Table of Contents 1. Background.................................................................................................................. 1 2. The Government's Tsunami Recovery Program ........................................................... 5 3. International Response and the Aid Coordination Challenge......................................... 9 4. The World Bank's Tsunami Response........................................................................ 10 5. The Proposed Multi-donor Trust Fund for Aceh and North Sumatra (MDTF)............. 17 Attachment Attachment 1: Draft Board Resolution Annexes Annex 1: CAS Annexes Annex 2: Government Reconstruction Planning Working Groups Annex 3: Common Operating Principles and Guidelines for Tsunami Reconstruction Annex 4: The World Bank Group CAS (FY04-07) CURRENCY EQUIVALENTS Currency unit: Rupiah (RP) as of March 2005 US$ 1 = RP 9,405 FISCAL YEAR January 1 to December 31 Vice President Mr. Jemal-ud-din Kassum Country Director Mr. Andrew D. Steer Task Team Leader Mr. Josef Lloyd Leitmann Team Members Ms. Preeti S. Ahuja Ms. Bolormaa Amgaabazar Mr. Scott E. Guggenheim Mr. Joel Hellman Ms. Kundhavi Kadiresan Mr. Bertin Lopez Mr. Amitabha Mukherjee Ms. May Olalia Mr. Yogana Prasta Mr. Rizal H. Rivai Mr. Sajjad Ali Shah Mr. Rajiv Sondhi Mr. Raj Soopramanien His Excellency, Dr. Susilo Bambang Yudhoyono President of the Republic of Indonesia 16 February, 2005 "As we prepare for Aceh's reconstruction, the challenge before us now is NOT how to marshal resources, but how to manage them--manage them effectively and properly. With all the funds, resources and manpower, we must make sure that all the assistance is used in ways that empower the people of Aceh. We must make sure that the assistance is aimed at helping the Acehnese get back on their feet, to get their economy moving again, to give their livelihood back. We must make sure that all the assistance is deployed in a coordinated, transparent and coherent manner. We must make sure that all the international and national assistance fit into the Indonesian government's long-term Master Plan for Aceh's reconstruction. We need to ensure that Aceh will be rebuilt in ways that respects its unique culture and rich Islamic heritage. And we must ensure that the assistance will be deployed in ways that will lead to the strengthening of peace in that province." ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities AsDB Asian Development Bank ASEAN Association of South-East Asian Nations BAKORNAS Government's Disaster Coordination Agency Badan Agency for the Implementation of Reconstruction BAPPEDA Provincial Planning Board BAPPENAS The National Development Planning Agency BPK Supreme Audit Institution CAS Country Assistance Strategy CDD Community Driven Development CGI Consultative Group Indonesia EC European Commission FAO Food and Agricultural Organization of the United Nations GAM Free Aceh Movement GDP Gross Domestic Product GOI Government of Indonesia IBRD International Bank for Reconstruction and Development ICRC International Committee of the Red Cross IDA International Development Association IDP Internally Displaced Persons IFAD International Fund for Agricultural Development IFC International Finance Corporation IMF International Monetary Fund JSDF Japan Social Development Fund KDP Kecamatan Development Program MDTF Multidonor Trust Fund for Aceh and North Sumatra MIGA Multilateral Investment Guarantee Agency M&E Monitoring and Evaluation NAD Nanggroe Aceh Darussalam Province NGO Non-governmental Organization ODA Official Development Assistance PJM Medium Term Development Plan UN United Nations UNDP United Nations Development Program UNFPA United Nations Population Fund UNHCR United Nations High Commissioner for Refugees UNICEF United Nations Children's Fund UPP Urban Poverty Program WHO World Health Organization INDONESIA TSUNAMI EMERGENCY RECOVERY SUPPORT PACKAGE: PROPOSED MULTI-DONOR TRUST FUND FOR ACEH AND NORTH SUMATRA 1. BACKGROUND 1.1 Management last briefed the Executive Directors on February 1, 2005 on the role of the World Bank1, International Finance Corporation, and Multilateral Investment Guarantee Agency in providing assistance to the affected countries, including Indonesia.2 The purpose of this document is to propose the establishment of a MDTF to channel coordinated financial support for the Government of Indonesia's (GOI) post-tsunami disaster recovery program. The document furthermore provides the Executive Directors with an update of the post-tsunami recovery efforts underway in Indonesia, with a focus on the key elements of the World Bank's ongoing and planned activities to assist in the recovery and reconstruction of Aceh and North Sumatra3. An International Bank for Reconstruction and Development (IBRD) surplus transfer of US$ 25 million is intended to seed the MDTF4. The Government considers a broadly-based multidonor financing modality--a Multi-donor Trust Fund--to be a linchpin of its aid coordination framework and an important vehicle to promote greater aid effectiveness through focus on results, promotion of transparency and accountability, and harmonization and alignment of donor resources and procedures. 1.2 Introduction. This past year and the opening months of 2005 have been remarkable for Indonesia in several regards. First, Indonesia has seen an impressive political transition, in a process that was broadly acknowledged as free and fair; Indonesia's first ever direct presidential elections marked an important new stage in its political transition. After three peaceful and well-organized election rounds, across over 600,000 polling places, Susilo Bambang Yudhoyono emerged as the President of Indonesia, with a powerful mandate for change, having received the largest number of votes ever in the history of democratic presidential elections. Second, supported by a robust reform package, macroeconomic fundamentals have improved strongly. Real GDP growth has been the highest since the 1997 crisis (5.1 percent); both inflation and fiscal deficit are under control, and the public debt/GDP ratio is at a sustainable 53 percent, down from almost 100 percent in 2000. Most recently, Indonesia's sovereign rating was upgraded from B to B+ by Standard & Poor's (three grades below investment). Poverty has dropped below the 1997 pre-crisis levels. In 2003 it was at 15.1 percent, down from the 1999 high of 27.1 percent. 1.3 Third, the new Government has set out an impressive program of policy change and institutional reform. A five-year medium-term development plan (PJM) was presented by GOI at the January 19-20, 2005 Consultative Group on Indonesia (CGI) and the Poverty Reduction Strategy is being finalized. The Government has made politically tough, but critically important, decisions necessary to reform the economy ­ such as the recent decision to significantly reduce poorly targeted fuel subsidies which in 2004 had reached 17 percent of national budget expenditures (the largest 1For purposes of this Memorandum (exclusive of Attachment 1), "World Bank" or "Bank" refers to IBRD and/or IDA. 2World Bank Response to the Tsunami Disaster (SecM2005-0035), January 28, 2005. 3References to Aceh from hereinafter in the document denote both Aceh and North Sumatra. 4See Proposed Transfer of IBRD Surplus to Support Tsunami Disaster Recovery in India and Indonesia (R2005- 0061), March 8, 2005, which was approved by the Executive Directors on March 18, 2005 and submitted to a vote by the Board of Governors by April 22, 2005. 2 single expenditure category in the budget). The President has committed to personally lead the governance and anti-corruption agenda and has taken steps to strengthen oversight of the Attorney General's Office and the Police, as well as to accelerate ongoing corruption investigations. Reviving the investment climate has also been a key theme, with particular emphasis on increasing infrastructure investments and implementation of other measures to streamline and address institutional, administrative and procedural bottlenecks to private sector development. 1.4 Finally, the new Government, after less than 100 days in office, responded quickly and effectively to one of the worst natural disasters in living memory ­ the earthquake and the resulting tsunami of December 26, 20045 (see Map) ­ preventing it from spiraling further into a socio- economic and humanitarian crisis for the survivors and for the country. The relief phase officially ended at the end of March 2005, and a broad-based master plan has been drafted to guide the rehabilitation and reconstruction efforts. 1.5 At the time of writing (March 28, 2005), a powerful earthquake measuring 8.7 on the Richter scale struck off Sumatra's west coast and early reports indicate that more than 500 residents of the islands of Nias and Simeulue have lost their lives, and thousands more have been made homeless. These communities had already been affected by the December 26th tsunami, and this second natural disaster highlights strongly Indonesia's vulnerability and the need for the international community to respond rapidly and flexibly. 5 Large parts of Banda Aceh, Meulaboh, the coast of Aceh Besar, Aceh Jaya, Nagan Raya, Simeuleue, Aceh Utara, and Aceh Timor, along with eight regions in Nias and North Sumatra, were destroyed. 3 Map - Earthquake and Tsunami Affected Areas Source: Indonesia: Preliminary Damage and Loss Assessment; January 2005 1.6 Update on Casualties and Displacements. Indonesia bore the brunt of the human toll wreaked by the tsunami. Although the exact number of those who perished may never be known, Indonesia's official death toll has risen to over 126,000, with another 94,000 still listed as missing.6 More than 510,000 people have been displaced from their homes. Emergency relief efforts have reached a large majority of the survivors in all affected communities, and the spread of epidemics and famine has been effectively averted, preventing further major loss of life. However, the damage has been substantial, and hundreds of thousands of people continue to live in temporary shelters and to be dependent on emergency assistance. 1.7 Estimated Damage and Losses7. According to a joint GOI- donor report prepared for presentation at the January CGI meeting by a team of over 80 specialists, the total estimate of damages and losses is RP. 41.4 trillion, or US$ 4.45 billion (see Table 1), equivalent to 97 percent of Aceh's GDP. The estimate of damage provides both an idea of the destruction of assets as well as a baseline for defining the program of reconstruction. Damage to property and assets constitute two- 6On 22 March BAKORNAS reported that 126,602 bodies have been buried, 93,638 people are missing and 514,150 are displaced in 20 districts/cities in Nanggroe Aceh Darussalam Province (NAD). The large increase in the reported number of displaced people over the last week is attributed to the late reporting of some sub-districts of NAD. There are concerns about duplicate registration of displaced persons given the high mobility of the population. Meanwhile in North Sumatra Province, 130 people were buried, 24 were missing, and 19,620 displaced. 