Document of The World Bank Group

FOR OFFICIAL USE ONLY

Report No. 99172

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL FINANCE CORPORATION

MULTILATERAL INVESTMENT GUARANTEE AGENCY

COUNTRY PARTNERSHIP FRAMEWORK

FOR

THE REPUBLIC OF INDONESIA

FOR THE PERIOD FY16 – FY20

November 3, 2015

Indonesia Country Management Unit East Asia Pacific Region The International Finance Corporation The Multilateral Investment Guarantee Agency

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization.

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The last Country Partnership Strategy was discussed by the Board on December 13, 2012 (Report No. 72906-IND)

CURRENCY EQUIVALENTS Currency Unit = Indonesian Rupiah (IDR)

IDR 13,491 /US$1.00 (as of 23 October 2015)

FISCAL YEAR January 1 to December 31

ABBREVIATIONS AND ACRONYMS

ADB Asia Development Bank AFD Agence Française de Développement ASA Advisory Services Analytics ASEAN Association of Southeast Asian Nations APBN National Budget/Anggaran Pendapatan dan Belanja Negara Bappenas Ministry of National Development Planning BI Indonesia’s Central Bank BPS National Statistics Agency CGAP Country Gender Action Plan CLR Completion and Learning Review COSO Committee of Sponsoring Organizations CSO Civil Society Organization CTF Climate Technology Funding DAK Specific Purpose Grants DPD Regional Representatives' Council DPL Development Policy Lending DPR House of People's Representatives FAO Food and Agriculture Organization FCS Fragile and Conflict-Affected Situations FDI Foreign Direct Investment FHH Female-headed Households GDP Gross Domestic Product GEF Global Environment Facility GHG Green House Gas GoI Government of Indonesia GP Global Practice GW Gigawatts IDR Indonesia Rupiah IGF Investment Guarantee Fund IIF Indonesia Infrastructure Fund IPF Investment Project Financing (IPF) IPP Independent Power Producers IsDB Islamic Development Bank IUU Illegal, Unreported, and Unregulated (fishing)

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JICA Japan International Cooperation Agency Kabupaten Regencies, cities KfW German Government-Owned Development Bank Kota Municipality LUCF Land-use Change and Forestry MCA Marine Conservation Area MDF Multi Donor Fund MFI Multilateral Financial Institutions MoF Ministry of Finance MPR People’s Consultative Assembly MPW Ministry of Public Works MSMEs Micro, Small and Medium Enterprises NAWA CITA GoI’s nine priorities agenda NPL Nonperforming Loan NUSP National Slum Upgrading Program NUWSP National Urban Water Supply Program OSS One-Stop-Shop P2B The Umbrella of Graduation Programs PAMSIMAS Community-Led Water and Sanitation Program PELINDO Indonesia Port Corporation PERISAI Program for Economic Resilience, Investment and Social Assistance PFM Public Financial Management PforR or P4R Program for Results PLN State Owned Power Utility PMO Project Management Office PMU Performance Management Unit PNPM National Program for Communities Empowerment PPP Public-Private Partnership PUSKESMAS Public Primary Health Facility RAS Reimbursable Advisory Services R&D Research and Development REDD+ Program to Reduce Emissions from Deforestation and Degradation REKOMPAK A Community-driven Disaster Reconstruction and Resettlement program RER Real Exchange Rate RPJMN Mid-term Development Plan SCD Systematic Country Diagnostic SJSN Health Insurance-National Social Security System SME Small Medium Enterprise SOE State-Owned Enterprises UHC Universal Health Coverage VAT Value-Added Tax YOY Year-On-Year

IBRD IFC MIGA

Vice President: Director: Task Team Leader:

Axel van Trotsenburg Rodrigo A Chaves Josephine M. Bassinette

Dimitri Tsitsiragos Vivek Pathak Sarvesh Suri

Keiko Honda Ravi Vish Timothy James Histed

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TABLE OF CONTENTS

I. Introduction and key messages ..................................................................................... 5

II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA .................................... 8

II.1. Political and Social Context ................................................................................... 8 II.2. Growth, Poverty and Shared Prosperity ................................................................. 8 II.3. Recent Economic Developments ........................................................................ 12 II.4. Lessons from CPS Completion Report ................................................................ 15

III. PROPOSED WBG PARTNERSHIP FRAMEWORK ............................................... 16

III.1. Building the Partnership Strategy ...................................................................... 16 III.1.a. Government’s Development Agenda: Selectivity Filter One .............................. 17 III.1.b. Development Challenges and Approaches Identified in the SCD: Selectivity

Filter Two ...................................................................................................................... 19 III.1.c. Impact and WBG Comparative Advantage: Selectivity Filter Three ................. 21

III.2. Proposed Partnership Strategy ........................................................................... 21 III.2.a. Engagement Area 1: Infrastructure Platforms at the National Level .................. 22

III.2.c. Engagement Area 3: Maritime Economy and Connectivity ................................. 28

III.2.d. Engagement Area 4: Delivery of Local Services and Infrastructure ................... 30

III.2.e. Engagement Area 5: Sustainable Landscape Management ................................... 34 III.2.f. Engagement Area 6: Collecting More and Spending Better ................................. 37 III.2.g. Supporting Beam I: Leveraging the Private Sector: Investment, Business

Climate and Functioning of Markets ......................................................................... 40 III.2.h. Supporting Beam II: Shared Prosperity, Equality and Inclusion ......................... 44

IV. Implementing the CPF ................................................................................................ 47

IV.1. Focus and selectivity within the CPF Strategy ................................................... 47 IV.2. Implementing the WBG Program ....................................................................... 48

V. MANAGING RISKS TO THE CPF PROGRAM ....................................................... 53

V.1. Political Economy and Governance Risks ........................................................... 53 V.2. Macroeconomic Uncertainty ................................................................................ 53 V.3. Implementation and Capacity Constraints .......................................................... 54

ANNEXES .............................................................................................................................. 56

Annex 1. CPF Result Framework ................................................................................ 56 annex 2: key macroeconomic indicators...................................................................... 78 Annex 3. Completion and Learning Report ................................................................. 79 Annex 4. Selected Indicators of Bank Portfolio Performance and Management ..... 160 Annex 5. Operations Portfolio (IBRD/IDA and Grants) ........................................... 161 Annex 6 Statement of IFC’s Held and Disbursed Portfolio Committed and

Outstanding Portfolio ................................................................................ 162 Annex 7. Consultations of the Draft CPF .................................................................. 163 Map of Indonesia ....................................................................................................... 165

III.2. . Engagement Area : .................. 2

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LIST OF FIGURES

Figure 2.1: Evolution of official poverty rate, 1996-2013 ........................................................................ 10 Figure 2.2: Change in poverty rates 2000-12*, Indonesia versus EAP countries .................................. 10 Figure 2.3: Close to 40 percent of the population was poor and vulnerable in 2012 ............................. 11 Figure 2.4: 75 percent of poor households fail to move out of poverty or vulnerability over a three-year period ............................................................................................................................................ 11

Figure 3. 1: CPF Strategy Emerges from the Intersection of Three Selectivity Filters......................... 16 Figure 3. 2: Government of Indonesia’s RPJM Development Strategy ................................................ 17 Figure 3. 3: The Three Pathways Identified in Indonesia SCD ........................................................... 19 Figure 3. 4: CPF Strategy Emerges from Applying Selectivity Filters ................................................. 22 Figure 3. 5: In-year variance of capital from original budget .............................................................. 38 Figure 3. 6: Indonesian firms are lagging in size, technical prowess, training, and formality............ 42

LIST OF TABLES

Table 3. 1: Indonesia ranks low in key aspects of tourism competitiveness ....................................... 24

Table 4. 1: Draft IBRD Indicative Lending Pipeline FY2016-20* ........................................................ 51

Table 5.1: Risk in Indonesia ............................................................................................................... 55

LIST OF BOXES

Box 3.1: Client Survey Result ................................................................................................................ 19 Box 3. 2: Using a Platform Approach to Deliver Clean Water and Sanitation Nationwide ................ 23 Box 3.3: How One World Bank Group Can Help Deliver Sustainable Energy and Access ................ 27 Box 3.4: Tourism’s Unrealized Potential in Indonesia ........................................................................ 43 Box 3.5: Delivering as a World Bank Group ........................................................................................ 44

Box 4.1: Selectivity in the CPF: What WBG Plans To Do Differently ................................................. 48 Box 4.2: Experience of REKOMPAK .................................................................................................. 50

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I. INTRODUCTION AND KEY MESSAGES

1. Seventy years after independence and more than a decade of political and institutional reforms, Indonesia has emerged as a stable democracy. With a population of 250 million living across over 6000 inhabited islands, Indonesia is the world’s fourth most populous nation. This archipelago nation, which spans three time zones and nearly 6000 kilometers, is the tenth largest economy in terms of purchasing power parity, endowed with remarkable natural resources from its land and seas, and the only Southeast Asian member of the G-20. It has made significant gains in poverty reduction with its poverty rate more than halved from 24 percent at the time of the Asian financial crisis down to 11 percent by 2014. For a decade up until 2015, it had a growth rate of about 6 percent annually, an active private sector and a burgeoning middle class. Its adult literacy is at almost 95 percent, with primary, secondary and tertiary education gross enrollment rates of 100, 83 and 32 percent respectively. The share of female school enrollment exceeds that of males at each level. Life expectancy at birth increased from 68 years in 2002 to 71 years 2012.

2. Indonesia’s achievements are now under stress, with a slowdown in its commodity driveneconomy, stagnant rates of poverty reduction and rapidly rising inequality. Poverty reduction has begun to stagnate, with a near zero decline in 2014, the smallest reduction in over a decade. As measured by the current national poverty rate of 11.3 percent, there are 28 million poor people in Indonesia. At the same time, inequality is increasing. Between 2003 and 2010, consumption of the bottom 40 percent1 grew at 1-2 percent annually, while that of the two richest quintiles grew by about 6 percent. Consequently, the Consumption Gini coefficient, an indicator of inequality, rose from 30 to 42 over this period, amongst the fastest widening of inequality in East Asia. The future of the bottom 40 percent of the population is further clouded by high inequality of opportunity, one-third of which is attributable to circumstances of birth (gender, ethnicity, birthplace or family background). The levels of maternal mortality (190 per 100,000 live births) and child malnutrition (37 percent of under-five children are stunted) are more aligned with the poorest countries of the world than with the vast majority of middle income countries. Indonesia is also facing rapid rates of deforestation and land degradation which have a disproportionate impact on the poor.

3. The government of President Joko Widodo, which was inaugurated in October 2014,recognizes that the country is undergoing a period of profound economic transition. While GDP growth averaged a solid 5.8 percent per year over 2004-2013, it moderated to 5.0 percent in 2014 and current estimates show growth of about 4.7 percent for 2015. While many factors impact growth, the commodities sector, which has weakened globally, is significant. Prices of key commodity exports have fallen by 40 percent since their 2011 peak, contributing to a current account deficit since 2013. Domestic private consumption which has been the main driver of growth, has softened in the last year. In short, the economic tailwinds of the past decade—rapid growth in Indonesia’s key trading partners particularly China, high commodity prices, and significant growth in consumption of an emerging middle class—have now become headwinds. Indonesia therefore is focusing on shifting its economy away from its dependence on commodities towards one that depends much more heavily on productive sectors and services. The Government’s Mid-term Development Plan (RPJMN 2015-2019), reflects its strategy to meet these development challenges by focusing on human and community development, narrowing the income gap through increased productivity and poverty reduction measures, and increasing development without environmental degradation.

4. The Development Policy Review, completed in 2014, and the Systematic Country Diagnostic(SCD)2, completed in 2015, explain the limited window of opportunity for Indonesia to reach high per capita income levels. To keep up with a young population entering the labor market, Indonesia’s economy must create some 2 million new jobs annually to absorb new workers. Moreover, Indonesia’s demographic dividend will end in approximately 15 years. No country has ever gotten rich after it has gotten old; meaning

1 In other words, the fifth and fourth quintiles combined. 2 The DPR 2014 (Indonesia: Avoiding the Trap) and the SCD (Connecting the Bottom 40 Percent to the Prosperity Generation)

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that for Indonesia to reach its aspirations, it will need an accelerated growth path of some 8 percent over the coming years.

5. The government and the World Bank Group (WBG) share a vision of an equitable and prosperous Indonesia aligned with the twin goals of eliminating extreme poverty and increasing shared prosperity. During six decades of partnership, Indonesia has been a testing ground and an inspiration for a range of innovations that have shaped the WBG. The Indonesia office was one of the first decentralized offices and today is one of the largest offices outside of Washington DC. Indonesia brought into focus the need to systematically address the environmental and social impacts of projects. It hosted the first IFC advisory services team, and introduced ground-breaking initiatives in community-driven development, microfinance and disaster response, which have become models for countries across the globe. The Indonesia program also has a long history of working with development partners by mobilizing bilateral financing and expertise in order to enhance and leverage traditional WBG products and pilot innovative development solutions. This platform, built in partnership with the Government of Indonesia (GoI) and the private sector, underpins the implementation of the proposed engagement areas and delivers innovation which would be impossible using only traditional World Bank Group sources of financing and products.

6. This CPF, covering the period FY2016-20, builds on the previous Country Partnership Strategy (CPS) FY2013-15 and the long-term operational and policy-based support that has been a hallmark of WBG’s engagement with the GoI for the past decade. For example, the continuation of the World Bank’s long record of support to Government in economic policy making will remain important. At the same time, the CPF, guided by the twin goals of eliminating poverty and enhancing shared prosperity, brings a greater degree of selectivity by improving the focus on consistent public policy reforms to shore up Indonesia’s economic fundamentals, helping create a more enabling environment for the private sector that is the main source of growth and creation of new jobs, and making growth sustainable and shared more widely. Addressing the country’s massive infrastructure gap will play a prominent role in the CPF and will require not only a scaling up of financing but also better implementation and forward-looking management of Indonesia’s natural resources. Inequality of opportunity, which accounts for one-third of total inequality, will have to be addressed through attention to the prioritization of spending, the accountability for service delivery particularly for health and education, and attracting the private sector. 7. Drawing on the lessons from the CPS, the CPF will be more selective in its scope and will deploy new ways to deliver ongoing programs and engagements. For example, in the area of governance, the SCD highlights the centrality of getting reform priorities right, refocusing public administration on better implementation, and building in more accountability and transparency at the local government level to ensure better service delivery. To respond to these needs, the CPF has mainstreamed support for governance and anticorruption in each of the engagement areas and supporting beams to maximize opportunity for impact. Examples where WBG looks to strengthen the governance framework within engagements include technical assistance for streamlining of business licensing which reduces the costs of doing business whilst decreasing the opportunities for corruption, land administration reforms to support the more efficient delivery of infrastructure and better manage the landscape and improved financial management systems to support increased Government transfers to the village level to ensure more transparency and better service delivery. Focusing the reform agenda around making more space and a more reliable and enabling environment for the private sector, in all our engagements, is another way for this CPF to focus better WBG reform efforts. The importance of working at the subnational level, particularly in support of health and education, will be strengthened through a dedicated local service delivery engagement area that seeks to make improvements at the point of delivery. Inclusion and shared prosperity, including social protection for the most vulnerable, will be a recurrent theme across the CPF engagements.

8. As described in the SCD, enhancing prosperity for the bottom 40 percent rests in large part on shifting the economy to a more productivity-based growth path which can create more and better jobs. This suggests that the CPF requires a heavier emphasis on infrastructure and on an enabling environment

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for the private sector. Therefore, the CPF concentrates on areas of infrastructure necessary to better connect the economy, provide sustainable energy, help the country reap benefits from the rapid pace of urbanization and improve equality of opportunity through better access of the poor and vulnerable to essential water and sanitation services. For growth and job creation, improvements to the business environment could be transformational. More consistent and less restrictive trade and investment regulations would help unlock private capital and increase the opportunities for the public and private sectors to work together to improve implementation and fill the enormous infrastructure financing needs which cannot be addressed using public financing alone. A deepening of capital markets will likewise be essential to provide the finance to fill the infrastructure gap and invest in higher productivity sectors such as manufacturing.

9. The CPF will seek to maximize synergies across the WBG and take advantage of allinstruments in support of the CPF goals. Particularly because of its focus on infrastructure investment, and the need to support the private sector as the engine of job creation, the government has requested that WBG bring the balance sheets of all three institutions— IBRD, IFC and MIGA—to bear, along with technical assistance and policy reform support. The decision of Government in 2015 to support direct lending by multilateral organizations to state-owned enterprises (SOEs) with sovereign guarantee has increased the opportunity for increased financing especially in infrastructure. In other areas, WBG’s value may be primarily through knowledge services and the sharing of global experience most often supported through partnerships with other bilateral and multilateral development partners. Moreover, engagement areas will move at different speeds. Some, particularly those that build on long-running engagements such as in water, can be expected to have greater impact on the ground within the CPF period. Others will require a longer time horizon to produce results. The potential for impact, rather than the time horizon for visible outcomes, will be an important filter in this regard. There are risks to development outcomes which might arise from the difficulty of maintaining reform momentum in the face of political economy, governance and macroeconomic challenges amongst others. The sequencing of interventions within engagement areas, and the ability to adjust during the CPF implementation period, will be important tools for mitigating risks.

10. The proposed CPF would require a larger financing package than the previous CPS, althoughWBG’s total contribution would still be a very small percentage of overall borrowing needs. The CPF, if fully implemented, could entail a scaling up of IBRD lending of an indicative amount of about US$7.5 billion, new IFC engagements of up to US$3 billion in equity, loans, guarantees and mobilization and a more active MIGA program that expands the use of political risk and non-payment guarantee instruments. For the IBRD, lending would average some US$1.5 billion per annum although actual lending volumes will depend on country demand, choice of instrument, overall performance during the CPF period and IBRD’s financial capacity and demand from other Bank borrowing countries. Should these volumes be reached, Indonesia would potentially reach and then exceed the $16.5 billion threshold above which a 50 basis point surcharge on incremental exposure would apply. Indonesia would potentially also reach the Single Borrower Limit (SBL) of US$19 billion towards the end of the CPF period depending on the actual commitments. Given that about one-third of the indicative lending pipeline is fast disbursing development policy lending and possible P4R, it will be necessary for the government and the Bank to take stock of the situation with regard to the SBL midway through the CPF period and consider possible measures to continue IBRD financing under different scenarios within the limits of the SBL. The experience of other large IBRD borrowers will be helpful in this regard.

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II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA

II.1. POLITICAL AND SOCIAL CONTEXT

11. Indonesia is the largest economy in Southeast Asia, the tenth largest in the world as measuredby purchasing power parity and the only Southeast Asian member of the G-20. With a GDP per capita of US$3,510 (current prices), Indonesia has emerged over the last decade as a vibrant middle-income economy with growing regional and global influence. With a population of over 250 million, it is the fourth most populous in the world and the world’s largest Muslim majority country, with a constitution that embraces democracy and pluralism. Its people come from some 300 distinct native ethnic groups speaking over 700 languages and dialects and live on some 6000 islands amongst an archipelago of some 17,500 islands. Indonesia has the most volcanoes of any country in the world and is plagued by a number of natural hazards that include earthquakes, volcanic eruptions, tsunamis, floods and droughts. The island of Java, where 58 percent of the population lives, is the world’s most densely populated island. Eleven Indonesian cities have over one million inhabitants. The largest is Jakarta with approximately 10 million people. Except for Medan in Sumatra, the four other cities of over 2 million people, are all located in Java.

12. Following the historic elections in 2014, President Joko Widodo began a five-year term inOctober 2014. The presidency is the highest executive office, with authority to appoint the cabinet. The People's Consultative Assembly (MPR) consists of a 560-member House of People's Representatives (DPR) and a 136-member Regional Representatives' Council (DPD). After more than three decades of the Soeharto regime’s centralized authority that ended in 1998, Indonesia is today one of the world’s most decentralized countries, with elected local governments in 34 provinces, 511 districts/cities and some 72,000 villages.

13. The election of President Widodo, who in less than 5 years went from small city mayor toGovernor of Jakarta and then to the President of the Republic, was widely viewed as a reformist victory. But the challenges facing the new Administration were great. It was faced with the urgency of a fundamental economic transition necessitated by the need to adjust to the end of a 10-year commodity boom, to implement long-standing structural reforms and to tackle endemic corruption. The new administration implemented bold energy subsidy reforms within weeks of taking office. Maintaining reform momentum, however, is challenging and will require unified positions within government and with parliament. Long-standing special interests can be expected to stand as counter forces to the reform efforts.

II.2. GROWTH, POVERTY AND SHARED PROSPERITY

14. The past decade saw robust economic growth, as Indonesia benefited from a boom incommodity exports, increased investor confidence and capital inflows and a young population. Rapid growth in China, India and other emerging economies translated into rapid increases in demand for commodities that created a boom in Indonesia from 2003 to 2011. Benchmark international prices for coal, crude palm oil, rubber and crude oil—all important export commodities for Indonesia—rose threefold between 2000 and 2010 in real terms. As a result, terms of trade and net exports increased sharply, investments recovered to pre-1997 Asian financial crisis levels, and rising household incomes significantly boosted private consumption.

15. A key feature of Indonesia’s commodity boom was the rise in the (largely non-tradable)services sector reflecting in part a sharp appreciation of the real exchange rate (RER). The services sector, broadly defined, contributed an average 3.3 percent to total GDP growth against 1.8 percent for industry and 0.6 percent for the primary sector in 2003-12. The expansion of the services sector is associated with the appreciation of Indonesia’s RER, following more than two decades of overall sharp depreciation, a period during which investments in manufacturing export industries boomed. In contrast, the appreciation of the RER

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in 2002-12 led to a decline of investments flowing into these sectors and a rise of investments in domestically-oriented sectors, chiefly services. There is also evidence that the liberalization of retail trade in 1998, telecoms from 1999 and air transport in 2004 contributed to the rise of investment and growth in these sectors.3 Between 2001 and 2010, the share of transport and communications, financial services and retail trade, and hotel and food services in total foreign investment flows almost doubled to an average of 63 percent of GDP in 2010. A large part of the services sector is composed of micro, small and medium-sized enterprises which typically are a large source of employment for youth and women. The MSME sector contributed around 57 percent to GDP and 47 percent of total employment.

16. Since 2012, Indonesia has been experiencing the expected macro-fiscal effects of commodityprice declines in a resource-driven economy. The prices of key export commodities in net terms peaked in 2011 and had dropped by about 57 percent by September 2015. This sharp decline in export commodity prices, coinciding with a rapid increase in oil imports, sharply reduced Indonesia’s trade surplus and led to the opening of a significant current account deficit for the first time in 15 years. On the fiscal side, softer export commodity prices, combined with lower production of oil and gas and revenues, increased fiscal pressures through 2014. Government nominal revenues growth dropped from 22.7 to 7.7 percent. At the same time, due to high crude oil prices until mid-2014 and a sharp depreciation of the rupiah in the second half of 2013, government spending on energy subsidies increased significantly. Facing both external and fiscal pressure, the government needed to adjust its policy setting and focus on maintaining macroeconomic stability.

17. Indonesia’s macro policies have been significantly adjusted since mid-2013. Bank Indonesia(BI), the country’s central bank, tightened monetary policy up until November 2014 (a cumulative increase of 200 basis points), contributing to a halving of credit growth, before easing its key reference interest rate by 25bp to 7.25 percent in February 2015. At the same time, in order to avoid a decline in foreign reserves, and to help reduce the current account deficit and make it easier to absorb possible external shocks, BI kept the exchange rate flexible. In the second half of 2013, the rupiah depreciated by 26 percent. The rupiah has continued to trend lower against the US dollar by about 17 percent in the year to September 2015. However, US dollar strength has been broad-based and Indonesia’s domestic prices have increased at a relatively faster pace.

18. The fiscal sector has also had to adjust to the effect of lower oil and gas revenues and highenergy subsidies to support macro-fiscal stability. Faced with the challenge of slowing revenues and mounting energy subsidies, the government increased domestic fuel prices by an average 33 percent in June 2013. However, much of the fiscal savings from this reform was lost by the end of 2013 due to the sharp depreciation of the rupiah. The fuel subsidy thus kept increasing, reaching Rp 246 trillion in 2014. In November 2014, the new government decisively increased fuel prices by 30 percent. This was followed by the complete removal of the subsidies for gasoline and the capping of subsidies for diesel through a new market-based price determination formula.

19. During this period, financial sector stability remained a priority of government. Given thedominance of banks over capital markets, and the overall smaller size of the Indonesian financial system relative to its economy, financial stability is predicated on deepening and broadening the system further, to better cushion global economic shocks as well as intermediate funds and manage risks for the country’s growth needs. Lending is constrained by structural impediments to mobilisation of longer-term sources of funds outside of banking’s short term deposits (most deposits are 1-3 month term only). This has created maturity mismatch risk as the country’s infrastructure funding needs to expand, adding upward pressure to existing non-performing loans as well as sectoral concentration in bank lending exposure. Foreign investment in Indonesian financial markets increases the complexity of mitigating risks to external shocks. Bank Indonesia has encouraged hedging of forex liabilities of the private sector but more data and risk management of these instruments the

3 See, for instance, Dharmawan, Gusti, Ngurah, Irwan (2012). The Effect of Air Transport to Economic Development in Indonesia. Erasmus University of Rotterdam, Erasmus School of Economics.

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risks associated with currency volatility will be required as their use increases will impact inflation, foreign currency debt servicing and economic growth. Risks associated with the coordination of financial sector regulation, regulatory uncertainty, and data transparency are being addressed with integrated risk assessments and supervisory models, a stronger bank resolution process and capacity building. 20. The cumulative impact is that Indonesia’s GDP growth has been slowing since 2012. Weaker global commodity prices and demand, and tighter domestic financing conditions, have weighed on the economy, with fixed investment growth roughly halving since 2012 (up 4.1 percent in 2014) and exports contracting slightly (a 1 percent decrease in 2014 from 13.6 percent growth in 2011). The pace of consumption growth also slowed to 4.8 percent in 2014 from 5.6 percent in 2013. Consistent with slower output growth since 2012, net job creation has slowed to an annual average of 0.9 percent, only just enough to keep the share of working age Indonesians in employment stable at 62.6 percent (based on the most recent two labor force surveys conducted in August 2013 and 2014). Poverty reduction has also been slowing, with the official poverty rate4 falling by an average of only 0.3 percentage points per annum since 2012, compared to relatively larger average annual declines of 1.0 percentage point between 2007 and 2011. The March 2015 poverty rate was 11.22%, effectively flat compared to the March 2014 rate of 11.25%. The extreme poverty rate based on the international poverty line of PPP $1.90 per day is estimated by the World Bank to be 8.3% for 2014. 21. Indonesia is facing significant economic and social development challenges. As noted above, poverty in Indonesia more than halved from 24 percent in 1999 to 11 percent in 2014, using the national poverty line (Figure 2.1). This progress is in line with other high performing EAP countries since the Asian financial crisis (Figure 2.2). But further progress is proving stubborn and lifting the “hard core” poor permanently out of poverty will require greater focus and new programs. Economic growth and agricultural expansion, for example, have not translated into improved nutritional outcomes over the past 10 years. In terms of geographical distribution, poverty rates are highest in eastern Indonesia (30 percent in Papua) and lowest in Kalimantan, a resource-rich and low-density region. Poverty rates are also highest for households living in and on the edge of forests and amongst those living in coastal areas. But all areas are impacted even relatively well-off Java and Bali, which account for about 60 percent of the total population, are home to just over half of Indonesia’s poor.

Figure 2.1: Evolution of official poverty rate, 1996-2013 (Percent of population)

Figure 2.2: Change in poverty rates 2000-12*, Indonesia versus EAP countries (international poverty lines, percentage point)

Source: PovCalNet. International poverty line of $1.90 per person per day, 2011 PPP *Thailand and Malaysia are excluded because poverty was less than 5% in 2000.

4 As published by Statistics Indonesia using a set of provincial poverty lines. The national average poverty line for March 2015 was

IDR 330,776 per person per month.

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22. The relative success in reducing extreme poverty masks the extreme vulnerability of thebottom 40 percent of households which are not officially poor but are prone to falling back into poverty. Together, the poor and the vulnerable amount to 38 percent or very close to the WBG’s “bottom 40 percent” of the population (Figure 2.3). The ability of the poor to permanently exit poverty is proving extremely difficult. In 2008, only 25 percent of the poor escaped poverty within two years, and those who did manage to exit remained vulnerable to falling back into poverty. While productive employment was a significant factor, so was the precariousness of ‘prosperity’ amongst the bottom 40 percent, where shocks prompted by food price increases, illness or loss of a job often put families back into poverty (Figure 2.4). In 2009, 15 percent of the poor escaped poverty, but were poor again in 2010 (Susenas data).5 Not only can shocks prevent those with jobs from escaping poverty, but fear of risk—and a lack of insurance and savings mechanisms to effectively deal with risk—can lead people to avoid what they perceive as risky but potentially higher return activities.

Figure 2.3: Close to 40 percent of the population was poor and vulnerable in 2012 Percent of the population (percent) and number (million)

Figure 2.4: 75 percent of poor households fail to move out of poverty or vulnerability over a three-year period Status in 2010 of households who were poor in 2008 (percent)

Source: Susenas data, World Bank staff calculations Source: Susenas data, World Bank staff calculations

23. Gender differences in terms of job status imply that women tend to be more vulnerable thanmen.6 Women constitute the majority of the self-employed and unpaid family workers, making them more susceptible to personal and financial insecurity. The gender wage gap in Indonesia is larger than in other countries in East Asia, with women earning about 70 percent of what men earn, in part because female workers tend to have less secure terms of employment and are more likely to be self-employed, doing unpaid family work or working in the informal sector. Compared to men, women have a 24 percent higher probability of working in the informal sector7. However, in the formal sector, the unexplained gender wage gap is only around 10 percent, which is relatively low by world standards. Women-owned SMEs are mostly self-employed by necessity. Indonesia ranks 108 out of 142 countries for women’s economic participation and opportunity sub-index according to the World Economic Forum’s Global Gender Gap Report for 2014. Indonesia’s social assistance programs do favor female-headed households (FHH), but because FHH typically have a sole income

5 The World Bank has recently conducted a study of risk and risk management in Indonesia. Drawing primarily on original qualitative evidence from four rural and peri-urban sites, this study explores in-depth the risks faced and risk management practices adopted at the household and community level in Indonesia. Preliminary findings show that the rural poor and near-poor face a wide variety of risks and shocks. Among these, food price and health shocks are the most important but they also arise from the high cost of participating in customary lifecycle rituals.

6 The World Bank’s World Development Report (2011) framework for analyzing gender issues emphasizes four dimensions: endowment, opportunities, voice and agency, and cross-cutting dimensions. Gender disparities in endowment (e.g., education and health) have been significantly reduced as shown in the next section.

7 World Bank Indonesia Jobs Report (2010).

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30

35

40

45

Poor: 29m

Vulnerable: 65m

0

20

40

60

80

100

Moved out ofpoverty andvulnerability

Moved out ofpoverty butremain vulnerable

Moved out ofpoverty but fallback in

Always Poor

12

earner, usually with children to care for and support, female-headed households are more vulnerable to shocks and their poverty rates are more volatile. 24. Indonesia’s increase in inequality is amongst the highest in the EAP region over the past decade. Between 2003 and 2010, consumption of the bottom 40 percent grew at 1 to 2 percent annually, while that of the two richest quintiles grew by about 6 percent. Consequently, the Consumption Gini coefficient, an indicator of inequality, rose from 30 to 42 over this period, amongst the fastest widening of inequality in East Asia. Education and ownership of assets are the key factors explaining inequality in Indonesia. Inequality increased because members of affluent Indonesian households have access to higher education and assets, such as real estate and stocks that allowed their wealth to grow rapidly. With better education, they are able to find better jobs and benefit from the increasing “skills premium” in the labor market. Compared with workers with a primary education or less, those with junior secondary education enjoy a 20 percent premium, those with senior secondary education a 40 percent premium, and those with tertiary education earn double.8 Individuals from poor households, however, lack financial assets and can only improve their income through work. Most of the jobs created in Indonesia since 2001, and indeed most current jobs, are in low productivity sectors, resulting in low real labor incomes. In addition, these workers have limited access to formal worker protection making them more vulnerable to shocks. 25. About one-third of inequality in recent years can be traced back to circumstances that children are born into, or develop soon after—inequality of opportunities. The latter can be seen by comparing a child born in Jakarta to non-poor parents who have at least high school education with a child born in a rural area of Papua or Maluku to a poor family with little education. The former has only a 6 percent chance of lacking proper sanitation, compared with 98 percent for the rural child. These differences extend across all other indicators of opportunity, such as access to clean water, housing, quality health services and education. The combination of unequal access to quality services to build human capital and the rising skill premium in the labor market, has resulted in an unequal access to good jobs and ultimately increasing inequality.

II.3. RECENT ECONOMIC DEVELOPMENTS

26. GDP decelerated to below 5 percent in the first half of 2015 and private consumption expenditure, Indonesia’s growth engine in recent years, is also slowing. Despite gradually improving global economic conditions, the balance of international risks to Indonesia’s outlook remains on the downside. Persistently low global commodity prices mean that, in the near term, net commodity-exporting countries are likely to face both weaker economic activity and deteriorating fiscal balances relative to the period before 2012 when global commodity prices were rising. In addition to growth and fiscal risks, commodity-dependent economies may need to manage risks arising from further currency depreciation. (See Annex 2: Key Macroeconomic Indicators.) 27. Return to higher economic growth depends on stable fiscal management, successful implementation of the government’s ambitious infrastructure development plans, and on further improvement of the business environment to reignite private investment. Support to the economy from the fiscal sector is impeded by weak revenues and low capital spending year-to-date. On the expenditure side, allocations to priority infrastructure projects should be safeguarded so that these can move ahead. This requires a fiscal deficit that is higher than the 1.9 percent of GDP planned in the 2015 revised budget, while still within the 3 percent of GDP which is Indonesia’s legal limit. According to a revised revenue outlook in July 2015, the Ministry of Finance expects the 2015 deficit to reach 2.2 percent of GDP. On the revenue side, the government has already introduced important measures such as electronic tax return submission and improvements in the income tax audit strategy. There is significant scope to optimize the tax regime, improve corporate income taxation, and revise value-added tax (VAT) exemptions to increase equity. At the same time,

8 World Bank (2014): “Hard Choices”, Indonesia Economic Quarterly, World Bank, July, 2014

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improving the business environment hinges on greater consistency and simplification of regulations that define the functioning of markets, including firm entry, competition, recruitment of workers, and trade.

28. Underinvestment in infrastructure over the past decade has left Indonesia with a largeinfrastructure gap. Total infrastructure investment—that is, investment by the central government, subnational governments, state-owned enterprises and the private sector—has remained unchanged at only 3 to 4 percent of GDP for a decade. This is half of what it was in Indonesia before the 1997 Asian financial crisis, and well below China’s 10 percent and India’s 7.5 percent share in GDP. This underinvestment has impacted infrastructure in every sector of the economy—from rural irrigation to urban housing—and across the entire archipelago.

29. Under-investment in infrastructure has manifested itself into extreme problems of congestionand poor logistics performance, power shortages, lack of clean water and sanitation and other basic services, which together have seriously undermined productivity growth, competitiveness, poverty reduction efforts, and the health and well-being of the people. Moreover, even where public spending has increased, improvements in outputs and outcomes have generally been below expectations. In roads, for example, a six-fold increase in spending resulted in only 20 percent more kilometers of roadway. Implementation of large-scale infrastructure is impeded by bottlenecks ranging from difficult land acquisition procedures, inefficient procurement, planning, and project management to chronic issues of sub-standard regulation and corruption.

30. The infrastructure gap is also a result of the underdeveloped role of the private sector inproviding infrastructure, both in terms of quantity and quality of investment. This situation is a result of several factors including: a complex and non-transparent regulatory framework for implementation of infrastructure projects, an unclear framework for Public-Private Partnerships making it extremely difficult to mobilize private funds for investment, a lack of appropriate financial instruments and markets to support a flow of private financing to infrastructure sectors, and the lack of mechanisms to appropriately manage risks.

31. GDP growth in Indonesia declined to 4.7 percent year-on-year in the first half of 2015, drivenmainly by low levels of fixed investment but also by a softening of growth in private consumption. Low fixed investment growth continues to drive Indonesia’s slowdown, contributing only 1.4 percent yoy to GDP growth in the first quarter, which is about half of the average quarterly growth contribution in 2010-2012. At the same time, private consumption expenditure growth, which had previously remained resilient, is also moderating, to 4.7 percent yoy in the first half. Since its share in total GDP expenditure is about 55 percent, weakening private consumption is likely to weigh heavily on overall growth. In addition, the sizable decline in nominal consumption growth to 7.6 percent yoy in the first quarter, from 9.4 percent in the previous quarter and from 12.3 percent a year ago, has had a negative impact on the government’s VAT receipts.

32. This slowdown in economic growth, as well as lower global oil prices, helped narrow thecurrent account deficit to 1.8 percent of GDP in the first half of 2015. The government’s ambitious plans to ramp up infrastructure spending, if successful, could push up overall investment and increase Indonesia’s current account deficit when growth strengthens. Running moderately-sized current account deficits appears sustainable for Indonesia, especially if supported by policy measures to boost international competitiveness and to raise the efficiency of given levels of investment in generating growth, jobs and incomes. Securing a resilient mix of external financing sources, including foreign direct investment (FDI), and mobilizing more domestic saving, by improving access to finance and strengthening the domestic financial sector, can also reduce Indonesia’s vulnerabilities to volatile global financial market conditions and maintain financial stability which is critical for economic growth.

33. Macroeconomic management has remained prudent and broadly appropriate to mitigaterisks and facilitate the adjustment of Indonesia’s external balances to weaker exports and more challenging external financing conditions. Most recently, in September 2015 global asset and commodity

14

markets experienced further volatility triggered by uncertainty about China’s economic growth prospects amidst renewed steep falls in Chinese equity prices. Global equity, commodity and emerging market currency markets also fell sharply, but have subsequently generally recovered ground in volatile trading. Indonesian financial markets were also affected, although not disproportionately in the context of the global sell-off. In the currency market, while the rupiah’s depreciation of 17 percent against the U.S. dollar between January and September poses challenges, the rate of depreciation does not stand out globally9. As part of a proactive financing strategy in the face of ongoing weakness in commodity revenues and uncertain market conditions, the Ministry of Finance requested the disbursement of the US$2 billion Program for Economic Resilience, Investment and Social Assistance in Indonesia DPL DDO (PERISAI) on September 21, 2015. Further depreciation of the rupiah, tightening financing conditions, downward pressures on commodity prices, and the potential impact of El Nino are among the major risks that the government will have to manage going forward. 34. Looking ahead, five mega-trends will shape economic prospects which policy reforms can turn into powerful drivers of growth and long-term economic transformation. These factors are Indonesia’s demographics, the urbanization trend, commodity prices, developments in China, and the potential impact of climate change.

DDemographic factors. Indonesia has abundant labor. Between 2013 and 2020, the working-age population will increase by 14.8 million, reaching 189 million from the current 174 million. Today, 50 percent of the population is under the age of 30. This increasingly educated and IT-savvy youth is an asset that can be used to boost overall productivity and economic growth. With the right policies in place to utilize this labor, Indonesia could be poised to benefit from a demographic “dividend” before the population starts to age in 2025-30.

Rapid urbanization. Indonesia’s urban population is increasing at an annual pace of about 4 percent, and by 2025, 68 percent of the population is projected to live in urban areas, compared to 52 percent in 2012. As income rises and existing large metropolitan areas such as Jakarta and Surabaya become saturated, the demand for consumer durables, shopping space and housing will increase significantly in smaller cities. Connecting these cities and their inhabitants to rural areas, metropolitan areas and the global economy will be essential to attracting firms and achieving shared prosperity. Empirical evidence shows that urbanization supports growth and poverty in Indonesia only if it is in the presence of adequate infrastructure.

Global commodity prices. The softening of commodity prices since 2011 poses challenges for Indonesia in the short term, as seen in their impact on Indonesia’s trade balance and revenue collection, but it offers an opportunity to enhance the quality and diversity of investments in Indonesia. Over the past decade, high commodity prices tilted investment incentives in favor of the resource sector and non-tradable sectors (e.g., the real estate sector) against manufacturing and other tradable sectors. Going forward, lower commodity prices should increase the relative profitability and attractiveness of manufacturing and can help Indonesia develop its industrial base. With reforms to reduce the constraints faced by manufacturing firms, weaker commodity prices can be a blessing in disguise. Moreover, given the role of resources in GDP, lower commodity prices are shifting the political economy in favor of reforms that would improve natural resource management. For example, lower prices are an opportunity to make more sustainable the growth trajectory of the palm oil industry.

Developments in China. China’s rapidly rising wages present Indonesia with potential in regaining a comparative advantage in labor-intensive export sectors. China’s nominal wages have grown by an annual average of almost 15 percent since 2001 which, together with slowing productivity growth in low-skilled sectors in recent years, has seen Chinese unit labor costs grow by almost 70 percent since 2005 according to the Economist Intelligence Unit, 2011. This pressure, combined with slower overall economic growth as China rebalances, is likely to prompt investors to look beyond China’s coastal areas, including to ASEAN countries.

9 For example, compared with the 30.9 percent depreciation of the Brazilian real.

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CClimate Change: The impact of the changing global climate bringing higher temperatures, changes inprecipitation, flooding and rising sea levels are expected to build in Indonesia over the next 20 years, withespecially negative consequences for the poorest people. These impacts will be felt in food and watersecurity and on all those who are dependent on climate-sensitive livelihoods such as fisheries andagriculture. Adapting to these threats, together with measures to mitigate the country’s contribution toGHG especially through the burning of peat forests, will be major challenges running throughout thecountry’s development choices.

II.4. LESSONS FROM CPS COMPLETION REPORT

35. The lessons of experience, including those from implementation of the previous CPS, havebeen taken into account both in determining the areas in which the WBG will work as well as in how the CPF will be implemented. These lessons have also been considered in identifying the risks to the CPF. In particular, the FY13 – FY15 CPS Completion and Learning Review (CLR) highlighted the importance of the following:

Political economy drivers, as much as technical constraints, impact the likelihood and directionof reform. Understanding these drivers and the ability of WBG interventions to influence them areimportant considerations in determining the scope of WBG support. Government ownership,commitment, resources and champions for reform agendas are major determinants of success. Whetheror not there is the ability to engage with the right level of government and whether there is a counterpartwith the responsibility and accountability to deliver should be considered in choosing engagement areas inthis CPF.

In a country as large and diverse as Indonesia, a comprehensive approach has the best chance ofimpact. Indonesia is the largest economy in Southeast Asia with a heterogeneous society, wide disparity inincome and an extraordinary degree of geographic dispersion. Therefore, a small or one-off interventionis not likely to have a meaningful impact unless it can be brought to scale. The CPS has successful examplesof such impact including PNPM Urban, PNPM Rural, PAMSIMAS and DAK, and IFC’s advisoryprograms in palm oil and corporate governance, all of which started as smaller engagements with WBGsupport and went on to become platforms for delivery of services nationwide. It also means emphasizingthe WBG value proposition in the combination of financial products, knowledge services andimplementation support, including through the strategic use of country specific trust funds, and employingthe synergies amongst IBRD, IFC, and MIGA in large or complex engagement areas as relevant. This CPFlooks to use this approach as much as possible.

The ability of government to implement reform and projects will be one of the key indicators ofsuccess during the next CPF period. This is particularly true for programs that are heavy ininfrastructure, institution building and long-term reform challenges such as PPPs. Experience from thecurrent CPS has shown that shortcomings in project readiness—particularly in terms of advanceprocurement, land acquisition, safeguard requirements, sponsor commitment, andownership/commitment—contribute to delays in implementation, partial achievement of results andsometimes failure. This CPF is cognizant of these issues. The government and WBG have agreed toaddress implementation constraints upfront in order to improve success rates.

