PROJECTRESTRUCTURINGPAPER INDONESIA TSUNAMI EMERGENCYRECOVERY SUPPORT PACKAGE: PROPOSEDRESTRUCTURINGOF THREE ONGOINGPROJECTSIN RESPONSETO THE LATE-2004NATURALDISASTERS Second Urban Poverty Project, Credit No. 3658-IND SecondKecamatanDevelopment Project, Credit No. 3535-IND ThirdKecamatan Development Project, Credit No. 3806-IND 1. Introduction. Management briefed the Executive Directors on February 1,2005 on the role o f the World Bank, IFC, and MIGA in responding to the aftermath of the December 26, 2004 Tsunami'. As the Board i s aware, World Bank staff in affected countries including Indonesia, Sri Lanka, and Maldives, moved quickly to (a) provide assistance on the ground for expedited recovery planning; (b) mobilize financial support; and (c) help coordinate rehabilitation and recovery support. In Indonesia, as in other tsunami-affected countries, the progress on all three fronts has been satisfactory. In particular, the flow o f emergency relief assistance, coordinated by the Government o f Indonesia (GOI) and the United Nations has since stabilized and i s reaching the affected areas and the population efficiently. 2. Reconstruction of tsunami-affected areas. The GO1 and development partners including the Bank have since completed a damage and loss assessment; discussed its main conclusions and recommendations with development partners at the Consultative Group on Indonesia meetings held in Jakarta in January 2005; and secured initial commitments from development partners for longer term assistance. A comprehensive blueprint or strategic master plan for the reconstruction and rehabilitation o f the tsunami- affected areas i s nearing finalization. It i s being developed by GO1 with support from donors and the participation of the Acehnese. The World Bank's support for rehabilitation and reconstruction o f Tsunami-affected areas i s aimed at the restoration of core services, followed by support for rebuilding and reconstructing the region. Vice President : Mr.Jemal-ud-din Kassum Country Director: Mr.Andrew D.Steer Task Team Leader: Mr.George Soraya and Scott E.Guggenheim 1 WorldBunk Response to the Tsunami Disaster (SecM2005-0035),January 28,2005. 2 3. Operationalizing Financial Sup~ort.With regard to operationalizing its financial support, the Bank and GO1 have discussed and agreed to proceed with the following approaches: (a) Reallocate savings from existing IDA projects; (b) Process New Projects to include reconstruction of Tsunami-affected areas, funded by IDA credit and co- financing with grant funds from other donors; (c) Establish a Multi-Donor Trust Fund (MDTF) that will mobilize grant funding from key donors and (d) process several grant proposals funded by Japan Social Development Fund (JSDF) and other grant sources, including Country Trust Funds (CTF). While parallel initiatives are underway under (b), (c) and (d), this project restructuring paper seeks the approval o f the Executive Directors to restructure three relevant ongoing projects by adding new components to facilitate the timely delivery o f financial assistance to tsunami-affected areas. This i s to be achieved through transferring the savings (IDA Credits) achieved under existing components to the 4. new components, o f the following three projects: (1) Second Urban Poverty Project; (2) Second Kecamatan Development Project; and (3) Third Kecamatan Development Project. Specific details on the restructuring o f each project are provided below. Second UrbanPoverty Project (Cr. No. 3658-IND) 5. Background and Rationale for Restructuring: The project was approved on June 11, 2002 and became effective on November 18, 2002; the credit closing date i s June 30, 2008. The objectives o f this project were: (i) to establish or support representative and accountable community organizations that are able to provide services to the urban poor and increase the voice of the poor in public decision making; (ii)to make local governments more responsive to the needs o f the poor through increased cooperation