7The joint Damage and Loss Assessment and Notes on Reconstruction are available at: http://worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/INDONESIAEXTN 4 thirds of this total, while the remaining one-third represents income flows lost to households and the economy. The lion's share of the damage and losses ­ almost 80 percent ­ accrued to the private sector with the biggest impact in housing, commerce, agriculture, fisheries, transport vehicles and services (63 percent of total damage and losses). The biggest public sector damages were to infrastructure, the social sectors, and government administration (25 percent of total damage and losses). There were also significant environmental losses (12 percent of the total). These include damage to coral reefs and mangrove swamps, loss of land use, and needed restoration of the coastal zone. Government estimates put the total cost of the reconstruction program at US$ 6 billion over 2005-2009. Table 1: Summary of Damages and Losses (US$ million) Total Impact Property Damage Losses Total Private Public Social Sectors 1674 65 1740 1440 300 Housing 1398 38 1437 1408 28 Education 110 17 128 9 119 Health 82 9 91 23 68 Culture and religion 83 83 83 Infrastructure 636 240 876 325 550 Transport 390 145 535 165 370 Communications 18 2 21 8 13 Energy 67 0 67 1 66 Water and Sanitation 26 3 29 18 11 Flood control, irrigation and sea protection 132 89 221 132 89 works Productive Sectors 351 830 1182 1132 50 Agriculture and Livestock 83 140 224 194 29 Fisheries 101 409 510 508 2 Enterprises 166 280 446 428 17 Cross sectoral 257 394 652 562 89 Environment 154 154 548 Governance and administration 89 89 89 Bank and Finance 14 14 14 Total Impact 2920 1531 4451 3461 990 Source: Indonesia: Preliminary Damage and Loss Assessment; January 2005 1.8 Macro-economic Impact of the Disaster. Notwithstanding the destruction to Aceh's wealth and capital stock, the impact of the disaster on overall growth in Indonesia is expected to be limited, with negative supply-side effects largely offset by increased reconstruction spending. Aceh accounts for only about 2 percent of national GDP, with the oil and gas sector, which was not damaged, accounting for over 40 percent of regional GDP. At the national level, the net impact, including the effect of reconstruction spending, is projected to lower GDP growth marginally by up to ¼ percentage point. Inflation is expected to remain at around 6 percent. 1.9 Disproportionate Impact on the Acehnese Poor. While the macroeconomic impact of the tsunami has been marginal, the local level impact of the disaster has been devastating. Aceh, involved in a protracted internal conflict, is one of Indonesia's more remote provinces, and has a high incidence of poverty. Before the tsunami, Aceh was home to some 4.2 million people (or 2 percent of Indonesia's total population); had an 11.2 percent rate of unemployment (versus a national average of 9.5 percent); a poverty headcount of 28.5 percent (against a national headcount of around 15 5 percent); and it accounted for 2.3 percent of total GDP in 2003--and much less of employment- sustaining non-oil and gas GDP, at 1.4 percent. The affected population in Aceh and North Sumatra is mainly poor, and many of the affected local economies are among the more autarkic and poorest in Indonesia. 2. THE GOVERNMENT'S TSUNAMI RECOVERY PROGRAM 2.1 The Government, which had been in office for just over two months at the time of the disaster has, following some initial delays, responded firmly and comprehensively in handling the aftermath of the tragedy. Indonesia has emphasized the need for Government leadership of the post- disaster efforts and donor coordination8. The disaster prompted an unprecedented display of global unity manifested in rapid assistance, including by a very broad range of Indonesian and international NGOs, national and foreign militaries, and a very large commitment of financial support for the relief effort under the United Nations Flash Appeal and direct bilateral programs. 2.2 Emergency and Relief Efforts. The disaster coordination agency -- BAKORNAS -- has led the GOI's emergency and relief efforts. The Coordinating Minister for People's Welfare, relocated to Banda Aceh to manage the response on the ground. Though access to Aceh had been closed to foreigners for many years due to the decades-long conflict, the province was quickly re- opened to international aid agencies and NGOs, which continue to provide support to locally based efforts. The joint efforts of the Government and the international community, coupled with the willingness of Acehnese families in unaffected areas to shelter and care for the displaced, contained the most severe potential threats in the aftermath of the disaster and brought some stability to these traumatized communities more quickly than had been initially anticipated. 2.3 Recovery and Reconstruction Program. With its development partners, GOI has formulated and is following a three-stage management plan (see Figure 1), including: emergency measures (3-6 months), rehabilitation measures (up to two years), and reconstruction measures (a 4-5 year program). 8On January 6, 2005, the Government convened an ASEAN Summit on the Aftermath of the Earthquake and Tsunami. 6 Figure 1: Phases in Management Strategy Phases in Management Strategy Recovery Immedi ate ter m: 0 - 6 months Short-ter m: 0.5 to 2 years Long-term: 5 years RELIEF REHABILITATION RECONSTRUCTION Objective: Objective: Objective: Humanitarian relief : Restore serv ices to Rebuilding the region: minimum lev el: Emergency Rescue Economy Public serv ices Emergency food and (production, trade, medicine Economic f acilities banking) Emergency Banking and f inancial Transportation inf rastructure and institutions sy stem temporary shelter Trauma treatments Telecommunication Bury ing the dead Secure land rights sy stem Law and order Social and cultural sy stem Temporary shelter Institutional capacity Housing 2.4 The National Development Planning Agency (BAPPENAS) has been tasked with developing a comprehensive rehabilitation and reconstruction master plan. Eleven sectoral and cross-cutting or thematic working groups ("pokjas," see Annex 2) have been set up simultaneously in Jakarta and Banda Aceh, the provincial capital, with additional support from the University of Siah Kuala in Aceh, tasked with addressing the key issues (such as spatial planning, financing options and governance arrangements) and elaborating sectoral investment. The Provincial Planning Board (BAPPEDA) held eight day long public consultations in Banda Aceh for each theme of the blueprint. The opening of the consultation process was attended by over 500 people. 2.5 The blueprint was further elaborated during a three-day workshop held in Bogor, chaired by BAPPENAS and attended by some 200 participants. Participants from each of the working groups represented the central and local government, civil society and many donors. The blueprint has been submitted to the Government for review and was announced to the public on March 26, 2005. It is expected that further public consultation will be organized at the local level to help identify specific activities, programs and projects under the blueprint. 2.6 Challenges to the Successful Recovery of Aceh. Several challenges confront effective implementation and successful outcomes of the recovery efforts in Aceh, including: addressing unprecedented socio-economic needs across all key sectors; the need for quick action versus broad- based participatory and transparent processes; the restoration of local institutions and local implementation capacity; the challenge of a coordinated, prioritized and consistent response; ensuring good governance; and building peace and reconciliation. While all these pose important issues for GOI and its development partners, the last two are amongst the most intractable. The successful reconstruction of Aceh will, to a large measure, depend on the ability to ensure sustained peace and security in the region, and whether the billions of dollars pledged can be effectively transferred to the affected communities.. 7 2.7 Key Principles. The Government has outlined several key principles which will underpin Aceh's rehabilitation and reconstruction and will help in addressing the challenges noted above. These principles incorporate lessons learned globally, and comprise: · People-centered and participatory processes. · A holistic approach based on a comprehensive recovery strategy and cohesive responses. The competing demands of immediate survival needs through relief efforts, as well as longer term rehabilitation, reconstruction and reform measures must be addressed in order for recovery to be truly sustainable. Distinguishing among relief, rehabilitation and reconstruction, with clear strategies for each. · Effective coordination to ensure consistency and to guarantee transparency and effective and participatory use of resources. · Maximizing the use of grant financing, then soft loans as needed, depending on fiscal and balance of payment needs. Encouraging donors to place funds through the Government's budget to the extent possible. · Embedding fiscal transparency/focus on results and effective monitoring in the efforts. · Capacity building as an integral part of rehabilitation and reconstruction, especially for entities delivering front-line services, and ensuring governance standards. Phase out central government support as regional governments recover capacity. · Reconstruction should not rebuild poverty, but ensure that local economies are robust enough to prevent poverty over the long term. · Shifting from a military to a political response to the conflict in Aceh to provide a comprehensive response to local needs. 2.8 Building Peace for Prosperity in Aceh. While Aceh is one of Indonesia's smaller provinces, it is politically significant. Together with the easternmost province of Papua, Aceh has "special autonomy status" . Aceh has experienced three decades of continued, albeit low-intensity, conflict 9 between the Government and GAM. An agreement on cessation of hostilities (December 2002) broke down in May 2003 when the previous government imposed martial law. 2.9 The new Government has made the resolution of the conflict in Aceh a priority. The tragic events in Aceh, combined with the Government's resolve, may provide a strong impetus to settling the conflict ­ and a cease-fire has been agreed, though there have been sporadic breaches. Peace talks have been launched between Government and the GAM, with the support of Finland. 2.10 A Governance Framework for Aceh's Recovery. The Government is cognizant that Aceh's recovery and reconstruction outcomes could be threatened by: (i) corruption; (ii) inefficiency, duplication and waste, and (iii) lack of ownership on the part of the Acehnese. The Government has 9 Starting in 2002, Law 18/2001 (9th August) provides for Aceh's Special Autonomy and higher revenue sharing. Aceh's Special Autonomy Law gives it 55 percent of petroleum and 40 percent gas natural-resource taxes (rather than the standard Government Regulation 104/2000 (Article 12) of 15 percent petroleum and 30 percent of gas). Law 18/2001 (Article 4.5) states that that this arrangement will be re-evaluated after eight years, i.e., in 2009. In addition, the Special Autonomy law stipulates that 30 percent of the transfers from the central government must be set aside for development expenditures in education. 8 emphasized the importance of establishing a governance and management framework over funds for the rehabilitation and reconstruction of Aceh, to ensure that the large funds already pledged are effectively channeled to re-establish the lives and livelihoods of the Acehnese. The master plan devotes a chapter to describing mechanisms to ensure the integrity, accountability and transparency of reconstruction funds, which was developed in close consultation with Acehnese and donor representatives. 2.11 Though the master plan is still in the final stages of consultation, the Government has announced its intention to create a special Agency (Badan) for the Rehabilitation and Reconstruction of Aceh, Nias, and North Sumatra with an initial three year mandate. With its headquarters in Banda Aceh, the Badan is intended to serve as a single focal point to coordinate the reconstruction process and to ensure that all reconstruction projects comply with an enhanced set of governance and fiduciary standards. In addition, the Badan will play the leading role in providing capacity building to local governments affected by the disaster to restore fully functioning local public services and prepare these governments for a participatory process of planning and budgeting for local rehabilitation and reconstruction projects. The President has emphasized that the Badan will not replace the project implementation role of ministries or local governments, but will work within the existing framework of sectoral responsibilities and local autonomy. 