The previous Country Partnership Strategy (CPS) Report No. 44845-IND was discussed by the Executive Director on September 11, 2008 CURRENCY EQUIVALENTS Currency unit: Rupiah (Rp) as of January 19, 2011 US$1 = Rp. 9,044 FISCAL YEAR January 1 to December 31 WORLD BANK Vice President James W. Adams Country Director Stefan G. Koeberle Task Team Leader Mark V. Hagerstorm IFC Vice President Rashad Kaldany Country Manager Adam Sack Task Team Leader Farida Lasida Adji COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT FOR INDONESIA FY2009-2012 Investing in Indonesia’s Institution for Inclusive and Sustainable Development February 8, 2011 Indonesia Country Management Unit, World Bank East Asia and Pacific Region The International Finance Corporation East Asia and Pacific Department 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. Abbreviations and Acronyms ACAP Anti Corruption Action Plan ADB Asian Development Bank AGO Attorney General’s Office ASEAN Association of Southeast Asian Nations AUSAID Australian Aid Agency Bappenas State Ministry of Development Planning BEC Basic Education Capacity Program BERMUTU Teacher Management Program BETF Bank Executed Trust Fund BI Bank of Indonesia BKN Civil Service Agency BNPB National Disaster Management Agency BOS School Operational Assistance BPS Central Bureau of Statistics BTPN Bank BTPN CCT Conditional Cash Transfer CDD Community Driven Development CIDA Canadian International Development Agency COREMAP Coral Reef Rehabilitation and Management Project CPAR Country Procurement Assessment Report CPS Country Partnership Strategy CSO Civil Society Organization CY Calendar Year DAK Local Government and Decentralization Project DANIDA Danish Aid Agency DDO Deferred Drawdown Option DFID United Kingdom Department for International Development DGT Director General Taxes DPL Development Policy Loan DRR Disaster Risk Reduction DSF Decentralization Support Facility EC European Commission ECED Early Childhood Education and Development EITI Extractive Industries Transparency Initiative EFO Externally Financial Output EU European Union FDI Foreign Direct Investment FEATI Farmer Empowerment Through Agriculture Technology Project GDP Gross Domestic Product GFMRAP Government Financial Management and Revenue Administration Project GoI Government of Indonesia GPOBA Global Partnership on Output-Based Aid IBRD International Bank for Reconstruction and Development ICT Information and Communication Technology iv Investing in Indonesia’s Institution IDA International Development Association IDB Islamic Development Bank IDPL Infrastructure Development Policy Loan IEPA Investment and Export Promotion Agency IFC International Finance Corporation IFF Infrastructure Financing Facility ILGR Initiatives for Local Government Reform INSW Indonesia National Single Window IT Information Technology JICA Japanese International Cooperation Agency JRF Java Reconstruction Fund JUFMP Jakarta Urgent Flood Mitigation Project KKPPI National Committee on Policy for Accelerating Infrastructure Provision KPK Corruption Eradication Commission LDR Loan to Deposit Ratio LG Local Government MDF Multi-Donor (Trust) Fund MDGs Millennium Development Goals MIC Middle Income Country MIGA Multilateral Investment Guarantee Agency MIS Management Information System MRA Mandatory Retirement Age MoF Ministry of Finance MoHA Ministry of Home Affairs MoNE Ministry of National Education MoT Ministry of Trade NBFI Non-Bank Financial Institution NGO Non-Government Organization NRW Non-Revenue Water PAMSIMAS Water Sanitation and Supply for Low Income Communities PDAMs Urban Water Utility Companies PEACH Public Expenditure and Capacity Harmonization PEFA Public Expenditure and Financial Accountability PEKKA Women-Headed Household Empowerment program PEPI National team for Enhancement of Exports and Investment PER Public Expenditure Review PERDA Local Government Regulation PETS Public Expenditure Tracking Survey PFM Public Financial Management PI Performance Indicator (PEFA) PINTAR Tax Administration Reform Project PLN State-owned Electrical Utility PNPM National Community Empowerment Program POPS Persistent Organic Pollutant Country Partnership Strategy Progress Report for The Republic of Indonesia v PP Government Regulation PPP Public-Private Partnership PSF PNPM Support Facility R&D Research and Development REDD Reduce Emissions from Deforestation and Degradation ROSC Report on the Observance of Standards and Codes RPJMN Medium-Term Development Strategy SEETF South-South Experience Exchange Trust Fund SMART-D Sustainable Management of Agricultural Research and Technology Dissemination Project SMEs Small and Medium Enterprises SNA Systems of National Accounts SPADA Support for Poor and Disadvantaged Areas SPAN Integrated Financial Management System STATCAP Statistical Capacity Building Project TA Technical Assistance TF Trust Fund TSA Treasury Single Account TT-SSCF Task Team for South-South Cooperation TIMMS Trends in International Mathematics and Science Study USAID United States Agency for International Development USDRP Urban Sector Development and Reform Project VAT Value Added Tax WBG World Bank Group WSS Water Supply and Sanitation WASAP Water Supply and Sanitation Financing Initiative vi Investing in Indonesia’s Institution Table of Contents Abbreviations and Acronyms........................................................................................................................................................ iv Executive Summary .........................................................................................................................................................................viii Introduction .........................................................................................................................................................................................1 The Country Partnership Strategy................................................................................................................................................3 Recent Economic Developments .................................................................................................................................................5 Assessing Implementation .............................................................................................................................................................7 Areas of Engagement.................................................................................................................................................................7 Central Government Institutions and Systems .................................................................................................................7 Sub-national Government Institutions and Systems .....................................................................................................8 Private Sector Development ................................................................................................................................................. 10 Infrastructure .............................................................................................................................................................................. 12 Community Development and Social Protection.......................................................................................................... 14 Education ..................................................................................................................................................................................... 16 Environmental Sustainability and Disaster Mitigation ................................................................................................ 17 Moving Forward ............................................................................................................................................................................... 20 Macroeconomic Prospects and Outlook........................................................................................................................... 20 Sustaining Engagement.......................................................................................................................................................... 20 Donor Collaboration................................................................................................................................................................. 22 Gender Equity ............................................................................................................................................................................. 22 Managing for Risks ................................................................................................................................................................... 22 Appendices and Annexes.............................................................................................................................................................. 25 Appendix 1: CPS Progress Report: Result Matrix............................................................................................................ 26 Appendix 2: Progress Towards the MDGs ......................................................................................................................... 40 Appendix 3: Partnering on Governance and Anti-Corruption .................................................................................. 41 Appendix 4: Mainstreaming Engagement on Gender Equity ................................................................................... 44 Appendix 5: Portfolio Performance .................................................................................................................................... 47 Appendix 6: Management of Trust Fund Operations ................................................................................................... 49 Appendix 7: Management of Trust Fund Operations ................................................................................................... 51 Appendix 8: Multi Donor Trust Fund for Aceh and Nias .............................................................................................. 52 Appendix 9: Recent Macroeconomic Developments................................................................................................... 56 Appendix 10: Medium-Term Development Strategy (RPJMN) .................................................................................. 61 Appendix 11: Indonesia - a Growing Role in South-South Knowledge Exchange ............................................ 64 Annex A2: Country-at-a-Glance: INDONESIA .................................................................................................................. 66 Annex B2: Selected Indicators of Bank Portfolio Performance and Management ............................................ 68 Annex B3: Indicative IBRD Lending Program, FY09-12 ................................................................................................ 69 Annex B4: Summary of Non Lending Services................................................................................................................ 70 Annex B5: Social Indicators .................................................................................................................................................... 75 Annex B6: Key Economic Indicators.................................................................................................................................... 76 Annex B7: Key Exposure Indicators ..................................................................................................................................... 77 Annex B8.1: Operations Portfolio (IBRD/IDA and Grants) ........................................................................................... 78 Annex B8.2: Committed and Disbursed Outstanding Investment Portfolio (IFC) ............................................. 79 Map of Indonesia ....................................................................................................................................................................... 80 Country Partnership Strategy Progress Report for The Republic of Indonesia vii Executive Summary Indonesia has made remarkable progress since the global financial crisis has given added urgency for 1998 economic and political crisis. It is the largest upgrading the capacity for crisis management, economy in Southeast Asia, with a vibrant, pluralistic strengthening the financial sector and broadening democracy and important success in reducing the social safety net. Rapid decentralization poverty. Indonesia has weathered the more recent and urbanization continue to thrust ill-prepared global financial crisis relatively unscathed and is subnational governments and cities into having to enjoying increasing investor confidence and the play a critical role in Indonesia’s future. Indonesia is benefits of recent movements in commodity prices. both a contributor and is heavily exposed to climate As a member of the G-20 and the 2011 chair of change, which has received increased attention. ASEAN, Indonesia has assumed an increasingly While most children now have access to education, important role regionally and globally. Major the quality lags behind that of competitor countries challenges remain, however, in sustaining growth, and the scarcity of higher level graduates weakens strengthening poverty reduction and addressing the skill level of the labor force. Dramatically high environmental sustainability. To reach its potential, levels of maternal mortality and nutritional deficits Indonesia needs to press forward with reforms among children belie Indonesia’s level of income. to rapidly build the capacity of its institutions in Lagging infrastructure threatens to undermine the creating employment opportunities and upgrading sustainability of growth and the livability of cities, skills, improving public services and infrastructure, which requires investment by both the public and and reducing the legacy of corruption. private sectors to address. Recognizing these ongoing challenges, Indonesia has Indonesia’s strong demand for financing and initiated the second phase of the National Long-Term knowledge services underscores the commitment Development Plan (2005-25) with the formulation of the Government and the continued relevance of the National Medium-Term Development Plan of the CPS. The World Bank Group is responding for the period 2010- 14. The World Bank Group is in partnership with a large and generous donor supporting this Plan through the Country Partnership community. Implementation of the CPS remains on Strategy, (CPS) FY09-12 with a selective approach track. Contingency financing was provided during focusing on engagement in areas where value the global financial crisis. Development policy added may be brought to bear in assisting reforming lending has also supported reforms in public sector institutions. Core engagement areas include private management, infrastructure and climate change. sector development, infrastructure, community Innovative results-based projects in community development and social protection, education, and development, education and decentralization are environmental sustainability and disaster mitigation, aligned with the Government’s own programs and as well as cross-cutting engagements at the national support systemic transformations. Results from and sub-national levels focusing on support for Bank engagement in building disaster management government institutions and systems in keeping capabilities are being demonstrated in the rapid with the overall institutional needs of Indonesia and response to the recent tsunami and volcanic the CPS objectives for enhancing accountability and eruption, as well in Aceh reconstruction, which is capacity. nearing completion. Programmatic and demand- driven knowledge services are ensuring relevance These engagement areas remain valid for the and the close, continuous presence needed to help development challenges faced by Indonesia. The transform institutions. viii Investing in Indonesia’s Institution Moving forward, sustained World Bank Group improved portfolio performance. Still, achieving engagement would continue within the transformational changes and sustaining them parameters originally set out by the CPS and is in through strong institutions remains a challenge and line with the Group’s Post-Crisis Directions. It is will require the continued willingness and ability of expected to benefit from economic and political Indonesia to implement its development objectives stability, a defined set of national priorities, and and avoid complacency. Community working in a PNPM funded activity Country Partnership Strategy Progress Report for The Republic of Indonesia ix Although poverty rates fell quickly from peak crisis levels, further sustained progress in reducing poverty and increasing gender equity across the archipelago is needed. INTRODUCTION Ten years ago, Indonesia was in the middle of performance in terms of progress towards the MDGs a severe economic crisis and a difficult political has been mixed, with maternal health and nutrition transition after the end of the authoritarian regime. falling short of the levels to be expected of a middle- Today, Indonesia has become one of the region’s income country. Not enough high value-added jobs most vibrant democracies that has maintained are being created for new entrants and those looking political stability and emerged as a confident for better employment opportunities. Service middle-income country and G-20 member. delivery continues to be weak despite increases Economic growth has been on the upswing since the in public expenditures and there are pronounced 1998 crisis, particularly in the last five years and even regional differences. Investment remains low through the more recent global economic recession. by historical standards and lack of infrastructure Indonesia’s development has made remarkable presents a threat to continued economic growth progress in lifting millions of people out of poverty and social development. Environmental quality and improving social indicators. Moreover, prudent is deteriorating and natural resources need to be macroeconomic management has resulted in lower managed in a sustainable manner. Finally, a legacy budget deficits, a much lower public debt-to-GDP of corruption remains resistant and undermines ratio, and manageable inflation. As one of the largest development effectiveness. economies in Asia, Indonesia has benefited from a boom in its commodity exports, increasing investors In recognition of these ongoing challenges, confidence and substantial capital inflows. Indonesia has initiated the second phase of the National Long-Term Development Plan (2005-25) At the same time, significant development with the formulation of the National Medium- challenges need to be overcome for Indonesia to Term Development Plan (RPJMN) for the period reach its full potential. Building the capacity of 2010-14. The eleven development priorities Indonesia’s institutions to effectively formulate and include: bureaucracy and governance reform, implement public policy and programs remains a education, health, poverty alleviation, food security, significant task. Although poverty rates fell quickly infrastructure, investment and business climate, from peak crisis levels, further sustained progress energy, environment and disaster management, in reducing poverty and increasing gender equity least developed, frontier, outer, and post-conflict across the archipelago is needed. Despite the areas, and culture, creativity, and technological emergence of a growing middle-class, Indonesia’s innovation. Investment remains low by historical standards and lack of infrastructure presents a threat to continued economic growth and social development. Country Partnership Strategy Progress Report for The Republicof Indonesia 1 With Indonesia demanding dependable and timely support for its own development priorities and poverty-reduction agenda, the CPS sought to enable the World Bank Group to better respond in helping to meet development challenges. THE COUNTRY PARTNERSHIP STRATEGY The Country Partnership Strategy for FY2009-12 The CPS outlined a partnership based on: marked the beginning of Indonesia’s re-emergence support to the Government’s own development as a confident middle-income country that had strategies, policy objectives and priority programs; graduated from IDA, and was enjoying a rising strengthening and using Indonesia’s own systems regional and global standing, including membership and procedures; while continuing to put a strong in the G20. With Indonesia demanding dependable emphasis on fiduciary controls, accountability and and timely support for its own development priorities technical excellence; making effective use of existing and poverty-reduction agenda, the CPS sought to capacities and harmonizing support; and supporting enable the World Bank Group to better respond in efforts to strengthen the consolidation and alignment helping to meet development challenges. of resources. The World Bank Group would seek to partner on investing in institutions to enhance Notwithstanding these achievements, the CPS governance by strengthening accountability and noted that this next phase of its development was capacity. For accountability the focus would be likely to be even more challenging for Indonesia on incentives and processes to promote increased because the country was entering into a period of government effectiveness, including: social second generation reforms focusing on institutional accountability; transparency and public access to transformation to promote economic development information, as well as grievances processes; results and social welfare. Failure to begin addressing based M&E; performance incentives; and fiduciary these reforms ran the risk of falling into the middle- controls to promote cost-effectiveness and identify income trap — squeezed between the innovations misuse of funds. The complementary objective of high-income countries and the low labor cost of enhancing institutional capacity would focus of low-income countries. The consequences of this on: legal and regulatory frameworks; operational, could include stagnant poverty levels, the depletion technical and administrative policies, procedures of natural resources and increased threats to social and standards; organizational structures and roles cohesion. and responsibilities; management, information and evaluation systems; planning and budgeting capacity; research and analytical capacity to support policy formulation; and knowledge and information sharing, including on international best practice. The proposed means for engagement included: financing priority public programs and supporting private sector investments; providing flexible, on- demand services, quick-response policy notes, in-depth analytical and knowledge work, and advisory and technical assistance, and; continuing to seek opportunities to work together with other development partners to better align policy, analytic and financial support with government-led strategies and priorities. Moreover, it was proposed that Indonesia’s macroeconomic progress and financing needs, together with the emerging reform effort made a strong case for reversing the recent decline in IBRD lending. IBRD investment of between Country Partnership Strategy Progress Report for The Republicof Indonesia 3 $1.5 billion and $2.5 billion annually was expected, financial contribution to Indonesia’s development dependent on macroeconomic performance, was expected to continue to decline and that financial stability and momentum on key reforms. knowledge partnerships would become ever more IFC was to invest about US$300 million annually in important. As such, the World Bank Group would the priority sectors of finance, infrastructure and continue to build on its program of analytical and commodity-based supply chains, but was expected advisory services, and align this program with to grow in line with an acceleration of reforms to core engagements and support strengthening of facilitate private provision of infrastructure. Support institutions and country systems. Trust funds were from MIGA was also expected to expand with expected to be an integral part of the program, and improvements in the investment climate. increasingly aligned with the core engagements, as well as enhancing harmonization and alignment of Even with the expected increase in financing, the funding from development partners behind core CPS acknowledged that the share of the Banks’ government programs. Trust funds were expected to be an integral part of the program, and increasingly aligned with the core engagements, as well as enhancing harmonization and alignment of funding from development partners behind core government programs. 4 Investing in Indonesia’s Institution RECENT ECONOMIC DEVELOPMENTS Indonesia was less affected by the global economic recognized the robustness of Indonesia’s economy downturn of 2008-09 than most countries and by the and strength of its public financial management, first half of 2010 the economy’s growth patterns had upgrading their ratings of Indonesia’s sovereign normalized. Growth slowed sharply but remained debt to just below investment grade. positive in the fourth quarter of 2008, at the depths of the global downturn, then incrementally recovered During the crisis, based on its substantial through 2009. The economy then expanded by 4.5 knowledge-based engagement and ongoing DPL percent over 2009 as a whole and by 5.9 percent in series supporting reforms implemented by the core 2010 (preliminary). The social impact of the crisis was economic ministries, The Bank was able to quickly also limited with few reports of layoffs, and poverty respond providing timely support with the Public and unemployment rates continuing to fall, while Expenditure Support Facility DPL-DDO for US$2 households’ spending power was supported by billion, to encourage social mitigation, confidence- inflation slowing to decade-lows, although various boosting policy measures and back-up financing food supply disruptions lifted inflation back to 7 arrangements. Co-financing by Australia, Japan and percent by end 2010. Through the crisis, public the Asian Development Bank (ADB) for a total of finances remained in good health, with a nominal US$5.5 billion in contingent financing, the program deficit in 2008 widening to a smaller-than-projected included institution building for crisis management 1.6 percent of GDP in 2009 and 0.6 percent of GDP and macro monitoring, and putting in place a in 2010 (based on preliminary figures). Public debt stronger legal framework for a financial system levels continued to decline, ending 2009 at just below safety net. 30 percent of GDP. International ratings agencies Indonesia was less affected by the global economic downturn of 2008-09 than most countries and by the first half of 2010 the economy’s growth patterns had normalized. Country Partnership Strategy Progress Report for The Republicof Indonesia 5 The CPS called for engagement in five core areas, where it was judged that the World Bank Group could have value added in support of Indonesian priorities. These included private sector development, infrastructure, community development and social protection, education, and environmental sustainability and disaster mitigation. ASSESSING IMPLEMENTATION Areas of Engagement statistics produced by the Central Bureau of Statistics (BPS); and, improved public procurement regulatory The CPS called for engagement in five core framework, capacity at national and provincial levels, areas, where it was judged that the World Bank and quality of audits and effectiveness of sanctions. Group could have value added in support of Indonesian priorities. These included private The Development Policy Loan (DPL) series, supported sector development, infrastructure, community by parallel financing from the Government of Japan development and social protection, education, and the ADB and underpinned by an important and environmental sustainability and disaster program of knowledge services, has helped to mitigation. Overlaying these were cross-cutting reinforce and broaden ownership and commitment engagements at the national and sub-national levels towards the achievement of reform milestones. focusing on support for government institutions and Complementary project lending provides technical systems. Improved governance was to be promoted implementation support and investment through through deepening engagements with core central the ongoing Government Financial Management and local government institutions and partnering and Revenue Administration Project (GFMRAP) around core Indonesian programs and with key and the Project for Indonesian Tax Administration public accountability institutions. Recognizing that Reform (PINTAR). The Public Financial Management the engagement areas were at different levels of - Multi Donor Trust Funds also channels resources maturity as reflected in the depth of the dialogue, to support critical activities, bringing together key the types of activities supported and the specificity development partners, the European Commission of results expected, sub-national institutions, (EC), the Governments of the Netherlands and infrastructure and the environment were identified of Switzerland, and the Bank for coordinated as emerging areas where outcomes and activities engagement. would be better defined during implementation and in alignment with the RPJMN. In addition, The development outcomes to which the Bank was during the Board discussion of the CPS there was expected to contribute are on track, despite some encouragement to begin formulating a more delays. The RPJMN represents a step forward with comprehensive engagement to mainstream gender measurable results and targets indicators and the equity consideration in World Bank Group activities. CY11 annual budget is more strongly tied to the planning process; more timely and reliable financial Central Government Institutions and reporting is evidenced by an important reduction Systems in qualified audits; improved tax administration has seen the number of registered taxpayers increase, Indonesia is striving to improve the effectiveness and though the coverage still remains very low; and, accountability of central government institutions and with Bank support, a new procurement body has systems under its long-term objective to enhance been created and new regulations should improve public financial management and governance to processes. increase the development impact of priority budget expenditures. The World Bank Group was expected Moving forward with a sustained engagement, to contribute to efforts at greater results orientation GFMRAP should provide a basis for expanding in the budget; timely and reliable financial reporting; institutional strengthening and governance related improved tax administration via increased accuracy reforms to other ministries. This is supported by a in records and taxpayer audits, and reduced tax substantial program of knowledge services funded arrears; improved quality and timeliness of key largely by trust funds in collaboration with other Country Partnership Strategy Progress Report for The Republicof Indonesia 7 donors. These include the Initiative for Public sub-national governments now manage close to 35 Expenditure Analysis (IPEA), which seeks to enhance percent of public spending. However, the level and transparency and accountability in public financial quality of spending at the regional level is an issue management and build research and analytical as are the division of authority and responsibility at capacity for improved policy and budget formulation, the central ministry level and the incentive structure and the Extractive Industries Transparency Initiative of the fiscal transfer system. The Government also (EITI), which aims to enhance transparency in the oil, identified institutional capacity as a limiting