work on the PUSRI III project is proceeding according to schedule. Work on the related gas pipeline is experiencing delay, but steps are being taken to expedite implementation. Loan No. 1100: Sixth Irrigation: US$65 Million Loan of April 10, 1975; Effective Date: June 20, 1975; Closing Date: June 30, 1982. Consultants for the project and technical assistance advisors have been selected. Construction work is about five months behind schedule due to the delay in selection of consultants. Loan No. 1127: Fourth Power: US$41 Million Loan of June 17, 1975; Effective Date: October 23, 1975; Closing Date: June 30, 1980. The options for a third 100 MW unit at Muara Karang, which were included in the tenders for the first two units financed under Credit 399, have been excercised. The project is on schedule and expected to be completed during 1978. Loan No. 1139: Fertilizer Distribution: US$68 Million Loan of July 10, 1975; Effective Date: August 28, 1975; Closing Date: December 31, 1978. Progress design is satisfactory. About 60 percent of the equipment and materials required for the project have been procured. ANNEX II Page 14 of 14 Loan No. 1179: Agricultural Research and Extension: US$21.5 Million Loan of December 19, 1975; Closing Date: December 31, 1981. This loan became effective on February 23, 1976. Loan No. 1197: National Resource Survey and Mapping Project: US$13.0 Million Loan of February 5, 1976; Closing Date: December 31, 1981. This loan is expected to be effective by May 1976. ANNEX III Page 1 of 4 pages INDONESILA - FOURTH EDUCATION PROJECT LOAN AND PROJECT SUMMARY Borrower: Repu'blic of Indonesia Amount: $37.0 million Terms: 25 years including six years of grace, at an interest rate of 8-1/2 percent per annum. Project Description: (i) the construction of and equipment for: - two technical teacher training facilities and four centralized workshops under the Department of Education; - seventeen vocational training centers under the Department of Manpower; - new-facilities for the National Institute of Administration; and (ii) equipment for one instructor training center and twenty rural and five urban mobile training units under the Department of Manpower. Project Costs: The i:able below summarizes the costs of the project: ANNEX III Page 2 of 4 pages Number of Rupiah (billion) $ (million) Institutions Local Foreign Total Local Foreign Total A. Department of Education Tech. Tchr. Trg. 2 1.12 0.94 2.06 2.70 2.26 4.96 Centralized Workshops 4 2.48 3.32 5.80 5.99 8.00 13.99 Sub-total 3.60 4.26 7.86 8.69 10.26 18.95 B. Department of Manpower Vocational Trg. Centers 17 2.90 3.08 5.98 6.97 7.44 14.41 Instructor Trg. Centers 1 0.02 0.14 0.16 0.05 0.34 0.39 Mobile Training Units 25 0.14 0.96 1.10 0.34 2.31 2.65 Sub-total 3.06 4.18 7.24 7.36 10.09 17.45 C. Nat. Inst. of Admin. 1 0.74 0.45 1.19 1.79 1.08 2.87 (LAN) Base Cost Estimate 7.40 8.89 16.29 17.84 21.43 39.27 Contingencies - Physical (10%) 0.74 0.89 1.63 1.78 2.14 3.92 - Price Incereases 2.82 2.89 5.71 6.79 6.97 13.76 TOTAL CAPITAL COST 10.96 12.67 23.63 26.41 30.54 56.95 D. Technical Assistance /a (i) Dept. of Education 0.10 0.95 1.05 0.26 2.26 2.54 (ii) Dept. of Manpower 0.10 0.87 0.97 0.23 2.11 2.34 (iii) Nat. Inst. of Admin. 0.04 0.32 0.36 0.09 0.77 0.86 T.A. Base Cost Estimate 0.24 2.14 2.38 0.58 5.16 5.74 Contingencies 0.06 0.56 0.62 0.15 1.34 1.49 Sub-total 0.30 2.70 3.00 0.73 6.50 7.23 TOTAL PROJECT COST 11.26 15.37 26.63 27.14 37.04 64.18 /a /a Excluding technical assistance financed by the U.K. and the UNDP ($800,000). ANNEX III Page 3 of 4 pages Financing Plan: The proposed loan of $37.0 million would finance 98 per- cent of the foreign exchange cost, or about 58 percent of the project; the U.K. Government and the UNDP would finance the remaining foreign exchange cost ($800,000). The Government's contribution would amount to about $27.2 million. Estimated Disbursements: ($ Millions) Bank FY 1977 1978 1979 1980 1981 Total Annual 2.1 9.0 18.1 6.5 1.3 37.0 Cumulative 2.1 11.1 29.2 35.7 37.0 Procurement: Contracts for civil works would be awarded following international competitive bidding in accordance with the Bank's Guidelines in the case of all Department of Education project institutions and of LAN (which are all in central locations and for which civil works costs exe2luding contingencies exceed $1.5 million). In bid comparison, domestic contractors would be given a 7-1/2 percent preference. In the case of the smaller and often more remote project institutions administered by the De- partment of Manpower (with civil works costs ranging from $200,000 to $800,000), contracts for civil works would be awarded on the basis of competitive bidding following Government's normal procurement procedures, which are sal:isfactory to the Bank. Equipment and furniture con- tracts over $50,000 equivalent would be awarded on the basis of international competitive bidding in accordance wit:h the Bank's Guidelines. In bid comparison, domestic manufacturers would be allowed a preferential margin of 15 percent or existing customs duty, whichever is lower. Direct Government imports are exempt from customs duties and. taxes. Equipment and furniture purchases which can- not reasonably be grouped to form contracts of at least $5C0,000 equivalent, subject to an aggregate total of $1.8 million equivalent, could be awarded on the basis of com- petitive bidding advertised locally following usual Gov- ernment procedures. Off-the-shelf items, in contracts costing less than $10,000 equivalent subject to an aggre- gate total not exceeding $200,000 equivalent could be pur- chased on the basis of a minimum of three price quotations. ANNEX III Page 4 of 4 pages Technical Assistance: A total of 104 man-years of specialist services and 61 man-years of fellowships would be needed. The U.K. and the UNDP would provide a total of 28 man-years for the Department of Education and for initial implementation. Technical assistance financed under the loan would be divided as fcllows: (a) Department of Education: 30 man-years of specialist services for curriculum and staff development and 41 man-years of fellowships; (b) Department of Manpower: 35 man-years of specialist services and 14 man-years of fellowships for strength- ening management and supervision capability; (c) National Institute of Administration: 11 man-years of specialist services and six man-years of fellow- ships to develop curricula and a civil service train- ing plan and train staff. Appraisal Report No. 875-IND dated March 10, 1976. 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