2.12 The proposed design of the Badan, which was incorporated in the master plan, includes important components of a governance framework for the reconstruction process. It is proposed to include three separate components: · The Steering Committee (Dewan Pengarah) brings together the key central government ministers, local government leaders (provincial governors and mayors of the most affected areas), and prominent civil society members in a regular forum to provide policy guidance to the President about the reconstruction process and to monitor progress. · The Oversight Board (Dewan Pengawas) is will include independent representatives of key public and private oversight and auditing institutions as well as the contributing donor institutions in the reconstruction process to monitor the Badan's activities and operations. The Board is independent and is proposed to report directly to the President and the Legislature (DPR) on the results of its oversight functions. · The Implementing Agency (Badan Pelaksana) will be responsible for executing the coordination functions across ministries, donors and levels of Government. Staff of the Badan Pelaksana can be recruited from any sphere. They will be offered performance- based contracts and competitive compensation within a framework that demands greater accountability and ensures high standards to prevent potential conflicts of interest. 2.13 The structure of the Badan, in conjunction with a broader set of mechanisms, to ensure transparency and accountability of funds flows by the Ministry of Finance, BAPPENAS, the Supreme Audit Agency and the Commission to Eradicate Corruption, is intended to perform the following specific governance functions: · Review and publish reports of independent auditors on all financial transactions and accounts within a reasonable time-frame. · Approve and oversee the procurement guidelines for recovery and reconstruction operations. 9 · Establish a public complaints system for receiving allegations of corruption, fraud or misuse of recovery and reconstruction funds. · Approve and implement a Monitoring and Evaluation (M&E) framework to oversee the performance of the reconstruction plan. . · Establish a tracking system to monitor the flow of funds from both official and non- official sources. 3. INTERNATIONAL RESPONSE AND THE AID COORDINATION CHALLENGE 3.1 The joint work on the post-disaster assessments and more recently, the master plan have been an intensely collaborative effort, under the guidance of BAPPENAS and in close consultation with GOI line agencies and engagement of the Acehnese. GOI has from the outset articulated the different roles expected of the UN (relief and initial rehabilitation stage) and international financial institutions, notably the World Bank and the Asian Development Bank (AsDB), (rehabilitation and reconstruction stages), along with other partners in the support to Aceh. The development community's response to the tsunami disaster is now shifting from the relief phase to the rehabilitation and reconstruction phase. It is important that the significant momentum of the initial relief effort is translated smoothly into a longer-term program of sustainable recovery and rehabilitation ­ to restore livelihoods, rehabilitate communities, re-establish social services, and rebuild infrastructure. 3.2 Donor Response. At the January 2005 CGI meeting10, donors pledged nearly US$ 4 billion to finance reconstruction spending in 2005­2009. Of the total, US$ 1.6 billion was pledged for 2005, of which around US$ 1.2 billion was offered in the form of grants. Around $1 billion of this is expected to be channeled through the Government's budget, with the remainder implemented directly by donors or channeled through NGOs or UN agencies. Since the CGI, some donors have announced even larger packages of assistance. The donor community has stressed the need for a strong fiduciary framework and participatory governance for resources provided through the budget. 3.3 On January 12, 2005, Paris Club Creditors announced a debt moratorium for countries impacted by the tsunami disaster. Consistent with the national laws of the creditor countries, the Paris Club has agreed not to expect any debt payment on eligible sovereign claims from Indonesia and other affected countries until December 31, 2005. The deferred amounts could be repaid over five years with a one year grace period. Moratorium interest accrued in 2005 will be capitalized and paid as the deferred amounts. The moratorium interest rates will be determined on a bilateral basis. At the time of writing, Indonesia was reviewing the terms of the Paris Club debt moratorium offer. 3.4 NGO and Private Flows. Private donations for tsunami recovery are still coming in, and there is not yet an accurate global picture of the magnitude of these flows. Recent estimates put private contributions already received at around $2 billion. The 15 largest NGOs working in Aceh 10 At the CGI, the total amount pledged for Indonesia for 2005 was US$5.1 billion. Disbursement through the Government's budget in 2005 is put at US$3.5 billion, with disbursements through other channels of US$1.6 billion. Of the total pledges, US$3.4 billion is for financing regular operations in support of Indonesia's broader development and poverty reduction objectives and an estimated US$1.6 billion is for Aceh. Of the estimated pledges for Aceh, around US$1.1 billion is grant funding, and US$0.5 billion is highly concessionary loans. 10 have reported more than US$ 1.2 billion in available funds. Substantial in-kind assistance has also been committed through private corporations. 3.5 Aid Coordination. Various donors have indicated different plans on the extent to which funds will be provided through the Government's budget. Coordination of the inflows from all sources, and especially from private donors and NGOs and related activities, translate into a particular challenge in the tsunami-affected areas as these are primarily outside the coordination systems for official assistance. While the private contributions are important for recovery from the tsunami disaster, and have been crucial in the initial period, they should be integrated into the Government's planning and implementation of the reconstruction process to ensure coherence, efficiency, and sustainability of the recovery programs. At the High Level Forum on Aid Effectiveness, held in Paris in March 2005, the statement tabled on behalf of the Government of Indonesia challenged donors to organize themselves, and noted, "The issue of effective coordination will determine the success of our reconstruction efforts. And frankly, I am worried that the well-motivated desire by so many donors to plan their own programs quickly is overwhelming the staff of our Government agencies, and even delaying our preparation for the future. I am especially worried that as the local governments in Aceh get back on their feet, they will simply not have the capacity to cope with all the different sources of assistance on offer. We clearly need to get much more serious about genuine harmonization of the different efforts." To ensure effective use of external assistance to tsunami recovery, the Government of Indonesia has asked the World Bank to provide assistance in coordinating external support through a multi-donor trust fund framework described below. 4. THE WORLD BANK'S TSUNAMI RESPONSE 4.1 The World Bank has been providing substantive, continuous support to GOI to cope with the immediate aftermath and subsequent consequences of the tragedy of December 2611. First, building on a close working relationship established with the new Government, the Bank has invested considerable resources in a wide-ranging program of strategic, policy, technical and institutional advice to key central government institutions and to the local government in Aceh. Second, based on the request of the Government, the Bank has been playing a pro-active, leadership role in the facilitation of donor coordination and harmonization for the transition from immediate relief to the stage of rehabilitation and reconstruction, including through the preparation of the proposed multi- donor trust fund. Third, the Bank has designed a package of operational support, including the restructuring of existing projects and the development of relevant activities/components under pipeline projects, to directly support the reconstruction of Aceh. 4.2 Technical Assistance. Within days of the disaster, the Bank was asked by the Government to help lead the effort to estimate the costs of damages and losses incurred, and to provide strategic guidance for the rehabilitation and reconstruction work. With the CGI meeting already scheduled for January 19-20, the Government wanted to demonstrate its commitment to moving ahead with President Yudhoyono's recovery agenda and asked that the initial damage and loss assessment be prepared for presentation at that meeting. A team of 80, including around 30 from the Bank, worked 11In the wake of the disaster, the World Bank rapidly mobilized a multisectoral team, including world-class experts on disaster assessments. The World Bank has been part of a core team, based in a joint response office in BAPPENAS, and has been working around the clock with Government counterparts and partners, on coordinating and preparing the recovery master plan and related efforts. 11 very intensively over a two week period to produce two major reports in time for the CGI. The first report, provides a complete assessment of the detailed costs of damage (replacement costs) across all sectors and localities. A second report provides guidance on key implementation issues in each sector. The reports were signed jointly by the Minister of BAPPENAS and the World Bank (on behalf of the donor community), and were presented at the CGI by GOI, where they formed the basis of donor pledges. 4.3 Support to the Master Plan for Rehabilitation and Reconstruction of Aceh. Following the completion of the damage and loss assessment exercise, BAPPENAS was charged with drafting the recovery master plan and requested the full-time assistance of senior Bank staff to work with the Government's planning team. In addition, Bank liaisons were appointed to each of the eleven sectoral and thematic working groups set up by the Government to address all the key issues ­ including sectoral investment programs as well as financing options, governance arrangements, etc. Bank staff also played a major role in establishing and providing technical support to the eleven parallel working groups set up in Banda Aceh to ensure local participation in the planning process. Bank efforts were devoted to ensuring both that the technical analysis was strong and that the process was responsive to the expressed interests of affected Acehnese citizens. 4.4 The Bank has been working closely with BAPPENAS and the Ministry of Finance on the design of governance arrangements and a management framework for the reconstruction funds. The Bank's governance team drew from international best practice and built in inputs from the affected communities. The Bank was also asked to assist the transition team charged with establishing the Badan to further clarify its organizational structure, operational guidelines, technical expertise requirements, recruitment practices and logistical arrangements. 4.5 In addition, Bank staff have worked intensively in Jakarta and Aceh on the following: · Development and execution of consultation processes for engaging the Acehnese; · Land policy ­ a detailed proposal has been approved by Government; · Housing ­ principles and plans have been prepared and approved; · Local government capacity building ­ a proposal for donor financing is complete; · Health ­ a joint Bank-World Health Organization set of principles has been discussed with donors and GOI; · Financing options ­ detailed work undertaken with the Ministry of Finance and BAPPENAS to design flow of funds modalities; · Private sector recovery ­ Bank/IFC teams have worked in Aceh on compensation, credit and extension options. 