76501 FY2013-2015 COUNTRY PARTNERSHIP STRATEGY FOR INDONESIA THE WORLD BANK, INDONESIA OFFICE Bursa Efek Indonesia, Tower 2, Lt. 12 Sudirman Central Business District Jakarta - Indonesia Contact: Dini Djalal, ddjalal@worldbank.org Novita Wund, nwund@ifc.org Website: www.worldbank.org/id FY2013-2015 COUNTRY PARTNERSHIP STRATEGY FOR INDONESIA December 13, 2012 Indonesia Country Management Unit, World Bank East Asia and Paci�c Region The International Finance Corporation East Asia and Paci�c Region Multilateral Investment Guarantee Agency Abbreviations and Acronyms AAA Analytic and Advisory Activities ADB Asian Development Bank AfD Agence Francaise de Developpement AFEP Aceh Forest and Environment Project AGO Attorney General’s Office APEC Asia-Paci�c Economic Cooperation ASEAN Association of Southeast Asian Nations AusAID Australian Aid Agency BAPPENAS State Ministry of Development Planning BEC Basic Education Capacity Trust Fund BERMUTU Better Education through Reformed Management and Universal Teacher Upgrading Project BII Bank Internasional Indonesia BKPM Investment Coordinating Board BNPB National Disaster Management Agency BOS Government’s School Operational Assistance BOS-KITA Knowledge Improvement for Transparency and Accountability Project BPBD Local Disaster Management Agencies BPJS National Social Security Administrators Law BPK Supreme Audit Institution BTPN Bank Tabungan Pensiunan Nasional Tbk Cat-DDO Catastrophe Deferred Drawdown Option CCT Conditional Cash Transfer CDD Community Driven Development CIDA Canadian International Development Agency COP Conference of the Parties COREMAP Coral Reef Rehabilitation and Management Project COSO Committee of Sponsoring Organizations CPS Country Partnership Strategy DAK Special Allocation Fund DBM Double Burden of Malnutrition DGH Directorate General of Highways DPL Development Policy Loan DPL-DDO Deferred Drawdown Option DRM Disaster Risk Management EC European Commission EITI Extractive Industries Transparency Initiative ESW Economic and Sector Work EU European Union FCPF Forest Carbon Partnership Facility FDI Foreign Direct Investment FIP Forest Investment Program FIRM Financial Sector and Investment Climate Reform and Modernization FREDDI Fund for REDD in Indonesia FSAP Financial Sector Assessment Program FY Fiscal Year G20 Group of Twenty Financial Ministries and Central Bank Governors GDP Gross Domestic Product ii FY2013-2015 Country Partnership Strategy for Indonesia GEF Global Environment Facility GFDRR Global Facility for Disaster Reduction and Recovery GFMRAP Government Financial Management and Revenue Administration Project GIZ (German Aid Agency) GPOBA Global Partnership on Output-based Aid GPSA Global Partnership for Social Accountability GTI Global Tiger Initiative HIV/AIDS Human immunode�ciency virus infection /acquired immunode�ciency syndrome HPEQ Health Professional Education Quality HRH Health Human resources IBBS Integrated Bio-Behavioral Survey IBRD International Bank for Reconstruction and Development ICT Information and Communication Technology IFC International Finance Corporation IFF Indonesia Infrastructure Finance Facility IMDFF-DR Multi Donor Funding Facility for Disaster Recovery INSTANSI Institutional, Tax Administration, Social and Investment DPL ISSDP Indonesia Sanitation Sector Development Program IT Information Technology IWSFF Indonesian Water and Sanitation Financing Facility JBIC Japan Bank for International Cooperation JICA Japan International Cooperation Agency JICT Jakarta International Container Terminal JUFMP Jakarta Urgent Flood Mitigation Project KfW (German Development Bank) KPK Anti-Corruption Commission KUR Kredit Usaha Rakyat LG Local Government LGCD Local Government Capacity Development LPNK Public Research Institutes M&E Monitoring & Evaluation MCC Millennium Challenge Corporation MDFTIC Multi Donor Facility for Trade and Investment Climate MDG Millennium Development Goals MEMR Ministry of Energy and Mineral. Resources MIGA Multilateral Investment Guarantee Agency MIS Management Information System MoF Ministry of Finance MoH Ministry of Health MoHA Ministry of Home Affairs MoLHR Ministry of Law and Human Rights MP3EI Master Plan for “Acceleration and Expansion of Indonesia’s Economic Development 2011-2025� MSME Micro, Small, and Medium Enterprises MTEF Mid Term Expenditure Framework NGO Non-Governmental Organization NZ New Zealand OECD Organisation for Economic Co-operation and Development FY2013-2015 Country Partnership Strategy for Indonesia iii OGP Open Government Partnership OJK Otoritas Jasa Keuangan (Indonesia Financial Services Authority) PAMSIMAS Rural Water and Sanitation Program PBB Performance-based Budgeting PDAM Perusahaan Daerah Air Minum (Local Water Utility) PDNA Post-Disaster Needs Assessment PEACH Public Expenditure Analysis and Capacity Harmonization PER Public Expenditure Review PERISAI Program for Economic Resilience, Investment and Social Assistance in Indonesia PFM Public Financial Management PINTAR Project for Indonesian Tax Administration Reform PLN Perusahaan Listrik Negara (State-Owned Electricity Utility) PNPM National Program for Community Empowerment PPIAF Public-Private Infrastructure Advisory Facility PPP Public-Private Partnership PT Perseroan Terbatas (Limited Company) R&D Research and Development RAPP Road Asset Preservation Project REDD+ Reducing Emissions from Deforestation and Forest Degradation REKOMPAK Community-based housing and settlement reconstruction program RIA Regulatory Impact Assessment RISET Research and Innovation in Science & Technology Project RPJMN Medium-Term Development Plan SBL Single Borrower Limit SBY President S.B. Yudhoyono SECO Swiss State Secretariat for Economic Affairs SJSN National Social Security System Law SMART-D Sustainable Management of Agricultural Research and Technology Dissemination Project SME Small- Medium Sized Enterprise SNDB Sub National Doing Business Survey SOE State-owned enterprises SPADA Support for Disadvantaged Areas SPAN Automated budget and treasury system SPIRIT Scholarship Program for Strengthening Reforming Institutions Project STATCAP-CERDAS Statistical Capacity Building – Change and Reform for the Development of Statistics STBM Community-Led Total Sanitation Strategy SUN Scaling Up Nutrition TA Technical Assistance TF Trust Fund TSA Treasury Single Account TSSM Total Sanitation and Sanitation Marketing UHC Universal Health Coverage UK United Kingdom UKP4 Presidential Delivery Unit UNAIDS Joint United Nations Program on HIV and AIDS UNDP United Nations Development Program UNICEF United Nations Children’s Fund USA United States of America iv FY2013-2015 Country Partnership Strategy for Indonesia Abbreviations and Acronyms USAID United States Agency for International Development USDRP Urban Sector Development and Reform Project UWSSP Urban Water Supply and Sanitation Project VGF Viability Gap Funding WBG World Bank Group WBI World Bank Institute WDR World Development Report WHO World Health Organization WINRIP Western Indonesia National Road Improvement Project WSP Water and Sanitation Program FY2013-2015 Country Partnership Strategy for Indonesia v Table of Contents I. Introduction 1 II. Development Challenges 3 III. The Government’s Development Program 5 IV. Recent Economic Developments and Political Context 7 Current Economic Performance and Outlook 7 Poverty 9 The Political Context 9 V. The Country Partnership Strategy 11 PRO-GROWTH - Promoting Prosperity 15 Connectivity 16 Competitiveness 17 Financial Sector 18 Infrastructure 20 Local Government 22 Macroeconomic and Fiscal Management 24 Strengthening the Public Sector 25 PRO-JOBS - Enhancing Skills and Technology, and Improving Social Protection 26 Education 26 Social Insurance 29 PRO-POOR – Promoting Communities, Protecting the Vulnerable and Improving Health Outcomes 30 Targeting Poverty 30 Community Development 31 Food Security and Rural Development 33 Improving Health Outcomes 35 PRO-GREEN – Ensuring Sustainable Development and Improving Disaster Resilience 37 Green Growth 38 Improving Disaster Resilience 40 CROSS-CUTTING ENGAGEMENTS - Gender and Governance 41 Gender 41 Governance and Anti-Corruption 43 VI. DELIVERING THE WORLD BANK GROUP PROGRAM 45 Financing 45 Collaboration with Development Partners 46 Portfolio Management 47 Sharing Global Development Solutions 47 Results Management Framework 48 Managing for Risks 48 vi FY2013-2015 Country Partnership Strategy for Indonesia Attachments Annex 1 : Indonesia CPS FY13-15 Results Matrix 53 Annex 2 : Gender Equity 65 Annex 3 : Governance and Anti-Corruption 71 Annex 4 : Portfolio Performance 75 Annex 5 : Trust Funds 77 Standard : CPS Annexes 81 List of Figures Figure 1 : Alignment of Engagement Areas 14 List of Table Table 1 : Baseline Macroeconomic Outlook 8 List of Boxes Box 1 : Ins and Outs FY13-15 14 Box 2 : Connectivity Results, Instruments and Partners 16 Box 3 : Competitiveness Results, Instruments and Partners 18 Box 4 : Financial Sector Results, Instruments and Partners 20 Box 5 : Infrastructure Results, Instruments and Partners 22 Box 6 : Local Government Results, Instruments and Partners 23 Box 7 : Macro and Fiscal Results, Instruments and Partners 24 Box 8 : Public Sector Results, Instruments and Partners 25 Box 9 : Education Results, Instruments and Partners 28 Box 10 : Social Insurance Results, Instruments and Partners 29 Box 11 : Poverty Targeting Results, Instruments and Partners 31 Box 12 : Community Development Results, Instruments and Partners 33 Box 13 : Food Security and Rural Development Results, Instruments and Partners 34 Box 14 : Improving Health Results, Instruments and Partners 37 Box 15 : A New Partnership to Support Green Growth 39 Box 16 : Green Growth Results, Instruments and Partners 40 Box 17 : Disaster Resilience Results, Instruments and Partners 41 Box 18 : Trust Funds: A Platform for Results and Innovation 46 FY2013-2015 Country Partnership Strategy for Indonesia vii viii FY2013-2015 Country Partnership Strategy for Indonesia Photo: Matahati Productions I. Introduction The Joint IBRD/IFC/MIGA Country Partnership Strategy (CPS) with Indonesia for FY13-15 bridges the final two years of the administration of President Susilo Bambang Yudhoyono (SBY). Since 2004, Indonesia emerged as a vibrant and stable democracy and as a self-assured middle-income economy with a fast-growing private sector, and global and regional influence. Building on six decades of partnership, the World Bank Group’s engagement with Indonesia continues to move forward on the path developed by the previous CPS FY09-12, supporting Indonesia’s development agenda by enabling local capacity to implement and deliver and by strengthening economic competitiveness of the private sector. The CPS is aligned with the country’s Master Plan for “Acceleration and Expansion of Indonesia’s Economic Development 2011-2025�, which seeks to accelerate development through a pro-growth, pro-jobs, pro-poor and pro-green strategy. The Government will take a strong position not only as the regulator, but also as the facilitator and function as “a catalyst for growth� for the private sector. The CPS takes into account changing global and domestic market conditions and the lessons learned from the assessment of the CPS for FY09-12, in consultation with the Government of Indonesia (GoI), private sector, civil society, development partners and other major stakeholders. FY2013-2015 Country Partnership Strategy for Indonesia 1 Photo: World Bank Photo: World Bank II. Development Challenges Indonesia’s strong economic growth has supported gains in poverty reduction and contributed to a growing middle class. The country has successfully emerged from the severe economic turmoil of the 1998 Asian Financial Crisis, and the difficult political transition from authoritarianism to democracy. Indonesia’s development has made remarkable progress in lifting millions of people out of poverty and in improving social indicators. Prudent economic management has resulted in low budget de�cits, a much reduced public debt-to-GDP ratio, and manageable inflation. The past decade has also seen a robust economic growth even through the more recent global �nancial crisis. In addition, Indonesia has bene�ted from a boom in commodity exports, increasing investor con�dence and substantial capital inflows, as well as a strong demographic dividend. Rapid urbanization has also contributed by shifting demand patterns towards consumer durables and services. Output growth has averaged 5.5 percent per year during 2002 to 2011, on the back of strong domestic consumption and generally sustainable external surpluses. Although �nancial markets remain vulnerable to changes in international investor sentiment, imbalances declined rapidly as corporate and �nancial sector balance sheets were repaired. Revenue growth, combined with restrained expenditures, has contributed to low �scal de�cits. At the same time, development challenges and weak institutional capacity and other constraints need to be addressed in order for Indonesia to reach its full potential. Building the capacity of Indonesia’s institutions to effectively formulate and implement public policy and programs remains a signi�cant task. Despite sustained economic growth and poverty reduction, Indonesia still has a large poor population (30 million live below the national poverty line, which is just below PPP$1.25 a day) and the pace of poverty reduction is slowing. An additional 65 million people live above the poverty line but are highly vulnerable to falling back into poverty, and inequality is growing. Although poverty rates of female-headed households (FHH) remain lower than male-headed households (MHH), the former remain more remain more vulnerable to shocks. Human development indicators, job creation and infrastructure investment lag behind the needs of an increasingly urbanized, young population. Public service delivery needs to be strengthened through improved coordination and greater transparency. The private sector needs to also be able to operate in a transparent, rules based environment, with fair competition and adequate access to capital. Substantial increases in education expenditures have not yet translated into commensurate improvements in the quality FY2013-2015 Country Partnership Strategy for Indonesia 3 of education necessary to supplying the mix of skills required by a growing economy. Cities are hard pressed to keep up with rapid urbanization, and pronounced regional differences remain. Public investment is lagging behind its historical levels and a severe lack of infrastructure will increasingly hold Indonesia back from reaching its potential in terms of economic growth and prosperity. Fuel subsidies absorb much of the budget that would otherwise be available for infrastructure and social protection. Private sector participation in important sectors such as infrastructure, logistics, healthcare and education services, amongst others, need to be scaled up, and improving regulations for small and medium enterprises could lead to additional job growth. Deforestation, flooding and other environmental concerns have highlighted the importance of adapting and mitigating to climate change and managing natural resources in a sustainable manner. Increasingly, Indonesian society and a free press are demanding stronger accountability in institutions, better governance in businesses and are not tolerating corruption. 4 FY2013-2015 Country Partnership Strategy for Indonesia Photo: World Bank III. The Government’s Development Program A series of five-year development plans have provided the framework for reinforcing economic stability and initiating structural reforms. Within the �rst �ve years after the 1998 crisis, both economic and political stability were largely in place. When President Yudhoyono came to power in late 2004, plans for macroeconomic and �scal consolidation and a series of structural reforms to restore con�dence in the Indonesian economy were included into the National Long-Term Development Plan for 2005-2025. In SBY’s second term, the Government adopted Indonesia’s Medium-Term Development Plan (RPJMN) 2010-2014, with responsibility for monitoring progress assigned to the newly established Presidential Delivery Unit (UKP4). With the target of increasing economic growth to 7 percent and reducing the poverty rate to 8-10 percent by 2014, the RPJMN highlights the need for growth with equity and a range of cross-cutting policies to ensure that development is both sustainable and inclusive. The RPJMN gives a special emphasis to increasing investments in infrastructure and strengthening the poverty agenda. Further, it commits the Government to a more equitable and inclusive development for, among others, women and children. The Ministry of Women Empowerment and Child Protection embodies this commitment. A new Master Plan for Economic Development seeks to accelerate growth and increase equity with a goal of becoming one of the 10 largest economics in the world by 2025. In May 2011, GoI launched the Master Plan for “Acceleration and Expansion of Indonesia’s Economic Development 2011-2025� (MP3EI) based on three strategies: (i) fostering centers of growth in each major island group by developing leading resource-based industrial clusters; (ii) building synergies between those centers of growth, including international connectivity for trade and tourism; and (iii), complementing connectivity by improving human resources capabilities and increasing investments in research and development. Under the plan, business enterprises have a central role in economic development, particularly in generating investments, creating employment opportunities and fostering innovation. The Government is responsible for creating conducive macro-economic and regulatory conditions for the acceleration and expansion of investments. FY2013-2015 Country Partnership Strategy for Indonesia 5 The Government’s approach to economic policy is based on its four strategic objectives of pro- growth, pro-jobs, pro-poor and pro-green development. Equity remains a basic principle for balancing economic growth and development amongst large cities and smaller cities and more isolated parts of the country to deliver more even economic development in collaboration with the private sector and job creation across the country. It also includes a focus on reaching Indonesia’s poorest. The Government concentrates on thirteen programs, which include education, health, poverty reduction, employment creation, infrastructure development, food security, energy, good governance, electoral reform, anti-corruption enforcement, inclusive and equitable development, climate change and environmental protection, and cultural development. Collaboration with the private sector to complement Government’s efforts through investments, job creation and innovation is prioritized. Reducing reliance on external �nance and maintaining a low debt to GDP ratio is also a key priority of President SBY’s administration. In some, but not all of these areas, the Government has sought assistance from the Bank Group as discussed in the sections below. 6 FY2013-2015 Country Partnership Strategy for Indonesia Photo: Juferdy IV. Recent Economic Developments & Political Context Current Economic Performance and Outlook Indonesia managed to weather the global economic downturn of 2008-09 and regain its growth momentum. GDP growth declined from 6 percent in 2008 to 4.6 percent in 2009, but subsequently recovered to 6.1 percent in 2010 and 6.5 percent in 2011. The social impact of the global crisis was also limited in Indonesia. There were few reports of layoffs, poverty and unemployment rates continued to decline and household spending was maintained in an environment of low inflation. This relatively robust performance was supported by solid public �nances, healthy �nancial sector balance sheets and the strong of domestic demand. Indonesia’s exports, focused on commodities, bene�ted from international commodity price increases and strong demand for raw materials from China and other emerging economies. Policymakers also took proactive measures during the crisis, including a �scal stimulus package, supportive monetary policy and a signi�cant contingent support package from development partners whilst managing to bring in a �scal de�cit that was below target in 2009-2011. Along with strong GDP growth, this contributed to a decrease in government debt to below 25 percent of GDP, healthy leveraging of the private sector balance sheets and sovereign ratings that are back to investment grade for the �rst time since 1997. At the same time, these improvements in creditworthiness, along with high relative yields and encouraging long-term prospects, have contributed to strong portfolio inflows, which could expose the economy to sudden reversals the face of continued global economic uncertainty. Recent economic performance has continued to be robust, though there are signs of spillovers from the deterioration in the global economy and financial markets. In recent months the weakening in external demand and commodity prices has contributed to a narrowing of Indonesia’s trade surplus. While �nancial market spillovers have been relatively muted, the weak global outlook and possible �nancial market turbulence present continued downside risks around the projected growth of 6.1 percent in 2012. Although Indonesia’s solid �scal position, its relatively limited direct trade exposure to the EU, and strong domestic drivers of growth make it relatively well-placed to handle a turbulent global economy, its reliance on commodities is a source of vulnerability. A downside scenario with a severe freezing-up of international �nance, curtailed growth in China and declining commodity prices could slow growth to around 4 percent of GDP. FY2013-2015 Country Partnership Strategy for Indonesia 7 Over the medium term, effective coordination, policy implementation and investment climate reforms are needed if growth is to accelerate to 7 percent or more and if improvements in social outcomes are to continue. For increases in �scal expenditures to lead to improvements in public services, Indonesia will need more effective and accountable institutions that can translate available resources into better development outcomes. The country will need to prioritize private sector-led competitive, innovative and sustainable growth. This will be particularly important as Indonesia focuses on its tremendous need for infrastructure, �nancial inclusion, better education, greater social protection and universal health coverage. Improvements in the investment climate, including regulatory consistency and certainty, are also necessary for employment creation and to sustaining high rates of foreign direct investment. World Bank analysis shows that in a baseline scenario of international financial market fragility combined with relatively weak external, but continued solid, domestic demand, growth of 6.1 percent is forecast for 2012, moving up to 6.3 percent in 2013. The underlying macro assumptions for this baseline include a continued weakness in external demand with overall international commodity prices also projected to moderate. Table 1 : Baseline Macroeconomic Outlook 2009 2010 2011 2012(p) 2013(p) 2014(p) Growth Real GDP (% change) 4.6 6.2 6.5 6.1 6.3 6.6 Real investment (% change) 3.3 8.5 8.8 12.3 11.2 10.5 Real private consumption (% change) 6.2 4.6 4.7 5.0 5.1 4.9 Real exports (% change) -9.7 15.3 13.6 2.8 5.7 11.0 Real imports (% change) -15.0 17.3 13.3 7.1 4.7 11.8 Current account balance (% of GDP) 1.9 0.7 0.2 -2.3 -1.6 -1.7 Fiscal variables Central government balance (% of GDP)1 -1.6 -0.7 -1.1 -2.2 -1.6 -1.4 Central government debt (% of GDP) 28.4 26.1 24.3 23.0 21.2 19.5 Prices GDP deflator (% change)2 8.3 8.1 8.4 6.5 7.9 8.7 CPI inflation (%)2 4.8 5.1 5.4 4.4 5.1 5.0 Note: 1 2011 is actual audited, 2012 is revised Budget de�cit and de�cit from 2013 to 2014 is based on Government 2013 Budget Financial Note. 2 Period averages The outlook for China is of particular importance for Indonesia. China is an important direct trading partner (with a weight in Indonesia’s exports of 11 percent in 2011) but the second round effects on Indonesia of a slowdown in China via global and regional trading partner growth would also be important. The baseline growth projection incorporates an assumed growth rate for China of around 8 percent, in line with the June 2012 GEP projections. Moving China’s growth down to 7 percent would directly cut Indonesia’s major trading partner growth by 0.17 pp (given a weight in Indonesia’s exports of 11 percent in 2011). The second round effects via global and regional trading partner growth would also be important. However, the real concern with a relatively marked slowdown in growth would be if China’s growth leads to a sharp fall in global commodity prices, particularly coal and minerals that form a sizeable share of Indonesia’s exports. For example, the June 2011 IMF report on China Spillovers estimated that a 3 percent reduction in the growth rate of China’s industrial output (1 standard deviation, or 1 percent of GDP) would result in international price declines of 6 percent for oil and base metals; while the impact on other commodities is low. If signi�cant commodity price declines were sustained then this would spill over to domestic consumption and investment, as household incomes and corporate investment, and �scal revenues would also decline. Growth could also move substantially lower if the impact of adverse external shocks is amplified domestically. Growth would still be above 4 percent in the international scenarios discussed in the previous paragraphs. This is similar to that seen in 2009, when growth dropped during the height of the global �nancial 8 FY2013-2015 Country Partnership Strategy for Indonesia crisis but remained at 4.6 percent. However, it is important to note that these GDP projections combine the external scenarios with moderations in the underlying domestic drivers of growth, i.e. private consumption and investment. In the event that there was a major dislocation to these drivers, for example due to domestic policy miss-steps or problems in the domestic �nancial sector, then the downside risks to growth could be much greater. Poverty Despite strong economic growth and falling poverty in the last decade, inequality is rising and many households continue to live on the edge of poverty. Indonesia’s poverty rate, measured at the national poverty line, fell from 16.6 percent in March 2007 to 12.0 percent in March 2012, with little difference between male-headed and female-headed households. The 0.5 percentage point decline since March 2011 is the lowest drop in ten years, which reflects the slowing rate of poverty reduction and the increasing challenges of lifting the remaining poor out of poverty. With rapid urbanization, poverty will also become increasingly more urban. Despite the country’s positive progress in reducing poverty, vulnerability remains high. Nearly 40 percent of Indonesians live on 1.5 times poverty-line expenditure (or less) and are highly vulnerable to shocks that can push them back below the poverty line. The gap between the poor and non-poor is also widening. The Gini coefficient has increased from 0.32 in 1999 to approximately 0.41 in 2011. Regional disparities also persist; eastern Indonesia lags behind other parts of the country. The reduction in poverty rate could have been faster if there were sufficient opportunities for poor workers to move into better jobs in the formal and non-agricultural sectors. The Bank recently completed the Indonesia Jobs Report, a comprehensive overview of the labor market over the past 20 years. While overall formal employment grew at 1.2 percentage points per year from 2003 until 2007, formal employment for the poor increased by only 0.8 percentage points and remained roughly constant for the near-poor during that period. Going forward, reducing poverty and vulnerability will hinge on the pace of employment growth for the poor. The Government is also increasingly concerned about the rise in inequality. The Bank will work with the GoI in analyzing the factors behind the rising inequality. Preliminary analysis of the data shows a sharp contrast between the situation of skilled and highly skilled workers, who have seen a rapid increase in wages over the last decade, with that of the unskilled, working largely in informal sectors with little job security and slow wage growth. The analysis will examine the growth rate of economic sectors with different skill-intensity. A structural transformation often entails some inequality along the skill spectrum since different sectors with different skill-intensity grow a different pace. The Political Context As a result of a decade of political and institutional reforms, Indonesia is a vibrant multi-party and decentralized democracy. At the same time, the current environment – dominated by uncertainty over pending election outcomes, tensions amongst the legislative, judicial and executive branches of central government and a lack of clarity about decentralization – makes it more difficult for Government to make tough policy choices and implement the changes necessary for better service delivery in the run-up to the 2014 elections. Over the medium term, Indonesia is expected to continue along a stable political path with a consensus-based approach to reform and pragmatic economic management. Although political positioning is expected to dominate in 2013 and the �rst half of 2014with no major ideological differences among the dominant political parties and potential presidential candidates, the election will likely be determined by candidates who appeal most to an increasingly demanding electorate seeking to sustain political stability and to keep corruption at bay. The partnership between Indonesia and the World Bank Group has evolved over six decades to become one of our most significant in terms of lending, knowledge services and implementation support. With a portfolio of 44 operations, US$1.4 billion in trust funds commitments and a strong analytical FY2013-2015 Country Partnership Strategy for Indonesia 9 and advisory program for the World Bank, and a committed portfolio of US$1.2 billion and an innovative advisory services program totaling US$23-25 million of annual expenditure for IFC, the Bank Group remains the largest provider of development �nance and advice for Indonesia. The engagement is supported by the Bank Group’s largest country office and a decentralized structure recently strengthened by additional sector management associated with span-of-control improvements. The depth of the engagement comes not only from more typical Bank lending, IFC �nancing and knowledge services but also from an unusually intensive advisory and implementation support made possible by third-party �nancing. 10 FY2013-2015 Country Partnership Strategy for Indonesia Photo: Matahati Productions V. The Country Partnership Strategy At the same time, Indonesia has provided both a testing ground and inspiration for a range of innovations that have shaped the World Bank. These notable ‘�rsts’ include hosting one of the �rst decentralized offices, bringing into focus the need to systematically address environmental and social impacts of projects, ground-breaking initiatives in community-driven development, �rst-ever advisory services project for IFC, sustainable palm oil and forestry advisory services initiatives and provision of short and longer-term disaster response. Increasingly, Indonesia is not only receiving assistance, but is helping other members of the Bank Group by sharing its experience and becoming a leader amongst emerging middle income countries. Notable is Indonesia’s leadership in calling for green development and in disaster management and recovery. To remain relevant and responsive to the needs of Indonesia, the Bank Group will continue to call on a broad range of instruments and knowledge services to respond to the challenges of each of the areas in which we engage. In many cases, this means approaching each engagement area in a programmatic way that often cuts across the Bank’s traditional sectors and is in close cooperation with IFC and MIGA. Over the CPS period and beyond, the Bank Group will continue to take a medium- to long-term view of its engagements that will provide continuity across different political administrations. This long-term approach allows flexibility to respond to emerging demands drawing on the relevant �nancing and knowledge services. The Government has indicated its preference for an increasing shift in the overall balance of services toward knowledge and convening. For �nancing services, the Government is looking for an increasing focus on both infrastructure and poverty reduction programs. FY2013-2015 Country Partnership Strategy for Indonesia 11 The partnership is focused on engagement areas where the Bank Group is likely to provide the most value added in support of Indonesian development priorities. The WBG engagement is systematically tested against the following criteria to ensure relevance: (i) an important development priority, (ii) based on demand for the Bank Group’s support from government, the private sector and civil society, ideally with a strong champion, (iii) is an area where the WBG has comparative advantage and, (iv) offers the prospect of tangible development results over time. Where these criteria are not met, the WBG will limit its support (as the Bank did in health and agriculture and IFC limited corporate �nancing to top-tier corporates in recent years), recalibrate its efforts (in this CPS period, focus will shift from reforming the policy framework for decentralization to service delivery by local governments) or exit. Where results have been achieved, the WBG will wind down its engagement (for example, closing the Aceh office upon completion of the disaster response. Meanwhile, we are responding to meaningful client demand for policy and institutional reforms (such as social insurance, �nancial sector regulation, infrastructure and �nancial inclusion). Experience suggests this pragmatic approach as an effective way to provide steady, predictable support in key development areas while remaining open to emerging priorities and exploring new ideas. The CPS takes into account lessons learned from the Bank’s past engagement, including the CPS Completion Report for FY09-12. These lessons include: • Effectively supporting an increasingly confident middle-income country requires fully aligning Bank support with Indonesia’s development program and the country-led and owned policy agenda. This has solidi�ed the Bank Group’s status as the development agency of choice and put the Bank in a position to be responsive to Indonesia’s immediate needs, and to inform the debate on emerging policy issues. Full alignment, in turn, has positive spillover effects for aligning other donor programs behind the country-led agenda in their collaboration with the Bank. This has allowed the Bank to deepen its engagements across key development priorities. • Programmatic development policy lending support provides important cross-cutting convening services for step-by-step incremental reforms. As institutional reform efforts deepen at the sectoral level, effectiveness of implementation support is further enhanced by drilling down through discrete projects. • Sustained engagement over several years encourages an evidence-based approach that allows to carefully recalibrate the scope and design of programs as needed. A good example is the Bank’s support for Indonesia’s signi�cant community-driven development program, with demonstrable well-researched impact on the ground. Its country-wide expansion offers important potential for using social capital as a platform for addressing health and education, inclusion and environmental concerns, while requiring increased attention to governance and management, in order to improve impact and reduce operational and reputational risks. • Knowledge services take an increasingly important role and Indonesia seeks to share both its best practices and lessons learned in development experiences, particularly with other middle-income countries. In important areas with diminished need for external �nancing, diffused leadership or poor coordination, the Bank’s knowledge and convening services can encourage a policy debate with a view to forging a consensus (e.g. on private-public partnerships), contribute to effective implementation (e.g. in education) and help with the coordination among government agencies (e.g. in infrastructure development). Indonesia recently contributed US$1.5 million to the Bank’s South-South Knowledge Exchange facility. 