factor for gas, and mining sector. Additionally, the proposed local government and programs to address this are loan for Strengthening the National Statistical in place, including many donor-sponsored efforts, System of Indonesia (STATCAP) would finance and but problems with incentives and accountability, provide support for technological modernization, identified in the CPS, continue to limit effectiveness. capacity-building and change management. To increase the impact of public spending and improve service delivery, Indonesia’s objective Progress in governance and combating continues to focus on strengthening decentralized corruption remains slow. Indonesia has shown local governments and institutions. some improvement in several areas, based on World Governance Index, including voice and The World Bank Group initially concentrated accountability, political stability, government on engaging a limited number of sub-nationals effectiveness, regulatory quality and rule of law. In governments committed to tackling accountability particular, the judicial sector, where other donors and capacity challenges through the Public have taken the lead, is plagued by uncertainty, Expenditure and Capacity Harmonization (PEACH), a and the arbitrariness of judicial interventions and trust funded engagement supported by AusAID and corruption in general remain as serious obstacles to CIDA to develop capacity building on public finance investment. and spending. The Bank also focused on its Initiative for Local Governance Reform Project (ILGRP) and Sub-national Government Institutions and Urban Sector Development Reform Project (USDRP), Systems programs with selected governments with both aimed at improving PFM and service delivery. These Identified in the CPS as an emerging engagement, the were complemented by IFC efforts to help improve medium-term outcomes supported in this area were local investment climate. Support for the cross- broadly defined and included improved systems and cutting decentralization agenda with the Central processes for better planning, resource allocation and Government to frame these activities has been budget implementation, and improved standards of provided through the multi-donor Decentralization service delivery in both urban and rural areas. These Support Facility (DSF), a trust fund largely supported outcomes have now been sharpened to include by UKAID. an improved fiscal decentralization framework with incentives for accountability and improved Over the past two years, this engagement has had infrastructure spending at the sub-national level. a number of advances. PEACH has increased its coverage to additional areas and its analysis to Ten years ago, Indonesia embarked on a sweeping include growth diagnostics, as well as its leverage, decentralization reform. The empowerment of sustainability and transparency by developing local governments over the last decade has made and contracting analysis to local and national them increasingly critical for reaching the country’s universities. It has enhanced its partnership with development goals. Indonesia’s approximately 500 the Ministry of Home Affairs (MoHA) including 8 Investing in Indonesia’s Institution assistance on monitoring systems and capacity program which presents longer-term opportunities building. Meanwhile, ILGRP and USDRP were been to improve the efficiency of spending and restructured to better focus on key governance, and educational outcomes. The recent expansion of the transparency reforms. The DSF continues working Government’s National Community Empowerment intensively with Central government ministries to Program (PNPM) could provide a platform to achieve improved engagement and coordination. better integrate and improve the decentralization framework through improved accountability at Advances in other areas exceeded the expectations the local level and better integration with sector of the CPS. The most significant of these is the initiatives. Bank’s support for the Government’s targeted regional grant (DAK) program through the recently Finally, there are two emerging areas where the approved Local Government and Decentralization World Bank Group could contribute significantly. Project. The DAK program uses government systems First, the Government is focusing on regional to link incentives with outputs and outcomes. disparities and the need to improve connectivity, This is expected to provide support for improved particularly in reducing transportation constraints budgeting and larger, more flexible transfers needed within and among regions. Initial focus would to address infrastructure and other service delivery be on analytical work on increasing sub-national shortfalls. In addition, there has been progress in government spending in critical areas and support for strategic partners at the regional level addressing policy and implementation challenges. including through the proposed Jakarta Urgent Second, over the next decade virtually all population Flood Management Project which is expected growth in Indonesia will continue to be urban and to break new ground in improving sub-national the majority of Indonesians will live in cities. An access to financing for urban improvements. The improved understanding of emerging urban issues Government has moved to decentralize its school will be provided through studies on urbanization block grant program (BOS), another Bank supported and the constraints to agglomeration. Urban areas also face increasingly difficult environmental and climate change challenges. These are being addressed through an Economic and Ecologically Sustainable (Eco2) Cities Program, which works to make environmental sustainability a core investment strategy. Jakarta plays a particularly important role as a member of the Mayors' Task Force on urban poverty, service delivery and climate change. Moving forward, these ongoing and new engagements will be reinforced by the RPJMN, which recognizes the cross-cutting nature of decentralization. The CPS results matrix has been adjusted to frame the development outcomes that World Bank Group hopes to influence including: an improved fiscal decentralization framework with incentives for accountability; and improved infrastructure spending at the sub-national level. In support of these outcomes, the World Bank Country Partnership Strategy Progress Report for The Republicof Indonesia 9 Group will seek to convene stakeholders and inform inter-agency coordination in the development of dialogue on decentralization through a variety of investment policies; strengthened institutional instruments; enhance and expand the DAK; work capacity of the Ministry of Trade (MoT) for more through the BOS-KITA program to ensure a successful effective trade policies; and, improved access to decentralization and set the stage for future benefits; markets for Indonesian businesses and smallholders enhance the capacity of local citizens to assess in select commodity or industry-based sectors. and monitor public spending through PEACH; and support activities in public financial accountability To support these development outcomes, building and infrastructure provision. on synergies between IFC and Bank teams, partnerships have been established with key Private Sector Development Indonesian institutions that shape the investment climate. Through the DPL process and advisory and Private sector-led growth is vital to Indonesia’s monitoring work, as well as institutional capacity- competitiveness regionally and globally, and building in collaboration with the governments of the important in addressing gaps in service delivery and Netherlands, New Zealand, Switzerland and Australia, infrastructure. Indonesia’s longer-term objective the World Bank Group has been actively engaged is to enhance the environment for private sector in supporting: (i) the roll out of the Investment and development to foster accelerated growth and Special Economic Laws; (ii) two major economic poverty reduction. The World Bank Group seeks to policy packages covering investment regulations support strengthened private and financial sector and institutions, customs, tax, infrastructure, through: better regulatory frameworks; improved finance, and SMEs; (iii) streamlined business start-up investment climate; stronger financial institutions; with simplified procedures for establishing limited improved market access; business linkages and liability companies and obtaining licenses; (iv) faster partnerships; improved capacity of select sub- approvals for foreign investors; (v) development of a national governments to support business national warehouse receipt system, and; (vi) capacity operations; improved regulatory environment and to monitor the investment climate. There has been PNPM allows the community to determine priorities 10 Investing in Indonesia’s Institution additional support on improving local government’s capacity to support business operations through its Business Entry Regulatory Reform Program which complements efforts under the Bank’s Multi-donor Facility for Trade and Investment Climate to simplify business regulations at the national level. The MoT has been targeted as a reforming institution with capacity building to support formulating and implementing domestic and international trade and investment policies, negotiating trade agreements, and managing the human resources and operations of the Ministry. With support from donor trust funds, the Bank has established a team of advisers to provide Engagement continues to focus on strengthening direct support on the ground. Although there are access to financial services for greater significant obstacles, these initiatives are showing competitiveness and inclusive growth. Through promise in helping to strengthen the capacity in a World Bank Group operation, including an IBRD monitoring trade and trade policy development, loan and IFC equity, the Indonesia Infrastructure including a Logistics Blueprint and Connectivity Plan Finance Facility (IFF) is expected to increase the and developing options to mitigate the impact of availability of financing for infrastructure. IFC is rising food prices. working with Bank Indonesia in managing the only national credit bureau to improve efficiency and Stimulated by the recent crisis, development expand outreach, particularly to SMEs. A diagnostic outcomes in support of strengthening the financial study was completed on the secured transactions sector have benefited from Bank support through framework, and a project to promote the use of the Financial Sector Assessment Program, including movable collateral registries with the Ministry of Law implementation of a crisis management protocol and Human Rights has been developed. In addition, and capacity building. A study on Access to Finance working with the MoT’s Commodity and Futures has supported the development of financial services Trading Agency, IFC helped to develop regulations, for migrant workers, the vast majority of which are policies and procedures for a national warehouse women, and facilitating small savings accounts. More receipts system. These ongoing efforts seek to broadly, the study has helped broaden awareness strengthen and expand financial infrastructure for of financial inclusion among senior policymakers, an economy that relies heavily on micro and small resulting in several pilots and Indonesian support enterprises. for including it in the G20 agenda. World Bank Group support for ongoing work on restructuring revolving As anticipated, MIGA has begun to increase its loan funds used mainly by women to fund micro- activities in support of Indonesia. There are enterprises also contributes to gender equity. IFC currently two active projects in Indonesia, with has created the Global Business Alliance, a group guarantees totaling US$257 million, in the power of commercial banks from both emerging and and mining sectors. Notably, the Weda Bay Nickel developed markets that provide targeted products operation is an innovative effort to engage mining and services to women-owned business and is operations upstream during the exploration phase expected to launch its first Advisory Services project to better promote social benefits and environmental geared exclusively towards women business owners. safeguards. Country Partnership Strategy Progress Report for The Republicof Indonesia 11 Infrastructure Infrastructure was identified as an emerging area of engagement in the CPS. The Infrastructure DPL Improving the quality of infrastructure is an essential (IDPL) series, in collaboration with ADB and the aspect of strengthening Indonesia’s competitiveness. Government of Japan, has helped set the stage for a Continuing weak investment in infrastructure renewal of World Bank Group financed infrastructure remains a threat to sustained economic growth and projects to support reforms at the sector level. development. Public investment in infrastructure remains below pre-crisis levels (1997) and the In the energy sector, the World Bank Group potential of the private sector remains largely engagement focuses on strengthening technical, untapped. As a result, Indonesia remains under- managerial and operational capacity. The aim is to served relative to most comparator countries. improve efficiency, in support of a more effective Road congestion poses significant challenges targeting of electricity subsidies in the short term and electricity system capacity has been unable and a sustainable pricing policy over the medium to meet growing demand. Tariff levels discourage term, as well as enhance the framework to promote investment in power and water. Operational and private investment. Along with institutional support, financial problems, and land acquisition procedures the investment financing program seeks to reduce for infrastructure projects remain cumbersome and the local and global environmental impacts of the often inequitable. Indonesia’s longer-term objective sector and focus on clean and renewable energy is to increase the level and efficiency of public and such as geothermal power investments, pumped private investments in infrastructure to meet needs storage, and power transmission and distribution and strengthen competitiveness, with a focus on projects, including gas distribution. Important energy, transport, water and sanitation. Local efforts challenges remain in terms of electricity coverage are being supported to bring about increased and and energy efficiency, especially in Indonesia’s better quality national and sub-national government manufacturing sector. The World Bank Group spending on infrastructure through improvements in has cooperated in the preparation of Indonesia's subsidy policy, incentives framework, and planning Country Investment Program (CIP) under the Clean and budgeting; and, increased private investment in Technology Fund (CTF) managed by the Global infrastructure through the establishment of a fiscally Environment Fund (GEF). IFC is proposing to access sound, credible and transparent public-private CTF funding to support financing for renewable partnership (PPP) framework. and energy efficiency projects, as well as private Access road in Simeleu Island, Aceh Province. The MDF has helped to restore vital transportation networks in Aceh and Nias. 12 Investing in Indonesia’s Institution sector geothermal energy projects, while the IBRD agreements, and following up with financing for a is focusing on supporting the national geothermal select number of model transactions. crash program. Work with the commercial banks to expand sustainable energy finance is further In the water sector, support is strengthening the legal supported by the IFC's Advisory Services. and regulatory framework and enhancing technical, operational and management capacities, including The IDPL has supported the development of a for select water utilities (PDAMs), and reconfiguring pricing policy to significantly reduce subsidies under irrigation, dams and reservoirs to adapt to climate the RPJMN. The new Electricity Law provides the changes and enhance productivity. In sanitation framework for the State-Owned Electric Utility (PLN) and community based water services, the Water to move toward a more efficient, performance based and Sanitation Supply for Low-Income Communities company, reduce and better target subsidies to (PAMSIMAS) project, supported by the Bank and poor customers, and opens the way for competition AusAid, builds capacity to plan system integration in supply. On the investment side, the portfolio for centralized, community and household includes the Java-Bali Power Sector Restructuring sanitation, and make long-term financing available and Strengthening Project, helping PLN to improve to municipalities for infrastructure. To help address efficiency and reliability, the Domestic Gas Markets problems in piped water, the Urban Water Supply Development Project, helping to expand natural gas and Sanitation Project supports investments in three as an alternative to coal, and the Power Transmission PDAMs. With PDAM debt arrears having constrained Development Project, to augment and improve the investment, debt restructuring promoted under reliability of the transmission grid. Proposed Bank- the IDPL series is a significant breakthrough for financed projects currently being prepared include a the sector in general. Output-based grants for hydro-electric pumped storage project on the Upper PDAMs are also expected to provide incentives to Cisokan River and the Geothermal Clean Energy sub-national governments to improve the flow of Investment. finance. A pipeline of investment projects to increase water connections is expected to help Indonesia In the roads sector, the World Bank Group is engaged meet MDG targets. in strengthening the institutional framework at the national and regional levels, including fiduciary, Much hope has been placed on public-private operational, technical, and management systems to partnerships in supporting Indonesia’s infrastructure help Government’s efforts to improve road quality development but their contribution is lagging and capacity in partnership with ADB, AusAID and so far. Bank support through the IDPL has led to the Government of Japan. This is essential for a sector improvements in the framework, including its plagued by weak execution, and procurement, recent extension to sub-nationals and state-owned corruption and collusion issues. Financing is being enterprises. However, the program is suffering from provided through several ongoing Bank operations the lack of a coordinated single window to channel (Second Eastern Indonesia Road Transport Project government guarantees, the need for readily and the Strategic Roads Improvement Project), bankable projects and land acquisition processes and preparations are underway for proposed that hinder project development. projects in Western Indonesia and in support of a road maintenance fund. IFC supports the private Moving forward, the challenge of promoting financing of toll roads by offering long-term capital increased investment in infrastructure remains and sharing best practice, assisting the development crucial. Policy frameworks supported under the IDPL and roll out of international standard concession are expected to enhance the efficiency and quality Country Partnership Strategy Progress Report for The Republicof Indonesia 13 of public investment, both at the national and local more jobs and increasing public expenditures for levels, and a new series of operations focusing on health, education and infrastructure. The expansion connectivity and economic corridors will seek to of national poverty reduction programs has also increase dialogue and coordination to reinvigorate contributed with the shifting of resources from the overall level of investment and help reduce regressive subsidies to poverty reduction programs regional disparities. The IFF is expected to enhance that targeted poor- and near-poor households. the availability of long-term financing, and PPPs should benefit from a more investor-friendly law for The Bank through its sustained support has land acquisition, which is expected to be enacted. contributed to the Government’s successful In addition, through the proposed Infrastructure community-driven development and poverty Guarantee Fund, a single window institution for reduction programs. The centerpiece of Bank guarantees is being supported and the Bank is engagement has been a long term relationship helping to identify and prepare a preliminary group providing knowledge and financing services to of projects. the National Community Empowerment Program (PNPM) in collaboration with other development Community Development and Social partners. Impact evaluation shows that the extreme Protection poor in the program had significantly higher gains in household welfare, real per capita consumption Indonesia’s long-term objectives remain to reduce increases of 10 percent, and were more likely to poverty levels and improve equity by improving move out of poverty. Moreover, infant mortality was livelihoods and service delivery, and decrease cut in half in these areas. Extensive infrastructure remaining pockets of high-level poverty. Working development, including roads, bridges, water and with the Government to ensure continued progress irrigation systems, and public toilets, is highlighted towards poverty reduction goals, and achieving by cost savings of 20 percent on average, when equity and inclusiveness across regions, remains a delivered through the community-based approach. top priority for the World Bank Group. Goals during PNPM has also supported gender equity through the CPS period include improved socio-economic approaches for economic empowerment of women. and local-level governance conditions of the urban and rural poor through wider implementation of poverty reduction and community empowerment programs; public expenditures made more pro- poor by reallocating savings from subsidies towards strategic targeted interventions and successful implementation of conditional cash transfers; and improvements in the integration and implementation of poverty and social protection programs. Indonesia’s progress in lowering poverty has been supported by the introduction of a range of national poverty reduction programs. Since the 2004, the indigent poverty headcount has fallen from 16.7 percent to 13.3 percent (2010). Sustained economic PNPM and women empowerment. growth contributed to this success by creating 14 Investing in Indonesia’s Institution Institution building is a fundamental part of Bank side with a deepening of the engagement to a support for PNPM, with a wide range of activities partnership for knowledge-base poverty reduction. to strengthen accountability and enhance capacity This would include program assessment and at the community level. Accountability includes improved governance accountability, poverty simple and practical procedures for financial measurement and targeting, and empowering local control, disclosure, feedback, complaints, follow- governments, communities and service providers up and resolution. Performance-based rewards to deliver quality services. The PNPM now reaches at the community level tap into existing social 70,000 communities across the country and the accountability mechanisms. This is reinforced by rapid expansion of the program to a national scale independent monitoring through CSOs and the will require consolidation and improvements in media to promote grassroots demand for good institutional capacity and fiduciary oversight. In the governance. The program invests in training future, it could play an important role with a number community facilitators, strengthening their skills in of innovations to enhance impact, including piloting monitoring and evaluation, planning and budgeting, approaches to increase financial inclusion and as well as project implementation using participatory linking community empowerment to family-based methods to ensure that the communities understand social assistance programs. basic accounting, planning and management. The program makes extensive use of local expertise for Food price increases have hit Indonesia harder than technical inputs and assessments to strengthen most countries in the region. Local rice prices are capacity of the communities. up 25 percent this year, much more than domestic rice prices in most other East Asian countries. While The Bank is also influencing overall strategy the PNPM program has allowed the Government to and strengthening central institutions with soften the impact of these price increases on the the establishment of the National Team for the rural and urban poor, in the medium and long term, Acceleration of Poverty Reduction, which elevates increased small-holder productivity in Indonesia oversight and coordination of poverty reduction will be key to reducing price volatility, poverty and policies and programs (household-based, pressure on natural resources. The Bank is currently community-driven and employment generation supporting small farmer empowerment through assistance) to a cabinet-level team headed by the ongoing Farmer Empowerment Through the Vice-President. With the team, the Bank has Agricultural Technology Project (FEATI) and plans collaborated on the design and implementation of to step up support for agricultural research and new approaches to reduce poverty. These include technology dissemination under the proposed piloting a conditional cash transfer program that has Sustainable Management of Agricultural Research been shown to increase women’s utilization of health and Technology Dissemination Project (SMART-D) to services; development of a national targeting system be presented to the board in FY12. In addition, the featuring a unified database; promoting think tanks Bank is providing support to the Government under to formulate policies; and supporting results-based a Food Price Crisis Response trust fund that aims M&E and improved accountability. to strengthen policy analysis and decision making around food security issues. Under the RJMNP, the Government intends to accelerate the pace of poverty reduction and Finally, in line with RPJMN priorities to enhance social lower the indigent poverty rate to 8-10 percent protection, an extensive donor-funded knowledge by 2014. Moving forward, the Bank is expected to program on the health sector is renewing World Bank continue contributing on the policy and institutional Group engagement there, which was identified as a Country Partnership Strategy Progress Report for The Republicof Indonesia 15 non-core area in the CPS. In particular, opportunities Indonesia is close to achieving universal enrolment are being pursued to engage in strengthening in primary and junior secondary. Moreover, it has the efficiency and financial sustainability of the moved rapidly to improve gender equity and is government implemented health insurance program expected to meet its MDG target of eliminating for the poor, as well as opportunities to contribute to disparities in primary and secondary education. improving maternal health and child nutrition, two Today, nearly every Indonesian child, boy or girl, MDG indicators in need of more sustained efforts to participates in basic education and the vast majority reach the targets. of those who begin Grade 1 finish Grade 9. Despite these gains, education continues to face significant Education challenges. The nation was ranked 36th out of 48 countries in the 2007 TIMSS international test. This Indonesia’s longer-term objective is to improve is attributed to a complex of issues including the access to basic education to achieve MDGs and quality of teaching and a weak quality assurance education quality to enhance competitiveness system. and inclusiveness. Development outcomes to be supported by the Bank include: increased number The Bank’s engagement in education is based on of basic education teachers who meet mandated its close partnership with the Ministry of National academic qualifications; improved efficiency and Education (MoNE) and the Ministry of Religious equity in the use of resources to increase access Affairs aimed at supporting transformation of the to basic education; improved training programs education sector. As such, this engagement covers and higher education system through institutional the entire spectrum in education — from early accreditation; regular tracer studies to gauge childhood education and development to higher effectiveness of training; and improved information education and teacher upgrading — through and better implementation, monitoring and knowledge services, as well as trust-funded activities evaluation of education funding. and investment projects. The BOS-KITA project supports Indonesia’s school operational grants program across the country. 