4.6 Donor Coordination. In the early response to the disaster, the GOI asked the international financial institutions, notably the World Bank and the AsDB, to lead donor coordination efforts in the recovery phase. The Bank has pro-actively reached out and coordinated its efforts closely with partners and non-governmental agencies, to provide joint teams and common approaches, and staff will continue to do so as the reconstruction moves forward. Since the first days after the disaster, the Bank has established and maintained close contacts with all the key donors through bilateral engagements and regular multi-donor forums. The Bank team has furthermore engaged in discussions with local and international NGOs, such as Forum LSM Aceh, the Aceh Recovery 12 Forum, Oxfam, CARE, Save the Children, World Vision, and the Red Cross. The Bank's team has also been heavily engaged in international meetings, such as the Special ASEAN Leaders' Meeting in Jakarta, the UN Flash Appeal meeting in Geneva, and the recent AsDB Coordination Meeting on Assistance to Tsunami Affected Countries in Manila. 4.7 Multi-Donor Trust Fund. Through a consultative process, a MDTF has emerged clearly as a principal, broad multi-donor financing modality, requested by the GOI for coordinating, governing and managing key components of the funds pledged for Aceh. The advantages of the MDTF include: (1) its integration with the national budget; (2) the preparation of timely monitoring reports on actual disbursements, derived from the Government's accounting system; and (3) governance and fiduciary arrangements to ensure integrity in the use of donor funds. At GOI's request, the Bank is to serve as the trustee of the proposed MDTF. Close to 15 donors and several large NGOs have expressed an interest in participating in the MDTF. IDA as the Trustee of the proposed MDTF has also invited the AsDB and the UNDP (on behalf of the UN system) to participate as potential Partner Agencies under the MDTF. The Bank will support the MDTF modality to not only help channel grant funds from a range of partners to priority activities in the Government's tsunami recovery program, but also to spur progress on harmonization among donors. Details of the MDTF are provided in Section 5 below. 4.8 Common Standards. It is important that all agencies (Indonesian and foreign; voluntary and official) are encouraged to commit to common standards of consultation, participation and coordination. A widespread commitment to some common principles and operational approaches, to ensure that the citizens and communities affected are fully consulted and involved in the reconstruction is required. In terms of practical measures, the Bank has led the development of a set of common operating principles (see Annex 3), together with operational guidelines on how to serve those principles. 4.9 Creating a Multi-donor Office in Banda Aceh. The Bank has established an office in Banda Aceh, which became operational in the first week of March. From the start, the office was designed as a multi-donor office and, to date eight donors have expressed an interest in joining, including some of the largest bilateral donors with their own presence in Banda Aceh. Around ten staff and consultants are currently located there, with the number rising in the coming weeks. The office is already adding significant value: · as the interface with the Central, Provincial and District authorities in Aceh, and provider of technical assistance; · as a coordinator of donor activities; · as an initiator of programs for future financing; · as focal point for our relations with NGO activities; and · as a hub and service facility for all visiting teams. 4.10 Bank's Operational Strategy in Aceh. The needs in Aceh and North Sumatra in the aftermath of the earthquake and tsunami are very large and range across many sectors. The Bank is ready to respond to the GOI's requests for assistance across areas where the institution possesses comparative advantage. At the same time, the strategic focus of the Bank's assistance builds very much on the central directions set out in the Indonesia Country Assistance Strategy (CAS) for FY04- 07 (see Annex 4), namely an emphasis on the role of communities and local governments in shaping 13 their own development objectives and using their intensive engagement to ensure higher standards of governance and transparency. Grounded in the CAS are the three strands of the Bank's results- focused response with regard to the restoration and rebuilding efforts: (a) critical social, physical, and financial infrastructure; (b) public services and institutional capabilities; and (c) productive services and livelihoods of the affected populace. 4.11 In Aceh, such an approach builds upon the Bank's existing operations in the province. Since 1998, the Kecamatan Development Program (KDP; see Box 1) has been providing grants through sub-districts (kecamatan) to villages building local infrastructure on the basis of participatory planning and community monitoring, even in those areas affected by the conflict. KDP has reached across 10 of the 21 districts in Aceh covering more than 110 kecamatan. It relied on a core group of 250 full time facilitators who directed a network of over 5,800 facilitators at the village level across Aceh. In addition, a Bank program to support the widows of the Aceh conflict reached over 2,000 households across Aceh. In the immediate aftermath of the earthquake and tsunami, the Bank sent a team to assess the impact on this extraordinary network. There were numerous casualties among the core group of facilitators and widows and nearly all were affected by the loss of relatives and friends, but these networks were quickly re-established and ready to provide immediate relief to the survivors. 4.12 These networks provide a central vehicle for reaching out to the affected populace and are at the core of the Bank's strategy for Aceh's recovery. Already, the KDP facilitators reach some 40 percent of the affected areas in Aceh and they will be expanded to reach all kecamatan over the next few months. In addition, the Urban Poverty Program (UPP) will set up a similar network of community facilitators in the affected urban areas of Aceh in the coming months. These networks, combined with Japan Social Development Fund (JSDF) financed initiatives to re-establish a province-wide radio network and a widows' program that will grow to reach up to 10,000 households, provide an opportunity for the Bank's and other donors' programs to reach deep into the fabric of Aceh's communities. Following the disaster, they were mobilized as a critical source of information on the impact of the earthquake and tsunami across the province. Now, they can serve as the backbone of a two-way flow, i.e., as a planning mechanism for communities to come together to define, aggregate and communicate their own reconstruction needs and as a delivery mechanism for channeling different forms of donor assistance and capacity-building into the communities. The GOI has already announced its intention to utilize these networks, not only to channel Bank funds, but as the primary mechanism for reaching out across Aceh, matching locally defined needs with donor provided assistance. 4.13 Building on this approach, the Bank is also introducing a new level of engagement with projects to channel reconstruction funds and capacity-building assistance to district governments (kabupaten) in Aceh. Planned projects to support poor regions (Support for Poor and Disadvantaged Areas (SPADA) and to provide reconstruction block grants to kabupaten affected by the disaster, will provide a channel to engage with all the affected kabupaten governments in Aceh, linking reconstruction funds with extensive programs of technical assistance, capacity building and community oversight (to be supported by the MDTF) to help these governments play the role expected of them in their own recovery and to ensure the integrity of the funds flows. 4.14 This bottom-up approach is designed to let the Acehnese people and the local communities take the lead in the recovery programs. Moreover, it gives the Bank an immediate reach across nearly all the affected areas and creates networks that can be utilized by the Government and other donors to identify local needs and channel their assistance. It also uses participation, technical 14 assistance and capacity building to strengthen the framework of accountability and transparency in the use of the reconstruction funds. And most importantly, it fosters a form of community engagement in the recovery designed to mitigate the sources of conflict that have plagued Aceh in the years prior to the disaster. 4.15 The Bank will also assist on province-wide infrastructure and other large-scale reconstruction projects, as necessary. But the opportunity to build upon existing community networks in Aceh, and the strong linkages with the broader CAS and country objectives on enhancing local governance provide a strategic framework for the Bank's contribution to Aceh's recovery. 4.16 Operational Support. The key elements of the Bank's Aceh package comprise: (a) restructured projects ­ via reallocated IDA resources; (b) new projects ­ IDA component and co- financed grant component; and (c) and several trust funded activities, including via support from the JSDF and other Trust Funds. The status and progress on each of these are discussed below. The linchpin of the operational support package however, is the proposed MDTF; some of the grant co- financing for Bank financed projects is expected via the MDTF. 4.17 Restructuring of Projects12. The package seeking the restructuring of three on-going projects has been submitted to the Board on an absence of objection basis. The projects are: the Second Urban Poverty Project (UPP2), and the Second and Third Kecamatan Development Projects (KDP2 and KDP3). The restructuring will help provide rapid support to recovery and rehabilitation activities in communities that were affected by these disasters, with particular emphasis on Aceh and North Sumatra. The project restructurings involve: (i) adding new components to facilitate provision of emergency assistance to the urban poor served by UPP2 and reconstruction of rural communities served by KDP2 and KDP3; and (ii) reallocations of IDA credit resources, to finance the new components, in the amounts of US$ 5 million under UPP2; US$ 5 million under KDP2; and US$ 10 million under KDP3, respectively. All reallocated IDA credit amounts represent cost savings or surpluses in financing of existing activities, and will not affect achievement of the original project objectives. 4.18 New Projects. A number of pipeline projects, including KDP3b13, UPP3, Urban Water and Sanitation Improvement and Expansion Project (UWSIEP), and SPADA are being designed to support reconstruction and recovery activities via allocation of IDA resources or through dedicated co-financing of an Aceh component. In part, the co-financing for these pipeline projects is expected to flow out of the MDTF resources. A number of Bank teams over the past month have been working to develop programs that are likely to be early candidates for MDTF financing. Examples include: 1) Reconstruction of land records, and land reallocation; 2) Water supply; 3) Housing; and 4) Local governance and institution building projects. 12To be approved by the Executive Directors on an absence of objection basis by the close of business on April 12, 2005. 13Approved by the Bank's Board on March 24, 2005. 