12 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy • As Indonesia’s private sector continues to develop in a vibrant, fast-growing middle-income economy, IFC’s approach in financing and advisory services is becoming more focused in selected priority sectors, such as in infrastructure, financial inclusion, climate change mitigation and agribusiness. Going forward, IFC will continue to support projects and interventions that involve signi�cant demonstration impact, i.e. they are innovative and serve as examples to enable the private sector investors and other stakeholders to crowd in. This enhances the development impact from IFC’s services in Indonesia’s large and growing economy. The Country Partnership Strategy aims to enhance Indonesia’s domestic capacity for reducing poverty and boosting equitable and sustainable prosperity. Its main thrust is to help public institutions implement and deliver, and to partner with the private sector for sustainable economic and job growth. The Bank Group’s approach in Indonesia is to (i) closely align with the Government’s own development strategies, policy objectives and priority programs; (ii) strengthen and increasingly rely on Indonesia’s own systems and procedures such as those for procurement and �nancial management; while (iii) continuing to put a strong emphasis on �duciary oversight, tangible development results and technical excellence; and (iv) continuing to implement innovative, demonstrational and sustainable private sector projects. It seeks to retain its relevance as a provider of development solutions for an emerging Indonesia by sharing global knowledge, providing innovative �nancial services and offering the platform of the Bank’s convening services. The CPS continues to move forward on the path developed by the previous partnership, the FY09-12 CPS by partnering on investing in institutions in order to enhance governance, through its focus on open and efficient government, accountable service delivery, clear checks and balances; and fostering a conducive environment and supporting sustainable private sector enterprises. Gender equality is also another key aspect of the CPS in line with the Bank’s corporate commitment for 100 percent gender-informed activities in EAP. Bridging the remaining years of the current administration, this CPS focuses on the implementation of the FY13-15 program until early 2015, when a newly elected government and a new �ve-year plan will be inaugurated. The Bank Group Partnership is aligned with the Government’s development priorities in their pro-growth, pro-jobs, pro-poor and pro-environment focus. Figure 1 indicates the key engagement areas where Bank Group support is expected to contribute to tangible development outcomes and make a difference in the lives of Indonesians. Cross-cutting themes include gender equity, as well as governance and anti-corruption. Together, these engagement areas aim to support government efforts in addressing Indonesia’s key development challenges in collaboration with the private sector including (i) boosting growth and job creation by facilitating the supply response to the dramatic change in demand that a rising middle class and urbanization bring (pro-growth and pro-jobs agenda); (ii) accelerating the pace of poverty reduction and provide greater economic security for the vulnerable so that they can share the bene�ts of growing prosperity (pro-poor and pro-jobs agenda) and (iii) enhancing sustainability in natural resource management (pro-green agenda). In meeting the country’s priorities, the Bank’s approach in Indonesia is to put together cross-sectoral teams in the �eld to bring best quality knowledge and implementation support. Our engagements are supported by a wide range of instruments and �nancing sources. In addition to more conventional Bank instruments, the Indonesia “business model� is based heavily on being a platform for the delivery of third party �nancing. This includes multi-donor and bilateral donor trust funds and programmatic and project speci�c �nancing and support facilities. By providing a platform for �nancing from other donors, the Bank Group is able to help deliver an array of innovative solutions and to pilot new ideas in development that would not be possible using only Bank instruments. Overall, the breadth and depth of the Bank’s ongoing engagement is maintained, but with several shifts in emphasis. Box 1 summarizes the areas where the selectivity criteria set out above have led to changes in the CPS Program. FY2013-2015 Country Partnership Strategy for Indonesia 13 BOX 1: INS AND OUTS FY13-15 With a strong team on the ground, a long partnership with the Government and donors, the Bank’s approach in Indonesia is to selectively take on new engagements and exit existing ones as needs or priorities change. Some examples include the following: • Disaster response to the 2004 tsunami in Aceh/Nias as well as to the 2006 earthquake and 2010 volcano eruption in Java will be successfully completed in December 2012, and the Bank’s office in Aceh will be closed. • The Decentralization Support Facility (DSF) has closed and new support in this area more narrowly focuses on supporting incentives and capacity for local and metropolitan governments. • Food security has surfaced as a strong government priority, which involves a reactivation of rural development, where the Bank will continually support the Government to pay particular attention to women considering that the majority of female labor force (38 percent) remain in agriculture and Indonesia’s gender wage gap in this sector remain among the largest in the region. • IFC seeks to scale up its interventions in the areas of infrastructure development, �nancial inclusion, agribusiness and food security, job creation and supporting competitive manufacturing enterprises; in line with the Government’s request and private sector needs. • The policy dialogue in health has intensi�ed, with a particular focus on addressing early childhood nutrition. • The government has decided to no longer draw on Bank �nancing for basic education after the successful launch of the BOS program, but continues to seek Bank support to improve the quality of spending and to program grants from the private sector to address pressing needs in the most deprived areas. • The Bank is also exiting lending for climate change as GoI prefers to seek grant funding, but demand for our knowledge services has intensi�ed. • Private sector development and trade have been combined under the theme of competitiveness. • Connectivity, recognized as a new theme of the Master Plan, is being supported by a �rst DPL. FIGURE 1: ALIGNMENT OF ENGAGEMENT AREAS &OBCMJOH-PDBM$BQBDJUZ &OHBHFNFOU"SFBT &OHBHFNFOU"SFBT t&OIBODJOH4LJMMT t1SPNPUJOH Technology Connectivity Prosperity t*NQSPWJOH &EVDBUJPO Competitiveness Social Social Insurance Financial Sector Protection Infrastructure PRO PRO Local Government GROWTH JOBS Macro & Fiscal Public Sector &OHBHFNFOU"SFBT PRO PRO t1SPNPUJOH POOR GREEN t&OTVSJOH Poverty Targeting Communities Community Sustainable &OHBHFNFOU"SFBT t1SPUFDUJOHUIF Development Development Vulnerable Food Security & t*NQSPWJOH%JTBTUFS t*NQSPWJOH)FBMUI Green Growth Rural Health Resilience Outcomes Disaster Resilience Cross- (FOEFS&RVJUZ Cutting Themes Governance and Anti-Corruption 14 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy Foto: Matahati Productions PRO-GROWTH – Promoting Prosperity The target of the Government during the FY13-15 period is to increase economic growth to the 7 percent range over the medium term. The strategy entails maintaining macro stability and �scal discipline, while enhancing the governance and quality of spending, promoting connectivity, improving the investment climate and greater access to �nance, and improving infrastructure including through focusing external borrowing on infrastructure and energy investment. The challenges of upping the medium-term rate of growth from the recent 5.5 percent average for 2002-2011 cannot be underestimated in the face of continuing global uncertainties, domestic political constraints and institutional capacity limitations. Moreover, the relatively good performance during the current crisis may have inured a broader sense in Indonesia of, if not complacency, at least a lack of urgency. The costs of not doing so, however, could be high in not taking advantage of the favorable situation that Indonesia has been facing vis-a-vis commodity prices and the current demographic dividend, rapid urbanization and shifting demand patterns. Put starkly, over the course of the next decade maintaining the current 5.5 percent growth implies a 2025 GPD per capita of US$6,525, whereas an increase to 7 percent over the same period would translate into GPD per capita of US$9,057. Pro-Growth Results. For this theme, the WBG expects to support development results that will, increase connectivity and logistics performance, improve the regulatory environment for competition and innovation, maintain �nancial sector stability while enhancing access and increasing the quantity and efficiency of investment in infrastructure, and improve the quality of public spending and �nancial management at the national and local levels. FY2013-2015 Country Partnership Strategy for Indonesia 15 CONNECTIVITY Indonesia’s Master Plan sets out its longer term approach to becoming an industrialized economy, and broaden growth through connectivity, human resource improvements and technology. Poor national connectivity is identi�ed as one of the major impediments for growth and undermining Indonesia’s economic competitiveness, hampering the economic integration among the islands of the archipelago, and reducing access to international markets. For example, Indonesia ranks 75th on the World Bank’s Logistics Performance Index, well behind ASEAN competitors such as Singapore (2nd), Malaysia (29th), Thailand (35th) Philippines (44th) and Vietnam (59th). The price of a bag of cement in certain parts of Papua is 20 times that in Java. In Java, oranges from China are cheaper than oranges from Kalimantan. High domestic transport costs are the main reason. In some export sectors, such as cocoa, rubber and coffee, more than 40 percent of total logistics and transport costs come from pre-shipment and inland transportation expenses before international shipment. In addition to being crucial for growth, empirical studies show that connectivity has a strong positive impact on women through a number of channels. These include (i) facilitating access to health and education facilities, as well as expanding economic opportunities for women and (ii) reducing women’s workload and time for performing their activities in both the public and domestic spheres. The WBG has been playing an important role in helping the GoI to focus on enhancing connectivity to accelerate growth and improve equity. Bank analytic work identi�ed priorities with a focus on intra- island, inter-island and international connectivity issues (Connecting Indonesia: A Framework for Action). The Bank has also provided extensive support for the connectivity framework using the WDR 2009 on Reshaping Economic Geography and to identify a detailed plan of action. On logistics, the Bank has provided analytic, advisory and convening services, including hosting a series of influential roundtables with stakeholders. Through development policy operations and knowledge services the Bank expects to support development results that will enhance Indonesia’s logistics performance, improve access to broadband and reduce costs for exporting and importing. The key to addressing connectivity challenges lies in policy coordination and implementation across multiple levels of government and consultation with the private sector. Support from the Bank will include a series of proposed Connectivity DPLs with co-�nancing from the Asian Development Bank (ADB) and the Japan International Cooperation Agency (JICA). There are discussions, as well, for possible Bank investments in speci�c corridor development. BOX 2: CONNECTIVITY RESULTS, INSTRUMENTS AND PARTNERS Pro-Growth Connectivity Development Results: Enhance Indonesia’s logistics performance, improve access to broadband and reduce costs for exporting and importing. Financing/Grants Knowledge and Convening Development Partners Ongoing: Logistics and trade facilitation ADB, AUSAID, Japan (JICA), The IFC investments in Jakarta Policy notes on logistics, regulatory Netherlands, Switzerland (SECO), International Container Terminal reform, and managing openness USAID and Wintermar Knowledge sharing through Proposed: workshops and �eld visits; engage Connectivity DPLs I-III local think-tanks, universities and Under Discussion: private sector organizations to Corridor 5 Investment participate in policy dialogue IFC investments to support logistics Public Expenditure Reviews of the sector Road and Rail Sectors. 16 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy Public investment and improved investment climate is expected to pave the way for private sector participation. Over the next 15 years, the Master Plan envisages investments of about US$468 billion. Private sector investment is a key driver and expected to deliver 51 percent of this total. State-owned enterprises (SOE) would contribute 18 percent with various levels of Government providing much of the remainder. The contribution of private investment so far has been limited and GoI is aware that regulatory reforms and improvement of the investment climate are necessary to attract private participation. The WBG is ready to assist GoI in this endeavor. As international trade �nance has shrunk in the aftermath of the global �nancial crisis, IFC is stepping in to provide trade �nance for agro-commodity exports from Indonesia. Another role IFC is playing is to support Indonesian private sector businesses competing in global markets, as they set up manufacturing plants in other emerging markets. COMPETITIVENESS Private sector-led growth is vital to Indonesia’s competitiveness to create jobs for a growing population, to address the rural-urban income gap and to provide sustainable infrastructure services for an increasingly urbanized society. Indonesia’s objective is to enhance the environment for private sector development and to foster accelerated growth and poverty reduction, while mitigating climate change impacts. While the prospects for investing in Indonesia are quite promising, given its signi�cant population and natural resources; poor government coordination, uncertainty about the legal and judicial frameworks, infrastructure constraints, and unclear investment policies, regulations, and procedures continue to drag on the investment climate. The World Bank Group supports development results that will improve the policy framework, regulatory environment, and coordinated interventions for productivity, competition and innovation through development policy operations, knowledge services and IFC advisory services. Building on synergies between the IFC and the Bank, partnerships have been established with key institutions that shape the investment climate. The Multi Donor Facility for Trade and Investment Climate (MDFTIC) supports institutional capacity-building in collaboration with the governments of the Netherlands, New Zealand, Switzerland and Australia. Additional support is being provided by the IFC on improving the capacity of local government to support business operations through its Business Entry Regulatory Reform Program. Competitiveness is also expected to be enhanced through additional engagements to support and strengthen the �nancial sector. The export of goods represents 22 percent of nominal GDP, and trade represents a significant part of the Indonesian economy. Excluding oil and gas exports, more than 70 percent of Indonesia’s exports are natural resources and manufacturing products. Within Indonesia’s manufacturing exports, almost half of that are natural resource-based manufacturing products, such as palm oil, processed rubber, and processed minerals. Although markets in EU and United States remain important, Indonesia is increasingly trading with emerging markets and countries in the region such as China, India, Malaysia, and South Korea. Such diversity has helped to buffer the sector during the current global economic downturn. Indonesia has been reforming its trade policies to make them more effective and responsive in promoting growth and competitiveness. Signi�cant reform has taken place in improving trade facilitation and promoting more inclusive and evidence-based trade policy making. As a member of ASEAN and the G20 process, it has been embracing openness to trade and investment, and greater integration with the global economy. Indonesia took a bold step in harmonizing the structure of its import tariff and the current average import tariff is one of the lowest among emerging economies; simple average tariff is about 5 percent. It is also developing a process to increase transparency in reviewing non-tariff measures that affect trade flows. There has also been progress in improving customs clearance and transparency through the National Single Window. FY2013-2015 Country Partnership Strategy for Indonesia 17 Recent government efforts to move domestic companies up the value chain through trade policy measures have raised concerns. These include, for example, restrictions on imported horticulture products, a ban on rattan exports and an export tax and new divestment regulations in the mining sector. Restrictive policies involving non-tariff barriers may be less effective than more upstream incentives for greater corporate competitiveness, and could also risk being perceived as serving entrenched domestic interests, undermining the investment climate and weakening investor con�dence in the predictability of policy making in a fragile global economic environment. Bank Group support includes knowledge services for improved capacity of trade policy, including managing price volatility of food imports, and IFC trade finance to support commodity exports. Of particular note would be the on-going support to advance on food security with knowledge services to improve the technical capacity to monitor food price data and to develop market based instruments to manage risks from food price shocks (discussed below). IFC is focusing on increasing international trade and connectivity through the private sector, which is especially important due to the recent global �nancial crisis as a result of which global trade flows and investments were signi�cantly reduced. As the international trade �nance has shrunk with the global �nancial crisis, IFC is stepping in to provide trade �nance for commodity exports from Indonesia. BOX 3: COMPETITIVENESS RESULTS, INSTRUMENTS AN PARTNERS Pro-Growth Competitiveness Development Results: Improve the policy framework, regulatory environment, and coordinated interventions for productivity, competition and innovation. Financing/Grants Knowledge and Convening Development Partners Proposed: Support to improve the investment regulatory AusAID, Canada (CIDA), Finland, The Connectivity DPLs I-III environment Netherlands, New Zealand, SECO, IFC Advisory Services – Investment Climate USAID Program (sub-national Doing Business; corporate governance; �nancial infrastructure), Green Banking, capital markets development) Innovation, Investment Generation Technology, and Entrepreneurship FINANCIAL SECTOR The Government’s focus on maintaining and strengthening the stability of the financial system of the last decade has had demonstrable success. Indonesia’s �nancial sector has suffered relatively minor effects from the on-going crisis and �nancial market volatility. However, Indonesia’s �nancial sector requires continued deepening, widening, and efficiency, in order to remain supportive of competitiveness and growth goals. The amount of long-term �nancing for corporations, infrastructure and SMEs remains very limited. In addition, less than 50 percent of the population has access to formal �nancial services. Indonesia’s financial sector is small relative to emerging market peers. Assets were below 70 percent of GDP in 2011. In part, this reflects the severity of the Asian crisis, when well over half of banking assets and loans were written off. Since that time, the �nancial sector has been slow to develop, and continues to be heavily dominated by a few large banks, which account for roughly 80 percent of �nancial system assets. Domestic credit to the private sector is improving, albeit slowly, from 25 percent in 2006 to 28.8 percent in 2011. The mortgage debt outstanding to GDP in Indonesia stands at less than 2 percent of GDP, well below more developed markets such as South Korea (36 percent) and South Africa (47 percent). The non-bank �nancial sector is small. Stock market capitalization, though increasing, remains low, at around 48 percent of GDP. At the same time, new technologies such as mobile telephony, and internet, can enable signi�cant expansion of access to �nance especially in the rural areas of the country. 18 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy The Bank Group engagement supports development results that will maintain financial sector stability, deepen financial markets, and enhance access. Prompted by the global financial crisis, development outcomes in support of strengthening the financial sector have benefited from Bank support through the Financial Sector Assessment Program (FSAP), including implementation of a crisis management protocol and capacity building. The proposed Financial Sector and Investment Climate Reform and Modernization DPL (FIRM) would focus on enhancing institutional and structural reforms specific to the financial and private sectors. Financial sector reforms would include strengthened financial reporting and auditing standards and practices in alignment with global benchmarks. Through a WBG operation, including an IBRD loan and IFC equity, the Indonesia Infrastructure Finance Facility (IFF) is exp ected to increase the availability of financing for infrastructure. IFC is further designing an advisory services program focusing on capital markets development for infrastructure finance. In addition, working with the Ministry of Trade (MoT), IFC helped to develop regulations, policies and procedures for a national warehouse receipts system. IFC is considering projects to strengthen and deepen capital markets, both for equity and debt. Both IFC and the Bank, through multi-sectoral engagements, are supporting the Government’s strong emphasis on financial inclusion. For an economy that relies heavily on micro and small enterprises, to expanding financing alternatives to the most vulnerable segments of the underserved population in Indonesia including women, rural clients, and the very poor is a key priority. A study on Access to Finance has supported the development of financial services for migrant workers, mostly women, both through pilots and more broadly in spreading awareness of financial inclusion and underling Indonesia’s advocacy in the G20 agenda. WBG support for restructuring revolving loan funds used mainly by women to fund micro-enterprises also contributes to gender equity. In addition, IFC committed a US$75 million gender facility and provided advisory services to Danamon and Bank Internasional Indonesia (BII) to facilitate access by women to finance their SMEs. Other interventions include supporting financial literacy. IFC is seeking to significantly expand access to finance through a series of investment and advisory services. IFC’s �nancial market program focuses on: (i) building the capacity of �nancial institutions, especially the mid-size banks, to better serve micro, small and medium enterprises and low- income households; (ii) supporting top tier banks with signi�cant reach potential to adopt innovative products to better serve key segments such as MSME and mid to low income individuals, and to expand mortgage �nance for affordable housing; (iii) promoting sustainable lending with a strong emphasis on climate-change and women-owned businesses; and (iv) strengthening the Indonesian �nancial system. IFC’s focus, amongst other priorities, includes promoting good Corporate Governance and Environmental and Social Standards. Accordingly, IFC extended debt facilities and advisory services to banks with strong distribution capacity in the MSME sector such as BII. IFC also assists PT Bank Tabungan Pensiunan Nasional Tbk (BTPN) through equity and debt facilities to support its expansion in micro�nance sector and advisory services in AgriFinance. IFC also continues to support Bank Andara, the Indonesian micro�nance wholesale bank, by providing advisory services and capital support to be used in the expansion of the bank’s distribution capacity and to increase its leverage capacity to �nance its loan expansion. Through its advisory services, IFC is further developing programs focusing on banks and non- bank financial institutions’ capacity in providing innovative finance products and services for the micro and largely unbanked segment, such as housing microfinance, micro insurance, and retail payments. IFC is helping financial institutions to expand services to under-banked market segments, such as to SME’s undertaking sustainable energy investments and to poor marginal farmers. A research project with Bank Sinar Harapan Bali is piloting a sustainable business model for mobile banking system, which could benefit unbanked populations in rural areas. Finally, IFC assisted a leading bank to develop a loan product for women entrepreneurs that was launched on December 22, 2011-Indonesia’s Mother’s Day. FY2013-2015 Country Partnership Strategy for Indonesia 19 BOX 4: FINANCIAL SECTOR RESULTS, INSTRUMENTS AND PARTNERS Pro-Growth Financial Sector DevelopmentResults: Maintain financial sector stability, deepen financial markets, and enhance access. Financing/Grants Knowledge and Convening Development Partners Ongoing: Financial Sector Assessment Program AusAID, CIDA, Finland, IIFF Micro-insurance Marketplace The Netherlands, IFG Review of SME Credit Program (KUR) New Zealand, SECO, IFC investments in banks and NBFIs TA for Deposit Insurance Corporation USAID Proposed: Crisis Binder Workshop FIRM DPL Improving Access to Financial Services in IFC investments in the insurance Indonesia sector Support to Financial Sector Authority (OJK) Under Discussion: Crisis Management Protocols IFC sustainable energy �nance Saving and Loan Cooperatives products SME Access to Islamic Finance TA for Secretariat of Financial System Stability Forum, IFC Advisory Services. INFRASTRUCTURE Weak infrastructure development is not only undermining Indonesia’s economic growth, but also negatively affects efforts to enhance equity and reduce poverty. While the Government is committed to reducing its debt to GDP ratio, its priority for borrowing remains focused on infrastructure and energy development. Infrastructure investment fell sharply after the Asian �nancial crisis and has only partially recovered. The low level of investment is attributed to the GoI’s focus on �scal consolidation and reducing public debt, as well as the decline in infrastructure spending by the private sector and SOEs. A variety of issues make it difficult to reverse this trend. Low tariff levels discourage private investment in power and water. Land acquisition has impeded major public infrastructure projects in the past. Finally, coordination difficulties for projects that cut across jurisdictions or involve a number of central and sub-national actors often prevent viable infrastructure projects from coming to fruition. The GoI is committed to reigniting investment in infrastructure, by increasing public investment and promoting private sector participation through Public-Private Partnerships (PPPs). The recently approved Land Acquisition Law is expected to help facilitate public investment. Infrastructure laws have been changed, dismantling public monopolies and opening up to private market investors. To improve the use of PPPs, the MoF is now the single provider of guarantees and is considering a viability gap funding (VGF) instrument that would provide capital grants to infrastructure PPPs that are economically viable but �nancially marginal. The Bank Group will focus its support on development results that will increase the quantity and quality of national roads, reduce power infrastructure bottlenecks and increase private investment in infrastructure through PPPs. The Bank Group is expected to continue with its support for public investment in infrastructure with a focus on energy, transport, water supply and sanitation, as well as solid waste, and efforts to enhance the use of PPPs.1 The recently approved Infrastructure Guarantee Project (IGP) helped establish a �scally sound, credible and transparent guarantee framework to support PPP transactions. The Bank is helping to set up a viability gap funding (VGF) mechanism and supporting GoI’s efforts at better 1 Support for infrastructure investment in water supply and sanitation, as well as small scale local infrastructure through community driven development programs, is discussed under the Pro-Poor theme. 20 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy planning, structuring and procurement of PPPs. IFC is advising the Government on structuring and bidding PPP projects, supporting the private sector with �nancing and advisory services, including as transaction advisor for the Central Java Power Project to improve access to electricity for 7.5 million people. MIGA, as well, is exploring ways to work with IGP. Indonesia is endowed with substantial energy resources that include both fossil fuels and renewable energy resources, including the largest geothermal reserves in the world. Domestic consumption of petroleum products has been heavily subsidized, promoting the development of power generation based on diesel and other petroleum-based fuels. Indonesia has been a net importer of oil since 2003 and has been unable to reduce its dependence on petroleum-based fuels, with a fast growing demand and with half of gas production currently exported. Creating and maintaining an attractive investment climate for investment in energy infrastructure is a key challenge facing the Government in light of fast growing domestic demand and the declining production from maturing oil and gas fields. This requires rationalization of energy tariffs and the refocusing of energy subsidies. Mitigating local and global impacts of emissions from burning fossil fuels is a major challenge, as rapid urbanization and rising income continue to push up demand. While the use of coal and fossil fuels is bound to increase, the rate and impact on the environment could be moderated by scaling-up renewable energy production and applying advanced low-carbon technologies. This would also improve energy security and help shift the economy to a more productive and sustainable path. At the same time, 80 million people lack access to electricity and every second household still depends on solid fuels for cooking. To stimulate investment in energy, the GoI is improving the regulatory framework and strengthening the enforcement of existing regulations. The recently enacted legislation provides a renewed legal framework for the energy sector, with an emphasis on economic sustainability, energy security, and environmental conservation. The Government’s ongoing expansion targets 60 percent from renewable resources. The WBG has an important engagement to support efforts to improve power system infrastructure to meet demand, enhance reliability and quality, scale up renewable energy and natural gas, increase access to modern energy, and improve energy efficiency. This includes the on-going Power Transmission Project, a proposed follow up Second Power Transmission Development Project, and the Upper Cisokan Pumped Storage Project. Potential future operations under discussion include additional pumped storage and medium-sized hydropower generation, renewable energy for electri�cation of outer islands, and energy efficiency. Synergies between the Bank and the IFC will support scaling up of renewable energy, particularly geothermal. The Bank recently approved the Geothermal Clean Energy Project and a follow up operation is under discussion. IFC focuses on increasing private sector participation in renewable energy with advisory services, �nancing and equity. IFC has assessed 17 geothermal sites for possible tendering as to their development impact and likelihood of successful implementation. Moreover, it has provided equity investment in Medco Power Indonesia to own and operate a series of gas and hydroelectricity projects, and other equity and loan investments are being considered. MIGA can also provide guarantees on non-commercial risks to support renewable power. Roads are the predominant mode of transport in Indonesia and account for about 70 percent of freight ton-km and 82 percent of passenger km. The vehicle fleet has doubled in the past �ve years and is expected to grow at 10 percent per year over the next decade. Road travel speeds remain low, on the order of 40 km/hr on the national road network. Only 714 km of toll roads are in place, mainly in urban areas. While new construction has lagged, the quality of national roads has improved with 86 percent now in good/fair condition. Sub-national roads face the opposite dilemma – while 100,000 km of roads were added between 2001 and 2009, 57 percent are now deemed to be in bad/poor condition. Road safety on Indonesia’s chronically over-crowded roads is poor and getting worse, with some 50 deaths being recorded every day. FY2013-2015 Country Partnership Strategy for Indonesia 21 The Bank Group would continue playing a role in supporting priority projects on selected regional corridors, where upgrading national roads requires a comprehensive approach to road renewal. Two road projects are currently under implementation, the Strategic Roads Improvement Project and the Western Indonesia National Road Improvement Project (WINRIP). The proposed Road Asset Preservation Project (RAPP) would support improvements in the execution, effectiveness and delivery of outputs, while strengthening the framework for improving the quality of expenditures using results-based disbursements. IFC supports the private �nancing of toll roads by offering long-term capital and sharing best practice. As well, MIGA has global experience of supporting private investment into toll roads, which could be usefully applied. BOX 5: INFRASTRUCTURE RESULTS, INSTRUMENTS AND PARTNERS Pro-Growth Infrastructure Development Results: Increase the quantity and efficiency of national and sub-national government spending on infrastructure, and increase private investment in infrastructure. Financing/Grants Knowledge and Convening Development Partners Ongoing: Assessment of Road Construction ADB, AfD, AusAID,Germany (KfW), Strategic Road Infrastructure Industry JICA Western Indonesia Roads Roads and Railways PERs Power Transmission I Regionalization and Urban Upper Cisokan Pumped Storage Development Review Geothermal Clean Energy Investment Advisory services on electricity and Infrastructure Guarantee Fund fuel subsidies, and on regulatory Infrastructure Finance Facility framework for electricity sector IFC investments inJakarta IFC PPP advisory services. International Container Terminal, PPP Framework and Policy TA Wintermar, Medco Power, Salamander Viability Gap Financing TA Energy, and Saratoga II Low-income Housing Policy and Proposed: Finance Power Transmission II IFC advisory services for selecting Road Asset Preservation geothermal energy projects as Connectivity DPL I-III potential PPP candidates. IFC investments in telecom and hydro IFC advisory services for PPP Under Discussion: projects, (Umbulan Water, Central Renewable Energy for Electri�cation Java). Medium Hydropower Energy Efficiency Mantenggeng Pumped Storage Geothermal II IFC investments in geothermal energy LOCAL GOVERNMENT Public service delivery and public sector capacity at the subnational level remain major challenges. With the ‘big-bang’ decentralization of 2001, Indonesia went from being one of the most centralized countries in the world to one of the most decentralized; but the transition is far from complete. Overlapping responsibilities without a coordinated decentralization framework undermine effective service delivery, and sub-national government accountability and transparency mechanisms are weak. Unlike most decentralized countries, Indonesia has not transferred signi�cant revenue power to local governments, distorting incentives and creating an unhealthy dependence on transfers. Meanwhile, many local governments misuse the revenue- raising authority they do have constraining business development, growth and job creation. Transfers provide the bulk of �nancing, but they are rarely used to as a strategic instrument to improve local government performance. 