Governance challenges remain a key impediment to eliminating poverty and enhancing sharedprosperity. Experience from the implementation during the CPS, as well as the results of the SCD,indicates that efforts to tackle the governance challenges that get in the way of development success shouldbe an integral part of future engagement areas. As explained in the SCD, this could entail among otherthings focusing on supporting effectiveness of public institutions, supporting improved service deliveryand responsiveness and accountability to the citizens at the local level. Similarly, governance and qualityof sponsors are needed for well-functioning private sector companies and projects. These focus areas, alongwith the mainstreaming of appropriate governance support within engagement areas, should help maximize

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opportunities for success.

The WBG could seek opportunities to pursue a more holistic approach for greater impact on Indonesia’s natural resource and environmental challenges in partnership with government counterparts, private sector players and civil society. This CPF, working with a new government, provides an opportunity for the WBG to develop a more comprehensive engagement if aligned with the new Government’s policy direction and reform commitment.

The future results framework should try to address some of the difficulties in measuring a Country Program that combines long-term policy reform objectives and more immediate project level results. Government and WBG are aware of the M&E challenges associated with operationalizing this CPF both on the project and the aggregate level. These were considered in the preparation of the Results Framework (Annex 1). In addition, greater attention to individual project level M&E and assessing the adequacy of the results framework will be considered during the course of implementation and adjusted in response to realities in the field.

Greater selectivity: Cumulatively, the lessons from the previous CPS support the need for this CPF to be more selective in its design, scope and results. While the government’s development agenda is necessarily broad and the country’s needs are great, the WBG must have fewer engagements if it is to bring scale and impact through the program over the next four years. Difficult choices up front and a willingness to correct course during the CPF period are required.

III. PROPOSED WBG PARTNERSHIP FRAMEWORK

III.1. BUILDING THE PARTNERSHIP STRATEGY

36. Within the country’s economic and social context and the lessons of experience, the CPF uses three selectivity filters to improve focus and maximize the chances for transformational change over the medium and longer-term. The first filter is that the CPF supports the priorities and the ambitions of the government to build a more prosperous, equal and economically independent Indonesia. The second focuses on the pathways identified in the SCD to address the constraints to eliminating extreme poverty and boosting shared prosperity. The third relates to the potential for impact and WBG’s comparative advantage. Finally, the strategy was refined in the light of consultations with a broad range of stakeholders including the private sector, development partners, and CSOs. Each is described in the sections below (see also Error! Reference source not found.).

Figure 3. 1: CPF Strategy Emerges from the Intersection of Three Selectivity Filters

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III.1.a. Government’s Development Agenda: Selectivity Filter One

37. The priorities of government are broadly set out in the Mid-term Development Plan (RPJMN2015-2019), which was issued in early 2015 reflecting the current Administration’s strategy to meet Indonesia’s development challenges. The government’s vision is focused around the realization of a self-reliant nation that maintains its unique national characteristics whilst existing in mutual cooperation and respect within the global community. The main paths by which the government looks to achieve this vision are: (i) a strengthened national security that protects the sovereignty of the nation, sustains its economic independence by securing its maritime resources, and is reflective of Indonesia as an archipelago state; (ii) achieving a country that is more equitable, democratic and law-abiding; (iii) improving the quality of life for all Indonesian people within a more advanced and prosperous economy; (iv) making the nation more economically competitive; and (v) preserving Indonesian culture and identity.

38. The RPJMN serves as a framework for the medium term development plan and aims toimprove the quality of human life and address disparity and inequality. The main objectives of the RPJMN are human being and community development, narrowing the income gap through increased productivity and poverty reduction measures, and increasing development without environmental degradation. These objectives are channeled through three development dimensions: (i) human development (ii) main sectors, and (iii) territorial and equity dimensions as shown below (Figure 3. 2)

Figure 3. 2: Government of Indonesia’s RPJM Development Strategy

39. Government is keen that the CPF is drawn from the RPJMN of 2015-2019, particularly that allthe areas of engagement are aligned with the three development dimensions and the supporting ‘necessary conditions’ described above. GoI appreciated that the interim FY13-15 CPS mirrored the former RPJMN’s pro-growth, pro-jobs, pro-poor, and pro-green pillars which helped align the WBG’s program results against those expected by the RPJMN 2010-2014. Acknowledging that it was necessary for the World Bank

QUICK WINS AND OTHER CONTINUED PROGRAMS

HUMAN DEVELOPMENT DIMENSION

1) Development for human beings and community2) Effort to increase welfare, prosperity, productivity should not lead to create a wider gap;3) Main focus is addressed to increase the productivity of middle-lower society, without preventing, hampering,

lowering, and reducing the flexibility of major actors to continue to be an agent of growth;4) Development activity should not harm and decrease the environmental support and the balance of

ecosystem.

DEVELOPMENT NORM

MAIN SECTOR DEVELOPMENT

DIMENSION

TERRITORIAL AND EQUITY DIMENSION

NECESSARY CONDITION

Health

Education

Housing

Mental/Character

Food Sovereignty

Energy power Sovereignty

Maritime and Marine

Tourism and Industry

Among Group of Income

Among region: (1) Village, (2) Borderland. (3) Outside

Java, (4) East Region

Law Certainty and Enforcement

Security and Peaceful Politic and DemocracyGovernance and

Bureaucratic Reform

3 DEVELOPMENT DIMENSIONS

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Group to use selectivity criteria in the light of the expansive needs set out in RPJMN 2015-2019, the government supported the process whereby the CPF engagement areas and supporting beams are those where WBG has a comparative advantage, are fully aligned with the development dimensions in the RPJMN, and in those cases where IBRD financing would be provided, Bappenas, line ministries and IBRD were in agreement on project choices and were reflected in the government’s “Blue Book”. Government and WBG are particularly interested to ensure that the CPF results framework objectives and indicators are obtainable, monitorable, and will assist government evaluate the success of its partnership with WBG. 40. In addition to the priorities set out in the RPJMN, WBG has consulted and discussed widely with senior policy makers including the President and Vice President, ministers and government officials, private sector leaders and civil society on which priorities would most benefit from WBG support and the best ways for achieving results. These discussions have taken place since early 2014 and have helped the new government refine its own thinking on some of the key challenges facing the country in terms of growth and equality of opportunity. Government has shown particular interest in understanding how other countries have approached similar development issues and challenged WBG to bring together financing, global knowledge and the highest quality expertise to deliver solutions. Likewise, the private sector looks to WBG not only for equity, loans and guarantees, which IFC and MIGA can provide to individual firms, but to the provision of evidence-based advice and support on a range of regulatory issues and practices that hold back private sector growth and its ability to operate effectively and efficiently. Before the drafting of the CPF, the formulation of the SCD was informed by more than a year of outreach with universities, media, and civil society at large on Indonesia’s development challenges and priorities. Consultations on the Bank’s approach to safeguards, procurement, and gender, as well as the Client Survey (see Box 3.1 below), were also opportunities for in-depth discussions of WBG programs and priorities which helped inform the design of the new CPF. 41. In addition to the partnership with government, extensive consultations on the draft CPF were held with stakeholders within government, the private sector, civil society and development partners. Formal sessions were held in locations in Jakarta and in other large metropolitan areas as well as through the internet. (See Annex 7 for details). In summary, there was support for the WBG’s engagement in Indonesia and a desire for WBG assistance in knowledge services, the sharing of global expertise, capacity building and financing in support of some of government’s key development objectives. Whilst the direction of the CPF and the areas of engagement resonated broadly with those consulted, there were specific areas which were identified as of being of particularly high priority by the different groups:

a. Civil society participants emphasized concern for the unmet needs and the inequality of access suffered by people living in the forest, coastal, and remote areas. It was felt that central government-led programs were not able to reach the neediest and that WBG programs should also prioritize interventions at the local government level and support holistic strategies to reduce inequality, especially in these remote areas. It was felt that access to energy and improved infrastructure could likewise be strengthened by bottom-up approaches including empowering villages. CSOs expressed strong support for improving the quality of local services, particularly teacher quality and access to quality healthcare. CSOs looked to WBG to provide necessary data on poverty and inequality and to promote its use in policy-making.

b. Leaders of the private sector expressed concern about the lack of proper education and skills of the Indonesian workforce. They stressed the need for government to improve the educational system to deliver the specialized skills needed in a modern economy. They also highlighted the lack of investment in essential infrastructure including power generation and transmission and the slow progress in the regulatory reform necessary to unlock private capital for investment. The manufacturing sector pointed out the need to improve Indonesia’s competitiveness, particularly compared to regional competitors, through better infrastructure, logistics, skills and incentives (including tax).

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c. Development partners supported the analysis in the SCD and the ambitiousness of theengagement areas defined by the CPF. They looked to WBG to lead the way on some of the mostdifficult development challenges where progress had been disappointing over the last several yearsparticularly in the area of environment, implementation of large scale infrastructure, and the businessclimate. They agreed that the mode of delivery was essential and that filters regarding impact,accountability and government ownership would be determinants of success. They expressed interestin working closely with WBG in coordinating the assistance provided by development partners,supporting the implementation models where bilateral grant assistance either through World Bank trust fund or in parallel programs were leveraged by WBG investment projects and implementation support.They proposed a realistic results framework to assess progress against an ambitious program.

Box 3.1: Client Survey Result

III.1.b. Development Challenges and Approaches Identified in the SCD: Selectivity Filter Two

42. The SCD identifies the pathways for the elimination of extreme poverty and increasing sharedprosperity through the creation of better jobs, improving equality of opportunity, and helping Indonesia manage its vast endowment of natural resources in a sustainable way (Error! Reference source not found.). It identifies six reform priorities in this regard including: (i) shifting the economy to a productivity based growth path, (ii) boosting investment in infrastructure and energy, (iii) improving the business environment, (iv) improving the delivery of local services and infrastructure including health and education, (v) strengthening and expanding the social assistance programs and (vi) better management of natural resources. Delivering on these priorities will require continued focus on reforms to support and grow the private sector, greater financial resources generated by improvements in medium term tax and non-tax resource mobilization and allocation, and enhancing implementation capacity, inter-governmental coordination and cooperation, as well as tackling governance challenges.

Figure 3. 3: The Three Pathways Identified in Indonesia SCD

PATH 2Economic

growth

Taxes& Gov. Spending

Job Creation

Service Deliveries, Opportunities for all

Natural Resource Management (e.g.

forests, coastal resources)

PATH 1

PATH 3

Poverty Reduction & Shared prosperity

From March to May 2015, the WBG invited a wide range of stakeholders to participate in a country opinion survey. Participants were drawn from government, bilateral and multilateral agencies, private sector, CSOs, media, academia and parliament. A total of 316 out of 1089 invited stakeholders participated in the survey.

Views of the WBG are relatively positive and have improved since the last survey, which took place in 2012. Stakeholders report that the Bank is effective in its collaboration with government, citing positive developments in responsiveness, and staff accessibility. Perceptions of the WBG’s relevance and how realistic its program is both increased significantly.

The survey reported that participating stakeholders viewed governance and education as development priorities, followed by rural development, transport and corruption.

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43. PPath 1. The private sector is the main engine of economic growth but the government plays a critical role by devising and implementing policies that encourage private sector participation and through the provision of key public goods. Three key factors have constrained more rapid growth and creation of jobs in the higher productivity sectors over the past decade: (i) large infrastructure gaps which led to a shortage of electricity, poor irrigation to support agriculture, serious congestion on roads and ports, lack of public transport, and high logistics costs which discourage manufacturing; (ii) skills gaps, with more than 60 percent of Indonesian firms reporting that skills are a constraint; and (iii) a weak business and financing environment, with investment and trade regulations that are generally restrictive, often inconsistent, and uncertain. Realizing return on investment will depend on how projects are implemented with efficient and cleaner procurement, attention to planning and project management, and tackling chronic issues of corruption. For example, the top constraint highlighted by upstream oil and gas companies is uncertainty about government policies and the timeline for reform. Government policy support to attract private investments both in infrastructure as well as in inclusive business models will also be important, in order to leverage private sector’s efficiencies and innovativeness in tackling poverty and increasing inclusion. 44. Path 2. The second pathway to poverty reduction and shared prosperity is service delivery and opportunity for all. The provision of decent housing, transportation services, water and sanitation, and quality education and health care is constrained by a combination of weak tax collection leading to suboptimal levels of public expenditure, poor public spending mix and service delivery challenges at the central and subnational levels. Over the past decade, large energy subsidies have crowded out public spending on infrastructure and social programs, reducing shared prosperity. In 2012, spending on energy subsidies accounted for more than one-fifth of the central government’s budget, more than three times the allocation for infrastructure such as roads, water, electricity and irrigation networks, and three times government-wide spending on health. In agriculture, public spending has increased substantially in recent years, but has gone to private input subsidies (e.g., fertilizer, seeds, credit) rather than public goods (e.g., irrigation schemes, research and extension). Moreover, where spending has been increased, improvements in outputs and outcomes have been disappointing. Most of the public funding for basic services and infrastructure like education, health, water and sanitation is decentralized. Decentralized spending on these services has increased substantially but their quality remains low and unevenly distributed across regions. Opportunities for the private sector to help fill the gap in water, sanitation, healthcare and education remain limited due primarily to regulatory hurdles. Going forward, spending public money in the right areas and doing so efficiently and effectively will be crucial in providing equal opportunities for all citizens through increased access to quality health and nutrition services, education and infrastructure. 45. Path 3. The special nature of poverty in forest and coastal areas suggests that pathways 1 and 2 need to be supplemented by a third one: natural resource management. Indonesia is endowed with one of the most valuable forest capital wealth and the largest mangrove and sea grass ecosystems in the world. Yet poverty is highest in forest and coastal areas. Six million out of the thirty-two million people that live in remote forest areas are poor. Similarly, poverty rates among the 140 million people that depend on marine and coastal resources for livelihood is high.10 Poverty reduction efforts in these areas are constrained by the challenges imposed by remoteness, low population density and dispersed locations as well as weak governance leading to an overexploitation of natural resources. Over the past decades, the combination of rapid deforestation, overexploitation of resources, peat fires, floods and landslides has threatened the livelihoods of people living in forest and coastal areas. At the same time, in areas where there are population concentration, vulnerability to disaster and climate risk continued to be high with around 40 percent of Indonesia’s population living in areas at risk from multiple hazards.11 For the country as a whole, better management of natural resources is

10 While the poverty rate of this population scattered around the archipelago is not available, it is deemed high. According to the

Ministry of Maritime Affairs and Fisheries, about 90 percent of coastal fishers live in poverty. 11 See World Bank, Natural Disaster Hotspots, A Global Risk Analysis (Washington DC: Disaster Risk Management Series, 2005), table

1.2.

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necessary to reduce poverty and share prosperity for these populations and to ensure that Indonesia’s vast resources are used in a way that brings greater benefit to all Indonesians.

III.1.c. Impact and WBG Comparative Advantage: Selectivity Filter Three

46. Political economy realities, the capacity of the World Bank Group operating with finiteresources (financial and human), and the depth and breadth of development challenges in a country as large and diverse as Indonesia requires an additional filter to those of government and SCD priorities. Therefore the potential for impact and WBG’s comparative advantage is used as a third determinant in deciding not only the pillars of the strategy, but choices of activities within each area. The opportunity to be impactful requires the ability to address issues at the right level of government, receptivity of the private sector and its willingness to engage in selected areas, working with empowered counterparts and other stakeholders and a clear request for WBG support. Impact is not a time bound concept. Engagement areas, and various interventions within each, will move at different speeds. Some, particularly those that build on long-running programs such as in water and urban slum upgrading, can be expected to have substantial impact on the ground within the CPF period. Others will need a longer time horizon to bear fruit. In practice, this would mean that the quality of the engagement—and therefore the potential for impact—rather than the time horizon for visible outcomes, should be a determining factor. In addition, the World Bank Group must have a comparative advantage and the capacity, including the requisite financing and other development tools, as well as human resources and global knowledge, to deliver high quality solutions in a timely manner. Introducing this filter requires that difficult trade-offs be made, that some important areas are left to others, at least in the near term, and that WBG resources be handled whenever possible for maximum impact.

III.2. PROPOSED PARTNERSHIP STRATEGY

47. Together the three filters have led to the development of a CPF strategy with an objective tooperationalize WBG support to the GoI to eliminate extreme poverty, generate prosperity and share this more widely amongst all its people. As depicted in the figure below (Figure 3.4), the proposed WBG program has been organized around six engagement areas which are supported by two beams.

48. In line with the SCD and government’s top priorities, infrastructure development featuresprominently within the engagement areas of the proposed CPF. This is justified given that reducing the infrastructure gap would help (i) alleviate the constraints that infrastructure bottlenecks impose to competitiveness, growth and creation of jobs; (ii) support the delivery of services including health and education and (iii) provide inclusion and connectivity across the country’s vast archipelago. Even with this infrastructure emphasis, WBG resources will form a small portion of overall need. Investment of over US$100 billion a year will be required over the next five year period to close the infrastructure gap. Of this, the state budget, including foreign borrowing, is expected to finance about one-third, with the remaining needing to come from the private sector and from SOEs. Through a package of loans, equity and targeted TA, the WBG will aim at increasing privately financed infrastructure (including those with partial or full private sector financing or benefiting from a government guarantee) and through demonstration projects which could help jumpstart the market.

49. To organize WBG engagements in this broad area of infrastructure, Indonesia’s own systemsand organizational structures are used. In Indonesia, the development of strategies, national programs and policy formulation in all development areas is the responsibility of the central government. However, with decentralization, the delivery or execution of most national development programs is the primary responsibility of subnational governments (Provinces, Regencies (kabupaten), municipalities (kota) and villages). There are some cases where the delivery of programs is still largely the responsibility of the central government level via line ministries (housing, irrigation and dams, water and sanitation, national roads, tourism) or SOEs (maritime and ports, energy). Therefore, to respond in a way that is best aligned to our client, one engagement is associated with national platforms and one with local governments. Two areas—energy and maritime and logistics—are

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separate engagement areas given their top priority by government and that underinvestment, institutional challenges, and operational inefficiencies in these sectors are the chief bottlenecks to growth, competitiveness and creation of more productive jobs in the economy as a whole. 50. In addition to infrastructure, the pathways to the twin goals and priorities of government are addressed through three additional engagement areas and two supporting beams. Challenges to equality of opportunity, especially for health and education, are addressed at the ‘point of delivery’ in the “Local Service Delivery” engagement. Natural resource management is addressed under the sustainable landscape management engagement. Supporting improved revenue collection and more efficient and better targeted spending outcomes is under “Collecting More and Spending Better”. There are two supporting beams. Leveraging the Private Sector and Inclusion help provide the necessary underpinnings for efficient and effective delivery of all the engagement areas and ensure that outcomes have the desired focus and impact on creating jobs, eliminating poverty and promoting inclusive growth and prosperity.

Figure 3. 4: CPF Strategy Emerges from Applying Selectivity Filters

51. Each of these engagement areas and supporting beams are described in the sections below.

III.2.a. Engagement Area 1: Infrastructure Platforms at the National Level

INFRASTRUCTURE PLATFORMS AT THE NATIONAL LEVEL

At the national level engagement, we will seek to work in those sectors where we can have impact through ‘platforms’ in partnership with government and development partners to reach scale, and where relevant, the private sector. This will most likely concentrate on the following sectors:

Water and sanitation Irrigation and dams Affordable housing Integrated tourism

This engagement links with SCD Pathway 1 Job Creation by addressing one of the biggest constraints to growth and the creation of high productivity jobs and Pathway 2 Service Delivery and Opportunity for All particularly by addressing the shortfalls in decent housing, transportation, water and sanitation.

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52. IInfrastructure Platforms at the National Level Infrastructure involves those sectors where thecentral government, mostly through the Ministry of Public Works, has responsibility for policy and/or implementation, where government or the private sector have expressed a strong interest in working with the World Bank Group and where supporting or expanding ‘platforms’ in partnership with government and, where relevant, the private sector can make a meaningful impact. The CPF makes a distinction between delivery at the local and national level not so much because the geographical coverage of the projects are different, but mainly because the delivery model is different and therefore so are the bottlenecks and solutions. While there remains the possibility to work in other sectors during the CPF period if conditions change, it is currently expected that the WBG engagement at the national level will be concentrated in water and sanitation, irrigation and dams, housing and integrated tourism development.

53. Water and sanitation. The RPJMN specifically sets an ambitious target of eliminating slumsand providing universal access to water and sanitation (100-0-100 target), including the end to open defecation, by 2019. WBG proposes to directly support several expanding and new national-level programs. These include the Community-Led Water and Sanitation Program (PAMSIMAS III), the National Slum Upgrading Program (NUSP) and the National Urban Water Supply Program (NUWSP). The role of WBG would be to help establish regional water supply systems which will increase water sources and production capacity, as well as encourage regional collaboration amongst local governments for a more effective and economically viable service delivery mechanism. Similarly, work is planned in urban wastewater management and a solid-waste program for serving metropolitan areas. The WBG’s involvement in all these programs is designed not just to fill the financing gap, but to assist the Ministry of Public Works and Housing in setting up well-designed platforms of delivery which also strengthen the capacity of local government, supported by strong monitoring and evaluation systems. IFC is considering to support private sector companies providing water and sanitation services in select locations, where the concessions have been granted in a transparent manner and the firms provide services in sustainable and socially responsible ways. In addition, IFC is also considering assisting select municipalities in structuring and bidding out waste-to-energy power projects for private sector participation. Of the national platforms, this area of the engagement has the strongest links to local government implementation and the expected results are explained further under Engagement Area 4.

Box 3. 2: Using a Platform Approach to Deliver Clean Water and Sanitation Nationwide

54. Irrigation and dams. Under the RPJMN 2015-2019 the government has set ambitious goals forthe modernization of irrigation infrastructure including rehabilitating 3 million hectares of irrigation channels and constructing 1 million new hectares of irrigation channels. GoI plans to build 49 new dams in the next five years in addition to the 16 dams which are currently under construction. Within these ambitious targets, WBG’s engagement would focus on using IBRD resources to rehabilitate existing schemes, with complementary R&D and extension services, and enhancing user participation to improve the quality of irrigation services, better maintain the infrastructure and support a more diversified pattern of production to boost farmer incomes and nutritional outcomes. At the same time, IFC would assist the Ministry in identifying irrigation dams which can be upgraded to also generate power and, where appropriate, help bid out some of

Beginning in 2008, WBG has been helping GoI address the serious challenges of providing water and sanitation to Indonesia’s rural population. This assistance evolved into the formation of a national platform (PAMSIMAS) which has extended access to sustainable water and sanitation services to approximately 8 million Indonesians to date. Within this CPF period, the PAMSIMAS platform provides the means of transforming Indonesia’s ambitious national goal of “100-0-100” into a reality. Through the platform approach under this CPF engagement area, WBG technical assistance and implementation support, provided primarily through Australian trust fund financing, together with IBRD lending, are the catalysts for a much larger financing envelope from government’s own budget which allows PAMSIMAS to reach national scale. It is expected that within the first year of the CPF, additional financing from the IBRD of some US$300 million could be matched by approximately US$1 billion of government financing to provide access to sustainable water to an additional 10.5 million Indonesians and sanitation services to an additional 7.5 million Indonesians by the year 2020.

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these projects as PPPs to bring in private sector participation which has been missing in development and operations. 55. HHousing. The government has made reducing the housing backlog and delivering affordable housing an explicit policy priority. With the Satu Juta Rumah (One Million Homes) initiative, launched in April 2015, the administration has set an ambitious target of delivering one million homes annually to meet new household demand and to address the housing deficit. WBG will aim to work both through the private and the public sector to support the provision of affordable housing through a mix of lending and technical assistance on both the supply and demand sides including encouraging private sector financing of affordable housing projects, as well as to support to financial institutions in extending mortgages.

Table 3. 1: Indonesia ranks low in key aspects of tourism competitiveness Indonesia Tourism Competitiveness Rankings, 2015 Ranking out of 141 countries

Environmental Sustainability 134 Safety and Security 83 Health and Hygiene 109 Air Transport Infrastructure 39 Ground and Port Infrastructure 77 Tourist Service Infrastructure 101 Price Competitiveness 3 Human Resources and Labor Market 53 Natural Resources 19 Cultural Resources 25

56. Integrated Tourism Development through Infrastructure, Institutions and Skills. Indonesia is endowed with spectacular and extensive natural and cultural resources which make tourism potentially one of the most important sectors for job creation. Yet Indonesia lags well behind its neighboring countries in exploiting its competitive advantage. Indonesia attracts about 9 million international visitors annually compared to over 25 million in both Malaysia and Thailand. If it could attract 20 million tourists a year by 2019, as is the Government’s target, Indonesia could significantly reduce its current account deficit by earning an additional US$21 billion in tourism generated foreign exchange. Attracting an additional 10 million tourists would create some 700,000 new tourism jobs, many for women and youth. In addition, for every job directly created in Indonesia’s tourism sector, nearly two jobs are created indirectly, through supply chain impacts, or induced through the additional spending by those newly employed12] Indonesia could take advantage of these opportunities in the tourism sector if it could address some key constraints: (i) poor tourism infrastructure including access, quality of facilities, and environmental sustainability; (ii) institutional bottlenecks, lack of public-private and cross-ministry/agency coordination, and (iii) insufficient skills to provide a full range of tourism experiences in a profitable and sustainable manner. WBG is proposing to support Indonesia with a comprehensive approach, focusing on priority ‘hub’ destinations to start and later expanding to more sites as part of a national tourism program. The program would draw on IBRD, IFC and MIGA resources, together with other development partners, to support the development of sustainable tourism destinations via a sequenced process of policy and planning coordination, development of infrastructure, promotion at the national and local level and skills development. It would have particularly strong links to the private sector including private sector investments possibly with support from IFC and MIGA financial products as well as

12 Calculations based on 2013 international tourist receipts per tourist, according to World Economic Forum Travel and Tourism

Competitiveness Report 2015. For every US$1 million in Travel & Tourism spending, 198 jobs are supported (67 direct, 84 indirect, and 47 induced), according to WTTC 2015 Indonesia.

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services to support local communities in delivering quality experiences, including SME financing and skills development needed to create a competitive tourism-based economy.

57. Proposed development outcomes for this engagement area include:Increase access to water irrigation and dam safety

The number of people benefiting from improved irrigation and dam safety.Area provided with improved irrigation and drainage services

Increase access to affordable housing Number of low-income households with access to affordable ‘core starter’ public housing unitsNumber of households with access to affordable housing through credit-linked down paymentsubsidies

Development of integrated tourism development Number of integrated tourism destinations establishedNumber of integrated tourism master plans prepared

III.2.b. Engagement Area 2: Sustainable Energy and Universal Access

SUSTAINABLE ENERGY AND UNIVERSAL ACCESS

Over US$50 billion investment deficit, 60 million people with no dependable access, limited success usingrenewables for generation.GoI has committed to:

Reduce/target energy subsidies to improve efficiency of resource allocationExpand accessIncrease share of renewable energy to 23 percentIncentivize industrial enterprises to convert to energy efficient technologies.

WBG’s engagement will use a full set of interventions including private sector investment, lending, DPLs,knowledge services to:

improve operational efficiency and reliability of services through transmission and distribution, pumpedstoragesupport renewable energy and low carbon developmentincrease access to Modern Energy Services

Support improvements in governance, competitiveness and efficiencyThis engagement links with SCD Pathway 1 Job Creation by addressing one of the biggest constraints to growthand the creation of high productivity jobs and Pathway 2 Service Delivery and Opportunity for All particularlyin its access agenda.

58. Developing the energy sector is at the top of the government’s priorities and is identified inthe SCD as one of the major bottlenecks to growth, shared prosperity and human capital formation. Chronic underinvestment and subsidies have left Indonesia with a power deficit and, with demand continuing to increase at an annual rate of about 8 percent, government has projected that the country will need at least 35 gigawatts (GW) of new generation capacity together with associated transmission and distribution capacity over the next five years. Moreover, with an electrification ratio of 84.3 percent of the population, Indonesia lags behind neighbors like Thailand, Vietnam and China which have achieved universal access. Government is looking to simultaneously increase generation capacity to meet demand and assist growth, substantially increase the share of renewables in the energy mix, and provide universal access to all Indonesians.

59. The power sector in Indonesia is dominated by the state-owned power utility PLN that ownsand operates 39.3 GW of the 51.6 GW of installed generating capacity, as of 2014, making it arguably the biggest power utility in the world. Independent Power Producers (IPPs) represent a much smaller 7.9 GW of installed capacity, and the balance is from captive generation. Investment in energy will be critical for

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supplying an expanding economy and for increasing coverage to 60 million Indonesians without reliable access to electricity. With energy contributing almost a quarter of total CO2 emissions, reducing the heavy reliance on fossil fuel sources to meet rising demand is both central to Indonesia’s development plan as well as to support the global climate change agenda. To improve the efficiency and sustainability of the energy sector, constraints to greater investment by the state-owned enterprises (SOEs) and the private sector will need to be overcome. 60. The sector until recently was characterized by subsidized electricity tariffs, and high fiscal transfer to PLN. These subsidies, projected at 0.6 percent of GDP in 2015, are unsustainable at current levels, and the government has embarked upon a tariff rationalization effort aimed at targeting subsidies only to low income consumers. Additional energy sector challenges include an increase of coal in power generation imposing environmental costs on the economy and on society and energy efficiency programs that have yet to gain significant traction. Coal accounted for about 52 percent of the generation fuel mix at the end of 2014 and, without support to the renewable sector, could increase to some 60 percent by 2019. 61. Addressing these large challenges will require new business models and changes to the role of the government, SOEs, and the private sector. For instance, PLN alone is expected to finance up to US$40 billion in generation (5 GW), transmission and distribution. The remaining 30 GW is to be designed, built, financed and operated by the private sector. Past delays come from a string of regulatory uncertainties and ambiguities, and excessive administrative processes. The government is making efforts to streamline and coordinate processes. For instance, it has created a Performance Management Unit (PMU) under the Ministry of Energy and Mineral Resources and an inter-ministerial Project Management Office (PMO) under the President and Vice President to drive delivery of the program. Additionally, it has committed to a number of long term measures around (i) reducing, and better targeting, energy subsidies to improve productive and resource allocative efficiency; (ii) expanding electricity access; (iii) scaling up renewable energy deployment by 2025; and (iv) mobilizing a partnership program on energy conservation to incentivize industrial enterprises to convert to energy efficient technologies. In the last two years, GoI have been increasing electricity tariffs. In addition, they have undertaken or initiated a number of measures to improve the speed and efficiency by which they make investments in generation, transmission and distribution and to improve the ability to attract private sector investors, including reducing permits and red tape associated with licensing. 62. Against this background, WBG’s engagement will focus primarily in four areas, drawing on all members of the World Bank Group (see Box 3.3 below) and a range of instruments from trust-fund financed technical assistance to investments with the private sector. • Energy Infrastructure: improving operational efficiencies, reliability of services through among

others transmission and distribution, pumped storage • Renewable energy and low carbon development: accelerating geothermal and other renewables

complemented with sustainable development of hydropower and the gas sector • Access to modern energy services, potentially through grid extension, possible off grid solutions, modern

cooking solutions • Sector governance, competitiveness and efficiency, particularly through the DPL series, project delivery

TA. 63. A recent Presidential decree has provided the basis for direct IBRD lending to PLN with sovereign guarantee. Along with this instrument, WBG support to the sector would comprise a mix of financing instruments, such as Investment Project Financing (IPF), Development Policy Loans (DPLs), Program for Results (PforRs), IFC equity and loans for private sector projects, and a combination of MIGA’s political risk insurance and Non-Honoring products in the renewable energy sector. In addition, the program proposes to leverage Climate Technology Funding and GEF resources. Technical assistance and knowledge services will be funded primarily through Indonesia specific and regional trust funds and working with other development partners. Policy lending is expected to support reforms to improve the regulatory and implementation framework which in turn will make more productive public and private sector participation in renewable generation, gas, and increased electrification nationwide. The engagement will focus on moving the

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power and gas sectors toward a more secure and sustainable development path. Coal and nuclear generation will be specifically excluded, but more importantly, many elements of the program, including the proposed development policy lending, will help mitigate the risk of increasing the use of coal-fired power generation to meet fast-growing demand and achieve universal access to electricity.

Box 3.3: How One World Bank Group Can Help Deliver Sustainable Energy and Access

This engagement area illustrates well the successful model of collaboration across the World Bank Group organizations. The energy engagement area is an opportunity to increase sustainable generation, increase access and create an environment conducive to private investment and faster implementation in support of Government’s national goals. Building on a long history of interaction with the public and private sectors, this WBG engagement uses a diverse and sequenced set of development tools to deliver results. Starting with economic and sector work and dialogue with policy makers and other stakeholders, WBG helps identify the key physical and regulatory bottlenecks. This knowledge is then used to support substantive reform of the sector through a proposed IBRD financed Energy DPL which includes IBRD and IFC experts in the task team and is delivered in coordination with other development partners including ADB, KfW, AfD, and JICA in order to leverage IBRD financing. Such reform improves the impact of WBG lending for generation of renewable energy. A P4R is proposed to support enhanced PLN corporate governance, procurement and environmental and social sustainability which is necessary for PLN’s ability to increase access for the roughly 60 million people who are under-served. The reform efforts simultaneously improve IFC’s ability to come in with financing and syndications from commercial banks to support additional renewable generation (particularly geothermal and hydro), better transmission and access through investment of the private sector, while further improvements for both SOE and private sector operators can be supported through MIGA guarantees. Since IBRD financing will be increasingly constrained as Indonesia approaches its Single Borrower Limit (SBL), IFC and MIGA financing is an essential means for leveraging additional financing.

64. Together these elements are expected to create a more enabling environment for cleanerenergy (gas, renewables and hydropower) investments, which opens opportunities for displacing the use of coal fired power generation to meet fast-growing demand. At the same time, it should be recognized that improvements in the early years will be incremental, particularly in relation to large scale infrastructure and institutional and regulatory reform. Given the extensive political economy issues, gas sector development strategy reform, building incentives for investment and efficient service delivery will take time and will not always move in a straight line. As in other sectors, there is a long list of regulations that are to be issued, but the absence of implementing regulations may slow the pace of reform.

65. Proposed development outcomes for this engagement area include:Increase supply and access to energy

Number of households receiving improved access to reliable energyIncremental geothermal power installed capacity (MW)Incremental pumped storage installed capacity (MW)Incremental electricity sales of PLN (Gwh)Non coal (hydro, gas) power produced (Gwh)

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III.2.c. Engagement Area 3: Maritime Economy and Connectivity

MARITIME ECONOMY AND CONNECTIVITY

Investment gap in excess of US$50 billion. If logistics costs were on par with Thailand (16 percent vs 24 percent of GDP), Indonesia would save US$70 billion annually that would be available for more productive uses. The government made ‘Maritime Nation’ a pillar of its development agenda, but progress is delayed due to a lack of a coordinated response across regulatory, operational and investment aspects and overlapping mandates. Possible WBG interventions include a blend of investment lending, DPLs, possible IFC investment, MIGA guarantee and knowledge services to support:

creation of an improved regulatory and operating environment which supports investment by both public and private sectors port development and operation hinterland connectivity in port areas including land and air-based transport development of the blue economy.

This engagement links with SCD Pathway 1 Job Creation by addressing one of the main constraints to growth and the creation of high productivity jobs, Pathway 2 Service Delivery and Opportunity for All particularly in improving connectivity in eastern regions and Pathway 3 in providing infrastructure and regulatory environment to make use of natural resources, especially in coastal and marine areas and fisheries, more sustainable and the benefits more evenly shared.

66. Good connectivity is a vital prerequisite to supply domestic markets efficiently and to compete internationally. It is all the more important in an archipelago nation where the sea can become a tool of cohesion or a source of fragmentation and isolation. Good freight logistics—both in terms of speed and dependability—involve a wide range of elements including hard infrastructure and technology, good regulation and efficient operations and quality of human capital. In Indonesia, poor logistics act as both a drag on growth and a major contributor to inequality. The costs of logistics—moving goods around the country, as well as imports and exports in and out of Indonesia—is about 24 percent of GDP. Thailand, on the other hand, spends about 16 percent of GDP doing the same. For Indonesia, this difference amounts to some US$70 billion per year that could be used more productively. 67. Poor connectivity and logistics weighs most heavily on Indonesia’s poor. Especially in eastern Indonesia, which has the highest incidence of poverty, maternal mortality and childhood stunting, lack of connectivity to the rest of the country, as well as to the world, make it difficult to support a diversified economy despite the presence of vast natural resources. At present, eastern Indonesia cannot tap into the potential of shipping backload to make their products available in densely populated western Indonesia. Port-hinterland connections are also a major contributor to high logistics costs and uncertainty in the movement of goods. Basic commodities are frequently not available throughout the year. The poor state and unreliability of port-hinterland connections is particularly problematic given the shortage of cold storage facilities throughout the country partially as a result of energy shortfalls. This hampers the ability to maintain a cold chain for high value products such as fish and fresh produce. 68. But even in Indonesia’s biggest and richest population centers in Java and Sumatra, the time to reach and trade through ports is generally higher than in other major ASEAN countries. The movement of goods around the main ports of Jakarta and Surabaya, despite significant investment and professional port management, is frequently congested. The costs of bringing containers to the Jakarta ports from nearby industrial areas are about twice those in Malaysia although distances are similar. In the era of ‘just in time’ manufacturing, the inability to predict the arrival of imports or the ability to export, puts Indonesia at a significant disadvantage to other countries even those where labor costs are higher. Much of this problem is associated with connectivity. Roads which are the predominant mode of transport and land connectivity in

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Indonesia, accounting for 70 percent of freight ton-km and 82 percent of passenger-km, suffer from inefficient investment, poor quality and inadequate maintenance. The air freight industry provides a good example where a better enabling regulatory environment promotes trade internationally and domestically. But, air freight is the exception rather than the rule.

69. Indonesia’s marine and coastal natural resources are among the richest in the world, but thecountry is not benefitting in terms of growth, livelihoods and the environmental services which they provide. Moreover, coastal populations are disproportionately represented amongst Indonesia’s poor. Indonesia is the world’s second largest producer of wild-capture fish, accounting for 6.5 million tons produced in 2011, 60 percent of which was from small-scale fishers. FAO estimates that fishers, fish farmers and those supplying services and goods from marine and coastal ecosystems contribute to the livelihoods of 140 million Indonesian citizens. However, the sector is seriously underperforming, contributing only 3 percent to GDP, primarily through accelerated and largely unsustainable growth in aquaculture. Production targets for 2015-19 would be achieved through heavily polluting expansion of aquaculture and with unsustainable levels of wild capture fisheries output. Pollution entering marine and coastal ecosystems has spiked across the country and Indonesia is now the second largest contributor to marine plastics in the world. At present, of the 20 million tons of aquaculture and wild capture produced each year, only 5.6 million tons are processed post-harvest in Indonesia due to a poor investment environment and lack of necessary infrastructure, such as cold storage facilities and electricity. Seven of Indonesia’s 11 fisheries management areas are already fully exploited. In addition, government estimates that illegal, unreported, and unregulated (IUU) fishing results in upwards of US$20 billion lost revenue annually, compared with reported revenues from fisheries of only US$4 billion.

70. Recognizing these challenges, President Widodo, in his first days in office, made makingIndonesia into a ‘Maritime Nation’ a pillar of his development agenda. This has included initial attempts to address the problems of institutional coordination by creating a new Coordinating Ministry for Maritime Affairs that aims to bring together the various line ministries and agencies that are involved in ports, shipping, transport and fisheries. The RPJMN 2015-2019 presents a maritime strategy with substantial investments in ports infrastructure and hinterland connections as well as fisheries and coastal ecosystems and calls for improvement of port efficiency including targets for the reduction of dwell time in major ports in Indonesia. The government is preparing several Presidential Decrees on upgrading ports, building new ports and improving port efficiency.

71. Against this background, WBG’s engagement in this area would focus on a number of themost critical challenges where the government has requested our help. These include: (i) the creation of an improved regulatory and operating environment which supports investment by both public and private sectors; (ii) port development and operation; (iii) hinterland connectivity possibly including supporting improvements in roads and air-based transport; and (iv) support for the blue economy. These areas would be supported using a full suite of WBG financial and knowledge products to build synergies across the program and with government funded projects. A proposed Development Policy Loan would support the government in identifying and implementing a reform package to promote better maritime logistics, improve the climate for private and public investment and strengthen technical capacity for better policy making and implementation. Reimbursable Advisory Services and other knowledge products would be used to support the collection of data and evidenced-based policy making and to help prioritize investments. IFC is considering assisting Pelindo-II, an SOE, in identifying good PPP candidate: port projects in the eastern Indonesia corridor. This would help underpin expected investments by the Bank, IFC and MIGA in port construction and operations, air connectivity, and hinterland connectivity. WBG will also look to help integrate sustainable marine and fisheries natural resources into the overall maritime approach. It is expected that particular emphasis will be in eastern Indonesia and other lagging regions in line with government priorities and to promote shared prosperity.

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72. By working as a World Bank Group, we would draw on the various strengths of eachorganization to create synergies among the various interventions. As an example, it is expected that IFC could support port operators whilst the Bank leads in investment in port development, hinterland infrastructure and blue economy. IFC and MIGA could potentially support better air connectivity.

73. Proposed development outcomes for this engagement area include:Improve maritime logistics and connectivity

Reduction of container handling time in selected international and domestic terminalsReduction in travel time for selected links to ports

Improve fisheries management practices Sustainable fisheries management implemented in fisheries management areasPercentage health status of coral reefs in intervention areas improved

III.2.d. Engagement Area 4: Delivery of Local Services and Infrastructure

DELIVERY OF LOCAL SERVICES AND INFRASTRUCTURE

One third of income inequality can be traced to inequality of opportunity in access to health and educationservices and basic infrastructure such as sanitation. Half of GoI spending is at the local level where capacityand accountability are the weakest.Solutions lie in enhancing the way central, provincial, district and village government work together to deliverthese services.Eliminating extreme poverty and boosting shared prosperity in the longer-term would require improvingopportunities today particularly in terms of education, health and nutrition to ensure a healthy and productivepopulation in the future.This engagement will be organized around three pillars using investment and knowledge services:

Strengthening the decentralization framework to improve local service deliverySupporting the delivery of quality education and health services, water and sanitation in rural areas todirectly address inequality of opportunity.Supporting the sustainable urbanization of cities, particularly through infrastructure development.

This engagement links with SCD Pathway 2 Service Delivery and Opportunity for All in supportingimprovements in quality, access and accountability for health, education, sanitation and other infrastructureprovided through local governments.

74. Inequality of opportunity from birth accounts for a persistently high share of income inequalitylater in life. One-third of all consumption inequality in Indonesia is due to factors that are outside of an individual’s control. The most significant of these factors are differences amongst households based on parental education and, to a lesser extent, where they were born. Inequality of opportunities has remained high despite the significant gains in access to key services like health, education, water and sanitation. This is due to a combination of unequal access to quality services to build human capital, which leads to inequalities in child health and nutrition as well as skills, and the rising skill premium in the labor market, which results in increasing unequal access to good jobs and ultimately increasing inequality.