with community organizations; and (iii) improve services for the urban poor (financial to services, social services and infrastructure). These objectives were to be achieved through: (i) building community capacity for the formation and institutionalization of elected representative organizations that were accountable to communities; (ii) provision o f grants to communities directly and transparently through these community based organizations to finance poverty alleviation activities; and (iii)enhancing the capacity of local governments to partner with community organizations in services provision through the establishment of a Poverty Alleviation Partnership Grant. 6. The geographical coverage of this project included the provinces o f Banten, Jawa Barat, Jawa Tengah, Jawa Timur, Nusa Tenggara Barat, Kalimantan Barat, Kalimantan Tengah, Kalimantan Selatan, Sulawesi Utara, Gorontalo, Sulawesi Tengah, Sulawesi Selatan, and Sulawesi Tenggara. 7. There was some delay in initiating project implementation due to delays in the selections o f consultants and community facilitators. N o w that the consultants have been mobilized and more than 800 facilitators have been working in over 2400 kelurahans (urban sub-districts), most o f the target communities are engaged in the preparation of community development plans. It i s expected that the project grants to the various community projects will be disbursed in 2005. Overall the project performance i s rated as satisfactory. However, GO1 expects some savings in completing the originally contemplated program and seeks to allocate a sum o f $5 million equivalent o f IDA Credit to a new component to support reconstruction/ rehabilitation o f Tsunami-affected areas. 3 8. Proposed Changes: Specifically, the proposed changes in the project include (i) addition of a component that will cover the preparation and implementation of a reconstruction program in the devastated areas, including carrying out of infrastructure investment, social services and welfare sub-projects through the provision of Special Kelurahan Reconstruction Grants; and (ii) expansion of the geographical scope of the project to include the tsunami-affected Aceh and North Sumatra provinces. There will be no changes in the institutional arrangements, financial management, procurement, and implementation schedules, or to the original closing date of this project, other than an addendum to the existing UPP 2 project manual to cover the specific requirements for this work. The adoption of an addendum to the existing project manual to cover the specific requirements of emergency assistance in the devastated area will be a condition for disbursement for the new component. 9. Financial and Economic Analysis and Compliance with Safeguards: The proposed changes do not affect substantially the original economic, financial, technical, institutional, or social aspects of project, nor do they change the environmental category of the project. Furthermore, no exception to Bank poIicies are involved. 10. Benefits and Risks: The proposed restructuring of the project will not affect the attainment of expected outcomes and related outcome indicators. Instead the restructured project will make an additional contribution in terms of providing means of employment and livelihood, and improving the lives of the people in the affected areas. Additional indicators for monitoring progress under this component include the number of participating kelurahan, and the number of proposals funded under the tsunami-affected areas rehabilitation and reconstruction component. 