22 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy Indonesia is in the midst of a structural transition towards higher levels of urbanization. It is already more urban than rural and continues to experience very rapid urban growth. Several of Indonesia’s major cities are becoming metropolitan centers, with populations of �ve or more million, but infrastructure services are lagging with increasing economic, social and environmental costs. Large metropolitan agglomerations act as drivers of economic growth and job creation but are also increasingly experiencing increased congestion, pollution and inequalities in access to quality basic services and housing. Medium-sized cities are growing the fastest and require enhanced institutional capacity and infrastructure investment in order to manage the urban transition. The Bank supports development results that will promote improved fiduciary, social and environmental management and technical performance of selected local governments in the delivery of basic services, and enhance the capacity of local institutions to monitor and assess subnational public expenditures. The Bank-�nanced Local Government and Decentralization Project (DAK) works with GoI’s targeted transfers with an initial emphasis on improved accountability and reporting on grants to infrastructure for pilot local governments. A follow up operation is proposed, which would pilot the Bank’s P4R instrument. Knowledge services include the Public Expenditure Analysis and Capacity Harmonization (PEACH) program, which carries out public expenditure reviews at the local level. PERs have been completed in ten provinces working closely with local academic institutions and stakeholders to improve policy and analytical capacity. PEACH has incorporated gender analysis in its PERs, identifying key gender issues to which local government need to pay attention. The Bank is likely to continue selectively supporting provincial governments in knowledge exchange and capacity building, as well as conflict monitoring as needed, including in fragile regions, such as Aceh and Papua. The foundation laws on sub-national government including on the division of responsibility, on transfers, on electoral systems and the role of villages are under consideration, which provide an opportunity to address the incentives and �nancing potential and modes to support effective local governments. Urban development is an emerging area of Bank support with several efforts already underway. The Urban Sector Development and Reform Project (USDRP) aims at changing governance behavior by targeting reform minded local governments and encouraging increased accountability through citizens participation. At the neighborhood level, further Bank �nancing services are expected to be provided through the proposed Fourth National Program for Community Empowerment in Urban Areas, (PNPM Urban IV). The on-going Jakarta Urgent Flood Mitigation Project (JUFMP) seeks to support improved urban drainage and flood control systems, and the longer term sustainability of flood management facilities in Jakarta. As the initial foray into directly supporting major urban infrastructure, the Bank is exploring for larger urban areas the possibility of on- lending for complex infrastructure that require convening and advisory services, as well as �nancial support. Mid-sized cities, on the other hand, would likely be good candidates to reach under wholesale arrangements. In addition, IFC fosters improvements with less cumbersome procedures for business start-ups and licensing through the Sub National Doing Business Survey (SNDB), with over 20 cities now participating. BOX 6: LOCAL GOVERNMENT RESULTS, INSTRUMENTS AND PARTNERS Pro-Growth Local Government Development Results: Improved fiduciary, social and environmental management and technical performance of selected local governments in the delivery of basic services, and enhance the capacity of local institutions to monitor and assess subnational public expenditures. Financing/Grants Knowledge and Convening Development Partners Ongoing: PEACH Public Expenditure Analysis ADB, AfD, AusAID, CIDA, DAK I, USDRP, JUFMP PEACH PFM Technical Assistance and Capacity JICA PNPM Urban III Building Proposed: Sulawesi Development Diagnostic Report DAK II SNDB PNPM Urban IV ECO2 Cities TA and Land Market Assessment Under Discussion: Metropolitan and Housing Market Segmentation TA. Urban Development IFC advisory services for Sub-national Doing Business reforms FY2013-2015 Country Partnership Strategy for Indonesia 23 MACROECONOMIC AND FISCAL MANAGEMENT Fundamental for increasing the level of economic growth is to maintain fiscal discipline and bolster market confidence in the face of continuing global uncertainty, and provide for mitigating measures in the event of an external shock. Macroeconomic stability from strong fundamentals and �scal management crisis has underpinned the recovery and sustained growth over the past decade. More recently, macro management and �scal discipline have helped Indonesia weather the ongoing global �nancial crisis. At the onset of the crisis to provide con�dence to �nancial markets, the World Bank, in collaboration with the Governments of Australia and Japan and the Asian Development Bank, provided a US$5.5 billion program of contingency �nancing under the Public Expenditure Support Facility DPL-DDO (FY09, US$2 billion) to support con�dence-boosting measures and social mitigation programs, which closed in December 2010. Subsequently, with the increased risks stemming from the Eurozone crisis, a follow-up program with the same development partners of US$5.5 billion put together under the PERISAI (Program for Economic Resilience, Investment and Social Assistance in Indonesia) DPL-DDO (FY11, US$2 billion). Sustaining growth and maintaining macro stability requires quality, evidence-based macro and fiscal policy making. Despite Indonesia’s strong economic performance, signi�cant challenges in �scal and macro policy remain, for example, in terms of the allocation of spending (with subsidies accounting for almost one quarter of central government spending in the proposed 2013 Budget) and its efficiency. The Bank will continue to support Indonesia in enhancing the Government’s ability to do sound macro and �scal policy analysis and formulation through the Support for Enhanced Macro Economic and Fiscal Policy Analysis institutional (SEMEFPA) strengthening program; the Analytical and Capacity Support to Improve Expenditure and Revenue Policy program, which includes public expenditure review (PER) analysis; and the Resource Revenues Policy and Administration technical assistance. A Development Policy Review (DPR), being prepared concurrently with the CPS, will provide an analytical underpinning of the program and its overall coherence. The DPR has identi�ed near term risks and the key long-term global, regional and domestic trends that will affect Indonesia, the key challenges and opportunities they bring and the policy options to address them. The DPR will provide an analytical underpinning for the Government’s new �ve-year development plan and serve as a basis for dialogue with the incoming new government in 2014. It will identify near term risks and the key long-term global, regional and domestic trends that will affect Indonesia, key challenges and opportunities they bring and policy options to address them. BOX 7: MACRO AND FISCAL RESULTS, INSTRUMENTS AND PARTNERS Pro-Growth Macro and Fiscal Development Results: Enhanced Government ability to meet its financing needs and maintain critical public expenditures, and use monitoring and evaluation to inform budget allocation. Financing/Grants Knowledge and Convening Development Partners Ongoing: SEMEFPA ADB, Australia (Treasury, AusAID) PERISAI DPL DDO DPR Japan (JBIC) Proposed: Analytical and Capacity Support to INSTANSI DPLs I-III Improve Expenditure and Revenue Policy Initiative for Public Expenditure Analysis policymaker forum. Indonesia Economic Quarterly report (including convening related quarterly DevelopmentPartner Discussion and public launch) 24 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy The Bank contributes to development results that will support Indonesia in securing financing that will maintain critical public expenditures in the event of tightening in financing conditions, and improve the analytical framework in support of quality in public spending. In addition to the PERISAI DPL-DDO, and the aforementioned knowledge services, the proposed Institutional, Tax Administration, Social and Investment (INSTANSI) DPL with parallel �nancing from Japan and the ADB will support improved budget allocation for critical social and infrastructure investments, enhanced revenue policy and public �nancial management in general. STRENGTHENING THE PUBLIC SECTOR Institution building to enhance public sector performance has been a keystone of the current administration. The achievements in strengthening public financial management over the relatively short reform period have been remarkable. The most notable ones include an automated budget and treasury system; implementation of a Treasury Single Account; the establishment of cash forecasting capacity in the Treasury; the development of accounting standards to provide for accrual accounting; an appraisal of government assets and the introduction of an asset management information system; the establishment of a new procurement agency; adoption of the COSO control framework and strengthening of external audit; strengthening of monitoring and evaluation systems; and early stages of a medium term expenditure framework and initial introduction of performance-based budgeting. While progress has been made, a number of challenges remain. Among others, policy orientation in budget formulation and execution need to be strengthened. The underlying business processes at spending agencies need to be reengineered. The regulatory framework and implementation of e-Government procurement, including the development of a permanent procurement management function in implementing agencies, is incomplete. Relevant and reliable �nancial reporting needs to be strengthened along with human resources for accounting and reporting. The implementation of COSO control framework needs to be accelerated, internal audit function strengthened, and the supreme audit institution (BPK) needs to strengthen the impact on its audit �ndings and linkages with the legislature. Finally, monitoring and evaluation needs to move toward an integrated system as the basis for implementing performance based budgeting. The Bank’s engagement approach to strengthen the public sector continues to support development results that will sstrengthen the public sector by enhancing public financial management. The Bank supports efforts by the Ministry of Finance to strengthen its tax administration and broaden its revenue base including non-tax revenue from mineral resources. The proposed INSTANSI DPLs will reinforce and broaden ownership and commitment towards the achievement of reform milestones. Project lending provides technical support and �nancing through the ongoing Government Financial Management and Revenue Administration Project (GFMRAP), the Project for Indonesian Tax Administration Reform (PINTAR), the Scholarships Program for Strengthening Reforming Institutions Project (SPIRIT), and the Strengthening Indonesia Statistic Project (STATCAP- CERDAS). The Public Financial Management - Multi Donor Trust Fund also supports critical activities, bringing together key development partners, including the European Commission, the Netherlands and Switzerland. BOX 8: PUBLIC SECTOR RESULTS, INSTRUMENTS AND PARTNERS Pro-Growth Public Sector Development Results: Strengthen the public sector by enhancing public financial management. Financing/Grants Knowledge and Convening Development Partners Ongoing: Public Financial Management (PFM) European Commission (EC), GFMRAP, PINTAR TRE/CFRCR advice on exposure Netherlands, SECO SPIRIT, STATCAP-CERDAS management, hedging products Proposed: and risk insurance, and asset/ INSTANSI DPLs I-III liability management FY2013-2015 Country Partnership Strategy for Indonesia 25 PRO-JOBS - Enhancing Skills and Technology, and Improving Social Protection The Indonesian economy must create more and better jobs. This will require increased efforts to elevate the rate of economic growth, including improved quality in public spending, enhanced private sector investment and increased infrastructure. The share of the population of “productive� age relative to older people is large in Indonesia, and will remain so for the next 15 years. This demographic dividend presents a window of opportunity for high productivity growth as long as youth are equipped with the right skills and presented with the right opportunities. Despite a decade of robust growth, employment opportunities for higher quality jobs remains insufficient for an increasingly urbanized, young population; undermining the ability of growth to contribute to contain rising inequality. One reason is that the movement of workers out of agriculture and low-end services stalled after the Asia crisis because Indonesia’s manufacturing sector never fully recovered. Bank analytic work suggests that the decline of traditional manufacturing is not inevitable and points to two major sources of driving a potential revival: (i) a large labor force and growing wage gap relative to China and other producers; and (ii) the potential for market access of production-scale economies based on Indonesia’s large and growing domestic market and the increasingly integrated regional market. In addition, while there is a substantially growth of women entering the labor market than men over the past seven years, women continue to face lower participation and higher unemployment rates, and are mostly self- employed and unpaid family workers, as well as migrant workers. A key element of the strategy is to enhance the education and skills of the labor force, which will require improving the management of the education system and, including equality of opportunity through improved access to education of the poor. It will also require fostering the growth in R&D institutions by helping to develop an enabling policy environment. In addition, to facilitate labor market flexibility and provide for good jobs, the Bank will support the Government’s focus on improving social insurance. Pro-Jobs Results. For this theme, the WBG expects to support development results that will improve the overall governance and management of the education system to improve the education quality and performance of teachers, enhance human resource capacity in R&D, and facilitate the institutional transformation required to implementation reform of social insurance. Going forward Bank support would be through knowledge services. IFC is working to support manufacturing companies that generate good quality jobs directly, as well as help to develop SMEs through supply chain linkages. IFC’s engagement towards providing access to �nance for micro, small and medium enterprises are also geared towards job creation. EDUCATION Despite significant improvements in a number of education and health indicators in recent years, Indonesia still lags behind other countries in the region. Indonesia’s Human Development Index rank is still low (124 out of 187 countries), slightly above Vietnam but below Thailand and Malaysia. Indonesia is on track with many of the Millennium Development Goals related to human development, especially on education. Access to early childhood education is expanding rapidly, but still only 47 percent for 4-6 year olds are enrolled which is of particular importance for lower income children. Access to primary education is nearly universal and literacy rates are close to100 percent, while gender equity in enrolment in basic education has been reached. Indonesia has made a clear commitment to education. A constitutional mandate to allocate at least 20 percent of the total government budget to education has led to a more than doubling of spending in real terms since 2002. The biggest payoff for this increase has been access and equity, but access to early childhood education, senior secondary and above still remains low particularly for the poor. Progress in access and equity has been very fast. The share of 15 year olds from the poorest consumption quintile that are still enrolled in school increased from 60 to 80 percent between 2006 and 2010, but then 26 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy drops dramatically. In higher education, total participation has increased from 12 percent in 2000 to 26 percent, yet less than 4 percent of 19-22 year olds from the poorest 40 percent enter higher education. Gender disparities are not a problem in terms of access, though boys tend to drop out of all levels of education more than girls. Along with the need to continue improving equity, a major challenge remains in the quality and relevance of education. Learning outcomes and the share of top performers remain very low by international standards. Poor allocation of resources is an important part of problem. The Bank’s recent Education Public Expenditure Review notes that most of the additional resources for basic education went toward teacher hiring and certi�cation allowances. The resulting student teacher ratios are low by international standards and well below levels necessary for a good quality education. Moreover, distribution of the teaching force is highly inefficient and inequitable. At the same time, public funding for post basic education is constrained and poorly spent. There are few incentives for efficient spending and human resource management is limited by civil service considerations. The Bank’s engagement aims to support development results that will improve the performance of teachers and the human resource capacity in R&D. The Bank has been closely supportive of the improvements in access, equity and quality through �nancing and knowledge services. The Bank is providing knowledge services for the GoI’s program to improve incentives for teacher quality, including monitoring the impact and the ongoing Better Education Through Reformed Management and Universal Teacher Upgrading Project (BERMUTU) support implementation. The Dutch and the EC, among a number of others have played an important role in supporting education. The BOS-KITA Project helps to �nance the Government’s School Operational Assistance (BOS) program that empowers school managers and local communities through a school-based management approach covering some 42.5 million students. The Basic Education Capacity Trust Fund (BEC-TF) supports local government school grant programs. For higher education, the ongoing Higher Education Project (IMHERE) and knowledge services will continue to focus on helping the GoI in creating an enabling environment and effective support mechanisms for the improvement of the quality, relevance, efficiency, and equity. Foto: World Bank FY2013-2015 Country Partnership Strategy for Indonesia 27 With the GoI indicating a preference not to seek further external financing for education, the Bank’s engagement will continue to provide support through knowledge service, ongoing operations and linking with other Bank activities. For example, the Early Childhood Education and Development Project (ECED), which targets poorer communities through an innovative community managed scheme, would seek to strengthen linkages with the National Community Development Program (PNPM), also �nanced by the Bank, to enhance activities focused on the poor and vulnerable, including HIV-AIDS prevention, nutrition and sanitation. Knowledge services will continue to be a key component of Bank support. Results from rigorous impact evaluations of teacher certi�cation and ECED provision have and will continue to inform government policy. Research outputs remain low compared to other countries in the region. The overall resources devoted to research and development (R&D) in Indonesia are insufficient, and high-level human capital to supply needed skills for new jobs is scarce. Indonesia’s overall public budget allocation to R&D is very low, estimated at only 0.05 percent of GDP, much lower than other countries in the region. At the public research institutes, less than 5 percent of staff holds a Ph.D. degree, and only 15 percent hold Masters degrees. Public research institutions currently conduct 96 percent of R&D and their low performance is a key bottleneck to an efficient innovation system. Increasing public spending on R&D is not enough to guarantee success, public spending should be used to leverage private investment. The Bank seeks to support an enabling policy environment, and to improve the performance of public institutions and enhance human resource capacity. It provides advice to improve the public R&D institutes’ performance and STI human resource capacity, including technical assistance for policy reforms to reduce fragmentation and increase competitive funding for research. The Bank is already involved in supporting expansion of necessary research and development with the recently approved Sustainable Management of Agricultural Research and Technology Dissemination Project (SMARTD), and the proposed Research and Innovation in Science &Technology Project (RISET) would support improvements in human resource capacity. A result framework with gender sensitive indicators has been developed for SMARTD to capture and address the aforementioned gender streaming. BOX 9: EDUCATION RESULTS, INSTRUMENTS AND PARTNERS Pro-Jobs Education Development Results: Improve the education quality and performance of teachers, and the improve the human resource capacity in R&D. Financing/Grants Knowledge and Convening Development Partners Ongoing: Teacher certi�cation impact evaluations. AusAID, The BOS-KITA II The Role of Politics and Evidenced Based Policy Netherlands, USAID BERMUTU Making: The Case of Teacher Reform in Indonesia IMHERE Education PER SMARTD Indonesian School Grants Program Review IFC investment in Bonavista School Local Governance Capacity Assessment Proposed: Video Study RISET Projections and assessment of future skills demand Under Discussion: Higher education studies on funding modalities Skills Training for Economic Higher education and labor market linkages Transformation Infrastructure assessment IFC investments in private sector Accreditation and access to higher education education providers TA on skills development fund TA on 2015 �ve year development plan. Public Financing of Indonesia’s Knowledge Sector Building Innovation Capacity in Clean Energy 28 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy SOCIAL INSURANCE A strong system of social protection, particularly social insurance, is an essential part of any efforts to improve labor market flexibility and improve the quality of jobs. The current system of social protection is fragmented and coverage is limited to the poor, civil servants, the military and about 25 percent of formal sector workers. Each segment has different bene�ts and a different administrator, and the system of supervision and enforcement is a challenge. As a result, only 12 percent of the population has access to pensions, only 60 percent of the population has health insurance coverage, and bene�ts can be lost when changing employment. The government’s objective is to institute a comprehensive national system of social insurance covering all Indonesians through the National Social Security System Law (SJSN) and the law on National Social Security Administrators (BPJS). The SJSN law was enacted in 2004, but there was limited implementation progress until recently. The government’s stated goal is to establish a uniform health insurance program by 2014 and to cover all Indonesian workers in both the formal and informal sectors by 2019. Similarly, the government plans to establish programs for pensions, old age savings, death bene�ts and worker accident by mid-2015 and expand coverage to all Indonesians by 2019. The key to success will be program affordability, �scal sustainability, efficient administration of social insurance programs, proper governance procedures to assure program assets are properly and transparently managed in the best interests of participants, and analysis to assure that women, the disabled and other vulnerable groups are adequately protected. The Bank would engage in activities to support the conversion of the existing social insurance administrators into not-for-profit institutions and expand coverage and contributions. Social insurance is emerging as an important area of engagement for the Bank. In response to government demand, we will share best international practice to facilitate proper design and �nancing of the social insurance programs and the institutional transformation required for this ambitious reform effort. The Bank is working closely with development partners to provide extensive analytic work to assist with implementation of the universal health care program and the four other social security programs, particularly for the pension and old-age savings programs. This will build on the Bank’s strength and comparative advantage in pensions and implementation and in the four non-health social security programs, particularly for the pension and old-age savings programs, working closely with development partners. This will build on the Bank’s strength and comparative advantage in institutional change management, particularly in the areas of organizational structure, human resources and IT systems. The Bank also will continue to support the design and implementation a of reformed civil service pension scheme. AusAID, the German International Aid Agency (GIZ), ADB and the World Health Organization (WHO) are providing primary support for implementing the universal health care program. The Bank is leading on implementation of the pension and old age savings programs with support from AusAID, ILO and GIZ. There are also cross-cutting administrative issues where the Bank can assist, such as contribution collection and unique identi�cation numbers for the SJSN system. BOX 10: SOCIAL INSURANCE RESULTS, INSTRUMENTS AND PARTNERS Pro-Jobs Social Insurance Development Results: Conversion of the existing social insurance administrators into not-for-profit institutions and expand coverage and contributions Knowledge and Convening Development Partners Pension and old age savings roadmap. ADB, AusAID, GIZ, ILO Transformation of Jamsostek Membership expansion, improved contribution collection and development of ID system for SJSN programs FY2013-2015 Country Partnership Strategy for Indonesia 29 Photo: Matahati Productions PRO-POOR – Promoting Communities, Protecting the Vulnerable and Improving Health Outcomes The Government is committed to accelerating the pace of poverty reduction and increasing economic security for the large vulnerable population that is at risk of falling into poverty. Policy reform efforts are aimed at improving the effectiveness of poverty reduction programs. The country is also focusing on addressing the problems associated with high levels of vulnerability by improving and extending safety nets. At the same time, rising inequality is an emerging concern and the Government is exploring what strategies can support the greater sharing of economic growth with the poor and vulnerable. Working with the Government to ensure continued progress towards poverty reduction goals, and achieving equity and inclusiveness across regions, remains a top priority for the World Bank Group and is linked to a number of other engagement areas. The Pro-Poor Results. The WBG expects to support development results that would enhance response to shocks, promote the national targeting system to better reach poor and vulnerable households, enhance the design and performance of the Government’s household-targeted and community development programs, promote revitalization of the agriculture, improve health and nutrition outcomes, particularly of the poor, by supporting improved access to quality health care, including maternal and child health services, and enhanced HIV/AIDS surveillance, as well as increased access to safe water and sanitation. TARGETING POVERTY The Bank has supported overall poverty strategy and strengthening central institutions with the establishment of the National Team for the Acceleration of Poverty Reduction. Oversight and coordination of poverty reduction policies and programs has now been elevated to a cabinet-level team headed by the Vice-President. With the team, the Bank has collaborated on a reform agenda focusing on the programs that fall under the Government’s on-going three-pronged approach to poverty reduction: household-based, 30 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy community-driven and employment generating programs. Household-based social assistance programs play an important role in the strategy to reduce poverty. In 2012 the Bank released Protecting Poor and Vulnerable Households in Indonesia, a comprehensive household social assistance expenditure and program review, to provide an evidence base for program and policy reforms. The Bank supports development results that will enhance local capacity for detecting and responding to shocks that threaten vulnerable households, increase the number of poverty programs using the national registry of poor and vulnerable households and increase participation of children from poor families in early childhood education and development programs. These results will be supported by the INSTANSI DPLs and knowledge services, involving a multi donor trust fund initially supported by AusAID to support evidence-based poverty reduction policies and programs, as well as to build the analytical capacity of local universities and think tanks for research and assessing poverty-related issues. This is being achieved by: (i) providing poverty analytics and building analytical capacity to inform poverty and social protection policies, programs and strategies; (ii) supporting the Government in the design, implementation and evaluation of key poverty and social protection programs; and (iii) improving the quality and accessibility of data needed for poverty analysis and policymaking. Support will pay particular attention to gender issues, with an aim to improve women’s access to poverty reduction and social protection programs, improve access to quality jobs, and improve protection for female workers including international migrant workers. Globally, the World Bank has been placing greater focus on issues related to gender that includes the preparation of a World Development Report on gender. This program will access global knowledge in this area to identify ways to improve gender equity in Indonesia. BOX 11: POVERTY TARGETING RESULTS, INSTRUMENTS AND PARTNERS Pro-Poor Poverty Targeting Development Results: Enhanced capacity for detecting and responding to shocks that threaten vulnerable households, and increase the number of poverty programs using the national registry of poor and vulnerable households. Financing/Grants Knowledge and Convening Development Partners Ongoing: Household shock monitoring and response AusAID, The Netherlands STATCAP-CERDAS Integration of poverty reduction programs Early Childhood Education & Social assistance reform Development (ECED) Urban Poverty Review Proposed: ECED – implications for policy and practice from INSTANSI DPL Indonesia ECED impact evaluation COMMUNITY DEVELOPMENT The Bank is particularly active in supporting the community-level efforts at poverty reduction through its support to Indonesia’s flagship National Community Empowerment Program (PNPM- Mandiri) – the world’s largest CDD program. The core PNPM Mandiri program now covers 65,000 villages with an annual budget of almost US$1.7 billion. PNPM’s overall objective is to improve governance and reduce poverty by promoting community decision making in development planning and management. Its core idea is that given adequate information and some technical assistance to improve designs, communities will negotiate a range of cost-effective, economically useful investments that will raise local productivity and bene�t the poor. To translate this idea into an operational project, PNPM funds are used to support: (a) building community capacity for the formation and institutionalization of elected representative organizations that are accountable to communities; (b) provision of grants to communities directly and transparently to �nance an open menu of poverty alleviation activities; and (c) enhancing the capacity of central government and local FY2013-2015 Country Partnership Strategy for Indonesia 31 governments to partner with community organizations. The program continues to perform well despite some of the implementation challenges that the program has faced in its speedy scale up to national coverage in 2008. It is noteworthy that PNPM has a clear gender strategy and action plan which, among others, aims at ensuring a gender balance in decision making processes. Several peer-reviewed quantitative assessments have demonstrated significant impact in terms of effective, attributable poverty reduction. The main �ndings con�rm that: (a) bene�ts are heavily skewed to the poor: the two lowest quintiles of the participating population receive the largest share of project bene�ts; (b) bene�ts are signi�cant: household expenditures among the poor increased by an average of 11% as a result of project investments, bene�tting approximately 45 million poor people; (c) bene�ts are sustained; physical assessments of PNPM (KDP) built infrastructure found that 85% of the infrastructure built by communities was in good to very good condition �ve years after its completion. Impact simulations found that after three years the majority of bene�ts came from increased economic activity attributable to the investments made by the program, not from project grants; (d) bene�ts are shared: labor composition in PNPM programs averages 40-70 percent, which is on the high end of global measurements. PNPM created over 20 million person-days of paid employment. The massive scaling-up of PNPM presents major institutional challenges for the implementing agency. Hands-on implementation support to GoI has helped mitigate governance and �duciary risks, and build more robust management systems. Still, continuous attention to transparency, the quality of project management and strong �duciary oversight is required. A comprehensive reform program is being implemented to strengthen the program’s institutional arrangements. The Bank will support development results to improve local governance, participation, particularly by women, increased access to health and education services. The Government is in the �nal stages of a wide ranging consultation process to articulate the roadmap for PNPM with the goal of integrating the operating principles of PNPM into regular government operations. Special efforts will go to capacity building of national institutions, so that these institutions can fully take over the functions that are currently done by the PNPM Support Facility. In addition to investment lending, the Bank supports Indonesia’s community based poverty program by managing a multi donor support facility that provides technical assistance and strategic inputs to PNPM. The support facility focuses on improving the quality of the delivery of PNPM as well as supporting a number of innovative pilot operations including: PNPM-Generasi is a community-based CCT program that uses performance -based block grants to increase community utilization of basic health and education services and promote closer interaction between community groups and front-line service providers. PNPM Green supports �nancing green sub-projects and is moving towards incentivizing results and addressing the overall village development process, placing particular importance on participative natural resource mapping, and planning local green growth strategies. Local Government Capacity Development pilots social accountability processes and tools to improve local government responsiveness in community-level service delivery. PNPM Peduli: GoI has launched the PNPM-Peduli program to further operationalize social inclusion principles by working directly through CSOs for outreach and service delivery. In addition to these pilot operations, the PNPM Support Facility supports a robust program of analytical work to measure impact and provide the Government with evidence-based policy advice. An increasing part of the analytical work is implemented through national institutions, thus building their capacity and fostering the long term sustainability of the social development agenda in Indonesia. 