15 Box 1: The Kecamatan Development Program (KDP) in Aceh The KDP is a long-term village level governance strengthening program that began with the first Kecamatan (subdistrict) Development Project (KDP) in 1998. The KDP is a national program to provide direct financing in support of community generated development plans. The project has a strong monitoring system that uses internal controls, independent NGOs, and frequent Bank supervision. KDP Result: KDP has proven to be a highly robust program. Launched with a planned coverage of 2,000 villages, it became a core part of the government's crisis response by scaling up to 12,000 villages (at present it reaches 26,000 of Indonesia's 70,000 villages). It is the only Bank-financed project to maintain a strong and continuous field presence in Aceh, where it reached some 2,000 villages before the tsunami. Independent and internal evaluations of its performance show that economic rates of return are high, and construction costs are substantially lower than normal methods. Approximately 70 percent of its funds go directly to communities. Participation rates for women and the poor exceed 40 percent and 70 percent, respectively. Rates of corruption/misuse of funds are low (estimated at <5 percent). KDP is very popular with villagers and local governments, with more than 50 percent of all districts adding subdistricts above their project allocation by contributing their own funds. Project Components: KDP provides un-earmarked block grants to subdistricts. Village representatives vote on proposals made by villagers. KDP helps the village planning process by providing technical and social facilitators to support the planning process, though these do not have decision-making power over the proposals. Proposals also include funds for technical advice, which promotes better quality infrastructure and longer-term sustainability. KDP supports a strong system of internal and independent monitoring, and in Aceh the project has had an extended and successful working relationship with the Aceh NGO forum. Status: The government has just announced that KDP will cover all of Aceh. The GOI and Aceh KDP team are preparing rapid implementation of the program. KDP will be extended to the entire province, except for urban areas (covered under the sister Urban Poverty Project). An emergency cycle will last for 4-6 months, to recapitalize villagers and to launch labor intensive cleanup/basic repairs. A follow-on cycle will help villagers rebuild basic infrastructure, with a special focus on villages that have absorbed Internally Displaced Persons (IDPs). 4.19 Japan Social Development Fund. Three JSDF grants have been approved (see Table 2), and will provide the seeds of expanded grant-financed projects, which will use innovative mechanisms to work directly with the Aceh affected communities. The Bank has worked in close coordination with Japan and AsDB in developing these grants. In addition, the Bank is working on two more JSDF proposals for consideration by the Japanese authorities. 4.20 Other bi-lateral grants are envisaged, including through the consultant trust fund modality to finance inter alia capacity/institution building in the affected areas. Finally, a Global Environment Facility project is being submitted for protection of ecosystems in the northern part of Aceh, which are severely threatened by losses of livelihoods on the coast. 16 Table 2: JSDF Approved Grants Grant Name Amount in Objective US$ million Improving Aid Effectiveness 1.0 The purpose of the proposed emergency grant is to through Radio provide affected communities with means to access emergency and reconstruction aid through radio which will target poor and highly dispersed communities in Aceh. Vouchers for Refugees 1.6 The purpose is to provide returning IDPs with basic productive resources in ways that promote a rapid transition to re-development in host communities. Refugees will be provided with a book of vouchers which will be partly used by refugees for their own relocation, and partly for negotiating with host communities to cover the costs of incremental use of services, etc. Support for Female Headed 1.7 The purpose of this grant is to help female headed Households During Aceh households to return to their villages and join the Reconstruction reconstruction effort. Block grants will be used for three types of activities: to restart the widow's micro-enterprises; to offset the costs of ensuring that their children enroll in schools; and to provide contributions towards community rebuilding efforts. 17 5. THE PROPOSED MULTI-DONOR TRUST FUND FOR ACEH AND NORTH SUMATRA 5.1 In response to the Government of Indonesia's request, the World Bank and several donor partners plan to establish a multidonor trust fund for Aceh's tsunami-related reconstruction program. IDA will be the Trustee of this MDTF. This section sets out the scope, governance and operating principles of this aid coordination modality (see Figure 2). Figure 2: Recovery Financing via the MDTF 5.2 Contributions to the Trust Fund. The MDTF will commingle all donors' contributions into a common pool. All contributions, and correspondingly all disbursements will be on grant basis. Contributions may not be earmarked for any specific component, activity or program,, but a donor may state a preference that its contribution be used to support one or more of the sectors and cross- cutting themes as defined in the GOI's recovery master plan. 5.3 In the event that a donor's preference cannot be accommodated, IDA may allocate the contribution to other sectors or themes14. IDA will not guarantee that total spending in the broad sector(s) concerned would match or exceed the level of the contribution for which a donor has made a sectoral preference. Contributions to the MDTF will be held in trust by IDA and, pending disbursement, invested in accordance with IDA's practices on investment of IDA-administered funds. Income earned on those funds will be credited to the MDTF, thus increasing its commitment 14A list of GOI's sectoral and cross-cutting areas is provided in Annex 2. 18 authority. As and when the MDTF is closed, any undisbursed balance will be returned to donors, in proportion to their aggregate paid-in contribution to the MDTF. 5.4 Size of the Trust Fund. Total funding to be mobilized through the MDTF is expected to amount to more than US$ 450 million, with major contributions from the European Commission (around US$ 260 million), the Netherlands (US$ 100 million), Sweden (US$ 20 million), Norway (US$ 10 million), Denmark (US$ 9 million), New Zealand (US$8 million). Other donors, such as, but not limited to, Canada, Germany, the United Kingdom and Finland are also expected to contribute. Some private sector partners, foundations and non-governmental organizations are also envisaged to contribute resources to the MDTF; this will be undertaken in accordance with relevant Bank practices. If approved by its Board of Governors, the IBRD will contribute US$ 25 million from its surplus to seed the MDTF. 5.5 Activities. The MDTF will help fund projects, programs and related activities in support of the GOI's recovery and reconstruction efforts, including the following: · Project Investments and Technical Assistance. This type of support will include: new stand-alone projects, co-financing of new projects, additional financing of ongoing projects, and technical assistance activities; · Program Support to the GOI's sectoral or multi-sector programs that are part of the rehabilitation and reconstruction efforts. Funding will be provided in tranches that will be disbursed against achievement of indicators agreed with the GOI. 5.6 To the extent possible, the expenditures will be on the GOI's budget with funds flowing through dedicated accounts that are monitorable and reconcilable. All financing will be contingent upon the GOI putting in place a strong governance structure for the recovery program as a whole, including fiduciary, management, and stakeholder participation components. 5.7 Selection Criteria. Projects and program activities to be supported from the Fund should meet the following selection criteria: · Proposals should be consistent with the GOI's recovery strategy and program in response to the expressed needs of the citizens of Aceh and North Sumatra. · Proposals should enable the efficient, speedy and sustainable recovery of Aceh and North Sumatra. · Projects or programs will be generally executed by a government agency (central, provincial or local) or its designated implementing agency, such as an NGO or foundation. 5.8 Governance Structure The fundamental principles of good governance of the Fund are set forth below: · Support for a GOI-owned program, as discussed with donors; · Close partnership among the key agencies; · The separation of responsibilities for allocation, fiduciary and administrative functions of MDTF; and 19 · Full transparency and openness in MDTF processes. 5.9 Based on these principles, the following governance structure is proposed for the MDTF: · The Trustee o IDA will be the Trustee of the MDTF. As Trustee, IDA will be responsible for establishing and maintaining appropriate records and accounts to identify the contributions, make commitments to be financed out of the contributions, and document receipts and disbursements of the funds. IDA, as Trustee, will have the authority to deny funding to any activity where in its view reasonable doubts arise as to whether the funds concerned will be effectively utilized for the agreed purposes. · MDTF Steering Committee o The Fund will be governed by a Steering Committee consisting of representatives of the government (from the central, provincial and local levels), donors, and civil society as well as the Trustee. The civil society representatives would be drawn from the Badan's oversight body (Dewan Pengawas). One representative each, of other institutions, such as the UN, the AsDB and the international NGO community, could participate as appropriate in the MDTF Steering Committee. The modalities for representation on the Steering Committee are currently under discussion and are expected to be finalized shortly, in consultation with GOI, donors and other key stakeholders. o The Steering Committee will be co-chaired by a high level representative of the GOI and IDA, and possibly also by a major donor contributor. The Steering Committee will act collectively and, to the extent practicable, make decisions by consensus. In the absence of consensus, decisions will be made in accordance with the voting rules and procedures of the Steering Committee. o The Steering Committee will be responsible for: (i) endorsing overall priorities and providing strategic guidance to the MDTF; (ii) reviewing progress of the operations funded; (iii) ensuring coherence and collaboration between the MDTF and other reconstruction efforts; (iv) endorsing the project and program activity concept notes to be supported under the MDTF, including the financial arrangements under which the project and program activity will be pursued. The Steering Committee will meet on a regular basis and at such location as it may decide. · Partner Agency o The Trustee may appoint itself (IDA), and other entities, such as AsDB and the UNDP, as necessary, to act as Partner Agencies, to manage projects and programs under the MDTF. For activities administered by Partner Agencies other than itself, IDA will have limited responsibilities. In such cases, IDA will only transfer the funds to finance the Partner Agency administered projects and programs. Related grants administered by a Partner Agency will be subject to the policies and procedures of the Agency concerned. Nevertheless, the fiduciary framework and governance arrangements of the relevant Partner Agency must be 20 acceptable to IDA. The Partner Agency will also be responsible for associated monitoring and supervision, and reporting to GOI and donors. · The Secretariat o IDA will establish a Secretariat that will be primarily responsible for coordinating the overall activities to be financed from the Fund. For each meeting of the Steering Committee, the Secretariat will prepare reports and make recommendations for which the Steering Committee's endorsement is sought. o In addition, the Secretariat will: (i) prepare consolidated reports on activities funded by the Fund, including status of the projects or programs, status of implementation, disbursements for the previous period and projections, project pipeline and financing requirements, costs to administer the Fund, and other pertinent information; and (ii) review all reports submitted on the activities of the MDTF prior to their submission to the Steering Committee. In addition, the Secretariat will be responsible for: (i) answering all queries related to the Fund; (ii) handling logistical arrangements for meetings of the Steering Committee; and (iii) disseminating to donors all such information, recommendations and requests as may be received from time to time relating to the program and project requirements. The Secretariat will also prepare minutes of the meetings of the Committee and provide copies thereof to each donor. 