75. Rapid urbanization has not been the engine for reducing poverty and boosting sharedprosperity which it might have been had there been adequate investment in urban infrastructure. The urban population has been increasing at an average rate of 4.1 percent per year between 2000 and 2010 and already accounts for about half of the country’s population. Yet, for every 1 percent increase in urbanization, Indonesia achieved only 2 percent GDP growth, below the return to urbanization in other Asian countries like

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China, Vietnam and Thailand which, unlike Indonesia, have benefited from the economies of agglomeration. The number of urban poor is quickly catching up with the number of rural poor—currently, out of the 25 million extreme poor in Indonesia, 10 million live in urban areas—and inequality in urban areas is higher and increasing more rapidly than in rural areas.

76. Despite significant investments and gains in access, the quality of services is persistently lowand unevenly distributed across regions. The large regional disparities have less to do with levels of spending in these services then with ability of local governments to deliver.

EEducation services. Government spending has tripled in the last 10 years but little has changed in theclassroom. More than half of the teachers do not meet minimum competency levels, contributing to 40percent of 15 year-olds, mostly poor, performing below the lowest competency level in PISA-math. Thisranks Indonesia the second lowest country globally.

Health-related services. Government spends only 1.2 percent of GDP on health, the fifth lowest rateglobally. Moreover, this spending is not improving services to an acceptable level. No single public primaryhealth facility (Puskesmas) in the country is equipped with the mandated human resources and equipmentnecessary to provide basic health services. Some 41 percent of the population lacks access to safe water(down from 48 percent despite a six-fold increase in spending in the last seven years) and 35 percent of thepopulation practice open defecation. These realities contribute to persistently high rates of maternalmortality (190 deaths per 100,000 live births, below the MDG target of 102 maternal deaths per 100,000live births by 2015) and of child malnutrition (37 percent of under-five children are stunted).

Urban infrastructure. Government spending is insufficient to keep up with the degradation of local public assets which are already generally of low quality. To date, implementation of large-scale infrastructureinvestments have been slow. Together this has resulted in low access and generally poor quality of servicesin water, transportation (public transport services, if existent, are mostly provided by old and badlymaintained microbuses, three-wheelers, motorcycles and ordinary taxis), centralized sanitation (onlyavailable to 2 percent of the urban population) and sewerage (only present in 11 cities nationwide). Onlyhalf of urban roads are considered of ‘reasonable quality’. Private sector companies provide sometransportation services (motorcycle or car taxi services), but their participation in mass transit water andsanitation remains low.

77. Improving the quality of services requires overhauling the current system for delivery by localgovernments. In order to get to a future free of extreme poverty and one where prosperity is shared more widely, the inequality of access that exists today needs to be addressed. Indonesia’s big bang decentralization transferred the financing (about half of total government spending) and responsibility for the provision of most basic services to district governments. At the same time, most local governments do not yet have adequate capacity to deliver services, nor are they accountable for results to the central government or to their constituents. Therefore, solving the problems of service delivery and provision of local infrastructure require building the capacities of local government to deliver, moving towards a more performance-based transfer system, providing the tools for citizens to monitor local service delivery, as well as differentiated approaches for different types of regions. It also requires combining the current top-down approach to reform, whereby local government implement national policies, with more local focus which uses frontline services as the entry to develop solutions and working out ways to identify and align supporting interventions at each levels of government. Ultimately, improving local service delivery is about enhancing the way central, provincial, district, and village government work together to deliver results on the ground. There are some cases, particularly in disaster recovery, where good local governments and engaged communities have joined forces to deliver good services and infrastructure. This is evident in the success in rebuilding Aceh after the tsunami and in Yogyakarta where 300,000 houses in an area devastated by the eruption of Mt Merapi were rebuilt. But there are fewer examples in terms of health and education services.

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78. The World Bank engagement in local service delivery is organized around three pillars which would be supported through the use of both knowledge services and investment lending.

PPillar 1: Strengthening the decentralization framework to improve local service delivery. This pillar would focus on supporting efforts to establish a performance-based fiscal transfer system, strengthening the capacity of central government agencies to support and oversee the performance of local governments, strengthening the back-office functions of local governments to deliver local services and infrastructure, and developing tools for citizens to monitor local service delivery. WBG financial support would focus on the gradual roll out of performance incentives in fiscal transfers to local governments for priority sectors (infrastructure, health and education for example).

Under this pillar, IFC would help support private sector models of delivering some of the services. In several countries, including Indonesia, private sector healthcare providers (hospitals, diagnostic centers) complement the government to improve services for citizens. WBG would seek to support such models, as well as promote other inclusive healthcare models such as e-consultations through the private sector to ramp-up services especially to disadvantaged regions.

Pillar 2: Supporting the delivery of quality education and health services, water and sanitation in rural areas. The WBG would support the local implementation of national programs that provide performance-based funds and technical assistance to districts and villages in disadvantaged regions in order to ensure universal access to education and health-related services (including water and sanitation) that meet minimum quality standards. IFC would seek private sector models for utilizing new technologies to expand healthcare and education services to the base of the pyramid populations in remote regions.

Health service readiness for Universal Health Care (UHC) focuses on equipping Puskemas with the physical inputs and human resources needed to provide basic health services, particularly maternal and child health and nutrition services. WBG would support efforts to reduce child malnutrition through the improvement of relevant health services as well as the expansion of the National Rural Water and Sanitation Program (PAMSIMAS) which is referenced in Engagement Area 1. Further interventions in relation to malnutrition are included in the Inclusion beam detailed in Section III.2.h.

12 years of quality education for all focuses on ensuring schools meet minimum quality standards, teachers show basic competencies and school expansion is efficient.

Implementation of the 2014 Village Law. In the transition from the long-running community driven PNPM program, this intervention focuses on ensuring that an increased flow of financing to villages can be absorbed in a transparent, following the community focused process so that they are well used to fill gaps in infrastructure to complement investments by district. Within this context, attention would be paid to improving access for indigenous communities (specifically adat villages) by capitalizing on recent changes in the Village Law in the identification and outreach to these communities.

Pillar 3: Supporting sustainable urbanization. Given the scale of the problem, this pillar acknowledges the need for different approaches in various urban areas and seeks to have interventions focused around two types of local delivery areas: (a) very large metropolitan areas which provide a high percentage of national economic activity (Jakarta and Surabaya), and (b) rapidly urbanizing secondary cities.

a. Supporting Jakarta and Surabaya to become world class cities. These two cities are Indonesia’s

largest and face complex and unique challenges requiring a more “retail approach”. Both cities are examples of good local governments that can provide a demonstration effect to the rest of Indonesia. WBG would support the implementation of the reform programs already underway through a package of knowledge services (e.g. budget management and financing, PFM, investment planning, education, social protection) and financing (for infrastructure). IFC may support select urbanization

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infrastructure projects which are in natural monopolistic sectors and are being developed by municipalities/sub-national government agencies.

b. Supporting the sustainable urbanization of secondary cities. This would focus on key infrastructure sectors including: urban transport, water supply and sanitation, drainage, urban flood and disaster risk management, slum upgrading, solid waste management and urban pollution. Interventions would support national programs that provide results-based financial assistance and capacity building to cities to implement national policies and goals such as 100 percent access to water and sanitation as discussed under Engagement area One. While the focus of this engagement will be infrastructure development, WBG would also support efforts to improve social services, jobs and inclusion more generally for the poor in these cities. IFC will work with selected municipalities to assist them in corporatizing and in issuing municipal bonds and to bring private sector solutions to infrastructure investment when appropriate.

79. This engagement area represents a major enhancement and scaling up of WBG intervention. Previously, there had been relatively little support to the central government agenda to reform the decentralization framework. Likewise, past interventions have tended to focus on supporting sector-specific solutions when the root causes are most often associated with how national laws and guidelines for different services are actually financed, implemented and monitored by local governments. In other cases, previous WBG support was provided directly to communities, but with relatively little connection to local governments. In this new engagement area, the policy framework for improving local service delivery will cut across interventions while ensuring the synergy among sector interventions in the same geographical area. In all cases, the goal is to demonstrate reform across regions. 80. Proposed development outcomes for this engagement area include:

Improve local service delivery Number of DAK-financed physical outputs reported, verified, and meeting eligibility criteria in districts where the performance incentive is introduced

Improve access to basic services in targeted cities Increase in people with improved access to urban infrastructure and services in the targeted slums, disaggregated by gender Increase in households with new access to improved piped water services in targeted cities Increase in households with access to improved sanitation services in targeted cities Increase in household receiving improved solid waste management in targeted cities

Improve access to quality education and health related services in targeted rural areas Increase in percentage of mothers and children receiving maternal and child health services in targeted areas Increase in number of students enrolled in schools meeting minimum service standards in targeted areas, disaggregated by gender Increase in people having access to improved water services in targeted areas, disaggregated by gender Increase in people having access to improved sanitation services in targeted areas, disaggregated by gender

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III.2.e. Engagement Area 5: Sustainable Landscape Management

SUSTAINABLE LANDSCAPE MANAGEMENT

One fifth of Indonesia’s poor live in coastal and forest regions. Insecure access to land and over-exploitation and degradation of natural resources has a direct link to poverty in Indonesia as well as global impact in terms of climate change. Government has introduced some ambitious initiatives and regulatory change, but a piecemeal approach, weak capacity, and institutional and governance failures mean degradation of forests and peat areas continues unabated with increasingly devastating effect nationally and globally. This engagement will seek to change WBG approach from incremental to one that focuses on managing landscapes through improved spatial planning and land allocation to help shift the development trajectory through:

Support for design and implementation of programs to improve management and benefits of terrestrial natural assets. Support land management and spatial planning to address problem of dual land management system With private sector, create demonstration models of sustainable development of natural resources Disaster management, mitigation and preparedness

This engagement links with SCD Pathway 3 Natural Resource Management.

81. Indonesia is one of the world’s largest GHG producers, primarily due to high rates of deforestation and land degradation. Based on emissions data through 2011—the last year for which comprehensive global emissions data are available—Indonesia is the fifth-largest emitter when its land-use change and forestry (LUCF) emissions are included in its profile and the eighth-largest emitter when these emissions are excluded.13 The vast majority (62 percent) come from LUCF, with emissions from this sector increasing 65 percent in absolute terms since 1995. The activities primarily responsible for this are deforestation and peat degradation, most recently associated with the expansion of palm oil plantations.14 Greenhouse gases from mangrove and sea grass destruction are a potentially important, but not currently measured, source of emissions. Emissions from energy (26 percent), the country’s second-largest source, are significantly less important but growing fast, increasing 80 percent in absolute terms since 1995. Future energy emissions are likely to continue rising due to planned expansion of coal-fired power generation and a slower uptake of renewables. Overall, transport (7 percent) and waste (3 percent) are much smaller contributors to GHG emissions.15 82. Prone to drought, floods, landslides, and sea-level rise, Indonesia is susceptible to all major climate-related risks except cyclones. In the near term, Indonesia is at risk of higher temperatures, changes in precipitation patterns, and flooding caused by a combination of land use change and rising sea levels, in turn negatively impacting agriculture and food and water security. Government risk analysis suggests that about 61 million people in 315 districts and municipalities live in areas with medium-to-high risk of flooding. Climate change will exacerbate the already high exposure of the population to flooding and, in the longer term, risks to lowlands will intensify as sea-level rise could increase by 35 cm by 2050 and by 75 cm by the end of the 21st century.16 Failure to adapt to a changing climate is expected to have substantial economic costs. The Asian

13 Based on 2011 data, Indonesia is behind China, the United States, India and Russia when land use change and forestry (LUCF)

emissions are counted and the eighth largest GHG emitter when LUCF are excluded (behind China, the United States, India, Russia, Japan, Brazil and Germany). Data source: CAIT Climate Data Explorer, 2015, Washington, DC: World Resources Institute. Available online at: http://cait.wri.org. CAIT data are derived from several sources. Full citations are available at http://cait.wri.org/faq.html#q07. LUCF data come from FAO 2014, FAOSTAT Emissions Database and CO2 emissions from fuel combustion data come from ©OECD/IEA, 2014.

14 National Council on Climate Change, 2010. 15 Based on 2012 CAIT data. 16 WACLIMAD, February 2012. “Thematic Paper 2: Impact of Sea Level Rise on the Lowlands.”

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Development Bank estimated in 2009 that by the end of this century, climate change could cost Indonesia, the Philippines, Thailand and Vietnam between 2.5 percent and 7 percent of GDP annually.17 For Indonesia, increased climate-related disasters will come on top of the roughly US$1.5 billion already spent annually on post-disaster recovery. 83. Failure to adapt to a changing climate is hurting Indonesia’s poor the most. Over 110 million people in about 60 Indonesian cities are exposed to negative impacts of climate change. The greatest impacts fall on the poorest people, specifically those who are dependent on climate-sensitive livelihoods, such as agriculture, fishing, and forest activities. The poor lack the assets and resilience to easily adapt to the impacts of climate change. In this context, Indonesia has been an early proponent of climate adaptation and resiliency action. 84. As set out in the SCD, the quality of natural resource governance and management will influence how effectively Indonesia’s growth strategy lifts people out of extreme poverty and boosts shared prosperity. The special nature of poverty in forests areas requires an approach that works with management of natural resources. The remoteness, low population density and dispersed community locations warrants an approach that recognizes the linkages between the fate of people dependent on these areas and natural resource activities and changes in ecosystem services resulting from deforestation, overexploitation of resources, floods, landslides, and natural disasters. 85. An estimated 20 percent of income of rural populations stem from agriculture and other natural resource based livelihoods. A key element of lifting the extreme poor out of poverty requires permanent sustainable management of natural resources. Inadequate land-use and access rights leave local populations at a disadvantage in negotiations with large businesses seeking access to the land held or controlled by these people. In addition, Indonesia is a mega-biodiversity nation, supporting two of the world’s 25 biodiversity hotspots. Economic development needs to ensure sustainability of this rich natural asset base. 86. To address poverty in Indonesia requires focusing on all regions in the country and maximizing the use of the country’s abundant natural resources and beauty for the good of all Indonesian people. Unsustainable land use practices, including palm oil and timber plantations, mining and agriculture, and poorly planned infrastructure projects have led to land and forest degradation, increased air, soil and water pollution and scarcity and conflict. Although agriculture and forest plantations, specifically pulp and paper and palm oil activities, result in significant economic benefits for the country and its citizens (for examples the palm oil subsector provides livelihoods to between three and five million people and contributes 4.5 percent to GDP), many companies still expand into sensitive areas such as primary forests and peat lands, and related economic benefits are not shared equitably. Although there are employment benefits, forest dependent communities suffer from marginalization and increasing lack of access to natural resources due to insecure land rights and lack of legal rights to traditional and customary forests on which they depend. Eradicating poverty and boosting shared prosperity will require accelerating land registry and beginning the challenging task of improving natural resource management in order to make agriculture, forestry and extractive industries more sustainable. 87. Insecure access to land and resources is a major cause of poverty in rural communities. The major impediment to providing security of tenure is the complex and inconsistent legal framework, and the institutional arrangements which support a dual system of land administration, separately administering forest and non-forest lands. There are an estimated 110 million land parcels eligible for land registration, of which only 40 million parcels are officially registered, and just 12 million officially surveyed and titled. In addition, around 15 percent of the land mass is not accounted for, and the institutional responsibilities for its public administration are unclear.

17 Asian Development Bank (ADB) (2009), “The Economics of Climate Change in South East Asia: A Regional Review.”

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88. The main underlying causes of deforestation and inefficient land use are weak governance, poor land-use planning and administration and adverse financial and fiscal incentives. Conflicting and unenforceable regulations between sectors, lack of law enforcement, conflicting data and maps and lack of clarity of land rights favor corruption, lead to land conflicts and inefficient land use, generating high public costs and preventing Indonesia’s natural resources from contributing effectively to increasing national wealth. Some examples of perverse incentives include undervalued and inconsistent non-tax revenue fees, decentralized retention schemes by which local revenues are largely dependent on unsustainable natural resource extraction, fertilizer and biofuel subsidies, and food crop and log trade restrictions. 89. GoI has initiated a number of initiatives and started some regulatory change processes which, if successfully implemented, would begin to address these issues nationally. This includes reorganization at the ministerial level and commitments to more equitable resource management, decentralization of forest management, spatial planning, peat fire management, and more transparent and efficient licensing processes. At the same time, the government has limited capacity to implement these policies and legislation, particularly where they require cross-ministerial coordination. While the previous government launched important initiatives in this area, indicators of landscape performance have degraded, with continued high deforestation rates, and persistent pockets of poverty amongst those communities living in and around forest and coastal areas. 90. In terms of global climate change, Indonesia has pledged to reduce its GHG emissions by 29 percent by 2030 compared with a 2010 baseline.18 The country aims to be a leader in efforts to reduce emissions from deforestation and degradation (REDD+), and has since 2011 had a moratorium on new forest concessions. However, despite a bilateral agreement with Norway that would provide financing of up to US$1 billion, the REDD+ agenda has not yet thrived. Given the high emissions from peat fires, Indonesia has also prioritized regulatory action on peat lands, where the policy and regulatory framework, coupled with management and enforcement capacity, are relatively weak. On the energy front, the country’s primary action to address related emissions has been to set a target for renewable energy generation of 23 percent by 202519, a significant increase from the 3.2 percent of renewable capacity in 2014. In particular, geothermal energy stands out as an untapped resource with existing capacity at only about 1.36 GW. 91. Managing landscapes through improved spatial planning and land allocation could shift the development trajectory toward a more resilient path. Experiences from recent disaster events showed that poor site and land use planning may result in adverse economic losses when disaster strikes. Events such as tsunami and flood, whose locations are relatively predictable, could be better mitigated to reduce impacts to livelihoods and production. 92. Bank assistance to GoI under this engagement would cover support for design and implementation of a landscape program focused on improving management of, and benefits from, terrestrial natural assets. The Sustainable Landscape Management Engagement could involve investments and support for policy reforms pertaining to land and forest governance and administration to reduce poverty, create a better investment climate for infrastructure investment, establish a cooperation framework for sustainable livelihood and agricultural development, and increase jobs and income while maintaining the natural asset base. It also would address the underlying drivers of deforestation and forest degradation which could unlock the enabling conditions for Indonesia’s REDD+ Agenda. The landscape program would also support Indonesia’s global commitment to reduce greenhouse gas emissions by 2020 by 41 percent as compared to “business as usual” and will improve resilience of Indonesia’s communities to the impacts of climate change and natural disasters. 18 Based on Indonesia’s final draft INDC published August 30, 2015. A final version of the INDC is expected to be published end-

September. 19 National Energy Policy 2014-2050.

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93. A particular emphasis would be on supporting land management and spatial planning and reducing the constraints created by Indonesia’s dual land management system. WBG would assist GoI put in place a reliable, consistent, geo-referenced national inventory of land parcels covering all lands, both state/public and private lands, and the technical assistance necessary to support harmonization of spatial plans at provincial, district and village level. It would strengthen the capacity of subnational entities to interpret spatial plans to be able to allocate, manage and monitor land and support the rights of indigenous communities within the forests. Efforts to reduce and manage disaster risk would continue as an important component of the WBG program. 94. On the private sector side, IFC would continue to support and create demonstration models of sustainable development for companies across relevant sectors such as agriculture, forestry, infrastructure, and extractive industries. This could include engaging with leading forestry and oil palm plantation companies committed to improved environmental and social performance as well as working with the private sector across the supply chain to support the pivot of large investors and their suppliers toward increased environmental and social sustainability. 95. Proposed development outcomes in this engagement area include: Improve land management and special planning

Completion and public availability of One Map in the context of national spatial data infrastructure Strengthened capacity in decentralized forest management

Land area supported by forest management units with improved management effectiveness

III.2.f. Engagement Area 6: Collecting More and Spending Better

COLLECTING MORE AND SPENDING BETTER

Indonesia’s revenue-to-GDP (14.7 percent in 2014) and tax-to-GDP (10.9 percent) ratios are very low and declining. There are significant challenges in budget execution and achieving outcomes. Government seeks to raise revenues, transform tax collection administration and improve the composition and effectiveness of public spending. This engagement would use investment and policy-based lending and knowledge services to support government in the following areas: Revenue:

Supporting the revision of select tax policies Supporting reforms to increase tax compliance and strengthening and mainstreaming non-tax revenue administration.

Improve spending through: Advancing energy (fuel and electricity) subsidy reforms Better quality through improved allocative efficiency, and better budget execution in key areas such as infrastructure. Strengthen institutional capacity to modernize procurement and contract management and control environment.

This engagement links with Pathway 2 by providing both increased revenue and better spending for the delivery of services opportunities for all, and Pathway 3 which seeks to improve the way revenue from Indonesia’s abundant natural resources can be captured and shared to improve sustainability and share resources more equitably.

96. Fiscal policy, in its revenue mobilization and quality of spending functions, were identified in the SCD as key to poverty reduction and shared prosperity. Indeed, as highlighted in many of the engagement areas above, the provision of decent housing, water and sanitation, transportation services, and quality health care remains limited due to poor public spending delivery at the central and subnational levels

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combined with lack of resources and suboptimal levels of public expenditure. Indonesia’s revenue-to-GDP (14.7 percent in 2014) and tax-to-GDP (10.9 percent) ratios are very low by international standards. This is not due to lower tax potential; by one estimate, Indonesia is collecting less than 50 percent of its total potential tax revenue20. Revenue-to-GDP could fall to as low as 13.4 percent in 2015 and stay in that range in the medium term under a “business as usual” scenario. Over the past decade, low levels of revenue (as a percentage of GDP), combined with a fiscal deficit legally capped at 3 percent of GDP, has led to a suboptimal level of public spending (16.9 percent of GDP in 2014 compared to more than 28 percent for middle-income countries in Asia). In other words, greater revenue mobilization could have allowed Indonesia to spend more within the legal fiscal limit. 97. Just as important as collecting more, however, is ‘spending better’– that is, improving both the composition and delivery/execution of public spending. Before the introduction of a major fuel subsidy reform in January 2015, central government’s public spending on infrastructure and health programs were significantly crowded out by large energy subsidies. In 2014, spending on energy subsidies accounted for more than one-fifth of the central government’s budget and more than three times the allocation for infrastructure and health. 98. The need for an improved spending mix to reflect the government’s development priorities is even more salient at the subnational level. As discussed under Engagement Area 4, subnational governments now spend over half of the national budget (net of subsidies and interest payments). Much of this spending goes to personnel and administrative expenses. In 2012, district governments spent 52 percent of their budget on personnel and only 3 percent on capital expenditures. Provincial governments did much better (24 percent on personnel and 21 percent on capital) but their spending responsibility is much more limited (34 percent of total transfers to subnational governments in 2013). In general, subnational governments’ spending is excessively dominated by spending on administration over productive sectors and on personnel over maintenance and capital spending. Improving the allocative efficiency of local government budgets by reallocating more resources to front-line service delivery would be an important step in improving the provision of key services to the population. 99. Budget execution and project implementation often fall short of the amount allocated in the budget particularly for infrastructure investment. In recent years, the execution rates of capital expenditure, most of which is for infrastructure, has averaged only 86 percent of the revised budget allocation between 2010 and 2014 (see Error! Reference source not found.). The slow pace of execution of investment programs is a major concern to the government as this hinders improving service delivery and efforts for boosting economic growth in the country. Government institutions are generally struggling to execute public investment programs in a timely and effective manner, largely due to weaknesses in preparation and implementation of investment programs, such as inadequate preparatory work, cumbersome government budget processes, weak procurement and contract management, and the absence of a performance monitoring system. The SCD also identifies transparency and accountability in the use of public funds as key ingredients in improving service delivery. In

20 Fenochietto, R. and Pessino, C., 2013, “Understanding Countries’ Tax Effort”, IMF Working Paper WP/13/244.

Figure 3. 5: In-year variance of capital from original budget

Source: MoF Audit Reports, Financial Notes and World Bank staff Calculations

-35%-30%-25%-20%-15%-10%-5%0%5%

10%15%20%

2008 2009 2010 2011 2012 2013 2014

Revised budgetActual outturn

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addition, budget preparation continues to focus on the budget year with limited consideration of the medium-term implications of current decisions and the constraints they place on future budgetary decisions. 100. The government has made progress in recent years towards strengthening the control environment and the regulatory framework for public procurement with assistance from the WBG. GoI has adopted COSO as its control framework. The internal audit function has been streamlined and an association of public sector internal auditors established. The SAI has made significant strides in its mandate, resources and performance. Revised procurement regulations have been issued that have begun the process of standardized bidding documents, use of e-procurement and putting in place dedicated procurement service units in procuring agencies. 101. Creating additional fiscal space is planned through a major effort to mobilize revenue, in particular non-oil and gas tax revenue as well as income tax, VAT and excise, by improving tax administration and compliance and optimizing tax policy. Government’s ongoing and planned revenue policy reforms aim to broaden the tax base, simplify the tax regime and strengthen the tax and non-tax revenue administration. To support these reforms, funding for the Directorate General of Taxation was significantly increased in the revised 2015 budget and through revisions of major tax laws, both the VAT and income tax laws, which are on the legislative agenda for 2016. 102. WBG’s engagement aims to help the government raise revenues while reducing economic distortions and lowering administration costs. To achieve this objective, WBG would support government in the following areas: (i) supporting the revision of selective tax policies; (ii) greater effectiveness and efficiency of tax compliance management through a move to a risk-based approach to compliance management; and (iii) strengthening non-tax revenue administration. The Bank would support reforms in these areas through a suite of complementary instruments:

KKnowledge services: (i) Analytical work to build the evidence base for reforms, for example, estimation of revenue potential and policy and compliance gaps by revenue source, and revenue impact simulations; and (ii) Technical assistance to support the design and implementation of reforms.

Policy-based lending to provide an anchor and coordination mechanism for the overall medium-term fiscal reform strategy.

Investment lending possibly to support the modernization of tax administration.

P4R instruments under engagement areas such as energy, local delivery of services and infrastructure and national level infrastructure which will improve the quality of spending.

103. Improving the quality of spending is at the core of the government’s priorities. The recent energy subsidy reforms have dramatically improved the allocative composition of public spending. With the new subsidy scheme, the cost of fuel subsidies is projected to fall sharply from 2.4 percent of GDP in 2014 to 0.6 percent of GDP in 2015. The projected fiscal savings of nearly Rp 200 trillion, or about US$16 billion, provides space for higher spending on priorities such as infrastructure, health and social programs, particularly over the longer term when rising fuel subsidy costs would otherwise have crowded out such spending. To further improve budget execution, the government has revised land acquisition regulation to accelerate the land acquisition process by facilitating timelier funding. The government announced its policy directions in the macroeconomics and fiscal policy for 2016 draft budget to further improve the efficiency and effectiveness of social programs and subsidies by gradually moving away from subsidizing goods to direct subsidies such as cash transfers. 104. In line with these government priorities, WBG would support the government to “spend better” in the following areas: (i) advancing energy (fuel and electricity) subsidy reforms through consistent implementation and improved transparency; (ii) improving quality of spending (allocative efficiency,

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effectiveness and budget execution) in key areas; (iii) improving quality of spending and service delivery of selected subnational governments and (iv) strengthening institutional capacity to modernize procurement and contract management and to improve the control environment. 105. This assistance would use several WBG instruments and would cut across several of the engagement areas already described above. In particular:

KKnowledge services: (i) Analytical work and TA to build the evidence base for and to support the design and implementation of reforms to improve the quality of spending; and (ii) Analytical work and hands-on TA to improve procurement efficiency in key ministries at national and subnational levels and to support use of modern methods and tools in procurement and contract management.

Policy-based lending through a fiscal reform DPL.

106. The analytical program would be consolidated around TA activities that have capacity building components and which support the immediate application of analytic work, thereby increasing the likelihood of better results and ensuring impact on policy formulation. Drawing on the lessons of experience, investment operations in this area would have to carefully assess government buy-in, project design and possible implementation constraints before going forward. 107. Proposed development outcomes for this engagement area include: Improve revenue collection

Increase in the compliance rate for individual and corporate taxpayers Improve efficiency and effectiveness of spending

A rise in the central government spending on health, capital expenditure (proxy for infrastructure), and social assistance A rise in central budget execution rates (realized as a percentage of APBN) of capital spending

III.2.g. Supporting Beam I: Leveraging the Private Sector: Investment, Business Climate and Functioning of Markets

LEVERAGING THE PRIVATE SECTOR: INVESTMENT, BUSINESS CLIMATE AND FUNCTIONING OF MARKETS

Creating jobs and reducing poverty will depend on a growth strategy that is supported by the private sector. Private sector growth depends on enabling and predictable regulations, infrastructure availability, and well-functioning product and factor markets. The need to improve the business and financing environment is a unifying factor cutting across the economy and impacts the efficiency and efficacy of many development solutions. WBG approach will be to work within engagement areas and through stand-alone support to:

Bring together private capital in support of public policy including through investments, PPP and other support for private sector investment in infrastructure, knowledge services and TA Support private sector companies and businesses through WBG support for entrepreneurship and innovation, IFC financing and advisory services in select areas, and MIGA guarantee products Extensive TA for regulatory reform, One Stop Shop (OSS) efforts and better functioning factor markets

108. As set out in the SCD, growth, jobs and poverty reduction will depend a great deal on the significant contributions of the private sector. Government plays a critical role by devising and implementing appropriate policies and regulations. Whilst addressing some key constraints through the various engagement areas, a weak business and financing environment cuts broadly across the economy and impacts the efficiency and efficacy of many development solutions. Contributors to the problems of the business and financial environment include investment and trade regulations which are generally restrictive, uncertain and

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often inconsistent (including between the national and local levels), and a permitting and licensing regime which is time-consuming and costly. Partnerships between the public and private sector, especially in infrastructure investment, remain extremely limited. As a result, although Indonesia’s investment-to-GDP ratio was 32 percent in 2012, higher than those South Korea (27 percent) and India (30 percent), 85 percent of gross capital formation was accounted for by construction, not productive investments in areas such as machinery and equipment. FDI grew by some 21 percent to US$23 billion in 2014, but most recent FDI has been concentrated in services (retail, trade and finance) and agribusiness, and not in infrastructure or manufacturing sectors.21 109. Regulations, licenses and permits at the national and subnational levels are complex, imposing delays and costs on investment. Along with construction permits, paying taxes and enforcing contracts Indonesia is within the bottom 40 in terms of the most cumbersome procedures globally.22 Subnational regulations are even more complex and unpredictable given the weaker capacity and lack of uniformity at the lower levels of government. Sectorally, uncertainty for investors is created by the existence of contradictory or misaligned laws and regulations and lack of information. Several attempts to support national industries to move up the value chain have fallen short, resulting in protecting uncompetitive local production and higher costs for consumers. 110. In addition to enabling and predictable regulation (as well as infrastructure availability), private sector growth is predicated upon well-functioning product and factor markets. Product markets in Indonesia are characterized by limited market information, insufficient value chain linkages, low agglomeration and uneven access to business development services, incubators, and accelerators. The market for capital is similarly underdeveloped. Enterprises in Indonesia are generally credit constrained and face a limited range of specialized products such as leasing. Formal labor markets are rigid, especially due to severance pay provisions and the minimum wage setting processes. Skills shortages and mismatches persist. Difficulties in acquiring land continue to constrain many business activities. Because of these factors, Indonesian firms are not benefitting as they should from the relatively inexpensive cost of labor, favorable demographics, large domestic market and abundant and unique natural resources which should make them more globally competitive. Instead, firm productivity is low and decreasing by regional standards, eroding export competitiveness, domestic market growth, and job creation. 111. Progress in bringing together private and public capital remains limited. Of the 56 PPP projects identified for funding in 2010-15 (valued at US$51.2 billion), only three were considered “ready for offer” and only two have been prepared for tender. The constraints are twofold. First, concerted high level coordination is required to bring together an array of GoI entities, address legal and regulatory uncertainty and lessen the procedural complexity that has arisen around PPPs. Significant capacity constraints also remain at all levels of government in relation to project structuring, implementation and monitoring. Second, more efficient and diversified capital market instruments are necessary in order to attract financing from institutional investors such as pension funds, insurers, mutual funds and sovereign wealth investors to fund investment. 112. The bulk of impact from relaxing binding constraints on the functioning of markets would benefit MSMEs which represent 99 percent of companies in Indonesia, 57 percent of GDP value-added, and provide 97 percent of all employment. Most Indonesian firms employ less than 20 workers which is significantly below the EAP average of 33. Less than 30 percent of firms are in the formal sector as compared to 95 percent in Brazil and 96 percent in China. The average Indonesian firm also uses less technology and communications, and its employees receive less training (See Figure 3. 6) then its comparator countries. There is significant scope for increasing domestic linkages as well as productivity in services sectors. Spreading production outside of Java is also among government priorities, but would require the development of “growth poles” to boost productivity. 21 The composition change of FDI can also not be defined as a trend. 22 It takes 65 separate payments and reports to pay taxes on average, and more than 200 days to get a construction permit. This

performance is below the regional (East Asia and Pacific) average and its peer countries’ performance: the Philippines ranked 95th, China 90th, Thailand 26th, and Malaysia 18th.

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Figure 3. 6: Indonesian firms are lagging in size, technical prowess, training, and formality

Source: World Bank, Enterprise Survey 2009 Indonesia and most recent (2009-2012) Enterprise Survey for other countries

113. Against this background, improving the business climate and markets is amongst the highest priorities in order to attract private sector capital that is essential for the creation of jobs and for helping to finance the country’s vast infrastructure needs. GoI started a campaign on domestic regulation simplification during the previous administration, which has been brought to the top of the policy agenda by the current government. One of the earliest actions of President Widodo was for the Investment Coordinating Board and relevant ministries to implement a central one-stop-shop for all national business licensing.23 The intended result is quick, simple, transparent, and integrated licensing services as a means to entice investors and to bring their investments in businesses and infrastructure online rapidly. Most recently, the government followed up with implementation improvements in the areas of starting a business and paying taxes. Trade agreements can be useful instruments not only to gain market access but more importantly to help address regulatory barriers in important areas, such as investment, government procurement and competition. For example ASEAN (and likely the recently signed TPP) require commitments to increase competition and protection to investors and to reduce differential treatment of foreign producers that could help attract foreign investments and strengthen domestic competitiveness. These externally imposed requirements are often effective at inducing reforms in politically sensitive areas. 114. GoI is working to strengthen the enabling environment for PPPs. The legal framework for PPPs has been amended to allow the private sector to invest in the development and operation of financially viable infrastructure projects without being obliged to enter into a joint venture with an SOE. The government’s PPP coordinating body (KPPIP) is working on a process of prioritizing and identifying projects suitable for public investment and PPPs. The Ministry of Finance is operationalizing its newly established PPP Unit and advancing the implementation of the PPP framework overall. Bappenas’ role in the PPP planning process has been strengthened. 115. GoI is also prioritizing the development of MSMEs and agriculture, but its approach may not result in simulating the highest growth, highest value-added enterprises. There are over 50 national SME programs and score of subnational ones, straining the budget without commensurate impact. Concessional initiatives tend to be poorly targeted due to lack of data and implementation capacity. The experience with special economic zones has also not been a strong one in Indonesia. To raise productivity, create jobs and to support promising sectors such as logistics, IT, and fashion, requires well-coordinated government support for better regulations, functioning product and factor markets, skills development and infrastructure. The tourism industry is an excellent case in point (see Box 3.4 below)

23 At the time of the President’s order, the Investment Coordinating Board was already operating a limited one-stop-shop which

processed 14 licenses, including the license for starting a business and the operational license.

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Box 3.4: Tourism’s Unrealized Potential in Indonesia

The tourism industry accounted for 9.3 percent of Indonesia’s GDP in 2014 and generated 9.8 million direct and indirect jobs. In 2014, visitor exports represented 48 percent of all service exports and 5.6 percent of total exports. Every US$1 spent in tourism generates US$1.7 in the wider economy, more than other major sectors. Tourism is a labor-intensive sector and generates jobs particularly for women and youth. The development of tourism as a growth pole in Bali, facilitated by WBG in the late 1970s, was successful in promoting growth beyond Java, and in leveraging public and private investment and financing. Decades later, Bali receives 40 percent of all tourists to Indonesia, and the province’s poverty rate is the second lowest after Jakarta.

Yet Indonesia is not yet expanding tourism in a comprehensive way to other destinations across the archipelago. It ranks 50th out of 141 countries in the 2015 World Economic Forum’s Travel & Tourism Competitiveness Index. The country’s competitiveness, based on its abundant resources could be vastly improved. It ranks well on price competitiveness (3rd), biodiversity (4th), and number of World Heritage natural sites (10th). But is held back by challenges with limited infrastructure (75th) and a restrictive enabling environment (80th).

116. A combination of WBG products can support the dynamic nature of private sector development and help increase productivity in a targeted set of business areas where conditions are propitious for high growth. In particular, WBG will focus on supporting reforms in the regulatory environment, and for high-growth firms within dynamic product and supportive factor markets. The choice of how the support is to be designed has been sifted through three filters—visibility, impact, and capable counterparts—in order to maximize the benefit from WBG support. Given that IFC’s and MIGA’s balance sheets are limited, whilst the needs for financing and advisory support for private sector development are immense, IFC will seek to bring in like-minded mobilization partners in supporting its private sector development agenda (See Box 3.4) 117. One of the most important interventions by WBG is to focus on bringing together private capital in support of public policy and in particular to support efforts to increase private sector financing of essential infrastructure. WBG has a fairly large existing portfolio of investment and knowledge services, including two lending operations - the Indonesia Infrastructure Fund (IIF) and the Investment Guarantee Fund (IGF), with which implementation during the CPF period should help strengthen results on the ground. It is proposed to provide additional financing for IIF and, working with other development partners, potentially increase the scope of the IGF. WBG plans to provide assistance to strengthen PPP architecture including the legal framework and coordination between the government and the private sector. WBG will also help to unlock financial markets to support project finance, level playing-field rules for funds and investment vehicles, deepen hedging markets through a simplified issuance regime for certain securities and support further development of credit registries. IFC will also continue to support private sector companies to issue corporate bonds and listing equity shares to deepen the capital markets. Through a package of loans, equity and targeted TA, the WBG will aim at increasing privately financed infrastructure (including those with partial or full private sector financing or benefiting from a government guarantee) through demonstration projects which could help jumpstart the market and could leverage some US$ 1 billion in additional private financing over the CPF horizon. 118. Within the overall framework of the CPF engagement areas, IFC will continue to support private sector companies and businesses through financing and advisory services in select areas as will MIGA through its guarantee products. In infrastructure development, IFC expects to continue support for private sector companies which adhere to high standards of governance and sustainability in power, transportation (ports, airports, toll roads), water and sanitation sectors, amongst others. Support is also expected for manufacturing and agribusiness companies which utilize domestic raw materials and add value through sustainable and efficient operations. In each of these sectors, IFC will seek to develop models that provide a demonstration effect both through investments and advisory projects, which then could be replicated by other firms and corporations.

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119. TA for regulatory reforms and the OSS will support GoI reform efforts at the national level and can be expanded to the subnational level where possible. This could be supported through analysis of regulations in areas where progress has been slow. A combination of Knowledge Services and TA to support MSME development and specialized finance (for example: leasing and credit bureaus) could support the expansion of growth poles outside of Jakarta, value chain linkages to large domestic and foreign firms, and improve access to markets. 120. Proposed development outcomes for this supporting beam include: Simplify business licensing processes to support private sector

Reduction in total time required for processing of all licenses in four priority sectors (apparel, food, IPP, and tourism)

Increase the role of the private sector in national infrastructure investment An increase in private sector investment in infrastructure An increase in total number of international tourist arrivals An increase in number of tourism-related jobs in integrated tourism destinations

Enhance access to finance An increase in percentage of populations with access to financial services Number of individuals/microenterprises reached with financial services, disaggregated by gender Number of SMEs reached with financial services

Box 3.5: Delivering as a World Bank Group

Joint Global Practices as well as the individual strengths of different WBG products come together naturally in “Leveraging the Private Sector” as well as in “Inclusion” beams. A joint team supports financial access and payments and contributes to work in social assistance programs including housing. WBG support on access to finance, national payment systems, secured transactions, credit bureaus, MSME finance, and creditor rights has contributed to an increase in financial access nationally from 20 to 36 percent of adults over the past three years. On regulatory simplification, the joint trade and competitiveness practice supports the central and subnational governments to implement simplified regulations, including business registration and operational licenses. This work spans licensing simplification for starting a business to regulations in electricity, the maritime sector to finance and taxes. Already, reforms have helped 1.7 million newly incorporated firms and Indonesia's Doing Business ranking reflects its "active reformer status" at 114 in 2015 (up from 128 three years ago). The success of WBG collaboration can be explained by working in areas that make business sense and taking advantage of each institution’s competitive advantage in an integrated engagement.

III.2.h. Supporting Beam II: Shared Prosperity, Equality and Inclusion

SHARED PROSPERITY, EQUALITY AND INCLUSION

This beam applies a lens of eliminating poverty and lessening inequality across the WBG program both for the future and to protect today’s poor and vulnerable by helping them to move into productive lives. Will provide input, including support to evidence-based policy making in other engagement areas as well as stand-alone support to the development and implementation of policies to protect the poor and vulnerable and to help them sustainably move out of poverty. This beam would mainly be delivered through knowledge services, with the support of development partners. It will be organized around three main components:

Improving the poverty and inequality focus of policies supported by other CPF engagements Improving social protection programs for the poor and vulnerable Supporting the creation of and access to productive jobs

WBG interventions with the private sector would focus on the creation of more productive jobs through cooperation with specific companies and financial inclusion.

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121. Eliminating extreme poverty and boosting shared prosperity require applying a poverty and inequality lens to government policies across the board along with dedicated policies to protect the poor and help them move out of poverty into productive lives. The policies supported by the previous engagements, if designed and implemented properly, could significantly contribute to these goals. For example, the delivery of quality services to all Indonesians will provide equal opportunities today and set the foundation for eliminating extreme poverty and boosting shared prosperity in the future. 122. But dedicated policies are also needed now to protect today’s poor and vulnerable and to help them move into productive lives. Indonesia has been building a safety net system since the 1997 Asian Financial Crisis, but coverage remains low and benefits too small to make a sustainable difference. Indonesia is now implementing one of the largest social security reforms in the world, but is challenged to make coverage more inclusive, squeeze out fraud and corruption and establish a financing mechanism that does not discourage formal employment already burdened by rapid and unpredictable increases in minimum wage levels and punitive severance pay requirements. Policies to help move the poor out of poverty into productive lives (for example by the provision of credit and savings and employment support), are currently limited, but the government has made them a priority along with complementary policies to promote the creation of more productive jobs. 123. Gender differences, particularly in terms of job status, mean that women tend to be more vulnerable than men.. Women constitute the majority of the self-employed and unpaid family workers, making them more susceptible to personal and financial insecurity. Compared to men, women have a 24 percent higher probability of working in the informal sector. Women-owned SMEs are mostly self-employed by necessity. Indonesia’s social assistance programs do favor female-headed households (FHH), but because FHHs typically have a sole income earner, usually with children to care for and support, female-headed households are more vulnerable to shocks and their exit from poverty more volatile. 124. Ensuring access to financial markets can help break the cycle of poverty and lower the risk of the near-poor slipping back. This can done by building people’s savings and providing insurance, and enabling funding of consumption and productive activities for farmers and informal workers. In Indonesia, the share of adults with access to finance has jumped from 20 percent to 36 percent over the period 2011-14,24 although access is lower in rural communities (29 percent) and for the poorest 40 percent of adults (22 percent). Geography and low levels of financial literacy are particular challenges for financial inclusion. Government is looking to implement e-money and branchless banking regulations with the objective of linking millions of additional Indonesians to finance, as well as providing additional banking and insurance products including Sharia-compliant products. 125. The proposed WBG program on inclusion aims to improve the poverty and inequality focus of government policies supported by the CPF engagement areas as well as stand-alone support to the development and implementation of policies to protect the poor and vulnerable and to help them sustainably move out of poverty. This beam will mainly be delivered through knowledge services with the support of other development partners and is organized around four components:

IImproving the poverty and inequality focus of policies supported by other CPF engagements. This would be done through analysis, measurement, capacity building and awareness raising around poverty and inequality in general, as well as support to specific policies and programs. Strengthening of safety nets, focusing on (i) the development of common systems for social assistance programs, particularly for targeting and digital payments; (ii) reform of the Rice for the Poor Program (Raskin) to improve access of the poor to nutritious foods complemented by reforms to enhance agricultural productivity and markets; (iii) transformation of existing food distribution programs into a food voucher program that protects poor households from food-price volatility, calorie scarcity, and malnutrition; and (iv) reforming existing safety nets to better respond to shocks.