16 Investing in Indonesia’s Institution financing. Beyond basic education, ongoing studies in early childhood education, including nutritional aspects, would be used to forge a link with PNPM. In addition, sector-wide support through ongoing and proposed operations would support incentives for teacher upgrading and reinforce the capacity of public and private teacher training institutions, with a view toward better regulating the supply and deployment of teachers to improve efficiency in the system. The administration has put increased emphasis on linking education and training to the jobs and A BOS-KITA funded site in Sesetan, Denpasar. economic growth. Indonesia indeed needs to move (Photo: Wiwit Kanti) up the education ladder to improve the quality and competitiveness of human resources. Further An increasingly important part of the strategy engagement will seek to broaden the partnerships directly targets schools. With the Netherlands and and contribute to the reforms in higher levels of the European Commission, the Bank is co-financing education to support upgrading the skills of the the Government’s School Operational Assistance labor force. (BOS) program, which supports initiatives to better manage its school funding through improved Environmental Sustainability and Disaster information, better monitoring and evaluation, Mitigation and streamlined procedures. The Bos-Kita Project focuses on empowering school managers and Indonesia faces significant environmental and local communities and increasing their ownership natural disaster related challenges. Half of all for education services through schools-based Indonesians live in rural areas and are dependent management practices that encourage collective on communal land, and coastal and environmental decision making regarding the use of BOS funds. As a resources that are being depleted. The other half central feature the program contributes to improving in this rapidly urbanizing society is affected by governance by raising the awareness of parents and water and air pollution, flooding, lack of sanitation, the local community, and introducing measures congestion and noise. Indonesia is prone to a to improve information flows for transparency, range of natural and man-made risks, as well as the decision making, managing and monitoring. Parallel impacts of climate change. Deforestation rates in co-financing from AusAID supports training for local Indonesia are among the highest in the world, with BOS teams. substantial emissions of greenhouse gases, as a result. Indonesia remains ill-equipped institutionally Moving forward, in a highly decentralized sector, to meet these challenges with fragmented and BOS, which reaches some 180,000 primary and junior overlapping jurisdiction and responsibility and weak secondary schools, including 42.5 million students mechanisms for the necessary coordinated effort. and 1.8 million teachers, represents a powerful Indonesia’s longer-term objectives are to strengthen instrument for promoting reform and could be used capacity to adapt to climate change and address as a platform to begin tackling disparities among environmental challenges, including development schools and districts in education performance and of integrated disaster management. Country Partnership Strategy Progress Report for The Republicof Indonesia 17 Children in Nias pose after a tree planting activity at their school. By the end of June 2011, over 117,000 mahogany trees were planted. This amount is almost twice that of the target. Identified as an emerging engagement area in the growth�. Policy dialogue seeks to mainstream the CPS, growing Government commitment to climate discussion of climate change across a range of change has allowed the World Bank Group to better actors. Partners include ministries and agencies define the development outcomes to be supported dealing with cross-cutting climate change issues, and the activities to be undertaken. These now as well as an active network of CSOs fostering social include assisting in building needed coordination accountability and participatory mechanisms. IFC mechanisms and institutions for climate change plays a catalytic role in private sector engagement management, supporting Indonesia in accessing in climate change mitigation and adaptation efforts international financing, promoting renewable through its analytical and advisory work. It is seeking energy and the creation of viable forest plantations investments in geothermal and energy efficiency on degraded lands in frontier areas, as well as projects, including mobilizing financing support for strengthened disaster risk reduction in development such projects; helping to improve environmental planning and administration. and social outcomes in critical sectors such as oil palm; and promoting sustainable forestry practices Engagement by the World Bank Group has to enable Indonesia to participate in global carbon accelerated during the past few years in line markets. with Government’s commitment to significantly reduce emissions and position Indonesia as a For disaster mitigation and recovery, the Bank is leader in climate change among developing working with Bappenas and the local governments countries. The Climate Change DPL, co-financed of Aceh, Nias and Yogyakarta in supporting actions to by France and Japan, encourages environmental strengthen natural disaster resiliency. The rebuilding sustainability and measures promoting effective of Aceh and Nias continues through the Multi and transparent use of resources. Global best Donor Fund (MDF), as are activities for Yogyakarta practice and lessons are being applied in assessing and Central Java through the Java Reconstruction alternative development and policy paths for “green Fund (JRF). Aceh is transitioning from post-tsunami 18 Investing in Indonesia’s Institution reconstruction towards sustainable economic Portfolio Performance development, an important part of which is through strengthening local capacity. More broadly, the The increasing alignment of the Partnership with Bank is engaged in institution building with the Government priorities and programs and more National Disaster Management Agency (BNPB) on proactive and coordinated management, including disaster mitigation and recovery. The Bank is also for trust funds, has benefited portfolio performance supporting the recently established Indonesian and keeping implementation of the CPS on track. The Multi-Donor Fund Facility for Disaster Recovery and share of problem projects, which used to account for Reconstruction to prioritize immediate and medium one-fourth of operations, has been brought down to term disaster response, and to mainstream DRR in a less than 10 percent in FY10-11, and now compares risk-based planning process and to improve post- favorably to the performance of other large, middle- disaster needs assessment and reconstruction. income IBRD borrowers. Closer alignment of the program with Government priorities and proactive Moving forward on climate change, the World Bank portfolio management are already turning around Group engagement will support coordination and a legacy of weak development effectiveness--45 facilitate partnerships with the private sector and percent of projects initiated in the early 2000s and civil society for the implementation of the National completed during the past five fiscal years were Action Plan for Climate Change. One example is the rated unsatisfactory for development outcomes. Indonesia Forest Carbon Alliance. The Government is working in collaboration with a multi-disciplinary The performance of trust funds has also benefited alliance of NGOs and research organizations — from a more coordinated approach to their supported by the international partners including mobilization and management. All are now vetted the World Bank Group — to develop and pilot a to ensure alignment with country priorities and framework and program to Reduce Emissions from integrated into the program’s overall financial and Deforestation and Degradation (REDD). The World human resource planning. Quality review processes Bank Group is also assisting Indonesia in making mirror those of Bank operations. Larger TFs benefit use of the substantial new funds and instruments from being incorporated into the Bank’s general that are becoming available to address global operational management and results-based portfolio public goods, such as climate investment funds, reviews for all TFs are undertaken regularly in the Adaptation Fund, as well as global carbon collaboration with Bappenas. Special consideration markets. For disaster mitigation and recovery, is given to ensuring that they contribute to the moving forward, the institutional focus will continue overall objective of the CPS in institution building with strengthening government instruments and and recipient executed trust funds currently account agencies, and reviewing financing options. for 82 percent of the TF portfolio in terms of volume. Country Partnership Strategy Progress Report for The Republicof Indonesia 19 MOVING FORWARD Macroeconomic Prospects and Outlook in line with the World Bank Group’s Post-Crisis Direction. This sustained engagement is expected The outlook is for Indonesia’s economic momentum to include the full range of World Bank Group to continue to build, with growth rising to 6.2 financing and knowledge services that continue percent in 2011 and with scope for growth to to support innovation and focus on development average 7 percent by mid-decade despite the results. Drawing on the Bank’s global reach, the uncertain global outlook. These growth rates engagement deepens South-South cooperation suggest ongoing progress in poverty reduction, to bring to bear international experiences on although this may be slowed or even reversed if the Indonesia’s development challenges in areas such surge in food prices in 2010 leads to a lasting return as forest management, social protection, health and to the previous decade’s inflation rates. In the period education, and in sharing Indonesia’s own successes, 2010-14, budget expenditure is expected to increase in areas such as community-driven development, by more than 30 percent in real terms compared disaster response and peace-building efforts. to 2005-2009 period (about US$500 billion in 2008 Likewise, the World Bank Group would continue to prices) creating significant opportunities to improve provide support to Indonesia in its important role as public services. In order to seize these opportunities, a developing country member of the G-20 and in its Indonesia will need more effective and accountable chairing of the ASEAN. institutions that can translate available resources into better development outcomes. This will be For specific engagement areas, the assessment of particularly important as Indonesia strives to provide implementation highlights the way forward based more sophisticated services in infrastructure, better on experience to date. The RPJMN and Government education, and a sustainable health system for an commitment reinforces the agreed priority areas for increasingly urbanized and demanding population. engagement and provides a renewed framework But this projection of rising growth rates and for moving forward in emerging areas such as sub- improving social outcomes are contingent on the national governments, infrastructure, and climate Government decisively progressing on this agenda. change. Sustaining Engagement The initial two years of the CPS have helped Indonesia to begin to pave the way toward some important development outcomes in a number of areas, but achieving transformational changes and sustaining them through strong institutions remains a challenge. In sum, the assessment points to the need for sustained engagement by the World Bank Group to continue supporting the Government’s reform agenda through close collaboration fundamental for investing in institutions. Moving forward, with economic and political stability, a .. this projection of rising growth rates and defined set of priorities, and improved portfolio improving social outcomes are contingent on performance, the basis for continued progress the Government decisively progressing on in implementing the CPS remains sound and this agenda. 20 Investing in Indonesia’s Institution • Central government reforms. With operational frameworks, improve incentives, and enhance support now largely in place, accelerated private and public access to financing. WBG implementation is expected to make up for recent investment in transportation, water and energy delays and support moves to consolidates early is expected to accelerate. The framework for successes among the economic ministries with a PPPs is largely in place, but Bank support is being view toward engaging line ministries in the effort intensified to promote this instrument. to modernize and reform their bureaucracies. • Community development and social protection. • Sub-national reforms. Sustained engagement Sustained engagement has helped to create has enabled the World Bank Group to partner in effective instruments for reaching the poor with a the development of an institutional framework variety of infrastructure and social services while through a stepped-up program in knowledge promoting good governance and knowledge- services supported by fellow donors. Innovative based engagement in poverty issues, including performance-based approaches are being health, will help to underpin the Government piloted to more effectively support sub-national efforts to accelerate poverty alleviation. institutional accountability and capacity. • Education. Indonesia, with an extensive Bank Additional advances are expected, including program of support through innovative operational engagement with cities. programmatic financing and knowledge services, • Private sector development. Financial sector is intensifying reform efforts to improve the quality strengthening is being combined with financial of education and its relevance for the work force. inclusion. Innovative community level approaches • Environmental sustainability and disaster in banking and savings will be piloted. Further mitigation. Government efforts to move on improvement in the investment climate the climate change agenda have increased should benefit from accelerating cross-cutting requests for World Bank Group support for the engagements in Central and local government policy framework, coordination and access to reform. international financing. Efforts to institutionalize • Infrastructure. Sustained dialogue, policy lending disaster response are proceeding apace, as and innovative financing and knowledge services witnessed by the recent Mentawai tsunami and have helped to begin to change institutional Merapi volcanic eruption. WBG investment in transportation, water and energy is expected to accelerate. (Photo: Antara) Country Partnership Strategy Progress Report for The Republicof Indonesia 21 Financing during the remaining two years is in a number of social and economic areas including expected to remain largely within the original health, labor participation, political representation, parameters. During the first two years of access to legal justice, as well as development implementation, excluding the DDO, annual average planning processes. The World Bank Group has IBRD commitments have been around $2.5 billion, in been working actively with the Government on line with the higher range anticipated in the CPS. programs to help remove barriers to gender equity With increased demand in investment lending, as noted in the assessment of engagement areas particularly for infrastructure, over the remaining and in Appendix 4. However, mainstreaming gender two years of the CPS could push overall lending to equity issues across the portfolio will require a more US$2.8 billion annually. This higher lending would comprehensive effort. Moving forward, based be within current IBRD risk parameters for exposure on these experiences and in order to enhance during the rest of the CPS period. effectiveness and increase support for GoI efforts in gender equity issues over a broader range of Donor Collaboration instruments and sectors, the World Bank Group has initiated a process of developing a Gender Financing and knowledge services are augmented Strategy to mainstream gender equity, as detailed by strong collaboration with an active donor in Appendix 4, and orient the implementation of the community in Indonesia. Co-financing of investment CPS for the remainder of the period and beyond. and policy lending, including active participation in dialogue, and grants involve a broad range of Managing for Risks multilateral and bi-lateral donors, as well as NGOs. Indeed, this collaboration has helped the World Bank Risks identified in the CPS included political, Group partner in close institutional engagements socio-economic, anti-debt sentiment, reform across the CPS. Most DPLs are co-financed, as are implementation, and governance and corruption several operations and a large number of ESW and risks, as well as those concerning World Bank Group TA are supported by grants. As a critical component performance. They remain as potential threats to of the business model, as noted, management effectiveness of the Bank’s country work and the of trust funds has been strengthened and they sustainability of development outcomes. The increasingly contribute to the CPS objective of Presidential re-election has enhanced democratic strengthening institutions rather than substituting consolidation, strengthened political stability for core Government functions or preempting and the sustainability of the reform effort. The the development of local institutional capacity. administration’s approach is to seek consensus in Moreover, the Bank remains pledged to the Jakarta responding to the main development challenges, Commitments, which provide a set of country- but with such an approach delays and perhaps specific principles to enhance harmonization and some setbacks may occur. Notwithstanding the alignment of funding from various development ongoing peace-building process in Aceh and the partners in support of priority Government maintenance of political stability throughout programs in line with the Paris Declaration for donor the archipelago, ethnic and religious tensions coordination. may resurface and regional disparities could be accompanied by local conflicts. The CPS noted the Gender Equity risk of external shocks but that Indonesia’s resilience to such shocks has increased. For the recent crisis, Despite a relatively positive national framework for this assessment remains valid. However, a double gender equity, women in Indonesia lag behind men dip global recession and more protracted slowdown 22 Investing in Indonesia’s Institution in global growth remain a risk. In addition, although continually being strengthened. A key focus of the better prepared than in 2004, the country remains bank’s ongoing GAC efforts is to integrate effective vulnerable to natural disasters and their social governance features into government programs costs. Concerns over the use of foreign financing (see Annex 3). to support the Government budget continue to generate opposition to foreign loans, in particular Finally, as regards World Bank Group performance from civil society groups. Anti-debt sentiment also risks, Indonesia sets high performance standards and exists in the legislature, undermining potential has access to an increasing number of sources for support for budget support operations. At the meeting its financing and technical assistance needs. same time, as noted, Indonesia’s debt management The recent international crisis demonstrated the remains strong by international standards. The ability of the Bank to deliver quickly on knowledge capacity to implement complex institutional and contingent financing, which was well received. reforms and take decisions that involve multiple Indonesia was also a successful pilot for the Bank’s government departments and jurisdictions remains investment lending reform which together with a serious challenge, validating the focus of the CPS a programmatic approach for both financing and on institution-building to provide the technical knowledge services have increased our flexibility assistance and support for the Government’s own and responsiveness. Our strong collaboration reforms. Fiduciary risks remain significant and with donors and a continuing strong flow of grant are likely to increase with engagement at the sub- financing, to date, has significantly enhanced the national level. Investing in larger government-led breadth and depth of our engagements as well programs increases the risks of the World Bank as helping to increase the overall effectiveness of Group being associated with a program which may development aid in Indonesia. Nevertheless, the be tainted by corruption. Hence, the World Bank focus on supporting institutional development is a Group is applying this approach only to areas where significant and long-term challenge, as it involves the authorities are committed to effective fiduciary more than technical support and will require changes oversight and credible and anti-corruption measures. in behaviors and organizational culture as well, For the Bank’s own portfolio, a comprehensive underscoring the need for sustained engagement governance and anti-corruption risk management by the World Bank Group. framework have been in place since 2003 and are Indonesia sets high performance standards and has access to an increasing number of sources for meeting its financing and technical assistance needs. Country Partnership Strategy Progress Report for The Republicof Indonesia 23 APPENDICES AND ANNEXES Appendix 1 CPS Progress Report: Result Matrix Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes Cross-cutting Engagement Area 1: Central Government Institutions and Systems Strengthen The budget The new RJMNP 1. Improved results orienta- • Revised program Financing: Public Ex- central system is input- represents an tion in the budget process. structure for RPJM penditure Support Facil- government based, exces- important step Baseline: Budget allocations 2010-14 specifies ity - DPL DDO; GFMRAP institutions sively detailed forward with based on organization, measurable results and Knowledge: Budget and systems and inflexible measurable re- detailed types of expendi- targets aligned to or- Reform in Indonesia; to enhance and strictly an- sults and targets ture, functions, programs ganizational structure. Ongoing: Improving public finan- nual, hampering indicators and and activities; budget Completed Intergovernmental cial manage- implementation the CY11 annual documents include mac- • Standing order for vire- Framework; Intergovern- ment and of multi-year budget is more roeconomic projections of ments allow spending mental Transfers; Agric governance projects strongly to the aggregate expenditures ministries to reallocate R&D Public Expenditure to increase planning process. and revenues, but the bud- between spending Analysis; DPR FY08; PETS the develop- get preparation process units, activities, some HIV/AIDS; Development ment impact remains strictly annual with economic categories Strategy; Spending for of priority no reference to forward and location within a Devt; Agriculture PER; budget expen- estimates for outer years. given program without Social Protection PER; ditures for a Targets: Results-oriented prior MoF approval. Infrastructure PER; East competitive, programs with measur- On Track Java Growth Diagnostic; inclusive, and able results becoming • Progress towards a Aceh Dialog Economic sustainable the main units for budget point where budget Policy; PEFA Follow-up; Indonesia. allocation and control, with documents present promoting Devt Effec- other classifications (by current budget year tiveness; organization and/or type of estimates and forward expenditure) being applied estimates for two outer selectively at an aggregate years. On Track level. Government The staged imple- 2. Effective operationaliza- • Inclusion of major Financing: GFMRAP cash balances mentation of a tion of TSA, together with revenue accounts Knowledge: National are fragmented Treasury Single strengthened and timely into the TSA regime. Single Window and there is Account (TSA); cash plans from the line Completed limited informa- the establishment ministries. • Contract signed for tion available of cash forecast- Baseline: TSA extended to procurement of new for efficient ing capacity; the all expenditure accounts Treasury and Budget management of development but not yet to the revenue system. On Track cash; treasury of accounting side. Very rudimentary cash • Progressive inclusion operations are standards to planning that is not based of remaining cash currently man- provide for a on expected disburse- balances of central aged through “cash towards ac- ments. government institu- fragmented data crual� accounting Targets: Comprehensive tions into the TSA collection and framework; the TSA coverage of all major regime. On Track consolidation on-going inven- government cash balances, • Treasury enforces systems which tory of govern- including the revenue side. quarterly cash plan- have limited ment assets. Maximum 10% deviation ning in the line minis- capacity to pro- in line ministries’ quarterly tries. On Track duce reliable and cash plans compared with • Progressive implemen- timely informa- actual cash flows. tation of the Integrated tion on budget Financial Management execution. System in the Treasury starting with 5 pilot ministries. Delayed 26 Investing in Indonesia’s Institution Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes Controls in Improvement of 3. Effective and reliable imple- • COSO control frame- Financing: GFMRAP budget execu- internal controls mentation of State Treasury work piloted in 3 select tion processes and internal and and Budget System (SPAN) line ministries provid- are generally external audit reform, as evidenced by ing better understand- inadequate and systems, and timely and accurate finan- ing of the challenges could jeopar- more timely and cial reporting. on internal control in dize gains from reliable financial Baseline: PEFA indicators: PI line ministries. De- improvements reporting is 18 on effectiveness of pay- layed but expected made in other evidenced by an roll control is at D+; PI 20 • On payroll controls, areas of PFM important reduc- on effectiveness of internal an initial design of an tion in qualified controls over non-salary information system audits. expenditure is at D+; PI 25 which links BKN and on quality and timeliness of MDAs is produced. De- annual financial statements layed but expected. is at C+. Targets: PEFA indicators: PI 18 to rise to C; PI 20 to rise to A; and PI 25 to rise to A. Improve- 4. More efficient tax adminis- • Double entry for Financing: PINTAR ments in tax tration through: increased registration process in- administration number of accurate tax- troduced. Completed are hampered payer registration records • Centralized registra- by inefficient in the registration database tion system introduced registration, using third-party data Completed returns process- and call centers; increased • Registration master file ing, document number of comprehensive cleaned up of errone- management, and risk-based audits of ous records and dupli- and limitations taxpayer declarations; re- cations. Completed in the basic IT duced tax arrears through • Development of tax- infrastructure. better and more accurate payer risk assessment taxpayer accounts and col- models. Completed lection procedures. • Determination of reli- Baseline: (i) 40% accuracy able arrears informa- (2007; based on total of 11 tion. Completed million taxpayer records); • Contract for procure- (ii) regular audits are ment of core tax limited to VAT refunds; (iii) administration system processes to collect arrears signed. On Track not classified into collect- • Progressive develop- able and non-collectable ment and imple- items; collection enforce- mentation of core ment is ineffective. tax administration Targets: (i) 100% accuracy; systems. Delayed but (ii) DGT conducts compre- expected hensive audits expanding • Progressive implemen- the number of returns tation of risk-based exposed to compliance audit management. programs; (iii) effective Delayed but expected procedures in place to • Implementation of collect arrears resulting systematic collection in reported arrears not program. Delayed but exceeding 5% of declared expected tax liabilities. Country Partnership Strategy Progress Report for The Republic of Indonesia 27 Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes The public The establish- 5. Improved regulatory • LKPP fully staffed and Knowledge: CPAR; Pub- procurement ment of a new framework; higher capac- functional. Completed lic Procurement Reform system still has procurement ity levels at national and • Revision of Keppres significant defi- agency; issu- provincial levels, and 80/2003 and issuance ciencies in terms ance of national establishment of profes- of national standard of improving standard bidding sional procurement units bidding documents. the regulatory documents. in implementing agencies; Completed framework and improved quality of • Development of a implementation procurement audit and ef- capacity building strat- tools as well fectiveness of sanctions. egy. Completed as capacity of Baseline: (i) No procure- • Support to capacity procurement ment law is currently in building program pro- practitioners; place and there is no set of viders at the national collusion and national standard bidding and provincial level. corrupt practices documents; (ii) there is no Delayed but expected in the bidding clear capacity-building • Procurement units process continue program and percentage established at selected to exist, causing of government staff pass- implementing agen- leakages and ing the certification test is cies. Delayed but losses in the still below 15% (mid-2008); expected system. (iii) sanctions on colluding • Strengthening the firms are relatively limited procurement audit and do not apply outside functions in IGs and the implementing agency BPKP. On Track where collusion occurs. • Procurement regula- Targets: (i) Procurement tions enacted. Com- law and associated tools pleted are issued; (ii) capacity- • Professional procure- building program in place; ment stream is estab- (iii) sanctions provide a lished in implementing deterrent for colluding agencies. Delayed but firms. expected Increasing 6. Improved quality and • All sub-districts statis- Financing: STATCAP demand for im- timeliness of key statistics tics officers equipped Knowledge: Improved proved quality, produced by BPS, e.g., with GPS technology. Evidence Base (PERDA); timeliness and national accounts data, Delayed but expected Improving Poverty responsiveness poverty data, etc. • Sixty-six city offices Data Quality; Support of data availabil- Baseline: (i) Inconsisten- connected by wide Enhanced Analysis & ity are hampered cies between BPS statistics area network. Delayed Monitoring; Support by poor ICT in- from various different but expected Establishment of Crisis frastructure and sources; (ii) low levels of • Business process re- Monitoring; Planning & data manage- user engagement and con- engineering conducted Performance Measure- ment, and inef- fidence, and (iii) prolonged for 5 product lines. ment; Data for Monitor- ficient business data production timelines. Delayed but expected ing; processes. Targets: (i) National • Methodology reviews accounts move from conducted for 5 prod- 1968 System of National uct lines. Delayed but Accounts (SNA) to 1993 expected SNA; decreased discrepan- • Data warehouse pro- cies between statistics totype designed and from different sources; (ii) developed. Delayed increased level of user sat- but expected isfaction and confidence, • Corporate Training and (iii) reduced time lags Strategy developed between collection and and implemented data dissemination. for new information management systems. Delayed but expected • Quality assurance mechanisms estab- lished and imple- mented. Delayed but expected 28 Investing in Indonesia’s Institution Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes Cross-cutting Engagement Area 2: Sub-national Government Institutions and Systems Strengthen lo- Insufficient co- Bappenas, MoHA, 1. An improved fiscal decen- • Enhanced engagement Financing: DAK I&II; cal government ordination and and MoF meeting tralization framework with with central govern- ILGR; USDRP; SPADA; institutions leadership of the regularly with incentives for accountabil- ment agencies on the TF: SPADA in Aceh/ to improve decentralization DSF as platform ity. fiscal decentralization Nias BOS, and Climate accountability agenda at the for decentraliza- Baseline: Fiscal framework framework. On Track Change DPL, Decentral- and increase central level; tion agenda at distorts incentives, limits ization DPL the level and a limited and the central level. own source revenues and • Additional financing, impact of unclear role for Representatives restricts financing with possible policy- public spend- the provinces. of LG associations Target: Coordinated effort based, performance- Knowledge: DSF stud- ing on service included. to defined new framework based and PFM focused ies on delivery. A fiscal de- underway; DAK ap- operations. To be Territorial Reform; Sub- centralization Program to proach tying transfers to initiated national Surplus and framework that promote account- performance initiated; BOS Reserves; Sub-national does not provide ability issues and decentralized; improved • Successful transition Borrowing; Sub-national appropriate set the stage to capacity of citizens to as- of the BOS program to Capital market develop- incentives for improve financ- sess and monitor (PEACH). LGs. On Track ment; increased and ing and fiscal Local Government and higher quality framework (DAK). 