5.10 Terms and Conditions of IDA Administered Grants. Consistent with fast-tracking the process for the MDTF, appropriate procedures will be applied, including inter alia simplified project design, use of emergency procedures in accordance with OP/BP 8.50 on Emergency Recovery Assistance, and project start-up support on the ground, especially in the initial phase. 5.11 Operational Manual. An operational manual providing the ground rules for IDA administered activity, project/program appraisal and approval, procurement, flow of funds, financial reporting, accounting, and audit arrangements (including technical audits), quality assurance arrangements and a results based monitoring and evaluation framework, will be prepared. This key document will be carefully prepared based inter alia on the Common Operating Principles and Guidelines for Tsunami Reconstruction (Annex 3). Among others, the Manual will provide detailed guidance on some of the key areas noted in the following paragraphs. 5.12 Approval of Projects and Programs. Approval of individual grants to finance specific projects and programs to be administered by IDA will be delegated to the Regional Vice President or their designee. 5.13 Grant Agreements. IDA will apply its own policies and procedures for own-administered grants and sign a grant agreement with the relevant recipient. 5.14 Procurement. Procurement policies will be as flexible as possible with due consideration for economy and efficiency while still maintaining safeguard measures to ensure that the funds are used only for the purposes specified in the respective grant agreements. 5.15 Financial Management. For own administered grants, IDA will be responsible for all disbursements and financial management arrangements, in conformity with IDA's policies and procedures. The grant agreement with a recipient will obligate the recipient, among other things, to 21 maintain an appropriate and adequate financial management system, including records and accounts, and financial statements audited by independent auditors acceptable to IDA. These should separately reflect as appropriate, the operations, resources and expenditures related to the activity financed from the MDTF. 5.16 Environmental and Social Impacts. The environmental and social safeguards arrangements for an IDA-administered activity financed from the Fund will be carried out in accordance with applicable environmental and social screening and assessment guidelines provided for under the Bank's applicable policies. Awareness of local environmental and social conditions including gender dimensions will be critical to success, especially given the region's history of civil strife and the special autonomy status of Aceh. In order to undertake due diligence and ensure consistent treatment of social and environmental issues, an Environmental and Social Screening and Assessment Framework will be applied. At the same time, the urgency of the situation requires flexibility in applying environmental, social and related safeguard policies. The use of streamlined procedures will be applied in accordance with OP/BP 8.50 on Emergency Recovery Assistance, and consultation and disclosure requirements will be simplified. However, significant departures from the standard requirements under the World Bank's environmental and social policies will need to be approved by the Environmental and Social Development Unit of the East Asia and Pacific Region of the Bank. 5.17 Administrative Charges. IDA, as Trustee, will strive for maximum efficiency and effectiveness in administering the MDTF, while promoting sound financial management and accountability. To ensure that all required fiduciary and administrative cost elements are adequately funded, IDA will recover its actual costs, and those of the Partner Agencies for managing grant funded projects and programs, from the trust fund. These costs will be documented for the Steering Committee. 5.18 Effectiveness Date. The Fund will become effective upon the approval of the attached Resolution by the Board establishing the MDTF. 5.19 Duration of the MDTF. Unless otherwise agreed by IDA and donors, the closing date of the Fund will be June 30, 2010. No new commitment out of the Fund's resources can be made after the closing date. The proposed duration is deemed appropriate given the magnitude of reconstruction needs in Aceh and North Sumatra. 5.20 Financial and Other Reporting. IDA will maintain separate records and ledger accounts in respect of the funds deposited by the donors with IDA under the MDTF. Within ninety (90) days of each March 31, June 30, September 30 and December 31, IDA will prepare, on a cash basis, an unaudited statement of receipts, disbursements and fund balance with respect to the MDTF, and forward a copy to each donor. Each such statement will be expressed in United States dollars, the currency in which IDA will maintain the funds. In addition, as soon as practicable after all commitments from MDTF shall have been fully disbursed, IDA will prepare on a cash basis an unaudited financial statement of receipts, disbursements and fund balance with respect to the Fund and forward a copy to each donor. In the event that donors request a financial statement audit of the MDTF to be performed by the World Bank's external auditors, the costs of such an audit, including the internal costs of IDA with respect to such an audit, will be charged to the Fund. IDA will provide each donor with a copy of the auditors' report. 5.21 IDA will also furnish to the donors: (a) on a semi-annual basis, a consolidated report describing the operations of the Fund in the preceding six months; and (b) on an annual basis, a 22 management assertion, together with an attestation from the World Bank's external auditors concerning the adequacy of internal control over cash-based financial reporting for trust funds as a whole. The costs of such attestations will be borne by IDA. 5.22 Risks. There are four major risks that may impact the activities and outcomes of the MDTF. These risks are: institutional, political, financial and technical. A summary description of the risks and mitigating measures are provided below: · Institutional. The low absorptive and limited project management capacities of local institutions will hamper the implementation of recovery efforts. Capacity building interventions under other Bank-administered project and other trust funds are expected to improve local level capacities. The involvement of civil society in recovery planning and implementation will also help minimize the risk along with line ministries implementing some of the activities. · Political. The resumption of civil conflict can impact development activities and may lead to continuation of emergency status and dominant role of the military in the future. The Bank is providing support in strengthening local governance and the MDTF governance structure will help clarify lines of civilian control over recovery effort. · Financial. GOI prefers that funds from the MDTF should be on-budget. For programmatic support, funds could be at risk of not being used for intended purposes. This risk would be mitigated by requiring GOI to put in place a strong governance structure for the recovery program as a whole that is acceptable to IDA. Audits conducted by independent auditors acceptable to IDA will be required for transactions and account balances related to the dedicated accounts for each project/program. · Technical. The application of certain Bank procedures may slow down disbursements. This risk would be mitigated through simplified procurement, financial management, and environmental safeguard procedures allowed for in emergency operations, as appropriate. 5.23 Benefits. MDTF-financed activities will support priority interventions that will facilitate the rehabilitation and reconstruction in the provinces of Aceh and North Sumatra. It will help restore basic services to the minimum level, rebuild the lives of the affected population and rebuild the region's infrastructure and institutions. In addition, the Fund's governance structure will not only ensure transparency in the use of the trust fund resources, it will also provide a venue for facilitating collaboration among all stakeholders - Government (central, provincial and local), civil society, donors and other develop partners - which in turn will enhance the MDTF-financed activities' development effectiveness and sustainability. Moreover, the successful implementation of MDTF- financed activities augur well in "building peace for prosperity in Aceh". 5.24 Results. GOI is cognizant of the importance of ensuring the achievement of apposite results under the recovery program, and of timely, participatory and transparent monitoring and evaluation of these. The MDTF will both contribute to the achievement of GOI's objectives and attendant results, and draw on the GOI's results-based M&E framework (in the context of the Badan, and the e-Aceh tracking system). Attachment 1 Page 1 of 5 DRAFT BOARD RESOLUTION MARCH 31, 2005 RESOLUTION ESTABLISHING THE MULTI-DONOR TRUST FUND FOR ACEH AND NORTH SUMATRA INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION RESOLUTION No. __-_ RESOLUTION No. IDA __-_ MULTI-DONOR TRUST FUND FOR ACEH AND NORTH SUMATRA (MDTF) WHEREAS: (A) It is desirable to promote the purposes of International Bank for Reconstruction and Development (the Bank) and International Development Association (the Association) by establishing a Multi-donor Trust Fund for Aceh and North Sumatra (MDTF), in order to finance a post-earthquake and tsunami emergency rehabilitation and reconstruction program in Indonesia (the Program); (B) The Executive Directors of the Bank have proposed to the Board of Governors of the Bank to adopt a resolution authorizing the transfer from surplus of $25 million to the MDTF; (C) Other donors and donor agencies (Other Contributors) have also declared their intention to contribute to the financing of the Program and to this effect to channel additional funds through the MDTF in support of the Program; and (D) The Association is prepared to establish the MDTF and to be trustee of the funds contributed thereto on the terms and conditions set forth in this Resolution; NOW THEREFORE it is hereby resolved that, subject to the adoption by the Board of Governors of the Bank of the proposed resolution referred to in paragraph B of the Preamble: Attachment 1 Page 2 of 5 A. Establishment of the MDTF 1. The MDTF is hereby established as a trust fund of the Association, constituted of funds which shall from time to time be contributed in accordance with the provisions of this Resolution, and any other assets and receipts of the MDTF. 2. The Association shall hold and administer such funds, assets and receipts in trust (in such capacity, the Trustee), and the Trustee shall manage and use such funds, assets and receipts only for the purpose of, and in accordance with, the applicable provisions of the Articles of Agreement of the Association and the provisions of this Resolution, keeping them separate and apart from the assets of the Bank and the Association, but may commingle them with other trust fund assets maintained by the Bank or the Association. 3. The Trustee is authorized to accept contributions to the MDTF from the Bank and Other Contributors (collectively referred to as the Contributors). The Trustee shall enter into a contribution agreement with each such Other Contributor, in form and substance satisfactory to the Trustee, whereby each such Other Contributor shall agree to pay its contribution to the MDTF in accordance with the terms of this Resolution. Contributions to the MDTF shall be denominated in United States Dollars or other currencies acceptable to the Trustee. 