32 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy BOX 12: COMMUNITY DEVELOPMENT RESULTS, INSTRUMENTS AND PARTNERS Pro-Poor Community Development Results: Improved local-level governance, greater participation by women, increased access to health and education, and participation in early childhood education and development Financing/Grants Knowledge and Convening Development Partners Ongoing: PNPM Rural Economic Impact ADB, AusAID, Canada, Denmark, EC, PNPM Rural III Village Infrastructure Census; Incidence Islamic Development Bank, JICA, The PNPM Urban III of Bene�ts of Households Local Level Netherlands, UK, USAID Proposed: Institutions III Community Management PNPM Rural IV Revolving Loan Fund Study; Governance PNPM Urban IV Review Under Discussion: Integrated MIS for PNPM PNPM Rural V TA to Aceh Local Government PNPM Urban V Papua Analytical Works PNPM Rural Sentinel Villages Urban Poverty Review FOOD SECURITY AND RURAL DEVELOPMENT The Government is increasingly concerned with food security and the negative impact of the price volatility of foodstuffs on overall poverty. Because over three-quarters of the poor are net food consumers, food price hikes have a disproportionately large impact on the poorest people in Indonesia. It is estimated that a 10% increase in the price of rice leads to a 1.3% increase in the poverty rate. Rural poverty and unemployment are also critical issues facing Indonesia. Around 50% of the country’s population live in rural areas and depend mainly or exclusively on the agricultural sector for their livelihood. While agricultural development was a major contributor to Indonesia’s economic and social performance from the late 1960s through the 1990s, it has been in decline for the past fifteen years. Investment in agriculture has so far not been enough to promote productivity growth and a signi�cant factor in the decline in the performance of the agricultural sector is the decrease in the amount and quality of public investment, as demonstrated in the Bank’s recent Agricultural Public Expenditure Review. Despite its rich agro- ecological endowments, Indonesia imports fruits and vegetables from neighboring countries, mainly because of quality and consistency problems with its own produce, but also because of the lack of competition in commodity trade. The Bank is expected to support development results that will provide access to smallholders of client and market-oriented extension and marketing services. Dialogue on food security has helped to bring into focus the need to revitalize agriculture and greater Bank engagement. During the previous CPS, lack of Government commitment and championing of reform in the sector had led to a reduced role for the Bank, as compared to earlier periods. In collaboration with other donors, Bank support for the Government’s food security concerns include knowledge services. The Bank, with the support of development partners, facilitated policy dialogue aimed at improving rice import mechanisms to reduce price volatility in the domestic market. The Bank supported the Government in establishing a platform to strengthen policy coordination to address food security challenges in an integrated way, which includes (i) revitalizing agriculture productivity, (ii) managing domestic price volatility and (iii) protecting the poor and vulnerable. A technical assistance program funded with a grant from the Global Food Crisis Response Program (GFRP) is assisting the GoI to identify future policy directions to enable it to achieve the goals related to food security. Furthermore, FY2013-2015 Country Partnership Strategy for Indonesia 33 technical assistance funded from the Multi-Donor Fund for Trade and Industry (MDFTIC) is assisting the Ministry of Trade in designing action plans aimed at strengthening the competitiveness, sustainability, and value addition of the cocoa, coffee, and tea value chains and their strategic positioning in international market. The Bank is helping Indonesia implement institutional reforms in the agricultural sector research and extension system to develop a demand-driven, market oriented agricultural services system, particularly for small farmers. The on-going Farmer Empowerment through Agricultural Technology and Information Project (FEATI) helps efforts at improving the delivery of support services to farmers. Complementing FEATI with a focus on research is the recently approved Sustainable Management of Agricultural Research and Technology Dissemination Project (SMART-D), which would strengthen the capacity to develop and disseminate best practice technologies for improved agricultural productivity, pro�tability and sustainability to conduct agricultural research, where Indonesia lags far behind most competitors. Most of the project’s expected bene�ciaries are women. In the previous SMART-D, more than 60 percent of those trained were women. The Bank in collaboration with other donors is supporting Indonesia to enhance water security for agriculture through institutional reforms, improvements in infrastructure and modernization of irrigation management. The Bank financed Water Resources and Irrigation Sector Program (WISMP) supports the Government in the implementation of its reform agenda providing more stakeholder participation and accountability in the management of water resources and irrigation. These activities are supported by new multi-stakeholder governance platforms, water user associations and improvement of facilities and infrastructure to enhance water security, agricultural productivity, and the value chain. Through the Dam Operation Improvement and Safety Program (DOISP) the effectiveness of water availability and use in the reservoirs is improved reducing the risks and adapting to climate change enabling more reliable supplies also for agriculture by improving safety and operational standards and by enhancing sustainable catchment management practices. A strategic dialogue with the government is ongoing and aims at the development of an Irrigation Policy for 2014-2025 in the context of water security for food security, anticipating the rapid transformations in the economy, the increasing competition for natural resources (esp. land and water), and the upcoming transition from subsistence smallholder agriculture to viable commercial farming. BOX 13: FOOD SECURITY AND RURAL DEVELOPMENT RESULTS, INSTRUMENTS AND PARTNERS Pro-Poor Development Food Security and Rural Development Results: Increase access by smallholders to client and market-oriented extension and marketing services, and enhance water security for irrigation Financing/Grants Knowledge and Convening Development Partners Ongoing: TA on Food Security ADB, AusAID, FAO, FEATI TA on Beverage Crops SECO SMARTD Irrigation Management Modernization WISMP II Training on risk management DOISP Study on Rural Connectivity (Connecting poor IFC investments in private sector and disadvantaged areas to improve food agribusiness companies (the Wings security and rural incomes) Group, Ecogreen) IFC advisory services for agribusiness 34 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy IFC is engaging in the agribusiness sector to empower and strengthen communities, especially the poor and marginal farmers. IFC has begun working with private sector �nancial institutions to support their expansion to rural/agriculture lending, as well as continuing work with off-takers seeking to develop stronger links to smallholders and increase the sustainability of their small holder suppliers for some important agricultural commodities like coffee, cocoa and rubber. Similarly, in the palm-oil industry, IFC is seeking to develop a smallholder �nancing scheme with access to technical advice and materials, and to increase bene�t sharing between communities and oil palm plantations. In the coffee industry, IFC is providing training to marginal farmers to improve their yields and business practices. IFC is also seeking opportunities to provide long-term �nancing to those committed to strengthening their environmental and social standards and practices. IMPROVING HEALTH OUTCOMES Indonesia has been successful in improving access to health care and made significant progress on several key population health outcomes over the past few decades, but the poor in particular suffer from persistent maternal mortality, chronic malnutrition rates, rising HIV infections and inequitable access to quality services. Indonesia’s maternal mortality ratio (MMR) was recently estimated to be 220 per 100,000 live births, higher than that of India and Vietnam, despite relatively high rates of antenatal care and skilled birth attendance in the country, and short of the MDG target of 102 maternal deaths by 2015. While Indonesia is on-track to attaining the nutrition-related MDG relating to reducing the prevalence of underweight among children less than �ve, however 36 percent of Indonesian children are shorter than the standard height for their age and an estimated that 42 percent of rural households have stunted children. Indonesia is not on track for the HIV-related MDG. Women account for 25 percent of HIV cases and in the provinces of Papua and West Papua the virus has become generalized. Public spending on health is only 1.3 percent of GDP in Indonesia, in stark contrast to Thailand (2.9 percent) and, China (2.7 percent). The ratio of doctors is 0.2 per 1000, one of the lowest in the region and much worse in rural and remote areas. The GoI has made a significant leap forward in committing to improve access to quality health services for all by achieving universal health coverage (UHC). Household health insurance population coverage rates have increased in the past decade but about 40 percent of the population still remains without any coverage and, at 40 percent of total health spending, out-of-pocket spending remains high. Almost 2.3 million of Indonesian households currently fall into poverty annually due to catastrophic health spending. In support of the Government’s goals, the Bank expects to help achieve development results to strengthen policies governing the education of health professionals and increase access to safe water and sanitation. The Bank’s health engagement would increasingly link knowledge services with activities in other engagement areas, including education (ECED), and community development (stunting). In the latter, for example the Bank is helping GoI to prepare a new Community-Based Health and Nutrition to Reduce Stunting Project, in support of its key commitment to the global Scaling Up Nutrition (SUN) movement, with grant �nancing from the Millennium Challenge Corporation (MCC) totaling US$131.5million. Signi�cant knowledge support would also be provided in association with social insurance reform, where studies would be undertaken to support readiness, with supply side assessments, including human resource availability. Improving the quality and availability of health professions would continue to be pursued through the Bank’s Health Professional Education Quality Project (HPEQ), which strengthens quality assurance policies governing medical education. The Bank would continue providing support for strengthening national HIV policies and program development, including analytical work on epidemiologic and economic aspects of HIV. The Health Professional Education Quality Project targeted, among others, improving the quality of midwives and other health care providers to contribute progress in achieving key health outcomes. The same applies to the Community-based Health and Nutrition to Reduce Stunting Project that aims to improve maternal health services in a longer term. IFC’s engagement with private sector companies in processed foods sector seeks to achieve better nutritional health for middle and lower income households. FY2013-2015 Country Partnership Strategy for Indonesia 35 Access to safe water and sanitation is a major factor in the health and overall welfare of Indonesians. Access to safe water has stagnated since 2001 at less than half the population. Combined with poor sanitation this has been estimated to result in an annual expenditure of US$ 6.3 billion in health care costs, lost productivity, premature deaths, water resource and �shery losses, declining land values and tourism losses. Together with rapid urbanization, the lack of investment has resulted in an actual decline in urban coverage from 60 percent to about 50 percent by 2009. Access to sanitary facilities is around 54 percent, signi�cantly lower than other countries in the region, such as the Philippines and Vietnam. Open defecation is still practiced by more than 60 million Indonesians. Sewerage coverage is minimal, with only 2 percent of urban areas having access to centralized systems. Of the solid waste generated by Indonesia’s urban population of 110 million, only about 40 percent end up in land�lls, many of which are open dumps. In rural areas, while the number of community-managed piped water schemes has grown steadily, they cover less than 20 percent of the population and formal solid waste collection systems are virtually non- existent. The WBG expects to support development results that would increase the coverage of water and sanitation in both urban and rural areas. The on-going engagement includes a number of activities to support sector initiatives. The Bank �nances the Urban Water Supply and Sanitation Project (UWSSP), which assists three local governments and water utilities (PDAM) to improve and expand coverage of water supply services for more than 90,000 households. IFC is supporting GoI on the tender of the Umbulan Water Project, which would provide water of good quality to about 3 million people in East Java, by mobilizing US$100 million in private investment. Trust-funded activities, such as the Water and Sanitation Program (WSP), provide support for institutional development activities to strengthen national policies, as well as local capacities. The Global Partnership on Output-based Aid (GPOBA) pilot projects in Jakarta and Surabaya to connect the urban poor to water and sanitation services have been scaled up with funding from other donors, resulting in more than 70,000 connections for poor households in 35 cities. The Indonesia Sanitation Sector Development Program (ISSDP), implemented in six pilot cities under the WSP, initiated the development of the National Sanitation Acceleration Development Program. To facilitate improved rural water supply and sanitation services, the Bank has financed the flagship Rural Water and Sanitation Program (PAMSIMAS), which is currently operating in 5,000 villages and using donor funds to expand coverage to more villages in the eastern part of Indonesia. By 2015, this program is expected to provide some 7 million rural Indonesians with piped water supply and some 3.4 million with improved on-site sanitation. In addition, the trust-funded Total Sanitation and Sanitation Marketing (TSSM) project in East Java, implemented by WSP focuses on the provision of technical assistance to 29 district governments to support their investing in sanitation. Through this project, a total of 1.4 million people have gained access to improved sanitation. Most of the aforementioned programs are gender-informed and equipped with a gender action plan, as well as a strategy and/or results framework with sex-disaggregated indicators wherever relevant. The WBG continues to support GoI initiatives, shifting to a more integrated and programmatic approach in the sector toward water supply and sanitation, solid waste management and urban drainage and flood control. For urban areas, the Bank has begun to engage with the GoI on the possible development of an Indonesian Water and Sanitation Financing Facility (IWSFF) with capacity building, technical assistance and investment windows targeted at a large number of PDAMs. At the same time, the Bank will continue to consider supporting speci�c projects in water supply and sanitation, where approaches are novel and TA-intensive (as under the proposed Lampung PPP transaction) or large and technically complex. Similarly, the Bank has begun to engage with the GoI on the possible development of a national solid waste investment program. IFC remains open to assisting GoI with transaction advisory services for projects mobilizing private sector resources, and would consider providing the needed long-term �nancing to sustainable private sector operations. MIGA remains open to supporting private investment into this sector. 36 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy BOX 14: IMPROVING HEALTH RESULTS, INSTRUMENTS AND PARTNERS Pro-Poor Improving Health Outcomes Development Results: Strengthen policies governing the education of health professionals and increase access to safe water and sanitation. Financing/Grants Knowledge and Convening Development Partners Ongoing: Policy dialogue and analysis on universal AusAID, The Netherlands, Health Professionals Education Quality health coverage (UHC) Singapore Cooperation Rural Water Supply and Sanitation Supply side availability and readiness Enterprise (SCE), UNAIDS, Projects (PAMSIMAS I and II) Human Health Resources UNICEF, USAID/MCC, WHO Aceh Community Settlement HIV/AIDS Survey Reconstruction project HIV/AIDS Economic Analysis Water and Sanitation Program; WASAP Double Burden of Malnutrition Urban Water Supply & Sanitation Total Sanitation and Sanitation Marketing Grant Facility for Water Management Urban Wastewater Management TA Jakarta Urgent Flood Mitigation Water and Sanitation Financing Program Jakarta Water OBA project, Surabaya Political Economy of Water Tariffs Water OBA project Structure Assessment for Water Financing Proposed: Facility PAMSIMAS (AF) Lampung Water Project TA Solid Waste Improvement in Regional IFC advisory services for Umbulan Water and Metropolitan Cities project Under Discussion: Water and Sanitation Financing Facility IFC investments in private sector healthcare companies IFC investments in water and sanitation companies PRO-GREEN – Ensuring Sustainable Development and Improving Disaster Resilience Indonesia is well endowed with natural wealth and beauty and is a global epicenter of terrestrial and marine biodiversity. However, this natural wealth is under threat from deforestation, inefficient fossil fuel use, unsustainable marine practices, air and water pollution, and smoke-haze from forest and peat fires. Forest biodiversity is also threatened by wildlife crime, with a number of iconic species such as tigers and orangutans becoming endangered. At the same time, timber, pulp, and palm oil enterprises contribute billions of dollars annually in economic bene�ts, creating opportunities and employment, though only some of this is sustainable. This illustrates the complex development choices needed to shift to a more sustainable forest management path. Climate �nance and biodiversity premiums offer some potential to channel more resources toward conservation and biodiversity protection. However, turning these potentials into improvements on the ground remains a challenge in terms of policy, governance and implementation. Pro-Green Results. WBG engagement is expected to support development results that include enabling the implementation of Indonesia’s REDD+ Strategy, protection for coral and marine resources, and scaling up disaster and climate risk reduction and adaptation measures. Support would be provided through knowledge services and mainly grant �nancing, along with IFC investments. FY2013-2015 Country Partnership Strategy for Indonesia 37 Photo: Matahati Productions GREEN GROWTH Climate change is recognized as a key threat to Indonesia’s development, especially for the poor who are also disproportionately affected. Indonesia is highly vulnerable to climate change impacts – sea level rise, changing weather patterns, and increased uncertainty. At the same time, Indonesia’s greenhouse gas emissions are globally signi�cant. Land use change, forestry as well as peat conversion, and �res are the main sources of emissions, contributing more than two-thirds of the total volume of emissions in an average year. The Master Plan for long term economic development is now a focal point for how “green growth� fits into sustainable development needs. However, the scope of the challenge is large and success will require action across legal mandates and economic interests from forestry, agriculture, mining, land use and local governments. Choices with long term bene�ts will still have short term costs that have to be borne. Champions inside and outside of government will need strong economic, social and environmental rationales for the policies they propose. Since hosting COP 13 in Bali, Indonesia has given priority to climate change actions, with a commitment to reduce emissions by 26 percent by 2020. GoI has published national action plans and formed a cabinet level National Council on Climate Change. Indonesia is taking advantage of numerous international climate �nance options, but stills needs to integrate these opportunities into the development agenda. Indonesia has agreed with Norway on a US$1 billion dollar performance-based, policy-linked initiative for accelerating action on REDD+. Australia, UK, Japan, USA, Germany and other development partners are contributing additional hundreds of millions of dollars. WBG engagement is expected to support development results that will help implement Indonesia’s REDD+ strategy and enhance protection for coral and marine resources. Bank technical assistance has been requested to help design the institutional architecture and �nancing mechanisms for implementing for REDD+, as well as helping Indonesia to prepare for larger climate �nance flows. By FY15 it 38 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy is expected that a REDD+ Support Facility will be in place with the Bank serving as the advisor, rather than its traditional role as trust fund manager. The Bank would also be ready to implement performance-based or carbon-based payments under the FCPF Carbon Fund, the Norway Phase 3 funding, or through bilateral partnerships. IFC has been supporting sustainable forestry practices through advisory services. In one such project, IFC will assist a private sector company in Kalimantan to conduct forest carbon assessment, to allow the company to further build potential REDD+ revenue streams from its sustainable forestry operations. IFC has provided funding to Bio-Carbon, an equity fund established to acquire and expand sustainable forestry operations. The move toward green economy thinking creates a strategic opportunity to develop and deliver more integrated policy advice, technical assistance, and capacity building to key government agencies. Integrating climate efforts into national development plans and budgets will anchor these policies and approaches into central and local governance responsibilities for the long term. The Government of Indonesia has requested the Bank’s assistance to develop a Green Development Support Facility to provide technical assistance and analysis on policy issues and �nancing needs toward a broader green economic development initiative. For its part, IFC plays a catalytic role in private sector engagement in climate change mitigation and adaptation efforts through its analytical and advisory work. It is seeking investments in geothermal and energy efficiency projects, including mobilizing �nancing support for such projects; helping to improve environmental and social outcomes in as oil palm; and promoting sustainable forestry practices to enable Indonesia to participate in global carbon markets. IFC is providing advisory services and �nancing to develop sustainable energy �nance projects in the SME sector. It is working with large cities, to introduce Green building codes that mandate the private sector to build more energy and water efficient buildings. The �rst such code was issued by the Governor of Jakarta in April 2010. WBI supports capacity building on carbon markets and gas flaring. Conserving biodiversity is also part of the pro-green agenda where the Bank has several strategic investments. Co-�nancing from the Global Environment Facility (GEF) is expected to support the ongoing program for coral reef rehabilitation and management (COREMAP), a 15-year commitment to stewardship and promoting governance at village, district and national levels. The Aceh Forest and Environment Project (AFEP), nearing completion, supported the largest contiguous forest area in Sumatra. Further engagement would support the GoI and NGO partners to access grants or low-cost �nancing for conservation and environmental activities, including development of a GEF-�nanced biodiversity project for protecting habitat and tigers in Sumatra. BOX 15: A NEW PARTNERSHIP TO SUPPORT GREEN GROWTH In an innovative knowledge partnership, the Bank is providing advice and analytical support to the Government of Indonesia to help it establish and manage a US$1 billion fund for REDD+ (Reducing Emissions from Deforestation and Forest Degradation). Indonesia is currently the 3rd biggest producer of greenhouse gases in the world, with most emissions coming from deforestation. A new REDD+ Agency and a Fund for REDD+ in Indonesia will support GoI to channel resources to activities consistent with the 2012 National Strategy to cut emissions. Norway has pledged US$1 billion under a phased program linked to the Government’s ability to govern and distribute REDD resources. The Global Forest Carbon Partnership Facility and the Forest Investment Program, along with Switzerland, are also supporting this approach. This REDD+ advisory support is a good example of a potentially new role for the Bank in assisting middle income countries by providing knowledge and expertise based on global best practice. It is also a departure from earlier patterns of trust fund management where the Bank rather than a Government entity acted as trustee. This model, if successful, could represent an approach for many countries that are willing and institutionally able to build local institutions to deliver on climate �nance. To deliver on its advisory role, the Bank has assembled a cross-sectoral “virtual team� to bring global knowledge and expertise on international best practices as well as institutional and technical arrangements to help build an Indonesia owned �nancing instrument for REDD+. This approach helps give con�dence to both Government and donors that the funds will be well used. FY2013-2015 Country Partnership Strategy for Indonesia 39 BOX 16: GREEN GROWTH RESULTS, INSTRUMENTS AND PARTNERS Pro-Green Development Results: Implementing of Indonesia’s REDD+ strategy and improving protection for coral and marine resources. Financing/Grants Knowledge and Convening Development Partners Ongoing: Forest Carbon Partnership Facility AusAID, AfD, CIDA, Denmark, HCFC Phase Out Project (Montreal (FCPF), Forest Investment Program (FIP) Germany (GIZ), Finland, Protocol) Indonesia Forest and Climate Trust JICA, The Netherlands, New Geothermal Investment (GEF) Fund, Zealand, Norway, SECO, Halmahera Conservation TA for REDD/FREDDI USAID COREMAP II (GEF) AAA on Bene�t Sharing IFC investment in Medco Power Drivers of Deforestation TA Proposed: Green Growth Support Facility Chiller Energy Efficiency (GEF) DP Partnership for Market Readiness COREMAP III (GEF) Carbon Finance Sumatran Biodiversity (GEF) IFC advisory services for sustainable Under Discussion: palm oil and forestry IFC investments in geothermal and IFC advisory services in Green hydroelectricity sectors Banking, Green Buildings Code, and Sustainable Energy Finance as well as in geothermal energy sector. IMPROVING DISASTER RESILIENCE Indonesia is located in one of the world’s most natural disaster prone areas. According to data from the National Disaster Management Agency (BNPB), over the last 30 years, there have been, on average, 289 significant natural disasters per year, with an average annual death toll of 8,000 people. GoI spends on average between US$ 300-500 million annually on post disaster reconstruction, with spending for major disasters of up to 6.4 percent of GDP. Following the Indian Ocean tsunami, the GoI allocated more than US$7 billion for reconstruction in Aceh and Nias. Close to US$2 billion was spent following the eruption of Mount Merapi in Yogyakarta. Since the devastation caused by the 2004 Indian Ocean Tsunami, the GoI has made significant advances in preparing for potential future natural disasters. A comprehensive approach to Disaster Risk Management (DRM) including prevention and preparation, emergency response and post disaster recovery was introduced. Yet Indonesia faces a number of challenges. Among these are insufficient investments in prevention and risk reduction, including a lack of systems to identify risks and manage reconstruction. In addition, BNPB lacks the con�dence of line agencies to coordinate and local DRM institutions are unproven. A recent study by the Bank indicates that there is sufficient �scal capacity and a favorable legal framework for an adequate DRM system, but implementing regulations and upgrading operational capacities remain outstanding. There is ample room for improvement in GoI’s efforts to addressing the differentiated impact of disaster on men and women, girls and boys. Going forward, the Bank will continue to support the Government by facilitating the adoption of disaster risk management approaches that have shown a demonstrable effect on women including through their inclusion in decision making processes. Development results to be supported by the Bank will include efforts to identify and scale up disaster and climate risk reduction and adaptation measures, including institutionalizing community-based settlement reconstruction. The basis for the Bank’s involvement in the development of Indonesia’s DRM systems resides in its ability to leverage existing engagements and �nancing instruments and 40 FY2013-2015 Country Partnership Strategy for Indonesia The Country Partnership Strategy its access to international best practices that will serve as the foundation to support the building of a disaster and climate resilient Indonesia. With support from the Global Facility for Disaster Reduction and Recovery (GFDRR), the Bank provides technical assistance for risk identi�cation, integrating risk reduction in investment projects, and identifying options for catastrophic risk �nancing. Disaster contingent components have already been included in several Bank-�nanced projects. The Bank is also supporting a standing mechanism for multi- donor support in post disaster recovery through a trust fund with an initial contribution of NZ$2 million in funding from the New Zealand Government. This could represent a major shift from a focus on recovery to an approach focused on preparedness. There has also been some discussion on the use of contingent �nancing instruments such as the Catastrophe Deferred Drawdown Option (Cat-DDO). In parallel, existing Bank engagements in settlement rehabilitation, infrastructure and education and health that form the core of reactive investment will be further targeted to fully integrate disaster resilience measures. The Bank has also conducted a gender and DRM rapid assessment in PNPM Urban, which will inform initiatives under this CPS. During the last few years, IFC supported projects such as Aceh Shrimp Project and Investment Climate Reforms advisory. It will continue to develop projects towards reconstruction from the Tsunami disaster. BOX 17: DISASTER RESILIENCE RESULTS, INSTRUMENTS AND PARTNERS Pro-Green Disaster Resilience Development Results: Identify and scale up disaster and climate risk reduction and adaptation measures, including institutionalizing community-based settlement reconstruction. Financing/Grants Knowledge and Convening Development Partners Ongoing: GFDRR National Risk Assessment AusAID, JICA, New Multi Donor Fund for Aceh and Nias Indonesia Disaster Risk Financing Capacity Zealand Java Reconstruction Fund Building module on Post Disaster Needs PNPM support of disaster recovery in Assessment and Post Disaster Recover. Aceh/Nias, Yogyakarta and Central Java IFC advisory services for launching Global Under Discussion: Index Insurance products CAT DDO CROSS-CUTTING ENGAGEMENTS - Gender and Governance GENDER Gender is a key cross-cutting theme in the strategic framework of the CPS. The approach to gender in the CPS is informed by a series of recently completed initiatives. These include the Bank’s internal stock taking of gender-related activities and discussion of how it could address gender issues more effectively (note on “Gender mainstreaming in the World Bank Group in Indonesia�) and the Country Gender Strategy and associated Action Plan and Result Framework developed to coincide with this CPS (see Annex 2). Using the WDR analytical framework (focused on endowment, opportunity and voice and agency), the stock taking exercise has shown that at the national level, the regulatory and planning framework recognizes gender equality as a national priority. As mentioned above, gender is well mainstreamed in the Government Central Planning (the Five year Plans); Indonesia has a Ministry of Women’s Empowerment and Child Protection to coordinate mainstreaming efforts across government and provide support to implementing agencies; and the Ministry of Finance has adopted best practice legislations such as requiring that budget requests from technical Ministries be drafted with a gender lens. At the same time, implementation has been weak in part because gender-disaggregated data and analysis have not been available. Furthermore, at the sub-national level, attention to gender equality is uneven and implementation is often undermined by weak execution and reporting capacities. FY2013-2015 Country Partnership Strategy for Indonesia 41 Photo: Irwansyah Putra Despite tangible progress, persistent gender disparities remain. Gender parity in enrollment rates has been achieved at all levels of education but persistent gender disparities remain but with evidence of gender streaming. As noted, maternal mortality rates remain relatively high for Indonesia’s income level and women’s voice in the public domain remains relatively weak; while Indonesia’s female labor force participation rate increased from around 45 percent in 1980 to about 55 percent in 2008, it still remained below the 70 percent average for the region; although there is no difference between men and women’s consumption based poverty rates and poverty rates amongst female-headed households are lower than male-headed households, the overall pace of poverty reduction is slower for female-headed households. Women still earn less than men in all sectors, are more likely to work in the informal sector and constitute the majority of unskilled migrant laborers. Gender gaps in wages in the service, industry and agriculture sectors in Indonesia are among the largest in the region. The important socioeconomic variations in Indonesia are that urban educated women have higher returns than men with the same education, while less-educated women at the bottom end of the wage distribution face the biggest wage gap. Enterprise surveys also suggest that, within the same firms, women are more likely than men to be temporary workers. While female-owned and managed enterprises tend to be less capitalized and operate in less remunerative sectors. Further, Indonesian women are disproportionally more excluded from formal financial services than men. The World Bank Access to Finance Survey 2010 and Migrant Worker Survey found that women are less likely to borrow, and when they do so, they are more likely to borrow informally. Women are also less likely to enroll in life insurance, asset insurance or private health insurance than men. The World Bank Group has been working actively with the Government on programs to help remove barriers to gender equality. Key activities include (i) consultations with development partners, NGOs, academia, policy institutes and government around gender equality and how best the World Bank might contribute; (ii) collaboration with other development partners in producing set of policy briefs, which collectively provide a country gender assessment; (iii) development of the relationship with Ministry of Women’s Empowerment and Child Protection; (iv) hosting of a 2012 WDR consultation event and completing Indonesia’s case study; (v) stock taking of gender-related activities across the country program and (vi) drafting the country gender strategy. 