2. Improved infrastructure • PEACH expanded. On Urbanization; Sub- spending. spending at the LG level track national PER; Baseline: Limited access by Public Expenditure Weak capacity of Decision to sub-nationals to financing • JEDI and DAK II un- Analysis and Capacity local govern- decentralize BOS of infrastructure and urban derway, and follow up Development; PEACH TA ments (LG) to taken. Program projects, lack of focus on operation under devel- Capacity Building manage assets to support sub- urban issues opment. On Track. and service national expendi- Target: Financing of delivery. ture and capacity sub-national infrastruc- • Engagement on urban harmonization ture underway through issues, including steps (PEACH). sector-wide approaches toward program sup- or specific urban projects; port for 2nd tier urban Jakarta Flood LG capital spending on the cities. To be initiated Project under increase; An inadequate preparation as framework for precedent for and insufficient infrastructure financing of financing. multi-year large scale infrastruc- ture programs. Country Partnership Strategy Progress Report for The Republic of Indonesia 29 Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes Core Engagement Area 1: Private Sector Development Enhance the Financial The overall finan-1. Strengthened private and • Banking lending Financing: Land Mgmt environment intermediation cial sector stabil- financial sector through: consistently increases Policy Devt for private is low; non bank ity and sound- better regulatory frame- higher than annual Knowledge: Completed: sector develop- financial institu- ness have been works; improved invest- inflation rate and LDR Support to Financial ment to foster tions and capital maintained since ment climate; stronger reaches 70% (2008) Sector Policy; Ongoing: accelerated markets are 2008. Banks and bank and non-bank finan- and increases 5% an- Understanding Labor growth and small; type and non-bank finan- cial institutions. nually thereafter. On Market, Review on KUR poverty access to finance cial institutions Baseline: Key financial Track (Kredit Usaha Rakyat): reduction and limited; limited have continued ratios of banks are sound; • Steady increase of Government Partial strengthen long-term do- to grow their as- LDR 60%; 35% of house- mutual fund assets Guarantee program; competitive- mestic financial sets, despite the holds have access to bank and amount of capital Improving access to ness and resources and global financial accounts; saving, invest- raised through equity Financial Services in inclusiveness. lack of local crisis. ment and risk manage- and bonds market IPO. Indonesia Empowering infrastructure ment products relevant On Track Female Migrant Workers; financing exper- By June 2010, to poor and vulnerable • Mainstreaming the Anti-Corruption Har- tise. the LDR reached population are limited. results of national ac- monization; Corruption 75.3% and BI Targets: Key financial ratios cess to finance survey Eradication; Enhanc- expects annual of banks remain sound in government policy. ing Demand for Legal loan growth of and LDR reaches minimum On Track Reform; Anti-Corruption around 200% in 80%; NBFI assets as • Higher penetration of Institute 2010; Loans to proportion of loans to SME pension and insurance. IFC: IFC investments in SMEs increased doubled; minimum of 45% On Track banks and micro finance by 16.3% in 2009; of households have a bank • More efficient and institutions. IFC Advi- Based on nation- account; infrastructure effective credit bureau sory Services – Access to wide household finance institution estab- operations facilitate Finance Program, Invest- survey, 41% of lished and well function- greater SME access to ment Climate Program households have ing. Increased efficiency finance. On Track including ongoing a bank account and coverage of credit • Collateral registries support to Credit Bureau in their name; bureau; increased lending functioning nationally and Moveable Collateral The penetration against secured movable and sub0nationally registry. of NBFIs in the collateral. to facilitate access to economy has in- credit secured by creased from 21% movable collateral. On of GDP in 2008 to Track 24% in 2009. Sub-national Sub-national Do- 2a.Improved capacity of • Improved monitoring IFC: Ongoing Sub government pro- ing Business Sur- sub-national governments and evaluation capac- National Doing Business cesses are slow, vey Round 1 has to support business opera- ity of effectiveness of Survey Round II; Com- cumbersome been completed tions through introduction licensing offices by pleted Investor Policy and lacking in with the Doing of less cumbersome districts or provincial and Promotion program; transparency Business in Indo- procedures for business government. On Track Ongoing licensing nesia 2010 report start-ups and licensing. • Passage of national reform at DKI Jakarta. launched in Baseline: Sub-national Do- laws that affect and December 2009. ing Business (DB) study of improve national and Findings have 15 cities and other baseline sub-national gov- been presented studies. ernments’ business to key national Targets: Reduction in time licensing processing. stakeholders and and cost of start-ups and On Track consequently licensing of 50% in client • Reduction of time and have been re- cities. 40,000 businesses procedures to obtain ferred to publicly completing a new re- business licensing in by national agen- formed procedure, leading select WBG’s sub- cies, including the to 10% increase in the national clients, e.g., Minister of Home value of aggregate private DKI Jakarta Province. Affairs. sector savings from 2010 On Track baseline (currently being established). 30 Investing in Indonesia’s Institution Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes Sub-national 2b.Improved capacity of sub- Investment Gen- national governments to eration Project, attract and retain investors investor facilita- (Investment Generation). tion, aftercare, Baseline: Absence of the policy advocacy use of investor track- and basic location ing system and client marketing in two relationship management provinces. approach for investment generation. Absence of a guideline for effective investor facilitation, after- care, policy advocacy and basic location marketing. Targets: Demonstrated implementation of investor tracking systems and client relationship management approach in two provinces. Development of guide- lines for effective investor facilitation, aftercare, policy advocacy and basic location marketing. Complex regula- Coordinated 3. Improved regulatory envi- • Regular monitoring Knowledge: Regulatory tory environ- investment policy ronment and interagency and public announce- Reform, National Single ment inhibits through PEPI coordination in the devel- ment of company start- Window, Investment private sector including: (i) PP opment of investment poli- up time; VAT refund Climate Monitoring investment; consultations an cies. time; and container Survey, IFC Advisory time consum- revised Invest- Baseline: 105 days to start a dwell time. On Track Services – Investment ing and costly ment Negative company; weak consulta- • Progress towards a fully Climate Program. procedures List; (ii) Indepen- tive processes prior to staffed and functional to establish dent cost-benefit issuance of regulations; professional secretariat companies, pay analysis of FDI inadequate links between for PEPI. On Track taxes, and clear restrictions; (iii) customs and other govern- • Monitoring of regulato- imports; weak Investor problem ment agencies participat- ry, data, IT and business coordination solving, policy ing in INSW; uncoordinated process harmonization among govern- consultations and investment policy. and streamlining for ment institutions advice; and (iv) Targets: 50 days to start a each GA in the INSW. for investment PEPI secretariat company; 2 months to re- On Track policy. transitioned from ceive VAT refund; improved bank execution links between customs to government and other Gas through execution. the single submission and synchronous processing Indonesia of information through National Single INSW; coordinated invest- Window (INSW) ment policy through PEPI; portal; improved improved DB rankings. transparency of trade regulations and procedures for import clear- ance. Doing Business (DB) ranking improved from 129 (2009) to 122 (2010). Business start-up time improved to 60 days to start a company from 105 days. Country Partnership Strategy Progress Report for The Republic of Indonesia 31 Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes Policy decisions Four specialist 4. Strengthened institutional • At least 3 specialist Knowledge: Program are taken with- teams have been structure and capacity of teams are set up and to Improve Indonesia’s out sufficient established: the Ministry of Trade to fully staffed by Ministry Trade Policy; Capacity analysis of alter- (i) Public Rela- enable it to develop and of Trade staff and advi- Building on Trade; Indo- natives and of tions Center; (ii) implement more effective sors. Completed nesia Domestic Trade their costs and Logistics Team; trade policies. • Specialist teams are benefits; lack (iii)Trade Fair Baseline: Absence of involved in the devel- of specialists to Team; (iv) Trade specialist teams that can opment of analysis for provide informa- Monitoring Team provide the required level policy decisions. On tion at the level of analysis for policy deci- Track required; weak sions. • Issuance/amendment coordination be- Target: At least 4 special- of regulations that are tween research ized teams embedded in considered to improve units and policy their respective DGs in the the trade business units. Ministry of Trade providing climate. On Track analytical support for the development of domestic and international trade strategies and for rapid policy response; the teams engage effectively with their policy counterparts in the Ministry. Transparent Regulations 5. Improved access to mar- • Steady increase in Knowledge: IFC Advi- and efficient and procedures kets for Indonesian busi- investment in direct sory services – Agribusi- linkages among for national nesses in select commodity sourcing by lead firms. ness Linkages Program. smallholders, warehouse or industry-based sectors. On Track SMEs and rural receipts system Baseline: SMEs/entre- • Business linkages or businesses and developed in preneurs/farmers have forums created to commercial mar- conjunction with little direct access to large facilitate lead firm/SME kets are weak. Ministry of Trade markets. linkages. On Track and Industry. Target: New investment/ • Improvement in price Two-thirds of financing for SMEs in discovery mechanisms Indonesians Identification of supply chain; increased of agricultural com- live in rural partners with SME contracts with large modities via warehouse areas and nearly which to further firms; increased sales and receipts system. On 50% of those promote and incomes for impacted Track are involved develop agricul- firms; price transparency • Improving SME compe- in agriculture- tural commodity- increases. tency to comply with related activities. related financing market standards. On Smallholder .. Agreement to 6. Improved market access Track farmers typically study coffee and and long-term sustain- have a limited cocoa supply ability for smallholders understand- chains and design by connecting them to ing of how to financial products selected firms (known as engage in com- for smallholders.) ‘lead-firms’) that are seek- mercial supply ing secure and growing chains; poor bar- Training center supply sources. gaining position, for smallholder Baseline: Long supply limited access to coffee grow- chains comprising many broader market ers in Sumatra middlemen with limited information, established with access for smallholders to limited incen- sponsorship from markets, information and tives/capacity to international cof- technology. adopt improved fee off-taker. Target: Shorter supply farming and chains with direct access good environ- for smallholders to lead mental practices. firms, improved access to quality seedlings, price information and farming technology. 32 Investing in Indonesia’s Institution Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes Core Engagement Area 2: Infrastructure Increase the Lack of invest- Public investment 1. Increased quantity and • Increase in sub-na- Financing: 2nd Eastern level and ef- ment in infra- back to pre-crisis efficiency of national and tional budget (APBD) Indonesia Region Trans- ficiency of pub- structure, which level (1997), but sub-national government capital expenditures by port; Strategic Road lic and private has not kept problems in spending on infrastructure 20% over 2005 level. Infrastructure; Java-Bali investments in pace with eco- execution and through improvements in On Track Power Restructuring; infrastructure nomic growth; efficiency reduces subsidy policy, incentives • 35% of urban popula- Domestic Gas Market to meet needs investment in the actual impact. framework, and expendi- tion with access to Devt; Infrastructure and strengthen infrastructure fell ture planning and budget- piped water. compared Finance Facility; Water competitive- from about 6% ing. with 31% in 2006. On Resources and Irrigation ness. of GDP in 1997 Baseline: Actual spending Track Sector Mgmt; Dam to 2% in 2000, on national infrastructure • 60% of population with Operational Improve- and was only was Rp 18.9 trillion in 2006. access to electricity ment; WSSLIC II; WSSLIC 3.2% in 2005. Target: Actual spending compared with 55% in III; Urban Water Supply on national infrastructure 2003. On Track & Sanitation TF: Aceh increased by 25% over • 86% of national roads Community Settle- 2006 level by 2010. remain in good/fair ment Reconstruction; condition compared Geothermal Power with 81% in 2006. On Generation; Aceh IRFF; Track Aceh Infrastructure Re- construction Enabling; Indonesia’s Perpres Revised 2. Increased private invest- • PPP transactions Jogya Community Based infrastruc- ment in infrastructure tendered Delayed but Settlement Rehab; Aceh ture delivery Project develop- through the establishment expected Econ Devt Financing requirements are ment on geother- of a fiscally sound, credible • Private sector financial Facility; Livelihood Re- massive, and be- mal Independent and transparent PPP frame- commitments to pri- construction Yoga/Java; yond what can Power Producers . work. vate infrastructure proj- PAMSIMAS Support; be supported Baseline: Private sector ects increase to 0.75% NTB River Basin; W&S through public financial commitments of GDP compared to Program investment. to private infrastructure 0.5% in 2005. Delayed Knowledge: Completed: projects were 0.5% of GDP but expected Papua Infrastructure in 2005. • Bankable geothermal Strategy; Ongo- Target: Private sector IPPs, mobilization of ing: Surabaya Water financial commitments private sector funding Management Strategy; to private infrastructure to improve access to Assessment of Road projects increase to 0.75% electricity services for Construction Indus- of GDP by 2010. 750,000 to 3.7 million try; PPP Framework people. Delayed but and Policy; Financing 3. Availability of bankable expected Initiative WASAP II; Power Purchase Agree- • Letter of Intent on geo- Low-income Housing ment (PPA) and robust thermal with West Java Policy and Finance; pricing formula. Improved Province. On Track Geothermal Power Sup- capacity of relevant gov- ply; Energy Sector Policy ernment agencies to con- Dialog; Infrastructure duct tenders and to serve Guarantee Fund; Timely as a model for subsequent Land Acquisition for geothermal IPPs. Infrastructure Devt; Tele- com and ICT Advisory Support; Telecom and ICT Policy Advice; Value of a Well Run Water Util- ity; Telecoms/ICT devt TA; Building Blocks for E-Govt Capability; WSP Program Administration; WSP Advisory Support; Aceh-Nias W&S Facility; IFC Advisory Services – Public Private Partner- ships. Country Partnership Strategy Progress Report for The Republic of Indonesia 33 Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes Core Engagement Area 3: Community Development and Social Protection Reduce pov- Around 110 PNPM coverage • 1. Improved socio- • Improved household Financing: Third KDP; erty levels and million people being expanded economic and local level expenditure rates or Urban Poverty II; Urban improve equity still live under as an effec- (kelurahan-wards) gover- improved access to Poverty III; PNPM Urban; by improving US$2 a day tive, targeted nance conditions of the economic and social PNPM Urban III livelihoods (Bank estimate); approach to ac- urban poor through wider services in 7,800 wards Knowledge: Pov- and service large number celerate poverty implementation of poverty ( at 6,240 (80%). On erty Reduction Through delivery, and of urban and alleviation. reduction and community Track Economic Governance; decrease rural poor due to empowerment programs • Infrastructure built is Strengthening Local remaining lack of income for income generation or 20% less expensive Capacity for Poverty; pockets of and inadequate grants for tertiary level than that built by PNPM Mandiri Capacity vulnerabilities productive infrastructure. non-community based Building; to strengthen employment approaches in 80% of inclusiveness. opportunities; Extreme poverty 2. Improved socio-economic participating wards. On Financing: PNPM Rural; lack of quality rate: and local-level (kelurahan- Track PNPM Rural III; FEATI; TF: Target: Reduce service delivery 14.2% (2009) wards) governance in • EIRRs >30% for major KDP Nias extreme pov- to poor people; 13.3% (2010) rural areas through wider rural infrastructure Knowledge: Completed: erty headcount wide regional implementation of poverty types in PNPM wards . Sustainable Economic down to 8-10% disparities (par- reduction and community On Track Devt Strategy for Aceh; by end-2014 ticularly, eastern empowerment programs • 80% satisfaction Policy devt for PNPM; from 15.4 % provinces); poor and the provision of invest- level of beneficiaries Ongoing: Targeting (2008). are vulnerable ment resources to support regarding improved Performance of Poverty to shocks such productive proposals services and local Programs; MIS Improve- as food price in- developed by communi- level governance (92% ment for PNPM; Cost creases, natural ties, using a participatory (PNPM-Rural 7/31/09) Accounting Review for disasters. planning process. On Track CDD; Poverty Dialog on Baseline: Poverty rate of • Improved HH Pro-poor and Pro-jobs; 16.7% in 2007. expenditure rates CDD; PNPM Communi- Target: Poverty level de- and improved access cation Strategy; PNPM creased to 12% by 2012. to economic and Strategic Directions; social services in a PNPM General Pilot; PNPM-Rural targets: Infant minimum of 2,500 poor SP Program Design immunization: 61.2%; sub-districts (4,371 and Implementation; assisted deliveries: 69.5%; (PNPM-Rural 7/31/09). Helping Generate Jobs primary enrolment: 99.5%; On Track for Pro-poor Growth; junior high enrolment: 72% • Improved health and M&E TA; Alternative education indicators in Mechanisms for Service 130 wards in 5 provinc- Delivery; PNPM M&E; In- es through the PNPM tegrated MIS for PNPM; Generasi CCT pilot: CPDA Program Mgmt & Infant immunization: Admin; 53.2%; assisted deliver- 3. Public expenditures made ies: 64.7%; primary Knowledge: User Fee more pro-poor by reduc- enrolment: 88.2%; Assessment for CDD; ing fuel subsidies and junior high enrolment: Minimum Services reallocating the savings to 62.1% On Track Standards; strategic targeted interven- • Performance-based tions for the poor and DAK introduced. On successful implementation Track of CCT. • MIS established for Baseline: 3.8% of GDP at checking fulfillment of US$83/bbl. CCT program. On Track Target: Fuel subsidies • Expansion of CCT cov- decreased by 50% and erage areas. On Track resources re-allocated to- wards pro-poor programs, amongst others. 34 Investing in Indonesia’s Institution Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes Establishment 4. Integration and imple- • Establishment and As above. Also DPL7-9 of the National mentation of poverty and implementation of Team for the social protection programs a national targeting Acceleration of is improved in order to system and integrated Poverty Reduc- increase effectiveness management informa- tion to integrate and efficiency; policy and tion system (MIS). and coordinate program decisions are Delayed but expected national poverty informed by poverty data • National shock and vul- reduction policies monitoring and analytics. nerability monitoring and programs and response system is (Presidential Target: Increased benefits established. Delayed Regulation No. coverage for poor men, but expected 15/2010). women, and children • Increased frequency, (decreased inclusion timeliness and acces- and exclusion errors, sibility of socio-eco- increase in number of nomic and labor data. poor households receiving Delayed but expected benefits, increase in poor households’ share of total benefits). Core Engagement Area 4: Education Sector Improve basic Lack of afford- ECED standards 1. Improved development • Increased community- Financing: BERMUTU; education to able ECED issued. of poor children between based ECED services Early Childhood Educa- achieve MDGs services, par- the ages 0 to 6 in selected in selected provinces. tion and Devt; BOS-KITA; on primary ticularly for the provinces: Percentage of 6000 villages have Higher Education HERE; enrollment poor. malnourished children adopted a community Health Professional Edu- rates and aged 0-6 decreases. based approach to de- cation Quality; TF: Basic literacy targets Baseline: 27% of children livering ECED services. Education Capacity and improve underweight (2001). On Track Knowledge: Teacher the quality of Target: 20%. • Establishment and Management; Youth education to utilization of standards Skills & Devt; Education enhance com- for early childhood Sector Dialog & Strat- petitiveness development services. egy; School Based mgmt and inclusive- On Track Study; Education Sector ness. • ECED standards are is- Assessment; Information sued and used in more Education & Communi- Reduce than 10 provinces. On cation; prevalence of Track infant nutrition • Reduction in absentee- deficiency: to ism of teachers: Target: <15% from to reduce absenteeism 18.4% in 2008. to 10 percent from 19 percent (2002 survey). Low quality of Absentee level of 2. Increased number of basic On Track basic education. 12% in BERMUTU education teachers meets • Perverse incentives districts academic qualification for districts on teacher mandated by the Teacher hiring abolished. On Law. Track Baseline: 30% of teachers in primary and junior second- ary schools hold S1 degree or more. Target: 70% of teachers hold S1 degree or more. Country Partnership Strategy Progress Report for The Republic of Indonesia 35 Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes Inefficiency of 3. Improved efficiency and spending result- equity in the use of re- ing from weak sources to increase access management to basic education; inef- of education at ficiencies resulting from the district and excess supply and unequal school level un- distribution of teachers der incomplete are reduced: oversupply decentralization of teachers as measured framework. by student-teacher ratio (STR) in basic education is reduced. Baseline: Primary STR=20 and junior secondary STR=14. Target: Primary STR=26 and junior secondary STR=22. High out-of- 4. Greater share of public • Increased size and im- pocket cost at all education resources chan- proved management levels of educa- neled to end-users making of BOS. On Track tion. basic education afford- • Reduced household able for poor students expenditures on reg- and increasing secondary istration fees, tuition education enrolment. fees, tests/ examina- 4a.Average annual cost tions, books, learning per student in primary support materials and and junior secondary for stationery. On Track children in poorest quintile decreases. Baseline: Rp 182,810 for primary and Rp 416,010 for secondary per student per year at 2006 prices (Susenas, 2006). Target: Through co-financ- ing of the BOS program, Rp 150,000 for primary and Rp 250,000 for secondary per student per year at 2006 prices. 4b.Net enrolment in second- ary education (junior and senior combined) increases. Baseline: 57% (2007). Target: Through co-financ- ing of the BOS program, increase to 70% (2012). 36 Investing in Indonesia’s Institution Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes Lack of com- Tracer studies 5. Improved training pro- • Improved curriculum petitiveness of underway. grams and higher educa- in higher education graduates of tion system: institutions and private the education 5a.Institutional accredita- sector training provid- system. tion awarded to higher ers. On Track education institutions and private sector training providers. Baseline: 215 private sec- tor training institutions accredited, and no higher education institutions ac- credited. Target: 430 private sector training institutions ac- credited and 5% of higher education institutions accredited. 5b.Regular tracer studies of university graduates and graduates from job train- ing programs to establish their subsequent position in the labor market. Baseline: Tracer studies not yet in place Target: Tracer studies in place. Lack of informa- 6. Improved information and • Regional Independent tion, and weak better implementation, Monitoring survey of monitoring and monitoring and evalua- BOS implementation evaluation of tion of education funding completed. On Track education fund- through the BOS-KITA • TRIMS operating in ing. program. selected regions. On Baseline: No system- Track atic, regular independent monitoring of education funding. Target: School and district information system (TRIMS) established. Country Partnership Strategy Progress Report for The Republic of Indonesia 37 Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes Core Engagement Area 5: Environmental Sustainability and Disaster Mitigation Strengthen Lack of coordina- Issued and began 1. Assist GoI in building • Climate change coor- the capacity tion of fragment- implementa- needed coordination dination mechanism of the country ed, overlapping tion of master mechanisms and institu- established. On Track to adapt to and decen- plan on peat tions for climate change • Regulations on climate change tralized land land rehab in management to meet geothermal business and address use authority Central Kaliman- targets. Support Indonesia issued. On Track environmental hampers ability tan. Launched in accessing and utilization • National energy plan challenges to to manage forest National Readi- of international financ- issued. Completed ensure sustain- and peat lands., ness Program for ing. Promote renewable • Energy law regulations ability. and exploitation REDD. Completed energy. Target being issued. Completed of renewable en- Participation developed. • Climate change actions GHG emission ergy resources. Agreement with incorporated in medi- reduction Forest Carbon um-term development of 26% by Financing Part- plan. Completed 2020. Rehab nership Facility. • Actions budgeted and 500,000 ha/ Signed Letter of under implementation. year and avoid Intent for REDD. On Track acceleration of • Central Kalimantan deforestation. peat land master plan being implemented. On Track • Peat land inven- tory, baseline and risk analysis completed. On Track • Ministerial decree and guidelines for REDD program. Completed • REDD “readiness� achieved On Track Limited incen- 2. Creation of viable forest • Pilot implementation tives for firms to plantations on degraded of two forest carbon develop forest lands in frontier areas with projects with forest plantation and combined objectives of plantation firms and climate change producing timber and local communities. On mitigation pro- climate change benefits Track gram on degrad- by working with forest • Stakeholder engage- ed grasslands plantation firms, sub-na- ment and commu- and to apply tional governments, NGOs, nication strategy for best practices local communities and the sustainable forest because of high broader forestry sector. plantations. On Track costs and risks, Target being developed as well as lack of knowledge and experience in blending forest- based climate change mitiga- tion and com- mercial forestry investments. 38 Investing in Indonesia’s Institution Country Issues and Progress to date Development Outcomes Intermediate WBG Instruments development obstacles Expected to be Influenced indicators/milestones goals (RPJMN) by the WBG to track expected CPS outcomes Enhance Possible duplica- DRR has been 2. Strengthened disaster • National Action Plan for capabilities tion of efforts mainstreamed risk reduction (DRR) in Disaster Risk Reduction to improve due to the pleth- through risk- development planning and issued by Bappenas. disaster risk ora of develop- based planning administration. On Track preparedness, ment partners processes . Baseline: Existing level of • Disaster Management mitigation in Disaster Risk Improved funding for DRR. Agency operational. measures, and Reduction (DRR); capacities in post- Target: 20% increase by On Track post-disaster new Disaster disaster needs 2010 • Local disaster manage- recovery and Management assessment and ment plans prepared reconstruction Agency structure reconstruction . On Track responsiveness may not have • Emergency operations to strengthen the capacity to centers designed and sustainability. mainstream DRR. functional. On Track 3 Strengthen the institu- • Disaster risk reduction tional arrangement and policies, legislation and enabling environment regulations prepared to facilitate participatory and implemented in implementation of disaster selected provinces. On risk reduction. Track Baseline: Current situation is weak and fragmented DRR capacity and policies/ regulations. Target: Improve capacity and operating framework for DRR in target districts/ provinces by 2012. 