4. The privileges and immunities accorded to the Association shall apply to the property, assets, archives, income, operations and transactions of the MDTF. 5. All contributions to the MDTF (collectively referred to as Contribution Funds) will be accounted for as a single trust fund. The Contribution Funds may be freely exchanged by the Trustee into other currencies as may facilitate their administration and disbursement. B. Payment of Contributions to the MDTF 6. Payment of each contribution shall be made as follows: (a) Payment shall be made in the form of cash to the Association, as Trustee of the MDTF. (b) Payment of the full amount of each contribution shall be made at such time and in such manner as shall be agreed by the Trustee. C. Administration of the MDTF 7. The Trustee may invest the Contribution Funds pending their disbursement in any instrument in which the Trustee is authorized to invest its own funds. The Trustee shall credit any such investment income to the MDTF for use for the same purposes as the Contribution Funds. In order to assist in the defrayment of the costs incurred by the Trustee with respect to the administration of the MDTF, and by Partner Agencies (as hereinafter defined) in the performance of their functions thereunder, the Trustee is entitled to retain an amount representing the actual costs of administering the Contribution Funds for its own account, as well as an amount representing the actual costs of Partner Agencies. The Trustee shall transfer to the Partner Agencies amounts to which they are entitled pursuant to this paragraph in the manner agreed between the Trustee and the Partner Agencies. Attachment 1 Page 3 of 5 8. Trustee shall establish and maintain appropriate records and accounts to identify the resources of the MDTF, the commitments to be financed out of the MDTF, and the receipts and disbursements of funds in the MDTF. 9. The Trustee shall, as soon as practicable after the end of each fiscal year of the Trustee, furnish to the Executive Directors of the Association and each of the Contributors: (a) a report on the operations financed from the MDTF; and (b) an Unaudited Statement of Receipts, Disbursements and Fund Balance, with respect to the MDTF, together with a management assertion and an attestation from the Association's external auditors on the satisfactory performance of the procedures and controls used by the Association in administering trust funds. The costs of such attestations shall be borne by the Trustee. In the event that donors request a financial statement audit of the MDTF to be performed by the Association's external auditors, the costs of such an audit, including the internal costs of the Association with respect to such an audit, will be charged to the MDTF. The Association will provide each donor with a copy of the auditors' report. D. Partner Agencies and Allocation of MDTF Resources 10. The resources of the MDTF may be used to support both new and existing donor-funded projects, as well as programs funded exclusively by Indonesia from its own funds, which are part of, and consistent with, the Program. The Trustee may appoint the Association and such other entity as it shall designate to act as Partner Agencies (the Partner Agencies) and, as such, be responsible for the appraisal and supervision of such projects and programs; provided, however, that no entity shall be designated to act as such unless its policies and procedures have been reviewed by the Trustee and found acceptable for the purposes of this Resolution. Each of the Partner Agencies shall be solely responsible to the Contributors for the use of MDTF resources for the projects and programs for which such Partner Agency has been designated, and the Association, in its capacity as Trustee, shall have no responsibility to the Contributors for the actions of such Partner Agencies. 11. There shall be established a MDTF Steering Committee, consisting of representatives of the Contributors, and of the Government and civil society, and the Trustee. Decisions of the MDTF Steering Committee shall, as far as possible, be made by consensus. In the absence of consensus, matters requiring a decision of the MDTF Steering Committee shall be decided according to such voting rules and procedures as the MDTF Steering Committee shall prescribe. The MDTF Steering Committee shall determine the quorum for the transaction of business at any meeting of the MDTF Steering Committee. 12. Proposals for projects and programs to be funded from the MDTF resources shall be submitted for endorsement to the MDTF Steering Committee. Funding proposals shall include a description of the project or program to be funded, the amount of MDTF funding required, the identity of the proposed recipient of the MDTF funding and the identity of the Partner Agency proposed for such project or program. The amount of MDTF funding proposed for any project or program may not exceed the aggregate amount of Contribution Funds plus any investment income earned thereon, less the aggregate of amounts of previously approved grants and amounts retained by the Trustee pursuant to Section 7 hereof. Funding proposals shall be subject to the endorsement of the MDTF Steering Committee at a meeting of the MDTF Steering Committee, and the Trustee shall only provide financing from the MDTF for projects and programs in accordance with funding proposals as endorsed by the MDTF Steering Committee. Attachment 1 Page 4 of 5 E. Operations of the MDTF 13. Except as otherwise provided in this Resolution, all amounts credited to the MDTF shall be used exclusively for the purpose of making grants out of the resources of the MDTF to recipients for projects and programs endorsed by the MDTF Steering Committee in support of the Program. 14. In the case of projects and programs for which a Partner Agency has been designated, the Trustee shall, acting upon the advice of the Partner Agency, transfer the MDTF resources, as endorsed by the MDTF Steering Committee for those projects and programs as agreed between the Trustee and the Partner Agency. 15. Grants administered by the Association, as Partner Agency, shall be subject to the following: (a) each grant shall be administered in accordance with the applicable procedures of the Association and subject to the Regional Vice President's or their designee's approval; (b) each grant shall be evidenced by a separate agreement between the recipient and the Association, indicating in particular that the resources have been provided from the MDTF; and (c) grants shall be denominated in United States Dollars. 16. Grants administered by a Partner Agency other than the Association shall be subject to the following: (a) each grant shall be administered in accordance with the applicable procedures of the Partner Agency provided, however, that, said procedures are acceptable to the Trustee; and (b) grants shall be denominated in United States Dollars. F. Termination of the MDTF 17. Unless otherwise agreed by the Association and donors, the closing date of the MDTF will be June 30, 2010. No new commitment out of the MDTF resources can be made after the closing date. The proposed duration is deemed appropriate given the magnitude of reconstruction needs in Aceh and North Sumatra. The functions of the Association as Trustee of the MDTF shall terminate, except for any action necessary for winding up the activities of the MDTF in an expeditious and orderly manner. On the termination of the MDTF pursuant to this paragraph, except as each Contributor and the Trustee may otherwise agree, the Trustee shall promptly return to each Contributor its pro-rata share (defined as the ratio of the Contributor's paid-in contribution to the total paid-in contributions from all Contributors), of any uncommitted funds remaining in the MDTF, including any applicable investment income, to the Contributor. With respect to the Bank's contribution any remaining balance will be transferred to the Association. 18. After all commitments from the MDTF shall have been fully disbursed, the Trustee shall as soon as practicable furnish to the Executive Directors of the Association and the MDTF Steering Committee a final report on the operations financed from the MDTF. Attachment 1 Page 5 of 5 G. Amendment 19. The Executive Directors of the Association may amend the provisions of this Resolution as necessary, and on the basis of due consultations. H. Effective Date 20. This Resolution will enter into effect on the date of its adoption by the Executive Directors of the Association and the Bank. Annex 1 Page 1 of 5 CAS Annex A2-1 Annex 1 Page 2 of 5 CAS Annex A2-2 Annex 1 Page 3 of 5 CAS Annex B2 Annex 1 Page 4 of 5 CAS Annex B8 Annex 1 Page 5 of 5 Annex 2 Page 1 of 1 Government Reconstruction Planning Working Groups 1. Spatial Planning and Land Policy 2. Environmental and Natural Resource Management 3. Infrastructure 4. Economy and Labor 5. Reviving Local Governments and Institutional Development 6. Social, Culture, and Human Resource 7. Legal and Judicial Institutions 8. Security, Public Order and Reconciliation 9. Accountability and Fiduciary Safeguards 10. Financing and Management of Funds 11. Disaster Mitigation The international community is providing support to all of the Working Groups listed above. Annex 3 Page 1 of 4 Common Operating Principles and Guidelines for Tsunami Reconstruction - Draft A wide array of organizations will be involved in tsunami reconstruction work, following the present emergency relief stage. It is crucial that there is not only strong coordination among the agencies but also a widespread commitment to some common principles and operational approaches to ensure that the citizens and communities affected are fully consulted and involved in the reconstruction. This is vital if the reconstruction is to be effective, efficient, responsive to the needs of those most affected (particularly the most vulnerable) and is to avoid causing local frictions and fanning existing tensions. Reconstruction programs after major disasters often experience serious implementation problems, especially where a large number of donor and government agencies are involved. The most common source of problems is that the affected communities are inadequately consulted and involved. It is crucially important in Aceh and North Sumatra, therefore, that all agencies (Indonesian and foreign; voluntary and official) are encouraged to commit to common standards of consultation, participation and coordination. This note suggests a set of principles for this, together with operational guidelines on how to serve those principles. The starting point is a careful analysis of lessons learnt from humanitarian operations over the last decade conducted by the International Federation of Red Cross and Red Crescent Societies (IFRC) and the major humanitarian NGOs.15 The most common issues experienced ­ which should therefore be planned for in Aceh and North Sumatra reconstruction ­ relate to the need for meaningful participation of the affected people. This entails the obligations to inform (regarding plans, rights, alternatives etc), to listen (via interviews, focus groups, social audits, help-desk and complaints mechanisms), and to respond (demonstrating that consultation is serious). But there are also important organizational concerns so that local groups that have been working in the area previously do not get overwhelmed and depleted, and economic issues can be addressed properly ensuring that aid does not undermine community economies. This note lists principles of good practice in relief operations and suggests guidelines to which all agencies could commit on how to operationalize these in the Aceh and North Sumatra context. Reaching such agreement early on amongst the key players could avoid intractable problems later. A smooth coordination mechanism could also help guard against agencies using their relief programs as conduits for political or religious influence 15This led to a Code of Conduct for The International Red Cross and Red Crescent Movement and NGOs in Disaster Relief, agreed in 1994. Now, more than 300 other NGOs have pledged to observe this. Further elaboration of operational lessons (under the so-called "SPHERE Project") has led to the preparation of a detailed handbook (revised in 2004), see www.sphereproject.org. Matters of agency accountability to affected communities is also the subject of much Red Cross and NGO literature ­ see, in particular, World Disasters Report, 2002, Chapter 7: www.ifrc.org/publicat/wdr2002/chapter7.asp Annex 3 Page 2 of 4 The Principles: Operational Guidelines: 1. Consultation and participation: · Reconstruction and rehabilitation In every stage of assistance, agencies will conduct programs should not be imposed consultation with: upon affected communities, but · Leaders and constituents of local institutions such as should ensure their full and active mukim. participation in all stages, including · Traditional community leaders and constituents of needs assessments, design, local religious organizations, as well as cultural implementation, monitoring and institutions (e.g. council of ulamas, leaders of evaluation. This is to help ensure that mosques and meunasah, Moslem women's the programs are effective, lasting organizations, customary leaders such as Panglima and equitable. Laut, Tuhapeut etc). · The wider local populations should · Local relevant organizations which have been also be consulted. Genuine working in pre-tsunami Aceh and North Sumatra. consultation should be carried with · Community groups that would directly benefit from wider actors within community, both the intervention affecting their lives. formal and informal. · Communities must be given feedback on what · Program design should include happened to their comments and suggestions (with indicators to track these matters, reasons). Consultation must not be a one-way including involvement of women and process. men from the different communities (especially the most vulnerable). 