24 World Bank’s Global Findex survey 2014.

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DDeveloping graduation programs for the poor and related support. This could include support to (i) the development of the umbrella of graduation programs (P2B) at the central level; (ii) the adjustment and implementation of these programs by local governments; (iii) the development of the financial infrastructure to increase access to credit, savings and insurance among the poor and vulnerable across Indonesia; and (iv) improving payment systems infrastructures to increase reach to the poor. Improving the implementation of The Social Security Program (SJSN) to provide effective protection to all citizens (health) and workers (employment programs). WBG will continue to help the government with program design and financing and building capacity to manage these programs. Increasing access of the near-poor to financial access products to help them buy productive assets and insurance to prevent them from slipping back into poverty. This could include support for micro-finance, smallholder support programs in agribusiness sectors, technical support and capacity building for implementation of newly-issued regulations, and possible support for agricultural insurance drawing on expertise across WBG.

126. Inclusion and sharing prosperity will require the creation of more productive jobs. Given the importance of job creation as a pathway to the twin goals, interventions are included throughout the engagement areas. In addition, WBG will use TA and knowledge services to support better evidence-based policy making and to help government particularly focus on: (i) addressing the bottlenecks to the reallocation of workers to more productive activities; (ii) improving the skills of the workforce; (iii) improving access of disadvantaged workers to productive employment through, for example, employment support programs; (iv) improving worker protection without discouraging formal employment; and (v) improving the protection and quality of employment of Indonesians who migrate abroad. 127. In addition, a gender focus will continue to be mainstreamed across WBG operations continuing on the significant success under the previous CPS. The Country Gender Action Plan will continue to identify, coordinate and monitor activities to promote gender issues in the broader engagement in Indonesia as well as in specific operations and knowledge products across four dimensions of gender equality: endowment, economic opportunities, voice and agency, and emerging risks areas. Areas with a particular gender focus in the CPF will include financial sector development, village law and poverty targeting, education, health, environmental sustainability and disaster mitigation. Continuation of IFC programs for female entrepreneurs and SME finance will target women in financial inclusion programs. 128. WBG interventions with the private sector will continue to focus on the creation of more productive jobs through cooperation with specific companies and particularly through financial inclusion activities drawing on both IFC and the Bank. WBG is expected to provide additional financing to banks and financial institutions to extend their support to micro, small and medium enterprises, helping to create livelihoods and jobs for poor people. IFC would work with larger corporates in infrastructure, manufacturing, food products and services sectors to support them in securing jobs, procuring raw materials and producing high quality goods for poor people through its focus on inclusive business models. WBG will increase its focus on identifying global models based on new technologies to enhance inclusion. These would include diverse subsectors such as mobile banking to enhance financial inclusion and e-consultations to provide low-cost healthcare and diagnostic services to patients in more remote areas. One of the world's largest partial credit guarantee programs for MSMEs is another outcome of this support with large outreach and good performance (12 million clients and a NPL of 3.3 percent). 129. Proposed development outcomes for this support beam include: Improve social protection programs for the poor and vulnerable

Number of households benefiting from PKH (conditional cash transfer), disaggregated by gender Increase in the number of households receiving payments digitally

Support creation of and access to productive jobs Number of jobs supported

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IV. IMPLEMENTING THE CPF 130. In practice, delivering on the CPF’s objective will mean bringing together the necessary WBG products and skills to create the momentum for positive change and comprehensive solutions. All of the engagement areas and beams will be delivered using multiple GPs and some with multiple practice groups. None will be delivered using a single financial or knowledge instrument. In many cases, the engagement areas also bring together more than one of the World Bank Group’s three organizations. This requires that the WBG work together in different ways. In some cases, a GP could be in the lead on an engagement, and for other GPs, their involvement may be in a supporting role. Moreover, the engagement areas themselves are intertwined and mutually supporting. For example, solutions to Indonesia’s energy challenges cannot be done in isolation from the impacts on landscapes and management of natural resources. Tackling Indonesia’s rapid urbanization means improving the ability of local level government to implement national policies, or supporting national policy makers to strengthen the accountability of municipal governments to provide quality education to all. Possible interventions in national infrastructure will be intended to support the government to develop means for spending better. Implementation of maritime connectivity must take into account maximizing the value of the blue economy whether for fisheries or tourism. The strength of the Indonesia WBG country team, and the excellent partnership with government, will remain an important factor in our ability to deliver.

IV.1. FOCUS AND SELECTIVITY WITHIN THE CPF STRATEGY

131. The CPF provides an opportunity to add focus, building on the foundations of WBG’s long-term engagement in Indonesia and lessons of experience:

The CPS FY2013-15 was an interim strategy that covered the last two years of former President Yudoyono’s second term and the first year of the new government. It was a time characterized by slower progress in reform initiatives, a reluctance to access foreign borrowing, and a hesitation on key decisions given the expected change in government. The CPS was, therefore, of necessity open-ended and engagements looked more for breadth than depth. With a new government, there is a desire to make more use of the WBG value proposition of combining knowledge services and project financing and implementation support. The enhanced level of access to and desire by government to work with WBG sets a strong basis for working more selectively on high impact areas overall.

Compared to the CPS, which had four widely defined areas of engagement that covered all development areas—pro-growth, pro-jobs, pro-poor, pro-green—and deliberately left space for a wide range of smaller and one-off activities, this CPF proposes more defined engagement areas and supporting beams that focus on fewer areas of intervention.

To provide more clarity on outcomes and client focus, WBG programs will be defined by engagement areas rather than by specific sectors or GPs. Moreover, the selectivity filters proposed in this CPF are not static and limited to determining only the engagement areas and beams. Selectivity will be used actively during implementation to judge whether individual WBG interventions within the engagement areas and beams are sufficiently focused and have a realistic chance of meeting their development objectives.

The CPF is explicit that we will recalibrate our efforts or exit where the selectivity criteria are not met based on the prevailing policy environment and government priorities. This is consistent with providing steady, predictable support in key development areas while remaining open to emerging priorities. For example, during the previous CPS period, the WBG had limited engagement in health. In this CPF, it is proposed to ramp up involvement through possible investment and knowledge services. Previously, there has been little support to the central government agenda to reform the decentralization framework, partly a reflection of lower commitment of past governments to this

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reform agenda. To reach scale in the urban agenda, WBG will work directly with only two large metropolitan areas and with other mid-size cities, WBG will work more “wholesale”.

Box 4.1: Selectivity in the CPF: What WBG Plans To Do Differently

Based on the current policy environment and priorities, the following are examples of what WBG will not do, and will do differently, unless conditions change:

In national infrastructure: At the national level, financing for infrastructure will be where we can support government on developing and implementing national platforms rather than any one-off investments. In the energy sector: Given the overwhelming needs in the energy sector, WBG will concentrate on renewables in geothermal and hydropower while KfW and other development partners provide leadership in areas such as solar and wind. In Roads: WBG will focus on advisory and road investment that either advances the connectivity agenda or supports reforms to increase the efficiency of public spending in the sector including attracting private sector financing rather than interventions where the emphasis is simply on expanding the physical network. In governance: Support for governance and anti-corruption remain critical, but will be delivered through engagement areas and determined by using selectivity filters to improve the chances for impact and ownership. The main focus will be through engagements focused on “collecting more and spending better” and improving the capacity of local level governments to deliver essential human services and infrastructure and away from isolated subnational initiatives which have little chance of scale or replicability. In agriculture: The current policy environment, including food policies and associated patterns of public expenditure, is not conducive for investment lending. WBG engagement will instead focus on analytic and advisory work, in parallel with working with the private sector in the agriculture sector, as part of sustainable landscape management and through helping address the ‘triple burden’ of malnutrition through the local service delivery engagement area and inclusion beam. In environment: We will direct our support to national or subnational initiatives that are embedded in a broader national landscape program, and away from relatively small, isolated, free-standing interventions with little chance of scale or for which there is not a clear and empowered champion in accordance with CPF selectivity filters. In rural development: As part of the evolution of the long-running PNPM support program, emphasis will be away from supporting a number of experimental engagements (PNPM Green, PNPM Peduli, PNPM Creative Communities) to focus on supporting implementation of the 2014 Village Law including through provision of results-based matching grants and technical assistance to districts and villages in disadvantaged regions to ensure access to basic services that meet minimum quality standards for all.

IV.2. IMPLEMENTING THE WBG PROGRAM

132. The proposed CPF would require a larger financing package than the previous CPS, although WBG’s total contribution would still be a very small percentage of overall borrowing needs. The CPF, if fully implemented, could entail a scaling up of IBRD lending of an indicative amount of about US$7.5 billion, new IFC engagements of up to US$3 billion in equity, loans, guarantees and mobilization and a more active MIGA program that expands the use of political risk and non-payment guarantee instruments. For the IBRD, lending would average some US$1.5 billion per annum although actual lending volumes will depend on country demand, choice of instrument, overall performance during the CPF period and IBRD’s financial capacity and demand from other Bank borrowing countries. Should these volumes be reached, Indonesia would potentially reach and then exceed the $16.5 billion threshold above which a 50 basis point surcharge on incremental exposure would apply. Indonesia would potentially also reach the Single Borrower Limit (SBL) of US$19 billion towards the end of the CPF period depending on the actual commitments. Given that about one-third of the indicative lending pipeline is fast disbursing development policy lending and possible P4R, it will be necessary for the government and the Bank to take stock of the situation with regard to the SBL midway through the CPF period and consider possible measures to continue IBRD financing under different scenarios within the limits of the SBL. The experience of other large IBRD borrowers will be helpful in this regard. The SBL

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exposure can be contained through various conventional measures (e.g. cancellation of undisbursed balances of existing loans, prepayment of selected outstanding loans; reduction in new borrowings or shortening of average maturities). In addition, other measures may also be deployed for example opting to use own resources to purchase IBRD Special Private Placement Bonds (SPPBs) as a means to ease the hard constraint of the SBL and to open up headroom for additional lending25. 133. In addition to financing, WBG knowledge products will remain important both as free-standing interventions and to provide the analytic underpinnings for investment operations and to support evidence-based policy making. The Bank’s knowledge and convening services will continue to be used to help move forward the policy dialogue and lay the ground work for further progress on key areas, and contribute to effective implementation of policies—such as the fuel subsidy reform and reallocation of resources to social programs and productive investments—and support the coordination across government agencies. Knowledge services will also be the main instrument of support in cases where political economy considerations may not be conducive for lending. 134. The CPF results framework will be used as a dynamic tool to define and monitor outcomes and milestones. The results framework in Annex 1 captures ongoing activities and new activities agreed upon with the government and proposed under the CPF. In line with the lessons identified in the Completion and Learning Report (CLR) in Annex 2, the results framework balances the long-term policy reform objectives of the CPF and more immediate project-level results. It is important also to recognize that given the time frame of the CPF, many of the measurable results during the CPF period will be achieved through the existing active portfolio, and the results envisioned under the proposed new projects will likely materialize in the outer years of the CPF, if not beyond the CPF period. Given the demand-driven and flexible architecture of the CPF, the results framework will be adapted at mid-point of implementation to reflect the implementation status of the World Bank Group activities and feedback from the annual program review and planning meetings that are regularly held with government. 135. The change in the partnership framework has come about because of the new government’s focused development agenda and its different approach to multilateral borrowing. Government values not only financing for priority investments, but understands the WBG value proposition in combining financial products, knowledge services and implementation support. Particularly for large and complex infrastructure investment such as energy, maritime and housing, the government has requested that the WBG bring the balance sheets of all three institutions—IBRD, IFC and MIGA—to bear. The WBG can come together in a particularly complimentary manner in these engagements for several reasons. First, this approach leverages each organization’s strengths so that for both the client and the WBG, the sum is more than the parts. For example, port construction can leverage private sector capital in commercially viable ports leaving scarce IBRD resources for those facilities where financial viability is lacking whist making the overall sector more attractive to the private sector investment. By using an approach that is strongly market driven, IFC and MIGA find it easier to offer the private sector a viable proposition for investment. The platform nature of the engagements also provides a suite of instruments that allows each institution to contribute according to its comparative advantage rather than having engagements with a single product. (See Box 3.3)

25 The SPPB option is part of the framework endorsed by the Board in August 2002 for managing IBRD exposure in countries close

to the IBRD’s SBL. The SPPB option provides for flexibility in managing exposure to borrowing countries that are close to the SBL, while respecting the rationale underlying the SBL. Under the SPPB option, highly creditworthy borrowing countries can enter into an agreement with IBRD to purchase IBRD SPPBs if gross exposure is projected to exceed the SBL by a pre-agreed limit. Through the SPPB option, IBRD’s gross exposure to a borrower with respect to loans and guarantees could be reduced by the principal amount of the outstanding SPPBs, ensuring that, on a net basis, exposure would remain within the SBL.

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136. At the same time, the government has put a high premium on speed of delivery and shorter time horizons. The tremendous needs for infrastructure financing and delivery require public and private financing to work in better synergy. This situation requires that the WBG’s engagement draws on the best global expertise and has implications for staffing and presence in country. Delivery of the CPF will require the continued large-scale presence in Jakarta, combined with support particularly from hubs such as Singapore, which locate the Bank’s top experts in infrastructure development in close proximity to the client to provide not only technical advice but hands-on implementation support. 137. This ambitious CPF is made possible by the continued partnership with bilateral development partners who, most often through country-specific trust funds for IBRD and regional programs for IFC, provide the means by which WBG in Indonesia has been able to leverage WBG-financed projects and programs and scale up coverage to reach more people. The Bank has a history of working with bilateral and multilateral partners to deliver development assistance through country-specific trust funds around core areas of infrastructure, social development, trade, poverty, and economic analysis. In many programs, for example, the community-based rural water program (Pamsimas) and the long-running PNPM program, large investments by government, substantial IBRD loans and development partners financing together provide the financing and the implementation platform for programs that can reach nearly every corner of Indonesia. Such platforms also allow GoI and development partners to work cooperatively to support experimental approaches to delivery whilst avoiding aid fragmentation. This includes cutting edge approaches to poverty monitoring and new ways of working with CSOs and the private sector. The GoI and WBG are together pursuing a policy of sharing the lessons from Indonesia around the world, particularly to IDA and fragile and conflict affected states. Similarly, IFC has significant donor financed programs in the areas of sustainable agriculture development, forestry, corporate governance, financial inclusion and capital markets development. These are areas where IFC’s interventions have substantial development impact and where IFC has distinct competitive advantages in working with the private sector. The World Bank’s well-established knowledge program will retain its central role in the delivery of the WBG program during the CPF period. 138. In addition to bilateral partners and their development agencies, the technical and financial needs of the government’s development strategy will require that the WBG continues to expand its cooperation with other MFIs. The World Bank Group has long worked with the ADB in cofinancing. Going forward, it is expected that the government may look for additional areas where WBG, ADB, IsDB and bilateral development agencies could work in concert particularly in areas of policy reform. The Bank and the UN organizations have successfully implemented a number of programs together in Indonesia. Under this CPF, it is expected that this partnership will be particularly strong in the area of disaster recovery and mitigation, and in the areas of natural resource management, particularly in forest areas and coastal regions (see Box 4.2 below). Box 4.2: Experience of REKOMPAK

REKOMPAK, a community-driven disaster reconstruction and resettlement program started in 2005, provides a good example of how WBG can collaborate with multiple stakeholders to tackle development challenges in Indonesia. The approach was first piloted in Aceh following the massive destruction of the 2004 tsunami.

Planning and coordinating the large scale effort to rebuild Aceh was an enormously complex task. Following a request from government, the World Bank acted as trustee responsible for managing a Multi Donor Fund (MDF) which pooled together a total of US$654.5 million received from fifteen donors. These development partners, under one trust fund mechanism, provided the best for beneficiaries by putting aside individual interests and avoiding aid fragmentation.

REKOMPAK, which was financed by the MDF, provided housing for tens of thousands of people and reconstruction of several hundred settlements. It also provided the government and development partners an effective platform of collaboration for future reconstruction. When disaster struck in the aftermath of Yogyakarta earthquake, the government and communities, with support from the WBG and the MDF, and using the model developed in Aceh, were able to build 280,000 houses with almost 100 percent occupancy rate within two years, making it one of the fastest and largest settlement disaster recovery programs in history.

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Table 4. 1: Draft IBRD Indicative Lending Pipeline FY2016-20*

*Financing amounts are indicative only and will be determined over the period. Total IBRD lending cannot exceed the SBL.

Amount in $M by loan instrument

IPF DPL P4R

Engagement Area 1: Infrastructure Platforms at the National Level1 Dam Opr Rehab & Safety Improvement Project -2 (DORSIP-2) MPW&H 150-250

2 Urgent Rehabi l i tation of Irrrigation Project (URIP) MPW&H 150-200

3 Modernization Strategic Irrigation Project (MISP) MPW&H 150-200

4 National Affordable Hous ing Program MPW&H 150-200

5 Tourism Infrastructure Development MOPW&H 100-150

Engagement Area 2: Sustainable Energy ang Universal Access1 DPL Energy I MCEA 500

2 DPL Energy II MCEA 300

3 AF-Upper Cisokan 1040MW PT.PLN 150-200

4 Power Dis tribution Efficiency -P4R (PT.PLN) PT.PLN 500

5 Poko Hydro Power 130MW(PLN) PT.PLN 200-250

6 Matenggeng Power (PLN) PT.PLN 200-250

7 Geothermal I I 150MW(PT.PGE/Pertamina) PT.PGE 100-150

8 Power Dis tribution Efficiency II -P4R (PT.PLN) PT.PLN 250

Engagement Area 3: Maritime and Connectivity1 Road improvement to support Integrated land and sea tol l way - Northen area MPW&H 150-200

2 DPL Mari time, logis tics & connectivi ty-MLC MCEA 300

3 DPL Mari time, logis tics & connectivi ty-MLC II MCEA 300

4 Eastern ports development (PT.Pel indo) PT.PELINDO II 200-300

5 National program for blue economy MoFsh 100

Engagement Area 4: Delivery of Local Services and Infrastructure1 Regional Infrastructure Devevelopment Funds (RIDF) PT.SMI 200-300

2 AF- National Rura l water & sani tation (Pamsimas 3) MPW&H 300

3 National Slum Upgrading MPW&H 200

4 Improvement of Primary Health care MOH 250

5 Improvement of Sol id Waste Mgmt to Support Rgnl & metro Ci ties MPW&H 100

6 National Urban Water Supply Program MPW&H 100

7 Regional watersupply in Benteng Kobema and Durol i s MPW&H 100

8 Surabaya urban transport Pemkot Sby 100

9National Urban Waste Water Management Program (Sewerage system devt and Devt't of Sewage treatment plant faci l i ty)

MPW&H 100-150

10 Support for Del ivery of Vi l lage Infrastructure and bas ic services MOV 150-200

11 National Urban Dev't Program (NUDP) - Susta inable Urban Dev't MPW&H 100

12 DAK Reform Program MOF 100-150

13 Qual i ty Education in Disadvantaged Regions MOEC 100-150

Engagement Area 5: Sustainable Landscape Management1 Forestry Investment Program MOFr 100

2 National Land Adminis tration and Spatia l Planning MOA&SP 100

Engagement Area 6: Collecting More and Spending Better1 DPL Revenue Col lection MOF 300

2 Modernization of Tax Col lection project MOF 100

3 DPL Revenue Col lection II MOF 300

4 Dev't of Capaci ty, Qual i ty and Competency HR (SIPRIT I I) BAPPENAS 100-150

Supporting Beam 1: The Business Climate and Functioning of Markets4 AF Indones ia Infrastructure Financing Faci l i ty PT.SMI/PT.IIFF 150

Project/Program TitleExecuting

Agency

52

139. At the same time, Indonesia and WBG need to take into account the implementation challenges that will be associated with this CPF. The current IBRD portfolio is at its lowest level in 5 years with 21 projects and about US$4.3 billion (following the US$2 billion DPL DDO disbursement in September 2015) in net commitments as a result of the slowdown in borrowing towards the end of the last CPS period. In FY15, the disbursement ratio was 15 percent, lower than its historical average of over 20 percent, reflecting the higher percentage of infrastructure projects in the portfolio mix which typically take longer to implement. Commitments at risk (31 percent) are considerably higher than China (15.5 percent) and the Philippines (14 percent), although the number of projects at risk (32 percent) is comparable with Philippines (31 percent). As noted above, the CPF would potentially see the IBRD portfolio almost doubling the existing commitment levels. 140. Although implementing better and faster is one of the government’s key objectives in meeting its ambitious infrastructure goals, it has significant challenges in implementation capacity and has struggled particularly with executing large infrastructure projects. The GoI, led Bappenas, in coordination with the Bank, has already identified and initiated a number of steps to address long-standing implementation issues. Some of the most important have been launched. This includes a new Presidential decree which provides for a sovereign guarantee for direct lending by the MFIs to selected state-owned enterprises. This is essential for WBG’s engagements in energy and in maritime and logistics. In the past, working with SOEs through Subsidiary Loan Agreements caused delays for long periods at the start of the project and subsequent delays during project implementation. The government has also revised and made more flexible its process (the Blue Book) for determining which projects and programs are eligible for foreign concessional loan financing. This will bring greater certainty in line ministries and within the Bank in terms of government commitment to proposed projects and therefore will speed preparation. GoI is revamping its own procedures for project readiness, including the provision of budget support for project preparation that has not been readily available for many years. Similarly, in the Bank, steps are being taken to help government by providing more support on safeguards, M&E and use of government systems in procurement whenever possible. Maintaining a strong presence in country will be essential to provide the requisite level of implementation support for the ongoing and new portfolio along with preparing an ambitious pipeline. 141. Maintaining the successful gender focus in project design and implementation will be important. Under the last CPS, the Country Gender Action Plan met its initial target of ensuring 100 percent (from 80 percent) of the operations delivered in FY13 were gender informed. The Community Development programs met the targets for women’s participation (45 percent of women in planning/decision-making meetings; 32 percent of women in community oversight teams) and the community access to health and education services improved (91 percent of pregnant women received 4 prenatal care visit against a target of 80 percent). The water and sanitation programs have achieved impressive results, exceeding the targets set with more than 7 million people provided with access to clean water and 7.69 million (double the target) provided with access to sanitation. This was a significant achievement for the gender agenda given the higher proportion of women and children benefiting from these services. Gender specific M&E will be further strengthened in the CPF engagement areas, including outcome indicators where possible and relevant. In addition, at the project level, every effort will be made to measure gender specific outcomes.

53

V. MANAGING RISKS TO THE CPF PROGRAM 142. Risk to the implementation of the CPF in Indonesia is assessed as substantial, with four potential areas of impact. These include: (i) political economy and governance challenges, (ii) uncertainty around the macroeconomic environment both globally and domestically; and (iii) weak institutional and implementation capacity and (iv) environmental and social risks. These risks, if materialized, could singly or jointly impact the government’s willingness and ability to implement the reform necessary to support its ambitious development agenda or could make the outcome of the development agenda less successful. These risks also pose challenges to the ability to mobilize and implement the investment in infrastructure and services which are essential to deliver on a more prosperous and equal society. In turn, these factors pose risks to the scope and depth of WBG’s support particularly with respect to the investment pipeline and the intended outcomes in terms of the twin goals.

V.1. POLITICAL ECONOMY AND GOVERNANCE RISKS

143. As explained throughout the CPF, action is needed to accelerate the country’s structural transformation, including some that can be expected to generate “quick wins”, while recognizing that the full benefits of such a shift will accrue only over the longer term. Increasing infrastructure and energy investment so as to better connect the economy domestically, and boost external competitiveness by reducing logistics costs, are clear priorities. The early actions taken by the administration to eliminate fuel subsidies in order to reallocate fiscal flows for more productive uses were an excellent start. Likewise, calls for an end to corruption and misuse of public policy for private gain resulted in the establishment of the OSS to make doing business easier, and introducing steps to make the Ministry of Mining and Energy and tax administration more transparent and accountable. These steps were very well received by civil society and the private sector alike. It is in the context of these reforms that WBG’s engagement in energy, for example, is placed. Maintaining and delivering on these reforms will not be easy particularly as government will have to continue to take on special interests in many of its core sectors. Inconsistent policy directions, or expansion of protectionist tendencies in trade policy, for example, could have a negative impact on the business environment, thus reducing opportunities for private sector participation in the financing of infrastructure and in the investments needed to create jobs. In some areas, they could also set back efforts for eliminating poverty, for example, through higher food prices or the misallocation of government spending. The government is aware of these risks and is intensifying efforts to accelerate the implementation of the reform agenda to improve market sentiment and maintain investor confidence. The economic policy reform packages announced by the government over several months in 2015 provide the opportunity to restore business confidence if well implemented. Sequencing the interventions under each of the engagement areas is one way for WBG to mitigate for this risk including, for example, avoiding lending in those sectors where the policy environment is not currently conducive and using policy-based lending to help open up the space for more efficient public and private sector investment.

V.2. MACROECONOMIC UNCERTAINTY

144. Indonesia, like most emerging middle income countries, particularly those that are commodity exporters, is vulnerable to the shocks and volatility impacting the global economy. Indonesia’s government is in a position to address economic risks despite recent falls in the growth rate. At the same time, the room for maneuver is less than in the past as described earlier under Recent Economic Developments. Risks are particularly associated with employment and job creation, revenue collection, the sudden reversal of financial assets held in the Indonesian stock and bond markets, and exchange rate volatility and inflation. Food and water security could become more serious concerns in the context of the impact of the El Nino phenomenon impacting Indonesia which is expected to be as bad as or worse than in 1997. These risks, along with volatility in the global economy, could impact Indonesia more sharply if government struggles

54

with the pace of its own structural reform. For the implementation of the CPF, backsliding could risk WBG’s ability to help government with development policy lending necessary for both its fiscal space and to support its ambitious plans for infrastructure investment and improvement in service delivery since these require substantial reallocation of spending. The risk of sharp increases in food prices which would particularly hurt the poor could impact poverty outcomes. Indonesia’s economy has proven resilient and responsive to global economic risks and volatility, including with support to government from WBG financing and technical assistance. Engagements under this CPF would also help mitigate macroeconomic risks. Intensive policy dialogue through the preparation of DPLs, and broader technical assistance for macroeconomic management, for instance in financial supervision and management of fiscal and external balances, reinforce WBG’s commitment to supporting Indonesia in the analysis of key public policy opportunities and challenges, and build on a long history of support to evidence-based policy making. 145. From the perspective of interventions with the private sector, the two greatest challenges are: (i) a global investment environment where there is a general decrease in liquidity in emerging markets and investors and banks withdraw from investing in projects due to increasing interest rates and volatile local currency markets; and (ii) a decrease in Indonesia’s capacity and willingness at both government and/or state-owned enterprise level of delivering executable projects. In terms of the CPF, our ability to work with and through the private sector ultimately will depending on a conducive business climate. This requires that government can undertake the needed reforms to improve the business environment for private investment. A balanced approach towards state-owned enterprises will also be important in creating an enabling environment for the private sector to operate. In addition, the shallow domestic capital markets pose a risk. The government’s infrastructure plans alone need close to US$500-600 billion over the next four years, of which close to two-thirds are expected to come from private sector companies and state-owned enterprises. Arranging funding for the private sectors’ growth plans would also be daunting. In the face of these risks, the CPF program depends on its sequencing both to help Government manage risks, but also to have the flexibility to calibrate WBG responses.

V.3. IMPLEMENTATION AND CAPACITY CONSTRAINTS

146. As discussed in the previous section, although implementing better and faster is one of the government’s key objectives in meeting its ambitious infrastructure goals, it has significant challenges in implementation capacity and has struggled particularly with executing large infrastructure projects. This is reflected not only in the implementation status of the Bank’s current portfolio, but even more so in the government’s challenges with its own budget execution and the quality of outcomes from spending. The SCD describes in detail the challenges faced by line ministries and particularly local governments in ensuring good execution of annual budgets and the need for strengthening the capacity, particularly at the local level, to provide quality services in health, education, sanitation and water. It should be expected that improvements in the early years will be incremental, particularly in relation to large scale infrastructure and institutional and regulatory reforms. 147. WBG has considered carefully these risks and, to the extent possible, put in place mitigation measures to minimize their impact on implementation of the CPF. First, WBG has designed a CPF that is more focused on fewer areas despite the potential financing envelope being larger. By putting the engagements through the filters not only of the SCD pathways, but also through the lens of clear counterpart demand and potential impact and ability to deliver, we are less likely to be trying to support changes in areas where there is insufficient political will or where potential for success is limited. Second, by introducing a multiplicity of tools in engagement areas including analytics, development policy lending, investment and results financing, as well as engagements both with the public and private sectors whenever possible, we are able to come at the challenges from more directions and with greater firepower in order to help demonstrate impact and results. Thinking of the business environment and markets as a ‘beam’ that potentially underpins all the engagement areas is one way the CPF can achieve this. WBG’s business model in Indonesia, which combines

55

support from development partners as an integral part of the CPF and where financing and knowledge services are combined, means we are able to engage more deeply and rapidly at the analytical level to shore up government efforts at evidence-based policy making and reform than we would if doing it alone. V.4. ENVIRONMENTAL AND SOCIAL RISKS 148. Insecure access to land and over-exploitation and degradation of natural resources constitute major risks to Indonesia’s sustainable development as they have direct links to poverty in Indonesia as well as global impact in terms of climate change. The comprehensive landscape management engagement proposed in this CPF, combined with the Government’s policy direction and reform commitment, aims to address some of these challenges and mitigate the potential risks to the extent possible, acknowledging that many of these issues require sustained engagement and a longer time horizon beyond the CPF. If government’s ability to address these difficult issues wanes, the larger landscape engagement and the development outcomes associated could become more difficult to achieve. In such a case, as with all engagement areas, an appropriate realignment in direction and sequencing can be considered over the course of the CPF period. 149. Finally, in addition to these ‘man-made’ risks, Indonesia is highly vulnerable to natural disasters that can inflict significant economic and social costs. Indonesia sits on the ‘ring of fire’ and is highly 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 events such as the recent eruption of Mount Kelud, have been localized in terms of socio-economic impacts and are being dealt with through the disaster mitigation institutions that the IBRD has been actively supporting in partnership with the government, the UN and the New Zealand government among others. In the face of a large-scale natural disaster, WBG can be expected to refocus the CPF as needed, seeking to work with a broad range of development partners along with government agencies. Such was the case in the highly successful efforts following the 2004 earthquake and tsunami and 2006 devastating earthquake and eruption in Jogjakarta. This refocus could be limited to a certain engagement area, for example, concentrating national infrastructure on reconstruction or as a replacement for an entire engagement if needed.

Table 5.1: Risk in Indonesia

Risk Categories Rating (H, S, M, L) Political and governance S Macroeconomic S Sector strategies and policies M Technical design of project or program L Institutional capacity for implementation and sustainability S Fiduciary M Environment and social H Stakeholders L Overall S

56

AN

NE

XE

S

AN

NE

X 1

. C

PF

RE

SUL

T F

RA

ME

WO

RK

En

gage

men

t A

rea

1: I

nfra

stru

ctu

re P

latf

orm

s at

th

e N

atio

nal

Lev

el

Def

init

ion

of

focu

s ar

ea: I

nfra

stru

ctur

e Pl

atfo

rms a

t the

Nat

iona

l Lev

el In

fras

truct

ure

invo

lves

thos

e se

ctor

s whe

re th

e ce

ntra

l gov

ernm

ent,

mos

tly

thro

ugh

the

Min

istry

of

Publ

ic W

orks

and

Pub

lic H

ousin

g, h

as r

espo

nsib

ility

for

pol

icy a

nd/o

r im

plem

enta

tion,

whe

re g

over

nmen

t or

the

priv

ate

sect

or h

as e

xpre

ssed

a s

trong

inte

rest

in w

orki

ng w

ith th

e W

orld

Ban

k G

roup

and

whe

re s

uppo

rting

or

expa

ndin

g ‘p

latfo

rms’

in p

artn

ersh

ip w

ith

gove

rnm

ent a

nd, w

here

rele

vant

, the

priv

ate

sect

or c

an m

ake

a m

eani

ngfu

l im

pact

. Th

e CP

F m

akes

a d

istin

ctio

n be

twee

n de

liver

y at

the

loca

l and

na

tiona

l lev

el no

t so

muc

h be

caus

e th

e ge

ogra

phica

l cov

erag

e ar

e di

ffer

ent,

but m

ainly

beca

use

the

deliv

ery

mod

els a

re d

iffer

ent a

nd th

eref

ore

so a

re

the

bottl

enec

ks an

d so

lutio

ns. W

hile

ther

e re

main

s the

pos

sibili

ty to

wor

k in

oth

er se

ctor

s dur

ing

the C

PF if

con

ditio

ns c

hang

e, it

is cu

rren

tly ex

pect

ed

that

the

WBG

eng

agem

ent a

t th

e na

tiona

l lev

el w

ill b

e co

ncen

trate

d in

wat

er a

nd s

anita

tion,

irrig

atio

n an

d da

ms,

hous

ing

and

inte

grat

ed to

urism

de

velo

pmen

t. L

inks

bet

wee

n th

e fo

cus

area

an

d th

e tw

in g

oals

: As s

et o

ut in

the

SCD

, era

dica

ting

pove

rty an

d in

crea

sing

shar

ed p

rosp

erity

in In

done

sia d

epen

d,

to a

larg

e ex

tent

, on

closin

g th

e co

untry

’s lar

ge in

fras

truct

ure

gap.

Red

ucin

g th

e in

frast

ruct

ure

gap

wou

ld s

uppo

rt th

ese

goals

thro

ugh

allev

iatin

g th

e co

nstra

ints

that

infr

astru

ctur

e bo

ttlen

ecks

impo

se o

n co

mpe

titiv

enes

s, gr

owth

and

cre

atio

n of

jobs

. Thi

s en

gage

men

t lin

ks w

ith S

CD P

athw

ay 1

Job

Crea

tion

by a

ddre

ssin

g on

e of

the

big

gest

con

stra

ints

to

grow

th a

nd t

he c

reat

ion

of h

igh

prod

uctiv

ity jo

bs a

nd P

athw

ay 2

Ser

vice

Deli

very

and

O

ppor

tuni

ty fo

r All.

C

oun

try

Dev

elop

men

t G

oals

: Th

e N

atio

nal

Med

ium

-Ter

m D

evelo

pmen

t Pl

an 2

015-

2019

(RP

JMN

) pu

ts a

stro

ng e

mph

asis

on in

fras

truct

ure

deve

lopm

ent

and

finan

cing,

inclu

ding

an

emph

asis

on a

cces

s to

aff

orda

ble

hous

ing,

inte

grat

ed to

urism

infr

astru

ctur

e, in

nova

tion

in in

fras

truct

ure

finan

cing

thro

ugh

PPPs

, im

prov

ed w

ater

reso

urce

man

agem

ent,

irrig

atio

n an

d fo

od se

curit

y.

Ob

ject

ive

1: I

ncr

ease

acc

ess

to

wat

er ir

riga

tion

and

dam

saf

ety

Inte

rven

tion

Log

ic:

Food

secu

rity i

s prio

ritiz

ed in

the R

PJM

N 2

015-

2019

with

a fo

cus o

n m

oder

nizi

ng ir

rigat

ion

infr

astru

ctur

e, re

habi

litat

ing

3 m

illio

n he

ctar

es o

f irr

igat

ion

chan

nels

and

cons

truct

ing

1 m

illio

n ne

w h

ecta

res

of ir

rigat

ion

chan

nels.

With

in th

ese

ambi

tious

targ

ets,

WBG

’s en

gage

men

t wou

ld f

ocus

on

usin

g IB

RD r

esou

rces

to

reha

bilit

ate

exist

ing

sche

mes

, with

com

plem

enta

ry R

&D

and

ext

ensio

n se

rvice

s, an

d en

hanc

ing

gove

rnan

ce t

o in

crea

se u

ser

parti

cipat

ion

and

sust

ainab

ility

of i

nves

tmen

ts.

At t

he sa

me

time,

IFC

will

ass

ist th

e M

inist

ry in

iden

tifyin

g irr

igat

ion

dam

s whi

ch c

an b

e up

grad

ed to

als

o ge

nera

te p

ower

and

, whe

re a

ppro

priat

e, he

lp b

id o

ut so

me

of th

ese

proj

ects

as P

PPs t

o br

ing

in p

rivat

e se

ctor

par

ticip

atio

n th

at h

as b

een

miss

ing

in d

evelo

pmen

t and

ope

ratio

ns. I

FC w

ill al

so c

ontin

ue to

assis

t agr

icultu

re c

ompa

nies

in e

mpl

oyin

g m

ore

effic

ient w

ater

ing

of th

eir fi

elds,

and

help

ing

in d

eman

d sid

e m

anag

emen

t.

57

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

WB

G P

rogr

am

The

num

ber o

f peo

ple

bene

fitin

g fr

om

impr

oved

irrig

atio

n an

d da

m sa

fety

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aseli

ne:

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(201

6)

Tar

get:

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BD (2

020)

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rea

prov

ided

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oved

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n an

d dr

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e se

rvice

s (H

ecta

re)

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eline

: 1

6493

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016)

T

arge

t:

TBD

(202

0)

Ope

ratio

nal w

ater

use

r ass

ociat

ion

crea

ted

or

stre

ngth

ened

B

aseli

ne:

167

4 (2

016)

T

arge

t:

TBD

(201

7)

Num

ber o

f dam

s ret

urne

d to

full

oper

atio

n w

ith re

duce

d ris

k of

failu

re af

ter r

ehab

ilita

tion

Bas

eline

: 0

(201

6)

Tar

get:

2

2 (2

020)

On

Goi

ng:

D

am O

pera

tiona

l Im

prov

emen

t (D

OIS

P) (P

0965

32)

Wat

er R

esou

rces

and

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atio

n

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agem

ent P

rogr

am 2

(P11

4348

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lann

ed N

ew:

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Ope

ratio

n Re

habi

litat

ion

&

Safe

ty Im

prov

emen

t Pro

ject I

I (D

ORS

IP-2

) U

rgen

t Reh

abili

tatio

n of

Irrig

atio

n Pr

ojec

t (U

RIP)

M

oder

niza

tion

Stra

tegi

c Ir

rigat

ion

Proj

ect (

MIS

P)

Ob

ject

ive

2: I

ncr

ease

acc

ess

to a

ffor

dab

le h

ousi

ng

Inte

rven

tion

Log

ic:

Acc

ess

to h

ousin

g is

a cr

itica

l cha

lleng

e fa

cing

Indo

nesia

, par

ticul

arly

in th

e ur

ban

area

s. Th

e cu

rren

t adm

inist

ratio

n ha

s m

ade

redu

cing

the

hous

ing

back

log

and

deliv

erin

g af

ford

able

hous

ing

an e

xplic

it po

licy

prio

rity.

With

the

Satu

Juta

Ruma

h (O

ne M

illio

n H

omes

) ini

tiativ

e, lau

nche

d in

Apr

il 20

15, t

he a

dmin

istra

tion

has

set a

n am

bitio

us ta

rget

of d

elive

ring

one

mill

ion

hom

es a

nnua

lly to

mee

t new

hou

seho

ld d

eman

d an

d to

add

ress

the

hous

ing

defic

it. W

BG w

ill a

im to

wor

k bo

th th

roug

h th

e pr

ivat

e an

d th

e pu

blic

sect

or to

supp

ort t

he p

rovi

sion

of a

fford

able

hous

ing

thro

ugh

a m

ix o

f len

ding

and

tech

nica

l ass

istan

ce o

n bo

th th

e su

pply

and

dem

and

sides

inclu

ding

enc

oura

ging

priv

ate

sect

or fi

nanc

ing

of a

fford

able

hous

ing

proj

ects

, as

well

as

to s

uppo

rt fin

ancia

l ins

titut

ions

in e

xten

ding

mor

tgag

es.

IFC

will

also

pro

mot

e us

e of

gre

en b

uild

ing

conc

epts

am

ongs

t pr

ivat

e se

ctor

hou

sing

deve

lope

rs.

58

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

Num

ber o

f low

-inco

me

hous

ehol

ds w

ith a

cces

s to

aff

orda

ble

‘core

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publ

ic ho

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g un

its

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: 0

(201

6)

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get:

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dow

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sidies

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0 (2

016)

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0)

Num

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On

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ng:

La

nd, H

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rban

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tlem

ents

PA

AA

(P14

9874

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lann

ed N

ew:

Nat

iona

l Affo

rdab

le H

ousin

g Pr

ogra

m

(P14

4948

) IF

C’s f

inan

cing

and

adv

isory

sect

ors f

or

affo

rdab

le h

ousin

g/ m

ortg

ages

pro

jects

Ob

ject

ive

3: D

evel

opm

ent

of in

tegr

ated

tou

rism

des

tin

atio

n

Inte

rven

tion

Log

ic:

Indo

nesia

is e

ndow

ed w

ith sp

ecta

cular

and

ext

ensiv

e na

tura

l and

cul

tura

l res

ourc

es w

hich

mak

e to

urism

pot

entia

lly o

ne o

f the

mos

t im

porta

nt se

ctor

s fo

r cre

atin

g jo

bs, g

row

th a

nd sh

ared

pro

sper

ity w

ith a

hig

h pr

opor

tion

of e

mpl

oym

ent f

or w

omen

and

you

th.

Yet i

t lag

s well

beh

ind

its n

eighb

orin

g co

untri

es i

n ex

ploi

ting

its c

ompe

titiv

e ad

vant

age.

Indo

nesia

is

miss

ing

majo

r op

portu

nitie

s in

thi

s ke

y se

ctor

bec

ause

of

a nu

mbe

r of

sev

ere

infr

astru

ctur

e, in

stitu

tiona

l and

skill

s gap

s. W

BG is

pro

posin

g to

supp

ort G

oI w

ith a

com

preh

ensiv

e ap

proa

ch, f

ocus

ing

on p

riorit

y ‘h

ub’ d

estin

atio

ns

to st

art a

nd la

ter e

xpan

d to

mor

e site

s as p

art o

f a n

atio

nal t

ouris

m p

rogr

am. T

he p

rogr

am w

ould

dra

w o

n IB

RD, I

FC an

d M

IGA

reso

urce

s to

supp

ort

the

deve

lopm

ent o

f int

egra

ted

tour

ism d

estin

atio

ns, w

hich

are

bas

ed o

n in

tegr

ated

mas

ter-p

lans a

nd im

plem

enta

tion

stra

tegi

es th

at a

re e

ndor

sed

by a

br

oad

set o

f sta

keho

lder

s. Th

e de

velo

pmen

t of i

nteg

rate

d de

stin

atio

ns w

ould

be

via

a co

ntin

uous

pro

cess

of p

olicy

and

plan

ning

coo

rdin

atio

n, a

nd

wou

ld b

ring

toge

ther

(i.e.

inte

grat

e) th

e de

velo

pmen

t of i

nfra

stru

ctur

e, th

e pro

mot

ion

at th

e nat

iona

l and

loca

l lev

els, a

nd sk

ills a

nd S

ME

dev

elopm

ent.