4 Public awareness program • Five-year strategic implemented to promote a development plans are culture of safety. developed and imple- Baseline: Currently no mented by provincial systematic quality public government. On Track awareness program. • Public awareness Target: Increased public programs developed awareness by 2012. and implemented. On Track Country Partnership Strategy Progress Report for The Republic of Indonesia 39 Appendix 2 Progress Towards the MDGs Overall, Indonesia is well on track to reach most of the secure tenure, which is defined as households who own Millennium Development Goals (MDGs). Indonesia and lease a house, will likely to be achieved too. Indonesia achieved the target of halving the proportion of people is one of the countries that have shown an improvement living on less than US$1 a day to 10.3 percent in 2006. in protecting its environment. This is reflected in a Net enrollment rates for primary school will also be growth in the designation of protected forest areas and met. Indonesia has done very well in reducing gender Indonesia's commitment to use alternative sources of disparities. Significant improvements have been made energy to reduce greenhouse effect. Other indicators in terms of reducing mortality rates for children under are less positive, however. Maternal mortality rate five. The target for the proportion of the population with shows a less then encouraging trend and the country is access to drinking water is likely to be reached. The target unlikely to achieve this MDG target by 2015. Reducing for the proportion of households with access to adequate the proportion of the population suffering from severe sanitation has already been achieved. The target for malnutrition remains a challenge as well. Indonesia’s Progress towards Achieving Its MDGs Goal Targets 2015 Target Value As of On track 1. Eradicate extreme poverty and Halve the proportion of people living under US$1 per day (indicator: 10.3 7.5 2006 Yes hunger proportion of people living under US$1 a day) Halve the proportion of people suffering from hunger (indicator: 8.7 28.2 2005 No prevalence of malnutrition) 2. Achieve universal primary Ensure that all children can complete a full course of primary 100 94.7 2006 Yes education education (indicator: net enrollment in primary school) 3. Promote gender equality and Eliminate gender disparities in primary and secondary education, 100 99.97 2006 Yes empower women preferably by 2005, and in all levels of education no later than 2015 (indicator: net enrollment girls in primary school) 4. Reduce child mortality Reduce by 2/3 the under-5 child mortality rate (indicator: no of U5M 33 40 2005 per 1,000 live births) 5. Improve maternal health Reduce by 3/4 the maternal mortality ratio (indicator: MMR per 105 307 2003 Yes 100,000 live births) 6. Combat HIV, malaria and other Have halted, by 2015, and begun to reverse the spread of HIV/AIDS - 0 .1 2007 No diseases and other major diseases (indicator: HIV/AIDS prevalence) Have halted, by 2015, and begun to reverse the incidence of TB Not available 262 2005 Yes (indicator: TB prevalence per 100,000) 7. Ensure environmental Halve, by 2015, the proportion of households without sustainable 65.5 57.2 2006 Yes sustainability access to safe drinking water (indicator: proportion of people with access to safe water) Halve, by 2015, the proportion of people without sustainable access 65.5 69.3 2006 Yes to basic sanitation ((indicator: proportion of people with access to basic sanitation) By 2020, to have achieved a significant improvement in the lives - 84 2005 Yes of at least 100 million slum dwellers (indicator: proportion of households who own or lease a house) Integrate the principles of sustainable development into country - - - policies and programs and reverse the loss of environmental resources (multiple indicators) 8. Develop a global partnership for In cooperation with developing countries, develop and implement Not available 25.4 2007 No development strategies for decent and productive work for youth. (indicator: youth unemployment rate) 40 Investing in Indonesia’s Institution Appendix 3 Partnering on Governance and Anti-Corruption Introduction Over the past decade, the Indonesian government government level, a previously identified constraint to has made impressive strides on improving public the effectiveness of civil service reforms at the Ministerial accountability. Governance and anti-corruption reforms level. Meanwhile while the KPK continues to set a strong have featured in the programs of successive governments example despite a difficult political environment, threats with early years of “reformasi� focusing on sweeping to its leadership and the Parliament’s apparent intention reforms and constitutional amendments. For example, to jointly terminate the KPK leadership at the end of between 1999 and 2004 press freedom was enhanced; 2011 presents a notable risk. Meanwhile, the police and authority was devolved to the regions; checks and the attorney general’s office continue to be plagued by balances between the executive, legislative and judicial corruption allegations. An emerging concern is electoral branches were strengthened; the role of security forces corruption at both the national and regional level and the (police and military) was redefined; direct elections effect this corruption has on budget and policy decisions. for President and for regional heads were mandated; Given the run-up to the 2014 election this is an area of and an institutional framework to prevent, investigate increasing risk. and prosecute corruption was developed. Civil society played an important role in driving these changes The World Bank and other development partners have with the Partnership for Governance Reform especially played an important role in supporting governance prominent. These years also saw the enactment of reforms in Indonesia The Partnership for Governance foundation fiscal laws and the rearrangement of key Reform led the CSO alliance that supported the critical economic ministries, all designed to improve budget and Government initiatives that transformed Indonesia in financial management systems. the aftermath of the Asian Economic Crisis. The World Bank provided analytical and support including though By 2004, Indonesia was increasing the focus on improving its flagship publication “Combating Corruption in service delivery and consolidating accountability Indonesia�. The World Bank GAC team has been led e by a agencies. This effort built on the legislative foundations senior governance advisor in the Jakarta with a mandate for public financial management, (including public to address both systemic and Bank specific governance procurement, business regulation, auditing and problems (including such things as project specific anti- monitoring and evaluation) and introduced limited corruption action plans). (ministerial level) civil service reforms. The consolidation of accountability continued in the anti-corruption area, However, since 2004 the governance focus evolved. With with the role of the Corruption Eradication Commission sustained economic growth and a solid performance (KPK) especially prominent and high level corruption during the global economic crisis international investigations and convictions became increasingly credibility was renewed. With middle income status common. However, the Judiciary, the Police and the in place, political support for the Consultative Group Attorney General’s office remained areas of concern. The for Indonesia (CGI) ended and was replaced by donor- free press, continues to function well with corruption specific policy dialogues. Strong governance related scandals regularly revealed and covered. While the role reform programs, especially at the Ministry of Finance, of the Partnership for Governance Reform has become but also at the KPK and elsewhere, attracted attention. less dominant, the role of other CSOs has increased and Against this background, World Bank support evolved they have increasingly developed specialized expertise. in two important directions. First, institutional reform For example, in the area of budget transparency and programs confined initially at the Ministry of Finance environment, CSOs played a critical role in Indonesia’s (on improved budget and treasury systems) expanded accession to candidate status in the Extractive Industry to tax administration and then on to other Government Transparency Initiative (EITI). agencies. These programs focused on comprehensive institutional change, revised business processes, The new administration has continued this focus on improved human resource management, and supportive reform of core government systems. In fact there is an information and communication systems. In addition, the increased focus on bureaucracy reform at the whole of World Bank added support for key government programs Country Partnership Strategy Progress Report for The Republic of Indonesia 41 especially around improved governance to major poverty, cases are investigated and prosecuted by the Attorney education and regional transfer programs to its earlier General’s Office (AGO). In recognition of the AGO’s crucial focus on policy and project lending. However, reform role, the World Bank is strengthening its Research and momentum in key accountability agencies, especially in Development Bureau so that the institution’s reforms the judiciary, continued to lag, and organized approaches are based on evidence from strong field research and to systemic issues including through the demand side public consultation. For example, consultations with (by CSOs) played a more confined and focused role in communities are leading to a change in the remedies Bank and indeed other development partner efforts. for misappropriation of funds in community-driven development projects. Following an initial pilot research The governance and the corruption reduction approach project with the Bureau, discussions are taking place to in the Country Partnership Strategy for FY09-12, expand research and formulate policy recommendations. focused on “Investing in Indonesia’s Institutions� and on collaborating with GoI and stakeholders to strengthen By changing the role of the World Bank from ‘policing’ to accountability and enhance fiduciary oversight over ‘collaborating’ on efforts to combat corruption, the Bank Bank’s projects. The CPS laid out an approach designed expects to work more effectively with national oversight to enhance the Government’s governance and anti- institutions and other important stakeholders. These corruption efforts, by working with a range of Indonesian changes are expected to lead to greater understanding anti-corruption and fiduciary institutions to strengthen and ownership of initiatives to prevent and mitigate national institutions and systems that directly impact the corruption in government projects in Indonesia. public policy and expenditures. This WBG engagement on governance and anti-corruption has had three pillars: Despite sustained progress by the KPK, lagging progress partnering with Indonesian institutions leading the in key accountability agencies and emerging concerns fight against corruption; targeting support to “islands around electoral corruption suggest that more effort of good governance� in selected agencies and regions; is needed especially engaging with Parliament. But and strengthening systems to mitigate corruption risks these concerns also suggest the relevance of updating and handle corruption allegations in WBG supported the governance diagnostic to take into consideration projects. the gains achieved within the executive branch, while recognizing slow progress in the judiciary and mounting Partnering with Indonesian institutions leading concerns around legislative actions. the fight against corruption Targeting Islands of Good Governance The World Bank has been supporting Indonesia’s Anti Corruption Commission (KPK), in enhancing its services. The shift to working with reforming institutions on core Areas of assistance include: programs is a key focus of the current CPS. Engagements • Facilitating professional and leadership training for have accelerated with the Ministry of Finance around KPK staff the budget/treasury system SPAN (with the MoF DGs of • Providing technical assistance to improve KPK’s Budget and Treasury and the Finance Deputy at Bappenas) communications strategy and action plan; serving as a model. This was followed by the Ministry of • Publishing recent research findings on public sector Finance’s Director General of Tax decision to develop a corruption in the 2008 and the 2009 Indonesia Public tax administration program (PINTAR) into ongoing tax Sector Integrity reports. modernization reforms to improve transparency and increase revenue. Another key engagement has been Under the Bank’s Governance Partnership Facility, with the Ministry of Public Works’ Director General of preparatory work is underway to enable KPK to audit Highways (DG Highways). DG highways, historically a business processes in key institutions and introduce difficult governance environment, is taking the initiative, innovative ways to solicit public feedback on the quality supported by the Bank and the KPK, to enhance their of services. e-government initiatives to improve the transparency of projects and reporting processes. The latest addition While KPK is the leading institution combating is a program with the National Statistics Agency which corruption in Indonesia, the majority of corruption is working with the Bank to address institutional 42 Investing in Indonesia’s Institution weaknesses that impede an effective understanding of and governance monitoring framework. A field-based growth and welfare throughout Indonesia. These reform Operations Support team supervises fiduciary practices. programs have common elements focused on remodeled A cross-sectoral Governance and Anti-Corruption business process, HR systems, change management and Committee integrates anti-corruption mechanisms into improved information and communications technology project design, support and review of Anti Corruption but are driven by the goal of improved governance and Action Plans (ACAPs), monitors the implementation of service delivery. ACAPs and liaises with GoI partners. The GAC team also will work with GoI agencies on ACAPs and to support GOI Perhaps the biggest innovation introduced by the Bank investigations of corruption allegations in WBG-financed during the CPS has been the integration of the Bank’s programs. support, especially governance features, into major Government programs. The first of these was created Follow-up procedures for corruption allegations have when the Government expanded the World Bank’s pilot been agreed on with GOI to support the integration into poverty programs into a nationwide effort (PNPM). The the country’s own institutions. The WBG often provides KDP and UPP programs had been built on governance, technical assistance to GoI agencies reviewing WBG transparency and accountability foundations, designed related corruption allegations with such assistance to bring communities into an active participatory and designed to strengthen the technical prevention capacity oversight role. Similarly the Bank added support for of the relevant Indonesian agency. the Government’s School Grant Program (BOS) with its school based management concept focused on parent Regular meetings are held with MoF to review progress, involvement to improve governance and educational develop follow-up actions, and discuss remedies and outcomes. The decentralization of the BOS program to sanctions, as well as possible measures to prevent the district level presents the opportunity to engage recurrence. When the WBG proposes to exercise legal local governments in these education outcomes, while remedies or apply administrative sanctions, it discusses improving governance at school and district level. Most with MoF the basis for the proposed action and with recently, a new Bank program (DAK refinancing) has adequate advance notice. been developed to reimburse infrastructure spending at regional level, in return for improved reporting and Since 2003, all Bank-supported projects have included verification. This program adds results based financing governance-related risks to achieving project objectives while improving governance with verification done by and how those risks will be mitigated and managed. BPKP (the government’s internal audit agency) and a However, an independent review of ACAPs in 2007, system of web-based reporting to improve transparency. 2008 and 2009 revealed a pattern of uneven and partial implementation of the action plans– a result of limited Strengthening Indonesia’s anti-corruption ownership and inconsistent implementation support. To systems in WBG supported projects address this problem will require collaborating with key accountability organizations, including Indonesia’s Anti- The integration of governance principles into these corruption Commission (KPK), the Attorney General’s partnerships and, indeed, all World Bank initiatives Office (AGO) and sectoral counterparts such as Ministry of is done by mainstreaming anti-corruption measures Public Works and the Ministry of National Education. Such and initiatives. The GAC team led by the Indonesia collaborations will address corruption at the institutional Country Office Governance Adviser (a member of the level, leading to change in the role of agencies around Country Leadership Team) coordinates anti-corruption identifying and mitigating risks. The Bank support for relationships and policy dialogue, oversees governance- this initiative will alter the nature of the ACAPs - from an related operations, advises project team leaders on instrument of compliance ton Bank-financed projects to governance and anti-corruption strategies, and is a government-owned mechanism of accountability to responsible for the development of the research agenda improve public sector performance. Country Partnership Strategy Progress Report for The Republic of Indonesia 43 Appendix 4 Mainstreaming Engagement on Gender Equity Despite a relatively positive national framework for Increasing Women’s Access to Justice gender equity, women in Indonesia lag behind men in a number of social and economic areas including health, Gender is one of eight thematic areas outlined in the labor participation, political representation, access to National Strategy for Access to Justice, developed by legal justice, as well as development planning processes.1 the Working Group on Access to Justice, convened For example, women’s labor participation rates are still at by Bappenas, within which the Bank has played an only around 50 percent compared to 80 percent for men, important role. A women’s legal empowerment program and while political representation has almost doubled focusing on strengthening women’s access to justice since 1999 (from 10.8 to 18.0 in 2009), only 2 percent of at the community level and engaging with formal public officials in important decision making positions justice institutions and local government are among are women. Poor women in particular face difficult the core programmatic areas within the Justice for the challenges. While poverty rates for households headed Poor team. Some research and diagnostic works on by men in urban areas have declined over the past five gender in thematic areas have also been conducted and years (from 10.7 percent to 8.9 percent) in line with developed, such as the “Aceh Gender Impact of Titling� overall improvements in poverty, for urban households by the MDF team for Aceh and Nias; the “Women Access headed by women in urban areas the share has actually for Justice in Indonesia: Case Studies of Women Justice increased from 7.6 percent to 8.3 percent, a worrisome Seekers in Cianjur, Brebes, and Lombok�; “Case study on trend in a rapidly urbanizing society. Women Dispute Resolution through Adat Institutions in Aceh" by the Justice for the Poor team; the vulnerability, The Bank has been working actively with the Government comparative and remittances study on the female on programs to help remove barriers to gender equality migrant labors. and there have been a number of successes in integrating gender equality and women’s economic empowerment into its work program to promote that both women and men have equitable access to resources, voice in the development of their community and country, and are able to benefit from new opportunities that development brings. Based on these experiences and in order to enhance our effectiveness and increase our support for GoI efforts in gender equity issues over a broader range of instruments and sectors, the Bank has initiated a process to develop a Gender Strategy to mainstream gender equity and orient the implementation of the CPS for the remainder of the period and beyond. In addition, Indonesia will be one of the case studies in the WDR 2012 on Gender Equality and Development. Gender in the Bank Program of Support The National Medium Term Development Plannning (RPJMN) also outlined the Ongoing activities are being carried out within three importance of increasing the role of women in strategic areas: increasing women’s access to justice, development, particularly women leadership enhancing women’s participation in community in public sector, business community and social development, and promoting growth and service organizations. delivery. 1 To be sure, gender biased and women unfriendly policies, laws and regulations still exist, particularly at district level. The National Commission on Women’s Rights, for example, has identified 154 local regulations that are discriminatory against women. 44 Investing in Indonesia’s Institution Women’s Participation in Community PEKKA, the Women Headed Household Empowerment Development program is also being supported by the Bank. Reaching 11,195rural widows in over 345 villages in 73 sub The National Program for Community Development district and across 8 provinces, PEKKA is the first major (PNPM) is the Government’s flagship poverty reduction development program on widows in Indonesia. program, which is supported by the Bank and numerous donors, which is being expanded to reach some 6,328 Promoting Growth and Service Delivery sub-districts. The gender approach of PNPM-Rural includes: (i) economic empowerment by revolving The National Targeting System (NTS) will be used to funds and microfinance programs for women (one of target program intended for poor households, including the three proposals submitted from villages can be vulnerable households with certain practical and from women); (ii) political empowerment by ensuring strategic gender needs such as households with pregnant women’s voices are heard during program development women. The proposed NTS design and social service data and planning through establishing women’s specific collection survey (PPLS11) will ensure that such programs forum; and (iii) social empowerment by requiring one can be properly targeted. Furthermore, the analytical of the two village development proposals to come research and field experiments will consider the practical from women’s planning groups. The urban arm of the and strategic gender needs on targeting outcomes, such PNPM is the Urban Poverty Program (UPP). The gender as the legal status of female-headed households even if approach of PNPM-Urban is: (i) to ensure 40 percent of the lack of legal status as such, and the gender impact the meeting participants in the Community Coordinating of holding community participation and meetings in Body (Badan Koordinasi Masyarakat-BKM) and The Inter the day or evening. Hence, improving the effectiveness Village Coordinating Body (Badan Koordinasi Antar of targeting will directly benefit this constituency, either Desa-BKAD) are women; (ii) the quota requirement of 30 directly through ensuring proper identification or voice, percent of women facilitators; and (iii) sex-disaggregated or indirectly through benefiting marginalized groups. data in the Management Information System, such as Other efforts include mainstreaming gender in the Basic meeting participants, training participants, members of Education Program including in the Local Government community boards of trustees, members of community Capacity Assessment for Basic Education Capacity-Trust groups and beneficiaries. Fund (BEC-TF), improving regional governments’ ability to address gender related budgeting under the Public Another large-scale poverty program the Bank is Expenditure Analysis and Capacity Harmonization supporting with technical assistance is the Indonesian Program (PEACH), addressing women’s access to finance, Conditional Cash TransfersProgram, Program Keluarga and examining women’s role in the labor force. Gender Harapan (PKH). PKH, which is still in pilot stage, is equity is also adopted in implementing Trust-Funded providing cash benefits to very poor households in operations, including the Multi-Donor Trust Fund for 13 provinces on the condition that mothers receive Aceh and Nias, the Java Reconstruction Fund, as well as prenatal care, skilled delivery and post-natal care, the Water Supply and Sanitation program and SPADA. newborns and toddlers receive preventative healthcare with their mothers, and all school-age children attend Moving Forward on Gender Equity school. The program provides immediate cash benefits to mothers while encouraging the healthy behaviors The sum of these efforts is significant and can be built and investments in human capital that can reverse on by developing a strategic, program-wide approach the transmission of poverty to future generations of to gender, which would improve effectiveness, exploit households, from which girls are also benefiting. Early synergies with various stakeholders, and enhance the evidence shows a convincing increase in health services ability to affect gender-related reforms. The Government utilization by women in CCT households as well as has signaled a renewed commitment and is seeking to increased expenditure on health without reductions in accelerate improved gender equity; Inpres No.3/2010 other expenditure areas. This should improve maternal on equitable development, highlights issues of justice and natal health as well as the incidence of healthy for women and children, gender equality and women’s behaviors. empowerment. The RPJMN also outlined the importance Country Partnership Strategy Progress Report for The Republic of Indonesia 45 of increasing the role of women in development, measure results and impacts. Such information could particularly women leadership in public sector, business be valuable in improving program interventions and community and social organizations. increase its impact. The Bank will continue mainstreaming gender into its IFC is in the process of defining the gender aspects of operations, financing, and analytical programs at different its sustainable forestry and infrastructure work. IFC also levels. In addition, although many of the programs/ plans to roll out a series of gender finance modules with projects have their own gender advisor/analyst/focal Bank Indonesia, which are intended to sensitize policy point, a gender specialist at the country level has been makers and central bankers around the benefits of recruited. The gender specialist will lead the team in gender financing through the use of case studies from developing the Gender Strategy for the country. The different regions. gender specialist will guide and advise the team on how to define, engage and monitor the Bank’s gender policy Going forward, the priorities for the gender work are: efforts. This work will be done in collaboration with the • Developing a Gender Strategy: Set goals and a results Australian Government. framework for the Country Gender strategy, including improving the World Bank - Indonesia’s performance Careful monitoring and evaluation will be critical to meet in improving gender equality through policy advice, the Group’s commitments to gender equality. Currently, networking, advocacy and teamwork, and relate them monitoring and evaluation tools seem to be effectively to the policy makers across sectors. tracking sex-disaggregated indicators at the output and, • Build Collaboration: Work with teams to ensure to a degree, outcome levels. Going forward, more effort appropriate integration of gender principals and will be required to ensure that the gender dimension practices in projects, programs and analytical efforts is integrated in the outcome monitoring and impact where gender concerns are critical. evaluations. This could be achieved by strengthening • Enhance Partnership: Build and maintain relationships partnerships to agree on gender goals and targets and with the Development Partners, the Government and to identify and select the gender-relevant indicators to NGO/CSOs. 46 Investing in Indonesia’s Institution Appendix 5 Portfolio Performance Among the East Asia Pacific countries, Indonesia has The number of projects at risk in Indonesia has decreased the second largest portfolio after China, in terms of net from 12 projects at the end of FY08 to 6 projects commitment amount, which by October 2010, totaled in November 2010. While projects-at-risk currently US$8.43 billion, including US$2 billion for a DPL DDO. represent only 5% of the total commitment, the Bank is The portfolio consists of 32 lending projects and 16 providing support to the Government in its effort to take recipient-executed grants, with the majority of the remedial actions, including through project restructuring grant funds directed to Aceh, Nias and Yogya recovery and additional supervision budget. and reconstruction efforts. The investment portfolio in Indonesia covers mainly the following engagement Disbursement Ratio areas: community development & social protection (26%), education (16%) and infrastructure (15%). The disbursement ratio has improved consistently: from 20% at end-FY08 to 48% and 60%, at end-FY09 and FY10 Projects Deliverables and Investment Lending respectively. For FY11, the disbursement ratio stood at Reform around 10% as of October 2010. The Bank also introduced a refinancing mechanism to reimburse Government In FY10, 11 new investment projects were presented agreed expenditures for BOS KITA and PNPMs projects. to the Board, for a total net commitment of US$ 3.19 billion. In FY 11, two DPLs– DPL 7 (US$600 million) IEG’s Outcome Ratings and Infrastructure DPL 4 (US$200 million) have been approved to date. Indonesia was a pilot for the new As detailed in Annex B2, the program with Indonesia has risk-based approach under the Investment Lending (IL) a legacy of less than satisfactory development outcomes. reform. Among the new projects delivered, the Indonesia Almost half of the operations rated by IEG in the past five Power Transmission project (US$ 255 million) was the first years have been rated unsatisfactory. Ratings, however, project to be approved by the Board under the new first are expected to improve based on an overall shift in track IL processing. project design toward les complex operations, increased capacity of counterparts and full alignment of lending Projects at Risk with the Government’s own Plan and programs. In this regard, it is noteworthy that all of the unsatisfactory rated The overall portfolio performance is comparable to operations where approved prior to 2004. Moreover, as the other middle-income countries (MICs) in terms of regards the current portfolio, less than 10 percent of the projects at risk. operations have been rated as problem projects during the past two fiscal years. Among the East Asia Pacific countries, Indonesia has the second largest portfolio after China. Country Partnership Strategy Progress Report for The Republic of Indonesia 47 Financial Management, Procurement and Country System • In terms of improvements in the public procurement system, progress has been made with the The Bank continues to work closely with the Indonesia establishment of a new procurement agency, issuance government in enhancing project implementation in of a revised presidential decree and national standard the areas of financial management and procurement, as bidding document, and requirement to establish well as on country system as envisaged in the CPS. The a procurement service unit in every implementing Bank is actively involved in Government quarterly project agency. monitoring dialogue. In addition, an annual complete • Under the ongoing projects of BOS KITA and portfolio presentation was delivered to the Planning Local Government DAK, country systems in terms Ministry (BAPPENAS) covering both loan and grant funded of internal controls, financial management and projects. Based on the recent assessment, there were 9 procurement. Under BOS KITA project, the objective projects (19%) with unsatisfactory (MU,U) procurement is to strengthen school-based management and rating and 4 projects (8%) with unsatisfactory financial community participation, improving existing management ratings. fiduciary arrangement for greater transparency and • Regarding financial management, progress has accountability. The features of Local Government been made in improvement of internal controls and DAK project are results focused, reimburse eligible internal and external audit systems, and more timely outputs, strengthen local government internal and reliable financial reporting is evidenced by an control, and improve current Government fiduciary important reduction in qualified audits. and monitoring system No Country # of Project Active portfolio Commitment Commitment # at risk project % of at risk project ($ million) at risk ($) at risk (%) 1 Indonesia 47 9,241 319 3% 6 13% 2 China 79 10,096 1,342 13% 13 16% 3 Phillippines 27 1,848 173 9% 4 15% 4 India 76 21,775 2,877 13% 7 9% 5 Pakistan 22 4,095 254 6% 4 18% 6 Brazil 63 10,469 524 5% 8 13% 7 Mexico 27 8,908 568 6% 3 11% 8 Turkey 17 5,038 936 19% 4 24% 9 Egypt 21 3,444 145 4% 1 5% Source: Operations Portal (CPRT) 48 Investing in Indonesia’s Institution Appendix 6 Management of Trust Fund Operations The ability to mobilize trust fund resources has enabled elements of the proposed approach were: promoting a the World Bank and other development partners more strategic approach which focuses on selectivity, to respond to priority needs of the Government of government leadership and program and linkages with Indonesia in a timely manner and to explore and address development partners; strengthening risk management emerging issues. The dramatic growth of the Indonesia and controls; and, improving operational effectiveness trust fund portfolio reflects the Bank’s commitment to and processes build broader and deeper partnerships with the larger development community. The grant financing provided Over the past two years, the program has moved under these trust funds is helping Indonesia to address quickly to implement a new framework. Internally, emerging challenges of transforming and strengthening a formal vetting process has been established for all its institutions. The outcomes of these partnerships TF proposals through the Country Leadership Team include: pooling of financial resources for joint strategies to ensure alignment with Government programs and and actions – whether it is to provide assistance at the sub- priorities and synergies. Externally, a focal point has been national level or to support vital policy and institutional established in Bappenas, and the Bank’s knowledge on reforms; greater responsiveness to unanticipated needs managing and monitoring TFs is being transferred to the as in post-disaster recovery efforts; and high-quality Government, which has also begun to include RETFs and research and policy dialogue. BETFs for recipient work