42 FY2013-2015 Country Partnership Strategy for Indonesia GOVERNANCE AND ANTI-CORRUPTION Over the past decade, the Indonesian government has made strides toward improved public accountability. Governance and anti-corruption reforms have featured in the programs of successive governments. Freedom of the press has been enhanced; authority was devolved to the regions; checks and balances between the executive, legislative and judicial branches were strengthened; the role of security forces was rede�ned; direct elections for President and for regional heads were mandated; and an institutional framework, including the creation of Anti-Corruption Commission (KPK) was developed. Civil society played an important role in driving these changes. Indonesia has also seen the enactment of �scal laws and the rearrangement of key economic ministries, many with WBG support, designed to improve budget and �nancial management systems (including public procurement, business regulation, auditing, and monitoring and evaluation). Nevertheless old problems remain. Central government institutions struggle to coordinate effectively, bureaucratic incentives are misaligned and capacity lags. In the private sector existing players retain market power and use it to influence political processes. In addition, new challenges are increasing; money politics is on the increase, decentralization has increased coordination issues and reforms in the judiciary, the police and the attorney general’s office (AGO) have been slow. The governance and anti-corruption approach in the Country Partnership Strategy is led by the Indonesia Governance and Anti-Corruption (IGAC) Team, composed of engagement leaders from all the sectors and the Indonesia GAC secretariat. The IGAC team will be responsible for developing and guiding a strategic approach that effectively integrates governance in the work of the WBG in Indonesia. International accountability mechanisms are becoming an increasing factor in Indonesia’s governance. Leadership of the Open Governance Partnership, adoption of the Extractive Industries Transparency Initiative (EITI), Reducing Emissions through Deforestation and Degradation (REDD+), as well as the UN convention against Corruption (UNCAC) represent signi�cant steps in increasing the transparency of the GoI’s commitment to good governance and an increased focus on monitoring. The World Bank will support these efforts as part of our governance engagement since they provide much needed support for local institutions and communities. The country governance program is organized around four pillars 1) increasing transparency and efficiency in public financial management, 2) increasing the efficiency of public service delivery, 3) strengthening checks and balances, and 4) promoting open, transparent competition. This cross cutting focus will be used to improve coordination and provide strategic focus. In the public �nancial management the focus is on effective and transparent budget and tax systems (SPIRIT, SPAN, PINTAR). The engagements around improved public service deliver focus on improved systems (including procurement) and citizen feedback mechanisms (DAK, PNPM, BOS). In the checks and balances area the GAC team is partnering with Indonesian institutions leading the �ght against corruption (e.g. the KPK) and engaging with CSOs to reinforce these efforts. To promote open and transparent competition the Bank is focused on resources, including through EITI and REDD+, support for regulatory framework and reforms in the �nancial sector. The Bank’s governance approach will build on the Indonesian Government’s Open Government Partnership (OGP). The OGP should serve as a powerful governance tool to promote transparency, increase civic participation, improve service delivery, reduce corruption, and harness new technologies to make government more open, effective, and accountable. In September 2012 Indonesia became co-chair of this initiative. The Bank’s engagements on PFM and improved statistics are designed around data as a public good, while community driven development, sub-national development, health, education, water and sanitation, have substantial social accountability elements. The Bank will leverage the ongoing engagement to create a space for citizen participation through the recently announced Global Partnership for Social Accountability (GPSA). FY2013-2015 Country Partnership Strategy for Indonesia 43 IFC is promoting enhanced standards of governance in the private sector operations in the country. Toward this goal, IFC launched a new corporate governance advisory services initiative in Indonesia in 2012. The strategy will be to work with regulatory agencies to establish model corporate governance practices, to work with selected private sector companies to enhance their performance, as well as to host events to highlight enhanced corporate governance practices. To safeguard against the risk of corruption in the Bank’s own operations, anti-corruption action plans are required. First introduced in 2005, ACAPs are mandatory in project design and implementation. By the end of 2011, the ACAPs traditional components (access to information, mitigation of collusion, mitigation of fraud, participation of external parties in oversight, grievance handling, and sanction/remedies), are gradually evolving. In particular increasing emphasis is being placed on improved reporting and oversight; improved public complaint handling with Bank program efforts serving as the basis for ministerial initiatives (i.e. beyond the project). 44 FY2013-2015 Country Partnership Strategy for Indonesia Foto: Matahati Productions VI. Delivering the World Bank Group Program This CPS is a continuation of the World Bank’s long-term engagement in Indonesia’s development. It is focused around and consistent with the Government’s agenda. The Indonesia program is organized around a set of engagement areas and delivered through a mix of lending and knowledge products often supported by close collaboration with development partners. Financing IBRD financing services are expected for priority public programs averaging up to US$1.1 billion annually over the CPS period, subject to macroeconomic performance, momentum on key reforms and the quality of program implementation, and IBRD's lending capacity. Lending would continue to decline as a share of Indonesia’s GDP and its overall �nancing requirements. Actual lending amounts in any particular year would be determined by borrower demand and can vary depending on overall exposure, but would remain below the single borrower limit. The overall exposure would be determined not only by the level of lending (commitments) but also by the speed of disbursements, choices regarding exposure management, decisions on the possible extension of contingent �nancing provided by the US$2 billion PERISAI DPL DDO, and possible adjustments to lending volumes of proposed policy-based operations without affecting the integrity and objectives of the CPS. IFC is expected to continue its strategy of helping Indonesia reduce the impact of climate change, create high quality jobs, increase rural incomes and promote sustainable urbanization. This includes programs to expand access to �nancial services for the underserved population, establish resource efficient and globally competitive manufacturing, increase access to infrastructure, particularly in frontier areas, strengthen commodity-based supply chains, such as agribusiness and forestry, and improve investment climate. In these areas, IFC will seek investments of US$300-500 million per year, with advisory services of about US$23-$25million annually. IFC Advisory services for PPP transactions will continue to provide support as needed. FY2013-2015 Country Partnership Strategy for Indonesia 45 MIGA has begun to increase its activities in support of Indonesia. MIGA's approach to operations in Indonesia would be consistent with its global strategy focus, which focuses on conflict affected and fragile economies; South-South transactions; IDA countries; complex infrastructure and extractive industries projects. There are currently two active projects in Indonesia, with guarantees totaling US$257 million, in the power and mining sectors. Its Weda Bay Nickel operation supports a complex extractive investment that carefully addresses social and environmental concerns. Moreover, it is an innovative effort to engage mining operations upstream during the exploration phase to better promote social bene�ts and environmental safeguards. Collaboration with Development Partners The Bank’s engagement is augmented by strong collaboration with development partners. Delivering results in a country as large and diverse as Indonesia requires working with a broad range of multilateral and bi-lateral donors, as well as NGOs. This includes co-�nancing of investment and policy lending, including active participation in policy dialogue, as well as donor-funded grant programs that run alongside Bank �nanced operations. Indeed, this collaboration has strengthened the Bank’s engagements across the CPS. Most DPLs are co-�nanced, as are several operations and a large number of ESW and TA are supported by grants. As a critical component of the CPS business model, strategic use of trust funds increase the reach of CPS objectives particularly as most of these funds are multi-year and thus provide, at times, a more stable source of �nancing than the Bank’s own budget. These collaborations are different across the engagement areas and depend on the nature of the donor relationship and needs of Government. Moreover, the Bank remains pledged to the Jakarta Commitments, which provide a set of country-speci�c principles to enhance alignment of �nancial and advisory support in line with the Paris Declaration. BOX 18: TRUST FUNDS: A PLATFORM FOR RESULTS AND INNOVATION A hallmark of the Indonesia program is the extent to which �nancing for programs, projects, knowledge and innovation have been �nanced by non-conventional sources. Australia, the Netherlands, EC, US, UK and Canada have been particularly generous contributors to Indonesia’s development in this regard. Donor support, largely through country-speci�c trust funds, has allowed the Bank in Indonesia to leverage IBRD-�nanced projects and programs and scale up coverage to reach more people. Additionally, the Bank acts as a platform for donors and GoI to work cooperatively to support experimental approaches across our engagement areas. This includes cutting edge approaches to poverty monitoring, new ways of working with CSOs to reach marginalized groups, and experimenting with technologies and partnering with the private sector to support schools and rural infrastructure. At the same time, as Indonesia evolves, so does the way that trust funds are used and governed. Where typically the Bank acted as “Trustee�, GoI is increasingly interested in administering trust fund �nancing itself, but looks to the Bank for technical expertise in �duciary requirements and implementation. Donors too are looking for evolving governance models but without losing the Bank’s �duciary oversight which provides con�dence that monies will be well spent. Current discussions with GoI, donors and the Bank on REDD+, the US-�nanced MCC (on MDG), and disaster preparedness demonstrate that innovative structures and new roles for the Bank are possible. A successful REDD+ (see Box 15) could set the direction of many other Bank interventions in Indonesia and elsewhere. Working to ful�ll the Government’s longer-term strategy for PNPM/PSF sustainability means that the structure and staffing of PSF, one of Indonesia’s largest trust-funded programs, will evolve over the next several years with the Bank taking an increasingly smaller role. The lessons from the successful Aceh and Nias MDF are helping to inform GoI and governments around the world to prepare for disasters rather than only react when they hit. (See Annex 5 on Trust Funds) 46 FY2013-2015 Country Partnership Strategy for Indonesia Delivering the World Bank Group Program Portfolio Management The close alignment of the Partnership Strategy with Government priorities and programs and more proactive and coordinated management, including for trust funds, has benefited portfolio performance. The share of problem projects, which used to account for one-fourth of operations, has been brought down to around 15 percent in recent years, and now compares favorably to the performance of other large, middle-income IBRD borrowers. Projects at risk tend to be smaller, so the volume of commitments at risk is less than 10 percent. Continued strong support will be provided to ensure compliance with Bank �duciary and safeguard policies. Lessons from ongoing projects are helping new projects ensure adequate disbursements, better results on the ground, and �duciary oversight. The performance of trust funds has also benefited from a more coordinated approach to their mobilization and management. All trust funds are now vetted to ensure alignment with country priorities and integrated into the program’s overall �nancial and human resource planning. Quality review processes mirror those of Bank operations. Larger trust funds bene�t from being incorporated into the Bank’s general operational management and portfolio reviews. (See Annex 4). The Bank is responsive to the demand for higher performance standards in its project preparation and portfolio management. Indonesia has access to a growing number of sources for meeting its �nancing and technical assistance needs, and the Bank must continuously challenge itself to stay relevant. In response, the Bank is aiming at quicker response times in the preparation and implementation of projects, more flexibility in its lending program, simpli�cation of World Bank Group procedures, greater alignment with the country’s own systems, and stronger tailoring of the analytical and advisory products to the needs and timeframes of the Government. As part of the utilization of national procurement systems, the Bank would explore quick win initiatives including advance procurement and web-based procurement plan monitoring. Sharing Global Development Solutions Indonesia has assumed a growing role in promoting South-South Cooperation through peer- to-peer knowledge exchange. Most recently, in July 2012, it hosted a High-level meeting "Towards Country-led Knowledge Hubs" attended by over 300 senior participants from 46 countries. It has also played a key role in securing the inclusion of “knowledge sharing� as one of nine pillars in the G20 Development Consensus. Moreover, it pledged a US$1.5 million contribution to the Bank’s South-South Knowledge Exchange facility. Indonesia’s leadership on South-South knowledge exchange is further demonstrated by its strong roles as a provider and recipient of “how-to� development knowledge, often in collaboration with donors or partnering countries. Indonesia has shared its expertise in, inter alia, agriculture, micro�nance, disaster management, and community driven development with states in Asia, Africa, and Latin America and the Caribbean. Indonesian institutions have received knowledge through peer-to-peer exchanges in agriculture, urban development, and other key �elds. In addition, the Government has participated in diverse multidirectional learning initiatives, including regional dialogues on aid effectiveness and triangular cooperation with ASEAN countries. JICA has been a major partner in �nancing and supporting Indonesia’s South-South agenda. FY2013-2015 Country Partnership Strategy for Indonesia 47 Results Management Framework The CPS seeks to leverage WBG activities in support of the Government’s development and reform programs. While this approach renders the measurement of the direct impact of WBG activities even more difficult, it reinforces the objective of supporting Indonesia’s efforts at policy and institutional transformation. The appended results framework is furthermore designed to reflect the flexibility inherent in the CPS’ approach: the variations across different engagements in the framework are indicative of the different stages of maturity, with some partnerships and programs being well advanced with more clearly de�nable and measurable targets, while others are at relatively early stages. The results framework will be monitored and updated periodically. The dialogue with BAPPENAS around program results would be broadened to include other key partners including the MoF. These assessments will serve as guidelines for any necessary course corrections and feed into the CPS Progress Report scheduled for Board presentation in FY14. Managing for Risks Indonesia remains vulnerable to economic shocks. Indonesia's growth performance has been resilient to recent global economic uncertainty, its economic fundamentals remain solid and the Government is in a better position to address economic risks than in the past. Nonetheless, the risk of external economic shocks remains. Indonesia’s growth over the past three years has been driven by its export performance. A global growth and trade slow-down would translate into lower Indonesian growth as direct exports to affected markets fall, indirect exports (commodities) to the region fall and international markets remain volatile. Depending on the magnitude and duration of the slowdown, this could also slow job creation in Indonesia. Another potential risk could come from a sudden reversal of �nancial assets held in the Indonesian stock and bond markets, resulting in exchange rate volatility and inflation. Increasing food prices would particularly hurt the poor. Natural disasters can inflict significant economic and social costs. Indonesia remains vulnerable to a broad range of disruptive natural disasters, including earthquakes, volcano eruptions and flooding. Indonesia's experience has contributed to greater disaster preparedness over time; and it is considering a CAT-DDO to help maintain expenditures in case of a natural catastrophe. A comfortable economic outlook may engender a sense of complacency and limit the scope for reforms. Particularly in the run-up to the 2014 elections political parties may be less willing to pursuing difficult reforms that could be unpopular. Vested interests may seek shelter from competitive pressures under the mantle of economic nationalism. At the same time, elections will also put pressure on political leaders to deliver results, especially in areas such as infrastructure development, governance reform, and the investment climate. During the transition to a new administration, the Bank would use the DPR and sector engagements notes as a basis for dialogue. Notwithstanding the ongoing peace-building process in Aceh and the maintenance of political stability throughout the archipelago, tensions could resurface and regional disparities could be accompanied by local conflicts. While these do not compare with countries that are fragile and conflict affected, the past year has seen an increase in the number of instances of violence and intolerance, primarily on Java, which have highlighted the importance of an unambiguous government stance to uphold laws and protect minorities. Capacity to develop and implement complex institutional reforms, particularly at the local level, may be undermined by lack of coordination as well as entrenched organizational behaviors. To help address some of these implementation risks, the CPS is designed around institution-building which offers the Bank's convening services, technical assistance and analytic support for the design and implementation of the government’s own reforms. 48 FY2013-2015 Country Partnership Strategy for Indonesia Governance and corruption risks remain significant. Through its support for government-led programs there may be a risk of an impact on the Bank’s reputation, as for IFC and MIGA through their choices of business partners. To mitigate this risk, the World Bank Group will only engage where it has con�dence in its counterparts, where the authorities are committed to reform, where effective anti-corruption measures exist, and where it can build long-standing partnerships. As part of its engagement, the World Bank Group supports measures to strengthen accountability and build �duciary capacity in counterparts. For the Bank's own portfolio, strong governance and anti-corruption action plans and close supervision remain important, including for trust-funded activities. FY2013-2015 Country Partnership Strategy for Indonesia 49 50 FY2013-2015 Country Partnership Strategy for Indonesia Photo: Poriaman Sitanggang Attachments 52 FY2013-2015 Country Partnership Strategy for Indonesia Annex 1: Indonesia CPS FY13-15 Results Matrix Development Intermediate Indonesia’s Issues and Results To Which Indicative WBG Modes of Longer-term Obstacles the WBG Will Development Engagement Objectives Contribute Milestones Pro-Growth - Promoting Prosperity Connectivity Accelerate growth and Lack of policy coordination 1. Improved ranking of - Introduction of a set Financing: Connectivity enhance equity through to implement policy Indonesia’s Logistics of domestic logistics DPLs, IFC investments in domestic connectivity reforms in the connectivity Performance Index. indicators for monitoring private sector projects to agenda Baseline: in 2012 progress in logistics enhance connectivity (i.e. in Indonesia ranked at 59 policy reform areas of logistics, telecom, Regulatory barriers that �nancial infrastructure) inhibit better provision of 2. Increase access for - Effective functioning of connectivity services broadband internet the Connectivity Working Knowledge: analytic and services for population. Group and National advisory work funded Inefficient use of public Baseline: 5 percent in Logistics Team by AUSAID and MDFTIC �nance and management 2011 (Dutch, Swiss, and USAID); practice for provision of Target: 30 percent by - Improved services in ESW on logistics and trade connectivity infrastructure 2015 domestic cargo shipping facilitation; policy notes on logistics, regulatory reform, Private sector participation 3. Reduced cost and time - Increased private sector managing openness; not being leveraged for to export and import, as participation in logistics facilitate knowledge the agenda of growth and indicated in the Doing and telecom/ IT services sharing through workshops connectivity Business Survey and �eld visits; engage local Baseline: 2012: Export: think-tank, universities and 17 days, US$644 per private sector organizations container; Import: to participate in policy 27 days, US$660 per dialogue; Development container Policy Review FY2013-2015 Country Partnership Strategy for Indonesia 53 Development Intermediate Indonesia’s Issues and Results To Which Indicative WBG Modes of Longer-term Obstacles the WBG Will Development Engagement Objectives Contribute Milestones Competitiveness Enhance competitiveness Bottlenecks and 1. Policy framework - Coordinated Connectivity DPLs; through improved underdeveloped in adopted to improve implementation of Financial Sector and environment, including trade logistics are competitiveness through the National Logistics Investment Climate Reform open, competitive, hurting pro�tability better trade logistics, Blueprint And Modernization (FIRM) sustainable and inclusive and undermining �rms’ Baseline: Score in 2012 DPL; IFC supporting markets for business productivity; complex Logistics Performance - Development of Standard companies which are to expand and increase regulatory environment Indicators (LPI) for Operation Procedure cost-competitive in the productivity inhibits private sector logistics quality and improvement of exports markets or are cost investment; time competence of 2.85 for the capacity of BKPM competitive with imports in consuming and costly border management (Investment Coordinating domestic markets procedures to establish of 2.53, Board) Investor Relation companies, and clear Target: Improved 2014 Unit to handle investor Knowledge: AAA imports; weak coordination LPI score on logistics inquiries supported by MDFTIC among government competence of 3.00 and to drive policy reforms institutions for investment border management - Development of the legal in logistics and trade policy; pressure to use of 2.7, National Single framework to streamline facilitation, enhance protectionist measures to Window acting as current procedures and reform agenda to improve protect domestic vested the single reference reduce delays in small the business regulatory interest; private sector for cross-border trade claim resolution environment; IFC Advisory companies are undertaking and introduction of Services – Investment projects which will not single sign-on for all - An implementation plan Climate Program (sub- be cost-competitive participating agencies for reforms to reduce the national Doing Business; versus global competition cost of starting a business corporate governance; in their target markets; 2. Improved regulatory is adopted �nancial infrastructure) policy decisions are taken environment, Innovation, Investment without sufficient analysis interagency coordination, - Strengthened Generation Technology, and of alternatives and of and consultative interagency coordination Entrepreneurship; Report their costs and bene�ts process in business and public consultation and policy dialogue on inadequate infrastructure environment that affect around business Indonesia’s manufacturing and incentive regime have competitiveness of regulatory process. sector; Report and policy limited capacity and have Indonesia’s private sector, dialogue on managing not encouraged innovation facilitate innovation and - IFC supporting openness; Development in private sector. investment facilitation companies which are Policy Review and services. cost-competitive in the Baseline: 50 days to start exports markets or are a company; 570 days cost competitive with to enforce contract; imports in domestic weak consultative markets processes prior to issuance of regulations; uncoordinated investment policy; weak investor inquiry handling Targets: 30 days to start a company; less than 500 days to enforce contract; coordinated investment policy and improved transparency in regulatory making; improved performance of investor inquiry handling 54 FY2013-2015 Country Partnership Strategy for Indonesia Development Intermediate Indonesia’s Issues and Results To Which Indicative WBG Modes of Longer-term Obstacles the WBG Will Development Engagement Objectives Contribute Milestones Financial Sector Promote the development Banks intermediation has 1. Maintain �nancial sector - Bank �nancial ratios Financing: FIRM DPL;IFC of a stable, efficient and improved but it is still low stability, deepened remain sound: CAR investments in banks, inclusive �nancial sector in to the size of economy; �nancial sector and higher than 8%, NPLs do insurance companies, NBFIs Indonesia in order to foster Bank loans need to strengthened private not exceed 5% and private equity funds. accelerated economic increase further to support sector through: Expanding support to growth, reduce poverty economic growth improved regulatory and - Bank lending increasing mid-sized banks that mostly and strengthen economic Non-Bank Financial supervisory frameworks; by twice GDP growth rate serve the SME market. competitiveness on a Institution (NBFI) assets maintained soundness of annually; LDR remains at sustainable basis. need to growth further banking sector. minimum 80% Knowledge: Financial to increase efficiency and Baseline: Key �nancial Sector Policy dialogues; reduce risk in �nancial ratios of banks (Capital - NBFI continues growing Financial Sector sector and create long- Adequacy Ratio (CAR), and maintains 20% Assessment Program term domestic �nancial Non Performing Loan share of �nancial assets; (FSAP); Microinsurance resources/savings ratio (NPL), Net Interest amount of funds raised Marketplace; Review Persistent issues of Margin (NIM) are sound from equity and bonds on KUR (Kredit Usaha limited access to �nance and LDR (Loan to Deposit market increases annually Rakyat); Deposit Insurance for underserved groups Ratio) is 75% ( Dec. 2011); Company (LPS); Improving (MSMEs and households) Targets: Banking �nancial - Continued increase access to Financial indicators remain sound of KUR annual Services in Indonesia Indonesia’s new Financial and LDR at minimum disbursement; increased Empowering Female Services Authority( OJK) 80%; in account holders of Migrant Workers; support must function effectively Tabunganku ( “no frills� to establish OJK; Fiscal as the integrated �nancial 2. Growing capital market basic savings account Policy Office on developing sector authority; the and NBFI and a higher product) a crisis management transition period has to be access to formal �nancial protocol ; Saving and managed properly services by the Micro- - OJK is operational and the Loan Cooperatives; SME The �nancial safety net SMEs and underserved Financial System Stability access to Islamic Finance; framework and legal populations Coordination Forum is Capacity building of basis for �nancial crisis Baseline: 41% of functioning. Secretariat of Financial management need to be households have access System Stability Forum; IFC strengthened; to bank accounts; - Infrastructure Finance Advisory Services – Access Limited local infrastructure banking loan to SMEs is Facility is providing to Finance Program in �nancing capacity 50% (2011), disbursed long term �nancing for the areas of SME banking KUR (credit program for infrastructure projects (women in business), SME) amounted to IDR 63 mobile banking, and trillion (2011) housing micro �nance, Targets: Bank loans to as well as in Investment SME continue to grow Climate Program including and are maintained at ongoing support to Credit 50% of total bank loans; Bureau and Moveable proportion of households Collateral registry. with savings account increased FY2013-2015 Country Partnership Strategy for Indonesia 55 Development Intermediate Indonesia’s Issues and Results To Which Indicative WBG Modes of Longer-term Obstacles the WBG Will Development Engagement Objectives Contribute Milestones Local Government Strengthen local Insufficient coordination 1. Improved �duciary, - PEACH transparency Financing: Local government institutions and leadership of the social and environmental and accountability Government and to improve accountability decentralization agenda at management as well as components enhanced Decentralization Project and increase the level and the centrallevel; a limited technical performance and expanded (DAK) I&II; Urban Sector of impact public spending and unclear role for the of LGs in the delivery of Development and Reform on service delivery and provinces basic services �nanced - PEACH expanded to Project (USDRP) support metropolitan areas using DAK transfers. additional provinces and medium-sized cities to A �scal decentralization Knowledge: Report on improve infrastructure framework that does 2. Improved capacity of - Output based Urban Agglomerations; not provide appropriate research institutions, disbursement PEACH PERs; PEACH PFM incentives for increased and media and CSOs to approach pioneered Technical Assistance and higher quality spending assess and monitor sub- under the LGDP/DAK Capacity Building activities; Weak capacity of local national PFM (PEACH): Reimbursement Sulawesi Development governments (LG) to enhanced capacity of Diagnostic Report; manage assets and service local institutions to - Government �nancing Subnational Workshops delivery analyze and monitor and technical on Gender responsive public expenditure and assistance framework Budgeting and Planning An inadequate framework PFM and to demand for engagement with IFC Advisory services for and insufficient better local government metropolitan areas in for Sub-National Doing �nancing of multi-year performance in these place Business reforms large scale infrastructure areas programs Lack of coordination in planning, management and investment at the metropolitan and regional in larger urban agglomerations Macroeconomic and Fiscal Management Strengthen central Indonesia’s �scal �nancing 1. Enhanced Government - Indonesia maintains Financing: Program for government capacity for position remains vulnerable ability to meet its continued access Economic Resilience, implementing contingency to changes in investor �nancing needs and to market �nancing Investment and Social �nancing, crisis sentiment. maintain critical public (meeting the targets in its Assistance in Indonesia management and quality expenditures, as 2012 Financing Plan) (PERISAI); INSTANSI DPLs; evidence-based macro and Despite Indonesia’s measured by continued STATCAP-CERDAS �scal policy making and strong recent economic access to markets, and - In the event of a crisis performance, signi�cant level of maintenance and the Government is able Knowledge: Development challenges in �scal and capital expenditures. to use provisions in the Policy Review; Support macro policy remain in Budget Laws to revise for EnhancedMacro and terms of the allocation of 2. Budget allocations expenditures and/ Fiscal Policy Analysis spending (with subsidies informed by monitoring or �nancing sources institutional strengthening accounting for almost and evaluation. Increase under streamlined program; Analytical and one quarter of central in the number of line parliamentary approval Capacity Support to government spending in ministries and agencies process Improve Expenditure and the proposed 2013 Budget) reporting through BRISA Revenue Policy including and its efficiency (the monitoring and - Development and public expenditure review evaluation system) from a usage of medium-term analysis; resource revenues baseline of zero in FY11. forecasting tools which policy and administration integrate macro and �scal technical assistance; outlooks Indonesia Economic Quarterly report - Improved mechanisms for policy based review and reallocation of budgetary spending 56 FY2013-2015 Country Partnership Strategy for Indonesia Development Intermediate Indonesia’s Issues and Results To Which Indicative WBG Modes of Longer-term Obstacles the WBG Will Development Engagement Objectives Contribute Milestones Strengthening the Public Sector Strengthen central The budget system is 1. Strengthened multi-year - Increased correlation Financing: INSTANSI government institutions input-based, excessively perspective in �scal between forward DPLs; Management and and systems to enhance detailed and inflexible and planning, expenditure estimates and annual Revenue Administration public �nancial strictly annual, hampering policy and budgeting budgets Project (GFMRAP); management and implementation of multi- Baseline: PEFA PI-12 rating Project for Indonesia Tax governance to increase year projects C+ in 2011 - Professional association Administration Reform the development impact Target: improve PEFA of internal auditors and (PINTAR); Scholarships of priority budget Controls in budget PI-12 rating to at least a drafts of (a) code of ethics Program for Strengthening expenditures. execution processes are B+ by 2015 and (b) internal audit Reforming Institutions generally inadequate and standards established Project (SPIRIT); STATCAP- could jeopardize gains from 2. Number of line ministries CERDAS improvements made in receiving unquali�ed - New regulations for other areas of PFM opinions for their annual adoption of accrual Knowledge: Public �nancial statements: based accounting Financial Management The public procurement Baseline: 63% of Ministries policies and chart of (PFM) Multi Donor Trust system is de�cient as is the and Agencies in Financial accounts issued Fund (PFM MDTF); capacity of procurement Statement. practitioners; collusion and Target: 85% of Ministries - Single public �nancial corrupt practices in the and Agencies in Financial management bidding process continue Statement for FY2013 information system for to exist, causing leakages national government and losses in the system 3. Implement new Financial provides reliable, timely Increasing demand for Management Information information on all stages improved quality, timeliness System in all 177 Treasury of budget execution, and responsiveness of data Local Offices including commitments, availability are hampered in readiness for move by poor ICT infrastructure to accrual accounting and data management in 2015 and inefficient business processes FY2013-2015 Country Partnership Strategy for Indonesia 57 Development Intermediate Indonesia’s Issues and Results To Which Indicative WBG Modes of Longer-term Obstacles the WBG Will Development Engagement Objectives Contribute Milestones PRO-JOBS – Enhancing Skills and Technology, and Improving Social Protection Education Provide good quality Despite signi�cant 1. Improved education - Increase in the number Financing: BOS-KITA II, education to all Indonesians increases in education quality and performance of pre-service teacher BERMUTU; Indonesia and to produce a smart spending the quality of of teachers; Increased training programs Higher Education for and competitive workforce. education remains low number of basic accredited Relevance and Efficiency Enhance research and education teachers meets (IMHERE); Research and development, science and Low teacher competency academic quali�cation - Nationwide Innovation in Science and technology mandated by the Teacher implementation of Technology Project (RISET); Inefficient allocation of Law revised policies, plans Sustainable Management public education spending Baseline (2010): 41% of and procedures for of Agricultural Research and teachers in primary and continuing education Technology Dissemination Weak management of junior secondary schools and career development Project (SMARTD) education at the district hold S1 degree or more. of teachers and school level under Target: 70% of primary Knowledge: The Role incomplete decentralization and junior secondary - Development of a skills of Politics and Evidenced framework school teachers hold S1 training fund supported Based Policy Making: The degree or more. by government and the Case of Teacher Reform Weak links between private sector ing Indonesia; Education education sector and 2. Improved public R&D PER; Indonesian School labor market including skill human resource capacity. - Guidelines for district Grants Program Review; mismatches and weak �rm Target:Masters or PhD level performance and Local Governance Capacity based training degree holders in public equity based school Assessment Survey; Survey research institutes(LPNK) grants developed Video Study; Projections Indonesia ranks poorly increases from 15% to and assessment of on competitiveness and 17% LPNK institutional - Staffing standards for skills demand; Higher knowledge economy assessments completed basic education schools education studies on indices and reform milestones revised funding modalities and set labor market linkages, Research and Development - Strengthened capacity Infrastructure assessment, (R&D) outputs remain low of RISTEK management Accreditation and quality compared to other to enhance the quality assurance and equity and and relevance of strategic access to higher education; industry-research TA on skills development consortium funding fund; Support for 2015 �ve year development; - A new competitive Strengthening Public research funding system Financing of Indonesia’s for RISTEK designed Knowledge Sector; Building Innovation Capacity in Clean Energy in Indonesia. 