11. The risks under the existing project are being managed effectively. One risk that could affect the achievement of results under the new component, arises from possible inadequate availability of qualified facilitators in the devastated area. This risk will be mitigated by relocating some of the experienced project facilitators from other areas where project activities are well advanced, to the tsunami-affected areas. Additional remuneration and benefits, as well as appropriate facilitator training will be provided, as warranted. Second KecamatanDevelopment Project (KDP2; Cr. No. 3535-IND) 12. Background and Rationale for Restructuring: The project was approved on June 26, 2001 and became effective on January 17, 2002. The credit closing date i s December 31, 2006. The project objectives were to (i)support participatory planning and development management in villages; (ii)support a broad construction program of social and economic infrastructure in poor villages; and (iii) strengthen local formal and informal institutions by making them more inclusive, accountable, and effective at meeting villagers' self-identified development needs. The project was a continuation of a longer- term participatory program for poverty reduction that includes the two Village InfrastructureProjects and the first Kecamatan Development Project. 13. At the time the earthquake and Tsunami struck Aceh (December 2004), KDP2 was operational in almost 40% of the subdistricts in Aceh, with a large facilitators network in 4 place. The addition of a new component to the existing project will further the provision of financial assistance to tsunami-affected Kecamatans (sub-districts) and participating households. 14. Proposed Changes: KDP 2's extensive field presence means that it i s often able to provide a rapid response to natural disasters. In late 2004, Indonesia faced three significant natural disasters: the earthquake and tidal wave that devastated Aceh and North Sumatra; an earthquake in Alor that fully or partially destroyed 35 villages; and another earthquake inWest Papua that badly damaged the district of Nabire. 15. The proposed change to the original project will add a component ($5 million equivalent) to support the preparation and implementation of a reconstructionprogram in the devastated areas noted above, through the provision of Grants to Desas (villages), including: carrying out of infrastructure investment projects in Kecamatans; carrying out of small construction and rehabilitation projects in villages; carrying out of social services projects in villages; carrying out of poverty reduction pilot projects in villages. Additionally, it will include the carrying out o f economic activities in villages, through the provision of Grants to selected poor women; and income-generating investment projects in villages, through the provision of Sub-loans to Sub-borrowers. 16. Other than an addendum to the KDP existing project manual to cover specific requirements for the provision of financial assistance to disaster-affected areas and households, there will be no changes in the institutional arrangements, financial management, procurement, implementationschedules and closing date 17. Financial and Economic Analysis and Compliance with Safeguards: The proposed changes do not affect substantially the original economic, financial, technical, institutional, or social aspects of project, nor do they change the environmental category of the project. Furthermore, no exception to Bank policies are involved. 18. Benefits and Risks: The risks that could jeopardize the achievement of the restructuredproject's development objectives would be the facilitators' lack of familiarity of an emergency cycle for provision of funds to communities. This risk i s mitigated by offering special training on the emergency reconstruction program to the relevant facilitators. An addendum to the existing KDP operational manual that was tailor- designed for these emergency reconstruction contexts has been reviewed by the Bank. The adoption of such addendum to the manual is set as a condition for disbursement. As reconstruction proceeds, affected provinces can return to normal KDP programming and procedures. Third KecamatanDevelopmentProject(KDP-3;Cr. No. 3806-IND). 