in its budgeting process. Regular meetings are now held with both the Government and The Indonesia trust fund program has also helped to Donors as regards proposals and progress to help ensure leverage the Bank’s own knowledge and resources in alignment and ownership. providing support for special strategic thrusts of the Government’s agenda. There are numerous examples Strengthening risk management and controls and where trust funds serve as generators of knowledge, improving operational effectiveness and processes also contributing to new development initiatives and allowing benefit from the formal vetting process, as well as from the testing of pilot projects that are being replicated Bank and Region-wide initiatives to help mainstream on a larger scale. Availability of trust funds has allowed trust funds. For example, TFs are now included in the a marked increase in the Bank’s analytical and advisory regional and country annual budgeting process to better activities, and more comprehensive supervision than allocate resources and ensure alignment with areas of limited Bank budgets would normally allow. In addition engagement. The CMU has also established a Service to the post-disaster support work, among others, joint Center for Trust Fund Management Support in the Jakarta analytical work is helping to influence areas including Office responsible for: policy reforms in education, service delivery, governance, decentralization, poverty programs, public expenditure • Quality assurance, M&E at the portfolio level, overall and public financial management, and investment donor coordination, oversight, standardization of key climate. provisions in agreements with donors, dissemination of good practice (e.g., in terms of negotiating trust A Shift in Strategic Approach fund support); • Results-based portfolio reviews, including follow-up The CPS highlighted the need to shift the approach to on risky trust funds and support to complex trust mobilizing and managing trust funds. With the thrust funded operations; and, of the CPS on building national institutions there was a • Improved coordination with HR, legal and other need to align with government-led programs and more support units. explicitly use the funds to support institution building, • Improving managerial oversight of consultants in with the Bank playing the role of a facilitator, convener, general and creating an internal research/support and fiduciary manager. The new framework was to help unit where skills can be tapped with the aim to move refocus on aligning the incentives of the Government, consultants in the medium term from BETFs to RETFs. donor partners, and the Bank toward this end. In line • One-stop clearance process, to lower transaction with Regional and Bank-wide initiatives on TFs, the main costs. Country Partnership Strategy Progress Report for The Republic of Indonesia 49 Indonesia Trust Fund Portfolio KDP in Aceh and North Sumatra; JSDF: Improving Rural The Bank’s Indonesia trust fund portfolio has expanded Connectivity for Sustainable Livelihoods; PHRD grants for dramatically; at the same time, the variety of trust fund project preparation; IDF grants for specific institutional arrangements has vastly increased the complexity of development activities; and, TFESSD Campaign to managing the program. At one end of the spectrum are Improve Participation of Women in CDD Programs. large, multi-donor trust funds (MDF) or jumbo trust funds established to implement reconstruction programs and Total contribution as of September 2010 is about US$1.4 capacity building activities. Examples include: MDF for billion with 28 country specific trust funds and more than Aceh and Nias, Java Reconstruction Fund, Decentralization 10 regional trust funds. The biggest component of the Support Facility, Basic Education Capacity Building portfolio is the MDF for Aceh and Nias, with a total amount Program, and the EC/Dutch Trust Fund for Public Financial of about US$692 million. In terms of volume, Recipient Management and Revenue Administration Reform Executed Trust Funds (RETFs) are about 82 percent of the Program. At the other end are small, ad hoc trust funds to portfolio. Annual new contributions and disbursements support specific activities (although these are reducing over the last three years have been US$150 million and in number). Examples are: Support for supervision of the US$160 million respectively. Indonesia Active Trust Funds – as of September 2010 Grant Amount Grant Amount (million USD) (million USD) National Government Institution & System Cofinancing WSIMP 14 Public Financial Management & Expenditure 21 PAMSIMAS and WSLIC2 cofinancing 6 Management WSP : WASAP (Recipient Executed) 4 National Institution – Poverty 7 Other – WSP 26 National Institution – Governance 3 Others – Water 5 Sub-National Government Institution & System PHRD local governance reform co-financing 5 Private Sector Development (USDRP) Investment Climate 6 Local governance Reform (DFID - cofinancing 11 Community Development & Social Protection ILGRIP) PNPM Support Facility 64 MDF Support for Poor and Disadvantaged Areas 23 (SPADA) Other KDP and community development 22 Decentralization Support Facility (DSF) 24 MDF Housing – Nias 26 Decentralization (PEACH & PREM Aceh) Dutch + 2 3 Conflict CIDA Justice for the Poor 4 Other Local Government Education Gender, Female-headed households & Female 9 migrant workers Education - Bank executed 42 46 Environmental Sustainability and Disaster Education - Government executed Mitigation Education - Cofinancing ECED 25 MDF Aceh Forest 10 Education - Cofinancing BERMUTU 52 MDF Aceh Forest 8 Infrastructure Environmental Sustainability - excluding green KDP 14 MDF Infrastructure Reconstruction Enabling 42 Climate change / Global environment issues 53 Project MDF Infrastructure Reconstruction Financing 100 Disaster Risk Reduction and Recovery 1 Facility Rural Development Java Reconstruction Funds (Jogya housing) 89 GEF Coral Reef mapping 8 Infrastructure grants (AusAid, PHRD, GEF, Dutch 7 Geothermal) Others MDF Economic Development Financing Facility 50 MDF Admin 22 Water Fiscal Agency - MDF Aceh and Nias 141 NTB Water (cofinancing WSIMP in NTB) 12 Fiscal Agency - Decentralization Support Facility 2 50 Investing in Indonesia’s Institution Appendix 7 Management of Trust Fund Operations (Attachment A) Multi-Donor Fund for Aceh and Nias (MDF) Better Education through Reformed Management Donors : Dutch, USAID, UK, Swedish, Norway, New and Universal Teacher Upgrading Project (BERMUTU) Zealand,Ireland, IBRD, Germany, Finland, EC, Denmark, Donors : Dutch Canada, Belgium, ADB. Amount : USD 52 million Amount : USD 697 million The TF co-finances the BERMUTU Project supported by The MDF supports the rehabilitation and reconstruction the Bank. The development objective of this grant is to of Aceh and Nias in the wake of the earthquake and contribute to the improvement of the overall quality and tsunami of December 2004, and the earthquake of performance of teachers through enhancing teachers' March 2005. The MDF serves as a common platform knowledge of subject matter and pedagogical skills in the for mobilizing donor resources and providing financial classroom. The TF will contribute to improving teacher assistance to support the Government’s recovery competency and performance to promote student program using a coordinated framework to channel learning and thus contribute to the development of assistance in the areas of reconstruction, rehabilitation quality human resources, ultimately leading to a growth of infrastructure and transport, land titling, capacity in productivity and the improvement of Indonesia’s building and governance, and sustainable management competitiveness in the global economy. of the environment. Basic Education Capacity Program (BEC) Java Reconstruction Fund (JRF) Donors : Dutch, EC Donors : Netherlands, UK, Finland, EC, Denmark, Canada, Amount : Euro 39 million ADB The BEC TF contributes to the Government’s achievement Amount : USD 90 million of MDG and EFA goals through good governance in The focus of the JRF is on addressing the reconstruction education. The purpose of the program is to support and rehabilitation efforts following the Jogyakarta- improvements in the delivery of decentralized basic Central Java earthquake of May 2006. The JRF has education services by local governments and schools been funding the reconstruction of improved housing, in selected program areas, and by extension, in other damaged infrastructure, and livelihood conditions for locations. those affected by the disasters. PNPM Support Facility (PSF) Decentralization Support Facility (DSF) I and II Donors : Dutch, UK, EC, Denmark, Australia, USAID Donors : UK, Canada, Australia Amount : USD 155 million Amount : USD 39 million PNPM Support Facility is multi donor support facility The DSF I and II TFs support the formation and functioning which provides key technical assistance and strategic of regional and local governments while at the same time oversight for the country’s main poverty alleviation promoting a harmonized donor approach to supporting program, the National Community Empowerment Indonesia’s sub-national governance reform program. Program (PNPM Mandiri), with the aim of making the They support the partnership among government, the program a sustainable operation. Grant funds provided World Bank, and likeminded donors who are involved through the PNPM Support Facility are used primarily in decentralization. Funds are used for analytical and for building Indonesian capacity for large-scale poverty advisory activities to bring together donor policies and reduction. Capacity programs supported by the Facility practices relevant for decentralization. engage a broad range of Indonesian players, including national and local governments, universities and research Institutional Development and Capacity Building TF: centers, civil society organizations and grassroots Donors : Dutch initiatives. Facility programs for renewable energy help Amount : Euro 19.5 million make PNPM Mandiri environmentally sustainable, and The TF, supplemented by others, supports governance the Facility also places a special emphasis on innovative reforms, improvement of the investment climate, legal ways to ensure that PNPM Mandiri reaches out to and justice sector reforms, civil service reforms, Eastern disadvantaged groups across Indonesia. Indonesia development, and public expenditures. Country Partnership Strategy Progress Report for The Republic of Indonesia 51 Appendix 8 Multi Donor Trust Fund for Aceh and Nias The 2004 Indian Ocean earthquake and tsunami The MDF’s comprehensive Mid Term Review (MTR) caused devastating damage and loss in Aceh and process was completed. The findings, presented to the Nias. The reconstruction of Aceh and Nias has been Steering Committee in November 2009, reiterate the unprecedented. Pledges from the international message that the MDF portfolio is performing well, and community, Government of Indonesia, donors and its overall direction is appropriate and relevant. The non-governmental organizations (NGOs) for the overall Secretariat presented its proposal for follow up actions reconstruction and development efforts came to over based on the findings and recommendations, and the US$7 billion. The overall reconstruction is now winding Steering Committee concurred with the scope and down, having achieved remarkable results. nature of the follow up plan. The Secretariat will continue to track the progress of the follow-up actions and report With a total of US$684 million in pledges pooled by 15 on these in the six-monthly reports. donors, the Multi Donor Fund for Aceh and Nias (MDF) has contributed close to 10% of the total reconstruction The MDF reached key decisions related to project funds. The overall goal of the MDF is to contribute funding for the remaining program lifetime. The Steering efficiently and effectively to the reconstruction of “a Committee agreed in November 2009 that due to the better Aceh and Nias� following the disasters. The Trust short implementation time remaining before the MDF’s Fund was set up in response to the Government of closing date, any remaining funds would be allocated Indonesia’s (GoI’s) efforts to coordinate and mobilize to existing projects. BAPPENAS listed the GoI’s top two donor support for the reconstruction process. priorities as infrastructure investments and continued coordination support of the reconstruction. At a Co-chair The MDF continues to play a key role in the reconstruction meeting convened in March 2010 it was agreed that a of Aceh and Nias, working closely with both the central strategic stretch of road along the west coast of Aceh and provincial government. The MDF’s contribution would be the highest priority for the allocation of the to the overall reconstruction has focused on strategic bulk of the remaining funds. investments in areas not covered by other contributors. The MDF continues to be a crucial and valued partner Project monitoring and feedback are a major focus for for the Government of Indonesia in completing the the MDF with most projects now in full implementation. remaining reconstruction tasks and assisting in laying Regular supervision missions were carried out by the foundation for continued economic growth and the Partner Agencies, often attended by the MDF good governance, and remains committed in its support Secretariat and donors, to monitor progress of projects. for Aceh and Nias until the MDF closes in 2012. Consultations are being held with projects and Partner Agencies to discuss their exit strategies and closing MDF Operations monitoring and evaluation arrangements in an attempt to ensure that impacts of the investments made in the With transition arrangements completed following reconstruction of Aceh and Nias are sustainable and the closure of BRR, a special agency set up for Aceh adequately captured and recorded. Feedback received and Nias rehabilitation and reconstruction, BAPPENAS through various complaints-handling mechanisms or the National Planning Agency is coordinating the continues to be constantly monitored and follow up overall reconstruction efforts. BRR’s exit in April 2009 actions are taken as required. required various changes in the MDF, including changes to the MDF governance and project implementing The fifth MDF Annual Public Report was launched during arrangements. The new partnerships and institutional the events commemorating the fifth anniversary of the arrangements required by the transition have been set tsunami in Banda Aceh. Numerous dignitaries attended in place and the MDF is now operating fully in this new these events in December 2009, and keen international reconstruction context, working closely with central, and local media interest was generated. The MDF provincial and local governments. photographic exhibition organized in conjunction with 52 Investing in Indonesia’s Institution the commemoration successfully showcased the MDF’s and Nias. With a total of US$215 million allocated to six contribution to the reconstruction and rehabilitation projects in this outcome area, it represents approximately efforts in Aceh and Nias. Various prominent visitors are 31% of the total funds allocated to projects in the MDF hosted in Aceh and site visits are arranged to familiarize portfolio. This includes the recently approved additional them with MDF activities and contributions to the funding of US$37 million to the existing project to reconstruction process. construct a portion of the national road between Calang and Meulaboh on the west coast of Aceh. This strategic Portfolio Progress and Performance investment will complete the link between Banda Aceh and the North Sumatra border. Investments in the The MDF portfolio consists of 23 projects in six outcome reconstruction of critically-needed rural access roads and areas, with the majority in full implementation. bridges in Nias have also been scaled up. The notable Currently, 16 projects are active and in various stages of results from allocations to this outcome area include the implementation, six projects have closed and one project, completion of three pumping stations in Banda Aceh, the Nias Livelihoods and Economic Development Project 456 km of national, provincial and district roads, and nine (LEDP) is in start up phase. Capacity building, disaster risk municipal water systems. With MDF funds, four seaports reduction measures and the inclusion of marginalized have been reconstructed in Aceh and one in Nias groups, including women, are mainstreamed throughout which provide gateways to domestic and international the portfolio. markets, and through the Sea Delivery project training and capacity building has been provided to enhance Progress across the portfolio is good and most projects operations of these ports. report strong results at both output and outcome levels. Overall the portfolio is performing well and all Projects in the Capacity Building and Governance projects are on track to meet their objectives. Aceh and outcome areas continue to work with local government especially Nias continue to be challenging environments institutions, civil society and communities to increase and several projects have or will request extensions to capacity for good governance and enhance the their closing dates in order to complete objectives and effectiveness of the overall reconstruction. Through strengthen their exit strategies. All projects are expected these projects, the MDF has proactively targeted the to complete implementation by June 2012. strengthening of key government institutions at central, provincial and district levels to support the sustainability The Community Recovery projects are approaching of the overall reconstruction efforts. The transfer of completion, with excellent results being reported assets from the reconstruction to local governments overall. Through this group of projects, almost 18,600 is underway and capacity building and support for the houses have been reconstructed or rehabilitated and management of these assets is an integral part of the communities have been supported in building more activities implemented by various projects, including than 2,881 kilometers of village roads, 975 bridges, 1,581 the Local Resource-based Roads project. Strengthening kilometers of irrigation and drainage canals and other government institutions focuses on government vital community infrastructure through a community- ownership of investments through a “learning by doing� driven development process. In addition to physical technical assistance approach. The MDF’s governance outputs, the MDF’s Community Recovery projects projects also aim to strengthen civil society and improve have made important contributions to empowering the quality of governance and public services, and communities, and especially women, to play a greater support mainstreaming of disaster risk reduction into role in their own recovery and future development. government planning. MDF projects in the Large Infrastructure and Transport The two projects in the Environment outcome area outcome area are playing a key role in rebuilding will extend their closing dates in order to meet their infrastructure networks, including national, provincial objectives and strengthen local capacity to continue the and district roads, as well as ports, throughout Aceh important work in environmental management. Through Country Partnership Strategy Progress Report for The Republic of Indonesia 53 the Aceh Forest and Environment Project (AFEP), the MDF 22 projects. A further US$10 million is committed to one continues to support the provincial government’s Aceh more project for Nias. Approximately 74% of allocated Green initiative and to strengthen institutional capacity funds have been disbursed and cumulative project for sound forest management, including supporting spending is reported at US$401 million. The Netherlands the development of sustainable funding mechanisms. will reduce its outstanding contribution by US$25 million, Forest monitoring by communities and law enforcement and CIDA will not be disbursing its last tranche of US$5 agencies have been enhanced through the Community million. The MDF has fully programmed all remaining Ranger Program, training, and building a network available funds to projects. and capacity for monitoring and responding to cases of illegal logging. Environmental awareness has also A financing strategy for utilizing the uncommitted and been increased through this project. An environmental unallocated funds has been agreed to by the co-chairs of education book and curriculum has been developed the MDF. This strategy takes into account the expected and recommended by the Provincial Department of reduction in commitments from the two donors, and Education for inclusion as local content in the school is based on the assumption that all other pledges still curriculum and teachers are being trained to implement outstanding will be received from the donors. It was it. The Waste Management project, now in Phase III, decided that any residual funds from projects could be continues to expand, providing local government re-programmed to finance remaining needs as these support for the implementation of its successful fee- funds become available and if there is sufficient time for based waste collection program. The project is also implementation within the available time frame. successfully working with district sanitation departments to improve their capacity to provide waste management All donors approved the revised MDF administration, services in the major towns of Aceh and Nias, and to supervision and appraisal budget in May 2010. The ensure that adequate budget allocations are in place revised budget was presented to the donors in June for the continued operation and maintenance of these 2009. It takes into account the extension of the MDF services. closing date by two and a half years from June 2010 to December 2012. It also includes program administration Projects in the Livelihoods and Economic Development and costs of appraisal and supervision of projects, as outcome area will actively support economic well as significant changes in staffing due to the need to development and the recovery of livelihoods in Aceh and replace staff previously seconded to the Secretariat. Nias. The MDF and GoI prioritized community recovery and the reconstruction of large infrastructure during Looking Ahead the earlier phases of reconstruction. Since inception, livelihoods and economic development activities have The MDF is well on track to fulfill its mandate and is laying been a cross-cutting theme through several projects the foundation to contribute to the future development across the MDF portfolio. Now the MDF is moving into of Aceh and Nias. The MDF’s significant contribution to the final phase of post-tsunami and earthquake recovery the overall reconstruction effort is now increasingly with two key projects specifically aimed at promoting evident with the restoration of the infrastructure and economic development and livelihood activities in key transport networks as well as investments in community economic sectors now underway. Both of these projects reconstruction nearing completion. Capacity building will be focusing on activities in the agricultural sector and and environmental management achievements are are on a tight implementation timeline to close in June also showing an impact, although strengthening local 2012. government capacity is a longer term agenda and will require further investment beyond the scope of the MDF Finances to ensure the sustainability of both physical and non- physical investments from the reconstruction process. The MDF has received US$620 million from various donors. Additionally, US$29 million has been earned from With MDF disbursements at 74% of allocations, the investment income. US$613 million has been allocated to portfolio is well positioned to continue to perform well. 54 Investing in Indonesia’s Institution The bulk of the remaining disbursements are expected The MDF is emerging as a valuable source of lessons to take place during 2011. The remaining on-budget learned for future post-disaster reconstruction projects will drive both disbursements and project efforts. The earthquake in Haiti in January 2010 raised spending until MDF closure in 2012. awareness globally of the potential for lessons from Aceh’s reconstruction to assist in the design and Monitoring project progress will be crucial to ensure implementation of reconstruction efforts following other project activities can be completed and funds can be severe natural disasters. Lessons learned are already disbursed by June 2012. New projects starting up need being gleaned from individual projects and the portfolio, to be closely monitored to ensure that they are on track to as well as the administration of the Trust Fund as a whole. deliver by their closing dates. Realistic assessments should Within Indonesia, the lessons learned from the MDF are be made about the scope of projects as implementation being mainstreamed in the Government’s post-disaster progresses, so that any needed adjustments can be made recovery systems, especially in the reconstruction of in a timely manner. Strong government commitment housing and for the newly-initiated Multi Donor Trust to intra-governmental coordination at all levels is also Fund for Disaster Relief and Reconstruction. Following required to mitigate possible delays in the timely issuance up on recommendations of the MDF’s Mid Term of budgetary notes (DIPA). Review, the Secretariat will facilitate the generation and dissemination of lessons learned in conjunction with its The MDF has now fully programmed the funds that on-going monitoring. Ensuring that the valuable lessons are expected to be available from donors. Taking into learned from the MDF’s experiences in the reconstruction account the reductions in commitments from donors that of Aceh and Nias are available for use in future post- are expected to be formalized during the next reporting disaster situations will further enhance the value of the period, all MDF available funds have been allocated to MDF’s contribution to the people of Aceh and Nias, as projects. well as areas affected by future disasters. Residents of Loloana’a village in Nias crossing a suspension bridge to get to the market. This bridge was financed by the MDF and had successfully connect remote villages in Nias. This improved access also increase the economic viability of the community. Country Partnership Strategy Progress Report for The Republic of Indonesia 55 Appendix 9 Recent Macroeconomic Developments Indonesia has made remarkable progress over the past Indonesia was less affected by the global economic decade in terms of macroeconomic and political stability. downturn of 2008-09 and by mid 2010 the economy’s Macroeconomic performance since the late 1990s growth patterns had normalized. Growth slowed sharply has seen consistent output growth and rapid decline but remained positive in the fourth quarter of 2008, at in external imbalances. Increasing tax revenues have the depths of the global downturn, then incrementally contributed to the decline in the fiscal deficit. Increased recovered through 2009. The economy then expanded growth has been grounded on increasing private by 4.5 percent over 2009 as a whole and by 5.9 percent in sector investments, sustained domestic consumption 2010. The social impact of the crisis was also limited with and generally sustainable external surpluses. In an few reports of layoffs, and poverty and unemployment environment of controlled inflation and rising incomes, rates continuing to fall, while households’ spending Indonesian citizens’ living standards have improved and power was supported by inflation slowing to decade- poverty levels have fallen, although many remain close lows, although various food supply disruptions lifted to the poverty line. In addition, as the result of a decade inflation back to 7 percent by the end of 2010. Through of relatively successful political and institutional reforms, the crisis, public finances remained in good health, with Indonesia in 2010 is a highly competitive, decentralized a nominal deficit in 2008 widening to a smaller-than- electoral democracy. Governments at national, provincial, projected 1.6 percent of GDP in 2009 and a deficit of 0.6 district and city level are elected in free and fair contests, percent of GDP in 2010. Public debt levels continued with an incumbent loss rate of about 40 percent (one of to decline, ending 2009 at just below 30 percent of the highest of any competitive democracy). A system GDP. International ratings agencies recognized the of checks and balances between legislative, judicial, robustness of Indonesia’s economy and strength of its and executive branches is increasingly in place, with no public financial management, upgrading their ratings one branch of government able to dominate, and few of Indonesia’s sovereign debt in 2009 and early 2010, in institutional outcomes ‘guaranteed’. Where power was one case to just below investment grade (with Moody’s once radically concentrated around the presidency, it is putting Indonesia on upgrade watch to investment grade now shared with the legislature, and where power was status). The relative strength of Indonesia’s economy has once concentrated in Jakarta, it is now shared among 500 attracted surges of volatile portfolio inflows, challenging or so city, district and provincial governments. macroeconomic policymakers. Figure 1: GDP growth slowed in Q3 2010 as agriculture’s Figure 2: The contribution of private consumption to contribution to growth has been muted growth softened in Q3 but investment increased Percentage Point Contribution Percentage Point Contribution to Quarter-on-Quarter Seasonally Adjusted Growth to Quarter-on-Quarter Seasonally Adjusted Growth Other (incl. services) Retail trade Agriculture Discrepancy Net Exports Investment Communication and transport Manufacturing GDP Government Private Cons GDP Mining and construction 2.0 2.0 2.0 2.0 1.0 1.0 1.0 1.0 0.0 0.0 0.0 0.0 -1.0 -1.0 -1.0 -1.0 Sep 07 Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Sep 07 Jun 08 Mar 09 Dec 09 Sep 10 Source: BPS Source: BPS and World Bank 56 Investing in Indonesia’s Institution The outlook is for Indonesia’s economic momentum to Figure 3 Financial markets’ perceptions of continue to build, with growth rising to 6.2 percent in 2011 Indonesian financial assets has strengthened and with scope for growth to average 7 percent by mid- markedly since early 2009 decade despite the weaker global outlook. These growth Indonesia Financial Assets rates suggest ongoing progress in poverty reduction, 1050 Basis Points 200 although this may be slowed or even reversed if the surge in food prices in 2010 leads to a lasting return to the 900 150 previous decade’s inflation rates. In the period 2010-14, 750 100 budget expenditure is expected to increase by more than Indonesian EMBI USD bond spreads (LHS) 30 percent in real terms compared to 2005-2009 period 600 50 (about US$500 billion in 2008 prices) creating significant 450 0 opportunities to improve public services. In order to seize these opportunities, Indonesia will need more 300 -50 effective and accountable institutions that can translate available resources into better development outcomes. 