58 FY2013-2015 Country Partnership Strategy for Indonesia Development Intermediate Indonesia’s Issues and Results To Which Indicative WBG Modes of Longer-term Obstacles the WBG Will Development Engagement Objectives Contribute Milestones Social Insurance Provide universal coverage Only 50% of the population 1. Conversion of Jamsostek - Roadmap covering Knowledge: Advisory of social insurance to currently has health to a not-for-pro�t SJSN pension and old services to Bappenas, DJSN protect workers and insurance and only about institution that can age savings programs (national social security the poor from adverse 12% of the population has administer the SJSN completed council), the Ministry of life events or external any kind of pension, old pension and old age Labor, the Ministry of shocks through the �ve age savings, death bene�t savings programs - Design and �nancing Finance and others national social insurance or work accident insurance. strategy, including Pension and old age (SI) programs outlined in 2. Expand membership and investment policy, for savings roadmap the SJSN (national social Complexity of assuring improve contribution SJSN pension and old age Strategy and background security system) Law and �scal sustainability collection from the savings plans �nalized papers on various aspects the BPJS (national social including proper formal and informal of the design, �nancing security administrators) investment of program sectors. - Legal and organizational and administration of Law, covering all formal and assets transformation of pension and old age informal sector workers. Jamsostek to BPJS savings programs, Need to quickly transform Employment completed including Jamsostek the legal structure and institutional transformation, business processes of the - Membership expansion membership expansion administrators and contribution and contribution collection collection strategy Background papers on Complexity of expanding completed international experience membership and collecting in various aspects of SJSN contributions from the - BPJS Employment begins implementation formal and informal sectors administration of current Computer modeling and and properly tracking those PT Jamsostek bene�t analysis of program design contributions over time programs for the current alternatives and costs; covered group Development of Policy Lack of government Notes on various aspects capacity and experience of SJSN with managing the risks of SI programs. Pro-Poor – Promoting Communities, Protecting the Vulnerable and Improving Health Outcomes Poverty Targeting Reduce absolute poverty Around 110 million people 1. National shock - Design and protocols for Financing: INSTANSI DPL; and improve income still live under US$2 a day monitoring system shock monitoring system ECED STATCAP-CERDAS distribution through social (Bank estimate); large developed and are developed protection that is based number of urban and operational. Knowledge: AAA on the family, community rural poor due to lack of - Data sharing agreements supporting Household empowerment and income and inadequate 2. Poverty programs are in place shock monitoring expansion of economic productive employment management units using and response project; opportunities of the low opportunities; lack of the national registry of - Memoranda of integration of poverty income population. From quality service delivery poor and vulnerable Understanding (MOUs) in reduction programs; 12% poverty in 2012, to poor people; access to households to identify place with implementing social assistance reform; Government is targeting for early childhood education bene�ciaries. agencies agreeing to use PNPM Rural Economic single digits by 2014. remains low, particularly Target: 4 programs by the national registry Impact Simulation; Village for the poor; wide regional 2015 Infrastructure Census; disparities (particularly, - Conditional cash transfer Incidence of Bene�ts of eastern provinces); poor are 3. Increased participation in program (PKH) expansion Households vulnerable to shocks such ECED services particularly strategy is approved as food price increases, for the poor Number of poor natural disasters Baseline (2010): 47% of households receiving 4-6 year olds enrolled conditional cash transfers in ECED increased from 720,000 Target: 75% households (2010) FY2013-2015 Country Partnership Strategy for Indonesia 59 Development Intermediate Indonesia’s Issues and Results To Which Indicative WBG Modes of Longer-term Obstacles the WBG Will Development Engagement Objectives Contribute Milestones Community Development Improved local-level Community Development 1. 2.5m community - CSOs engaged in Financing: PNPM Rural (sub-districts and villages) through the PNPM program members participate improving access to II-IV; PSF MDTF; JSDF; KDP governance, quality of has been expanded to directly in meetings; services, livelihoods and Sulawesi; Justice for the service delivery and reach over 60,000 villages. 80% bene�ciaries feel rights of marginalized Poor; CPDA socio-economic conditions Impact evaluation shows it that project investments groups (target: 90 CSOs) in rural areas through to be an effective program, reflected their needs; Knowledge: PNPM wider implementation of but it needs to consolidate >50% of poorest - Increasing provision of Rural Economic Impact poverty reduction and program management, communities involved in holistic and integrated Simulation; Village community empowerment enhance participation, planning and decision- ECED services for the Infrastructure Census; programs and the provision particularly by women and making meetings; 35% poor Incidence of Bene�ts of investment resources marginalized groups. of villages provided of Households; Local to support proposals feedback on health and Level Institutions III; developed by communities, education services) Community Management using a participatory of Development Portfolio; planning process. 2. Women actively involved Revolving Loan Fund Enhance access to health in decision-making Study; Governance Review; and education services (target: 50% of women Integrated MIS for PNPM; among the poor in planning/decision- TA to PokjaPengendali, making meetings; 30% Bappenas, KPDT; TA to Aceh of women in community Local Government; Papua oversight teams) analytical work; PNPM Rural Sentinel 3. Improved community access to and utilization of health and education services in the targeted areas. Targets: >80% of pregnant women receiving 4 prenatal care visit; 80% of children under 5 weighed monthly; 50% of pregnant women attending nutrition counseling session; 50% of caregivers of children under 2 attending nutrition counseling session; 70% junior 60 FY2013-2015 Country Partnership Strategy for Indonesia Development Intermediate Indonesia’s Issues and Results To Which Indicative WBG Modes of Longer-term Obstacles the WBG Will Development Engagement Objectives Contribute Milestones Food Security and Rural Development Increase food security and The policy of rice self- 1. Modernized client - 10% of IAARD’s research Financing: Farmer continue therevitalization sufficiency limits the and market oriented and management staff Empowerment through of agriculture to enhance amount of resources marketing and extension undertakes advanced Agricultural Technology self-reliance in available for farm services accessible by training in accredited and Information (FEATI) food, increase diversi�cation and smallholders. foreign institutions Sustainable Management thecompetitiveness of agricultural development Baseline: less than of Agricultural Research and agricultural products, systems. 10% of farmers access - MoT launches Action Technology Dissemination increase the income level technology and market Plans for enhancing Project (SMART-D); Water of farmers, and conserve Limited access to information through ICT. the sustainability and Resources and Irrigation environment and natural technology and marketing competitiveness of at Sector Mgmt; Dam resources services due to weak 2. Increased value addition least one small-holder Operational Improvement; Reduce dependence on capacity of local and in smallholder-based based beverage crop (e.g. IFC investments in imports for staple foods national government R&D agricultural export value coffee, cocoa, or tea) agribusiness companies while diversifying food and extension services chains (e.g. coffee, cocoa, with a view to enhance consumption prevents the emergence and tea) coupled with - The Government issues food security or to provide Improve income of of viable agribusiness higher productivity and a service oriented sustainable livelihoods to smallholders and expand enterprises and farm more efficient marketing irrigation policy and poor farmers opportunities for nonfarm diversi�cation. systems. establishes a concept income activities. Baseline: Regulatory and for modernization of Knowledge: TA on Commodities are exported policy framework of value irrigation management. Food Security to MoA; with limited domestic chains of smallholder- TA to the MoPW on value addition and issues of based exportable irrigation management quality, market positioning, commodities is weak modernization and policy and competitiveness in the with low capacity of development IFC advisory value chains persist. support systems. services work in sustainable palm oil to improve Mechanisms to promote 3. Improved water sustainable livelihoods for improved service provision resource and irrigation outgrowers and planning in irrigation and planning and water resources and coordination management not yet mechanisms established. operational. Target: Water security improved in at least 50 irrigation Districts. FY2013-2015 Country Partnership Strategy for Indonesia 61 Development Intermediate Indonesia’s Issues and Results To Which Indicative WBG Modes of Longer-term Obstacles the WBG Will Development Engagement Objectives Contribute Milestones Health Outcomes Improved population High out-of-pocket 1. Quality assurance policies - Comprehensive analysis Financing: Health health outcomes, including spending for health. governing the education of supply side availability Professionals Education improvements in life of health professionals and readiness. Quality; Solid Waste expectancy and reductions Low and variable levels, with establishment of Improvement in Regional in maternal mortality and distribution and supply of independent National - Study of human resources and Metropolitan Cities; malnutrition to meet MDG health services, especially in Accreditation Agency, for health (HRH) policies Indonesia Water and targets by 2015 poor and rural areas. and National Agency completed Sanitation Investment; Access to safe water and for Competency; PAMSIMAS; Urban Water sanitation is a major factor Rising HIV/AIDS epidemic, accreditation of 7 health - Analysis of Jampersal / Supply & Sanitation in the health and overall especially in select professional schools. Jamkesmas policies to TF; GPOBA Jakarta and welfare of Indonesians and provinces achieve UHC of maternal Surabaya ; WASAP; expanding coverage is a 2. 7 million people provided health care. IFCInvestments in private priority Slow reduction in maternal with piped water supply sector water and sanitation mortality, despite relatively and 3.4 million people - Second Integrated companies high levels of skilled provided with improved Biological and Behavioral birth attendance and sanitation under Survey (IBBS) in Papua Knowledge: Policy institutional deliveries PAMSIMAS provinces. dialogue on universal health coverage; supply Chronic malnutrition and - Economic analysis of HIV/ side availability and stunting rates AIDS programs readiness assessment; HRH study; HIV/AIDS IBBS Access to safe water has - Analysis of multisectoral survey; HIV/AIDS economic stagnated since 2001 at less determinants of double analysis; DBM analysis. than half the population, in burden of malnutrition Total Sanitation and particular urban coverage (DBM). Sanitation Marketing, Urban from 60 percent to about Wastewater Management; 50 percent by 2009 - Financing facility Surabaya water policy established to support advice; WASAP; Water Access to sanitary facilities PDAM technical and Sanitation Financing signi�cantly lower than assistance and Program; Political Economy other comparable countries investments of Water Tariffs; Assessment in the region for Water Financing Facility; - National expansion of Lampung water project the total sanitation and TAs.IFC advisory services sanitation marketing for structuring water sector (TSSM) programmatic PPP projects approach to sanitation into a national program targeting 20,000 villages 62 FY2013-2015 Country Partnership Strategy for Indonesia Development Intermediate Indonesia’s Issues and Results To Which Indicative WBG Modes of Longer-term Obstacles the WBG Will Development Engagement Objectives Contribute Milestones Pro-Green – Ensuring Sustainable Development and Improving Disaster Resilience Environment, Natural Resources and Climate Change Conservation and Deforestation, peat burning, 1. Fund for REDD - Green Growth Support Financing: Chiller utilization of the natural habitat loss; globally established with legal, Facility established Energy Efficiency Project, environment that supports signi�cant emissions: technical and managerial HCFC Phase Out Plan; sustainableeconomic forests and land use capacity to support - Increased �nancing for Geothermal investment growth and increased change. and �nance Indonesia’s terrestrial biodiversity projects; Halmahera welfare of the people, National REDD+ Strategy Conservation Project; accompanied by the Fragmented, overlapping - Geothermal investments COREMAP III, Sumatra control andmanagement and decentralized land use 2. Phase III of COREMAP under implementation Habitat Conservation with of disaster risks, in order to authority hampers ability providing expanded GEF; IFCInvestments in prepare for the expected to manage forest and peat support for coral and clean energy, Sustainable impacts of climate change. lands marine protection. Energy Finance – either GHG emission reduction of directly by IFC or through 26% by 2020. Climate change: threat to intermediaries; and Promote renewable development, especially sustainable forestry/ energy sources as part of a the poor; vulnerability agribusiness projects sustainable in agriculture, water management, health, Knowledge: Policy preparedness, resilience dialogue and TA on green economy issues; Great renewable energy Green Growth Support potential relatively Facility; AAA on �sheries untapped due to need management and coral/ for improved pricing marine ecosystem values; and investment climate Forest Carbon Partnership incentives Facility; Forest Investment Program, Indonesia Forest Power sector is fastest and Climate Trust Fund; growing source of AAA on Bene�t Sharing, emissions, mainly from coal Drivers of Deforestation; based power generation Support UKP4 on REDD/ FREDDI; program support Lack of coordination of for REDD Agency and policies and incentives Financing Mechanism; for environmental Inputs to ongoing improvement and climate Partnership for Market change mitigation; weak Readiness, GEF V pipeline; economic incentives; policy policy dialogue and TA; distortions Carbon �nance, land�ll gas, and Persistent Organic Limited incentives for Pollutants control (POPs) �rms to develop forest Awareness and Capacity plantation and climate Building; GTI Support; AAA change mitigation program on land , mapping, tenure, on degraded grasslands and customary land Rights and to apply best practices because of high costs Outreach to Civil and risks, as well as lack of Society &Customary knowledge and experience Peoples,National in blending forest-based Indigenous Peoples’ climate change mitigation Alliance of the Archipelago and commercial forestry (AMAN) JSDF Grant; investment Capacity building with CSOs; IFC advisory services in areas of clean energy development, sustainable energy �nance, green banking, sustainable forestry/ agribusiness, green building development etc. FY2013-2015 Country Partnership Strategy for Indonesia 63 Development Intermediate Indonesia’s Issues and Results To Which Indicative WBG Modes of Longer-term Obstacles the WBG Will Development Engagement Objectives Contribute Milestones Disaster Risk Management Enhance capabilities Duplication of efforts 1. Create evidence-based - Mainstreaming Financing: Multi Donor to improve disaster due to the plethora of examples of practical and adaptation and Fund for Aceh and Nias risk preparedness, development partners in concrete disaster and resilience issues into (MDF), Java Reconstruction mitigation measures, and Disaster Risk Reduction climate risk reduction urban development, Fund (JRF), PNPM Support post-disaster recovery (DRR); new Disaster and adaptation measures community driven Facility (PSF) in support and reconstruction Management Agency (e.g., safer schools, development programs, of disaster recovery in responsiveness to structure may not have the resilient villages and water and waste Aceh/Nias, Yogyakarta strengthen sustainability capacity to mainstream urban wards with DRR management programs, and Central Java; Zero DRR plan and investment agricultural and rural Contingent and Disaster program) that can be development programs Mitigation Components in scaled up and replicated WINRIP and PNPM Urban III nationally - GoI led disaster fund (IMDFF-DR) as Knowledge: GFDRR 2. Community-based new mechanism to National risk assessment settlement reconstruction institutionalize donor study/mapping as the incorporated as a support basis for GoI’s National Government program Disaster Management Plan 2009-2014 and National Action Plan for DRR 2009-2014.;Indonesia Disaster Risk Financing Study and policy dialogue, Capacity Building module on PDNA and Post Disaster Recovery; IFC Advisory services for Global Index Insurance products 64 FY2013-2015 Country Partnership Strategy for Indonesia Annex 2: Gender Equity Recent Progress & Challenges Indonesia has successfully developed the necessary legal framework for addressing gender inequality concerns and has experienced an improvement in narrowing the gender gap in some important areas such as endowment, opportunities, and voice and agency. Gender parity has been achieved in all levels of education. Maternal health has signi�cantly improved. There are no pronounced gender disparities in infant and under �ve mortality rates as well as other health outcomes. Women labor participation rates continue to increase with highly educated women enjoying better returns on their education than men. Political representation of women in national parliament and nearly all district and city legislatures has also increased. Indonesia has also rati�ed important international conventions and has produced a signi�cant amount of legislations on gender equality such as the anti-domestic violence act, gender equality in development, and the general election law as well as the national strategy for enhancing access to justice. A strong political commitment on gender equality has also outlined in the Medium Term National Plan for 2010-14 (RPJMN). Indonesia is one of a few countries that assigned a dedicated ministry for women’s empowerment and child protection. However, challenges remain especially in maternal mortality, political representation at the national and sub-national level, access to justice, and voice and agency at community level. Indonesia continues to face challenges in Maternal Mortality Rate (228 per 100,000 births in 2010), HIV/AIDS (Indonesia has the fastest growth of AIDS epidemic in Asia), as well as stunting and wasting. Gaps in access to economic opportunities remain large. For instance, female labor market participation remains at around 50% compared to 80% for men; the gender-wage gap is among the widest in EAP countries; female-led enterprises tend to be smaller, more precarious, less capital-intensive and less productive with limited access to �nance; women constitute nearly 80% of Indonesia’s cross-border migrant workers with often limited access to �nancial services and exposure to exploitation and other sorts of human rights violation. Other areas where Indonesia is lagging behind include access to legal justice, political representation and participation to key policy decision makings. These challenges juxtapose the emerging ones in climate change and disaster risk management as women are more vulnerable to these risks than men. FY2013-2015 Country Partnership Strategy for Indonesia 65 FIGURE 1. SUMMARY TABLE FOR GENDER EQUALITY IN INDONESIA THROUGH THE LENS OF WDR 2012 ASPECTS OF GENDER INDONESIA’S ACHIEVEMENTS INDONESIA’S REMAINING CHALLENGES EQUALITY • Indonesia has achieved gender parity in enrollment • Gender streaming in education: boys and girls tend to rates at all levels of education enroll in traditional gender roles related subject. • There are no pronounced gender disparities in infant • the maternal mortality rate at 228 per 100,000 births in and under-�ve mortality rates and in most health 2010, is amongst the highest in EAP Endowments outcomes. • The prevalence of stunting and wasting are quite • The HIV/AIDS case in Indonesia is low alarming for both boys and girls • Indonesia is considered to have the fastest growth on AIDS epidemic in Asia. • The average annual growth of women entering labor • Female labor force participation in Indonesia (52% in market has been substantially higher than men over the 2010) is low by EAP regional standards past seven years • The gender wage gap in Indonesia is larger than in • Women’s access to better jobs and higher wages other EAP countries—women only earn about 70% of what men earn, in part because of gender streaming in choice of �elds of tertiary education… • …but mostly because female workers tend to have less secure terms of employment and are more likely to be self-employed, doing unpaid family work or be working in the informal sector OPPORTUNITIES • Female-led enterprises tend to be smaller, more precarious, less capital-intensive and less productive • Women entrepreneurs account for a much lower share of loans extended to MSMEs than their numbers warrant • Women constitute nearly 80% of Indonesia’s 6 million- plus cross-border migrant workers and often lack �nancial and other protections and are vulnerable to exploitation • Law and legislation products to enhance women’s • Growing trend of local government decrees that voices and agencies such as on women’s political directly or indirectly discriminate against women participation (General Election Law No 10/2008), anti • Women’s political representation is low—only 18% of domestic violence (Act No 23/2004), gender equality in the 2009 DPR members were women—perhaps in development (Presidential Instruction No 3/2010) part because nearly 70% of Indonesian men and even a • Women representation in politics has increased from 11 majority (51%) of Indonesian women believe men make in 2004-2009 to 18 in 2009-2014 with similar increases better political leaders across provincial and sub district level.2 • Women are also under-represented in the policy sphere—in 2011, only 9% of the Echelon-1 level officials Access to Justice in GoI were women VOICE AND • The development of national strategy on Access to • Women’s access to the formal justice system is limited AGENCY Justice : in which women’s access to justice is one of the as is their role in traditional justice systems 8 key elements of the strategy – making legal justice as compulsory, free of charge, and affordable for women Access to Justice • Legal framework for access to justice and issuance • Women’s access to the formal justice system is limited of some progressive law that provide protection on as is their role in traditional justice systems women and children • While property laws are non-discriminatory, the • Supporting facilities for access to justice such as Prodeo Marriage Law only recognizes men as household heads - the cost-free court, support facilities for women survivor of violence • Indonesia is a signatory to most major international • Law enforcement need to be further strengthened conventions upholding principles of gender equality • The weak bargaining position of KPPA as a state and the RPJM-N identi�es gender mainstreaming within ministry towards other technical ministries is the major GoI as a priority target challenge for KPPA in delivering their main mandate of • Indonesia is one of only a few countries that has a advocacy. CROSS-CUTTING dedicated Ministry of Women’s Empowerment and • Female-headed households tend to be more vulnerable DIMENSIONS Child Protection (KPPA) to shocks and poverty rates amongst female-headed • Indonesia’s social assistance programs favor female- households tend to be more volatile. headed households • The existing sex disaggregated data are not widely • A broad range of sex-disaggregated data are collected accessible by BPS 2 Policy Brief on Gender 7: Women’s Voice In Politics and Decision Making, World Bank and others, 2011 66 FY2013-2015 Country Partnership Strategy for Indonesia World Bank Support of Gender Equality So Far The Bank Group has been working actively with the Government on programs to help remove barriers to gender equality. There have been a number of successes in integrating gender equality and women’s economic empowerment into the Bank program in areas such as equitable access to resources, voice of women in the development of their community and country, and access to new opportunities. Furthermore, the Bank’s support covers the key dimensions of endowment. The Bank has provided support through operations such as Early Childhood Education and Development, BERMUTU, PNPM-Generasi(CCT) program/PKH, and SPADA (in its training for teachers), andgender-informed reports on basic education, teacher quality. The Health Professional Education Quality Project (HPEQ) supports the strengthening of quality assurance policies governing the education of health professionals, including midwifery education through accreditation of education institutions and certi�cation of graduates. Some analytical works on safe motherhood have also been conducted such as the well-known report “…and then she dies�. Activities such as HIM (HIV in Indonesia Model) and child nutrition (under PNPM Generasi) are other health areas where the Bank is actively doing gender analysis and informing project design accordingly. The CCT program has been underway since 2007, through two pilot programs – one community-based funded under PNPM and one household-based funded by the Government in six provinces, West Java, East Java, Jakarta, Nusa Tenggara Timur, Gorontalo and North Sulawesi. They provide cash assistance to 720,000 poor households on the condition that children receive preventative healthcare and attend school, and mothers receive pre- and post-natal care. The project targeted EFA (Education For All) goals and maternal mortality, as well as poverty alleviation. Work on gender also involves seeking to expand access to �nance to women owned enterprises. A study on Access to Finance has supported the development of �nancial services for migrant workers, mostly women. IFC provided a US$75 million gender facility and advisory services to Danamon and Bank Internasional Indonesia (BII) to facilitate access by women to �nance their SMEs. The Bank’s engagement in economic opportunities focuses on labor market participation, access to finance, livelihoods and property rights, some of which specifically target the women’s economic empowerment and focus on female-headed household, as well as on female migrant workers. PNPM has strong women’s economic empowerment components and equipped with tools to well address women’s needs. The Bank provides supports to migrant workers, the majority which are women, through a training module on �nancial literacy that uses the research results from studies on migrant workers’ access to �nance. A joint titling initiative of MDTF/RALAS is another important Bank’s effort to support women’s economic opportunities. The Indonesia Jobs Report (2010), using sex-disaggregated data, identi�es gender inequity issues in male and female labor participation, labor trends, analysis of labor market segmentation, examination of the effects of labor regulations on workers, and skill attainment and returns to education, among others. A number of studies have been carried out to analyze issues faced by female migrant workers and identify policy solutions3. The FMW program also provided grants to strengthen the institutional capacity of relevant ministries, including the State Ministry of Women’s Empowerment (SMoWE) and Ministry of Foreign Affairs (MoFA), in addressing female migrant workers’ issues. The Bank has addressed strategic and sustainable women’s voice and agency at community level focusing on legal rights and access to justice, as well as participatory planning and public decision-making. The Bank’s PNPM supported program adopted gender equality and equity in its twelve basic principles. Gender equality and equity is also part of the �rst speci�c goal on community’s participation. The Bank has also put the foundation for women’s political empowerment through establishing women’s speci�c forum to ensure women’s voices are heard in program development and planning in both PNPM Rural (including PAWE-Papuan Women’s Empowerment Program of PNPM RESPEK) and PNPM Urban, and PAMSIMAS. The Japan Social Development Fund (JSDF) women leadership program and the Justice for the Poor’s women 3 Including the following studies: (i) Malaysia - Indonesia Remittance Corridor Study containing a descriptive overview of the Malaysia – Indonesia remittance corridor and a set of recommendations to the Government on how to maximize the developmental impact of remittances; (ii) a study to map out points of vulnerability experienced by female migrant workers (FMW) from the pre placement to post-placement stage, and to identify the causes of such vulnerability. FY2013-2015 Country Partnership Strategy for Indonesia 67 legal empowerment program are two major initiatives for enhancing women’s access to justice at the community level and with formal justice institutions. The Bank has also played an important role in ensuring gender to be one of the eight thematic areas of the National Strategy for Access to Justice, providing support on women’s legal empowerment, as well as research and diagnostic work on gender in thematic areas, such as the “Aceh Gender Impact of Titling� by the MDF team for Aceh and Nias and “Case study on Women Dispute Resolution through Adat Institutions in Aceh� by the Justice for the Poor team. The Bank has also mainstreamed gender issues in its Initiatives for Local Governance Reform Project (ILGR), which supports district (Kabupaten) governments to improve transparency, accountability and public participatory practices and to undertake reforms in �nancial management and procurement. The MDTF and JRF has adopted the community–based settlement planning (CSP) in which women and men work together to develop comprehensive village mapping, prepare a needs assessment report for discussions at the Rukun Warga (community group) level, and at the village level to prioritize proposed facilities for CSP funding. A participatory approach was also adopted in Water and Sanitation support. Efforts have also been made in addressing some of the key cross-cutting issues that are highly relevant and can be valuable for Bank’s initiative on endowment, opportunities and voice and agencies such as making sex-disaggregated data and gender analysis in analytical works more available, supporting the Ministry of Women’s Empowerment and Child Protection in developing the minimum standard for public services, and conducting gender informed public expenditure reviews. The Bank has actively supported Indonesia by identifying key gender issue in its analytical work and using sex-disaggregated data. The National Targeting System bene�ts from such analysis, particularly as regards pregnant mothers. The Social Service Data Collection Survey (PPLS11) has also been established with sex-disaggregated for better targeting. The PEACHprogram has incorporated gender analysis in its public expenditure review, identifying key gender issues (such as migrant workers) that the local government in different pilot areas needs to pay attention to. Through its DSF program, the Bank supported the Government in developing the national minimum standard for public services with among others, the Ministry of Women’s Empowerment and Child Protection. Moving Forward on Gender Equity, the World Bank Group Strategy The quite extensive Bank Group support for gender equality and development needs to be further shaped in a more systematic and comprehensive manner, and with visible connections across sectors. The Bank has been engaging extensively not only in the overall dimensions of gender equality (endowment, opportunities, and voice and agency) but also the cross cutting dimensions by making sex- disaggregated data and gender analysis more available. These supports, however, have been conducted sporadically rather than an in a systematic and integrated manner. This is partly due to the absence of a well- documented review detailing the various Bank activities and their interconnections and joint contributions, as well as to the lack of an explicit strategy to move towards more equitable development. Moving forward, the Bank Groupis developing a gender engagement strategy that further identifies ongoing and upcoming activities within the three dimensions of gender equality of endowments, voice and agencies, and opportunities to fortify Indonesia current achievement and further address existing challenges on gender equality. The sum of these efforts is signi�cant and will be built through a more strategic, program-wide approach to gender, for improving effectiveness, enhancing synergies with various stakeholders, and increasing the ability to affect gender-related reforms. The Government has signaled a renewed commitment and is seeking to accelerate improved gender equity; Inpres No.3/2010 on equitable development, highlights issues of justice for women and children, gender equality and women’s empowerment. The RPJMN also outlined the importance of increasing the role of women in development, particularly women leadership in public sector, business community and social organizations. 