2. Respect for religion, culture and customs: · Programs should be designed to · An important starting point for consultation is to respect the local religion, culture, build an inventory of community leaders, CBOs and structures and customs of the affected other CSOs who are respected and trusted by affected communities. communities: give special attention to faith-based · Agencies will not interfere in debates leaders and CSOs. over religious matters such as · Local religious and adat leaders should fully syariah. participate in the decision-making process (see above · Agencies will not interfere in local for various consultations). and national politics. · Avoid to engage in any consultation that leading into the debates over ideology or political intents. 3. Transparency and communications: · All agencies should agree to full · "Aid Information Kiosks" should be established at transparency towards the affected kabupaten level, and public notice-boards in strategic communities, authorities and other locations (like mosques, schools and clinics) at agencies regarding their assessments kecamatan and village levels, recording all assistance and plans. received and tracking expenditure. · Affected communities should be able · Provide information to the local media, e.g. to comment on their plans at all Community radios like Radio Muhammadiyah in stages of the project cycle. Banda Aceh, as well as newspapers, with all bids · There should be high standards of from suppliers and findings by audit agencies like disclosure, but also commitment to BPKP. Ensure that the audit result conducted by effective information dissemination public auditor shared and disclosed to wider strategies. constituents as necessary · It may prove to be more effective to use informational meetings (e.g. held after mosque/church gatherings) than written notices. It is important to experiment with a variety of approaches and review experience to determine the most effective. Annex 3 Page 3 of 4 The Principles: Operational Guidelines: 4. Grievance processes: · Agencies should institute robust and · Instititionalize the usage of complaint mechanisms. confidential complaints processes to Mechanisms such as those in the Kecamatan allow investigation on community Development Project should be utilized where they grievances (including allegations of exist and established where they do not. Such misbehavior of agency staff) institution need to be developed based on local · Agencies should establish a communities' initiatives and inputs, and should mechanism to address and/or refer involve representatives of men and women as well as complaints to authorities as traditional leaderships (see principle #1 above for appropriate. details on public consultations). · Alternative dispute resolution procedures, especially for land and inheritance issues, need to be instituted quickly in areas that have lost significant populations taking into serious consideration the voice of the affected people both men and women. · Use coordination mechanisms to reinforce grievance mechanisms. 5. Maximize contributions to economic recovery by harnessing local capacities: · All agencies should draw on the · Establish a common agreed daily wage structure and capacities of local people and mechanism for paid-work involving local communities to the fullest extent, communities to be reviewed by ILO on a regular both to maximize their participation basis. and to maximize the contribution · Adjustments will be made accordingly for urban and made by the programs to economic rural wage base and ensuring that the terms and and social recovery. conditions used will not create the higher fluctuation · This includes using local labor and of inflation rate in the long-term. expertise and purchasing local · Consult and check with relevant government materials and equipment wherever agencies to ensure that coherent framework of wage possible, paying fair and prompt and employment could be established to fully benefit remuneration (including paying at the local communities. This will also help the local least the statutory minimum wage for government agencies to be responsible and unskilled labor, but not too high to strengthen their capacity to address the communities' create dependency and artificially needs and interests. draw labor away from other productive work). · The above includes a commitment to work with and through local civil society organizations where possible. 6. Coordination: · All agencies should exchange · A simple standard procedure will be developed so information with communities and that any agency (national or international) provides each other, and collaborate regularly basic information to information clearing houses and in: determining common professional databases at the provincial and district levels. standards; mapping needs, skills and · This entails a central repository of knowledge for planned interventions; identifying programs implemented by all agencies (reports, major gaps in coverage; and targeting mechanisms, competency standards etc). special needs of vulnerable groups · Emphasis on coordination should be in Aceh itself, (e.g. orphans). rather than Jakarta, to emphasize local ownership. · The coordination structure should · A common/agreed salary and remuneration structure serve to reinforce the grievance will be established and regularly reviewed by ILO for mechanisms of individual agencies. Achenese and North Sumatran staff hires and adhered Annex 3 Page 4 of 4 The Principles: Operational Guidelines: · The coordination structure should to by all international agencies. Ensuring that also brief the authorities about relevant local government agencies consulted and be recurring or emerging problems (e.g. informed on the joint decision made among the communal tensions that are impacting international agencies. on the reconstruction effort) and possible remedies. It is also important to inform authorities on any agreed decision made so they would be prepared to assist should there is problem arise. 7. Programs must strive to reduce future vulnerabilities to disaster: · Reconstruction programs should · Prepare and publicize appropriate technical manuals contribute to long term development to prevent proliferation of one-off projects that by helping communities become cannot be maintained or replicated. more resilient towards future disasters · Use a provincial level coordination group to work and by promoting sustainable with government line agencies on agreed standards. lifestyles. · Build the capacity of local actors in communities and · Emphasis should be placed on using civil society groups in relevant areas to respond to local building traditions and codes to shocks and sudden changes affecting their lives, the fullest extent, to avoid through for example disaster preparedness and dependence on imported skills and management initiatives. Rebuild and develop their materials. traditional coping mechanism so that it could adjust to disturbances affecting their social structure. 8. Reconstruction and resettlement priorities: · Programs should be designed to help · Set clear criteria for ending relief programs which, if communities return to their original extended, will create dependency and also introduce homes/communities as swiftly as a number of distortions into the local economy. possible where possible or to find · These criteria should be agreed between the alternative homes. government and the main aid agencies early into · It is essential not only to involve reconstruction. communities fully in this but also to · Public consultations must be be held both with IDPs consult actively with host and host communities (see principle #1 above for communities and those who might details on public consultations) so that people will face livelihood losses (e.g. grazing have an informed choices to make their own decision rights) as a result of any relocation, based on the community preference. and to agree to adequate · Aid agencies should made any effort to ensure that compensation with those people to community decision is fully supported and avoid conflicts emerging within those mechanism set up to enable them resume their living communities. in dignity. · Ensure that the communities' rights to land and other assets or properties as well as basic social services legally protected and respected fully Annex 4 Page 1 of 1 The World Bank Group CAS (FY04-07) The latest CAS emphasizes the vital role of the Bank Group in supporting innovative governance programs, including large-scale community-driven development, to generate sustainable poverty reduction and secure the Millennium Development Goals. Driven by Indonesia's forward momentum under the last CAS, the current strategy seeks to match continued progress on governance reforms by greater access to both IDA and IBRD in two ways: comprehensively at the national level through the CAS trigger framework and at the project level through governance focused "platform" approach to investment lending. At the project level, the cross-sectoral platform approach introduced in the CAS aims to use IDA and IBRD supported projects, leveraged by AAA, partnerships and capacity building activities, to systematically increase standards of governance for specific levels of government and in the process doing more to improve the lives of the poor for each development dollar invested. The decentralization support/local services and CDD platforms constitute nearly 65 percent of our lending portfolio over the next 3 years. Such a cross-sectoral approach has already proved highly successful at the community level -- largely with IDA support -- and is now particularly important at the district level. The Bank is not working in isolation in Indonesia. The Bank's IDA-IBRD program in Indonesia is greatly enhanced by our capacity to leverage significant additional grant funds from a range of bilateral partners to deliver on our common agenda. Indonesia's reforms and development programs show promise for a big pay-off to poor Indonesians, provided donor assistance increases in-line with progress. For Indonesia this will mean improved lives for about 110 million of its citizens. Looking ahead, the new Government has indicated its strong preference for concessional borrowing, especially for CDD and other local level programs. Enhanced access to external aid will not only provide an important vote of confidence for the new Government, but could help to lock-in the progress made to date, and secure broader buy-in to the Government's ambitious reform agenda.