19. Background and Rationale for Restructuring. The project was approved in June 26, 2003 and becomes effective on January 20,2005. The credit closing date i s December 31, 2008. The overall project development objectives were reducing poverty and improving local-level governance in rural Indonesia. KDP i s part of a long-term village level governance program that began with the first Kecamatan Project in 1998. Specific development objectives for KDP-3 include: (i) institutionalizing participatory processes 5 in local government; (ii)the cost effective provision of basic social and economic infrastructure; (iii) strengthening the capacity of the micro-finance institutions developed under KDP-1 and KDP-2 to manage and monitor funds sustainably. 20. At the time the earthquake and Tsunami struck Aceh, KDP was operational in almost 40% o f the subdistricts in Aceh, with a large facilitators' network in place. This Emergency Reconstruction assistance will allow KDP to provide an emergency cycle of funds 21. Proposed Changes: The proposed change to the original project will add a component ($10 million equivalent) to support the preparation and implementation o f a reconstruction program in the devastated areas specified under para. 12 above, through financing o f activities similar to those discussed for KDP2 above. 22. As for the other two projects, other than an addendum to the existing project manual to cover specific requirements for the provision o f financial assistance to disaster-affected areas and households, there will be no changes in the institutional arrangements, financial management, procurement, implementation schedules and closing date. 23. Financial and Economic Analysis and Compliance with Safeguards: The proposed changes do not affect substantially the original economic, financial, technical, institutional, or social aspects o f project, nor do they change the environmental category of the project. Furthermore, no exceptions to Bank policies are involved. 24. Benefits and Risks: These as well as the mitigating measures are also similar to the benefits, risks and measures discussed under KDP 2 above. James D.Wolfensohn President By ShengmanZhang Washington,D.C. March 22, 2005 6 Attachment 1 PROJECTDATA SHEETS Second Urban Poverty Project Date: May 15, 2002 Team Leader: George Soraya Country: Indonesia Sector ManagerDirector: Keshav Varma Project Name: Second Urban Poverty Country Director: Andrew D.Steer Responsible agency: Ministry of Settlement and RegionalInfrastructure policies? o ~ e s .INO Have these been approved by Bank management? Yes I s approval for any policy exception sought from the Board? II o ~ e s .INO Revisedproject development objective [Zf applicable] The objectives of the Project are to assist the Borrower to: (a) establish or support representative, responsive and accountable community organizations that are able to provide services to the urban poor and increase the voice of the poor in local decision making; (b) make local government more responsive to the needs of the poor through increased cooperation with zommunity organizations; (c) improve services for the urban poor (financial services, social services and infrastructure); and (d) provide emergency assistance to the urban poor who have been affected by natural disasters inthe tsunami-devastated areas. Does the restructured project trigger any new safeguard policies? If so, click here to ndicate which one(s) [selection box like the one in the new ISR] 7 Second KecamatanDevelopment Project Date: May 11, 2001 Team Leader: John Victor Bottini Country: Indonesia Sector Managermirector: MariaTeresa Project Name: Second Kecamatan Serra Development Project Country Director: Andrew D.Steer Project ID: PO73025 -- - Environmental category: SY - Other Social Protection Borrower: Government of Indonesia ~ Responsible agency: Department of Home Affairs Revisedestimated disbursements (Bank FY/US$m) ~ 3 Revisedproject development objective [Ifapplicable] The objectives of the Project are to assist the Borrower in:l) supporting better governance in rural villages, 2) providing rural communities with development infrastructure that will raise the income of the poor, and 