68 FY2013-2015 Country Partnership Strategy for Indonesia The Bank Group will continue mainstreaming gender into its operations, financing, and analytical programs at different levels and has dedicated resources in translating the Bank’s commitment into practice. A gender practice group at country level, which includes relevant TTLs, has been instituted with a gender coordinator assigned to lead the group and a gender advisor hired to backstop. In addition, many of the programs/projects have their own gender advisor/analyst/focal point. These will further shape, de�ne, and monitor the Bank’s engagement on gender equality in Indonesia. This work will be done in collaboration with the relevant line ministries and development partners such as the Australian Government, as well as civil society organizations. Moving further, considering the broad range of the issues, Bank’s limited resources and scope of work, as well as the Bank’s comparative advantage, the Bank will work selectively and strategically. The Bank will work on areas where (a) pressing needs are evident – MMR and stunting and wasting, (b) emerging opportunities that carry emerging risks – urbanization, migrant workers, DRM/Climate Change, ICT, Population Aging, HIV/AIDS --and (c) strategic interventions to accelerate gender equality in other areas – voice and agency at community level, gender streaming in education, and access to justice. Future assistances will also include the emerging trends as identified by WDR 2012 – EAP Companion Study, which not only identifies new opportunities but also new risks in the Region, including Indonesia – increased global economic integration, the rising use of information and communication technologies, migration, rapid urbanization, and population aging. Between 2000 and 2015, Indonesia, together with China and Cambodia are predicted to increase their urban populations by 17 percent, 13 percent, and 9 percent, respectively (UN, 2010). This will affect all aspects of life, employment structure, service availability, family and community networks supports. Emerging areas for further support include gender-sensitive social protection,more equal access to ICTs, stronger protection and law enforcement for women migrant workers, safe and enabling environments in urban areas for full female labor participation such as affordable day care services and inclusive �nance, as well as old age income security for an aging population. Careful monitoring and evaluation will be critical to meet the Group’s commitments to gender equality. Currently, monitoring and evaluation tools seem to be effectively tracking sex-disaggregated indicators at the output and, to a degree, outcome levels. Going forward, more effort will be required to ensure that the gender dimension is integrated in the outcome monitoring and impact evaluations. This could be achieved by strengthening partnerships to agree on gender goals and targets and to identify and select the gender-relevant indicators to measure results and impacts. Such information could be valuable in improving program interventions and increasetheir impact. The Bank Group will also work in partnership with other development stakeholders. The Bank will continue to work collaboratively with the relevant line ministries and other development partners and further strengthened the current partnership. The Bank will also work closely with the IFC, which is in the process of de�ning the gender aspects of its sustainable forestry and infrastructure work as well as agribusiness. A series of gender �nance modules and analytical work have been conducted by IFC. IFC is also seeking to collaborate further with the Bank and other development partners especially in expanding women’s participation in the value chain of important agri-commodities in Indonesia. Below are Indonesia’s gender-related goals, which the WBG would seek to support. The Bank would closely monitor the results and be accountable for the activities designed to support them (As higher level country goals they are notformally part of the CPS Results Matrix). FY2013-2015 Country Partnership Strategy for Indonesia 69 INDONESIA - GENDER COUNTRY-LEVEL RESULT FRAMEWORK Result Indicator Relevant Sector Part 1: National Level Targets 1.1. Progress toward gender-related Millennium EASPR, EASHD, SD Development Goals is achieved 1.1.1. Eliminate gender disparity in primary and EASHD secondary education in all level education no later than 2015 (MDG2A) 1.1.2. Increase share of women in wage employment EASPR, SD in non-agricultural sector (MDG 3.2) 1.1.3. Reduce by two-thirds, between 1990-2015, the EASHD, EASPR, SD under-�ve mortality rate (MDG4A) 1.1.4. Reduce by three-quarters, between 1990 and EASHD, EASPR 2015, the Maternal Mortality Rate Ratio (MDG5A) 1.1.5. Achieve, by 2015, universal access to EASHD reproductive health (MDG5B) 1.1.6. Reduce the spread HIV/AIDs (MDG6A) EASHD 1.1.7. Achieve, by 2012, universal access to treatment EASHD for HIV/AIDS for all those who need it (MDG6B) 1.2. Country policy and Institutional Assessment 1.2.1. CPIA rating: Promote equal access for men/ Gender Mainstreaming Team (CPIA) indicates progress on key gender issues women to human capital development 1.2.2. CPIA rating: Promote equal access for men/ Gender Mainstreaming Team women to productive and economic resources 1.2.3. CPIA rating: give men and women equal status Gender Mainstreaming Team and protection under the law Part 2: Operational Work 2.1. Projects are gender informed 2.1.1. 100 % of IBRD projects in country portfolio and Gender Mainstreaming Team percentage are gender informed 2.2. Projects’ results frameworks are gender 2.2.1. 80% of all of projects under implementation All sectors responsive have a sex-disaggregated indicator in results framework 2.3. Evaluation of projects provides information on 2.3.1. 80% of project in portfolio conduct an-end- All sectors the gender-related consequences of-project impact evaluation with sex- disaggregated data Part 3: Project Results across Four Dimensions 3.1. Gender equality in endowments and human 3.1.1. Number of certi�ed female teachers at the EASHD development is promoted respective project areas 3.1.2. Number of relevant policy papers and analytical works that are gender informed 3.2. Active measures taken to close gender gaps in 3.2.1. Number of female migrant workers target EASPR, EASHD, SD economic opportunity bene�ciaries with �nancial access in the respective project areas 3.2.2. Number of relevant policy papers and analytical works that are gender informed 3.3. Active measures taken to strengthen women’s 3.3.1. Percentage of women participated in relevant SD voice and influence decision meetings at community level in the respective project areas. 3.3.2. Number of community proposed projects that are gender informed in the respective project areas 3.4. Gender inequalities addressed in emerging risk 3.4.1. Number of women organization and EASPR, EASHD, SD areas organization that have concerns on gender and development issues consulted 3.4.2. Number of relevant policy papers and analytical work that are gender informed Part 3: Gender-related organization within country team 3.5. Gender focal point is appointed Country Management Team 3.6. TOR for gender focal point is available 3.6.1. Fully operational gender focal point Country Management Team 3.6.2. Implementation of the gender focal point TORs 3.7. System in place to review gender in project 3.7.1. Country-wide team and processes exist for Country Management Team preparation phase providing gender technical backstopping in the project preparation phase **) From MDGs Road Map, Indonesia, 2010 70 FY2013-2015 Country Partnership Strategy for Indonesia Annex 3: Governance and Anti-Corruption Introduction Over the past decade, the Indonesian government’s progress on public accountability is unmistakable. The World Bank’s partnership with the GoI on governance issues reflects our continuing commitment, but also change and variation over time. Governance and anti-corruption have featured in the programs of successive governments with early years of reformasi focusing on sweeping reforms and constitutional amendments. For example, between 1999 and 2004 press freedom was enhanced; authority was devolved to the regions; checks and balances between the executive, legislative and judicial branches were strengthened; the role of security forces (police and military) was rede�ned; direct elections for President and for regional heads were mandated; and an institutional framework to prevent, investigate and prosecute corruption was developed. Civil society played an important role in driving these changes with the Partnership for Governance Reform especially prominent. These years also saw the enactment of foundation �scal laws and the rearrangement of key economic ministries, all designed to improve budget and �nancial management systems. By 2004, Indonesia was increasing the focus on improving service delivery and consolidating accountability agencies. This effort built on the legislative foundations for public �nancial management, (including public procurement, business regulation, auditing, and monitoring and evaluation) and introduced limited (ministerial level) civil service reforms. The consolidation of accountability continued in the anti- corruption area, with the role of the Anti-Corruption Commission (KPK) especially prominent and high-level corruption investigations and convictions became increasingly common. However, reforms in the judiciary, the police and the attorney general’s office have been slow and collaboration a problem. Indonesia’s free press functions well, with corruption scandals regularly revealed and covered. The role of CSOs has increased and they have increasingly developed specialized expertise. For example, in the area of budget transparency and environment, CSOs played a critical role in Indonesia’s accession to candidate status in the Extractive Industry Transparency Initiative (EITI). The administration has continued its focus on reform of core government systems. In fact, there is an increased emphasis on bureaucracy reform at the whole government level, a previously identi�ed constraint to the effectiveness of civil service reforms at the ministerial level. Nevertheless, the process of improving accountability has not been smooth, as witnessed by the continued political and bureaucratic attacks of the authority of the KPK. The public popularity of the KPK and its ability to weather repeated conflicts with its power in tact suggests a strong, underlying foundation for better governance. Meanwhile, the police and the attorney general’s office continue to be plagued by corruption allegations. A growing concern is electoral corruption at both the national and regional level and the effect this corruption has on budget and policy decisions. The World Bank and other development partners have played an important role in supporting governance reforms in Indonesia. The Partnership for Governance Reform led the CSO alliance that supported the critical Government initiatives that transformed Indonesia in the aftermath of the Asian �nancial crisis. The World Bank provided analytical and technical support including through its flagship publication Combating Corruption in Indonesia. The World Bank GAC team has been led by a senior governance advisor in Jakarta with a mandate to address both systemic and Bank-speci�c governance problems (including such things as project speci�c anti-corruption action plans). FY2013-2015 Country Partnership Strategy for Indonesia 71 The World Bank’s governance focus has evolved since 2004. With sustained economic growth and a solid performance during the global economic crisis international credibility was renewed. Strong governance- related reform programs, especially at the Ministry of Finance, but also at the KPK and elsewhere, attracted attention. Against this background, World Bank support evolved in two important directions. First, institutional reform programs con�ned initially to the Ministry of Finance (MoF) on improved budget and treasury systems were expanded to tax administration and then on to other government agencies. These programs focused on comprehensive institutional change, revised business processes, improved human resource management, and supportive information and communication systems. In addition, the World Bank added support for key government programs around improved governance of major poverty, education and regional transfer programs to its earlier focus on policy and project lending. The Bank’s support to key accountability agencies (outside of KPK) was limited given restricted change in the judiciary. Support for improved performance through demand side efforts (by CSOs) has been continued with a focus around speci�c programs and engagements, an approach common with other development partner efforts. IFC launched corporate governance advisory program in Indonesia in 2012. The work program involves working with regulatory bodies to enhance corporate governance standards in the industry, to increase awareness about the bene�ts of higher governance standards, and to work directly with private sector businesses and sponsors to provide them with advise on enhancing their companies’ corporate governance practices. Governance and Anti-Corruption Work going forward The governance and anti-corruption approach in the Country Partnership Strategy is led by the Indonesia Governance and Anti-Corruption Team (IGAC). The IGAC team is made up of senior management augmented by selected country leadership team personnel. The country governance program (the IGAC agenda) is organized around four pillars: 1) increasing transparency and efficiency in public financial management, 2) increasing the efficiency of public service delivery, 3) strengthening checks and balances, and 4) promoting open, transparent competition. These cross cutting focuses will be used to improve coordination and provide strategic direction. In the public �nancial management pillar, the focus is on the civil service, and effective and transparent budget and tax systems (SPIRIT, SPAN, PINTAR). The engagements around improved public service deliver focus on improved systems (including procurement) and citizen feedback mechanisms (DAK, PNPM, BOS). In checks and balances we will partner with Indonesian institutions leading the �ght against corruption (e.g. the KPK) and engaging with CSO’s to reinforce accountability. To promote open and transparent competition the Bank is focused on Indonesia’s resource endowment, including the Extractive Industries Transparency Initiative (EITI), Reduced Emissions through Deforestation and Degradation (REDD+), and support for regulatory framework and �nancial sector reforms. The Bank’s governance approach will build on the Indonesian Government’s Open Government Partnership (OGP). The OGP should serve as a powerful governance tool to promote transparency, increase civic participation, improve service delivery, reduce corruption, and harness new technologies to make government more open, effective, and accountable. In September 2012 Indonesia became co-chair of this initiative. The Bank’s engagements on PFM and improved statistics are designed around data as a public good, while community driven development, sub-national development, health, education, water and sanitation, have substantial social accountability elements. The Bank will leverage the ongoing engagement and relationship with Government to create a space for citizen participation and cooperation, through the recently announced Global Partnership for Social Accountability (GPSA). The governance approach will also take advantage of an increased focus on tri-party and international accountability mechanisms. Leadership of the Open Governance Partnership, adoption of the Extractive Industries Transparency Initiative (EITI), a commitment to Reducing Emissions through Deforestation and Degradation (REDD+), as well as the UN convention against Corruption (UNCAC) represent signi�cant steps in increasing the transparency of the GOI’s commitments to good governance 72 FY2013-2015 Country Partnership Strategy for Indonesia and an increased focus on monitoring. The World Bank will support these efforts as part of our governance engagement since they provide much needed support for local institutions and communities. The IGAC team will strengthen the country program through better integration and additional tools at the engagement level. These tools include a Governance, Operational and Anti-Corruption Lens (GOAL) Analysis that is being piloted in the form of an annex to our Engagement Strategy Notes. GOAL focuses on aligning with government policy, taking into account of the stakeholders and institutional constraints and opportunities. With GOAL there is an assessment of governance and anti-corruption issues at the engagement level well before projects and AAA are taken on. Second, there will be more emphasis on selected political economy analysis. The IGAC team will also provide a forum for integrating and developing approaches to cross cutting issues, for example, ICT for accountability and Open Government. The IGAC agenda will be supported by a Governance and Anti-Corruption secretariat who will provide technical support across the governance pillars, and take the lead on governance work on enhanced �duciary oversight in Bank projects. Partnering with Indonesian institutions leading the fight against corruption The World Bank support for Indonesian anti-corruption institutions is wide ranging with special attention to the engagement with the Anti-Corruption Agency (the KPK). The World Bank program with KPK includes capacity building, (professional and leadership training as well as knowledge sharing), and support on communications and reporting. Under the Bank’s Governance Partnership Facility, work is getting underway to support KPK audits of public service institutions including developing mechanisms to handle public feedback. While the KPK is the leading institution combating corruption in Indonesia, the majority of corruption cases are investigated and prosecuted by the attorney general’s office (AGO). In recognition of the AGO’s crucial role, the World Bank is supporting the AGO R&D bureau reform its processes and procedures based on evidence from �eld research and public consultation. For example, consultations with communities are leading to a change in the remedies for misappropriation of funds in community-driven development projects. The Bank is also working with select ministries and agencies on enhancing transparency and accountability. These efforts encompass support for the application of e-government tools in DG Highways in order to improve project transparency and reporting, and collaboration with DAK on the creation of a results-based �nancing mechanism for local governments where infrastructure �nancing is released based on the achievement of transparency standards. Collaborating with CSOs for Improved Accountability The World Bank GAC team is also working with CSOs in Indonesia, to improve institutional accountability. To do this involves assessing and aiding CSOs with technical input and strategic advice with our partnership not limited to formal agreements but also including idea sharing, discussions and consultations. In the area of social accountability, the Bank is facilitating CSOs working on open government to improve the transparency and reporting in Government Institutions. The GAC Team working with Anti- Corruption NGOs, practitioners, academia and the public is working to develop concrete recommendations on how budget reporting should be done. This ongoing effort will augmented by the World Bank’s Global Partnership for Social Accountability. FY2013-2015 Country Partnership Strategy for Indonesia 73 Strengthening Indonesia’s anti-corruption systems in WBG-supported projects The integration of governance principles World Bank initiatives is done by mainstreaming anti- corruption measures and initiatives. A Governance and Anti-Corruption (GAC) team, led by the Indonesia Country Office Senior Governance and Anti-Corruption Officer (a member of the Country Leadership Team and head of the IGAC secretariat), coordinates anti-corruption relationships and policy dialogue, oversees governance-related operations, advises project team leaders on governance and anti-corruption strategies, and is responsible for the development of the research agenda and governance monitoring framework. A �eld-based operations support team supervises �duciary practices to mitigate the risks of corruption and integrates anti-corruption mechanisms into project design, supports and reviews Anti-Corruption Action Plans (ACAPs), monitors the implementation of ACAPs, shares recommendation and liaises with GoI partners. The GAC team also works with GoI agencies on ACAPs and to support government investigations of corruption allegations in WBG-�nanced programs. Regular meetings are held with the MoF to review progress, develop follow-up actions, and discuss remedies and sanctions, as well as possible measures to prevent recurrence. When the WBG proposes to exercise legal remedies or apply administrative sanctions, it discusses these with MoF the basis for the proposed action and with adequate advance notice. Since 2003, all Bank-supported projects have included governance-related risks to achieving project objectives and how those risks will be mitigated and managed. Nevertheless ownership and implementation problems with ACAPs persist and addressing this problem will require collaboration with key organizations, including the KPK, the AGO, and sectoral counterparts such as Ministry of Public Works and the Ministry of National Education. It is anticipated that this collaboration will improve our ability to address corruption at the institutional level (that is above the project level), leading to change in the role of agencies around identifying and mitigating risks. The Bank support for this initiative will alter the nature of the ACAPs — from an instrument of compliance with Bank-�nanced projects to a government-owned mechanism of accountability to improve public sector performance. 74 FY2013-2015 Country Partnership Strategy for Indonesia Annex 4: Portfolio Performance Among the East Asia Pacific countries, Indonesia has the second largest portfolio after China, in terms of net commitment amount, which at end August 2012 amounted to US$ 7.7 billion including a US$ 2 billion of a DPL DDO. The portfolio consists of 31 lending projects, as well as two GEF operations and nine other large trust funds. Portfolio performance is comparable to the other middle-income countries (MICs). In EAP, the Indonesia’s commitment at risk (8%) is same as China (8%) and signi�cantly lower than of the Philippines (19%). The number of at risk project (18%) is comparable with China (13%) and the Philippines (19%). The percentage of project at risk increased from 11.8% (FY 2010), to 12% (FY 2011), to 19.4% (FY 2012), and 18.2% in FY 2013. The increase could come from a combination of more realistic and stringent project assessment rating and some innovative and high risk project that was approved during this period. The amount of commitment at risks in Indonesia portfolio, in terms of percentage to the lending & GEF projects has been increased too from 3% in FY 2010, to 3.8% in FY 2011, 8.6% in FY2012 and currently at 8% in FY 2013. This level of commitment at risks is among the lowest compare to other selected IBRD countries (as shown in the table below). No Country # of project % Commitment at risk ($) % of at risk project (#) 1 Indonesia 33 8% 18% 2 China 89 8% 13% 3 Philippines 21 20% 19% 4 India 79 18% 13% 5 Pakistan 24 12% 17% 6 Brazil 57 6% 12% 7 Mexico 22 1% 9% 8 Turkey 11 16% 27% 9 Egypt 21 10% 24% Source: Business Warehouse IFC Portfolio As of September 30, 2012, IFC’s committed portfolio in Indonesia was US$911.71 million for IFC’s own account and US$332.25 million held on account of participant banks. NPLs were at 0% of total portfolio, while the equity committed portfolio accounted to US$215.07 million. Detailed information about the portfolio is given in “Annex B8: IFC�. FY2013-2015 Country Partnership Strategy for Indonesia 75 Financial Management, Procurement and Country Systems The Bank continues to work closely with the Indonesian government in enhancing project implementation in the area of financial management and procurement, as well as on country system as envisaged in the CPS. • For �nancial management the progress to date is improvement of internal controls and internal and external audit systems, and more timely and reliable �nancial reporting is evidenced by an important reduction in quali�ed audits.The implementation of COSO control framework needs to be accelerated and the internal audit function strengthened at all levels of Government. The capacity building of the supreme audit institution (BPKP) needs to continue particularly in the area of follow up and impact on its audit �ndings and linkages with the legislature. The proposed Financial Sector and Investment Climate Reform and Modernization DPL (FIRM) would promote reforms would include strengthened �nancial reporting and auditing standards and practices in alignment with global benchmarks. • In terms of improving public procurement system the progress to date is the establishment of a new procurement agency, issuance of a revised presidential decree and national standard bidding document, and requirement to establish procurement service unit in all implementing agency.The Bank, the National Public Procurement Agency and other key stakeholders will engage on a joint work program to support strategic priorities such as procurement performance measurement, modern risk management, and professionalization of the procurement function. This cooperation will include knowledge transfers from other countries with successful, relevant experiences. The main area of focus will be on increasing procurement efficiency by, for example, more strategic use of e-procurement, data driven procurement policy making and management, and enhancing the use of framework contracts to achieve savings and streamline transactions. In addition, the Bank will look at ways to shift more of its procurement resources to strengthening institutions by reducing transaction work, better integrating work at the project and country level, and tailoring capacity building strategies to speci�c circumstances such as implementing agencies’ performance, objectives, and level of decentralization. • The BOS KITA and Local Government DAK projects use country systems in terms of internal controls, �nancial management and procurement. Under BOS KITA project, the objective is to strengthen school-based management and community participation, improving existing �duciary arrangement for greater transparency and accountability. The features of Local Government DAK project are results focused, reimburse eligible outputs, strengthen local government internal control, and improve current Government �duciary and monitoring system. • The Bank and the Government undertook a Joint Country Portfolio Review for year 2012 (CPPR 2012). The Government took lead of the review process with analytical support from the Bank. Development Impact Indonesia has a legacy of poor development impact, but performance has been on the upswing since 2005. Of the 32 operations rated by IEG during the FY09-12 period, 12 have been rated as MU or U (38 percent). Most of these poorly performing operations were approved during the transition period following the Asia Crisis leading up the �rst President SBY administration in 2005. As well, these MU or U operations were largely in sectors, health and agriculture, where few reforms were undertaken by the Government and implementation was difficult and drawn out. Of the 10 operations approved prior to the SBY administration, 8 were rated as MU or U (80 percent). Improved development impact since that time can be attributed to the increasing alignment of the Bank’s program with the Government’s agenda and reform efforts, as well as improved implementation capabilities. Of the 22 operations approved since 2005 and rated by IEG in FY09-12, only 4 were rated MU or U (18 percent). 76 FY2013-2015 Country Partnership Strategy for Indonesia Annex 5: Trust Funds The Country Team has well defined procedures for taking on new trust funds. All proposals go to the Indonesia Country Leadership Team (CLT) for endorsement prior to establishment. The CLT screening focuses on priorities, approach and staffing implications. The Indonesia trust fund portfolio will remain a strategic component of the World Bank’s program. TFs are essential to support clients in their own implementation of programs and projects, to undertake analytic work and support sector dialogue, and to help build a pipeline of future investment lending. It is expected, however, that the size and composition of the trust funds will remain dynamic. For example, today’s portfolio will shrink by 30% with the closing of the Multi Donor Trust Fund for Aceh &Nias (MDF) and the Java Reconstruction Fund (JRF) by the end of FY13. The lessons learnt from the MDF and JRF – both from its implementation and its closing -- will be invaluable for Indonesia (and other countries) and the TF is supporting a number of learning activities for both domestic and international audiences as part of its exit strategy over the course of FY13. Whether a similar level of assistance will be necessary for a disaster/emergency in the future is, of course, unpredictable. In the current trust fund portfolio, a new trust fund is in place under GoI leadership that could support better readiness to respond to disasters in the future. While it is difficult for donors to commit funds to a future disaster, putting in place the governance structure could prove useful to ensure a rapid response to emergencies. This is not to say the “trust fund model� is static. As Indonesia evolves so does the way that trust funds are used and governed. GoI is increasingly interested in directly administering trust funds, but continues to look to the Bank for technical expertise both in terms of �duciary requirements and implementation. Donors too are looking for evolving governance models but without losing the Bank’s �duciary oversight. Current discussions with GoI, donors and the Bank on REDD+, MCC (on MDG), and disaster preparedness demonstrate that innovative structures and new roles for the Bank are possible. If REDD+, where the Bank acts not as trustee, but as advisor, is successful, it could set the direction of many other Bank interventions in Indonesia and elsewhere. Working to ful�ll the Government’s longer-term strategy for PNPM/PSF sustainability means that the structure and staffing of PSF, one of Indonesia’s largest trust-funded programs, will certainly evolve over the next several years. The PSF team, and the Country Office more widely, is engaging with a number of regional and Bank Corporate units to seek advice and guidance on how best to take on these challenges which will ultimately lead to the Bank’s exit from this program. Other multi donor engagements such as on trade and investment climate, public financial management, and PNPM support will continue until at least 2015 and are country priorities reflected in the CPS. TF funding in these areas is multi-year and quite secure. As Government changes some of its borrowing priorities (in particular for education where it will no longer seek IBRD �nancing), the Bank’s engagement in the education sector will be supported more heavily by trust fund sources of �nancing. If P4R lending is successfully introduced to Indonesia, analytic and implementation support by Government will likely need to be assisted through trust fund �nancing. As in many other countries, analytic work in other priority borrowing sectors for Government, including infrastructure, can likewise be expected to have some trust fund �nancing. FY2013-2015 Country Partnership Strategy for Indonesia 77 Management of Trust Funds Portfolio monitoring of TFs is done on a regular basis including through The Indonesia Dashboard and includes specific issues e.g. grants with no disbursement, overdue GRMs, overdue ICMs, grants with closing date in the next 6 months. All staff areencouraged to enroll in online TF accreditation as part of their learning plans. In FY 12, 100% of LORs were signed on time and without quali�cations. During the preparation of trust funds or grants, it is ensured that the cost of administering the TFs will be fully recovered. For large grant programs in particular the PNPM Support Facility, the PSF team has established an additional Portfolio Management Dashboard that integrates data to help the Sector Manager and TTLs assess the portfolio on a real time basis. Accountability. Supervision is conducted on a regular basis to ensure that trust funds are used for the agreed purposes. Financial Management Specialists (FMS) are an integral part of all task teams, but also provide clearance for a reallocation or extension of a grant, speci�cally with regard to the availability of an audit report. Time required for proper FM review could be better planned by some task teams. The inability to charge preparation costs to the TFs can be another constraint to FM input. In the case of NGO recipients, the use of NGO selection worksheet and IAF is useful in providing a preliminary assessment of the recipients and to anticipate potential issues during the assessment. Risk-based �nancial management reviews are conducted twice a year for big TFs and once a year for small TFs. Additional reviews are conducted if required. The review includes accounting, reporting, internal control framework and limited transaction sampling. These reviews take into account the projects’ management report, previous reviews and audit reports. They are conducted by �nancial management specialists (FMS) and Bank consultants under FMS supervision. There are no overdue audit reports as of June 2012. The Bank’s procurement Unit normally delivers procurement training to Implementing Agencies for all projects so that they can better carry out procurement processes in compliance with the Bank’s guidelines and procedures as indicated in the GA. Nevertheless, procurement remains an area that is often very difficult for government counterparts in both trust funded and IBRD �nanced projects. Trust Fund Portfolio As of the end of FY12, Indonesia managed 25 country-speci�c TFs and 38 global/ corporate TFs, totaling of USD 1.681 billion. These trust funds �nance 215 active grants totaling USD 1,155 billion. The Multi Donor Trust Fund for Aceh and Nias projects accounted for 39% of the total (USD 654 million out of total of USD 1.681 billion, of which USD 480 million is active). These TFs will complete activities and close on December, 31 2012. Contributions have come from 17 Donors to Indonesia Country Speci�c Trust Funds for a total of USD 1.448 billion. New contributions were received in FY 12 for a total of USD 123 million. In terms of value, Recipient executed TFs are 83 percent of the portfolio. Cumulative disbursement reached 73% compared to 68% at the end of FY 11. 