It w

ould

inc

lude

priv

ate

sect

or i

nves

tmen

ts t

hrou

gh I

FC a

nd M

IGA

fin

anci

al pr

oduc

ts t

o su

ppor

t th

e to

urism

ind

ustry

and

to

supp

ort

loca

l co

mm

uniti

es in

deli

verin

g qu

ality

expe

rienc

es, i

nclu

ding

SM

E fi

nanc

ing

and

skill

s dev

elopm

ent n

eede

d to

crea

te a

com

petit

ive t

ouris

m-b

ased

econ

omy.

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

Num

ber o

f int

egra

ted

tour

ism d

estin

atio

ns

esta

blish

ed

Bas

eline

: 0

(201

6)

Tar

get:

1

(202

0)

Num

ber o

f int

egra

ted

tour

ism m

aste

r plan

s pr

epar

ed

Bas

eline

: 0

(201

6)

Tar

get:

3

(202

0)

Nat

iona

l Tou

rism

Dev

elopm

ent

(P15

7599

) IF

C’s i

nves

tmen

ts a

nd a

dviso

ry su

ppor

t fo

r tou

rism

and

relat

ed in

dust

ries

En

gage

men

t A

rea

2: S

ust

ain

able

en

ergy

and

uni

vers

al a

cces

s

Def

init

ion

of f

ocu

s ar

ea: I

ndon

esia

is fa

cing a

pow

er d

efici

t and

, with

dem

and

cont

inui

ng to

incr

ease

at an

annu

al ra

te o

f abo

ut 8

per

cent

. Gov

ernm

ent

has p

rojec

ted

that

the c

ount

ry w

ill n

eed

at le

ast 3

5 G

W o

f new

gen

erat

ion

capa

city t

oget

her w

ith as

socia

ted

trans

miss

ion

and

dist

ribut

ion

capa

city o

ver

59

the

next

fiv

e ye

ars.

Gov

ernm

ent

is lo

okin

g to

sim

ulta

neou

sly in

crea

se o

vera

ll ge

nera

tion

to m

eet

dem

and

and

prep

are

for

grow

th, s

ubst

antia

lly

incr

ease

the

shar

e of

rene

wab

les in

the

ener

gy m

ix, a

nd p

rovi

de u

nive

rsal

acce

ss a

s a fu

ndam

enta

l rig

ht o

f all

Indo

nesia

ns.

L

inks

bet

wee

n th

e fo

cus

area

an

d th

e tw

in g

oals

: As s

et o

ut in

the S

CD, d

evelo

ping

the e

nerg

y sec

tor i

s at t

he to

p of

the g

over

nmen

t’s in

fras

truct

ure

prio

rities

and

one

of t

he m

ajor b

ottle

neck

s to

gro

wth

, sha

red

pros

perit

y an

d hu

man

cap

ital f

orm

atio

n. T

his

enga

gem

ent l

inks

with

SCD

Pat

hway

1

Job

Crea

tion

by a

ddre

ssin

g on

e of

the

bigg

est c

onst

rain

ts to

gro

wth

and

the

crea

tion

of h

igh

prod

uctiv

ity jo

bs a

nd P

athw

ay 2

Ser

vice

Deli

very

and

O

ppor

tuni

ty fo

r All

parti

cular

ly in

its a

cces

s age

nda.

C

oun

try

Dev

elop

men

t G

oals

: The

cur

rent

RPJ

MN

201

5-20

19 p

rese

nts

a co

mpr

ehen

sive

ener

gy s

trate

gy w

ith s

ubst

antia

l inv

estm

ents

to a

chie

ve

ener

gy so

vere

ignt

y. T

he m

ain

sect

or d

imen

sion

of R

PJM

N li

sts f

our p

riorit

y sec

tors

, whi

ch ar

e (i)

ener

gy an

d po

wer

sove

reig

nty,

(ii) f

ood

sove

reig

nty,

(ii

i) m

ariti

me,

and

(iv) t

ouris

m a

nd in

dust

ry. O

ptim

izin

g th

e ut

iliza

tion

of e

nerg

y so

urce

s ins

ide

the

coun

try (g

as, h

ydro

, and

geo

ther

mal)

is th

e w

ay

to ac

hiev

e en

ergy

and

pow

er so

vere

ignt

y. To

addr

ess t

hese

cha

lleng

es, a

t a st

rate

gic

leve

l, th

e G

oI h

as c

omm

itted

to a

num

ber o

f lon

g-te

rm m

easu

res

arou

nd (i

) red

ucin

g, a

nd b

ette

r ta

rget

ing,

ene

rgy

subs

idies

to im

prov

e pr

oduc

tive

and

reso

urce

allo

cativ

e ef

ficie

ncy;

(ii) e

xpan

ding

elec

tricit

y ac

cess

; (ii

i) sc

aling

-up

rene

wab

le en

ergy

dep

loym

ent

by 2

025;

and

(iv

) m

obili

zing

a p

artn

ersh

ip p

rogr

am o

n en

ergy

con

serv

atio

n to

ince

ntiv

ize

indu

stria

l en

terp

rises

to c

onve

rt to

ene

rgy

effic

ient t

echn

olog

ies.

Ob

ject

ive

4: I

ncr

ease

su

pply

an

d ac

cess

to

ener

gy

Inte

rven

tion

Log

ic

This

objec

tive

will

be

supp

orte

d by

WBG

thr

ough

the

eng

agem

ent

in t

he a

rea

of s

treng

then

ing

sect

or g

over

nanc

e an

d su

stain

abili

ty, s

uppo

rting

re

new

able

ener

gy an

d lo

w ca

rbon

dev

elopm

ent,

expa

ndin

g acc

ess t

o m

oder

n en

ergy

serv

ices t

hrou

gh n

on-c

oal g

ener

atio

n, tr

ansm

issio

n an

d di

strib

utio

n an

d en

ablin

g ga

s se

ctor

pol

icy f

orm

ulat

ion

and

inve

stm

ent p

lanni

ng. W

BG s

uppo

rt w

ould

be

thro

ugh

a m

ix o

f fin

ancin

g in

stru

men

ts: I

nves

tmen

t Pr

ojec

t Fin

ancin

g (IP

F), D

evelo

pmen

t Pol

icy L

oans

(DPL

s), P

rogr

am f

or R

esul

ts (P

forR

s), I

FC e

quity

and

loan

s fo

r pr

ivat

e se

ctor

pro

jects

, and

a

com

bina

tion

of M

IGA

’s po

litica

l risk

insu

ranc

e an

d no

n-ho

norin

g pr

oduc

ts in

the

rene

wab

le en

ergy

sect

or.

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

Num

ber o

f hou

seho

lds r

eceiv

ing

impr

oved

ac

cess

to re

liabl

e en

ergy

Ba

selin

e (2

012)

: 12.

45 m

illio

n Ta

rget

(202

0):

13.9

7 m

illio

n In

crem

enta

l geo

ther

mal

pow

er g

ener

atio

n in

stall

ed c

apac

ity (M

W)

Base

line

(201

4): 0

Ta

rget

(202

0): 1

50

The

Borr

ower

issu

es a

nat

iona

l app

roac

h to

ele

ctrif

icatio

n w

ith im

prov

ed c

oord

inat

ion

of

inst

itutio

nal r

espo

nsib

ilitie

s, fin

ancin

g m

echa

nism

s and

plan

ning

Ba

selin

e (2

015)

: No

Ta

rget

(201

7): Y

es

The

Borr

ower

issu

es th

e im

plem

entin

g re

gulat

ions

for t

he 2

014

Geo

ther

mal

Law

on

the

proc

ess t

o co

nver

t geo

ther

mal

ener

gy to

ele

ctric

ity

On

goin

g P

roje

cts:

In

done

sia P

ower

Tra

nsm

issio

n D

evelo

pmen

t (P1

1732

3)

Indo

nesia

Sec

ond

Pow

er T

rans

miss

ion

Dev

elopm

ent (

P123

994)

U

pper

Ciso

kan

Pum

ped

Stor

age

Hyd

ro-

Elec

t (P1

1215

8)

Geo

ther

mal

Clea

n E

nerg

y In

vest

men

t ('P

1130

78)

IFC’

s equ

ity in

vest

men

t in

Med

co

Pow

er

60

Incr

emen

tal p

umpe

d st

orag

e in

stall

ed c

apac

ity

(MW

) Ba

selin

e (2

016)

: 0

Targ

et (2

020)

: 1,0

00

Incr

emen

tal e

lectri

city

sales

of P

LN (G

wh)

Ba

selin

e (2

014)

: 65,

361

Targ

et (2

020)

: 97,

000

Non

coa

l (h

ydro

, gas

) pow

er p

rodu

ced

(Gw

h)

Base

line

(201

4): 1

,175

Ta

rget

(202

0): 1

,300

Base

line

(201

5): N

o

Targ

et (2

017)

: Yes

IFC

- BD

SN (7

6661

7) A

saha

n I

hydr

opow

er

MIG

A-

Rajam

anda

la H

ydro

pow

er IP

P (g

uara

ntee

issu

ance

of U

S$20

0 m

illio

n)

Pla

nned

Pro

ject

s:

Geo

ther

mal

Ene

rgy

Ups

tream

D

evel

opm

ent (

CTF/

GE

F)

Pow

er D

istrib

utio

n E

ffici

ency

-P4R

D

PL E

nerg

y I

D

PL E

nerg

y II

Poko

Hyd

ro P

ower

U

pper

Ciso

kan

Add

ition

al Fi

nanc

ing

Pow

er D

istrib

utio

n E

ffici

ency

II -P

4R

Mat

engg

eng

Pow

er

Geo

ther

mal

II P

roje

ct

IFC’

s PPP

adv

isory

supp

ort f

or

deve

lopi

ng re

new

able

and

gas b

ased

IP

Ps a

nd tr

ansm

issio

n pr

ojec

ts

IFC’

s inv

estm

ents

to su

ppor

t cle

an IP

Ps

and

trans

miss

ion

proj

ects

In

done

sia R

enew

able

Ene

rgy

Prog

ram

- Bu

sines

s Dev

elopm

ent (

#60

0118

; Cr

oss-

Indu

stry

Adv

isory

Ser

vice

s)

Indo

nesia

Hyd

ro P

roje

cts (

Min

of

Publ

ic W

orks

) (#

6004

44; C

ross

-In

dust

ry A

dviso

ry S

ervi

ces)

61

En

gage

men

t A

rea

3: M

arit

ime

and

Con

nec

tivi

ty

Def

init

ion

of

focu

s ar

ea: G

ood

conn

ectiv

ity is

a v

ital p

rere

quisi

te to

supp

ly do

mes

tic m

arke

ts e

fficie

ntly

and

to c

ompe

te in

tern

atio

nally

. It

is all

the

mor

e im

porta

nt in

an ar

chip

elago

nat

ion

like I

ndon

esia

whe

re th

e se

a can

bec

ome a

tool

of c

ohes

ion

or a

sour

ce o

f fra

gmen

tatio

n an

d iso

latio

n. G

ood

freig

ht lo

gist

ics—

both

in te

rms

of s

peed

and

dep

enda

bilit

y—in

volv

es a

wid

e ra

nge

of e

lemen

ts in

cludi

ng h

ard

infr

astru

ctur

e an

d te

chno

logy

, goo

d re

gulat

ion

and

effic

ient o

pera

tions

and

the

quali

ty o

f hu

man

cap

ital.

Indo

nesia

’s co

asta

l and

mar

ine

natu

ral r

esou

rces

are

am

ong

the

riche

st in

the

wor

ld, b

ut t

he c

ount

ry is

not

max

imiz

ing

the

pote

ntial

of

thes

e re

sour

ces

in t

erm

s of

eco

nom

ic gr

owth

(ex

port

fishe

ries,

mar

ine-

base

d to

urism

), liv

eliho

ods b

enef

its (j

obs,

inco

me,

nutri

tion,

food

secu

rity)

and

the

envi

ronm

enta

l ser

vice

s (re

silien

ce to

nat

ural

disa

ster

s, fis

h nu

rser

ies) t

hey

prov

ide.

L

inks

bet

wee

n th

e fo

cus

area

an

d th

e tw

in g

oals

: Thi

s eng

agem

ent l

inks

with

SCD

Pat

hway

1 Jo

b Cr

eatio

n by

addr

essin

g one

of t

he m

ain co

nstra

ints

to

gro

wth

and

the

crea

tion

of h

igh

prod

uctiv

ity jo

bs, P

athw

ay 2

Ser

vice

Deli

very

and

Opp

ortu

nity

for

All

parti

cular

ly in

impr

ovin

g co

nnec

tivity

in

east

ern

regi

ons a

nd P

athw

ay 3

in p

rovi

ding

infr

astru

ctur

e an

d re

gulat

ory

envi

ronm

ent t

o m

ake

use

of n

atur

al re

sour

ces,

espe

cially

in c

oast

al ar

eas a

nd

fishe

ries,

mor

e su

stain

able

and

the

bene

fits m

ore

even

ly sh

ared

. C

oun

try

Dev

elop

men

t G

oals

: Th

e cu

rren

t RPJ

MN

201

5-20

19 p

rese

nts

a co

mpr

ehen

sive

mar

itim

e st

rate

gy w

ith s

ubst

antia

l inv

estm

ents

in p

orts

in

fras

truct

ure,

hint

erlan

d co

nnec

tions

and

fish

eries

. The

RPJ

MN

call

s for

impr

ovem

ent o

f por

t eff

icien

cy a

nd c

lear t

arge

ts a

re se

t for

the

redu

ctio

n of

dw

ell ti

me

in m

ajor p

orts

in In

done

sia. T

he G

over

nmen

t is p

repa

ring

seve

ral P

resid

entia

l Dec

rees

on

upgr

adin

g po

rts, b

uild

ing

new

por

ts, i

mpr

ovin

g po

rt ef

ficien

cy, a

mon

g ot

her k

ey in

vest

men

ts. T

he R

PJM

N a

lso se

ts a

mbi

tious

targ

ets i

n su

ppor

t of s

usta

inab

le fi

sher

ies m

anag

emen

t and

exp

ansio

n an

d di

vers

ifica

tion

of w

ild c

aptu

re a

nd a

quac

ultu

re fi

sher

ies p

rodu

ctio

n an

d po

st-h

arve

st p

roce

ssin

g w

ith th

e aim

to d

oubl

e pr

oduc

tion

and

expo

rt by

20

19. T

he R

PJM

N in

clude

s clea

r tar

gets

for m

angr

ove

rest

orat

ion

and

incr

ease

d m

anag

emen

t of p

rote

cted

area

s and

spec

ific s

pecie

s. G

over

nmen

t has

alr

eady

issu

ed a

num

ber o

f crit

ically

impo

rtant

regu

latio

ns to

impr

ove

gove

rnan

ce a

nd m

anag

emen

t of i

ts m

arin

e an

d co

asta

l nat

ural

reso

urce

s.

Ob

ject

ive

5: I

mp

rove

mar

itim

e lo

gist

ics

and

conn

ecti

vity

Inte

rven

tion

Log

ic

As

an a

rchi

pelag

ic na

tion,

mar

itim

e lo

gist

ics a

nd c

onne

ctiv

ity p

lay a

crit

ical r

ole

in d

rivin

g gr

owth

, enh

ancin

g co

mpe

titiv

enes

s, fa

cilita

ting

shar

ed

pros

perit

y, an

d en

surin

g pr

oper

acc

ess t

o go

ods a

nd se

rvice

s for

all

Indo

nesia

n cit

izen

s reg

ardl

ess o

f the

ir lo

catio

n. F

or re

mot

e re

gion

s, hi

gh lo

gist

ics

cost

s he

lp to

incr

ease

their

isol

atio

n an

d lim

it ec

onom

ic lin

ks to

nea

rby

grow

th p

oles

; thi

s in

turn

und

erm

ines

pro

spec

ts to

redu

ce th

e de

velo

pmen

t ga

p. T

he W

BG p

rogr

am p

rovi

des s

uppo

rt to

the

GoI

in ad

dres

sing

its co

nnec

tivity

cha

lleng

es b

y out

linin

g op

tions

and

prio

rities

to im

prov

e effi

cienc

y in

nat

iona

l fre

ight

logi

stics

. Spe

cifica

lly, t

he p

rogr

am ai

ms t

o: (a

) im

prov

e the

qua

lity o

f ove

rall

logi

stics

pol

icy-m

akin

g th

roug

h ke

y sec

tor i

nter

vent

ions

an

d po

licy a

nalys

is; (b

) im

prov

e th

e cou

ntry

’s m

ariti

me c

onne

ctiv

ity b

y upg

radi

ng in

fras

truct

ure,

and

deve

lopi

ng re

com

men

datio

ns fo

r mor

e int

egra

ted

logi

stics

sol

utio

ns; a

nd (

c) r

educ

ing

logi

stics

cos

ts v

ia th

e pr

omot

ion

of p

olicy

ref

orm

s aim

ed a

t in

crea

sing

com

petit

iven

ess

and

prod

uctiv

ity b

y ov

erco

min

g ba

rrier

s tha

t inh

ibit

inve

stm

ent a

nd b

usin

ess d

evelo

pmen

t in

the

sect

or.

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

WB

G P

rogr

am

Redu

ctio

n of

con

tain

er h

andl

ing

time

in

selec

ted

inte

rnat

iona

l and

dom

estic

term

inals

Ba

selin

e: 6

.5 d

ays (

2016

)

Est

ablis

hmen

t of t

askf

orce

that

pro

vide

s clea

r gu

idan

ce to

line

min

istrie

s and

age

ncies

on

coor

dina

ted

logi

stics

refo

rm

On

Goi

ng:

M

anag

ing

Logi

stic

s Cos

ts in

In

done

sia (P

1462

61)

62

Tar

get:

3

day

s (2

020)

Re

duct

ion

in tr

avel

tim

e fo

r sel

ecte

d lin

ks to

po

rts

Base

line:

TBD

(201

6)

Tar

get:

T

BD (2

020)

Base

line:

Est

ablis

hmen

t of t

askf

orce

with

clea

r m

anda

te (

2016

) Ta

rget

:

Regu

latio

ns is

sued

and

/or r

evise

d by

ta

skfo

rce

(202

0)

Num

ber

of p

orts

abl

e to

rece

ive

large

r shi

ps

Bas

eline

: TB

D (2

016)

T

arge

t:

TBD

(202

0)

Km

of r

oad

conn

ectio

ns to

por

t im

prov

ed

Bas

eline

: 0

(201

6)

Tar

get:

T

BD (2

020)

M

eter

qua

y w

all u

pgra

ded/

built

Ba

selin

e: T

BD (2

016)

T

arge

t:

TBD

(202

0)

Trad

e an

d lo

gist

ics P

A (P

1567

80)

IFC’

s loa

n su

ppor

t to

Jaka

rta

Inte

rnat

iona

l Con

tain

er T

erm

inal

Pla

nned

New

: E

aste

rn p

orts

dev

elopm

ent

(PT.

Pe

lindo

) IF

C’s i

nves

tmen

ts w

ith p

rivat

e se

ctor

por

ts d

evel

oper

s and

op

erat

ors

Road

Impr

ovem

ent t

o su

ppor

t In

tegr

ated

land

and

sea

toll

way

D

PL M

ariti

me,

logi

stic

s &

conn

ectiv

ity (M

LC I)

D

PL M

ariti

me,

logi

stic

s &

conn

ectiv

ity (M

LC II

Ob

ject

ive

6: I

mp

rove

fish

erie

s m

anag

emen

t pr

acti

ces

Inte

rven

tion

Log

ic

All

of th

e pr

ojec

ts in

dica

ted—

CORE

MA

P CT

I, CC

RES

and

the

prop

osed

Nat

iona

l Blu

e E

cono

my

Prog

ram

—ar

e d

esig

ned

to su

ppor

t im

prov

e fis

herie

s man

agem

ent p

ract

ices t

o en

hanc

e th

e ec

onom

ic co

ntrib

utio

n of

the

fishe

ries s

ecto

r and

ens

ure

resil

ience

and

long

-term

pro

visio

n of

crit

ical

ecos

yste

m se

rvic

es to

supp

ort s

hare

d pr

ospe

rity.

The

prop

osed

Nat

iona

l Blu

e E

cono

my

Prog

ram

resp

onds

to g

over

nmen

t’s re

ques

t for

a la

rge-

scale

, tra

nsfo

rmat

iona

l pro

gram

des

igne

d to

acc

elera

te su

stain

able

deve

lopm

ent o

f Ind

ones

ia’s l

ivin

g m

arin

e an

d co

asta

l res

ourc

es to

supp

ort t

he v

ision

of

a pr

ospe

rous

Mar

itim

e N

atio

n. T

he P

rogr

am w

as se

lect

ed to

resp

ond

to th

e re

ques

t to

stren

gthe

n su

stain

able

man

agem

ent o

f Ind

ones

ia’s a

bund

ant,

but s

tress

ed, w

ild c

aptu

re fi

sher

ies, m

ainst

ream

sust

ainab

ility

prin

ciples

in it

s rap

idly

expa

ndin

g aq

uacu

lture

subs

ecto

r and

help

de-

risk

the

sect

or to

su

ppor

t inc

reas

ed su

stain

able

priv

ate

sect

or in

vest

men

t in

fishe

ries i

n lin

e w

ith g

over

nmen

t’s st

rate

gic

polic

y di

rect

ives

.

63

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

Sust

ainab

le fis

herie

s man

agem

ent i

mpl

emen

ted

in fi

sher

ies m

anag

emen

t are

as 26

B

aseli

ne:

0 (2

016)

T

arge

t:

2 (2

020)

Pe

rcen

tage

hea

lth st

atus

of c

oral

reef

s in

inte

rven

tion

area

s im

prov

ed 27

B

aseli

ne:

0

(201

6)

Tar

get:

7

0 (2

020)

Dev

elopm

ent o

f cor

al re

ef fi

sher

ies

man

agem

ent p

lans

B

aseli

ne:

0 (2

016)

Tar

get:

2

(202

0)

Num

ber o

f vill

age

havi

ng im

prov

ed c

oral

reef

m

anag

emen

t

B

aseli

ne:

0 (2

016)

T

arge

t:

210

(202

0)

On

Goi

ng:

Co

ral R

eef R

ehab

ilita

tion

and

Man

agem

ent P

rogr

am P

hase

III

(P12

7813

) Co

ral R

eel R

ehab

ilita

tion

and

Man

agem

ent P

rogr

am II

I (P1

3038

9)

Capt

urin

g Co

ral R

eef a

nd R

elate

d E

cosy

stem

Ser

vice

s Pro

ject -

CCR

ES

Regi

onal

Proj

ect (

P123

933)

P

lann

ed N

ew:

Nat

iona

l Blu

e E

cono

my

Prog

ram

En

gage

men

t A

rea

4: D

eliv

ery

of L

ocal

Ser

vice

s an

d I

nfr

astr

uct

ure

Def

init

ion

of f

ocu

s ar

ea:

Mor

e th

an a

dec

ade

afte

r dec

entra

lizat

ion,

whi

ch tr

ansf

erre

d th

e re

spon

sibili

ty fo

r the

pro

visio

n of

mos

t bas

ic s

ervi

ces

to d

istric

t gov

ernm

ents

, and

de

spite

sign

ifica

nt in

crea

ses i

n de

cent

raliz

ed p

ublic

spen

ding

(abo

ut h

alf o

f tot

al go

vern

men

t spe

ndin

g), t

he q

ualit

y of s

ervi

ces r

emain

s per

siste

ntly

low

an

d un

even

ly di

strib

uted

acr

oss r

egio

ns.

The

pro

blem

is th

at m

ost l

ocal

gove

rnm

ents

do

not h

ave

adeq

uate

cap

acity

to d

elive

r ser

vice

s, no

r are

they

ac

coun

tabl

e for

resu

lts to

the c

entra

l gov

ernm

ent a

nd th

eir ci

tizen

s. Im

prov

ing l

ocal

serv

ice d

elive

ry re

quire

s bui

ldin

g the

capa

cities

of l

ocal

gove

rnm

ent

to d

elive

r ser

vice

s, m

ovin

g to

war

ds a

mor

e pe

rfor

man

ce-b

ased

tran

sfer

syst

em, p

rovi

ding

the t

ools

for c

itize

ns to

mon

itor l

ocal

serv

ice d

elive

ry, a

s well

as

diff

eren

tiate

d ap

proa

ch to

diff

eren

t typ

es o

f re

gion

s. U

ltim

ately

, im

prov

ing

loca

l ser

vice

deli

very

is a

bout

enh

ancin

g th

e w

ay c

entra

l, pr

ovin

cial,

dist

rict,

and

villa

ge g

over

nmen

ts w

ork

toge

ther

to d

elive

r res

ults

on

the

grou

nd.

L

inks

bet

wee

n th

e fo

cus

area

and

the

twin

goa

ls: E

limin

atin

g ex

trem

e pov

erty

and

boos

ting

shar

ed p

rosp

erity

in th

e lon

ger-

term

requ

ire im

prov

ing

oppo

rtuni

ties t

oday

par

ticul

arly

in te

rms o

f edu

catio

n, h

ealth

and

nutri

tion

to en

sure

a he

althy

and

prod

uctiv

e pop

ulat

ion

in th

e fut

ure.

This

enga

gem

ent

links

with

SCD

Pat

hway

2 S

ervi

ce D

elive

ry a

nd O

ppor

tuni

ty f

or A

ll in

sup

porti

ng im

prov

emen

ts in

qua

lity,

acce

ss a

nd a

ccou

ntab

ility

for

hea

lth,

educ

atio

n, sa

nita

tion

and

othe

r inf

rast

ruct

ure

prov

ided

thro

ugh

loca

l gov

ernm

ents

.

26 T

he su

stain

able

fishe

ries m

anag

emen

t ind

icato

rs a

re: (

i) st

ock

of fi

sh re

sour

ces,

(ii) h

abita

t, (ii

i) m

etho

d of

cap

ture

, and

(iv)

inst

itutio

nal (

esta

blish

men

t of

cor

al re

ef m

anag

emen

t plan

s and

dist

rict s

patia

l plan

s with

clea

r man

agem

ent m

easu

res i

dent

ified

)

27 %

of l

ive

cora

l cov

er m

acro

ben

thos

, and

indi

cato

r ree

f fish

spec

ies

64

Cou

ntr

y D

evel

opm

ent

Goa

ls:

RPJM

N (

Nat

iona

l med

ium

ter

m p

lanni

ng)

aims

to im

prov

e th

e qu

ality

of

hum

an li

fe a

nd a

ddre

ss d

ispar

ity a

nd

ineq

ualit

y. O

ne o

f th

e th

ree

deve

lopm

ent

dim

ensio

ns is

ter

ritor

ial a

nd e

quity

dim

ensio

n th

at a

ims

to e

nsur

e th

at d

evelo

pmen

t co

uld

be e

quall

y di

strib

uted

am

ong

inco

me

grou

ps a

nd a

cros

s reg

ions

.

Ob

ject

ive

7: I

mp

rove

loca

l ser

vice

del

iver

y

Inte

rven

tion

Log

ic

This

enga

gem

ent

will

foc

us o

n su

ppor

ting

effo

rts t

o es

tabl

ish a

per

form

ance

-bas

ed f

iscal

trans

fer

syst

em, s

treng

then

ing

the

capa

city

of c

entra

l go

vern

men

t age

ncies

to s

uppo

rt an

d ov

erse

e th

e pe

rfor

man

ce o

f loc

al go

vern

men

ts, s

treng

then

ing

the

back

-offi

ce fu

nctio

ns o

f loc

al go

vern

men

t to

deliv

er lo

cal s

ervi

ces

and

infr

astru

ctur

e, an

d de

velo

ping

tool

s for

citi

zens

to m

onito

r loc

al se

rvice

deli

very

. W

BG fi

nanc

ial su

ppor

t will

focu

s on

the

grad

ual r

oll o

ut o

f per

form

ance

ince

ntiv

es in

fisc

al tra

nsfe

rs to

loca

l gov

ernm

ents

for p

riorit

y se

ctor

s (in

fras

truct

ure,

healt

h an

d ed

ucat

ion)

. Und

er th

is pi

llar,

IFC

wou

ld h

elp s

uppo

rt pr

ivat

e se

ctor

mod

els o

f de

liver

ing

som

e of

the

ser

vice

s. In

sev

eral

coun

tries

, inc

ludi

ng I

ndon

esia,

priv

ate

sect

or

healt

hcar

e pro

vide

rs (h

ospi

tals,

diag

nost

ic ce

nter

s) co

mpl

emen

t the

gov

ernm

ent s

et-u

p to

impr

ove t

he se

rvice

s for

citiz

ens.

WBG

will

seek

to su

ppor

t su

ch m

odels

, as

well

as

prom

ote

othe

r in

clusiv

e he

althc

are

mod

els s

uch

as e

-con

sulta

tions

per

haps

thro

ugh

the

priv

ate

sect

or to

ram

p up

ser

vice

s es

pecia

lly to

fron

tier a

reas

. C

PF

Ob

ject

ive

Indi

cato

rs

Sup

ple

men

tary

Pro

gres

s In

dic

ator

s

WB

G P

rogr

am

Num

ber o

f DA

K-fi

nanc

ed p

hysic

al ou

tput

s re

porte

d, v

erifi

ed, a

nd m

eetin

g eli

gibi

lity

crite

ria

in d

istric

ts w

here

the

perf

orm

ance

ince

ntiv

e is

intro

duce

d

B

aseli

ne:

72 (2

016)

T

arge

t:

88

(201

8)

Syst

em fo

r mon

itorin

g fis

cal a

nd se

rvice

de

liver

y pe

rfor

man

ce o

f loc

al go

vern

men

ts

fully

ope

ratio

nal

On

Goi

ng:

Lo

cal G

over

nmen

t DA

K (P

1115

77)

AF

for t

he L

ocal

Gov

ernm

ent a

nd D

ec.

Proj

ect (

P111

577)

PA

AA

“D

ecen

traliz

atio

n th

at D

elive

rs”

(P15

4976

) P

lann

ed N

ew:

P4R/

OBD

: DA

K R

efor

m p

rogr

am

Ob

ject

ive

8: I

mp

rove

acc

ess

to b

asic

ser

vice

s in

tar

gete

d c

itie

s 28

Inte

rven

tion

Log

ic

The

WBG

will

supp

ort n

atio

nal p

rogr

ams t

hat p

rovi

de re

sults

-bas

ed fi

nanc

ing

and

tech

nica

l ass

istan

ce to

citi

es to

impr

ove

prov

ision

of b

asic

serv

ices

to c

itize

ns, i

nclu

ding

wat

er sa

nita

tion,

and

solid

was

te.

28 T

arge

ted

cities

: Citi

es w

here

urb

aniz

atio

n is

happ

enin

g m

ost r

apid

ly an

d fa

ce th

e m

ost c

halle

nge

in te

rms o

f urb

an d

evelo

pmen

t

65

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

Num

ber o

f peo

ple

with

impr

oved

acc

ess t

o ur

ban

infr

astru

ctur

e an

d se

rvice

s in

the

targ

eted

slu

ms,

disa

ggre

gate

d by

gen

der

Base

line:

0 (2

016)

Ta

rget

:

4 m

illio

n (2

020)

N

umbe

r of h

ouse

hold

with

new

acc

ess t

o im

prov

ed p

iped

wat

er se

rvice

s in

targ

eted

citi

es

Base

line:

0 (2

016)

Ta

rget

:

1,2

00,0

00 (2

020)

N

umbe

r of

hous

ehol

d w

ith ac

cess

to im

prov

ed

sani

tatio

n se

rvice

s in

targ

eted

citi

es

Base

line:

0 (2

016)

Ta

rget

:

750

,000

(20

20)

Num

ber o

f hou

seho

ld re

ceiv

ing

impr

oved

solid

w

aste

man

agem

ent i

n ta

rget

ed c

ities

Ba

selin

e: T

BD (2

016)

Ta

rget

:

TBD

(202

0)

Num

ber o

f Sl

um Im

prov

emen

t Act

ion

Plan

s (S

IAPs

) at c

ity le

vel

Bas

eline

: 30

(201

6)

Tar

get:

: 1

30 (2

020)

N

umbe

r of l

ocal

gove

rnm

ent’s

ow

ned

wat

er

utili

ties (

PDA

Ms)

with

impr

oved

serv

ices

Bas

eline

: 0

(201

6)

Tar

get:

: 1

50 (2

020)

N

umbe

r of

citi

es

with

im

prov

ed s

anita

tion

serv

ices

Bas

eline

: 0

(201

6)

Tar

get:

:

5 (2

020)

N

umbe

r of i

nfra

stru

ctur

e su

bpro

jects

fin

ance

d by

RID

F fu

nd

Bas

eline

: TB

D (2

016)

T

arge

t: :

TB

D (2

020)

N

umbe

r of l

ocal

gove

rnm

ent r

eceiv

ed R

IDF

fund

B

aseli

ne:

TBD

(201

6)

Tar

get:

T

BD (2

020)

On

Goi

ng:

Ja

karta

Urg

ent F

lood

Miti

gatio

n Pr

ojec

t (P

1110

34)

Sura

baya

Urb

an C

orrid

or D

evelo

pmen

t BE

TF (P

1488

21)

Sust

ainab

le ur

bani

zatio

n PA

AA

(P15

3802

)

Pla

nned

New

: Re

gion

al In

fras

truct

ure

Dev

elopm

ent F

und

(RID

F) (P

1549

47)

Nat

iona

l Urb

an W

ater

Sup

ply

Prog

ram

N

atio

nal S

lum

Upg

radi

ng P

rogr

am

(P15

4782

) Su

raba

ya U

rban

Cor

ridor

Dev

elopm

ent

Proj

ect

Nat

iona

l Sew

erag

e Sy

stem

Dev

elopm

ent

Prog

ram

. N

atio

nal P

rogr

am fo

r Im

prov

ing

Solid

W

aste

Man

agem

ent.

Regi

onal

Wat

er S

uppl

y Pr

ogra

m

Ob

ject

ive

9: I

mp

rove

acc

ess

to q

ual

ity

edu

cati

on a

nd h

ealt

h r

elat

ed s

ervi

ces

in t

arge

ted

rur

al a

reas

29

Inte

rven

tion

Log

ic

The

WBG

will

supp

ort n

atio

nal p

rogr

ams t

hat p

rovi

de p

erfo

rman

ce-b

ased

fund

s and

tech

nica

l ass

istan

ce to

dist

ricts

and

vill

ages

in ru

ral r

egio

ns in

or

der t

o en

sure

uni

vers

al ac

cess

to e

duca

tion

and

healt

h-re

lated

serv

ices (

inclu

ding

wat

er a

nd sa

nita

tion)

that

mee

t min

imum

qua

lity

stan

dard

s. IF

C w

ill se

ek p

rivat

e se

ctor

mod

els fo

r util

izin

g ne

w te

chno

logi

es to

exp

and

healt

hcar

e an

d ed

ucat

ion

serv

ices t

o th

e ba

se o

f the

pyr

amid

pop

ulat

ions

in

rem

ote

regi

ons.

29 T

arge

ted

rura

l reg

ions

: Disa

dvan

tage

d ru

ral r

egio

ns, d

efin

ed in

term

s of p

over

ty a

nd a

cces

s to

educ

atio

n, h

ealth

, and

wat

er a

nd sa

nita

tion

66

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

Perc

enta

ge o

f mot

hers

and

chi

ldre

n re

ceiv

ing

mat

erna

l and

chi

ld h

ealth

and

nut

ritio

n se

rvice

s in

com

mun

ity h

ealth

cen

ter

(pus

kesm

as) a

nd it

s net

wor

k in

targ

eted

are

as

Base

line:

TBD

(201

6)

Targ

et:

T

BD (2

020)

N

umbe

r of s

tude

nts e

nrol

led in

scho

ols m

eetin

g m

inim

um se

rvice

stan

dard

s in

targ

eted

are

as,

disa

ggre

gate

d by

gen

der

Ba

selin

e: T

BD (2

016)

Ta

rget

:

TBD

(202

0)

N

umbe

rs o

f peo

ple

havi

ng ac

cess

to im

prov

ed

wat

er se

rvice

s in

targ

eted

are

as, d

isagg

rega

ted

by g

ende

r Base

line:

7.9

mill

ion

(201

6)

Targ

et:

2

2 m

illio

n (2

020)

Num

bers

of p

eopl

e ha

ving

acce

ss to

impr

oved

sa

nita

tion

serv

ices i

n ta

rget

ed a

reas

, di

sagg

rega

ted

by g

ende

r Ba

selin

e: 7

.7 m

illio

n (2

016)

Ta

rget

:

14.

9 m

illio

n (2

020)

Perc

enta

ge o

f prim

ary

healt

h ca

re c

ente

rs in

ta

rget

are

as u

nder

the

accr

edita

tion

prog

ram

th

at h

ave

achi

eved

acc

redi

tatio

n Ba

selin

e: T

BD (2

016)

Ta

rget

:

TBD

(202

0)

Num

ber o

f doc

tors

/nur

ses/

mid

wiv

es in

targ

et

area

s with

bas

ic co

mpe

tenc

ies in

MCH

car

e Ba

selin

e: T

BD (2

016)

Ta

rget

:

TBD

(202

0)

Perc

enta

ge o

f chi

ldre

n 0-

59 m

o w

eighe

d m

onth

ly Ba

selin

e: T

BD (2

016)

Ta

rget

:

TBD

(202

0)

Num

ber o

f tea

cher

s in

proj

ects

are

as w

ith

basic

com

pete

ncies

(UPK

test

) Ba

selin

e: T

BD (2

016)

Ta

rget

:

TBD

(202

0)

Num

ber o

f vill

ages

dev

elopi

ng c

omm

unity

w

ater

supp

ly an

d sa

nita

tion

actio

n pl

ans

Bas

eline

: 10

,000

(201

6)

Tar

get:

2

7,00

0 (2

020)

On

Goi

ng:

PN

PM R

ural

2012

- 20

15 (P

1288

32)

PNPM

-Gen

eras

i (P1

3258

5)

UH

C PA

AA

(P15

3828

) V

illag

e La

w P

AA

A (P

1532

19)

ECE

D F

ront

line

PAA

A (P

1566

74)

PNPM

-Gen

eras

i Im

pact

Eva

luat

ion

(P15

2466

) ID

PA

MSI

MA

S Su

ppor

t Tru

st F

und

(P11

6236

) ID

-WSS

LIC

III (

PAM

SIM

AS)

(P

0853

75)

AF-

Nat

iona

l Wat

er a

nd S

anita

tion

Prog

ram

(PA

MSI

MA

S 2)

P

lann

ed N

ew:

Prim

ary

Hea

lth C

are

Proj

ect (

P157

150)

Q

ualit

y E

duca

tion

in d

isadv

anta

ged

regi

ons (

P4R)

V

illag

e La

w Im

plem

enta

tion

Proj

ect/

P4R

Vill

age

for S

ervi

ces P

AA

A

Teac

her Q

ualit

y an

d E

duca

tion

Fina

ncin

g PA

AA

. A

F- N

atio

nal W

ater

and

San

itatio

n Pr

ogra

m (P

AM

SIM

AS

3) (P

1294

86)

PAA

A to

supp

ort P

AM

SIM

AS

En

gage

men

t A

rea

5: S

ust

ain

able

Lan

dsc

ape

Man

agem

ent

Def

init

ion

of

focu

s ar

ea: B

ette

r har

ness

ing

pote

ntial

of n

atur

al as

sets

(lan

d, w

ater

, for

ests

) for

sus

tain

able

and

inclu

sive

grow

th th

roug

h im

prov

ed

spat

ial p

lanni

ng a

nd la

nd a

dmin

istra

tion,

impr

ovin

g go

vern

ance

and

man

agem

ent o

f th

e fo

rest

est

ate,

inte

grat

ion

of a

land

scap

e ap

proa

ch in

to th

e po

rtfol

io an

d pi

pelin

e, m

akin

g gr

owth

inclu

sive,

thro

ugh

targ

etin

g th

e vul

nera

ble a

nd p

rom

otin

g eq

uity

, and

enha

ncin

g cr

oss-

sect

oral

coor

dina

tion

and

67

inte

grat

ion

for l

ands

cape

man

agem

ent.

This

focu

s are

a co

vers

supp

ort f

or d

esig

n an

d im

plem

enta

tion

of a

Lan

dsca

pe P

rogr

am fo

cuse

d on

impr

ovin

g m

anag

emen

t of,

and

bene

fits f

rom

, ter

rest

rial n

atur

al as

sets

. L

inks

bet

wee

n th

e fo

cus

area

an

d th

e tw

in g

oals

: As s

et o

ut in

the S

CD, t

he q

ualit

y of n

atur

al re

sour

ce g

over

nanc

e and

man

agem

ent w

ill in

fluen

ce

how

effe

ctiv

ely In

done

sia’s

grow

th st

rate

gy li

fts p

eopl

e ou

t of e

xtre

me

pove

rty a

nd b

oost

s sha

red

pros

perit

y. Po

verty

rate

s are

hig

hest

for h

ouse

hold

s liv

ing

on th

e ed

ge o

f for

ests

. The

spec

ial n

atur

e of

pov

erty

in fo

rest

area

s req

uire

s an

appr

oach

that

wor

ks w

ith m

anag

emen

t of n

atur

al re

sour

ces.

The

rem

oten

ess,

low

pop

ulat

ion

dens

ity a

nd d

isper

sed

com

mun

ity lo

catio

ns w

arra

nt a

n ap

proa

ch th

at re

cogn

izes

the

linka

ges b

etw

een

the

fate

of p

eopl

e liv

ing

in th

ese a

reas

and

natu

ral r

esou

rce a

ctiv

ities

and

chan

ges i

n ec

osys

tem

serv

ices r

esul

ting

from

def

ores

tatio

n, o

vere

xplo

itatio

n of

reso

urce

s, flo

ods,

lands

lides

, and

nat

ural

disa

ster

s. Th

is en

gage

men

t lin

ks w

ith S

CD P

athw

ay 3

Nat

ural

Reso

urce

Man

agem

ent.

C

oun

try

Dev

elop

men

t G

oals

: Th

e cu

rren

t RPJ

MN

201

5-20

19 p

rese

nts

the

prio

rity

actio

ns r

elat

ed to

land

scap

e m

anag

emen

t: (i)

to o

ptim

ize

the

natu

ral r

esou

rces

and

dev

elop

regu

latio

ns to

supp

ort;

(ii) t

o st

reng

then

the

fore

stry

sect

or; (

iii) t

o bu

ild sp

atial

and

sust

ainab

ile e

nviro

nmen

t. G

oI h

as

initi

ated

a n

umbe

r of a

mbi

tious

initi

ativ

es a

nd st

arte

d so

me

regu

lator

y ch

ange

pro

cess

es, w

hich

, if s

ucce

ssfu

lly im

plem

ente

d, w

ould

beg

in to

add

ress

m

any

of t

hese

issu

es n

atio

nally

. The

se in

clude

reo

rgan

izatio

n at

the

min

ister

ial le

vel w

ith c

omm

itmen

ts t

o m

ore

equi

tabl

e re

sour

ce m

anag

emen

t, de

cent

raliz

atio

n of

fore

st m

anag

emen

t, sp

atial

plan

ning

, pea

t fire

man

agem

ent,

and

mor

e tra

nspa

rent

and

eff

icien

t lice

nsin

g pr

oces

ses.

At t

he s

ame

time,

the

gove

rnm

ent h

as li

mite

d ca

pacit

y to

impl

emen

t sou

nd p

olici

es a

nd le

gisla

tion,

par

ticul

arly

whe

re re

quiri

ng c

ross

-sec

tora

l res

pons

e.