3) supporting; the reconstruction of communities affected by natural disasters inthe tsunami-devastated areas Does the restructured project trigger any new safeguard policies? If so, click here to indicate which one(s) [selection box like the one in the new ISR] 8 ThirdKecamatan Development Project Project Name: ThirdKecamatan Development Project Country Director: Andrew D.Steer Project ID:PO79156 Environmentalcategory: SY - Other Social Borrower: Government of Indonesia Responsible agency: Department of Home Affairs - Revised project development objective [Ifapplicable] The objective of the Project i s to assist the Borrower inreducing poverty and improving local level governance in rural villages, through: (a) institutionalization of participatory processes inlocal government, (b) cost-effective provision of basic social and economic infrastructure, (c) strengthening of the capacity of micro-finance institutions to manage andmonitor funds ina sustainable manner, and (d) reconstruction of communities inthe tsunami-devastated areas Does the restructuredproject trigger any new safeguard policies? If so, click here to indicate which one(s) [selection box like the one in the new ISR] 9 CAS Annex A2-1 (Table la.) Iiicloiiesia at a glance 9120f04 East Lower- Asia h middle- Indonesia Pacific income Development diamond' 214.5 1,855 2,655 Life expectancy 810 1,080 1,480 T 173.5 2,011 3,934 Average annual growth. 199?-03 PQpUlatlQnfi4) 13 10 09 Labor force 6::::s 1.2 11 12 Gross primary Most recent estimate [latest gear available. 1997-031 nrollment 17 Urbanpopulation pdlH 43 40 50 69 69 L 32 32 15 11 ACCQsSto improvedWater SOUICQ Access to an impr urce p: dpcpddmv? 76 81 Illiteracy ,&dpcpdd& we? 10 10 10 Gross primary enrollment ,C?#'sW~pcpd~m-?/ 111 111 112 Male 112 112 113 FQmalQ 110 111 111 KEY ECONOMICRATIOS and LONG-TE 2002 2003 Ecnnomic ratios' GDP /IK$i".:? 1730 208 3 Gross domestic investmentiGDP 313 29.5 20 3 197 Exports of goods andservicesiGDP 263 268 35 8 312 Trade Gross domestic savingslGDP 26 8 25.3 Gross national savingslGDP 23.4 20.8 T Current account balancefGDP -7.4 .1.3 4.5 3 5 Interest payments/GDP 19 2.6 27 2 0 Total debtlGDP 354 56.4 76 5 64 5 Total debt service/exports 18.8 33.6 29 4 34 0 Present value of debt/GDP 75 6 Present Value of debtfexports 221.9 Indebtedness 1983-93 1993-03 2002 2003 2003-07 {awigem?V&wO+w GDP 7.1 2 0 3.7 41 4 5 GDP per capita 5 2 0 7 2 2 2 5 31 Exportsof goods and Services 7.8 25 .06 4 0 3 9 1983 1993 2002 2003 fi:dm? Grnrth of investment and GDP [ X I Agriculture 229 179 171 166 " Industry 398 397 442 436 Manufacturing 127 223 254 247 $9 Ob bt 0 2 13 Services 373 424 387 399 .2b Private consumption 598 585 650 656 .4b Generalgovernment consumption 104 9 0 8 2 9 2 Imports of goods ands~rVICQ5 279 238 293 257 ------GDl -GDP 10 CAS Annex A2-2 (Table lb.) PRICES and GOVERNMENT FINANCE 1983 1993 2002 2003 Inflation 1x1 L?vme5ticpice5 I fi; Consumer prices 11.8 9.6 11.9 6.7 Implicit GDP deflator 14.3 8.9 5.8 6.6 G#Pmmealf&ace (4;c d mKfr?b&swml-vmfsl Current revenue .. 16.8 18.5 19.1 9% 99 00 01 02 Current budget balance .. .3.5 7.4 8.4 Overallsurplus/deficit .1.1 .2.1 .*--GDP dcflator -CPI I TRADE 1983 1993 2002 2003 Export and import levels [US$ mill.] { l K $ d C ? Total exports [fob] .. 36,823 57.159 61,058 75,000 Fuel 9,745 12,139 13,700 Estate crop .... 859 1.238 1,191 Manufactures .. 16,699 19,119 19,660 51,000 Total imports [cif] .. 28,328 31.289 32,551 Food 1,342 2,852 3,121 25.000 Fuelandenergy 2.155 6,558 7,664 I Capital goods ...... 12.158 8,606 7,100 b Export price index (m:W? .. 112 139 151 97 9% 99 00 0 i 02 01 Import price index (M=W! 102 59 64 Exports E Imports Terms of trade {JXQ~=WI .... 110 237 237 BALANCE of PAYMENTS 1983 1993 2002 2003 Curtent account balance to GOP [ X I {IW"-C! I Exportsof goods and services 19.235 40,566 64,594 67,440 k - Imports of goods and services 22.037 38.222 51,019 55,629 Resource balance -2,802 2,344 13,575 11,811 Net income .3,650 .4.987 .6.881 .6,123 Net current transfers 114 537 1.129 1,564 Current account balance .6.338 .2,106 7,823 7.252 Financing items[net] 6,521 2,700 .3,800 4,995 Changesin net reserves -183 .594 -4,023 -4.257 ": Reserves includinggold {LK$"S! 4,814 12,355 31.913 36,170 r Conversion rate ( E G h " ! 