78 FY2013-2015 Country Partnership Strategy for Indonesia SUMMARY INDONESIA TRUST FUND PORTFOLIO Total Cummulative Total FY Total Grant Amount Total Number of Grant Disbursement Disbursement Number of (million USD) SUMMARY Trust Fund Contributions (million USD) (million USD) (million USD) REFT BETF Total REFT BETF Total REFT BETF Total REFT BETF Total Country Speci�c 757 165 922 55 70 125 662 127 789 170 38 208 25 1,488 Trust Funds Regional/Corporate 202 31 233 36 54 90 32 15 47 10 7 18 38 233 Trust Funds Total Indonesia TF 959 196 1,155 91 124 215 693 142 836 181 45 226 63 1,681 portfolio INDONESIA COUNTRY SPECIFIC TRUST FUNDS – END OF FY 12 Trust Funds Total Contribution Amount (USD) Country Specific TF 1,447,553,819 Single Donor 226,591,191 KDP - Sulawesi (Canada) 15,420,512 KDP - Respek Papua (Australia) 2,981,600 Dutch Basic Education (Dutch) 31,132,800 BERMUTU (Dutch) 52,000,000 Early Childhood Education (Dutch) 25,300,000 Indonesia Infra. (Australia) 9,522,217 Geothermal Power Support Program (Dutch) 2,708,711 Geothermal (New Zealand) 7,483,550 Institution Development and Capacity Building (Dutch) 25,358,325 Poverty Reduction (Australia) 7,483,550 WASAP (Dutch) 33,921,796 PAMSIMAS (Australia) 53,405,679 Multiple Donor 1,180,962,628 PNPM Support Facility 265,041,803 Consolidating Peaceful Develop. in Aceh 6,770,750 Basic Education Capacity 61,935,047 MDTF Aceh Nias 654,661,379 Java Reconstruction Fund 94,062,124 Public Financial Management 25,993,316 Macroeconomic and Fiscal Policy Analysis 5,243,525 Trade & Investment Facility 11,656,084 Disaster Management Fund (DMF) 2,048,850 DSF II 44,384,290 PEACH 9,165,460 FY2013-2015 Country Partnership Strategy for Indonesia 79 INDONESIA COUNTRY SPECIFIC TRUST FUNDS – END OF FY 12 Grant Amount (million USD) Pro Growth 268 Public Financial Management & Expenditure Management 21 National Institution - Governance 5 PHRD local governance reform co-�nancing (USDRP) 5 Decentralization (PEACH & PREM Aceh) Dutch + CIDA 8 Infrastructure grants (AusAid, PHRD, GEF, Dutch Geothermal) 160 MDF Economic Development Financing Facility 50 MDF Livelihood 8 Trade 0 Investment Climate 10 Pro Job 145 Education - Bank executed 45 Education - Government executed 23 Education - Co�nancing ECED 25 Education - Co�nancing BERMUTU 52 Pro Poor 281 PNPM Support Facility 186 Food Crises 1 Other KDP and community development 7 Conflict 8 Justice for the Poor 2 Gender, Female-headed households & Female migrant workers 7 National Institution - Poverty 6 PAMSIMAS and WSLIC2 co�nancing 27 WSP: WASAP (Recipient Executed) 3 Other - WSP 30 Others - Water 5 Pro Green 295 MDF Aceh Forect (LIF) 10 MDF Aceh Forect (FFI) 8 Environmental Sustainability - excluding green KDP 11 Climate change/Global environment issue (GEF. CDM. ODS) 33 Disaster Risk Reduction and Recovery 2 GEF COREMAP 8 MDF Infrastructure Reconstruction Financing Facility (IRFF) 137 Java Reconstruction Funds (Jogya housing) 86 Marine Electronic highway 1 Others 166 MDF Admin 24 Fiscal Agency - MDF Aceh and Nias 141 Fiscal Agency - Decentralization Support Facility 2 80 FY2013-2015 Country Partnership Strategy for Indonesia Annex A1: Key Economic and Program Indicators KEY ECONOMIC AND PROGRAM INDICATOR - CHANGE FROM LAST CAS Forecast in Last CAS Actual Current CAS Forecast Economy (CY) 2008a 2009b 2010b 2011b 2010c 2011c 2012c 2013b 2014b 2015b Growth rates (%) GDP 6.0 6.4 6.7 6.7 6.2 6.5 6.1 6.3 6.6 6.6 Exports 9.5 8.4 8.6 9.1 15.3 13.6 2.8 5.7 11 10.2 Imports 10.0 9.9 7.9 8.3 17.3 13.3 7.1 4.7 11.8 11.7 Inflation (%) 9.8 7.0 6.0 5.5 5.1 5.4 4.4 5.1 5.0 4.8 National accounts (% GDP) Current account 0.0 0.9 0. -0.2 0.7 0. -.3 -1.6 -1.7 -0.9 balance Gross investment 27.7 27.0 27.0 27.0 32.1 32.0 33.3 34.5 35.4 36.6 Public finance (% GDP) Fiscal balance -0.1 -0.9 -0.5 -0.1 -0.7 -1.1 -2.4 -1.7 -1.4 -0.5 Foreign �nancing 0.5 -0.3 -0.3 -0.3 0.4 0.2 0.7 0.6 0.7 0.9 International reserves 433.0 44.2 45.6 49.7 96.2 110.1 110.2 122.5 143.1 159.9 (as months of imports) 4.0 4.2 4.0 4.0 7.2 6.4 4.3 4.5 4.7 4.7 Program (Bank’s FY) FY2008a FY2009b FY2010b FY2011b FY2010c FY2011c FY2012c FY2013b FY2014b FY2015b Lending ($ million) 8,126 8,500 8,700 9,200 9,772 11,314 12,159 12,660 13,231 13,851 Gross disbursements 1,240 1,300 1,350 1,400 2,240 2,186 1,543 1,000 1,000 1,000 ($ million) a. Estimated year b. Projected year c. Actual Outcome FY2013-2015 Country Partnership Strategy for Indonesia 81 Annex A2: Key Economic and Program Indicators East Asia & Lower middle Key Development Indicators Indonesia Pacific Income (2011) Population, mid-year (millions) 242.3 1,9962 2,519 Surface area (thousand sq. km) 1,905 16,302 23,579 Population growth (%) 1.0 0.7 1.5 Urban population (% of total population) 54 46 39 GNI (Atlas method, US$ billions) 649.6 7,249 4,078 GNI per capita (Atlas method, US$) 2,680 3,696 1,619 GNI per capita (PPP, international $) 4,200 6,657 3,632 GDP growth (%) 6.5 9.7 6.9 GDP per capita growth (%) 5.4 8.9 5.3 (most recent estimate, 2005-2011) Poverty headcount ratio at $ 1.25 a day (PPP, %) 18 14 - Poverty headcount ration at $ 2.00 a day (PPP, %) 46 33 - Live expectancy at birth (years) 68 72 65 Infant mortality (per 1,000 live births) 27 20 50 Child malnutrition (% of children under 5) 18 6 25 Adult literacy, male (% of ages 15 and older) 95 96 80 Adult literacy, female (% of ages 15 and older) 89 91 62 Gross primary enrollment, male (% of age group) 119 111 110 Gross primary enrollment, female (% of age group) 115 112 104 Access to an improved water source (% of population) 80 90 87 Access to improved sanitation facilities (% of population) 52 66 47 Age Distribution, 2010 Under 5 mortality rate (per 1,000) 90 Male Female 80 75-79 70 60 60-64 50 40 45-49 30 30-34 20 10 0-4 0 10 5 0 5 1990 1995 2000 2010 percent of total population Indonesia East Asia & Paci�c 82 FY2013-2015 Country Partnership Strategy for Indonesia 1980 1990 2000 2011 Net Aid Flows (US$ millions) Net ODA and official aid 941 1,716 1,653 1,393 Top 3 donors (in 2010) Australia 48 77 72 356 France 44 122 22 262 United States 117 31 174 180 Aid (% of GNI) 1.3 1.6 1.1 0.2 Aid per capita (US$) 6 9 8 6 Long-Term Economic Trends Consumer prices (annual % change) 9.5 7.7 3.7 5.4 GDP implicit deflator (annual % change) 10.4 7.7 20.4 8.4 Exchange rate (annual average, local per US$) 637 1,843 8,422 10,121 Terms of trade index (2000 = 100) - 107 100 137 Population, mid-year (millions) 151 184 213 242 GDP (US$ billions) 78 114 165 734 (% of GDP) Agriculture 24.0 19.4 15.6 14.7 Industry 41.7 39.1 45.9 47.2 Manufacturing 13.0 20.7 27.7 24.3 Services 34.3 41.5 38.5 38.1 Household �nal consumption expenditure 51.4 58.9 60.7 56.8 General government �nal consumption expenditure 10.5 8.8 6.5 9.0 Gross capital formation 24.1 30.7 22.2 32.8 Exports of goods and services 34.2 25.3 41.0 26.3 Imports of goods and services 20.2 23.7 30.5 24.9 Gross savings 28.7 28.1 26.1 31.3 1980 - 1990 - 2000 - Growth of GDP and GDP per capita (%) 1990 2000 2010 15 (average annual growth %) Population, mid-year (millions) 151 184 213 10 GDP (US$ billions) 78 114 165 5 (% of GDP) 0 Agriculture 24.0 19.4 15.6 Industry 41.7 39.1 45.9 -5 Manufacturing 13.0 20.7 27.7 -10 Services 34.3 41.5 38.5 -15 Household �nal consumption 51.4 58.9 60.7 expenditure -20 1995 2005 General government �nal 10.5 8.8 6.5 consumption expenditure GDP GDP per capita Gross capital formation 24.1 30.7 22.2 Exports of goods and services 34.2 25.3 41.0 Imports of goods and services 20.2 23.7 30.5 Gross savings 28.7 28.1 26.1 FY2013-2015 Country Partnership Strategy for Indonesia 83 2000 2011 Balance of Payments and Trade (US$ millions) Total merchandise exports (fob) 65,408 200,788 Total merchandise imports (cif ) 44,404 182,604 Net trade in goods and services 15,243 24,154 Current account balance 7,998 1,712 as a % of GDP 4.8 0.2 Workers’ remittances and compesation of employees (receipt) 1,190 6,916 Reserves, including gold 29,268 106,530 Central Government Finance (% of GDP) Current revenue (including grants) 19.7 16.3 Tax revenue 11.1 11.8 Current expenditure 15.6 10.3 Overall surplus/de�cit -1.8 -1.1 Highest marginal tax rate (%) Individual 35 30 Corporate 30 28 External Debt and Resource Flows (US$ millions) Total debt outstanding and disbursed 143,344 199,240 Total debt service 16,624 30,681 Debt relief (HIPC, MDRI) - - Total debt (% of GDP) 86.9 27.2 Total debt service (% of exports) 26.2 13.0 Foreign direct investment (net inflows) -4,550 19,242 Portfolio equity (net inflows) -1,021 -326 Private Sector Development Time required to start a business (days) - 45 Cost to start a business (% of GNI per capita) - 21.5 Time required to register property (days) - 22 Ranked as a major constraint to business (% of managers surveyed who agreed) Economic and regulatory policy uncertainty 48.2 - Corruption 41.5 - Stock market capitalization (% of GDP) 16.3 58.4 Bank capital to asset ratio (%) 6.0 11.4 Technology and Infrastructure Paved road (% of total) 57.1 56.9 Fixed line and mobile phone subscribers (per 100 people) 5 10.8 High technology exports (% of manufactured exports) 16.4 11.4 Environment Agricultural land (% of land area) 25 30 Forest area (% of land area) 54.9 52.1 Terrestrial protected areas (% of land area) 13.6 14.1 Fresh water resources per capita (cu. meters) 9,218 8,504 Fresh water withdrawal (billion cubic meters) - - CO2 emissions per capita (mt) 1.2 1.7 GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) 3.6 4.3 Energy use per capita (kg of oil equivalent) 730 851 84 FY2013-2015 Country Partnership Strategy for Indonesia World Bank Group Portfolio 2000 2011 (US$ millions) IBRD Total debt outstanding and disbursed 11,715 9,054 Disbursements 1,051 2,078 Principal repayments 761 900 Interest payments 950 291 IDA Total debt outstanding and disbursed 714 2,313 Disbursements 59 142 Total debt service 31 49 IFC (fiscal year) Total disbursed and outstanding portfolio 880 648 of which IFC own account 480 507 Disbursements for IFC own account 20 46 Portfolio sales, prepayments and repayments for IFC own account 43 165 MIGA Gross exposure 56 207 New guarantee 0 207 Governance Indicators, 2000 and 2010 Composition of total external debt, 2011 (in US$ millions) Voice and accountability IBRD IDA Political stability and 9,717 2,277 absence of violence Other Short-term Multilateral Regulatory Quality 38,173 10,848 Rule of law Control of corruption Bilateral 43,639 0 25 50 75 100 2010 2000 Country's percentile rank (0-100) higher values imply better ratings Private Source: Worldwide Governance Indicators (www.govindicators.org) 94,586 FY2013-2015 Country Partnership Strategy for Indonesia 85 Millenium Development Goals With selected targets to achieve between 1990 and 2015 Indonesia (estimate closest to date shown, +/- 2 years) 1990 1995 2000 2010 Goal 1: Halve the rates for extreme poverty and malnutrition Poverty headcount ratio at $1.25 a day (PPP, % of population) 54.3 43.4 47.7 18.1 Poverty headcount ratio at national poverty line (% of population) - 17.6 23.4 13.3 Share of income or consumption to the poorest quintile (%) 9.4 9.0 9.6 8.3 Prevalence of malnutrition (% of children under 5) 31.0 27.4 24.8 17.5 Goal 2: Ensure that children are able to complete primary schooling Primary school enrollment (net, %) 98 95 90 95 Primary completion rate (% of relevant age group) 96 99 93 105 Secondary school enrollment (gross, %) 48 49 53 77 Youth literacy rate (% of people ages 15-24) 96 - - 99 Goal 3: Eliminate gender disparity in education and empower women Ratio of girls to booys in primary and secondary education (%) 93 93 96 98 Women employed in the nonagricultural sector (%of non agricultural employment) 29 29 32 32 Proportion of seats held by women in national parliament 12 13 8 18 Goal 4: Reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 85 67 54 35 Infant mortality rate (per 1,000 live births) 56 46 38 27 Measles immunization (proportion of one-year olds immunized, %) 58 63 74 89 Goal 5: Reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) 620 440 350 240 Births attended by skilled health staff (% of total) 32 37 64 75 Contraceptive prevalence (% of women ages 15-49) 50 54 55 57 Goal 6: Halt and begin to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (% of population ages 15-49) 0.1 0.1 0.1 0.2 Incidence of tuberculosis (per 100,000 people) 189 189 189 189 Tuber culosis case detection rate (%, all forms) 21 9 21 66 Goal 7: Halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) 71 74 77 80 Access to improved sanitation facilities (% of population) 33 38 44 52 Forest area (% of land area) 65.4 - 54.9 52.1 Terresterial protected areas (% of land area) 10.0 10.9 13.6 14.1 CO2 emissions (metric tons per capita) 0.8 1.1 1.2 1.7 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 3.7 4.0 3.6 4.3 Goal 8: Develop a global partnership for development Telephone mainlines (per 100 people) 0.6 1.7 3.1 15.8 Mobile phone subscribers (per 100 people) 0.0 0.1 1.7 91.7 Internet users (per 100 people) 0.0 0.0 0.9 9.9 Computer users (per 100 people) - - - 1.5 86 FY2013-2015 Country Partnership Strategy for Indonesia Education Indicators (%) 125 100 75 50 25 0 2000 2005 2010 Primary net enrollment ratio Ratio of girls to boys in primary & secondary education Measles immunization (% of 1-years-old) 100 75 50 25 0 1990 1995 2000 2010 Indonesia East Asia & Paci�c ICT indicators (per 100 people) 100 80 60 40 20 0 2000 2005 2010 Fixed + mobile subscribers Internet users FY2013-2015 Country Partnership Strategy for Indonesia 87 CAS Annex B2: Selected Indicators* of Bank Portfolio Performance and Management Indicator 2010 2011 2012 2013 Portfolio Assessment Number of Projects Under Implementationa 34 33 31 33 Average Implementation Period (years)b 4.1 3.7 3.8 3.8 Percent of Problem Projects by Numbera, c 8.8 12.1 16.1 15.2 Percent of Problem Projects by Amounta, c 2.2 3.7 7.0 6..9 Percent of Projects at Risk by Numbera, d 11.8 12.1 19.4 18.2 Percent of Projects at Risk by Amounta, d 3.0 3.8 8.6 8.5 Disbursement Ratio (%)e 54.5 43.2 38.5 6.8 Portfolio Assessment CPPR during the year No No Yes Supervision Resources (total US$) 3,444 4,901 5,620 5,800 Average Supervision (US$/project) 52 50 52 52 Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 291 16 Proj Eval by OED by Amount (US$ millions) 27,285.6 1,931.7 % of OED Projects Rated U or HU by Number 24.9 37.5 % of OED Projects Rated U or HU by Amount 20.0 13.3 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank’s country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress(IP) d. As de�ned under the Portfolio Improvement Program e. Ratio of disbursements during the year to the undisbursed balance of the Bank’s portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursements Ratio, which includes all active projects as well as projects which exited during the �scal year. 88 FY2013-2015 Country Partnership Strategy for Indonesia CAS Annex B3: Indonesia Indicative IBRD Lending Program, FY13-15 Strategic Implementation Fiscal Project ID US$(M) Rewards Risks Year (H/M/L) (H/M/L) FY 13 2048 Planned Deliverables Pro Growth 857 Power Transmission and Distribution II 327 M M Institutional, Tax Administration, Social and Investment (INSTANSI) DPL 300 M L Connectivity DPL 100 H L Financial Sector and Investment Climate Reform and Modernization (FIRM) DPL 100 M L Infrastructure Guarantee Fund 30 H H Pro Jobs 175 Sustainable Management of Agricultural Research and Technology 80 M H Dissemination project (SMARTD) Research and Innovation in Science & Technology Project (RISET) 95 M M Pro Poor 1016 National Community Empowerment Program in Urban Areas for 2012-2014 266 H M Project (PNPM - Urban IV) National Community Empowerment Program in Rural Areas for 2012-2014 650 H M Project (PNPM - Rural V) Rural Water and Sanitation Program AF (PAMSIMAS II) 100 M M FY 14 750 Planned Deliverables Pro Growth 600 Institutional, Tax Administration, Social and Investment (INSTANSI) DPL II 300 M L Connectivity DPL II 100 M L Road Assets Preservation Program (RAPP) 200 H M Pro Green 150 Solid Waste Management Improvement Support Project for Regional and 100 M H Metropolitan Cities Coral Reef Rehabilitation and Management Project III (COREMAP III) 50 M M Potential Deliverables *) Financial Sector and Investment Climate Reform and Modernization (FIRM) DPL II 100 M L Geothermal II 300 M M Catastrophe Deferred Drawdown Option (CAT DDO) 500 M L Renewable Energy for Electri�cation (1,000 islands) 300 M M FY2013-2015 Country Partnership Strategy for Indonesia 89 Indicative IBRD Lending Program, FY13-15 (continued) Strategic Implementation Fiscal Project ID US$(M) Rewards Risks Year (H/M/L) (H/M/L) FY 15 650 Planned Deliverables Pro Growth 650 Institutional, Tax Administration, Social and Investment (INSTANSI) DPL III 300 M L Connectivity DPL III 100 M L Local Government and Decentralization Project II (DAK Reimbursement II) 250 H M Potential Deliverables *) Matenggeng Pumped storage power project 400 M M Metropolitan Area Development project 400 H H Skills Training for Economic Transformation 100 M H Corridor 5 (Lombok Tourism) Development 100 H H PNPM Rural 200 H M PNPM Urban 100 H M Indonesia Water Supply and Sanitation Investment Facility (IWSIF) 100 H M Energy Efficiency Finance Facility 100 H M Small and Medium Hydro Development 100 M M *) subject to resolving of Indonesia’s exposures and/or readiness of direct lending to SOEs 90 FY2013-2015 Country Partnership Strategy for Indonesia Annex B4: Summary of Knowledge Service (Thousand US$) Planned Analytical and Advisory Work, FY13-14 BB TF Economic and Sector Work FY 2013 Indonesia-Openness, Competition and Grow 143.2 173.5 Indonesia Economic Quarterly FY13 21.5 Indonesia: Urban Poverty Analysis 33.9 612.4 An Agenda for Senior Secondary Education 77.4 Indonesia Life Long Learning 107.4 Teacher Reform in Indonesia 12.4 PER: Financing Local Governments in ID 192.2 FY 2014 Education: ID-HE Strategic Studies 14.9 Indonesian Social Protection Public Expenditure Review (PER) Improving Targeting Performance of Poverty Programs HIV/AIDS PET Study (UBW 1st Tranche) Indonesia ROSC Update Accounting and Audit Technical Assistance FY 2013 Support for Bureaucracy Reform 101.6 Public Procurement Reform 228.1 Indonesia's Non-Tariff Measures 12.1 70.5 Policy Dialogue on Services 8.7 30.6 Rapid Response Supp. on Fin. Sec. Policy 49.7 170.3 Rapid Response Supp. on Trade Mon. & Pol 33.9 58.6 Supp. for ID Intl Econ. Engagement-FORA 10.8 367.1 Support for Enhancing Fiscal Transfer 2.4 Indonesia Viability Gap Financing 122.1 Corruption Prevention Capacity Building 936.5 Indonesia - Access to Justice (TF097761) 1,087.1 ID: eServices Secure Govt Network 60.8 Helping Generate Jobs for Pro-Poor Growth 174.1 2,063.2 Supp. for Dev. Gender Engagement in ID 73.1 TA- Food Security Policies in Indonesia 108.6 Sustainability of Ag Export Crops 73.8 42.0 Stunting Reduction and PNPM-Generasi TA 205.7 Indonesia Beverage Crops Value Chains 14.8 Food Security Policies in Indonesia 170.2 PNPM Field Operations 1,362.1 PNPM WINDOW 3 554.1 PNPM Supervision and Monitoring 4,931.2 TA for PNPM Generasi Pilot Program 3,616.9 PNPM M&E and Special Studies 7,763.8 PNPM Communication Strategy 2,387.0 Mainstreaming DRR in Indonesia phase II 842.9 Disaster Risk Financing 38.4 ID Climate Policy and Institutional Support 533.7 164.09 FY2013-2015 Country Partnership Strategy for Indonesia 91 (Thousand US$) Planned Analytical and Advisory Work, FY13-14 BB TF WSP - Program Administration 14.6 2,135.0 WSP-Advisory Services 2,713.1 Geothermal Power Support Program 0.1 899.6 Low-income Housing Policy and Finance 126.2 480.4 Modernizing Water Management Sys 1.0 4.1 MDTF - Indonesia Domestic Trade 2,037.7 TA for MIS and Evaluation Study 392.6 Energy Efficiency Financing Program 75.2 Indonesia Clean Stove Initiative 186.0 MDTF to Improve Investment Climate 17.0 2,286.2 ID - Logistics and Connectivity 20.3 474.8 Supporting Financial Sector Development 50.9 Jakarta Fiscal and Bond Issue 52.2 Strengthening Local Capacity for Poverty 142.6 475.2 ID-TF Local Government Capacity Development 1,441.1 Supp. for Strengthening Sub-National PFM 135.6 Sub National Development Diagnostics 32.7 FY 2014 Public Expenditure Analysis and Capacity Harmonization 215.5 794.4 Improving Poverty Data Quality 43.2 1,051.9 Support for Social Security Reform 63.3 86.4 Support for Domestic Trade 123.0 108.4 Integration of Poverty Reduction 11.8 Support for Non-Tax Revenue Management 47.3 2.7 Supporting ID Corruption Eradication 86.2 Indonesia SP Engagement TA 145.4 ID-TF CPDA 1,768.1 ID-TF CPDA Supervision & Operational 272.9 ID-TF CPDA Program Management & Admin 211.3 ID - Higher Education Intro/Dissemination (46.0) Natural resources and governance 55.5 Gas Development Master Plan 78.4 Sustainable Cities Dialogue 69.9 7.2 PEACH -TA and Capacity Building (BETF) 1,155.0 92 FY2013-2015 Country Partnership Strategy for Indonesia Annex B5: Indonesia - Key Social Indicators Latest single year Same region/income group 1980-85 1990-95 2005-11 East Asia & Pacific Lower-middle-income Population Total population, mid-year (millions) 168.1 199.4 242.3 1,961.6 2,518.7 Growth rate (% annual average for period) 2.2 1.6 1.1 0.7 1.6 Urban population (% of population) 26.1 35.6 53.7 45.9 39.4 Total fertility rate (birth per woman) 3.7 2.7 2.1 1.8 2.9 Poverty (% of population) National headcount index 13.3 Urban headcount index 9.9 Rural headcount index 16.6 45.9 39.4 Income GNI per capita (US$) 510 980 2,680 3,696 1,619 Consumer price index (2005=100) 20 44 239 131 140 Food price index (2000=100) 15 38 260 Income/consumption distribution Share of income or consumption Gini index 30.5 29.3 34.0 Lowest quintile (% of income or consumption) 8.7 9.5 8.3 Highest quintile (% of income or consumption) 39.5 39.1 42.8 Social Indicators Public expenditures Health (% of GDP) 0.6 1.2 2.0 2.0 Education (% of GNI) 3.8 4.0 Net primary school enrollment rate (% of age group) Total 98 95 95 93 85 Male 99 97 97 93 87 Female 92 92 94 94 83 Access to an improved water source (% of population) Total 74 80 90 87 Urban 91 89 97 93 Rural 65 71 84 83 Immunization rate (% of children ages 12-23 months) Measles 26 63 89 95 80 DPT 27 69 83 94 79 Children malnutrition (% under 5 years) 27 18 6 25 Life expectancy at birth (years) Total 60 64 68 72 65 Male 58 62 67 70 64 Female 62 66 70 74 67 Mortality Infant (per 1,000 live births) 67 46 27 20 50 Under 5 (per 1,000 live births) 104 67 35 24 69 Adult (15 - 59) Male (per 1,000 population) 368 275 210 157 244 Female (per 1,000 population) 208 219 175 105 175 Maternal (per 100,000 live births) 440 240 89 300 Births attended by skilled health staff (%) 37 75 91 57 CAS Annex B5. This table was produced from the CMULDB system - 10/11/12 Note: 0 or 0.0 means zero or less than half the unit shown. Immunization: refers to children ages 12 - 23 months who received vaccinations before one year of age or at any time before the survey FY2013-2015 Country Partnership Strategy for Indonesia 93 Annex B6: Key Economic Indicators <--------------- Actual ----------------> Estimate <------------- Projection -------------> Indicator 2009 2010 2011 2012 2013 2014 2015 National accounts (as %) of GDP Gross domestic producta 100 100 100 100 100 100 100 Agriculture 15.3 15.3 14.7 12.6 10.7 9.3 8.2 Industry 47.7 47.0 47.2 43.0 40.4 37.8 35.2 Services 37.1 37.7 38.1 44.4 48.8 52.9 56.6 Total consumption 66.2 65.7 65.8 67.8 67.5 66.6 65.9 Gross domestic �xed investment 31.1 32.1 32.0 33.3 34.5 35.4 36.6 Government investment 1.4 1.2 1.6 2.0 2.1 1.9 1.9 Private investment 29.8 30.8 30.4 31.3 32.4 33.5 34.7 Exports (GNFS)b 24.2 24.6 26.3 31.0 28.8 28.0 27.2 Imports (GNFS) 21.4 22.9 24.9 28.9 26.5 25.8 24.7 Gross Domestic savings 22.8 34.3 34.2 32.2 32.5 33.4 34.1 Memorandum items Gross domestic product (US$ million at current prices) 540 708 847 898 1,024 1,187 1,375 GNI per capita (US$, Atlas method) 2,160 2,500 2,940 3,010 3,420 3,810 4,380 Real annual growth rates Gross domestic products at market prices 4.6 6.2 6.5 6.1 6.3 6.6 6.6 Gross domestic income 7.0 4.1 5.0 9.1 6.5 6.6 7.9 Real annual per capita growth rates Gross domestic product at market prices 3.5 5.1 5.4 5.0 5.3 5.6 5.6 Total consumption 3.2 3.0 2.6 3.7 3.6 4.3 4.2 Private consumption 1.6 3.6 2.7 3.9 4.1 3.9 4.0 Balance of Payment (US$ billion) Exports (GNFS)b 132.8 174.8 221.5 259.6 271.7 306.6 339.2 Merchandise FOB 119.6 158.1 200.8 236.8 245.8 275.9 304.4 Imports (GNFS)b 111.6 153.5 197.3 278.4 295.2 332.5 374.0 Merchandise FOB 88.7 127.4 166.0 227.4 238.4 268.5 301.9 Resource balance 21.2 21.3 24.2 (18.9) (23.5) (25.9) (34.8) Net current transfers 4.6 4.6 4.2 28.1 36.4 34.4 45.9 Current account balance 10.6 5.1 1.7 (20.6) (16.3) (20.2) (12.6) Net private foreign direct investments 1.6 11.1 11.5 10.1 10.0 11.0 11.0 Change in reserves (12.5) (30.3) (11.9) (0.1) (13.2) (20.3) (16.6) Memorandum items Resource balance (% of GDP) 3.9 3.0 2.9 -2.1 -2.3 -2.2 -2.5 Real annual growth rates (YR00 prices) Merchandise exports (FOB) -19.4 4.6 4.5 2.9 5.8 11.1 10.6 Merchandise imports (CIF) -17.9 18.6 12.5 7.2 3.6 12.1 12.0 Public finance (as % of GDP at market prices)c Revenues 15.1 15.5 16.3 16.0 16.1 16.2 16.1 Expenditures 16.7 16.2 17.4 18.3 18.1 18.0 17.7 Budget surplus (+) or de�cit (-) -1.6 -0.7 -1.1 -2.4 -1.9 -1.7 -1.6 Capital expenditure 2.7 2.6 2.8 3.5 3.6 3.4 3.3 Foreign �nancing 0.7 0.4 0.2 0.7 0.6 0.6 0.9 94 FY2013-2015 Country Partnership Strategy for Indonesia <--------------- Actual ----------------> Estimate <------------- Projection -------------> Indicator 2009 2010 2011 2012 2013 2014 2015 Monetary indicators M2/GDP 38.2 38.4 38.7 38.7 38.7 38.7 38.7 Growth of M2 (%) 13.0 15.4 16.4 13.0 14.7 15.9 15.9 Price indices (YR00 = 100) Merchandise export price index 328.5 415.0 504.6 578.4 567.8 573.6 572.0 Merchandise import price index 430.3 521.5 604.0 699.9 7-8.3 711.4 714.3 Merchandise terms of trade index 76.3 79.6 83.5 82.6 80.2 80.6 80.1 Real exchange rate (US$/LCU)d 129.3 146.3 146.7 135.7 129.1 122.0 115.6 Real interest rates Consumer price index (% change) 4.8 5.1 5.4 4.4 5.1 5.0 4.8 GDP deflator (% change) 8.3 8.1 8.4 6.5 7.9 8.7 8.7 a. GDP at market prices b. “GNFS“ denotes “goods and non factor services“ c. Actual �gures was consolidated central government d. “LCU“ denotes “local currency units“. An increase in US$/LCU denotes appreciation FY2013-2015 Country Partnership Strategy for Indonesia 95 Annex B7: Indonesia - Key Exposure Indicators <--------------- Actual ----------------> Estimate <------------- Projection -------------> Indicator 2009 2010 2011 2012 2013 2014 2015 a Total debt service (TDS) (US$m) 24,891 29,333 30,681 31,151 25,809 27,933 24,340 Debt and debt service indicators (%) TDO/XGSb 123.8 111.5 98.3 88.4 83.4 73.5 66.8 TDO/GDP 32.5 32.8 30.6 30.9 26.8 23.0 20.3 TDS/XGS 17.8 16.2 13.4 11.5 9.1 8.7 6.7 Concessional/TDO 49.7 45.0 41.5 44.5 42.6 39.7 36.3 IBRD exposure indicators (%) IBRD DS/public DS 14.0 13.4 10.0 6.1 5.5 4.3 4.7 Preferred creditor DS/public DS (%)c 25.3 26.3 24.4 21.6 22.3 16.0 16.3 IBRD DS/XGS 1.0 0.7 0.4 0.2 0.2 0.2 0.2 IBRD TDO (US$m)d 7,877 9,054 9,716 9,963 10,468 11,163 11,784 Share of IBRD portfolio (%) 6.8 8.2 9.3 10.1 11.6 12.4 13.3 IDA TDO (US$m)d 4.6 6.2 6.5 6.1 6.3 6.6 6.6 IFC (US$m) Loans 97.0 150.0 180.0 222.0 275.0 275.0 275.0 Equity and quasi-equity /c 50.0 7.1 5.0 65.0 25.0 25.0 25.0 MIGA MIGA guarantees (US$m) 0 207 627 627 627 627 627 a. Includes public and publicly guaranteed debt, private non guaranteed, use of IMF credits and net short-term capital b. “XGS“ denotes exports of goods and services, including workers’ remittances c. Preferred creditors are de�ned as IBRD, IDA, the regional multilateral development banks, the IMF and the Bank for International Settlements d. Includes present value of guarantees e. Includes equity and quasi-equity types of both loan and equity instruments note: TDO as de�ned by Bank Indonesia includes, among others, holdings of local currency instruments by non-resident investors and may differ from the �gure that appears in Annex Table A2 96 FY2013-2015 Country Partnership Strategy for Indonesia Annex B8: IFC Indonesia Commited and Disbursed Outstanding Investment Portfolio as of 9/30/2012 (In USD Millions) Commited Disbursed Outstanding FY Company Approval **Quasi Partici- **Quasi Partici- Loan Equity *GT/RM Loan Equity *GT/RM Equity pant Equity pant 2006 Bank Danamon 58.18 0 0 5 0 58.18 0 0 0 0 2011 Bank Intl Indo 75 0 0 0 0 0 0 0 0 0 10/12/2008 Bank of Banks 0 9.51 0 0 0 0 7.91 0 0 0 10/12/2008 Bima 15 22.58 0 0 0 15 20.25 0 0 0 2011 Biocarbon 0 5 0 0 0 0 1 0 0 0 2004 Bonavista 0.21 0 0 0 0 0.21 1 0 0 0 School 2009/12 BTPN 149.58 68.88 0 0 0 49.58 68.88 0 0 0 2012 CIMB Niaga 75 0 0 0 0 0 0 0 0 0 2012 FHP Indonesia I 0 25 0 0 0 0 0.14 0 0 0 2007/08 Fuqui Indonesia 18.82 0 0 0 2.44 18.82 0 0 0 2.44 2009 LIFF 0 39.49 0 0 0 0 21.57 0 0 0 2010 JICT 29.14 0 0 0 40 24.86 0 0 0 34.29 2012 Medco Power 0 25 0 0 0 0 25 0 0 0 2011 Oto Finance 71.84 0 0 0 116.25 71.84 0 0 0 116.25 2004/05 PT Ecogreen 4.58 0 0 0 0 4.58 0 0 0 0 7/8/2006 PT Karunia (KAS) 11.27 0 0 0 0.67 11.27 0 0 0 0.67 2008 PT Prakars (PAS) 7.09 0 0 0 2.22 7.09 0 0 0 2.22 2008 PT SAS 2.45 0 0 0 0.67 2.45 0 0 0 0.67 2006/08 PT TAS 6.18 0 0 0 0 6.18 0 0 0 0 2008/09 PT TVS 10.91 0 12 0 0 10.91 0 12 0 0 2009/11 PT Viscose 56.67 0 0 0 170 47.67 0 0 0 137 2008/09 Saratoga Asia II 0 19.61 0 0 0 0 7.72 0 0 0 2010 Trada 33.13 0 0 0 0 33.13 0 0 0 0 0/13 Wintermar 44.59 0 10 0 0 25.6 0 0 0 0 Total Portfolio 669.64 215.07 22 5 332.25 387.37 152.47 12 0 293.54 * Denote Guarantee and Risk Management Products ** Quasi Equity include noth loan and equity types FY2013-2015 Country Partnership Strategy for Indonesia 97 CAS Annex B8: Operations Portfolio (IBRD/IDA and Grants) Closed Project 329 IBRD/IDA* Total Disbursed (Active) 1,956.46 of which has been repaid 82.43 Total Disbursed (Closed) 10,310.95 of which has been repaid 11,899.04 Total Disbursed (Active+Closed) 12,267.42 of which has been repaid 11,981.47 Total Undisbursed (Active) 4,584.61 Total Undisbursed (Closed) 0.00 Total Undisbursed (Active+Closed) 4,584.61 Last PSB Original Amount in US$ Difference Beetween Expected and Active Projects Millions Actual Disbursements Supervision Rating Develop- Imple- Project Fiscal Frm Project Name ment mentation IBRD IDA GRANT Cancel. Undisb. Orig. ID Year Rev’d Objectives Progress P114348 Water Resources and Irr S S 2011 150 142.5 19.5 Mgmt Program 2 P113078 Geothermal Clean Energy S S 2012 175 175.0 30.0 Investment Project P085133 Govt Final Mgt & Revenue MS MS 2005 55 5 34.7 34.7 25.1 Admin Project P096921 ID-National UPP (PNPM MS MS 2008 167.68 125 32.8 -77.1 37.9 UPP) P092218 ID-Indo Infrastructure MU MU 2009 100 100.0 0.0 Finance Facilty P097104 ID-BERMUTU S MS 2008 24.5 61.5 19.1 16.7 P077175 ID-Domestic Gas Market S MS 2006 160 10.6 9.2 19.8 Development Proj. P089479 ID-EArly Childhood S S 2006 67.5 0.7 -4.5 Education and Dev P083742 ID-Farmer Empower. MS MS 2007 32.8 60 8.9 7.5 Agric. Tech. & Info P068133 ID-GEF MARINE MS MS 2006 8.3 3.2 3.2 ELECTRONIC HWY P099757 ID-GEF-Geothermal Power MS MU 2008 4 2.8 2.8 1.5 Generation Dev P113341 ID-Health Professional S S 2010 77.822 43.9 31.3 Education Quality P085374 ID-HIGHER EDUCATION S MS 2005 50 30 7.3 6.9 5.9 P063913 ID-Java-Bali Pwr Sector & MS MS 2003 303.715 3.6 34.5 8.0 8.0 Strength P111577 ID-Local Government and S S 2010 220 163.3 41.6 Decentralization P122810 ID-PNPM RURAL IV MS MS 2012 521.19 21.7 -130.8 P079906 ID-Strategic Roads MS MS 2007 414.4551764 1.5 69.9 71.4 17.0 Infrastructure P078070 ID-Support for Poor and MS MS 2005 138 35 1.4 0.2 Disadvant Areas P090991 ID-URBAN WATER SUPPLY S MS 2010 23.56 16.7 4.8 P071296 ID-USDRP MS MS 2005 90 6.6 3.8 10.4 10.4 98 FY2013-2015 Country Partnership Strategy for Indonesia Last PSB Original Amount in US$ Difference Beetween Expected Active Projects Millions and Actual Disbursements Supervision Rating Develop- Imple- Project Fiscal Frm Project Name ment mentation IBRD IDA GRANT Cancel. Undisb. Orig. ID Year Rev’d Objectives Progress P085375 ID-WSSLIC III (PAMSIMAS) S S 2006 137.5 9.3 0.3 P096532 ID-Dam Oprational MU U 2009 50 39.2 24.8 Improvement (DOISP) P118916 Indonesia Infrastructure # # 2013 29.6 29.6 Guarantee Fund P117323 Indonesia Power MS MU 2011 225 225.0 Transmission Development P111034 Jakarta Urgent Flood S S 2012 139.64 139.6 0.0 Mitigation Project P100740 PINTAR MU MU 2009 110 109.7 81.0 P118113 PNPM - Urban III Project MS MS 2010 149.98 7.0 -7.7 P130048 Progr for Econ Resilience, # # 2012 2000 2000.0 Inv & Soc Ass P118150 Scholarships Program MS MS 2011 112.65 104.9 P106384 Strengthening Indonesia MS MS 2011 65 65.0 Statistics P117243 Sustainable Management # # 2013 80 80.0 of Ag Research P112158 Upper Cisokan Pumped S S 2011 640 640.0 0.0 Storage Hydro-Elect P090990 Western Indonesia S MS 2011 250 250.0 46.7 National Roads Improv. Overall Result 6565.592176 521.5 12.3 22.3 4590.6 233.8 105.8 FY2013-2015 Country Partnership Strategy for Indonesia 99 95 ° 100 ° 105 ° 110 ° 115 ° 120 ° 125 ° This map was produced by the Map Design Unit of The World Bank. The boundaries, INDONESIA colors, denominations and any other information shown on this map do not imply, on SELECTED CITIES AND TOWNS the part of The World Bank Group, any judgment on the PROVINCE CAPITALS legal status of any territory, 15 ° or any endorsement or NATIONAL CAPITAL acceptance of such INDONESIA boundaries. RIVERS MAIN ROADS MYANMAR VIETNAM RAILROADS PHILIPPINES PROVINCE BOUNDARIES 10 ° 10 ° INTERNATIONAL BOUNDARIES THAILAND Sulu Sea 135 ° 140 ° Banda Aceh L A Y 5° A BRUNEI 5° 1 S Natuna Talaud Medan M Besar I Celebes Is. Tarakan PACIFIC OCEAN Pematangsiantar Sea 24 A Simeulue 19 Morotai 2 Manado SINGAPORE 23 Nias Tanjungpinang Ternate Halmahera Pekanbaru 25 3 Pontianak KALIMANTAN Gorontalo Waigeo 0° 26 0° Lingga 20 Samarinda Manokwari Biak 30 Me Padang Palu Sorong 4 Balikpapan Peleng nt Siberut 5 Jambi 21 Obi Bangka Yapen aw Pangkalpinang SULAWESI Sula Is. Misool 32 Jayapura SUMATERA Palangkaraya ai Mamuju Ceram 9 Belitung 22 Palembang 27 Amahai Fakfak Is 6 . 7 Bandjarmasin 28 Kendari Buru 29 33 PAPUA Bengkulu Parepare Ambon Timika Puncak Jaya 8 Muna (5030 m) 5° Ja va S ea Makassar Kai Enggano Bandar 11 Baubau B a nd a 31 Is. Lampung JAKARTA Serang S ea Aru 0 200 400 Kilometers Is. 12 Bandung Semarang Madura PAPUA 10 13 Wetar Surabaya Babar Tanimbar 0 100 200 300 400 Miles 16 Sumbawa Alor Moa JAWA Yogyakarta Is. 15 Bali Lombok Raba Flores NEW GUINEA 14 Merauke 95 ° 100 ° 105 ° Denpasar Mataram Ende Arafura Sea 18 TIMOR-LESTE 17 Sumba PROVINCES: 10 ° Waingapu Timor 10 ° Kupang 1 NANGGROE ACEH DARUSSALAM 12 JAWA BARAT 23 KALIMANTAN TIMUR 2 SUMATERA UTARA 13 JAWA TENGAH 24 SULAWESI UTARA 3 RIAU 14 D.I. YOGYAKARTA 25 GORONTALO 4 SUMATERA BARAT 15 JAWA TIMUR 26 SULAWESI TENGAH 5 JAMBI 16 BALI 27 SULAWESI BARAT INDIAN OCEAN 6 BENGKULU 17 NUSA TENGGARA BARAT 28 SULAWESI SELATAN 7 SUMATERA SELATAN 18 NUSA TENGGARA TIMUR 29 SULAWESI TENGGARA 8 LAMPUNG 19 RIAU KEPULAUAN 30 MALUKU UTARA 15 ° 15 ° 9 BANGKA-BELITUNG 20 KALIMANTAN BARAT 31 MALUKU 10 BANTEN 21 KALIMANTAN TENGAH 32 PAPUA BARAT AUSTRALIA 11 D.K.I. JAKARTA 22 KALIMANTAN SELATAN 33 PAPUA 115 ° 120 ° 125 ° 130 ° 135 ° 140 ° IBRD 33420R2 AUGUST 2008 The World Bank Office Jakarta Jakarta Stock Exchange Building, Tower 2, 12th floor Jl. Jenderal Sudirman Kav 52-53 Jakarta 12190, Indonesia