Ob

ject

ive

10: I

mpr

ove

land

man

agem

ent

and

sp

atia

l pla

nnin

g

Inte

rven

tion

Log

ic

The

indi

cativ

e po

rtfol

io p

rovi

des s

uppo

rt to

the

GoI

in d

evelo

ping

som

e of

the

core

fund

amen

tals

for b

ette

r har

ness

ing

the

pote

ntial

of n

atur

al as

sets

as a

sour

ce o

f sus

tain

able

econ

omic

grow

th, j

obs,

and

liveli

hood

s. Sp

ecifi

cally

, the

se a

ctiv

ities

inclu

de: (

i) bu

ild c

apac

ity fo

r im

prov

ed sp

atial

plan

ning

an

d lan

d ad

min

istra

tion;

(ii)

impr

ove

gove

rnan

ce b

y im

prov

ing

trans

pare

ncy

over

the

boun

darie

s of

the

fore

st a

sset

s; an

d (ii

i) ad

dres

s ro

ot c

ause

s of

po

verty

and

natu

ral d

egra

datio

n by

impr

ovin

g sec

urity

of l

and

tenu

re an

d us

e. Th

ese a

ctiv

ities

wer

e sele

cted

bas

ed o

n th

eir cr

itica

lity t

o re

ducin

g pov

erty

in

and

aro

und

fore

st a

reas

and

impr

ovin

g fo

rest

-relat

ed re

venu

e co

llect

ion

and

man

agem

ent a

s a d

river

for b

road

er g

row

th.

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

Com

plet

ion

and

publ

ic av

ailab

ility

of O

ne

Map

30 i

n th

e co

ntex

t of n

atio

nal s

patia

l dat

a in

fras

truct

ure

B

aseli

ne:

0 (2

016)

T

arge

t:

1 (2

020)

Num

ber o

f pro

vinc

es w

ith ap

prov

ed sp

atial

pl

ans

Bas

eline

: 7

(201

6)

Tar

get:

9

(20

20)

Stre

ngth

enin

g of

lega

l and

inst

itutio

nal

fram

ewor

k fo

r lan

d m

anag

emen

t, te

nure

and

us

e rig

hts i

n fo

rest

est

ate

On

Goi

ng:

PA

AA

Gre

en D

evelo

pmen

t Sup

port

Prog

ram

(P14

8318

) RE

DD

+ S

uppo

rt Fa

cility

(P14

9183

) IF

C: In

done

sia G

reen

Bui

ldin

gs R

egul

atio

n (#

5891

67; T

rade

and

Com

petit

iven

ess)

30 O

ne M

ap is

a p

ropo

sed

singl

e in

corp

orat

e da

taba

se b

ringi

ng to

geth

er la

nd u

se, l

and

tenu

re a

nd o

ther

spat

ial d

ata

for I

ndon

esia

68

Bas

eline

: 0

(201

6)

Tar

get:

5

(202

0)

SE A

sia F

ores

try A

dvice

(#60

0431

; M

anuf

actu

ring,

Agr

ibus

ines

s & S

ervi

ces)

In

done

sia P

alm O

il D

evelo

pmen

t Sm

allho

lder

s (#

5940

07; M

anuf

actu

ring,

A

grib

usin

ess &

Ser

vice

s)

Follo

w o

n Pa

lm O

il Pr

ojec

t No.

2:

SCI

in P

lanta

tions

(#59

3807

; Man

ufac

turin

g,

Agr

ibus

ines

s & S

ervi

ces)

P

lann

ed N

ew:

Nat

iona

l Lan

d A

dmin

istra

tion

& S

patia

l Pl

anni

ng

PAA

A In

done

sia L

ands

cape

Pro

gram

(P

1564

89)

IFC:

For

estry

Sup

ply

Chain

Indo

nesia

(#

6001

24; M

anuf

actu

ring,

Agr

ibus

ines

s &

Ser

vice

s)

Ob

ject

ive

11: S

tren

gth

ened

cap

acit

y in

dec

entr

aliz

ed f

ores

t m

anag

emen

t

Inte

rven

tion

Log

ic

The

indi

cativ

e po

rtfol

io p

rovi

des s

uppo

rt to

the

GoI

in d

evelo

ping

som

e of

the

core

fund

amen

tals

for b

ette

r har

ness

ing

the

pote

ntial

of n

atur

al as

sets

as a

sour

ce o

f sus

tain

able

econ

omic

grow

th, j

obs,

and

liveli

hood

s. Sp

ecifi

cally

, the

se ac

tiviti

es in

clude

: 1) i

mpr

ove

gove

rnan

ce a

nd m

anag

emen

t of t

he

Fore

st E

stat

e w

ith a

focu

s on

dece

ntra

lized

man

agem

ent;

and

2) a

ddre

ss ro

ot c

ause

s of p

over

ty a

nd n

atur

al de

grad

atio

n by

impr

ovin

g se

curit

y of

land

te

nure

and

use

; and

3)

mak

e gr

owth

inclu

sive

and

equi

tabl

e, th

roug

h en

surin

g vu

lner

able

com

mun

ities

with

in f

ores

ts a

re b

enef

iting

fro

m t

hose

re

sour

ces.

The

activ

ities

wer

e se

lecte

d ba

sed

on th

eir c

ritica

lity

to re

ducin

g po

verty

in a

nd a

roun

d fo

rest

are

as a

nd im

prov

ing

fore

st-r

elate

d re

venu

e co

llect

ion

and

man

agem

ent a

s a

driv

er o

f br

oade

r gr

owth

, and

ref

lects

ong

oing

eng

agem

ent a

reas

bet

wee

n th

e W

orld

Ban

k an

d re

lated

min

istrie

s. Li

kew

ise, t

he p

ortfo

lio u

nder

pre

para

tion

refle

cts a

reas

crit

ical t

o su

cces

s whe

re th

e G

oI h

as d

emon

stra

ted

inte

rest

in e

ngag

ing.

Whi

le th

ese

area

s are

co

nsid

ered

criti

cal f

or en

gage

men

t, im

porta

nt ri

sks d

o re

main

giv

en th

e cha

lleng

ing

polit

ical e

cono

my o

f the

sect

or, a

nd th

e wea

k co

ordi

natio

n be

twee

n m

inist

ries a

nd lo

cal g

over

nmen

t.

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

Land

are

a su

ppor

ted

by fo

rest

man

agem

ent

units

with

impr

oved

man

agem

ent e

ffec

tiven

ess

(Hec

tare

)

Ba

selin

e (2

016)

: 0

Fore

st m

anag

emen

t uni

ts w

ith fo

rest

bo

unda

ries d

eline

ated

and

inte

grat

ed in

to

spat

ial p

lans o

f pro

vinc

es (n

umbe

rs)

Bas

eline

: 0

(20

16)

On

Goi

ng:

PA

AA

Gre

en D

evelo

pmen

t Sup

port

Prog

ram

(P14

8318

) RE

DD

+ S

uppo

rt Fa

cility

(P14

9183

)

69

Targ

et (2

020)

: 560

,000

Tar

get:

10

(202

0)

Fore

st m

anag

emen

t uni

ts go

vern

ed b

y lo

ng-

term

man

agem

ent p

lans p

repa

red

with

co

mm

unity

par

ticip

atio

n (n

umbe

rs)

Bas

eline

: 0

(201

6)

Tar

get:

6

(20

20)

IFC:

SE

Asia

For

estry

Adv

ice (#

6004

31;

Man

ufac

turin

g, A

grib

usin

ess &

Ser

vice

s)

Pla

nned

New

: Fo

rest

ry In

vest

men

t pro

gram

(P14

4269

) IF

C: F

ores

try S

uppl

y Ch

ain In

done

sia

(#60

0124

; Man

ufac

turin

g, A

grib

usin

ess

& S

ervi

ces)

En

gage

men

t A

rea

6: C

olle

ctin

g M

ore

and

Sp

end

ing

Bet

ter

Def

init

ion

of

focu

s ar

ea:

Indo

nesia

’s re

venu

e-to

-GD

P (1

4.7

perc

ent i

n 20

14) a

nd ta

x-to

-GD

P (1

0.9

perc

ent)

ratio

s ar

e ve

ry lo

w b

y in

tern

atio

nal

stan

dard

s. Th

is is

not d

ue to

low

er ta

x po

tent

ial; b

y on

e es

timat

e, In

done

sia is

col

lectin

g les

s tha

n 50

per

cent

of i

ts to

tal p

oten

tial t

ax re

venu

e. Th

e 50

pe

rcen

t of t

ax re

venu

e not

bein

g co

llect

ed is

a re

sult

of su

bopt

imal

tax

polic

y (p

olic

y gap

) and

wea

k ad

min

istra

tion

(com

plian

ce g

ap).

Just

as im

porta

nt

as co

llect

ing

mor

e, ho

wev

er, i

s ‘sp

endi

ng b

ette

r’, th

at is

, im

prov

ing

both

the c

ompo

sitio

n an

d de

liver

y/ex

ecut

ion

of sp

endi

ng.

Befo

re th

e int

rodu

ctio

n of

a m

ajor f

uel s

ubsid

y re

form

, cen

tral g

over

nmen

t’s p

ublic

spe

ndin

g on

infr

astru

ctur

e an

d he

alth

prog

ram

s w

ere

signi

fican

tly c

row

ded

out b

y lar

ge

ener

gy s

ubsid

ies. I

n 20

14, s

pend

ing

on e

nerg

y su

bsid

ies a

ccou

nted

for m

ore

than

one

-fifth

of t

he c

entra

l gov

ernm

ent’s

bud

get a

nd m

ore

than

thre

e tim

es th

e all

ocat

ion

for i

nfra

stru

ctur

e an

d he

alth.

Sub

natio

nal g

over

nmen

ts n

ow s

pend

a b

it m

ore

than

half

of t

he n

atio

nal b

udge

t (ne

t of s

ubsid

ies

and

inte

rest

pay

men

ts).

In g

ener

al, s

ubna

tiona

l gov

ernm

ents

’ spe

ndin

g is

exce

ssiv

ely d

omin

ated

by

spen

ding

on

adm

inist

ratio

n an

d pe

rson

nel o

ver

prod

uctiv

e sec

tors

and

capi

tal s

pend

ing.

Impr

ovin

g th

e com

posit

ion

of lo

cal g

over

nmen

t spe

ndin

g an

d re

alloc

atin

g m

ore r

esou

rces

to fr

ontli

ne se

rvice

de

liver

y ar

e im

porta

nt st

eps t

owar

ds im

prov

ing

the

prov

ision

of k

ey se

rvice

s to

the

popu

latio

n.

Lin

ks b

etw

een

the

focu

s ar

ea a

nd th

e tw

in g

oals

: Fisc

al po

licy,

in it

s rev

enue

mob

iliza

tion

and

quali

ty o

f spe

ndin

g fu

nctio

ns, w

ere

iden

tified

in th

e SC

D a

s key

to p

over

ty re

duct

ion

and

shar

ed p

rosp

erity

. Jus

t as i

mpo

rtant

as c

ollec

ting

mor

e, ho

wev

er, i

s ‘sp

endi

ng b

ette

r’, th

at is

, im

prov

ing

both

the

com

posit

ion

and

deliv

ery/

exec

utio

n of

spen

ding

. The

SCD

also

iden

tifies

tran

spar

ency

and

acc

ount

abili

ty in

the

use

of p

ublic

fund

s as o

ne o

f the

key

in

gred

ients

in im

prov

ing

serv

ice d

elive

ry. T

his

enga

gem

ent l

inks

with

Pat

hway

2 b

y pr

ovid

ing

both

incr

ease

d re

venu

e an

d be

tter

spen

ding

for

the

deliv

ery

of s

ervi

ces

oppo

rtuni

ties

for a

ll, a

nd P

athw

ay 3

that

seek

s to

impr

ove

the

way

reve

nue

from

Indo

nesia

’s ab

unda

nt n

atur

al re

sour

ces

can

be

capt

ured

and

shar

ed to

impr

ove

sust

ainab

ility

and

shar

e re

sour

ces m

ore

equi

tabl

y.

Cou

ntr

y D

evel

opm

ent

Goa

ls: R

PJM

N 2

015-

2019

put

em

phas

is on

: (i)

stre

ngth

enin

g st

ate

reve

nue

adm

inist

ratio

n ca

pacit

y an

d im

prov

ing

tax

polic

y to

incr

ease

the s

tate

reve

nue f

rom

tax

and

non-

tax

sour

ces;

and

(ii) s

treng

then

ing

plan

ning

and

budg

etin

g in

stitu

tions

to im

prov

e bud

get e

xecu

tion,

the

alloc

ativ

e ef

ficien

cy, a

nd th

e ef

fect

iven

ess (

impa

ct) o

f pub

lic e

xpen

ditu

re.

70

Ob

ject

ive

12:

Impr

ove

reve

nu

e co

llect

ion

Inte

rven

tion

Log

ic

By c

ollec

ting

mor

e, th

e go

vern

men

t will

be

able

to a

dequ

ately

fina

nce

the

key

prio

rity

area

s, su

ch a

s in

fras

truct

ure,

supp

orte

d by

the

CPF.

Ong

oing

an

d up

com

ing

portf

olio

item

s se

lect

ed b

ased

on

pote

ntial

impa

ct o

n th

e st

reng

then

ing

of re

venu

e ad

min

istra

tion

capa

city

(to re

duce

the

com

plian

ce

gap)

and

on im

prov

ing

tax

polic

y (to

redu

ce th

e pol

icy g

ap).

Spec

ifica

lly, W

BG’s

enga

gem

ent a

ims t

o he

lp th

e gov

ernm

ent r

aise r

even

ues w

hile

redu

cing

econ

omic

dist

ortio

ns a

nd lo

wer

ing

adm

inist

ratio

n co

sts.

To a

chiev

e th

is ob

jectiv

e, W

BG w

ould

sup

port

the

gove

rnm

ent i

n th

e fo

llow

ing

area

s: (i)

su

ppor

ting

the

revi

sion

of se

lectiv

e ta

x po

licies

; (ii)

gre

ater

eff

ectiv

enes

s and

eff

icien

cy o

f tax

com

plian

ce m

anag

emen

t thr

ough

a m

ove

to a

risk

-bas

ed

appr

oach

to c

ompl

iance

man

agem

ent;

(iii)

stre

ngth

enin

g an

d m

ainst

ream

ing

non-

tax

reve

nue

adm

inist

ratio

n.

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

Com

plian

ce ra

te fo

r ind

ivid

ual a

nd c

orpo

rate

ta

xpay

ers

Base

line:

59.8

% in

divi

dual,

47.

3% c

orpo

rate

(201

3 ta

x ye

ar)

Targ

et: T

BD (2

018

tax

year

)

Legi

slatio

n pa

ssed

to in

crea

se th

e ta

x ba

se

Base

line:

No

(201

6)

Targ

et: T

wo

revi

sions

of t

ax la

ws:

Inco

me

Tax

and

VA

T La

w (2

017)

Re

gulat

ion

fully

impl

emen

ted

to

elim

inat

e du

plica

te ta

x ID

s. Ba

selin

e: N

o (2

014)

Ta

rget

: Y

es (2

016)

Pr

ocur

emen

t ini

tiate

d (R

FPs)

for

acqu

isitio

n of

a m

oder

n ta

x m

anag

emen

t sof

twar

e sy

stem

. Ba

selin

e: N

o (2

015)

Ta

rget

: Yes

(201

7)

On

Goi

ng:

TA

-Rev

enue

and

Bud

get M

anag

emen

t (P

1556

48)

Pla

nned

New

: Ta

x po

licy

TA (p

art o

f mac

ro-fi

scal

PA

P132

241)

N

on-ta

x re

venu

e po

licy

and

adm

inist

ratio

n TA

(p

art o

f Nat

ural

Reso

urce

s for

Dev

elopm

ent

PA P

1561

42)

Mod

erni

zatio

n of

Tax

Col

lectio

n pr

ojec

t Su

b-na

tiona

l fisc

al TA

, inc

ludi

ng in

Ob

ject

ive

13:

Impr

ove

effi

cien

cy a

nd e

ffec

tive

nes

s of

sp

endi

ng

Inte

rven

tion

Log

ic

By im

prov

ing

the

alloc

ativ

e an

d te

chni

cal e

fficie

ncy

of p

ublic

exp

endi

ture

, the

gov

ernm

ent w

ill b

e ab

le to

red

uce

econ

omic

disto

rtion

s an

d lo

wer

ad

min

istra

tion

cost

s to

allow

for m

ore

optim

al m

ix o

f pub

lic sp

endi

ng su

ch a

s inf

rast

ruct

ure,

healt

h, a

nd e

duca

tion.

Ong

oing

and

upc

omin

g po

rtfol

io

item

s are

des

igne

d to

pro

vide

mul

tiple

inst

rum

ents

to su

ppor

t gov

ernm

ent’s

spen

ding

bet

ter a

gend

a. Sp

ecifi

cally

, WBG

aim

s to

help

the

gove

rnm

ent

in th

e fo

llow

ing

key

area

s: (i)

adv

ancin

g en

ergy

(fue

l and

elec

trici

ty) s

ubsid

y re

form

s thr

ough

con

siste

nt im

plem

enta

tion

and

impr

oved

tran

spar

ency

;

71

(ii) i

mpr

ovin

g qu

ality

of s

pend

ing

(allo

cativ

e ef

ficien

cy, e

ffec

tiven

ess,

and

impl

emen

tatio

n) in

key

are

as; (

iii) i

mpr

ovin

g qu

ality

of s

pend

ing

and

serv

ice

deliv

ery o

f sele

cted

subn

atio

nal g

over

nmen

ts; a

nd (i

v) st

reng

then

ing

inst

itutio

nal c

apac

ity to

mod

erni

ze p

rocu

rem

ent a

nd co

ntra

ct m

anag

emen

t and

to

impr

ove

the

cont

rol e

nviro

nmen

t.

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

Cent

ral g

over

nmen

t spe

ndin

g on

hea

lth, c

apita

l ex

pend

iture

(pro

xy fo

r inf

rast

ruct

ure)

, and

socia

l as

sista

nce

( per

cent

age

of to

tal e

xpen

ditu

re o

f ap

prov

ed n

atio

nal b

udge

t exc

ludi

ng tr

ansf

ers t

o su

bnat

iona

l gov

ernm

ents

) Ba

selin

e: he

alth

at 2

.7%

(201

4); c

apita

l exp

endi

ture

at

12.

2% (2

014)

; soc

ial a

ssist

ance

at 3

.2%

(201

4)

Targ

et (2

016

onw

ard)

: hig

her t

han

base

line

Ce

ntra

l bu

dget

exe

cutio

n ra

tes (

reali

zed

as a

pe

rcen

tage

of A

PBN

) of c

apita

l spe

ndin

g Ba

selin

e: 80

% (2

014)

Ta

rget

: 90%

(201

8)

Cont

ract

com

mitm

ents

on

capi

tal

spen

ding

mad

e in

firs

t 3 m

onth

s of y

ear

as a

% o

f tot

al pl

anne

d ca

pita

l spe

ndin

g Ba

selin

e: TB

D (2

015)

Ta

rget

: TBD

(202

0)

Chan

ge re

gulat

ions

(inc

ludi

ng a

t lea

st

PMK

157

/201

3) to

bet

ter e

nabl

e lar

ge

infr

astru

ctur

e co

ntra

cts,

inclu

ding

mul

ti-ye

ar c

ontra

cts (

as m

easu

red

by fi

scal

DPL

II).

Base

line:

No

(201

5)

Targ

et: Y

es (

2017

) Im

prov

emen

t in

the

opin

ion

expr

esse

d in

aud

ited

annu

al Ce

ntra

l Gov

ernm

ent

finan

cial s

tate

men

ts

Base

line:

Qua

lified

(201

5)

Targ

et: U

nqua

lified

(20

17)

On

Goi

ng:

PE

RISA

I DPL

-DD

O (P

1300

48)

Exp

endi

ture

pol

icy T

A (p

art o

f mac

ro-fi

scal

polic

y PA

P13

2241

) P

lann

ed N

ew:

DPL

Fisc

al Re

form

I an

d II

(P15

6655

) Su

b-na

tiona

l fisc

al TA

, inc

ludi

ng in

reso

urce

ric

h re

gion

s (pa

rt of

mac

ro-fi

scal

polic

y PA

P1

3224

1 an

d D

ecen

traliz

atio

n PA

)

Sup

port

ing

Bea

m 1

: The

Bu

sin

ess

Clim

ate

and

Fu

ncti

onin

g of

Mar

kets

As s

et o

ut in

the

SCD

, gro

wth

, job

s and

pov

erty

redu

ctio

n w

ill d

epen

d a

grea

t dea

l on

a gr

owth

stra

tegy

that

is su

ppor

ted

by th

e pr

ivat

e se

ctor

as t

he

engi

ne o

f gro

wth

. Th

e go

vern

men

t play

s a

criti

cal r

ole

by d

evisi

ng a

nd im

plem

entin

g ap

prop

riate

pol

icies

and

regu

latio

ns.

Whi

lst a

ddre

ssin

g so

me

key c

onst

rain

ts (s

uch

as th

e inf

rast

ruct

ure a

nd sk

ills g

ap) t

hrou

gh th

e var

ious

enga

gem

ent a

reas

, we s

ee a

unify

ing f

acto

r—a w

eak

busin

ess a

nd fi

nanc

ing

envi

ronm

ent—

as o

ne th

at c

uts v

ery

broa

dly

acro

ss th

e ec

onom

y an

d w

hich

impa

cts t

he e

ffici

ency

and

effi

cacy

of m

any

of th

e de

velo

pmen

t sol

utio

ns.

The s

ympt

oms o

f the

wea

k bu

sines

s and

fina

ncin

g en

viro

nmen

t are

evid

ence

d by

inve

stm

ent a

nd tr

ade r

egul

atio

ns w

hich

are g

ener

ally r

estri

ctiv

e, of

ten

inco

nsist

ent (

inclu

ding

acro

ss d

iffer

ent l

evels

of g

over

nmen

ts),

and

unce

rtain

; obt

ainin

g pe

rmits

and

licen

ses i

s tim

e-co

nsum

ing

and

cost

ly. Im

prov

ing

the

busin

ess c

limat

e an

d m

arke

ts is

amon

gst t

he g

over

nmen

t’s to

p pr

iorit

ies in

ord

er to

attra

ct p

rivat

e se

ctor

cap

ital t

hat i

s ess

entia

l for

the

crea

tion

of

jobs

and

for h

elpi

ng to

fina

nce t

he co

untry

’s va

st in

fras

truct

ure n

eeds

. Int

erve

ntio

ns ta

rget

ed to

impr

ove t

he b

usin

ess e

nviro

nmen

t and

the f

unct

ioni

ng

of m

arke

ts c

ut a

cros

s all

enga

gem

ent a

reas

inclu

ding

Nat

iona

l and

Loc

al in

fras

truct

ure,

Ene

rgy,

Mar

itim

e, an

d La

ndsc

ape

Man

agem

ent.

72

Ob

ject

ive

14:

Sim

plif

y bu

sin

ess

licen

sing

pro

cess

es t

o su

ppor

t pr

ivat

e se

ctor

Inte

rven

tion

Log

ic

A c

ombi

natio

n of

WBG

pro

duct

s will

be

used

to su

ppor

t the

dyn

amic

natu

re o

f priv

ate

sect

or d

evelo

pmen

t and

forg

e a

prod

uctiv

ity p

ull i

n a t

arge

ted

set

of b

usin

ess

area

s w

here

con

ditio

ns a

re p

ropi

tious

for

hig

h gr

owth

. In

parti

cular

, WBG

will

foc

us o

n su

ppor

ting

refo

rms

in t

he r

egul

ator

y en

viro

nmen

t, an

d fo

r hig

h-gr

owth

firm

s with

in d

ynam

ic pr

oduc

t and

supp

ortiv

e fa

ctor

mar

kets

.

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

Redu

ctio

n in

tota

l tim

e re

quire

d fo

r pro

cess

ing

of

all li

cens

es in

4 p

riorit

y se

ctor

s (ap

pare

l, fo

od, I

PP,

tour

ism)

Base

line:

0% re

duct

ion

(20

15)

Targ

et: 2

0% re

duct

ion

(202

0)

Redu

ctio

n in

tota

l tim

e re

quire

d fo

r pr

oces

sing

of a

ll lic

ense

s in

IPP

Base

line:

600

days

(201

5)

Targ

et: 3

00 d

ays.

(201

7)

On

Goi

ng:

In

done

sia P

rivat

e Se

ctor

Dev

elopm

ent

Refo

rm P

rojec

t (P1

4468

0, N

LTA

, D

elive

ry: F

Y17

) Re

sear

ch a

nd In

nova

tion

in S

cienc

e an

d Te

chno

logy

Pro

ject (

P121

842)

Su

stain

able

Man

agem

ent o

f Agr

icultu

ral

Rese

arch

and

Tec

hnol

ogy

Diss

emin

atio

n (P

1172

43)

Pla

nned

New

: SM

E D

evelo

pmen

t (Pr

ogra

mm

atic

AA

A,

CN fo

rthco

min

g FY

16Q

2)

Tech

nica

l ass

istan

ce fo

r reg

ulat

ory

simpl

ifica

tion

to B

KPM

O

bje

ctiv

e 15

: In

crea

se t

he

role

of

the

pri

vate

sec

tor

in n

atio

nal

infr

astr

uct

ure

inve

stm

ent

Inte

rven

tion

Log

ic

The e

ngag

emen

t to

assis

t Ind

ones

ia in

clos

ing i

ts la

rge p

ublic

infr

astru

ctur

e gap

by s

uppo

rting

the f

low

of p

rivat

e cap

ital i

nto

infr

astru

ctur

e dev

elopm

ent

and

impr

ovin

g th

e in

stitu

tiona

l, leg

al an

d re

gulat

ory

fram

ewor

k to

enh

ance

the

abili

ty o

f priv

ate

capi

tal a

nd p

ublic

inst

itutio

ns to

wor

k to

geth

er fo

r in

fras

truct

ure

deve

lopm

ent.

73

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

An

incr

ease

in p

rivat

e in

vest

men

t in

infr

astru

ctur

e (h

ighe

r priv

ate

inve

stm

ent)

Ba

selin

e: U

S$32

7 m

(201

6)

Targ

et: U

S$5,

000

m (2

020)

In

crea

se in

tota

l num

ber o

f int

erna

tiona

l tou

rist

arriv

als

Bas

eline

: 9.

44m

(201

6)

Tar

get:

1

5.0m

(202

0)

Incr

ease

num

ber o

f tou

rism

-relat

ed jo

bs in

in

tegr

ated

tour

ism d

estin

atio

ns

Bas

eline

: TB

D (2

016)

T

arge

t:

TBD

(202

0)

A re

form

ed re

gulat

ion

clarif

ying

Perp

res

(pre

siden

tial r

egul

atio

n) 7

5 &

38

Base

line:

0 0

(201

6)

Targ

et :

1 (2

020)

A

n in

crea

se in

priv

ately

fina

nced

in

fras

truct

ure

proj

ects

(pro

jects

with

pa

rtial

or fu

ll pr

ivat

e se

ctor

fina

ncin

g,

or th

ose

bene

fitin

g fr

om a

gov

ernm

ent

guar

ante

e).

Base

line:

0 (2

016)

Ta

rget

: 3

(202

0)

On

Goi

ng:

In

fras

truct

ure

Fina

nce

Facil

ity II

FF

(P09

2218

) In

done

sia In

fras

truct

ure

Gua

rant

ee F

und

(P11

8916

) P

lann

ed N

ew:

AF-

Infr

astru

ctur

e Fi

nanc

e Fa

cility

IIFF

In

done

sia In

fras

truct

ure

Fina

nce

Dev

elopm

ent (

P157

490

and

P157

491)

Te

chni

cal a

ssist

ance

for r

egul

ator

y sim

plifi

catio

n fo

r PPP

pro

jects

IF

C’s P

PP a

dviso

ry se

rvice

s Ca

pita

l mar

ket d

evelo

pmen

t, es

pecia

lly in

ar

ea o

f inf

rast

ruct

ure

finan

ce

IFC’

s dire

ct a

nd in

dire

ct in

vest

men

ts in

pr

ivat

e se

ctor

infr

astru

ctur

e pr

ojec

ts

Ob

ject

ive

16:

En

han

ce a

cces

s to

fin

ance

Inte

rven

tion

Log

ic

A c

ombi

natio

n W

BG p

rodu

cts

will

be

used

to s

uppo

rt th

e dy

nam

ic na

ture

of p

rivat

e se

ctor

dev

elopm

ent a

nd fo

rge

a pr

oduc

tivity

pul

l in

a ta

rget

ed

set

of b

usin

ess

area

s w

here

con

ditio

ns a

re p

ropi

tious

for

hig

h gr

owth

. In

parti

cular

, WBG

will

foc

us o

n su

ppor

ting

refo

rms

in t

he r

egul

ator

y en

viro

nmen

t, an

d fo

r hig

h-gr

owth

firm

s with

in d

ynam

ic pr

oduc

t and

supp

ortiv

e fa

ctor

mar

kets

. The

cho

ice o

f how

the

supp

ort i

s to

be d

esig

ned

has

been

sifte

d th

roug

h th

ree

filte

rs –

visi

bilit

y, im

pact

, and

cap

able

coun

terp

arts

– in

ord

er to

max

imiz

e th

e be

nefit

from

WBG

supp

ort.

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

Incr

ease

per

cent

age

of p

opul

atio

n w

ith a

cces

s to

finan

cial s

ervi

ces

Base

line:

36%

(201

6)

Targ

et:

5

0% (2

020)

Incr

ease

of f

inan

cial l

itera

cy

Base

line:

21%

(201

3)

Targ

et:

2% in

crea

se p

er y

ear u

ntil

2017

V

alue

of F

inan

cing

Facil

itate

d

On

goin

g:

IBR

D

(P15

6536

) Ind

ones

ia#C0

07 P

aym

ents

Sy

stem

s Upg

rade

(P

1513

68) I

ndon

esia

Dig

ital P

aym

ents

74

Num

ber o

f ind

ivid

uals/

micr

oent

erpr

ises r

each

ed

with

fina

ncial

serv

ices,

disa

ggre

gate

d by

gen

der

Base

line

(201

3): 1

,370

,000

Ta

rget

(201

8): 4

,767

,000

N

umbe

r of S

ME

s rea

ched

with

fina

ncial

serv

ices

Base

line

(201

4):

51,5

00

Targ

et (2

020)

: 85

,500

Base

line

(201

4): 0

Ta

rget

(201

9): U

S$ 1

85 m

illio

n IF

C

Ear

th Q

uake

Inde

x In

sura

nce

(EQ

II) f

or

Micr

ofin

ance

Por

tfolio

Pro

tect

ion

(#

5991

36; F

inan

ce a

nd M

arke

ts)

Env

ironm

enta

l & S

ocial

Risk

Man

agem

ent

for F

inan

cial I

nstit

utio

ns (#

5914

47; F

inan

cial

Inst

itutio

ns G

roup

) In

done

sia C

orpo

rate

Gov

erna

nce

Proj

ect

(#59

0107

; Env

ironm

ent,

Socia

l and

G

over

nanc

e)

Indo

nesia

Fin

ancia

l Inf

rast

ruct

ure

- Sec

ured

Tr

ansa

ctio

ns (#

5976

07; F

inan

ce a

nd

Mar

kets

) In

done

sia M

Ban

king

2 D

igita

l Inc

lusio

n (#

6004

01; F

inan

ce a

nd M

arke

ts)

Parti

al Cr

edit

Gua

rant

ee fo

r PT

Cipu

tra

Resid

ence

s’ bo

nd

IFC’

s inv

estm

ents

and

adv

isory

supp

ort f

or

vario

us p

rivat

e se

ctor

clie

nts

Pla

nned

New

: In

done

sia F

inan

cial I

nfra

stru

ctur

e - C

redi

t Re

porti

ng (#

5989

67; F

inan

ce a

nd M

arke

ts)

Indo

nesia

Micr

ofin

ance

(#59

9772

; Fin

ancia

l In

stitu

tions

Gro

up)

Indo

nesia

Mob

ile B

anki

ng P

hase

2 (D

igita

l Fi

nanc

ial In

clusio

n) (#

5998

75; F

inan

cial

Inst

itutio

ns G

roup

) Ca

pita

l mar

kets

dev

elopm

ent p

rogr

am

IFC

inve

stm

ent s

uppo

rt fo

r priv

ate

com

pani

es to

issu

e bo

nds o

r sto

cks o

n ca

pita

l mar

kets

75

Sup

port

ing

Bea

m 2

: Sh

ared

Pro

sper

ity,

Eq

ual

ity,

and

In

clu

sion

Def

init

ion

of f

ocu

s ar

ea: A

ll th

e po

licies

supp

orte

d by

the

CPF

enga

gem

ent a

reas

, if d

esig

ned

and

impl

emen

ted

prop

erly,

can

sign

ifica

ntly

cont

ribut

e to

the t

win

goa

ls. H

owev

er, d

edica

ted

polic

ies ar

e also

nee

ded

now

to p

rote

ct to

day’s

poo

r and

vul

nera

ble a

nd to

help

them

mov

e int

o pr

oduc

tive l

ives

. In

done

sia h

as b

een

build

ing

a sa

fety

net

sys

tem

sin

ce th

e 19

97 A

sian

Fina

ncial

Cris

is, b

ut c

over

age

rem

ains

low

and

ben

efits

too

small

to m

ake

a su

stain

able

diffe

renc

e. In

done

sia is

now

impl

emen

ting

one

the

large

st so

cial s

ecur

ity re

form

s in

the

wor

ld, b

ut c

over

age

is st

ill v

ery

limite

d, w

ith fr

aud

and

corr

uptio

n alr

eady

app

aren

t; hi

gh e

mpl

oyer

con

tribu

tions

are

bein

g co

mpo

unde

d by

hig

h m

inim

um w

ages

and

sev

eran

ce p

ay th

at a

re h

urtin

g fo

rmal

empl

oym

ent.

Polic

ies to

help

mov

e th

e po

or o

ut o

f po

verty

into

pro

duct

ive

lives

, suc

h as

thro

ugh

the

prov

ision

of

cred

it an

d sa

ving

s an

d em

ploy

men

t sup

port,

are

ver

y lim

ited,

but

the

new

gov

ernm

ent h

as m

ade

them

a p

riorit

y, as

are

com

plem

enta

ry p

olici

es to

pro

mot

e th

e cr

eatio

n of

m

ore

prod

uctiv

e jo

bs.

Lin

ks b

etw

een

th

e fo

cus

area

an

d t

he

twin

goa

ls:

Elim

inat

ing

extre

me

pove

rty a

nd b

oost

ing

shar

ed p

rosp

erity

req

uire

app

lying

a p

over

ty a

nd

ineq

ualit

y len

s to

gove

rnm

ent p

olici

es a

cros

s the

boa

rd a

long

with

ded

icate

d po

licies

to p

rote

ct th

e po

or a

nd to

help

them

mov

e ou

t of p

over

ty in

to

prod

uctiv

e liv

es.

Cou

ntr

y D

evel

opm

ent

Goa

ls: A

n ov

erar

chin

g go

al of

the

RPJM

N is

to a

chiev

e in

clusiv

e gr

owth

and

dev

elopm

ent.

One

of t

he th

ree

deve

lopm

ent

dim

ensio

ns o

f the

RPJ

MN

is te

rrito

rial a

nd e

quity

, whi

ch in

clude

s po

licies

to e

nsur

e th

at d

evelo

pmen

t is

equa

lly s

hare

d am

ong

inco

me

grou

ps a

nd

regi

ons.

Ob

ject

ive

17: I

mpr

ove

soci

al p

rote

ctio

n p

rogr

ams

for

the

poo

r an

d v

uln

erab

le

Inte

rven

tion

Log

ic: T

his

objec

tive

will

be

supp

orte

d th

roug

h pr

imar

ily k

now

ledge

serv

ices:

(i) p

over

ty a

nd in

equa

lity

focu

s: an

alysis

of p

over

ty a

nd

ineq

ualit

y in

gen

eral,

and

sup

port

to sp

ecifi

c po

licie

s an

d pr

ogra

ms s

uppo

rted

by th

e CP

F to

impr

ove

on p

over

ty a

nd in

equa

lity

redu

ctio

n; (i

i) sa

fety

ne

ts: d

evelo

pmen

t of c

omm

on sy

stem

s for

socia

l ass

istan

ce p

rogr

ams t

hrou

gh ta

rget

ing

and

paym

ents

, ref

orm

the

Rice

for t

he P

oor P

rogr

am (R

aski

n)

to im

prov

e acc

ess o

f the

poo

r to

nutri

tious

food

s, an

d th

e exp

ansio

n an

d im

prov

emen

t of I

ndon

esia’

s Con

ditio

nal C

ash

Tran

sfer

pro

gram

(PK

H);

and

(iii)

socia

l sec

urity

: des

ign,

fina

nce a

nd b

uild

capa

city t

o m

anag

e the

SJS

N em

ploy

men

t pro

gram

s, sa

fegu

ard

the s

yste

m ag

ainst

erro

r, fr

aud

& co

rrup

tion

(EFC

) and

hig

h lab

or ta

xes,

as w

ell a

s int

rodu

cing

M&

E sy

stem

and

socia

lizin

g th

e em

ploy

men

t pro

gram

s.

CP

F O

bje

ctiv

e In

dica

tors

Su

pp

lem

enta

ry P

rogr

ess

Ind

icat

ors

W

BG

Pro

gram

Num

ber o

f hou

seho

lds b

enef

iting

from

PK

H,

disa

ggre

gate

d by

gen

der

Base

line:

3 m

illio

n (2

016)

Ta

rget

:

6 m

illio

n (2

020)

Stra

tegi

c pa

per t

o in

form

the

expa

nsio

n an

d im

prov

emen

t of P

KH

pre

pare

d.

Bas

eline

: N

o (2

016)

T

arge

t:

Yes

(201

8)

Stra

tegi

c pa

per f

or d

igita

lizin

g pa

ymen

t of

socia

l ass

istan

ce b

enef

its p

repa

red.

B

aseli

ne:

No

(201

6)

Tar

get:

Y

es (2

018)

On

Goi

ng:

Pa

rtner

ship

for K

now

ledge

-bas

ed P

over

ty

Redu

ctio

n PA

AA

(P13

2247

) St

reng

then

ing

Indo

nesia

n St

atist

ics P

rojec

t (S

TATC

AP)

Co

nsum

ptio

n M

odul

e Si

mul

atio

n SU

SEN

AS

(P15

3589

) So

cial a

ssist

ance

refo

rm T

A (P

1179

75)

76

Incr

ease

in th

e nu

mbe

r of s

ocial

ass

istan

ce

bene

ficiar

ies (h

ouse

hold

s) re

ceiv

ing

paym

ents

di

gita

lly

Bas

eline

: 1

mill

ion

(201

6)

Tar

get:

7

mill

ion

(202

0)

Intro

duce

dyn

amic

upda

ting

of th

e U

nifie

d D

atab

ase

(use

d fo

r pov

erty

ta

rget

ing)

B

aseli

ne:

No

(201

6)

Tar

get:

Y

es (2

018)

G

uide

lines

and

act

ion

plan

for

impr

ovin

g sy

stem

to p

reve

nt, d

etec

t an

d co

rrec

t EFC

dev

elope

d an

d im

plem

ente

d.

Bas

eline

: Y

es (2

016)

T

arge

t:

No

(202

0)

Socia

l Sec

urity

PA

AA

(P14

4677

) (P

1513

68) I

ndon

esia

Dig

ital P

aym

ents

Ob

ject

ive

18: S

upp

ort

crea

tion

of

and

acc

ess

to p

rodu

ctiv

e jo

bs

Inte

rven

tion

Log

ic

Incl

usio

n an

d sh

arin

g pr

ospe

rity w

ill re

quire

mor

e pro

duct

ive j

obs.

Giv

en it

s im

porta

nce a

s a p

athw

ay id

entif

ied in

the S

CD, i

nter

vent

ions

that

supp

ort

that

obj

ectiv

e ar

e in

clude

d th

roug

hout

the

CPF

enga

gem

ent a

reas

. Thi

s ob

jectiv

e w

ill b

e fu

rther

sup

porte

d th

roug

h de

dica

ted

know

ledge

ser

vice

s, fo

cusin

g on

(i) a

ddre

ssin

g th

e bot

tlene

cks o

f rea

lloca

ting

wor

kers

to m

ore p

rodu

ctiv

e act

iviti

es; (

ii) im

prov

ing

the s

kills

of t

he w

orkf

orce

; (iii

) im

prov

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78

ANNEX 2: KEY MACROECONOMIC INDICATORS

2012 2013 2014 2015f 2016f 2017f 2018f Real Economy Annual percentage change, unless otherwise indicated Real GDP 6.0 5.6 5.0 4.7 5.3 5.5 5.5 Per Capita GDI (in US$ Atlas Method) 3,599 3,759 3,654 3,515 3,514 3,662 3,998 Contributions to GDP growth (ppt):

Consumption 3.5 3.6 3.1 2.8 3.1 3.3 3.3 Investment 2.9 1.7 1.3 1.2 1.6 1.9 1.9 Net exports -1.5 0.6 -0.3 0.7 0.3 0.0 0.0

Imports (real growth) 8.0 1.9 2.2 -3.2 3.6 5.9 6.2 Exports (real growth) 1.6 4.2 1.0 -0.2 4.7 5.7 5.9 Unemployment rate (ILO definition) 6.3 6.1 5.9 .. .. .. .. GDP deflator (avg.) 3.8 4.7 5.4 4.9 5.3 4.6 4.5 CPI (avg.) 4.0 6.4 6.4 6.8 5.5 5.0 4.8 Fiscal accounts* Percentage of GDP Expenditure 17.2 17.3 16.9 17.0 16.6 .. .. Revenue 15.4 15.1 14.7 15.1 14.5 .. ..

General Government Balance -1.8 -2.2 -2.2

-1.9 -2.1 .. .. General Government Debt 23.0 24.9 24.6 25.2 25.3 .. .. Selected Monetary Accounts Annual percentage change Base Money (M2) 15.0 12.8 11.9 .. .. .. .. Credit to non-government (eop) 22.4 22.1 14.2 .. .. .. .. Interest (key policy interest rate), eop 5.8 7.5 7.8 .. .. .. .. Balance of Payments Percentage of GDP, unless otherwise indicated Current Account Balance -2.7 -3.2 -2.9 -2.0 -2.6 -2.7 -2.7 Imports 23.2 23.2 22.7 20.0 20.2 19.7 21.1 Exports 23.0 22.5 22.4 20.7 20.3 19.6 20.6 Direct Investment (net, in billion US$) 13.7 12.2 15.5 10.9 12.4 13.4 14.6 Gross Reserves (in million US$, eop) 112.8 99.4 111.9 108.0 113.0 121.0 133.0

Months' import cover (goods) 7.6 6.8 8.0 9.1 9.0 9.0 9.2 As % of short-term external debt 206.4 176.6 188.8 185.5 178.8 175 182.4

External Debt 27.5 29.2 33.1 35.5 36.3 35.9 34.4

Term of Trade (index 2008=100) 94 81 85 .. .. .. .. Exchange Rate (average) IDR/US$ 9,387 10,461 11,865 .. .. .. ..

Memo items GDP nominal in (in billion US$) 918 910 889 863 916 1,012 1,116 Note: Using revised and 2010-rebased GDP. * Fiscal accounts are based on revised 2015 Budget and draft 2016 Budget. ** 2015 and 2016 are World Bank staff projection based on the Government’s primary deficit targets. Source: MoF as published by the MoF. Source: BPS; Ministry of Finance; BI; World Bank staff projections.