150 Indo spreads less Global -100 This will be particularly important as Indonesia embarks 0 EMBI average (RHS) -150 on a period of second generation reforms to provide, for Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 example, more sophisticated services in infrastructure, Sources: BI, BPS and World Bank sta calculations better education, and a sustainable health system. But this projection of rising growth rates and improving 2010 as a result of slow disbursements and the unwinding social outcomes are contingent on the government of the fiscal stimulus. On the production side, the aggressively progressing in this agenda. domestically-focused tertiary sector (communications, transport) contributed most significantly to growth, and The State of the Indonesian Economy anecdotal reports suggest that some subsectors had reached capacity constraints by mid-2010. Manufacturing Indonesia’s economy continued to consolidate its accelerated at the end of 2009 and into 2010, although recovery from the global economic and financial crisis in continued to lag the rest of the economy. Agricultural the first half of 2010. The economy grew by 5.8 percent output was affected by unusual weather patterns and, over the year to September 2010. Growth weakened in for some sectors, smaller crop area, for most of 2010, the third quarter of 2010, but Indonesia remains one of resulting in a modest contribution to growth. the fastest growing economies in the G20. Growth in the first three quarters of 2010 was supported by robust Trade balance improved toward the end of 2010, private demand, with an acceleration of investment in primarily a reflection of strong commodity prices and the last quarter. The domestic economy continued to agricultural exports. The trade balance recovered outpace growth abroad leading to a muted contribution toward the end of 2010, primarily a reflection of strong from the external sector. Growth among Indonesia’s commodity prices. The trade surplus continues to decline, major trading partners had begun to steady following though, as imports grow at a faster pace than imports solid increases in the second half of 2009. Domestically, on an annualized basis. On the import side, capital and solid consumer confidence, moderate inflation for most intermediate goods continue to be the main drivers of of the first half of the year and favorable financial market growth. The current account balance reached USD 2.1 conditions supported demand. billion in the third quarter of the year. The overall balance of payments surplus for the first three quarters of 2010 Indonesia’s economic growth has been driven by private exceeded the highest annual inflow previously recorded demand. Private consumption was supported in the first (USD 19 billion compared with USD 14.5 billion in 2006). three quarters of 2010 from high consumer confidence and relatively low and stable inflation for most of the first After weakening sharply during the peak of the global half of the year. Private investment in 2010 has also begun financial crisis in late 2008, Indonesia’s financial markets to recover. Exports growth has also recovered, after recovered well and have out-performed since March being relatively weak until mid year 2010. Government 2009, apart from a brief correction due to renewed global consumption recovered somewhat in the third quarter risk aversion in May 2010. For 2010 as a whole the rupiah of 2010, after subtracting from growth in the first half of has appreciated slightly (by around 4 percent), lower Country Partnership Strategy Progress Report for The Republic of Indonesia 57 Figure 4 After a brief deficit during the global financial of payment surplus. The government’s electricity crisis, the overall balance of payments returned to generation crash construction program has attracted surplus, supported by significant portfolio inflows much of this additional investment. USD 6.8 billion of net foreign direct investment flowed into Indonesia in Overall Balance of Payments the first three quarters of 2010. With the portfolio inflows Current Account and ongoing current account surpluses this lifted the Errors 8 Financial & Capital Account Balance 8 balance of payment surplus to USD 19 billion in the first three quarters of 2010, above the total of USD 12.5 billion for 2009. 4 ( in USD bn ) 4 Bank Indonesia has held the stance of monetary policy since it ended its easing cycle in late 2009, and with 0 0 improving economic conditions and confidence lending has accelerated. Bank Indonesia cut its policy interest rate 300 bps from December 2008 to August 2009, and -4 -4 held it at that level to December 2010, relying instead of on the gradually appreciating exchange rate to dampen -8 -8 inflationary pressures and adjustments in reserves ratio requirements to encourage lending. Commercial banks Sep 07 Sep 08 Sep 09 Sep 10 Sources: BI, BPS and World Bank sta calculations lowered their lending rates by less than the policy rate, with average lending rates remaining above 14 percent into mid 2010 but cut deposit rates more aggressively, than many other countries in the region. Government creating the widest interest margins in the region. This debt markets have followed a similar pattern, weakening did not reflect weakness in the banking sector. Banking drastically in late 2008 and early 2009 before recovering sector balance sheet indicators, such as the capital to historically strong levels in 2010. The spread on adequacy ratio, non-performing loans and loan-to Indonesian sovereign US$ debt fell below global deposit ratio, remain relatively robust. Credit growth emerging market averages for the first time in almost five rose to 21 percent year-on-year in September, as loans years in mid-2009. Meanwhile, yields on 5-year rupiah for working capital rebounded. Consumer loans, which bonds were at record lows by early 2010, although still account for one-third of total loans, grew at 25 percent. several percentage points above the yields on other Loan approvals (albeit reported with a lag) are also up. ASEAN nations’ local currency sovereign debt. Large flows In terms of the cost of credit, nominal lending rates have of liquid foreign capital into Indonesian financial assets tracked down over the year (down 100 basis points to have driven much of this strengthening. Portfolio flows 13.4 percent in September). This follows the decline in accounted for the largest share of net inflows, and within sovereign yields. them purchases of longer-term government securities (USD 5.9 billion of a total USD 12.4 billion of net portfolio Inflation, after slowing to a decade low in 2009, started inflows in the first three quarters of 2010). accelerating in mid 2010 as consumer prices were impacted by negative food supply shocks. Headline Foreign reserves have more than recovered from the inflation accelerated sharply in June and July 2010 due to crisis, as Bank Indonesia allowed the balance of payments an unusually wet ‘dry’ season impacting first various spice surplus to widen and worked to slow and smooth the and later rice prices. Headline inflation reached 7 percent rupiah’s appreciation. The balance of payments surplus, yoy in December 2010, outside BI’s targeted band, again reflecting the current account surplus and significant as a result of significant supply side disruptions in key food portfolio inflows, saw Indonesia’s foreign reserves rise to items such as rice and spices. These upward pressures on USD 96 billion at the end of 2010, USD 36 billion above food items are likely to continue at least until the harvest the pre-crisis peak of July 2008. season at the end of the quarter. As the increases in food prices start to feed into core inflation and inflation In addition to these factors, a recovery in foreign expectations, a tightening of monetary policy may be direct investment has further supported the balance necessary. The wedge between the World Bank’s poverty 58 Investing in Indonesia’s Institution basket inflation, which puts greater weight on such food The Government of Indonesia has started to implement items, and the overall CPI has increased to its highest its reforms to improve the targeting of energy subsidies. level since the series began in 2002. This reflects the fact The government increased electricity tariffs as of July 1, that current price increases particularly affect the poor, 2010 for most consumer categories which is expected to and it may be reflected in increased poverty numbers in reduce the electricity subsidy, provided that electricity 2011. supply costs do not rise by a greater amount. In addition, the 2010 increases were applied in such a way that The Government’s budget deficit in 2010 was lower subsidy targeting would improve, as the tariff increase than expected, at 0.6 percent of GDP, according to initial was applied to all consumer categories other than poorer unaudited Ministry of Finance figures. The budget deficit customers in the 900 VA and below range who will see no was significantly lower than the revised budget deficit change in their bills. The increase was also accompanied projection of 2.1 percent of GDP, once again reflecting by an effort to simplify the complex array of special tariffs the difficulty of the Government to effectively disburse mechanisms in order to provide more uniform pricing to the budget, particularly capital expenditure. Revenue customers of the same voltage category. The Government realization was stronger than projected (102 percent of has announced plans to exclude all private 4-wheel projected tax and non-tax revenues) and expenditure vehicles from purchasing subsidized fuel, starting in mid realization was a disappointing 93 percent, somewhat 2011 and in the Jakarta area, gradually extending the reversing the improving trend in budget realization of reform to the whole of Indonesia in the next few years. previous years. In 2009 revenues were 2.5 percent weaker The plan has in principle been approved by Parliament, than in 2008, a combination of tax cuts, slower nominal although the details have still to be worked out. GDP growth and lower imports and exports and spending reached 95 percent of budget overall. Reforms in the Indonesia’s Economic Outlook budget cycle (e.g. improved procurement processes, and new scope for budget carry-over) contributed to the The outlook for Indonesia’s economy remains solid, higher budget realization than in previous years. The with the major uncertainty being Indonesia’s potential Government approved a series of measures in August to raise growth rates to or above 7 percent by mid- 2010 (new procurement regulation and new and more decade. Indonesia’s economy is expected to grow by flexible guidelines on both virement procedures and 5.9 percent in 2010, increasing to around 6.2 percent in budget authority appointments) to accelerate budget 2011. Growth will be supported by increased domestic disbursements, but their effect is likely to be seen more demand offsetting stabilized or declining net exports. in 2011. Private consumption is expected to gradually accelerate, Figure 5: The wedge between headline and poverty Figure 6: The recent spike in monthly inflation was basket inflation continues to increase temporary and related to weather related shocks In ation Year-on-year Contribution to Monthly In ation 8 ( in Percent ) 8 Volatile Administered Core Headline In ation 1.8 1.8 4 4 1.2 ( in Percent ) 1.2 Food In ation 0 0 0.6 0.6 Poverty Basket In ation -4 -4 0.0 0.0 Headline In ation -8 -8 -0.6 -0.6 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Source: BPS and World Bank Source: BPS and World Bank Country Partnership Strategy Progress Report for The Republic of Indonesia 59 growing by around 5.0 percent in 2010 and 5.1 percent is expected to narrow in 2011 as the current account in 2011. Sectors focused on domestic demand (transport, moves into deficit, while capital inflows remain firm. The communications, various consumer and business annual inflation rate for 2010 was 5.1 percent, with prices services) are likely to continue to perform better than accelerating in the latter half of the year as highlighted those more externally oriented (manufacturing and above. Into 2011, inflation rates are likely to further resource-related), although this latter offer greater rise to 6.3 percent, given the recovery in new lending scope for upside surprises as the investment climate and acceleration in the money base experienced since improves. Investment is also expected to accelerate in late 2009, and possible increases of other administered 2010 and 2011, stimulated by increasing commodity energy prices (particularly retail gasoline). The longer- prices, stronger credit growth and some return of foreign term outlook is highly dependent on the conduct of direct investment. After 2009’s strong performance, policy by Bank Indonesia, although it is committed to government consumption is likely to grow more slowly limiting inflation to between 4-6 percent and ensuring than the overall economy in 2010 before recovering in that levels adjustments in key regulated prices (notably 2011, although core and developmental government energy) do not translate into persistently higher inflation. programs are likely to increase their share of overall spending. While near-term risks to the outlook remain significant, it is still uncertain whether Indonesia can achieve the Indonesia’s rising investment growth rates, robust pace of reform required to lift average growth rates domestic demand and improvements in the investment above 7 percent. Developments during 2010 highlight climate including through infrastructure projects are the near-term risks to Indonesia’s economic outlook projected to support faster growth in the face of the posed by volatile capital flows and uncertain trading uncertain and possibly weaker external outlook. Trade partner growth. In addition, political developments since growth is expected to remain broad-based. Imports are late 2009, in particular the parliamentary inquiry on the expected to recover faster than exports, as the domestic bailout of Bank Century and its outcome, have raised economy grows more quickly than Indonesia’s export some questions about the timing and depth of future destinations; and production to meet the ongoing reforms and improvements in conditions for investors recovery in non commodity exports requires more and firms, with potential downside risks to investment imported inputs, leading to a narrowing of the trade conditions and growth, although it is unclear whether surplus. Combined with a widening in the income these developments have significantly impacted financial deficit due to increased profit repatriation by oil and market investors’ perceptions. Over a longer horizon, gas companies, the current account surplus is expected these developments raise the question of whether the to narrow in 2010, before moving into deficit in 2011. Government can achieve the reform agenda outlined Nevertheless, the overall balance of payments surplus in its newly released medium-term development plan remained at record highs in 2010, as strong portfolio (RPJMN 2010-2014) towards achieving stronger and capital and direct investment inflows more than offset more inclusive growth. the narrowing in current account surplus. The surplus Table 1: Indonesia's medium-term economic outlook 2009 2010 (p) 2011 (p) 2012 (p) 2013 (p) 2014 (p) Key macro variables Real GDP (% change) 4.5 5.9 6.2 6.2 6.5 6.5 Real investment (% change) 3.3 8.6 10.0 8.3 10.0 10.2 Real consumption (% change) 6.2 4.4 5.6 5.2 6.0 5.8 Real exports (% change) -9.7 12.6 10.6 9.8 10.3 10.4 Real imports (% change) -15.0 13.4 10.3 10.3 10.3 9.8 Deficit (% of GDP) -1.6 -0.61 -1.0 -1.3 -1.0 -0.8 Public debt (% of GDP) 28.3 25.9 24.1 22.6 20.9 19.4 Current account balance (% of GDP) 2.0 1.3 -0.3 1.4 1.3 1.3 GDP deflator (% change)2 8.4 7.4 10.0 10.0 9.0 8.0 CPI inflation (%)2 4.8 5.1 6.3 6.0 6.0 6.0 Note: 1 Preliminary Ministry of Finance figure. 2 Period average. Source: BPS, Bank Indonesia, Ministry of Finance and World Bank historical data, World Bank staff projections 60 Investing in Indonesia’s Institution Appendix 10 Medium-Term Development Strategy (RPJMN) The Government of Indonesia released the National health, and education contributing directly to national Medium-Term Development Plan (RPJMN) for the period goals. The regional strategies highlight plans to promote 2010- 14 in February 2010. The RPJMN, consisting the development of all islands (not just the bigger ones); of three books, represents the second phase of the domestic connectivity through improved inter-island implementation of the National Long-Term Development trade; development of frontier, outer, post-conflict and Plan (2005-25), and draws on the vision, mission and disaster prone areas; marine and archipelagic economies; program of the new government. Book I outlines 11 and improving regional competitiveness. national development priorities, general policy and strategy, and the macroeconomic framework with The RPJMN has a targeted average economic growth the theme “to realize a prosperous, democratic, and rate of 6.3-6.8 percent for 2010-14, reaching 7 percent just Indonesia�. Book II outlines sectoral priorities and by 2014. The strategy emphasizes the need for growth development plans based on the theme “to strengthen with equity and a range of cross-cutting policies to the synergy across development sectors� in order to ensure that development is both sustainable and accomplish the vision of Book I and features detailed inclusive. The emphasis of the RPJMN is on a strategy sectoral programs with expected outputs, outcomes, that is pro-growth, pro-jobs and pro-poor, with particular and indicative budgets. Book III outlines regional relevance for increasing investments in infrastructure development strategies by island with the theme “to and strengthening the pro-poor agenda. The RPJMN also strengthen the synergy between central and regional has quantitative and qualitative targets for employment, and inter-regional governments� to achieve the national health (life expectancy is expected to increase to 72 development vision of Book I. years; malnutrition to decline to below 15 percent; maternal mortality to drop from 228 to 118; and infant The 11 national development priorities articulated in mortality from 34 to 24), education indicators (primary Book I are: and secondary net enrollment rates to reach 96 percent • Bureaucracy and governance reform and 76 percent respectively), production of main crops, • Education energy production and electrification rates, length of • Health roads, and also measures of citizen perceptions of the • Poverty alleviation quality of various public services. • Food security • Infrastructure The medium-term plan and strategies are expected to • Investment and business climate reduce the poverty rate from the 2009 level of 14.15 • Energy percent to 8-10 percent by 2014. The coordination • Environment and disaster management of social and poverty reduction programs would be • Least developed, frontier, outer, and post-conflict integrated to improve their effectiveness, the coverage areas; and of the current programs would be expanded, and rural • Culture, creativity, and technological innovation. infrastructure would be developed to achieve the target. Access to, and quality of, education would be improved The RPJMN also features three other national priorities by providing scholarships to the poor, implementing related to (i) politics, law, and security; (ii) the economy; teacher performance criteria, and rationalizing teacher- and (iii) peoples’ welfare. The sectoral priorities in Book II student ratios to achieve national education standards. include (i) socio-culture and religion; (ii) economic sectors; (iii) science and technology; (iv) infrastructure; (v) political; The envisaged RPJMN agenda is a mix of current and (vi) defense and security; (vii) law; (viii) regional and new development programs with planned activities for spatial; and (ix) natural resource and environment. Book poverty reduction, education, and health continuing or III incorporates the regional priorities and development expanding existing development programs. Some new strategies for each island: Sumatra, Java-Bali, Kalimantan, program priorities include construction of 19,000 km Sulawesi, Tenggara, Maluku, and Papua. The plan outlines of highway across the five largest islands, enhancing the links between the national and sectoral priorities with electricity generation capacity by 3,000 MW per annum, sectoral outcomes in areas such as poverty reduction, building a transportation infrastructure based on the Country Partnership Strategy Progress Report for The Republic of Indonesia 61 National Transportation System and Transportation the top nine relating to economic development are Blueprint, introducing a single identity number to well supported by the CPS program with lending, non- be applied by 2011, reducing the number of least lending, TA, and advisory activities and WBG instruments developed areas by 50 districts by 2014, developing a including IFC transactions. The major alignments national logistic system, and implementing an electronic between the RPJMN objectives and CPS results investment license and information system. outcomes are presented below. The revised results matrix (Appendix 1) elaborates further on the individual The WBG CPS cross-cutting and core engagement areas WBG activities in support of these objectives including and related outcomes continue to be well aligned with ongoing financing and knowledge activities, as well as the new RPJMN priorities. Of the 11 RPJMN priorities, planned WBG instruments. Alignment of RPJMN Priorities and CPS Outcomes RPJMN Priorities CPS Outcomes Priority 1: Bureaucracy and Governance reform • Structural consolidation and improvement of capacity • Improved results orientation in the budget process • Regional autonomy • Improved LG systems and processes for better planning, resource • Human resources/management of the civil service allocation and budget implementation • Regulations: harmonization of laws between centre and regions • Improved standards of service delivery in both urban and rural areas • Population data: identity cards • Improved tax administration via increased accuracy of registration of taxpayer audits; reduced arrears Priority 2: Education • Improve NER for basic education from 95% (2009) to 96% (2014) • Increased number of basic education teachers who meet mandated • Improve GER for higher education from 18% (2009) to 25% (2014) academic qualifications • Improve pedagogy by emphasizing holistic education • Improved efficiency and equity in the use of resources to increase • Improve school management by empowering principals access to basic education • Improve curriculum to respond to economic and market needs • Improved training and higher education through institutional ac- • Improve quality of teachers creditation; regular tracer studies • Improved information and better implementation, monitoring and evaluation of education funding Priority 3: Health • Community health program • Improved standards of service delivery in both urban and rural areas • amily planning • Spending made more pro-poor by reallocating from subsidies • Health facilities: quality accredited hospitals in 3 cities (212) and 5 towards strategic targeted support and CCTs cities (2014) • Drugs: implement national essential drugs list • National health insurance Priority 4: Poverty Alleviation • Integrated social aid: social protection (BLT), early childhood educa- • Improved socio-economic and local governance conditions of the tion (PAUD), and Hope Family Program urban and rural poor through wider coverage of poverty reduction • PNPM Mandiri: additional budget, BLM, to cover 30% of poorest and community empowerment programs rural districts • Spending made more pro-poor by reallocating from subsidies • Credit availability (KUR) towards strategic targeted support and CCTs • Revitalize National Committee for Poverty Alleviation Priority 5: Food Security • Improve legal rights to land • Public expenditures made more pro-poor • Develop 2m ha new agricultural land • More and better quality national and sub-national public spending • Infrastructure for agriculture (transport, irrigation, electricity) on infrastructure via improvements in subsidy policy, incentives • Agriculture R&D framework, and planning and budgeting • Investments, financing, and subsidy in food production and agricul- ture • Improve nutrition • Climate change adaptation 62 Investing in Indonesia’s Institution RPJMN Priorities CPS Outcomes Priority 6: Infrastructure • Integrated spatial management • More and better quality national and sub-national public spending • Roads: Complete highway construction (19,370 km in 2014) on infrastructure via improvements in subsidy policy, incentives • Transportation: Provision of inter-mode and inter-island transporta- framework, and planning and budgeting tion • Increased private investment in infrastructure via fiscally sound, • Public housing: construction of 685,000 low cost subsidized units credible and transparent PPP framework • Flood control: East Flood Canal (Jakarta) by 2012 • Telecommunications: Complete optic fiber network in eastern Indonesia by 2013 • Improve urban transport; Jakarta, Bandung, Surabaya, Medan including MRT and Monorail in Jakarta by 2014 Priority 7: Investment and Business Climate • Clarify legal framework and harmonize laws • Strengthened private sector through: better regulatory frameworks, • Simplify procedures: electronic investment licensing system (SPSIE), improved investment climate, stronger financial institutions, im- one-stop integrated service (PTSP), reduction of fees (TDP, SIUP) proved market access, business linkages and partnerships • Improve logistics for flow of goods and reduce transaction costs • Improved capacity of select sub-national governments to support • National Single Window for import (by 2010) and export business operations • Implement first phase of CATS (custom clearance system) • Improved regulatory environment and interagency coordination in • Special Economic Zones (KEK) in 5 locations through PPP the development of investment policies • Manpower policy • Strengthened institutional capacity of the Ministry of Trade for more effective trade policies Priority 8: Energy • Energy policy in accordance with National Energy Master Plan • Increased quantity and efficiency of national and sub-national • Restructure state enterprises (BUMN) starting with PLN state power government spending on infrastructure through improvements in company and Pertamina state oil and gas company by 2010 subsidy policy, incentives framework, and expenditure planning and • Greater use of alternative renewable energy sources (geothermal of budgeting. 2,000 MW in 2012 and 5,000 MW by 2014) • Increased private investment in infrastructure through the establish- • Extend conversion from kerosene to gas (42m households by 2010. ment of a fiscally sound, credible and transparent PPP framework. Priority 9: Environment and Disaster Management • Climate change: peat land management, land rehab (500,000 ha/ • Implementation of policies and pilots to reduce emissions from year), avoid acceleration of deforestation deforestation and environmental degradation • Reduce environmental pollution: water waste and emission (680 • Strengthened disaster risk reduction in development planning and industrial and service activities by 2010) administration • Reduction in forest fire hotspots (20% per year) • Tsunami early warning system in place by 2010 • Improved capacity for disaster management Country Partnership Strategy Progress Report for The Republic of Indonesia 63 Appendix 11 Indonesia - a Growing Role in South-South Knowledge Exchange Indonesia has assumed a growing role in promoting Indonesia has been scaling-up its partnership with the South-South Cooperation through peer-to-peer World Bank to support Indonesia’s participation and knowledge exchange. During the Korean presidency of leadership in South-South activities. Over the past the G20 in 2010, Indonesia played a key role in securing year, several exchanges with Indonesia as a knowledge the inclusion of “knowledge sharing� as one of nine provider and recipient have been funded by the World pillars in the G20 Development Consensus. Leading Bank’s South-South Experience Exchange Trust Fund up to the Summit in Seoul in October 2010, Indonesia (SEETF) and the Knowledge and Learning Council Fund, was appointed as the coordinator of the Knowledge in addition to peer-to-peer learning activities funded Sharing theme, and the Government has expressed a through Bank loans, Bank budget and trust funds. The strong interest in taking forward the implementation of Country Team has supported knowledge exchanges, the related G20 mandate during the French presidency including participating in learning events and the Country in 2011. The G20 mandate requests the international Office has hosted visiting delegations and supported Task Team for South-South Cooperation (TT-SSC) in activities. A select number of recent and ongoing South- collaboration with UNDP to develop recommendations South Exchanges and Learning Events supported by the on how Knowledge Sharing activities can be scaled World Bank are below: up, including through South-South and Triangular Cooperation. Indonesia as Knowledge Provider • Understanding Experiences in Post-Conflict States In the Fall of 2010, Indonesia was requested by Colombia (SEETF, closed): Indonesia, Rwanda and South Africa to join it as co-chair of the Task Team for South-South shared expertise with Nepal on increasing local Cooperation which was set up under the auspices of government autonomy in post-conflict settings. DAC-OECD following the High Level Forum III on Aid • Bolivia Conditional Cash Transfer Program (SEETF, Effectiveness in Accra 2008. The outcome of Task Team’s closed): Indonesia was one of four countries that work is expected to play a major role in the upcoming shared expertise with the Bolivian Government on High-Level Forum IV in Busan, Korea, 2011. Part of the how to develop successful CCT programs. evidence that the TT-SSC will use is based on Indonesia’s • Haiti Housing Reconstruction Exchange (SEETF, rich South-South experience. In the lead-up to the closed): Indonesia along with India and Pakistan Busan Forum, Indonesia is co-organizing and hosting shared expertise with Haiti after its April 2010 an international event on Triangular Cooperation in earthquake. February-March 2011. Bappenas is the main counterpart • India-Pakistan Knowledge Exchange Program for the South-South agenda in the Indonesian (under the Punjab Education Sector Project): This government. WB loan supported a study tour to Indonesia permitting Pakistani education officials to learn about Indonesia’s leadership in growing arena of South-South approaches for decentralizing education services and knowledge exchange is further demonstrated by its building community participation. strong roles as a provider and recipient of “how-to� development knowledge, often in collaboration with donors or partnering countries. Indonesia has shared its expertise in, inter alia, agriculture, microfinance, disaster management, and community driven development with states in Asia, Africa, and Latin America and the Caribbean. Indonesian institutions have received knowledge through peer-to-peer exchanges in agriculture, urban development, and other key fields. In addition, the Government has participated in diverse multidirectional learning initiatives, including regional dialogues on aid a World Bank team is accompanying officials effectiveness and triangular cooperation with ASEAN from Surabaya to visit Ahmedabad India to countries. JICA has been a major partner in financing and learn from their peers how they catalyzed urban supporting Indonesia’s South-South agenda. transformation... 64 Investing in Indonesia’s Institution Indonesia as Knowledge Recipient • Learning from India about innovative uses for • Learning from India about urban transformation information and communications technology (ICT) (Winner of WBI South-South knowledge exchange in agriculture (Winner of the World Bank Institute’s competition): In connection to with on-going South-South knowledge exchange competition): to analysis of urbanization and local government and an support capacity building under the on-going Bank- assessment of fiscal management in Surabaya, a World financed Farmer Empowerment through Agricultural Bank team is accompanying officials from Surabaya Technology and Information Project, a World Bank to visit Ahmedabad India to learn from their peers team is organizing a study tour for Officials from the how they catalyzed urban transformation focusing Indonesian Ministry of Agriculture to learn from their on urban management, investment planning, and counterparts in India on how potential uses of ICT for effective decision making. agricultural. Indonesia along with India and Pakistan shared expertise with Haiti after its April 2010 earthquake. Country Partnership Strategy Progress Report for The Republic of Indonesia Annex A2 Country-at-a-Glance: INDONESIA Prices and Government Finance In ation (%) 1988 1998 2007 2008 20 Domestic prices (%change) 8.5 58.5 6.4 9.8 GDP de ator Consumer prices 12.7 75.3 11.3 18.3 15 Implicit GDP deflator Government finance 10 (% of GDP, includes current grants) CPI Current revenue - - 17.9 19.4 Current budget balance - - 6.8 6.1 5 Overall surplus/deficit - - -1. -0.8 Note: This table was produced from the Development Economics LDB database. 