909.3 2,087.1 9.311.2 8,577.0 EXTERNAL DEBT and RESOURCEFLOW 1983 1993 2002 2003 pK$"-cj Composition of 2003 debt [US$ mill.] Total debt outstanding anddisbursed 30,229 89,172 132.254 134.320 IBRD 2.136 11,283 10.729 9,779 IDR 763 796 794 880 24308 880 Total debtservice 3,741 14,089 17.364 21,323 IBRD 254 1,620 1,905 2,003 IDA 10 24 33 33 Compositionof net resource flows Official grants 104 219 Official creditors 1,180 2,344 .440 -892 Private creditors 2,961 -3.397 -6,296 -5,419 3354 Foreign direct investment 292 2,004 145 -597 Portfolioequity 0 2.452 877 1,130 World Bank program Commitments 1,210 924 103 425 A . IBRO E . Bilateral Disbursements 549 1,195 419 408 E. IDA 0 . Othcr multilattral F .Privitc Principal repayments 92 782 1,065 1,294 C IMP . G. Short-term Net flows 457 413 -646 -886 Interest payments 172 861 873 742 Net transfers 285 .448 -1,519 -1.628 DevelopmentEconomics 9120104 11 CAS Annex B2 CAS Annex B2 Indonesia - (Table2.) Selected Indicators' of Bank Pottfolia Performanceand Management AS Of D&? 03'2i 2005 Indicator 2002 2003 2001 2005 Portfolio Assessrrlerlt Number of Projects Under Implementation a 47 40 32 25 Average Implementation Period (years) ' 4 6 4 4 4 3 3 9 Percent of Problem Projects by Number a ' 23 4 12 5 18 8 12 0 Percent of Problem Projects by Amount 26 3 7 7 20 2 6 6 Percent of Projects at Risk by Number an 29 8 17 5 18 8 16 0 Percent of Projects at Risk by Amount an 38 9 12 4 20 2 10 1 Disbursement Ratio I%) e 21 8 22 1 27 2 129 Portfolio Mi-fuagemenf CPPR during the year (yes/no) Supervision Resources (total US$) Average Supemision (US$/p roject) Ivlem01atidu111 Ite111 Siiice FY 80 Last Five FYs Proj Eva1 by OED by Number 244 42 Proj Eva1 by OED by Amt (US$ millions) 21,514 2 3,170.4 % of OED Projects Rated U or HU by Number 24 0 41 5 % of OED Projects Rated U or HU by Amt 22 9 24 5 a. A s shown in the Annual Report on Portfolio Performance (except for current FY). b. Average aye of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the yearto the undisbursed balance ofthe Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. e_- E !! 6 N m N K ,+ d m 5i Lo 13 (Table 4.) Indonesia Statement o fIFC's HeldandDisbursedPortfolio As o f2/28/2005 FYApproval Company Loan Equity Quasi Partic Loan Equity Quasi P d c 2005 EankNISP 25 0 0 0 0 0 0 0 2004 BonaVistaSchool 1 0 0 0 1 0 0 0 2003 BuanaBank 0 12.16 0 0 0 12.16 0 0 1999 ITCF 4 0 0 0 0 0 0 0 0 LYON-MU-Ibis 2.01 0 0 2.01 2.01 0 0 2.01 1985 Manulife 0 0.32 0 0 0 0.32 0 0 2004 MedanNP School 1.75 0 0 0 0 0 0 0 2002 P T Gawi 11.5 0 0 4.65 5.35 0 0 4.65 1989 PT Agro Muko 0 2.2 0 0 0 2.2 0 0 1997 PT Al-do 7.52 0 0 0 7.52 0 0 0 1989/94/03 P T Astra 0 0.12 0 0 0 0.12 0 0 P T Astra Grapha 0 2 0 0 0 2 0 0 P T AstraOtopart 0 1.07 0 0 0 1.07 0 0 1995 PT BeknePipe 23.71 0 9.53 0 23.71 0 9.53 0 02/04/2000 PT BankNISP 3 5 0 0 0 3 5 0 0 0 1997 P T Berhan 0 6.54 0 0 0 3.19 0 0 1993/96 P T BinaDanatama 4.14 0 0 7.69 4.14 0 0 7.69 2004fU5 P T Ecogreen 25 0 0 0 0 0 0 0 P T Grahawita 0 0 5 0 0 0 5 0 1991/95/99/01/03/04 PT Indo-Rma 4 8 0 0 0 0 0 0 0 1992~96 P T KIA Kerarmk 1.65 0 0 53.49 1.65 0 0 53.49 1995 PT KIA Serpih 4.5 0 0 49.5 4.5 0 0 49.5 1997 PT Khantan 15 15 0 0 15 15 0 0 2000 PT Makro 0 2.61 0 0 0 2.61 0 0 1998 PT Megaplast 5.25 2.5 0 0 5.25 2.5 0 0 1993 PT Nusantara 0 0 9.95 7.74 0 0 9.95 7.74 2004 PT Prakars (PAS) 35 0 0 10 30.98 0 0 8.82 1993 PT Smudera 0 5 0 0 0 5 0 0 1997 P T Sayap 3.33 0 0 0 3.33 0 0 0 2001 PTSigma 0 3 0 0 0 3 0 0 1995/04 P T Viscose 9 . 5 0 0 0 0 0 0 0 1997 PT Wings 2.89 0 0 0 2.89 0 0 0 2003 SMM 3 0 0 0 0 0 0 0 2001 Sunson 12.41 0 0 7.85 12.41 0 0 7.85 2004 Whar 2 0 0 0 0 2 0 0 0 0 TotalPottfolio: 337.16 52.52 24.48 142.93 174.74 49.17 24.43 141.75 Loan Equity Quasi Pattic 2005 AstraOtoparts 2 2 4 0 0 0 Total PendingCommitment: 2 4 0 0 0