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ANNEX 3. COMPLETION AND LEARNING REPORT

CPS Board Discussion:

CPS Progress Report (Board Presentation):

Period Covered by CPS Completion Report:

December 13, 2012

May 29, 2014

FY13-15

INTRODUCTION

1. This Country Partnership Strategy Completion and Learning Report (CPSCLR) reviews the experience of implementing the FY13–15 World Bank Group Country Partnership Strategy (CPS) for the Republic of Indonesia (Report No. 72906, Date: December 13, 2012). The document provides a self-assessment of: (i) the extent to which the CPS was successful in achieving its stated objectives; (ii) the WGB performance in terms of the design and implementation of the program; (iii) the CPS contribution to the Corporate Twin Goals of eliminating poverty and boosting shared prosperity of the bottom forty percent of the population; and (iv) lessons learned from the implementation of the CPS program that should be considered during the preparation of the new Country Partnership Framework FY16-20. In addition to discussions with the country team and Government counterparts, this assessment is based on reference documents such as the CPS, the CPS Progress Report, Project Appraisal Documents, Implementation Status Reports, ICRs, supervision reports, and reports related to Economic and Sector Work. The findings of the CPSCLR have informed the preparation of the FY16-FY20 CPF.

SUMMARY OF KEY FINDINGS AND RATINGS

2. The CPS was prepared in FY12 on the heels of a decade long period of growth, supported by a boom in commodity exports and increased capital inflows. Output growth averaged 5.5 percent per year from 2002 to 2012, on the back of strong domestic consumption and generally robust growth in primarily commodities exports. Strong economic growth supported gains in poverty reduction and contributed to a growing middle class. Prudent economic management resulted in low budget deficits, a much reduced public debt-to-GDP ratio, and manageable inflation.

3. These tail winds, however, were beginning to turn during the CPS period and the possibility of finding itself unable to maintain momentum and escaping the middle-income trap became a growing threat for Indonesia. Despite the significant gains in poverty reduction, Indonesia still has a poor population of 30 million (almost 12 percent) below the national poverty line (PPP$1.25 a day) and amongst the highest rates of growth in inequality in the region as measured by the Gini co-efficient. Regulatory constraints, limited access to finance (particularly among small and medium size enterprises), and large infrastructure gaps were limiting the potential of the private sector to generate jobs while the education system was not able to supply the skills needed to meet the demands of the market. Fuel subsidies absorbed budget that might otherwise be available for infrastructure and social spending. Public spending and indicators on health were significantly below comparators and the poor were particularly vulnerable to health shocks. Financial markets remained vulnerable to changes in international investor sentiment, as witnessed by the macro turbulence experienced during the second semester of 2013. Poor

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governance and capacity to implement were a drag on effective spending and delivery of services and infrastructure particularly as the economy slowed. Additionally, the period of strong growth had been at the cost of significant environmental degradation and accelerated depletion of Indonesia’s natural resource base. The adverse social consequences of this “brown growth model” were showing in the vulnerability of particularly poor households to environmental shocks and natural disasters ranging from flooding in urban areas to forest fires and land use disputes in rural space to overfishing, marine pollution and coastal ecosystem degradation.

4. The FY13-15 CPS was aligned with the Government’s development priorities identified in the Medium Term Development Plan (2010-2014) and was anchored around themes of pro-growth, pro-jobs, pro-poor and pro-green. Together with the cross cutting themes of gender and governance, these focus areas aimed 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 a rising middle class and urbanization (pro-growth and pro-jobs agenda); (ii) accelerating the pace of poverty reduction and providing greater economic security for the vulnerable so that growing prosperity could be shared more widely (pro-poor and pro-jobs agenda) and (iii) enhancing sustainability in natural resource management (pro-green agenda).

5. The CPS Overall Development Outcome is rated Moderately Satisfactory. This rating is based on an aggregate assessment of the achievements under the four pillars and 15 result areas as well as the individual outcomes which formed the basis of the CPS Results Framework (Attachment 1). The program proceeded largely as anticipated and the CPS remained relevant to the country’s development challenges in promoting poverty reduction and shared prosperity.

6. The overall rating of the WBG performance is Good. Building up on its six-decade long partnership, the WBG maintained its strong collaboration with the GoI and the development partner of choice. The Bank’s work program was focused on delivering the CPS objectives, the majority of which were either mostly or partially achieved as measured by the results framework. The Bank Group delivered financial products (lending, equity, debt and guarantees), knowledge services and technical assistance which it managed in a flexible way in order to maximize development impact to the extent possible. A number of flagship knowledge products (including but not limited to Development Policy Review; Indonesia Economic Quarterly, Smallholder Survey for the Palm Oil Sector, Inequality and Shared Prosperity, Teacher Quality, Education Financing, Protecting Poor and Vulnerable Households in Indonesia, Targeting Poor and Vulnerable Households in Indonesia) as well as long-term engagements in programs such as the PNPM program which were able to influence the technical aspects of the implementation of the Village Law, were particularly relevant and directly impacted the formulation of government policy even beyond what was set out in the Results framework.

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7. Although the CPS preceded the articulation of the Corporate Twin Goals, the WBG engagement in Indonesia over the CPS period was closely aligned with the Twin Goals of eliminating extreme poverty and boosting shared prosperity. Indeed, the Development Policy Review and the Systematic Country Diagnostic that were prepared in the second half of the CPS implementation period explained the limited window of opportunity for Indonesia to reach high per capita income levels. To keep up with a young population entering the labor market, Indonesia’s economy must create some 2 million new jobs annually and will need an accelerated growth path of some 8 percent over the coming years. Accordingly, the SCD identified three pathways (private sector led growth and job creation; service delivery and opportunity for all; natural resource management) and seven priority reform areas. The CPS areas are broadly consistent with these 3 pathways and provide a degree of continuity in the new CPF in terms of WBG focus areas to advance progress towards the twin goals.

8. There are a number of lessons from the interim FY13-15 CPS to be applied to the FY16-20 CPF. These include the importance of alignment with the country's priorities in a selective way, identification of reform champions through dialogue and partnership with a broad range of stakeholders including the private sector, maintaining a clear focus on a more limited number of areas where impactful results can be achieved, the value of combining knowledge products for reform and financing, as well as of combining WBG’s complementary products and services across the three institutions—IBRD, IFC and MIGA – in improving the chances for achievement of results. These are articulated later in this CLR.

II. CPS DEVELOPMENT OUTCOME

The overall CPS Development Outcome is rated Moderately Satisfactory according to the ratings per pillar in the table below.

Outcome Rating by Pillars Development Outcome RatingPillar 1 Pillar 2 Pillar 3 Pillar 4

Moderately Satisfactory Satisfactory Satisfactory Moderately

SatisfactoryModerately Satisfactory

Pillar I. Pro-Growth: Rated Moderately Satisfactory

Objective: Promoting Prosperity

9. Under this engagement area, the WBG objective was to support development results to promote prosperity and growth across multiple sectors. This included results in macroeconomic stability and financial crisis management, the quality of public spending and financial management, increased financial access, improved competitiveness and innovation at the macro level and also within individual private companies, connectivity and logistics performance, and investment in infrastructure including through the leveraging of private sector participation. Although there were some notable successes under this pillar, the results were not uniform across all these areas. This has led to an objective rating of moderately satisfactory (see description of

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achievements and performance ratings against pro-growth indicators in Sub-annex 3.1a).

10. Development milestones to promote prosperity were mostly met. Macroeconomic management was broadly sound. The financial sector was strengthened through a variety of WBG lending and knowledge services which supported stability and crisis preparedness, as well as diversification and financial inclusion. Banking sector indicators remained sound with LDR at almost 90 percent in September 2014, above the target of 80 percent. With support from the WBG, Indonesia’s Financial Services Authority (OJK) became fully operational during this CPS period. The Financial System Stability Coordination Forum (FKSSK) was established and met on a monthly basis. During the CPS period, the Bank’s knowledge services and policy dialogue (referenced also under the Pillar “Pro-Poor”), the Bank was able to help the new Government in November 2014 usher in one of the most significant policy reforms in reallocation of budget resources away from US$2.8 billion annual fuel subsidies to temporary and long-term social assistance programs and productive investment in infrastructure.

11. In support of macro stability and crisis management, the IBRD was the lead development partner in a contingency fiscal financing package called Program for Economic Resilience, Investment and Social Assistance (PERISAI) – a DPL-DDO which lasted throughout the CPS period (closing December 2015). The DDO has been a major contributor in helping GOI weather the financial crisis with the Bank providing $2 billion in an overall package with ADB, Australia and Japan of US$5 billion. In addition, with knowledge services provided by IBRD, GoI was able to maintain continued access to market financing with net securities issuance reaching more than 100 percent of the target based on the revised budget in December 2014. In the event of a crisis, the Government was on track to use provisions in the Budget Laws to revise expenditures and/or financing sources under streamlined parliamentary approval process. To strengthen the balance sheets of companies in the private sector, IFC introduced long term financing including through equity injections. This was especially beneficial to the financial services sector with several banks such as PT Bank Danamon Tbk, PT Bank Tabungan Pensiunan Nasional Tbk, PT Bank Mayora took advantage of IFC’s longer term loan financings. IFC also continued to support the country’s digital financial inclusion agenda by assisting the OJK in launching branchless banking reforms and in convening private sector institutions to develop common codes for transactions.

12. The WBG supported the connectivity agenda through development policy lending (Connectivity DPL series), knowledge and advisory services, and support to the private sector. While there were some indications of marginal improvement—Indonesia’s Logistics Performance Index (LPI) ranking was improved to 53 in 2014 from 59 in 2012 and broadband penetration rate deepened and is expected to reach the target of 30 percent by end of CY2015, and IFC provided financing to one of the leading telecommunication tower companies in Indonesia to improve telecom and internet connectivity in remote islands, these successes were largely overshadowed by the inability to make a larger scale impact. Overall Indonesia’s logistics sector continued its poor performance and has acted as a significant drag on the economy, discouraged investment in manufacturing and failed to improve in order to have a positive impact on equality, jobs and growth.

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13. Outcomes in relation to improving the overall environment for the private sector were mixed. Whilst the IBRD and IFC joint support for the Indonesia Infrastructure Financing Fund (IIFF) was a notable success of the CPS period, the support of WBG for the creation of institutions and agencies to facilitate PPPs failed to make an impact. No PPP was launched in Indonesia during the CPS period. In terms of the business environment, Indonesia was able to improve its ranking in Doing Business to 114 in 2015, compared to 128 in 2013. At the same time, however, the CPS period witnessed a general deterioration in terms of trade policies and the regulatory environment.

WB SUPPORT TO PPPsDespite intensified effort during the CPS period through TA delivered through the Bank and advisory services by IFC, the PPP framework remains underdeveloped and has not been able yet to leverage the private sector to support any PPP vehicle. To illustrate, GOI established the Perpres 66/ 2013 and the 3rd amendment of the Perpres 67/ 2005 concerning PPP process, the application manual of VGF (MOF Decree No. Permen 143/ 2013), the establishment of the KPPIP (through the Perpes 75/ 2014), and through the KPPIP has identified 56 projects for funding through PPP schemes, defining 22 of them as priority projects, for a total value of US$51.2 billion in the period 2010-15. By 2012, however, only three projects were considered “ready for offer” and none of these have come to fruition.

Key Challenges: While the institutional and legislative developments have laid the foundation for a PPP framework, and include a set of critical PPP supporting instruments, the PPP framework requires higher-level convening power in order to become functional.Significant capacity constraints at all levels of government vis-à-vis project structuring, implementation and monitoring hinders progress on the PPP framework implementation, deals preparation and award.Land Acquisition is a major obstacle. Without faster and less conflict-ridden acquisition of land, implementation of both public and PPP infrastructure projects will remain uncertain and costly, and result in significant delays.

Key Lessons:Not having a clearly designated lead agency, tasked with moving the PPP agenda forward can create implementation risks.Lack of coordination among the central and local Governments and between ministries will slow down deal closure. Low GCA capacity results in poor project selection and preparation. Lengthy and unclear process of land acquisition will likely continue hinder implementation of infrastructure projects.

14. The Bank’s support for public financial management (PFM) had a number of positive outcomes. The DPL series of Institutional, Tax Administration, Social and Investment (INSTANSI), which concluded in December 2014, was instrumental in helping MoF strengthen financial management and budget processes in collaboration with other development partners including the EU, the Netherlands, and Switzerland. These improvements include development and use of medium-term budget forecasting tools, M&E processes to inform future budget allocations and regulations for accrual based accounting policies and chart of accounts. The roll out of the automated treasury payment and budget preparation information system (SPAN) in February 2015, after more than five years of effort, was a milestone. Other work with the procurement agency strengthening, improving e-procurement, limiting the use of unnecessary pre-qualification, and improving the capacity of the audit agencies have all contributed to PFM goals.

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15. The local government area focused on strengthening capacity and accountability of local government institutions and increasing the level and impact of public spending on service delivery. The subnational PFM program, Public Expenditure Analysis and Capacity Harmonization (PEACH), closed in August 2014 delivering six provincial updated PERs and the Sulawesi Development Diagnostics. The ongoing Local Government and Decentralization Project (LGDP/DAK), as well as the Additional Financing for LGDP/DAK, delivered during the CPS period supported improved quality of public spending on infrastructure at the local level. The 2014 mid-term evaluation for LGDP found that the performance-based design of the program incentivized participating local governments to increase matching capital investment from own-sources at a much higher rate than non-participating local governments. In the last year of the CPS a well-targeted set of subnational service delivery support initiatives, including using tools (RAAP and MiGestion) and global experience from the LCR region, were initiated. These are expected to continue in the next CPF.

16. In the infrastructure sector[1], there were some notable successes in the WBG program. A number of projects, including Pamsimas and PNPM programs, reached their objectives in providing community level infrastructure, water and sanitation with satisfactory technical quality and usually at very significant savings compared to the costs if done by private contractors or through national level infrastructure programs. Under the PAMSIMAS program, access to clean water and sanitation, a major cause of child stunting in Indonesia, advanced substantially with some 7.8 million more people provided with water and 7.62 million people with improved sanitation through the program. IFC also arranged financing of US$85 million for a private sector operator providing clean water to public water utilities. Similarly, the PNPM Urban program reached 5.5 million household beneficiaries and provided 9,115 kilometers of roads, 3349 km of drainage and irrigation canals, 131,520 units of solid waste and sanitation facilities, 1,497 community health facilities, 85,437 reconstructed poorest houses in thousands of urban wards across the country. In the water resource sector, WISMP 2 made seven national and provincial basin agencies fully functional and increased irrigated areas by 177,363 hectares. The Dam Rehabilitation project (DOISP) finalized 22 dam portfolio risk assessments and established 56 government dam portfolio management programs. In transport, a roads project (WINRIP) improved the average passenger time by large buses by 19.5% and by heavy truck by 17.5%. In flood control in Jakarta, JUFMP although still under implementation has so far removed 1,988,020 meters cubic of sludge from floodways, canal, and retention basins, repaired 29 km of embankment and 15.8 km of canals.

17. IFC also had success through its investment in individual companies associated with providing private sector finance for infrastructure. This included a hydro power project and an under-development wind farm project. IFC also successfully assisted PT Indonesia Infrastructure Finance Tbk in raising commercial financing from international banks for the first time. A number of flagship knowledge products were highly relevant in support of government reform areas. This included work related to helping the country move to a lower-carbon future by making better use of its renewable energy sources in geothermal and hydro and it gas. In terms of knowledge services, work related to access to affordable land and housing for the poor and

[1] The CPS structure and the Results Framework included several of the infrastructure projects under the Pro-Poor pillar. For the

purposes of the CLR these projects are evaluated under the Infrastructure results area of the Pro-Growth pillar to provide a more balanced view of the WBG’s engagement in the infrastructure sector.

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vulnerable living in Indonesia’s cities helped inform GoI policies and programs with a view towards increasing the access of affordable land and housing for poor and vulnerable Indonesians.Although it is still too early to show results, the launching of a programmatic Sustainable Urbanization AAA that will inform GOI policies and programs on the issue of urban infrastructure gaps particularly in transport systems, water supply and sanitation, drainage, urban flood and disaster risk management, slum upgrading and informal settlements and solid waste management.

18. On the other hand, chronic delays in infrastructure project implementation limited the results during the CPS period. In particular, the CPS results framework measured the decrease in power interruption as a proxy for energy outcomes and in this the CPS missed its target. Despite a relatively large number of power sector projects in the IBRD portfolio, all were still under implementation during the CPS period and were not yet yielding significant results. Because the CPS framework had only 5 indicators related to infrastructure, with many of these included in the pro-poor pillar, it is somewhat difficult in this CLR to measure well the cumulative impact of the infrastructure program on Pillar 1 of the CPS.

19. As discussed in the DPR and the SCD, Indonesia’s overall investment in infrastructure reached only 3-4 percent of GDP during the CPS period. Moreover, the level of the investment that was made generally did not have a commiserate impact on the provision of infrastructure in the sector. For example, nationally, spending on roads increased three fold, but only 20% additional kilometers of roadway were constructed. Similar results were found in water and sanitation with the overall percentage of the urban population’s access to clean water dropping despite increases in spending. This situation, well documented in the DPR and the SCD, was the result of a combination of issues including inadequate project preparation and technical design, poor coordination, particularly across ministries or between central and local governments, slow procurement processes, governance challenges, and particularly extreme difficulty in land acquisition despite the issuance of new regulations. Challenges to private sector investment in infrastructure, discussed above, was another binding constraint and contributor to the growing infrastructure gap. Several ongoing Bank-financed infrastructure projects suffered from many of these same constraints including experiencing extremely prolonged periods of virtually no disbursement whilst line ministries or SOE implementing agencies completed project preparation and procurement. Lack of coordination across different layers of Government caused delays in road and irrigation construction as did problems with land acquisition and procurement in power and transmission. The lessons learnt from these challenges will be a core part of the design and implementation of the future CPF particularly given its strong infrastructure focus.

Pillar II. Pro-Jobs: Rated Satisfactory

Objective: Enhancing Skills and Technology, and Improving Social Protection

20. The pro-jobs pillar complements that of the pro-growth pillar to focus on human capital development to reduce a large skills gap. While sustained growth can work to absorb more workers into the market and investment can enhance the equity of growth, improving human development is fundamental for increasing labor productivity and shared prosperity. 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 but also one

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of Indonesia’s greatest challenges. The focus of WBG engagement was to support strengthening the overall governance and management of the education system, improving the education quality and performance of teachers, enhancing human resource capacity in R&D, and facilitating the institutional transformation required to implement a nation-wide social insurance reform. Overall rating for the pro-jobs engagements is satisfactory (see description of achievements and performance ratings against pro-jobs indicators in Sub-annex 3.1b).

21. IFC and MIGA had a direct role in job creation through engagement with individual companies and support to the SME sector. IFC in addition to its support for access to finance, worked directly with manufacturing companies that generated good quality jobs as well as with SMEs to develop supply chain linkages. IFC’s financing for food products companies had links also to hundreds of thousands of small retail and trading chain partners for these companies. IFC financing to banks such as PT Bank Danamon Tbk and PT Bank Mayora were to expand their SME financing, whereas to others such as PT Mitra Bisnis Keluarga Tbk and Bank BTPN was for expanding their microfinancing operations. IFC also provided equity support to PT Blue Bird Tbk, the leading taxi services operator in Indonesia which provides employment to tens of thousands of near poor drivers. MIGA had three active projects guaranteed for investment during the CPS period: the Rajamandala Hydropower IPP (guarantee issuance of US$200 million), the PT Natrindo Telpon Selular Network Rollout (guarantee issuance of US$450 million) and the PT Weda Bay Nickel (guarantee issuance of US$207 million).

22. The WBG also supported government efforts to increase access to quality education and training. Education has been a development priority for the Government, with public spending in education reaching 20 percent of the total budget. While Government made significant strides in education access and equity, the quality of education remains low and unevenly distributed across regions. Through a program of knowledge services, supported primarily by the Netherlands and the EU, the WBG helped to identify challenges and develop solutions to improve the quality and management of teachers, education financing and the local delivery of education services, which were incorporated in the 2015-2019 RPJMN. The BERMUTU project, which supported the implementation of the Teacher Law, contributed to increasing the number of teachers with at least S1 (bachelor) degree by more than 800,000 by the end of CY2015, well above the target. The WBG also helped the government develop a blueprint for reforming the skills training system in order to address the skills shortage in the short term. The Bank’s intervention in quality and affordable Early Childhood Education and Development (ECED) targeted local level service delivery concentrating on 6,000 ECED centers in 3,000 poor villages, increasing preschool enrollment and school readiness, particularly among poor children. During this CPS period, two operations—RISET and SMARTD—were initiated to support research and innovation and to enhance technology development and uptake. Both operations are on track to reach their targets to enhance staff capacity but it is too early to judge the impact of either operation on the pro-jobs agenda. Overall, whilst improvements in educational quality in the country are lagging, the analytic work undertaken by the Bank has provided the data and set the agenda for the next 5 year period.

23. A notable achievement of the Bank’s program under the pro-jobs pillar was in the area of social security reform. GoI is attempting a reform which will be amongst the biggest in the world and requested that the Bank assist it through a large program of knowledge services

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supported by Australian trust fund financing. The national social security reform (SJSN) aims toprovide national health insurance to all Indonesians (by 2019) and cover all workers under the national employment programs (pension, old age savings, work accident, death) at the latest by 2029. During the CPS period, the Bank worked with multiple government ministries and agencies, building capacity and contributing to the development of the roadmap for the implementation ofthe SJSN. Continuation of this work will be an important part of the Inclusion agenda in the next CPF.

Pillar III. Pro-Poor: Rated Satisfactory Objective: Promoting Communities, Protecting the Vulnerable and Improving Their Health Outcomes 24. This pillar was focused on targeted interventions to improve the social welfare of the poor and vulnerable through livelihoods and access to finance and services. Policy reform efforts supported by the Bank were aimed at improving the effectiveness of poverty reduction programs and addressing the problems associated with high levels of vulnerability by improving and extending safety nets. The WBG aimed to support development results that would enhance the design and performance of household-targeted and community development programs, improve food security through interventions in the private sector, improve health and nutrition outcomes through improved access to quality health care, including maternal and child health services, enhanced HIV/AIDS surveillance, and increased access to safe water and sanitation. The overall rating for the pro-poor pillar is satisfactory (see description of achievements and performance ratings against pro-poor indicators in Sub-annex 3.1c).

25. Development outcomes mostly achieved during this CPS period with the poverty targeting component as the top performer. Through an extensive knowledge services engagement and with support from the INSTANSI DPL, the Bank helped the government to adopt and implement reforms which were proposed in the flagship report, Targeting Poor and Vulnerable Households in Indonesia released in 2012, a series of ‘just in time’ policy notes, the Development Policy Review and a long-term dialogue established between the Bank and the Ministry of Finance. By bringing together the Bank’s high quality macroeconomic policy support with its technical assistance in creating a unified database of more than 24 million poor and vulnerable households, the Bank was able to help the new Government in November 2014 usher in one of the most significant policy reforms in reallocation of budget resources away from US$2.8 billion annual fuel subsidies to temporary and long-term social assistance programs and productive investment in infrastructure. Coverage for BSM (financial assistance for poor students) doubled from 8.7 million to 16.6 million beneficiaries, coverage for the PKH (conditional cash transfers) expanded from 1.5 million households in 2012 to 3.2 million households by 2014, and 15.5 million social protection cards were distributed to households extracted from the unified database. Assistance was also being provided to government partners to mitigate household vulnerability by developing a permanent shock/crisis monitoring system. The WBG also helped to develop a national crisis monitoring system to improve responsiveness to shocks. Finally, a major study on inequality and shared prosperity was completed, informing government policies to reduce inequality.

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26. The community-based PNPM programs—Rural, Urban and Generasi—that began over a decade ago and expanded across every rural and urban community during the period of the CPS continued to anchor the WBG’s efforts in improving sub-district and village level governance, quality of service delivery, and socio-economic conditions in rural and urban areas. With the support of the WBG and other development partners, especially the Government of Australia, PNPM has been an effective platform for channeling development resources, empowering communities and ultimately improving socio-economic conditions in the villages and urban districts where it operates. PNPM demonstrated that quality and cost effective investments in infrastructure and service delivery could be achieved by funneling financing from the central government to the local level by embedding facilitation and community participatory processes in the planning, budgeting, and implementation of activities. PNPM provided the basis for the new Village Law, which the WBG has begun to help implement under the CPS period although the deeper engagement in this area will fall into the new CPF period. The Village Law aims to substantially increase the resources available to and responsibilities of villages while strengthening the systems developed by PNPM to maximize the impact of those resources on rural development. Targets set for direct participation of community members, women involvement in decision-making, and improved community access to and utilization of health and education services in targeted areas were broadly achieved or exceeded.

27. The delivery towards enhanced food security during this CPS period came primarily through interventions with the private sector supported by IFC. Knowledge services in FY13 were used to identify (i) the causes of palm oil smallholder productivity gaps and potential solutions; (ii) current company practices and guidance for community engagement and investment in the sub-sector; and (iii) best practices and funding models to assist smallholders to access certified markets. The WBG joined the Partnership for Indonesian Sustainable Agriculture (PISAgro) with IFC leading the working group on agri-finance, and engaging a partner bank to provide a credit package for cocoa smallholders to increase productivity and farmer income. A Country Situation Analysis (CSA) for engagement in the palm oil sector was initiated to explore sustainable practices for small farmers. A Canadian supported Agribusiness Program was established at IFC for working with private banks to implement a rural business model to manage agricultural risks integral to small farmers and rural business markets. Implementation of the Bank’s Water Resources and Irrigation Management Project II, noted in the infrastructure section under the Pro-Growth pillar above, made seven national and provincial basin agencies fully functional and increased irrigated areas to 177363 hectare.

28. The WBG supported, through knowledge services and financing, government efforts to improve health outcomes particularly in the latter part of the CPS implementation period. Government introduced in January 2014 the National Health Insurance Program (JKN), which aims to provide universal health insurance by 2019. A major WBG study identified significant gaps in primary health facilities, both in terms of inputs and human resources including key services to address the persistent high levels of maternal mortality and child malnutrition. This analysis and the policy recommendations that emerged from it have substantially informed the 2015-19 RPMJM as well as ongoing efforts to increase public funding for health and to improve health service delivery. Through the HPEQ project, the WBG helped develop the first competency-focused accreditation system for health training institutions, with 168 schools being accredited by the end of CY14 and improvements in the percentage of graduates that pass the national

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competency test. Through its support to PNPM Generasi, the WBG supported the improvement of maternal and child health throughout 5,400 villages. As mentioned in the infrastructure section of “Pro-Growth”, the WBG supported major progress in the provision of clean water and sanitation which has a direct impact on health outcomes particularly given the prevalence of open defecation in Indonesia.

29. In the case of access to finance, the WBG’s long-term engagement with Bank Indonesia and OJK resulted in the almost doubling of universal financial access from 20% in 2011 to 36% in 2014 (FINDEX database). The WBG was instrumental in assisting the GoI to re-design its basic savings account (Tabungan-Ku) and the launch of a basic micro-insurance product. Seven million new accounts were established in the first few months after the launch.

Pillar IV. Pro-Green: Rated Moderately Satisfactory

Objective: Ensuring Sustainable Green Growth and Improving Disaster Resilience

30. Indonesia is well-endowed with natural capital and is a steward to some of the world’s greatest terrestrial and marine biodiversity. However, its natural wealth, resources, and quality of life are increasingly threatened by rapid, unsustainable development compounded with over-exploitation of forests and marine ecosystems. Indonesia’s total greenhouse gas emissions are estimated to account for over six percent of the global total. Forestry and land use emissions are by far the largest source. Indonesia’s emissions from energy consumption are also growing. Severe and annual forest fires, connected with the largely illegal clearing of forests and draining of peat lands, have immensely negative economic, health, and environmental impact on Indonesia and neighboring countries. Insufficient investment in institutional capacity, corruption, and inconsistent policies and practices, are contributors to these problems.

31. WBG engagements during the CPS period sought to promote sustainable green growth, climate change adaptation and mitigation, and disaster risk resilience. Bank programs were designed to promote sustainable natural resources management, mainstream adoption of green growth parameters across core growth sectors, uptake of sector specific climate change adaptation and mitigation efforts and disaster risk management actions aimed at reversing the negative consequences that have plagued the poor and vulnerable living in rural (in particular forest dependent communities and fisher and coastal communities, both amongst the poorest of the poor in Indonesia) and marginal urban areas.

32. Development targets set for the disaster risk management engagement were largely achieved. Six mid-sized cities and four high risk provinces mainstreamed adaptation and resilience measures into their respective urban development, investment, and community driven development programs. Resilience was also mainstreamed in the government funded school rehabilitation program through the formulation of technical guidelines and building capacity on earthquake resistant construction. The government-led disaster management fund (IMDFF-DR) is on track as a mechanism to institutionalize donor support in case of large scale natural disasters for which Indonesia may want assistance. US$5 million was pledged to complement the government’s US$500 million annual public reconstruction spending.

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33. Four out of five pro-Green targets during this CPS period were achieved. There were three key milestone deliverables under the sustaining the environment and climate change adaptation sub-engagement area. The REDD+ Support Facility MDTF was established at the Bank to assist the government to set up a national trust fund to implement a strategy to reduce emissions and improve governance and accountability in the forest and land sectors. The national trust fund, however, is not yet on line due to the new administration’s institutional reorganization efforts to embed the REDD+ Agenda and financing package within existing Government structures, including the newly merged Ministries of Environment and Forestry (rather than in a stand-alone REDD+ Agency). The third phase of the Coral Reef Rehabilitation and Management Program-Coral Triangle Initiative (CORMAP-CTI) was approved during this CPS period, representing the third phase of the world’s largest coral reef management and conservation program and the Bank’s Flagship engagement in marine affairs and fisheries in Indonesia. The Bank also began a strategic policy dialogue with central ministries on mainstreaming green growth principles into medium and long term investment and development planning. This work has influenced greening of the five year Medium Term Development Plan (2015-2019) with clear targets for a number of key sectors including agriculture, energy, forestry, transport, urban development, industry and marine and fisheries, among others. It has also supported engagement with the private sector through the Indonesia Chamber of Commerce and its broad membership to influence and support private sector collaboration and commitment to adopt green growth elements in their investments alongside the public sector financing.

34. IFC progressed with its Green Buildings Program. IFC’s knowledge and advisory services resulted in the Government of Jakarta launching the Green Building code for environmental and energy efficient buildings. Now, IFC is engaging with the Ministry of Public Works and with the cities of Bandung and Makassar to expand these codes to other cities. In parallel, IFC launched its EDGE certification program in Indonesia, a voluntary program allowing private sector developers to obtain green buildings certification sponsored by IFC. One of IFC’s property development clients – PT Ciputra Residences Tbk, issued a bond wherein the company committed to invest money towards green buildings projects, and they achieved EDGE certification for three of their housing development projects.

35. At the same time, however, the CPS period marked a period of very substantial loss of forest cover, continued desecration of coral reefs and fisheries, and increasing GHG emissions. Over the last 10 years, 12 million ha of forest was lost and more than 70 million ha has been degraded. 75% of main rivers, and 15 main lake eco-systems are heavily polluted by agriculture, mining and industry. Some 65% of Indonesia’s coral reefs are considered threatened from over-fishing and almost half are threatened from destructive fishing practices. Indonesians, especially the 150 million who live in coastal and forest areas, suffer from this the most without reaping any benefit. Forests which should generate over US$4 billion annually in revenue are only contributing $300 million and some $20 billion in potential revenue for local fishing communities is being lost to illegal fishing. On a global scale, Indonesia is the fifth-largest emitter of GHG when its land-use change and forestry (LUCF) emissions are included in its profile and the eighth-largest emitter when these emissions are excluded. The vast majority (62%) come from LUCF, with emissions from this sector increasing 65% in absolute terms since 1995. The activities primarily responsible for this are deforestation and peat degradation, most recently associated with the expansion of palm oil plantations. Greenhouse gases from mangrove and sea grass

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destruction are a potentially important, but not currently counted, source of emissions. Given this situation, it is essential to question whether WBG has been ambitious enough, or indeed whether we have been able to engage and have an impact on the “pro-green” agenda in a way that could impact on this downward spiral. The fact that the targets in the results framework for the CPS were largely met at the same time that the environmental and climate change indicators deteriorated so substantially, indicates that our interventions may have been at the margins. For that reason, although the results framework indicators were largely achieved, the overall rating for the pro-green pillar is rated moderately satisfactory. In addition, per the ‘lessons learnt’ section below, addressing this limitation in the WBG impact should be taken into account for the next CPF period through a more comprehensive approach for helping government make a meaningful impact on these enormous challenges. (see description of achievements and performance ratings against pro-green indicators in Sub-annex 3.1d).

Cross cutting area: Gender

36. Under the CPS, WBG strived to scale up efforts to advance the gender agenda. ACountry Gender Action Plan (CGAP) was developed to identify, coordinate and monitor activities to promote gender issues in the broader engagement with Indonesia as well as in specific operations and knowledge products. The CGAP worked across four dimensions of gender equality: endowment, economic opportunities, voice and agency, and emerging risks areas. Areas with a particular gender focus included financial sector development, community development and poverty targeting, education, and environmental sustainability and disaster mitigation. CGAP met its initial target of ensuring 100 percent (from 80 percent) of the operations delivered in FY13 were gender informed.

37. IFC launched the EAP Women in Business program to increase access to finance for women entrepreneurs by providing advisory services to financial institutions (FIs) and demonstrating that woman entrepreneurs were a profitable market segment. The program worked with women and other stakeholders (women business associations, business development service providers) to address some of the demand side obstacles to greater access to financial services for women. IFC provided finance in Indonesia is expected to result in at least 19,000 SME loans and a US$797 million portfolio catering to women entrepreneurs by the end of 2018 as well as technical assistance with regard to non-financial services to its SME customers, in particular women-owned businesses. WBG in partnership with Bank Indonesia launched a study to (i) understand the strengths and weaknesses of women entrepreneurs; (ii) address the challenges women entrepreneurs face in starting and growing their businesses; (iii) identify the kind of products (both financial and non-financial) needed by women entrepreneurs; and (iv) help develop/drive insights into policy and gender implications of SME banking.

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Cross cutting area: Governance and Anti-corruption

38. Poor governance and corruption are a binding constraint to better development outcomes across the economy. This enormous challenge is well recognized by Indonesia’s government and the SCD describes well its impact on slowing the elimination of poverty andsharing more widely Indonesia’s prosperity. The CPS looked at governance and anti-corruption as a cross-cutting area and aimed to help Government by focusing on transparency and efficiency in PFM, greater efficiency in public service delivery, promoting open and transparent competition, and strengthening subnational governments. The engagement for public service delivery, scaled up to include local communities under PNPM, focused on improved systems (including procurement) and citizen feedback mechanisms. In some of these interventions, the Bank partnered with Indonesian institutions and engaged with CSOs to strengthen accountability. To promote open and transparent competition, the Bank focused on natural resources through the Extractive Industries Transparency Initiative (EITI) and REDD+. These initiatives, as well as Indonesia’s leadership in the Open Governance Partnership (OGP), and participation in UNCAC, went some way to support Government’s efforts. Indonesia also participated in the Global Partnership for Social Accountability (GPSA) toward creating space for citizen participation. After long delays, towards the end of the end of the CPS period, direct assistance began with the Indonesia’s premier corruption fighting agency, the KPK, through support for improving the wealth reporting of Indonesian politicians and senior civil servants. Whilst it is too early to judge the results of this work, it can be expected to be extended in the next CPF.

39. IFC complemented these public sector oriented activities by promoting enhanced standards of corporate governance in the private sector. Toward this end, IFC launched a new corporate governance advisory services initiative, and worked with regulatory agencies to establish model corporate governance practices in selected private sector companies and the launching of the Indonesian Corporate Governance Roadmap and the Indonesia’s Corporate Governance Manual as a practical guidance to companies.

40. Despite these many individual efforts by the WBG, poor governance and corruption continued to be a major break on the country’s prospects from infrastructure development from the delivery of services to environmental degradation to the ability to attract private sector investment needed to create job. This was a result not of the failure of any of the WBG interventions, but rather the inability to make measurable headway on a problem that was beyond the Bank Group’s scale.

III. WORLD BANK GROUP PERFORMANCE

41. The WBG’s overall performance is rated Good. The program proceeded largely as anticipated and the CPS was relevant to the country’s development challenges in alleviating poverty reduction and promoting shared prosperity. The World Bank Group contributed solidly to the CPS results, the majority of which were either achieved or mostly achieved (see summary table below). These results were achieved in the context of global economic challenges as well as the political transition leading up to and following the 2014 elections. The work during the CPS period

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showed strong delivery of WBG financing, knowledge and convening power, and was managed in a flexible way to work where we could and maximize development impact.

Engagement AreasNumber of Indicators per CLR Rating Level

Achieved Mostly Achieved

Partially Achieved

Not Achieved

Pro-Growth (17 indicators) 7 2 5 3Pro-Jobs (4 indicators) 2 1 1 0Pro-Poor (11 indicators) 5 4 1 1Pro Green (5 indicators) 3 1 1 0

Total Number across all 4 Engagement Areas 17 8 8 4Percentage for each Rating Level 45.95% 21.62% 21.62% 10.81%

42. A Client Survey was conducted over the period of March to May 2015. Views of the WBG were relatively positive. Stakeholders reported that the Bank was effective in its collaboration with government, citing positive developments in responsiveness and staff accessibility. The survey reported that participating stakeholders viewed governance and education as development priorities, followed by rural development, transport, and corruption.

DESIGN OF THE CPS PROGRAM

43. Relevance & Alignment with the GoI Program: The CPS covered the last two years of President Susilo Bambang Yudhoyono’s (SBY) administration and the first year of President Joko Widodo’s (Jokowi) new administration that started in October 2014. In 2011, GoI launched the Master Plan for “Acceleration and Expansion of Indonesia’s Economic Development 2011-2025” (MP3EI). The CPS was specifically designed to mirror the Government’s development priorities in their pro-growth, pro-jobs, pro-poor, and pro-green focus. Figure 1 indicates the areas where WBG support was expected to contribute to development results. Cross-cutting themes included gender equity and governance and anti-corruption. A wide range of instruments and financing tools were brought to bear. The Indonesia business model looked, where possible, for the program to serve as a strategic and administrative platform for the delivery of third party financing, including multi-donor and bilateral donor trust funds and project financing which allowed the Bank to provide knowledge services on a larger scale compared to most other countries. These knowledge services helped underpin the delivery of IBRD financing for policy based and investment lending, but even more so to support economic and sector work that helped inform Government policy making.

44. Lessons Learned from the Previous CPS: The CPS design and implementation reflected the lessons learned from the Bank’s past engagement, as noted in the CPS Completion Report for FY09-12. These included (i) full alignment of the Bank program with Indonesia’s development priorities; (ii) programmatic policy lending support to allow for incremental reform progress; (iii) adopting an evidence based approach gained from sustained engagement over several years; (iv) effective knowledge products and convening power to underpin policy debate and consensus building, even in areas of diminished need for financing, diffused leadership, or poor coordination.

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45. Selectivity and Flexibility of the Program during CPS Design: Given its long partnership with GoI and other donors, a strong team on the ground and benefiting from lessons of experience, the WBG selectively took on new engagements while exiting others as priorities on the ground shifted. Disaster response programs for Aceh, Nias, and Java successfully closed during the CPS period and transformed into a non-location specific government-led standing trust fund mechanism with UN and World Bank windows, the IMDFF-DR. The Bank Group program signaled a scale down in Education and Agriculture lending in response to Government request and ramping up in infrastructure, energy, connectivity and competitiveness to align with government priorities and funding requirements during the CPS period. The design took advantage of long-standing relationships of trust with Government to work in policy areas and supported the wide scope of the program on the basis of strong partnerships with other development partners, many of whom had in place country specific trust fund agreements and financing.

46. Results Framework: The CPS was meant to be an interim strategy in anticipation of a new administration towards the end of the CPS period in FY15. Accordingly, the CPS leveraged on-going WBG engagements to prepare itself for supporting the new Government’s development and reform agenda. The CPS tried to maintain this flexibility by creating a relatively large number of engagement areas (a total of 15 engagements under 4 pillars plus 2 cross cutting areas) and a results framework that had a mix of clearly defined and measurable targets and others with relatively small deliverables or outcomes. This led to some lapses in the logic of the results chains and some project level indicators and milestones used as proxies for higher level CPS objective indicators. While this may have been inevitable during the design stage, the CPS Progress Report missed an opportunity to more aggressively revise the expected results and interim indicators for the CPS focus areas, and bring more specificity and realism to the results framework. The main change in the results indicators at mid-stream was for road maintenance and development, where the IBRD’s ability to contribute was reduced by delays in implementation of the ongoing operation and in processing an additional operation.

IMPLEMENTATION OF THE CPS PROGRAM

47. Selectivity and Flexibility during Implementation: Given WBG’s partnership with other development partners, the Indonesia country program was able to maintain a strong team on the ground and relatively flexible financing sources. This proved useful in helping WBG to respond to emerging needs and priorities. This was particularly essential given the changes in Government style and priorities that came from the handover of the 10 year administration of SBY to that of Joko Widodo in the third year of the CPS. This can be seen in the exit from some areas and the scaling up in others which will be reflected more strongly in the new CPF. Some notable examples of this include: (i) the successful closing of the disaster response programs for Aceh, Nias, and Java , (ii) the change in focus of the PNPM Support Facility (PSF) trust fund financing from piloting smaller interventions in CCD and supporting Government implementation of PNPM to a concentration on the emerging Village Law program and ensuring that the lessons learnt from years of successful facilitation and community engagement from PNPM Rural and Urban were incorporated into this potentially much larger village law program; (iii) preparing for a ramping up of infrastructure investment, but with a clearer focus on scalability and the challenges of implementation, and (iv) looking for ways where the Bank Group’s engagements in some critical

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areas could potentially have greater impact in critical areas such as in environment and good governance.

Figure 1: WBG Support For Pro-Growth, Pro-Jobs, Pro-Poor, And Pro-Green

48. WBG Commitments and Portfolio: During the CPS period, IBRD delivered US$3.8 billion in new loans, of which US$2.1 billion was Investment Project Financing and US$1.7 billion policy based support through DPLs. The overall size of the IBRD portfolio by the end of the CPS period was lower in USD terms and in the number of projects compared to the start of the period. This reflected the general approach of ‘no new borrowing’ that marked the last years of the SBYadministration and the hesitancy of the Government and the Bank to make commitments to programs that may not be priorities of the incoming administration. Projects which remained in the Bank’s preparation pipeline at the end of the SBY period were almost all dropped to make space for new priorities. IFC’s total commitments reached US$2.1 billion across 29 projects, of which US$1.1 billion for IFC’s own account and US$1 billion through mobilization from commercial banks. IFC’s portfolio accelerated particularly in the final year of the CPS with US$1.1 billion in new commitments (including US$415 million mobilization). As of June 30, 2015, IFC’s committed portfolio grew 82 percent of the CPS period (from end-FY2012), reaching US$2.3 billion, of which US$846 million was syndicated from partners under IFC’s B-Loan program. As of the end of FY15, MIGA had two active guarantees for a total of US$407 million in the energy and extractive industries. During the CPS period, one guarantee was terminated and one new guarantee was issued.

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49. IBRD Portfolio Performance: As of end of June 2015, there were 26 open projects totaling a net commitment of US$7.2 billion with an undisbursed balance of US$5.2 billion. Disbursement for FY15 was US$985 million, the lowest in five years, with a disbursement ratio of 16 percent which was below historic trends of about 20%. As mentioned above, the relative decline in new lending was a conscious choice of the Government and the Bank in anticipation of the change in Government for the first time in 10 years. At the same time, this slow-down impacted the disbursement rate which had typically been higher in Indonesia than the Bank average. This reflected the change in the composition of the portfolio towards one with more policy based lending (which disburse instantly but are not included in the disbursement ratio calculation), the winding down of annual ‘reimbursable’ programs such as BOS-KITA in education and PNPM Rural, and a proportional increase in infrastructure projects and institutional reform projects which, as mentioned earlier in the CLR, suffered from long delays between loan signing and first disbursements.