12/9/09. 02 03 04 05 06 07 08 External Debt and Resource Flows Composition of 2008 Debt (US$ mill.) 1988 1998 2007 2008 Private (US$ millions) 62,357 Total debt outstanding 54,078 151,484 142,638 150,851 and disbursed IBRD 8,003 10,692 6,821 6,968 IDA 861 694 1,550 2,006 Total debt service 8,642 18,314 22,805 22,150 Bilateral 41,967 IBRD 1,063 1,456 1,803 1,622 IDA 13 26 38 40 Composition of net resource flows Short- 26,565 Official grants 201 279 991 837 Other Multilateral IDA Official creditors 2,876 2,754 -1,849 -1,119 10,988 2,006 IBRD 6,968 Private creditors 63 -3,281 2,558 7,092 Foreign direct investment 576 -241 6,928 8,698 (net inflows) Portfolio equity (net inflows) 0 -4,371 3,559 322 World Bank Program Commitments 1,067 1,672 1,383 2,159 Disbursements 1,649 1,212 986 1,892 Principals 435 754 1,396 1,279 repayments Net flows 1,214 458 -409 613 Interest payments 641 728 445 383 Net transfer 574 -270 -855 230 Note: This table was produced from the Development Economics LDB database. 12/9/09. 66 Investing in Indonesia’s Institution Trade Export and Import Levels (US$ mill.) 1988 1998 2007 2008 150.000 (US$ millions) Total exports (fob) 19,335 48,848 118,015 139,605 EXPORTS IMPORTS 120.000 Fuel 7,696 8,079 22,518 29,329 Estate crop 2,070 3,974 6,329 8,467 Manufactures 5,693 20,088 46,140 50,588 90.000 Total imports (cif) 15,279 35,286 94,187 128,907 Food 642 2,612 6,884 7,927 Fuel and energy 959 2,686 21,994 38,038 60.000 Capital goods 5,096 9,932 19,038 42,397 Export price index (2000= 32 76 133 146 30.000 100) Import price index (2000= 126 107 206 263 100) Terms of trade (2000= 100) 25 71 65 56 02 03 04 05 06 07 08 Note: This table was produced from the Development Economics LDB database. 12/9/09. Balance of Payments Current Account Balance to GDP (%) 1988 1998 2007 2008 (US$ millions) Exports of goods and 20,878 105,221 130,501 154,849 services 15 Imports of goods and 18,437 87,933 109,588 144,681 services Resource balance 2,441 17,288 20,913 10,168 10 Net income -8,184 -16,378 -15,525 -15,253 Net current transfers 254 3,184 5,104 5,385 Current account balance -5,489 4,094 10,493 300 5 Financing items (net) 5,263 -7,531 2,223 -2,244 Changes in net reserves 226 3,437 -12,715 1,945 02 03 04 05 06 07 08 Memo: Reserves including gold 4,814 23,516 55,798 81,110 (US$ millions) Conversion rate (DEC, 1,685.7 10,013.6 9,143.4 9,699.9 local/US$) Note: This table was produced from the Development Economics LDB database. 12/9/09. Country Partnership Strategy Progress Report for The Republic of Indonesia 67 Annex B2 Selected Indicators* of Bank Portfolio Performance and Management Indicator 2008 2009 2010 2011 Portfolio Assessment Number of Projects Under Implementation a 27 35 34 36 Average Implementation Period (years) b 3.8 4.5 4.1 4.3 Percent of Problem Projects by Number a, c 25.9 25.7 8.8 8.3 Percent of Problem Projects by Amount a, c 13.9 10.2 2.2 1.9 Percent of Projects at Risk by Number a, d 29.6 25.7 11.8 11.1 Percent of Projects at Risk by Amount a, d 17.5 10.3 3.0 2.7 Disbursement Ratio (%) e 24.9 45.0 54.5 18.4 Portfolio Management Country Portfolio Performance Review during the year Yes Yes Yes Yes Supervision Resources (total US$) 2,327 2,177 2,684 Average Supervision (US$/project) 89.5 70.2 83.9 Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 277 11 Proj Eval by OED by Amt (US$ millions) 25,415.1 1,890.9 % of OED Projects Rated U or HU by Number 24.7 45.5 % of OED Projects Rated U or HU by Amt 20.7 6.9 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 68 Investing in Indonesia’s Institution Annex B3 Indicative IBRD Lending Program, FY09-12 Fiscal Engagement Area Fiscal year IBRD year US$m Approved Lending Projects 2009 Central Government Fifth Development Policy Loan 750 Second Infrastructure DPL (IDPL 2) 200 Public Expend. Supp. Facility (DPL-DDO) 2,000 Project for Indonesian Tax Administration Reform 110 Infrastructure Indo Infrastructure Finance Facility 100 Dam Operational Improvement (DOISP) 50 Community Based Development & Social Protection PNPM Rural II 300 PNPM UPP additional financing 115 Education BOS KITA Project 600 Total FY09 Lending 4,225 2010 Central Government Indonesia Sixth Development Policy Loan 750 Subnational Government Local Government and Decentralization 220 Infrastructure Urban Water Supply 24 Third Infrastructure DPL (IDPL3) 250 Java-Bali Power (Additional Financing) 30 Community Based Development & Social Protection PNPM-Rural III 785 PNPM-Urban III Project 150 Education Health Professional Education Quality 78 BOS KITA Project (Add’i Financing) 500 Environmental Sustainability & Disaster Mitigation Indonesia Climate Change DPL 200 Total FY10 Lending 2,987 2011 Central Government Seventh Development Policy Loan 600 Fourth Infrastructure DPL (DPL4) 200 Strengthening Indonesian Statistics 65 Scholarship Program 113 Infrastructure Power Transmission Development 225 Upper Cisokan Pumped Storage 640 Water Resources & Irrig Mgt 2 150 Western Indonesia National Roads Improvement 250 Total FY11 Lending 2,243 2012 Central Government Indonesia DPL-8 400 Indonesia Food Access Program (DPL-DDO) 300 Agriculture Research & Tech 80 Sub National DAK Support II (Standby) 200 Infrastructure Infrastructure Guarantee Fund (IIGF) 480 IIGF TA 30 Jakarta Urgent Flood Mitigation 150 Geothermal Clean Energy (CTF $125) 175 Power Transmission II 375 Community Based Development &Social Protection PNPM Urban IV 150 PNPM Rural IV 532 Education Research and Innovation 95 BOS KITA3 (Standby) 250 Environmental Sustainability & Disaster Mitigation Restoration Concessions (GEF) 3.3 Chiller Energy Efficiency (GEF) 3.7 Climate Change DPL2 (proposed) 200 Total FY12 Lending 2,967 Country Partnership Strategy Progress Report for The Republic of Indonesia 69 Annex B4 Summary of Non Lending Services Engagement Area Product FY Cost TF Audiencea Objectiveb (US$ m) Recent completions Economic and Sector Work Central Government Development Policy Review FY09 86 42 Public Dissemination KG, PD Understanding Labor Market in FY09 79 - Government KG, PD, PS Indonesia Budget reform in Indonesia, FY09 78 - Government KG, PS IMF-WB Indonesia's Development Strategy FY10 523 25 Government KG, PD, PS Spending for Development (RPJM FY10 277 406 Government KG, PD, PS 2010-14) Corporate Governance: Indonesia FY10 186 - Public Dissemination KG, PD, PS II Country Assessment Country Procurement Assessment FY10 55 0 Government KG, PD, PS Report Agriculture Public Expenditure FY10 165 - Government KG, PS Review Subnational Government Intergovernmental Transfer (TF) FY10 - 90 Government KG Sub-national Surplus and Re- FY10 - 177 Government KG serves (TF) Territorial Reform (TF) FY10 - 228 Government KG Private Sector Financial Sector Assessment FY10 809 - Government KG Infrastructure Papua & W Papua ICT Infra Svc FY09 42 - Public Dissemination KG, PD, PS Assess Papua Infra Strategy and Priori- FY10 364 - Public Dissemination KG, PD tization PPP Framework and Policy FY10 1 455 Government KG, PD, PS Community Development Poverty Reduction Thru Ec-Gov FY10 128 2,952 Government KG, PD, PS and Social Protection Empowering Female Migrant FY10 7 42 Public Dissemination KG, PD, PS Workers Evaluation of NGO Sector in FY10 3 55 Government KG, PD, PS Indonesia Education Health Workforce FY10 360 - Government KG, PD, PS Teacher Management FY10 50 - Government KG, PD, PS Environmental Sustainability Fuel Quality Issues & Air Pollut FY09 0 - Public Dissemination KG, PD, PS and Disaster Mitigation Sustainable Econ. Dev. Stra- FY09 91 - Government KG, PD, PS tegy for Aceh Agric R&D Public Expenditure FY09 52 - Government KG, PD Analysis Health Health Finance & Dialogue FY09 345 6 Government KG, PD, PS HIV Interventions FY09 27 - Government KG, PD, PS Health System Strengthening FY09 18 21 Government KG, PD, PS Technical Assistance Central Government Supporting Corruption Eradica- FY09 41 - Government KG, PD, PS tion Supporting Ind Anti-Corruption FY09 4 1,614 Government KG, PD, PS Inst. 70 Investing in Indonesia’s Institution Engagement Area Product FY Cost TF Audiencea Objectiveb (US$ m) Program to Improve Ind’s Trade FY10 66 2,209 Government PS Policy Governance & Civil Service Reform FY10 103 - Government PD, PS Dialog Indonesia - Civil Service Reform FY10 147 - Government KG, PD, PS Study on Government Agencies FY10 - 148 Government KG, PD, PS (TF) PEFA Follow Up FY10 60 - Government KG, PD, PS Subnational Government Aceh Support FY09 1,593 278 Government KG, PD, PS Aceh Response TA Facility FY09 113 1,584 Government KG, PS Decentralization FY09 113 693 Government KG Papua Public Expenditure Capac- FY10 2 1,046 Public Dissemination KG, PD, PS ity B Aceh Dialogue Economic Policy FY10 52 - Government KG, PD, PS Indonesian National Single FY10 109 - Government PS Window Improving Indonesia's Investment FY10 153 - Government PS Climate Private Sector Enhancing Demand for Legal FY09 73 653 Other KG, PD Reform Access to Finance FY10 356 - Other KG, PD, PS Support to Financial Sector Policy FY10 72 - Government KG, PD, PS Implementation Life Insurance reform FY10 13 349 Government KG, PD, PS Indonesian National Single Widow FY10 109 - Government PS Improving Indonesia’s Investment FY10 153 - Government PS Climate Infrastructure Aceh-Nias Water & Sanitation FY09 3 335 Other PS Facility National Slum Upgrading Policy FY09 33 - Government KG, PS Indonesia Infrastructure Guaran- FY09 78 - Government PS tee Fund TA for MIS and Evaluation Study FY10 - 11 Government KG, PS (TF) WSS Financing Initiative (TF) FY10 - 858 Government KG, PD, PS Indonesia Telecom & ICT Advisory FY10 22 1 Government PS Support Community Development Youth Investment GoI Support FY09 112 140 Government KG, PS and Social Protection National Program FY09 64 1,186 Government KG, PS MIS IMPROVEMENT FOR PNPM FY09 - 101 Government KG, PS (TF) Improved Evidence Base (PERDA) FY09 - 118 Other KG, PS – TF Information, Education & Com- FY09 - 481 Government KG, PS munication (TF) Cost Accounting Review for CDD FY09 - 17 Government KG, PS (TF) Technical Assessment for CDD FY09 - 54 Government KG, PS Prog (TF) CDD Summit (TF) FY09 - 421 Government KG, PS Policy Development for PNPM (TF) FY09 - 21 Government KG, PS Education Education Sector Assessment FY10 173 - Government KG, PD, PS Environmental Sustainability Nias Disaster Risk Management FY09 - 50 Government KG, PD, PS and Disaster Mitigation (TF) CPS Sustainability Platform FY09 120 - Government POPs Awareness and Capacity FY10 - 98 Government KG, PD, PS Building (TF) Country Partnership Strategy Progress Report for The Republic of Indonesia 71 Engagement Area Product FY Cost TF Audiencea Objectiveb (US$ m) Integrate Econ Analysis for Cli- FY10 90 - Government KG, PD, PS mate Change Indonesia Post-Disaster Needs FY10 7 121 Government KG, PD, PS Assessment Health Health system strengthening (TF) FY09 - 42 Government KG, PD, PS Underway Economic and Sector Work Central Government Indonesia-Openness, Competition FY11 158 - Government KG, PD, PS and Grow Subnational Government TF-Improving Intergovernmental FY11 31 263 Government KG Framework Sub-national Borrowing (TF) FY11 - 598 Government KG East Java Growth Diagnostic (TF) FY11 - 42 Public Dissemination KG, PD Financing Local Governments FY11 1 - Government KG, PD Private Sector Indonesia ROSC Update FY11 107 - Government KG Regulatory Reform and Invest- FY11 0 - Government KG, PD, PS ment Policy Infrastructure Assessment of Road Construction FY11 - 47 Government KG, PD, PS Industry (TF) Surabaya NRW Management FY11 - 26 Government KG, PD, PS Strategy (TF) National Road Map for Water Sup- FY11 - 1 ply Investment Improving Indonesia’s connectiv- FY11 40 1 Government KG, PS ity Community Development Youth Skills and Employment FY11 40 - Government KG and Social Protection Impr. Targeting Performance of FY11 46 441 Government KG Pov. Prog Social Protection PER FY11 35 335 Government KG, PD, PS User Fee Assess for CDD Prog (TF) FY11 - 392 Government KG, PS Health HIV/AIDS PET Study FY11 18 189 Government KG, PD, PS Technical Assistance Central Government Capacity Build on Trade Policy FY11 - 60 Government KG, PD, PS Indonesia (TF) Indonesia 2010 PEFA FY11 75 - Government KG, PD, PS Data for Monitoring and Evalua- FY11 - 382 Government KG tion (TF) Rapid Response Supp. on Trade FY11 2 - Government KG,PS Mon. & Pol Trade & Clim. Change & Logistics FY11 - 93 Government KG, PD, PS Reform (TF) Support for Bureaucratic Reform FY11 7 - Government KG, PS in MoT Monitoring and Evaluation TA FY11 25 - Government KG, PS Building-Blocks for E-Government FY11 6 307 Government KG, PS Capabil (TF) Supp. SA Program Design & FY11 77 363 Government KG, PD, PS Implementation Indonesia's Non Tarriff Measures FY11 1 1 Government KG, PD, PS Support Enhanced Analysis & FY11 EFO - Government PS Monitoring (EFO) Rapid Response Supp.on Cross- FY11 5 - Government PS Cutting Supp. Establishment of Crisis FY11 EFO - Government KG, PD, PS Monitoring (EFO) Promoting Development Effec- FY11 - 86 Other KG, PS tiveness (TF) Improving Poverty Data Quality FY11 15 - Government PS 72 Investing in Indonesia’s Institution Engagement Area Product FY Cost TF Audiencea Objectiveb (US$ m) Planning and Performance Mea- FY11 - 534 Government PS surement (TF) Support to Regulatory Reform FY11 52 - Government PD, PS Monitoring and Evaluation TA FY11 10 197 Government KG, PS Policy Dialogue on Services FY11 1 - Government PD, PS Corruption Prevention Capacity FY11 77 - Government PS Building Subnational Government Knowledge Mgmt for Effective FY11 - 59 Other KG, PD, PS LGs (TF) Minimum Service Standards (TF) FY11 - - Government KG, PS Alternative Mech of Service FY11 - 200 Government KG, PS Delivery (TF) Local Government and Urbaniza- FY11 44 226 Government KG tion Strengthening Local Capacity for FY11 85 298 Government PS Poverty Supp. for Strengthening Sub- FY11 21 - Government PS National PFM Infrastructure Indonesia Energy Sector Policy FY11 17 131 Other KG, PD, PS Dialogue Geothermal Power Support FY11 - 592 Government KG, PS Program (TF) Indonesia Telecoms/ICT Develop- FY11 - 92 Government KG, PD, PS ment TA (TF) Timely Land Acquisition for Infra FY11 - 93 Government KG, PD, PS Dev (TF) Value of a Well Run Water Utility FY11 - 52 Public Dissemination KG, PD, PS Study (TF) Indonesia Telecom & ICT Policy FY11 24 - Government KG, PD, PS Advice Indonesia Broadband Internet PPP FY11 4 36 Government KG, PD, PS Low-income Housing Policy and FY11 74 306 Government KG, PD, PS Finance Unique ID and National Database TA Private Sector Access to Islamic Finance for SMEs FY11 - - Government KG, PD, PS (TF) Logistics and Connectivity FY11 6 0 Government KG, PD, PS Rapid Response Supp. on Fin. Sec. FY11 20 - Government KG, PS Policy Enhancing Fin. Incl. & Access to FY11 55 - Government KG, PD, PS Finance Community Development CCT (Conditional Cash Transfers) FY11 170 - Government KG, PD, PS and Social Protection Poverty Dialogues on Pro Poor & FY11 84 182 Government KG, PD, PS Pro Jobs Supp. SA Program Design & FY11 69 - Government KG, PS Implementation Supp for Social Insurance & Labor FY11 50 - Government KG, PS Reform Helping Generate Jobs for Pro- FY11 20 177 Government KG, PD, PS Poor Growt PNPM Supv. and Monitoring FY11 - 203 Government KG, PS (Urban) - TF PNPM - Strategic Directions FY11 75 - Government PS Food Security Policies in Indo- FY11 21 41 Government PS nesia Indonesia SP Engagement TA FY11 8 - Government PD Education Indonesia School Based Manage- FY11 117 - Government KG, PD, PS ment Study Country Partnership Strategy Progress Report for The Republic of Indonesia 73 Engagement Area Product FY Cost TF Audiencea Objectiveb (US$ m) Educ Sector Dialogue and FY11 127 - Government KG, PD, PS Strategy Environmental Sustainability Mainstreaming DRR in Indonesia FY11 - 1,105 Government PS (TF) and Disaster Mitigation Persistent Organic Pollutant FY11 - 90 Government KG Disaster Risk Financing FY11 3 - Government KG, PS Climate Policy and Institutional FY11 11 - Government KG, PD, PS Supp Health Health Sector Reform Agenda TA FY11 54 - Government KG, PD, PS HIV/AIDS Analysis FY11 7 5 Government KG, PD, PS Planned Economic and Sector Work Central Government Economic Quarterly and Policy FY12 147 - Government KG, PD, PS Notes Subnational Government Subnational Capital Markets FY12 6 - Government KG, PD PEACH -TA, Capacity Building FY12 - - Government KG PEACH - TA for CSO/Media - TF FY12 - - Other KG Private Sector Manufacturing Sector Study FY12 35 - Public Dissemination KG, PD Infrastructure Improving Indonesia's connectiv- FY12 202 - Government KG, PD, PS ity Infrastructure Public Expenditure FY12 227 - Government KG, PD, PS Review Education Education Public Expenditure FY12 50 - Government KG, PD, PS Review Technical Assistance Central Government Public Exp. Ana. & Capacity Harm. FY12 203 - Government KG, PS Support for Public Expenditure FY12 50 - Government KG, PD, PS Analysis Demand for Legal Reform (TF) FY12 - - Government PS Fiscal Decentralization & Capacity FY12 - - Government KG, PS Devt (TF) Public Procurement Reform (TF) FY12 - - Government PD, PS Support for Public Expenditure FY12 - - Government KG, PD, PS Analysis Infrastructure Indonesia Program Administra- FY12 - - Government KG, PD, PS tion and Advisory Services (TF) Indonesia Sanitation Sector De- FY12 - - Government KG, PD, PS velopment Program (TF) Sanitation Sector Development FY12 - - Government PS (TF) Water and Sanitation Sector FY12 - - Government KG, PD, PS Monitoring (TF) Aligning Water Resources Sector FY12 - - Government KG, PD, PS (TF) Technical Assistance for Flood FY12 - - Government PS Mitigation (TF) GPOBA: Improved Access to Water FY12 - - Other PS Services in Jakarta GPOBA: Expanding Piped Water FY12 - - Government PS Supply to Surabaya’s Urban Poc Community Development Supporting Post-Conflict Dev (TF) FY12 9 - Government KG, PD, PS and Social Protection PNPM Supervision and Monitor- FY12 - - Government KG,PS ing (TF) Supp. for Dev. Gender Engage- FY12 - - ment (TF) Indonesia: Urban Poverty Analysis FY12 126 - Government KG, PD, PS PNPM Peduli FY12 TF - Government KG,PS a. Government, donor, Bank, public dissemination. b. Knowledge generation, public debate, problem-solving.= 74 Investing in Indonesia’s Institution Annex B5 Social Indicators Latest single year Same region/income group 1980-85 1990-95 2002-08 East Asia & Pacific Lower-middle income POPULATION Total population, mid-year (millions) 162.3 191.5 227.3 1,929.6 3,703.0 Growth rate (% annual average for period) 2.0 1.5 1.3 0.8 1.2 Urban population (% of population) 26.1 35.6 51.5 44.1 41.3 Total fertility rate (births per woman) 3.7 2.7 2.2 1.9 2.5 POVERTY (% of population) National headcount index - - 16.7 - - Urban headcount index - - 12.1 - - Rural headcount index - - 20.1 - - INCOME GNI per capita (US$) 530 1,020 1,880 2,644 2,073 Consumer price index (2000=100) 13 28 132 122 126 Food price index (2000=100) 15 37 121 - - INCOME/CONSUMPTION DISTRIBUTION Gini index - - 37.6 - - Lowest quintile (% of income or consumption) - - 7.4 - - Highest quintile (% of income or consumption) - - 45.5 - - SOCIAL INDICATORS Public expenditure Health (% of GDP) - - 1.2 1.9 1.8 Education (% of GDP) - - 3.5 2.7 4.0 Net primary school enrollment rate (% of age group) Total - 98 95 - 87 Male - 100 97 - 89 Female - 96 94 - 86 Access to an improved water source (% of population) Total - 74 80 87 86 Urban - 91 89 96 94 Rural - 65 71 81 81 Immunization rate (% of children ages 12-23 months) Measles 26 63 83 91 81 DPT 27 69 77 92 79 Child malnutrition (% under 5 years) - 27 20 12 25 Life expectancy at birth (years) Total 58 64 71 72 68 Male 57 63 69 70 66 Female 60 66 73 74 70 Mortality Infant (per 1,000 live births) 65 46 31 23 45 Under 5 (per 1,000) 101 67 41 29 64 Adult (15-59) Male (per 1,000 population) 368 275 166 161 204 Female (per 1,000 population) 308 219 116 101 138 Maternal (modeled, per 100,000 live births) - - 420 150 370 Births attended by skilled health staff (%) - 37 79 89 65 Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any time before the survey. World Development Indicators database, World Bank - 23 April 2010. Country Partnership Strategy Progress Report for The Republic of Indonesia 75 Annex B6 Key Economic Indicators Actual Estimate Projected Indicator 2008 2009 2010 2011 2012 2013 2014 National accounts (as % of GDP) Gross domestic producta 100 100 100 100 100 100 100 Agriculture 14.5 15.3 15.6 12.5 10.6 9.2 8.4 Industry 48.1 47.6 43.4 36.9 33.2 30.0 27.4 Services 36.0 34.1 41.0 50.6 56.2 60.7 64.2 Total Consumption 71.1 66.2 65.1 67.1 65.7 65.7 65.7 Gross domestic fixed investment 27.7 31.1 31.4 31.1 31.5 32.3 33.1 Government investment 1.4 1.6 1.5 1.4 1.4 1.4 1.4 Private investment 26.3 29.5 29.9 29.7 30.1 30.9 31.7 Exports (GNFS)b 29.8 24.1 27.4 26.3 23.8 22.6 21.5 Imports (GNFS) 28.7 21.3 30.3 28.1 26.3 24.9 23.6 Gross domestic savings 28.9 33.8 34.9 32.9 34.3 34.3 34.3 Gross national savingsc 25.3 30.3 33.1 31.6 33.1 33.2 33.4 Memorandum items Gross domestic product (US$ million at current 510,502 514,389 540,274 702,292 828,713 968,103 1,123,822 prices) GNI per capita (US$, Atlas method) 1,900 2,050 2,660 3,110 3,780 4,420 5,080 Real annual growth rates (%) Gross domestic product at market prices 6.0 4.5 5.9 6.2 6.2 6.5 6.5 Gross Domestic Income 0.7 6.9 5.7 6.1 6.4 6.5 6.5 Real annual per capita growth rates (%) Gross domestic product at market prices 4.8 3.4 4.7 5.0 5.0 5.3 5.3 Total consumption 2.5 2.9 3.3 4.4 4.0 4.8 4.6 Private consumption 1.6 1.3 3.8 3.9 6.5 4.8 4.5 Balance of Payments (US$ millions) Exports (GNFS)b 154,853 133,259 212,486 232,938 254,886 279,386 305,319 Merchandise FOB 139,606 119,480 197,467 217,553 239,021 262,815 287,294 Imports (GNFS)b 144,935 112,234 192,719 217,814 230,759 253,649 278,237 Merchandise FOB 116,690 84,347 156,124 176,731 184,397 199,923 218,729 Resource balance 9,918 21,025 19,767 15,123 24,127 25,736 27,082 Net current transfers 5,264 4,861 4,900 5,253 5,623 6,011 6,419 Current account balance 126 10,746 6,900 -1,900 11,566 13,049 14,722 Net private foreign direct investment 3,419 1,928 5,400 4,600 5,000 5,000 5,000 Other capital (net, incl. errors & omissions) -7,414 -11,271 14,300 10,500 7,000 7,000 7,000 Change in reservesd 1,945 -12,506 -25,584 -11,404 -10,268 -3,486 -5,271 Memorandum items Resource balance (% of GDP) 1.9 4.1 3.7 2.2 2.9 2.7 2.4 Real annual growth rates ( YR00 prices) Merchandise exports (FOB) 13.7 -19.5 13.8 11.4 10.5 11.0 11.1 Public finance (as % of GDP at market prices)e Revenues 19.8 15.1 16.0 14.9 14.4 14.2 13.8 Expenditures 19.9 16.7 16.6 15.9 15.7 15.1 14.6 Overall deficit -0.1 -1.6 -0.6 -1.0 -1.3 -1.0 -0.8 Monetary indicators M2/GDP 38.3 38.1 41.7 40.0 40.0 40.0 28.6 Growth of M2 (%) 14.9 13.0 26.0 14.4 16.8 16.1 -17.8 Private sector credit /total credit (%) 93.0 94.0 96.6 91.6 90.9 90.3 89.8 Price indices( YR00 =100) Merchandise export price index 309.0 328.5 474.2 487.8 474.5 464.0 458.7 Merchandise import price index 464.9 435.5 769.9 777.2 756.2 748.4 745.0 Merchandise terms of trade index 66.5 75.4 61.6 62.8 62.8 62.0 61.6 Real exchange rate (US$/LCU)f 130.0 129.3 115.3 104.3 97.7 91.4 86.3 Consumer price index (% change) 9.8 4.8 5.1 6.3 6.0 6.0 6.0 GDP deflator (% change) 18.2 8.4 7.4 10.0 10.0 9.0 8.0 a. GDP at market prices b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. 76 Investing in Indonesia’s Institution Annex B7 Key Exposure Indicators Actual Estimated Projected Indicator 2008 2009 2010 2011 2012 2013 2014 Total debt outstanding and disbursed 146,247 157,517 166,070 169,445 172,557 176,145 175,537 (TDO) (US$m)a Net disbursements (US$m)a 1,561 6,573 2,328 (4,065) (5,037) (5,294) (10,059) Total debt service (TDS) (US$m)a 21,368 24,852 22,406 26,282 24,636 24,980 30,302 Debt and debt service indicators (%) TDO/XGSb 104.5 96.3 78.2 72.7 67.7 63.0 57.5 TDO/GDP 33.8 30.9 30.7 24.1 20.8 18.2 15.6 TDS/XGS 15.3 15.2 14.4 15.3 13.0 12.0 13.2 Concessional/TDO 29.6 27.7 29.0 31.0 32.2 32.5 33.7 IBRD exposure indicators (%) IBRD DS/public DS 17.6 14.0 14.2 15.2 15.9 16.2 13.5 Preferred creditor DS/public DS (%)c 26.2 29.4 25.3 22.2 23.0 23.3 25.1 IBRD DS/XGS 1.0 1.0 0.7 0.6 0.6 0.6 0.5 IBRD TDO (US$m)d 6,968 7,876 9,659 11,485 13,116 14,625 16,058 Share of IBRD portfolio (%) 5.7 6.8 8.7 11.0 12.4 14.7 15.8 IDA TDO (US$m)d 2,006 2,234 2,278 2,300 2,303 2,283 2,244 IFC (US$m) Loans Equity and quasi-equity MIGA MIGA guarantees (US$m)e 50 50 50 257 n/a n/a n/a a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Preliminary figure for 2011. Country Partnership Strategy Progress Report for The Republic of Indonesia 77 Annex B8.1 Operations Portfolio (IBRD/IDA and Grants) As of Date: 1/14/2011 Closed Projects 319 IBRD/IDA * Total Disbursed (Active) 3,190.22 of which has been repaid 42.68 Total Disbursed (Closed) 7,093.98 of which has been repaid 10,811.99 Total Disbursed (Active + Closed) 10,284.21 of which has been repaid 10,854.67 Total Undisbursed (Active) 2,017.33 Total Undisbursed (Closed) 2,000.39 Total Undisbursed (Active + Closed) 4,017.73 Active Difference Projects Between Last PSR Supervision Rating Original Amount in US$ Millions Expected and Actual Disbursements a/ Project Project Name Develop- Imple- Fiscal IBRD IDA GRANT Cancel. Undisb. Orig. Frm ID ment menta- Year Rev'd Objectives tion Progress P085133 Govt Finl Mgt & Revenue Admin MS MS 2005 55 5 34.9404 34.97053 3.516721 Project P071316 ID-Coral Reef Rehab and Mgmt Prog II MU MU 2004 33.2 23 3.168374 3.179241 5.438194 P096921 ID-National UPP (PNPM UPP) S S 2008 167.68 125 61.33699 -51.22708 54.88403 P115052 ID PNPM-Rural III # # 2010 785 293.393 -24.94032 P092218 ID-Indo Infrastructure Finance Facility MS MS 2009 100 100 0.000038 P097104 ID-BERMUTU S MS 2008 24.5 61.5 35.35315 15.3615 P107661 ID-BOS KITA Project S MS 2009 1100 328.6943 -171.3057 P077175 ID-Domestic Gas Market Develop- S MS 2006 80 26.47495 24.39162 ment Proj. P089479 ID-Early Childhood Education and Dev S MS 2006 67.5 14.70552 -12.22262 P074290 ID-Eastern Indonesia Region Transp. 2 MS MS 2004 200 1 16.89536 17.89536 11.56203 P083742 ID-Farmer Empower. Agric.Tech.&Info MU MU 2007 32.8 60 29.85064 12.87706 P068133 ID-GEF MARINE ELECTRONIC HWY MS MU 2006 8.3 4.390473 4.390473 P071318 ID-GEF-Coral Reef Rehab & Manage- MU MU 2004 7.5 2.612189 2.612189 ment II P099757 ID-GEF-Geothermal Power Generation MS MS 2008 4 3.195472 2.966306 Dev P085374 ID-HIGHER EDUCATION S MS 2005 50 30 22.52985 20.44233 -2.35767 P113341 ID-Health Professional Education S S 2010 77.822 70.892 9.903333 Quality P076174 ID-Initiatives for Local Govern. Reform S S 2005 14.5 15 5.063365 4.878081 4.878081 P063913 ID-Java-Bali Pwr Sector & Strength S S 2003 303.715 3.57293393 41.67005 15.24299 7.597986 P111577 ID-Local Government and Decentral- # # 2010 220 220 ization P079906 ID-Strategic Roads Infrastructure MS MS 2007 208 1.54482357 128.5119 112.7234 62.05674 P078070 ID-Support for Poor and Disadvant MS MS 2005 69 35 8.789126 5.175815 Areas P084583 ID-UPP3 S S 2005 67.3 71.4 0.002318 -0.583443 P090991 ID-URBAN WATER SUPPLY # # 2010 23.56 22.06 1.416667 P071296 ID-USDRP MS MS 2005 45 18.64171 17.35004 2.955877 P085375 ID-WSSLIC III (PAMSIMAS) MS MS 2006 137.5 41.97118 6.161514 P096532 ID: Dam Operational Improvement S MS 2009 50 47.99348 10.61015 (DOISP) P117323 Indonesia Power Transmission Devel- # # 2011 225 225 opment P105002 National Program for Community S S 2008 341.19 190 0.876917 -294.1362 8.442993 Empower P100740 PINTAR MS MS 2009 110 109.725 4.739333 P118113 PNPM - Urban III Project # # 2010 149.98 108.7833 Overall result 4533.247 820.9 19.8 9.2861315 2027.532 -266.0651 153.5368 a/ Intended disbursements to date minus actual disbursements to date as projected at appraisal. 78 Investing in Indonesia’s Institution Annex B8.2 Committed and Disbursed Outstanding Investment Portfolio (IFC) Committed Disbursed Outstanding FY Approval Company Loan Equity **Quasi *GT/ Participant Loan Equity **Quasi *GT/ Participant Equity RM Equity RM 2006 Bank danamon 91.58 0 0 5 0 91.58 0 0 0 0 2007 Bank int'l indo 36.01 0 0 0 0 36.01 0 0 0 0 2008/10 Bank of banks 0 7.22 0 0 0 0 5.22 0 0 0 2008/10 Bima 15 10.29 0 0 0 15 9.41 0 0 0 2011 Biocarbon 0 5 0 0 0 0 0 0 0 0 2004 Bonavista school 0.5 0 0 0 0 0.5 0 0 0 0 2009 Btpn 54.1 0 15.9 0 0 0 0 0 0 0 2007/08 Fugui indonesia 35 0 0 0 7.33 35 0 0 0 7.33 2009 Iiff 0 40 0 0 0 0 2.22 0 0 0 2010 Jict 30 0 0 0 40 17.14 0 0 0 22.86 2009/10 Oto finance 97.72 0 0 0 0 72.72 0 0 0 0 2004/05 PT ecogreen 18.33 0 0 0 0 18.33 0 0 0 0 0/06/07/08 PT karunia (kas) 28.75 0 0 0 2 28.75 0 0 0 2 1993 PT nusantara 0 0 0.92 0 8.14 0 0 0.92 0 8.14 2004/08 PT prakars (pas) 14.89 0 0 0 6.67 14.89 0 0 0 6.67 2008 PT sas 4.09 0 0 0 2 4.09 0 0 0 2 2006/08 PTtas 12 0 0 0 0 12 0 0 0 0 2008/09 PT tvs 18.18 0 12 0 0 18.18 0 12 0 0 2009 PT viscose 36.67 0 0 0 90 36.67 0 0 0 90 0 Rei indonesia 0 0 4 0 0 0 0 0 0 0 2008 Salamander 43.75 0 0 0 0 23.51 0 0 0 0 2008/09 Saratoga asia ii 0 27.85 0 0 0 0 7.27 0 0 0 2010 Trada 35 0 0 0 0 35 0 0 0 0 2005/06 Wom 2.52 1.86 0 0 0 2.52 1.86 0 0 0 Total Portfolio: 574.09 92.22 32.82 5 156.14 461.89 25.98 12.92 0 139 * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types. Country Partnership Strategy Progress Report for The Republic of Indonesia 79 Map of Indonesia (IBRD No. 33420RI) 95 ° 100 ° 105 ° 110 ° 115 ° 120 ° 125 ° This map was produced by the Map Design Unit of The World Bank. The boundaries, INDONESIA colors, denominations and any other information shown on this map do not imply, on SELECTED CITIES AND TOWNS the part of The World Bank Group, any judgment on the PROVINCE CAPITALS legal status of any territory, 15 ° or any endorsement or NATIONAL CAPITAL acceptance of such INDONESIA boundaries. RIVERS MAIN ROADS MYANMAR VIETNAM RAILROADS PHILIPPINES PROVINCE BOUNDARIES 10 ° 10 ° INTERNATIONAL BOUNDARIES THAILAND Sulu Sea 135 ° 140 ° Banda Aceh L A Y 5° A BRUNEI 5° 1 S Natuna Talaud Medan M Besar I Celebes Is. Tarakan PA C I F IC O C EA N Pematangsiantar Sea 24 A Simeulue 19 Morotai 2 Manado SINGAPORE 23 Nias Tanjungpinang Ternate Halmahera Pekanbaru 25 3 Pontianak KALIMANTAN Gorontalo Waigeo 0° 26 0° Lingga 20 Samarinda Manokwari Biak Padang 30 Me Balikpapan Palu Sorong 4 Peleng nt Siberut 5 Jambi 21 Obi Bangka Misool Yapen aw Pangkalpinang Palangkaraya SULAWESI Sula Is. 32 Jayapura SUMATERA ai Mamuju Ceram 9 Belitung 22 Palembang 27 Amahai Fakfak Is 6 . 7 Bandjarmasin 28 Kendari Buru 29 33 PAPUA Bengkulu Parepare Ambon Timika Puncak Jaya 8 Muna (5030 m) 5° Ja va S ea Makassar Kai Enggano Bandar 11 Baubau B a nd a 31 Is. Lampung JAKARTA Serang S ea Aru 0 200 400 Kilometers Is. 12 Bandung Semarang Madura PAPUA PAPUA 10 13 Wetar Surabaya Babar Tanimbar 0 100 200 300 400 Miles 16 Sumbawa Alor Moa JAWA Yogyakarta Is. 15 Bali Lombok Raba Flores NEW GUINEA 14 Merauke 95 ° 100 ° 105 ° Denpasar Mataram Ende Arafura Sea 18 TIMOR-LESTE 17 Sumba PROVINCES: 10 ° Waingapu Timor 10 ° Kupang 1 NANGGROE ACEH DARUSSALAM 12 JAWA BARAT 23 KALIMANTAN TIMUR 2 SUMATERA UTARA 13 JAWA TENGAH 24 SULAWESI UTARA 3 RIAU 14 D.I. YOGYAKARTA 25 GORONTALO 4 SUMATERA BARAT 15 JAWA TIMUR 26 SULAWESI TENGAH 5 JAMBI 16 BALI 27 SULAWESI BARAT INDIAN OCEAN 6 BENGKULU 17 NUSA TENGGARA BARAT 28 SULAWESI SELATAN 7 SUMATERA SELATAN 18 NUSA TENGGARA TIMUR 29 SULAWESI TENGGARA 8 LAMPUNG 19 RIAU KEPULAUAN 30 MALUKU UTARA 15 ° 15 ° 9 BANGKA-BELITUNG 20 KALIMANTAN BARAT 31 MALUKU 10 BANTEN 21 KALIMANTAN TENGAH 32 PAPUA BARAT AUSTRALIA 11 D.K.I. JAKARTA 22 KALIMANTAN SELATAN 33 PAPUA 115 ° 120 ° 125 ° 130 ° 135 ° 140 ° IBRD 33420R2 AUGUST 2008