50. In an effort to proactively manage the portfolio, several restructurings and cancellations occurred during the CPS period, including the first cancellation ever in Indonesia of the PINTAR project which had failed to disburse after almost 7 years. As noted in the table below, Indonesia’s realism index had been trending upward over the CPS period, but suffered from some disconnect with the introduction of changes in IEG’s rating approach in the last year. The number of problem projects (IP) had dropped to 11 percent in FY14, but increased to 31 percent in FY15 as a result of the changes in the size and composition of the portfolio as already discussed above. The number of projects rated as problems also reflects in part greater rigor in assessing performance. During the CPS period, additional attention was brought to systemic issues in preparation, implementation, management oversight, and ownership. The FY14 CPPR was a year-long, highly detailed and collaborative process led by Bappenas and MoF in close collaboration with the Bank’s Country Team. The review identified lapses in project readiness including extremely limited advance procurement, lack of attention and understanding of safeguard mitigation measures and M&E, and unclear ownership/commitment within implementing ministries as systemic issues that determined the speed and success of project implementation. These are prominent issues, especially for large infrastructure projects, which need to be taken into account in the design and scope of the future CPF. Proactivity remained the largest challenge during the CPS period and will be the first priority in portfolio management during the start of the new CPF period.

Key Indicator FY13 FY14 FY15Number of Projects 37 32 26Net Commitment (US$m) 7,884 6,653 7,240Number of Projects at Risk 6 9 8Commitment at Risk (US$m) 810 1,939 2,106Problem Projects (DO) 9.1% 8.6% 19%Problem Projects (IP) 12.1% 11.4% 31%Realism Index 44% 90% 91%Proactivity Ratio 80% 40% 56%Disbursement Ratio 17% 24% 16%Disbursement Amount (US$m) 988 1,575 985

51. Knowledge Programs: The large program in AAA, with the vast majority of it financed through country specific trust-funds, was implemented largely as anticipated (see table below and

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Annex B4). During the CPS period, a total of 77 stand-alone ESW/TA and 6 programmatic ESW/TA were delivered with a delivery rate of 87.5% for FY13 and 77.8% for FY14. Due to the WBG corporate-wide restructuring exercise that started in FY14, there was no agreed MOU for FY15 and 37 standalone ESW/TAs and 4 programmatic EWS/TAs were delivered during this time. There were also 2 RAS for the first time in Indonesia for US$1.5 million. At the same time, a large number of ‘stale’ AAA and those not well connected to the program, especially at the start of the new administration, were dropped or closed.

Type MOU Actual DeliverablesFY13 FY14 FY15 FY13 FY14 FY15

Stand Alone

ESW 4 4 TBA 6 3 2TA 20 18 TBA 15 16 35

IE TBAKP/RF TBA 1

TE TBA 1Programmatic ESW/TA 5 TBA 2 4

Total: 24 27 TBA 21 21 43

52. IFC Portfolio: Driven by high commitment volumes during the CPS period, IFC’s investments in Indonesia reached US$1.1 billion in new commitments by FY15, which included US$415 million mobilization. As of June 30, 2015, IFC’s committed portfolio grew 52% year-on-year as of June 30, 2015, reaching US$2.3 billion, of which US$846 million was syndicated from partners under IFC’s B-Loan program. The portfolio is dominated by finance and insurance sector (US$1.18 billion), followed by chemicals (US$597 million) and electric power (US$US$239 million). In terms of product composition, loans account for 84 percent (US1.2 billion, own account only) while equity products account for 16 percent (US$228 million). The loan portfolio performed reasonably well during the review period, with one non-performing loan.

53. MIGA Portfolio: MIGA’s overall corporate focus is on supporting transformational projects, energy efficiency and climate change, and middle income countries. In Indonesia during the CPS period, MIGA was supporting guarantees in excess of US$850 million on a gross basis. This comprised two projects in the energy and extractive industries and one in the telecommunications sector. The ongoing Weda Bay Nickel project (US$207M) at issuance prior to the CPS period supports the exploration phase for a cobalt-nickel mine with a hydrometallurgical processing plant, in an innovative effort to improve social and environmental safeguards by applying MIGA Performance Standards. Eventual development of the project would allow Indonesia to become one of the world’s leading nickel producers, and would serve as a demonstration on how a major natural resource project could be developed in a socially and environmentally sustainable way to bring benefits to the local populace. This guarantee is set to expire in FY16. The ongoing Rajamandala Hydropower project ($200M at issuance during the CPS period) targets the building of Indonesia’s energy capacity to sustain its economic progress, while moving away from traditional reliance on carbon-based generation. The US$450 million guarantee in support of PT Natrindo Telpon Selular was prematurely terminated in FY14.

54. Partnerships: The WBG’s strong collaboration with development partners continued throughout the CPS period. Despite its middle income status, Indonesia continues to attract large amounts of grant assistance for particular high priority areas including poverty alleviation, strengthening of the business climate, infrastructure development, better management of natural

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resources and extractives, disaster risk management, environment and climate change, social protection and improving public financial management and governance. The WBG has been extremely fortunate to be able to partner with bilateral donors in support of Government programs and CPS objectives. These partnerships, particularly with Governments of Australia, Canada, Denmark, EU, the Netherlands, New Zealand, Norway, Sweden, Switzerland, the UK and the US, have been instrumental in delivering on the CPS results. The Indonesia program also benefitted from partnering with a number of global trust funds including in areas of environment and climate change, financial stability and natural resource governance (CTF, CIF, FIP, EITI and FIRST amongst others). Disbursement from Bank executed trust funds in the entire Indonesian portfolio amounted to US$61 million during the CPS implementation period, primarily in the form of Bank Executed Trust Funds (BETF). Cumulatively grants for ongoing recipient executed trust funds(RETFs) totaled someUS$304 million as of June 30, 2015 (see table below).

FY13 FY14 FY15 TotalDisbursement

BETF (US$m) 18.8 22.5 19.8 61.1RETF (US$m) 55.9 78.9 31.3 166.2

Active Grants as of June 30, 2015BETF (US$m) 142.8RETF (US$m) 304.1

55. Risks and Mitigation Measures: The risks to the program identified by the CPS and endorsed by the CPS Progress Report, including vulnerability to economic shocks, natural disasters, weak institutional coordination and governance arrangements, persisted throughout the CPS implementation period but were managed in a way that kept the programs largely on track. Measures taken during the CPS period by Government to maintain macro and financial stability showed that policy makers had the tools and the support necessary to navigate these risks. Similarly, experience gained in managing natural disasters, combined with the localization of impact of disasters during the CPS period, helped to mitigate the impacts from earthquakes, volcanic eruptions, floods and landslides that plagued the country during the CPS period. To manage the institutional and governance risks, the WBG strived to engage where it had confidence in its counterparts and supported measures to strengthen accountability and build fiduciarycapacity, including in financial management and procurement, when possible. The WBG continued to emphasize governance and anti-corruption measures in all its operations through implementation support and supervision arrangements and working closely with INT, GOI accountability organizations and Government counterparts when malfeasance was found.

IV. ALIGNMENT WITH WBG CORPORATE GOALS

56. While the CPS predated the WBG’s twin goals, both the country’s own development program and the CPS were well aligned with eliminating severe poverty and sharing prosperity more widely. In particular:

a. The Pro-Growth pillar sought to broaden growth to include the bottom 40 percent through connectivity with lagging regions and external markets and infrastructure development. Competitiveness and financial market development sought to promote business development and access to finance for women and micro, small

99

and medium sized enterprises. Support for central and subnational governments sought to enhance the quality of public spending and redirect regressive fuel subsidies toward infrastructure, social protection, including strengthening the safety net for mitigating shocks to the poor and vulnerable, and public service delivery benefiting the lower 40 percent.

b. Pro-Jobs pillar sought to enhance labor productivity and broaden social insurance to support equality of opportunity and the access to good jobs which the SCD identifies as a major pathway to enhanced equality.

c. Engagements under Pro-Poor pillar enhanced targeting of the poor with social assistance, support for community development programs that have been proven to reduce poverty and promote the welfare of the vulnerable. Health interventions sought to promote universal health coverage to the poor who are particularly vulnerable to health shocks, and improve water and sanitation services to fight maternal and child mortality and the high rates of childhood stunting.

d. Pro-Green engagements sought to promote sustainable green growth, climate change adaptation and mitigation, and disaster risk management whose negative consequences disproportionally impact the poor.

V. LESSONS AND SUGGESTIONS FOR FY16-20 CPF

57. The analysis of the implementation of the FY13-15 CPS together with the key finding of the Development Policy Review and the SCD suggests that there are a number of important lessons that should be used to help inform the design and implementation of the CPF.

58. In particular, the following should be considered in the content and the implementation planning for the new CPF:

Reform requires a clearer understanding of and ability to impact political economy drivers: Political economy drivers, as much as technical constraints, impact the likelihood and direction of reform. Understanding these constraints and the risks they involve should be considered in determining whether and how WBG can provide support in a way that will make a meaningful difference. Government ownership, commitment, resources and champions for the reform agenda, and coordination are major determinants of success. This is demonstrated, for example, in a number of institution building projects such as PINTAR where dialogue around better revenue collection continued throughout the CPS period, but the project itself lacked sufficient support for implementation. In practice, this means that project design and external implementation support cannot substitute for the ability to engage with the right level of Government and with a dedicated counterpart with the requisite responsibility and accountability to deliver. These dimensions should be considered in determining the future engagement areas and interventions in the next CPF.

100

Comprehensive approach for impactful results. Indonesia is the 4th largest in the world with a heterogeneous society, wide disparity in income and an extraordinary degree of geographic dispersion. Therefore, a small or one-off intervention, even if highly successful, is not likely to make a meaningful impact unless it can be brought to scale. The CPS has successful examples of such impact including through PNPM Urban, PNPM Rural, PAMSIMAS and DAK, all of which started as smaller engagements with WBG support and went on to become platforms for delivery of services nationwide. However, the CPS implementation period also included several interventions where there have been ‘micro-level’ successes which did not trigger or contribute to transformational change in the sector. Our engagement in governance is one such example – while the Bank has been active and engaged for many years in a variety of interventions, the cumulative impact is not reflected in a fundamental national change. “Comprehensive” does not necessarily mean ‘bigger’ –in governance, for example, governance reform could be ‘mainstreamed’ where there is a potentially stronger incentive to bring results in individual sectors such as when investment operations are combined with regulatory improvements. In the critical area of environment and climate change, where individual results under the CPS were largely successful whilst overall the country saw very serious deterioration, indicates that an incremental approach may make relatively little impact whilst a more comprehensive landscape management approach could help bring together stakeholders in a way that results can be more visible and impactful and the interactions across disparate sectors and actors can be better coordinated. It also means emphasizing the WBG value proposition in the combination of financial products, knowledge services and implementation support, including through the strategic use of country specific trust funds, and employing the synergies amongst IBRD, IFC, and MIGA in large or complex engagement areas as relevant.

Disaster Risk readiness, in terms of both assessment and mitigation, should remain a part of any WBG strategy in Indonesia. Indonesia’s poor and near poor are highly vulnerable to shocks both economic and physical. Natural disasters such as earthquakes, tsunamis and volcanic eruptions pose a constant risk at a national or more likely, a local level. Past experience has contributed to greater disaster preparedness over time, and events such as the recent eruption of Mount Kelud have been localized in terms of socio-economic impacts and have shown that mechanisms for disaster mitigation including redirection of IBRD support, can be effective in relieving economic and social costs. In cases where the disaster is more extreme, initiating IFC’s earthquake index protection insurance could help financial institutions recover quickly from the severe impact of natural disasters. Going forward, any CPF should include disaster preparedness activities as well as an awareness in its risks assessment that programs may have to redirected on short notice in case of natural disaster.

Implementation will be one of the key indicators of success during the next CPF.Implementation constraints are a major deterrent to the achievement of development outcomes in the WBG program. This is particularly true for programs that are heavy in infrastructure and institution building. Experience from the current CPS has shown that shortcomings in project readiness – particularly in terms of advance procurement,

101

land acquisition safeguard requirements, sponsor commitment, and ownership/commitment—contribute to long delays in implementation and sometimes in project failure. Therefore, the next CPF must be cognizant of these issues and work to address constraints upfront with Government counterparts. One example could be the need to work directly with SOEs using direct lending with Government guarantee, rather than through Subsidiary Loan Agreements (SLAs) which slow implementation and cloud accountability. Government counterparts should also be prepared to provide sufficient upfront funding for project preparation and to change internal processes that have generally stalled advancing procurement preparation especially in large infrastructure projects.

Greater Selectivity: Cumulatively, these lessons suggest that the next CPF will have to be genuinely more selective in its design. Whilst the Government’s development agenda is necessarily broad, and the needs great, by definition, WBG will have to have fewer engagements if it is to bring scale and impact to bear on the program over the next four years. This will entail some difficult choices up front and a willingness to correct course during the CPF period.

102

APP

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104

Indo

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thor

ity;

the

trans

ition

pe

riod

has t

o be

man

aged

pr

oper

lyTh

e fin

anci

al sa

fety

net

fr

amew

ork

and

lega

l bas

is fo

r fin

anci

al c

risis

man

agem

ent

need

to b

e st

reng

then

ed;

Lim

ited

loca

l inf

rast

ruct

ure

finan

cing

cap

acity

1. M

aint

ain

finan

cial

sect

or

stab

ility

, dee

pene

d fin

anci

al se

ctor

an

d st

reng

then

ed p

rivat

e se

ctor

th

roug

h: im

prov

ed re

gula

tory

and

su

perv

isor

y fr

amew

orks

; mai

ntai

ned

soun

dnes

s of b

anki

ng se

ctor

.

Base

line:

Key

fina

ncia

l rat

ios o

f ba

nks (

Cap

ital A

dequ

acy

Rat

io

(CA

R),

Non

-Per

form

ing

Loan

ratio

(N

PL),

Net

Inte

rest

Mar

gin

(NIM

) ar

e so

und

and

LDR

(Loa

n to

Dep

osit

Rat

io)

is 7

5% (

Dec

. 201

1);

Targ

ets:

Ban

king

fina

ncia

l ind

icat

ors

rem

ain

soun

d an

d LD

R a

t min

imum

80

%

2. G

row

ing

capi

tal m

arke

t and

NB

FI

and

a hi

gher

acc

ess t

o fo

rmal

fin

anci

al se

rvic

es b

y th

e M

icro

-SM

Es a

nd u

nder

serv

ed p

opul

atio

ns

Base

line:

41%

of h

ouse

hold

s hav

e ac

cess

to b

ank

acco

unts

; ban

king

lo

an to

SM

Es is

50%

(201

1),

disb

urse

d K

UR

(cre

dit p

rogr

am fo

r SM

E) a

mou

nted

to ID

R 6

3 tri

llion

(2

011)

Ach

ieve

d. A

s of M

ar 2

015,

N

PLs a

re a

t a so

und

2.3%

. C

AR

is a

t a so

und

20%

. NIM

st

able

, LD

R a

bove

80%

the

who

le p

erio

d

Ach

ieve

d.K

UR

exc

eede

d ta

rget

in 2

013

& 2

014

thro

ugh

Oct

, dis

burs

emen

t rea

ched

IDR

33

.1 tr

illio

n or

90%

of 2

014

targ

et. T

here

was

1.7

mill

ion

new

acc

ount

hol

ders

of

Tabu

ngan

ku in

the

first

se

mes

ter o

f 201

4.O

JK is

fully

ope

ratio

nal a

s an

inte

grat

ed fi

nanc

ial s

ecto

r au

thor

ity a

s of J

an 2

014;

the

Coo

rdin

atio

n Fo

rum

for

Fina

ncia

l Sys

tem

Sta

bilit

y

Fina

ncin

g: F

IRM

DPL

de

liver

ed; I

FC c

omm

itted

lo

ans o

f up

to U

S$75

mill

ion

to B

ank

Dan

amon

and

up

to

US$

30 m

illio

n to

Ban

k H

ana

Indo

nesi

a fo

r exp

andi

ng

acce

ss to

fina

nce

for S

MEs

, an

d pr

ovid

ed fi

nanc

ing

of u

p to

US$

8.9

mill

ion

for M

itra

Bis

nis K

elua

rga

Ven

tura

(M

BK

), a

mic

ro-f

inan

ce

inst

itutio

n in

Indo

nesi

a.

Fina

ncia

l sup

port

to B

ank

Tabu

ngan

Pen

siun

an

Nas

iona

l (B

TPN

) tot

aled

U

S$50

0 m

illio

n in

clud

ing

synd

icat

ions

.IF

C F

IG is

supp

ortin

g B

TPN

in

dev

elop

ing

and

exte

ndin

g no

n-fin

anci

al se

rvic

es to

SM

Es.

IFC

pilo

t to

exte

nd

hous

ing

mic

ro-lo

ans i

s in

exec

utio

n in

par

tner

ship

with

H

olci

m In

done

sia

(a le

adin

g ce

men

t sec

tor c

ompa

ny) a

nd

Bin

a A

rtha

Ven

tura

(a m

icro

-fin

ance

inst

itutio

n).

IFC

is

furth

er su

ppor

ting

Dan

amon

B

ank

and

Ban

k M

uam

alat

to

deve

lop

and

exte

nd

inno

vativ

eag

ri-fin

anci

al

105

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

Targ

ets:

Ban

k lo

ans t

o SM

E co

ntin

ue to

gro

w a

nd a

re m

aint

aine

d at

50%

of t

otal

ban

k lo

ans;

pr

opor

tion

of h

ouse

hold

s with

sa

ving

s acc

ount

incr

ease

d

(FK

SSK

) is o

pera

tiona

l. FK

SSK

mee

ting

is q

uarte

rly &

th

e D

eput

ies F

KSS

K m

eetin

g is

m

onth

ly.

Infr

astru

ctur

e Fi

nanc

e Fa

cilit

y is

pro

vidi

ng lo

ng te

rm

finan

cing

for i

nfra

stru

ctur

e pr

ojec

ts; a

s of e

nd S

ep 2

014,

II

FF, t

he so

le p

roje

ct

impl

emen

ting

agen

cy, h

as

ente

red

into

IDR

3.2

trill

ion

cred

it co

mm

itmen

ts fo

r var

ious

in

fras

truct

ure

proj

ects

such

as

toll

road

, tel

ecom

mun

icat

ions

, po

wer

gen

erat

ion

and

airc

raft

mai

nten

ance

faci

lity.

A

ltoge

ther

, the

se c

omm

itmen

ts

leve

rage

d ab

out I

DR

29

trilli

on

tota

l fin

anci

ng fr

om a

ll pa

rtici

patin

g le

nder

s

serv

ices

to S

MEs

in ru

ral

area

s.

IFC

has

als

o su

ppor

ted

the

esta

blis

hmen

t of a

new

pr

ivat

e eq

uity

fund

man

ager

(F

alco

n H

ouse

Par

tner

s) th

at

will

exp

and

the

avai

labi

lity

of

grow

th c

apita

l to

the

med

ium

-siz

ed c

ompa

nies

in

Indo

nesi

a.IF

C a

ssis

ted

com

pani

es su

ch

as P

T C

iput

ra R

esid

ence

s Tb

k an

d PT

Blu

e B

ird T

bk in

is

suin

g ca

pita

l mar

ket

inst

rum

ents

. In

the

case

of

Cip

utra

, IFC

issu

ed a

par

tial

cred

it gu

aran

tee

for t

he

com

pany

’s b

ond

offe

ring;

for

Blu

e B

ird, I

FC p

laye

d th

e ke

y le

ad in

vest

or ro

le d

urin

g th

e co

mpa

ny’s

initi

al p

ublic

of

ferin

g.

Adv

isor

y Se

rvic

esin

the

area

s of d

igita

l fin

anci

al

incl

usio

n, re

spon

sibl

e m

icro

finan

ce, f

inan

cial

in

fras

truct

ure

(cre

dit

repo

rting

and

secu

red

trans

actio

ns),

capi

tal m

arke

ts

deve

lopm

ent f

or

infr

astru

ctur

e fin

ance

, and

in

sura

nce

(ear

thqu

ake

inde

x in

sura

nce

proj

ect)

supp

ort

deve

lopm

ent a

nd e

xpan

sion

of

inno

vativ

e, in

clus

ive

and

106

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

sust

aina

ble

finan

cial

serv

ices

to

low

inco

me

hous

ehol

ds

and

MSM

Es.

Kno

wle

dge:

Fin

anci

al S

ecto

r Po

licy

dial

ogue

s; F

inan

cial

Se

ctor

Ass

essm

ent P

rogr

am

(FSA

P); M

icro

insu

ranc

e M

arke

tpla

ce; R

evie

w o

n K

UR

(Kre

dit U

saha

Rak

yat);

D

epos

it In

sura

nce

Com

pany

(L

PS);

Impr

ovin

g ac

cess

to

Fina

ncia

l Ser

vice

s in

Indo

nesi

a Em

pow

erin

g Fe

mal

e M

igra

nt W

orke

rs;

supp

ort t

o es

tabl

ish

OJK

; Fi

scal

Pol

icy

Off

ice

on

deve

lopi

ng a

cris

is

man

agem

ent p

roto

col ;

Sa

ving

and

Loa

n

Coo

pera

tives

; SM

E ac

cess

to

Isla

mic

Fin

ance

; C

apac

ity

build

ing

of S

ecre

taria

t of

Fina

ncia

l Sys

tem

Sta

bilit

y Fo

rum

.IF

C in

par

tner

ship

with

Ban

k In

done

sia

is c

ondu

ctin

g a

wom

en-o

wne

d SM

E m

arke

t st

udy

to in

vest

igat

e th

e en

ablin

g en

viro

nmen

t, su

pply

an

d de

man

d fa

ctor

s im

pact

ing

wom

en-o

wne

d SM

Es a

cces

s to

fina

nce.

107

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

Infr

astr

uctu

re

Incr

ease

the

leve

l and

ef

ficie

ncy

of p

ublic

and

pr

ivat

e in

vest

men

ts in

in

fras

truct

ure

to m

eet

need

s and

stre

ngth

en

com

petit

iven

ess.

Lack

of i

nves

tmen

t in

infr

astru

ctur

e, w

hich

has

not

ke

pt p

ace

with

eco

nom

ic

grow

th; i

nves

tmen

t in

infr

astru

ctur

e fe

ll fr

om a

bout

6%

of G

DP

in 1

997

to 2

% in

20

00, b

ut re

cove

red

to a

bout

4%

of G

DP

by 2

011

Indo

nesi

a’s i

nfra

stru

ctur

e de

liver

y re

quire

men

ts a

re

mas

sive

, and

bey

ond

wha

t ca

n be

supp

orte

d th

roug

h pu

blic

inve

stm

ent a

lone

1. I

ncre

ased

effe

ctiv

e km

of

natio

nal r

oads

mai

ntai

ned

and

deve

lope

d.

Base

line:

1500

km

mai

ntai

ned

thro

ugh

bette

rmen

t wor

ks a

nd 3

000

km d

evel

oped

(200

5)

Targ

et:I

ncre

ase

by 2

5% /y

ear o

ver

2011

-201

5 pe

riod.

2. R

educ

ed p

ower

infr

astru

ctur

e bo

ttlen

ecks

to m

eet d

eman

d an

d in

crea

se a

cces

s

Targ

et: R

educ

e po

wer

supp

ly

inte

rrup

tion

time

per c

usto

mer

from

5h

/yea

r to

2h/y

ear (

2012

-201

5).

3. I

ncre

ased

priv

ate

inve

stm

ent i

n in

fras

truct

ure

thro

ugh

the

PPP

fram

ewor

k

Part

ially

Ach

ieve

d.C

umul

ativ

e M

aint

enan

ce

Ach

ieve

men

t 201

1-20

14: 4

,792

km

(44%

of t

arge

t), o

f whi

ch

3% c

ontri

bute

d by

WB

G;

Cum

ulat

ive

Roa

d D

evel

opm

ent

Ach

ieve

men

t 201

1-20

14:

12,2

70 k

m (5

7% o

f tar

get),

of

whi

ch 1

% c

ontri

bute

d by

W

BG

; Dat

a fo

r 201

5 no

t yet

av

aila

ble

Not

Ach

ieve

d.5.

76

hour

/cus

tom

er

Part

ially

Ach

ieve

d.Ex

pect

ed

to b

e on

trac

k on

ce V

iabi

lity

Gap

Fun

ding

(VG

F) a

ppro

ved

for L

ampu

ng o

r Um

bula

n w

ater

su

pply

Fina

ncin

g: In

vest

men

t; In

fras

truct

ure

Gua

rant

ee

Fund

and

Pow

er

Tran

smis

sion

II d

eliv

ered

; In

vest

men

ts b

y IF

C in

re

new

able

/cle

an p

ower

, wat

er

and

sani

tatio

n, p

orts

, shi

ppin

g an

d lo

gist

ics,

tele

com

, oil

and

gas.

IFC

supp

orte

d D

harm

a A

saha

n –

1 w

ith U

S$28

2.5

billi

on o

f equ

ity, l

oans

and

sy

ndic

atio

ns.

IFC

als

o pr

ovid

ed u

p to

US$

2 m

illio

n of

pro

ject

dev

elop

men

t ca

pita

l to

Asi

a G

reen

V

entu

res,

an u

nder

deve

lope

d w

ind

war

m in

Sul

awes

i. IF

C

has r

aise

d $2

50 m

sy

ndic

atio

n fo

r Ind

ones

ia

Infr

astru

ctur

e Fi

nanc

e (I

IF).

Kno

wle

dge:

Ass

essm

ent o

f R

oad

Con

stru

ctio

n In

dust

ry;

Roa

ds a

nd R

ailw

ays P

ER;

Dev

elop

men

t of t

he

Fram

ewor

k an

d Po

licie

s for

In

fras

truct

ure

ESW

; Adv

isor

y se

rvic

e on

ene

rgy

serv

ice

and

subs

idy;

Gas

Dev

elop

men

t M

aste

r Pla

n; L

ampu

ng W

ater

D

istri

butio

n PP

P R

evie

w;

Tech

nica

l Rev

iew

and

Su

ppor

t for

Jaka

rta F

lood

M

gt S

yste

m; V

iabi

lity

Gap

Fi

nanc

ing;

Low

-inco

me

Hou

sing

Pol

icy

and

Fina

nce;

108

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

Geo

ther

mal

Pow

er S

uppo

rt Pr

ogra

m; I

FC A

dvis

ory

serv

ices

for s

truct

urin

g an

d bi

ddin

g Pu

blic

Priv

ate

Partn

ersh

ip p

roje

cts.

Loc

al G

over

nmen

t

Stre

ngth

en lo

cal

gove

rnm

ent i

nstit

utio

ns

to im

prov

e ac

coun

tabi

lity

and

incr

ease

the

leve

l and

im

pact

of p

ublic

sp

endi

ng o

n se

rvic

e de

liver

y an

d su

ppor

t m

etro

polit

an a

reas

and

m

ediu

m-s

ized

citi

es to

im

prov

e in

fras

truct

ure

Insu

ffic

ient

coo

rdin

atio

n an

d le

ader

ship

of t

he

dece

ntra

lizat

ion

agen

da a

t the

ce

ntra

l lev

el; a

lim

ited

and

uncl

ear r

ole

for t

he p

rovi

nces

A fi

scal

dec

entra

lizat

ion

fram

ewor

k th

at d

oes n

ot

prov

ide

appr

opria

te

ince

ntiv

es fo

r inc

reas

ed a

nd

high

er q

ualit

y sp

endi

ng

Wea

k ca

paci

ty o

f loc

al

gove

rnm

ents

(LG

) to

man

age

asse

ts a

nd se

rvic

e de

liver

y

An

inad

equa

te fr

amew

ork

for

and

insu

ffic

ient

fina

ncin

g of

m

ulti-

year

larg

e sc

ale

infr

astru

ctur

e pr

ogra

ms

Lack

of c

oord

inat

ion

in

plan

ning

, man

agem

ent a

nd

inve

stm

ent a

t the

m

etro

polit

an a

nd re

gion

al in

la

rger

urb

an a

gglo

mer

atio

ns

1. I

mpr

oved

fidu

ciar

y, so

cial

and

en

viro

nmen

tal m

anag

emen

t as

wel

l as

tech

nica

l per

form

ance

of L

Gs i

n th

e de

liver

y of

bas

ic se

rvic

es

finan

ced

usin

g D

AK

tran

sfer

s [th

roug

h ex

pand

ing

PEA

CH

to

addi

tiona

l pro

vinc

es]

2.

Impr

oved

cap

acity

of r

esea

rch

inst

itutio

ns, m

edia

and

CSO

s to

asse

ss a

nd m

onito

r sub

-nat

iona

l PF

M (P

EAC

H):

enha

nced

cap

acity

of

loca

l ins

titut

ions

to a

naly

ze a

nd

mon

itor p

ublic

exp

endi

ture

and

PFM

an

d to

dem

and

bette

r loc

al

gove

rnm

ent p

erfo

rman

ce in

thes

e ar

eas [

thro

ugh

PEA

CH

initi

ativ

e]

Part

ially

Ach

ieve

d. P

EAC

H

prog

ram

was

not

con

tinue

d, a

nd

a ne

w e

ngag

emen

t on

loca

l se

rvic

e de

liver

y is

cur

rent

ly

bein

g fin

aliz

ed

Mos

tly A

chie

ved.

PEA

CH

pr

ogra

m c

ompl

eted

in A

ug

2014

with

all

deliv

erab

les

incl

udin

g 6

prov

inci

al u

pdat

e PE

Rs d

eliv

ered

Fina

ncin

g:Lo

cal

Gov

ernm

ent a

nd

Dec

entra

lizat

ion

Proj

ect

(DA

K) I

&A

F; U

rban

Sec

tor

Dev

elop

men

t and

Ref

orm

Pr

ojec

t (U

SDR

P)

Kno

wle

dge:

Rep

ort o

n U

rban

A

gglo

mer

atio

ns;

PEA

CH

PE

Rs;

PEA

CH

PFM

Te

chni

cal A

ssis

tanc

ean

d C

apac

ity B

uild

ing

activ

ities

; Su

law

esi D

evel

opm

ent

Dia

gnos

tic R

epor

t; Su

bnat

iona

l Wor

ksho

ps o

n G

ende

r res

pons

ive

Bud

getin

g an

d Pl

anni

ng

Adv

isor

y: IF

C A

dvis

ory

serv

ices

for S

ub-N

atio

nal

Doi

ng B

usin

ess r

efor

ms a

nd

PPP

stru

ctur

ing

for l

ocal

go

vern

men

ts.

109

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

Mac

roec

onom

ic a

nd

Fisc

al M

anag

emen

t

Stre

ngth

en c

entra

l go

vern

men

t cap

acity

for

impl

emen

ting

cont

inge

ncy

finan

cing

, cr

isis

man

agem

ent a

nd

qual

ity e

vide

nce-

base

d m

acro

and

fisc

al p

olic

y

Indo

nesi

a’s f

isca

l fin

anci

ng

posi

tion

rem

ains

vul

nera

ble

to c

hang

es in

inve

stor

se

ntim

ent.

Des

pite

Indo

nesi

a’s s

trong

re

cent

eco

nom

ic

perf

orm

ance

, sig

nific

ant

chal

leng

es in

fisc

al a

nd

mac

ro p

olic

y re

mai

n in

term

s of

the

allo

catio

n of

spen

ding

(w

ith su

bsid

ies a

ccou

ntin

g fo

r al

mos

t one

qua

rter o

f cen

tral

gove

rnm

ent s

pend

ing

in th

e pr

opos

ed 2

013

Bud

get)

and

its e

ffic

ienc

y an

d ov

er re

cent

ye

ars t

here

has

als

o be

en

fisca

l pre

ssur

es fr

om

wea

keni

ng re

venu

e gr

owth

.

1. E

nhan

ced

Gov

ernm

ent a

bilit

y to

m

eet i

ts fi

nanc

ing

need

s and

m

aint

ain

criti

cal p

ublic

exp

endi

ture

s, as

mea

sure

d by

con

tinue

d ac

cess

to

mar

kets

, and

leve

l of m

aint

enan

ce

and

capi

tal e

xpen

ditu

res.

2. B

udge

t allo

catio

ns in

form

ed b

y m

onito

ring

and

eval

uatio

n. In

crea

se

in th

e nu

mbe

r of l

ine

min

istri

es a

nd

agen

cies

repo

rting

thro

ugh

BR

ISA

(th

e m

onito

ring

and

eval

uatio

n sy

stem

) fro

m a

bas

elin

e of

zer

o in

FY

11.

Ach

ieve

d.Ta

rget

s met

for 2

012

and

2013

and

on

track

in 2

014

with

net

secu

ritie

s iss

uanc

e re

ache

d 10

4% o

f the

targ

et

base

d on

the

revi

sed

budg

et,

with

gro

ss se

curit

ies i

ssua

nce

at

100%

Mos

tly A

chie

ved.

For

ecas

ting

tool

s in

plac

e w

ith e

xpan

ded

disc

ussi

on o

f med

ium

-term

m

acro

fisc

al se

nsiti

vity

ana

lysi

s an

d pr

ojec

tions

in th

e an

nual

bu

dget

fina

ncia

l not

e. H

owev

er,

expe

nditu

re a

lloca

tions

from

th

e M

TFF

of th

e pr

evio

us y

ear

are

not u

sed

as th

e st

artin

g po

int f

or d

iscu

ssio

ns o

n th

e bu

dget

in th

e fo

llow

ing

year

. O

ptio

ns to

stre

ngth

en th

e in

stitu

tiona

l arr

ange

men

t with

in

the

MoF

for p

repa

ring

the

MTF

F ar

e be

ing

exam

ined

in

the

cont

ext o

f ong

oing

trai

ning

en

gage

men

t.

BR

ISA

is a

web

-bas

ed

Bur

eauc

ratic

Ref

orm

(BR

) M

onito

ring

and

Eval

uatio

n Sy

stem

whi

ch w

as la

unch

ed

natio

nally

in 2

012.

The

ad

min

istra

tor o

f BR

ISA

is th

e N

atio

nal B

R M

anag

emen

t Uni

t ca

lled

UPR

BN

und

er th

e M

inis

try o

f Adm

inis

trativ

e an

dB

urea

ucra

cy R

efor

m

Fina

ncin

g: IN

STA

NSI

I &

II

deliv

ered

. Pro

gram

for

Econ

omic

Res

ilien

ce,

Inve

stm

ent a

nd S

ocia

l A

ssis

tanc

e in

Indo

nesi

a (P

ERIS

AI)

ong

oing

Kno

wle

dge:

Dev

elop

men

t Po

licy

Rev

iew

; Sup

port

for

Enha

nced

Mac

ro a

nd F

isca

l Po

licy

Ana

lysi

s ins

titut

iona

l st

reng

then

ing

prog

ram

; A

naly

tical

and

Cap

acity

Su

ppor

t to

Impr

ove

Expe

nditu

re a

nd R

even

ue

Polic

y in

clud

ing

publ

ic

expe

nditu

re re

view

ana

lysi

s;

reso

urce

reve

nues

pol

icy

and

adm

inis

tratio

n te

chni

cal

assi

stan

ce; I

ndon

esia

Ec

onom

ic Q

uarte

rly re

port

110

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

(Men

PAN

-RB

). U

ntil

mid

of

2013

, the

re h

ad b

een

mor

e th

an

70 li

ne m

inis

tries

and

age

ncie

s th

at h

ave

repo

rted

thei

r BR

pr

ogre

ss to

the

Men

PAN

-RB

. H

owev

er, w

ith c

hang

e of

le

ader

ship

, thi

s M&

E sy

stem

ha

s bee

n m

ade

inac

tive

sinc

e en

d of

201

3.

Stre

ngth

enin

g th

e Pu

blic

Sec

tor

Stre

ngth

en c

entra

l go

vern

men

t ins

titut

ions

an

d sy

stem

s to

enha

nce

publ

ic fi

nanc

ial

man

agem

ent a

nd

gove

rnan

ce to

incr

ease

th

e de

velo

pmen

t im

pact

of

prio

rity

budg

et

expe

nditu

res.

The

budg

et sy

stem

is in

put-

base

d, e

xces

sive

ly d

etai

led

and

infle

xibl

e an

d st

rictly

an

nual

, ham

perin

g im

plem

enta

tion

of m

ulti-

year

pr

ojec

ts.

Con

trols

in b

udge

t exe

cutio

n pr

oces

ses a

re g

ener

ally

in

adeq

uate

and

cou

ld

jeop

ardi

ze g

ains

from

im

prov

emen

ts m

ade

in o

ther

ar

eas o

f PFM

.

The

publ

ic p

rocu

rem

ent

syst

em is

def

icie

nt a

s is t

he

capa

city

of p

rocu

rem

ent

prac

titio

ners

; col

lusi

on a

nd

corr

upt p

ract

ices

in th

e bi

ddin

g pr

oces

s con

tinue

to

exis

t, ca

usin

g le

akag

es a

nd

loss

es in

the

syst

em.

Incr

easi

ng d

eman

d fo

r im

prov

ed q

ualit

y, ti

mel

ines

s an

d re

spon

sive

ness

of d

ata

1. S

treng

then

ed m

ulti-

year

pe

rspe

ctiv

e in

fisc

al p

lann

ing,

ex

pend

iture

pol

icy

and

budg

etin

g B

asel

ine:

PEF

A P

I-12

ratin

g C

+ in

20

11

Targ

et:

impr

ove

PEFA

PI-

12 ra

ting

to a

t lea

st a

B+

by 2

015

2. N

umbe

r of l

ine

min

istri

es

rece

ivin

g un

qual

ified

opi

nion

s for

th

eir a

nnua

l fin

anci

al st

atem

ents

:

Base

line:

63%

of M

inis

tries

and

A

genc

ies i

n Fi

nanc

ial S

tate

men

t.

Targ

et:

85%

of M

inis

tries

and

A

genc

ies i

n Fi

nanc

ial S

tate

men

t for

FY

2013

3. I

mpl

emen

t new

Fin

anci

al

Man

agem

ent I

nfor

mat

ion

Syst

em i

n al

l 177

Tre

asur

y Lo

cal O

ffic

es

Not

Ach

ieve

d.N

o ne

w P

EFA

as

sess

men

t con

duct

ed. W

hile

th

ere

was

som

e pr

ogre

ss o

n im

prov

ing

the

trans

pare

ncy

of

the

MTE

F pr

oces

s, it

is

unlik

ely

to b

e su

ffic

ient

to

impr

ove

the

C+

ratin

g fo

r PI-

12

Part

ially

Ach

ieve

d. 7

6%

Ach

ieve

d.Sy

stem

dev

elop

men

t co

mpl

eted

in 2

013;

SPA

N

rolle

d ou

t to

all 2

22 tr

easu

ry

offic

es w

ith 1

00%

of a

ll fin

anci

al tr

ansa

ctio

ns

Fina

ncin

g: IN

STA

NSI

D

PLs;

Gov

ernm

ent F

inan

cial

M

anag

emen

t and

Rev

enue

A

dmin

istra

tion

Proj

ect

(GFM

RA

P); S

chol

arsh

ips

Prog

ram

for S

treng

then

ing

Ref

orm

ing

Inst

itutio

ns

Proj

ect (

SPIR

IT);

ST

ATC

AP-

CER

DA

S

Kno

wle

dge:

Pub

lic F

inan

cial

M

anag

emen

t (PF

M) M

ulti

Don

or T

rust

Fun

d (P

FM

MD

TF);

111

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

avai

labi

lity

are

ham

pere

d by

po

or IC

T in

fras

truct

ure

and

data

man

agem

ent a

nd

inef

ficie

nt b

usin

ess p

roce

sses

.

cond

ucte

d th

roug

h th

esy

stem

as

of F

eb 2

015

Pro-

Jobs

–E

nhan

cing

Ski

lls a

nd T

echn

olog

y, a

nd Im

prov

ing

Soci

al P

rote

ctio

n

Edu

catio

nPr

ovid

e go

od q

ualit

y ed

ucat

ion

to a

ll In

done

sian

s and

to

prod

uce

a sm

art a

nd

com

petit

ive

wor

kfor

ce.

Enha

nce

rese

arch

and

de

velo

pmen

t, sc

ienc

e an

d te

chno

logy

Des

pite

sign

ifica

nt in

crea

ses

in e

duca

tion

spen

ding

the

qual

ity o

f edu

catio

n re

mai

ns

low

.

Low

par

ticip

atio

n ra

tes i

n ea

rly c

hild

hood

edu

catio

n an

d de

velo

pmen

t pro

gram

sLo

w te

ache

r com

pete

ncy

Inef

ficie

nt a

lloca

tion

of

publ

ic e

duca

tion

spen

ding

Wea

k m

anag

emen

t of

educ

atio

n at

the

dist

rict a

nd

scho

ol le

vel u

nder

inco

mpl

ete

dece

ntra

lizat

ion

fram

ewor

kW

eak

links

bet

wee

n ed

ucat

ion

sect

or a

nd la

bor

mar

ket i

nclu

ding

skill

m

ism

atch

es a

nd w

eak

firm

ba

sed

train

ing

Indo

nesi

a ra

nks p

oorly

on

com

petit

iven

ess a

nd

know

ledg

e ec

onom

y in

dice

sR

esea

rch

and

Dev

elop

men

t (R

&D

) out

puts

rem

ain

low

1. I

mpr

oved

edu

catio

n qu

ality

and

pe

rfor

man

ce o

f tea

cher

s; In

crea

sed

num

ber o

f bas

ic e

duca

tion

teac

hers

m

eets

aca

dem

ic q

ualif

icat

ion

man

date

d by

the

Teac

her L

aw

Base

line

(201

1): 3

5% o

f tea

cher

s in

prim

ary

and

80%

of j

unio

r sec

onda

ry

scho

ols h

old

S1 d

egre

e or

mor

e.

Targ

et:8

2% o

f prim

ary

and

98%

ju

nior

seco

ndar

y sc

hool

teac

hers

ho

ld S

1 de

gree

or m

ore.

(Tar

get

revi

sed

base

d on

upd

ated

bas

elin

e da

ta)

2. I

mpr

oved

pub

lic R

&D

hum

an

reso

urce

cap

acity

.

Targ

et:

Mas

ters

or P

hD d

egre

e ho

lder

s in

publ

ic re

sear

ch in

stitu

tes

(LPN

K)

incr

ease

s fro

m 1

5% to

17%

LP

NK

inst

itutio

nal a

sses

smen

ts

com

plet

ed a

nd re

form

mile

ston

es se

t

Part

ially

Ach

ieve

d.D

ata

from

the

2014

NU

PTK

da

taba

se: 6

4% o

f SD

and

88%

of

SM

P te

ache

rs w

ith a

n S1

de

gree

Ach

ieve

d.A

s per

the

RIS

ET

Proj

ect

Ann

ual W

ork

Plan

20

15, t

he n

umbe

r of s

taff

with

S2

and

S3

degr

ees i

s abo

ut

3,10

0 ou

t of 1

4,49

8 to

tal s

taff,

or

abo

ut 2

1%

Fina

ncin

g: B

OS-

KIT

A II

(c

lose

d on

Dec

31,

201

2),

Early

Chi

ldho

od E

duca

tion

and

Dev

elop

men

t (EC

ED);

Bet

ter E

duca

tion

thro

ugh

Ref

orm

ed M

anag

emen

t and

U

nive

rsal

Tea

cher

Upg

radi

ng

(BER

MU

TU);

Indo

nesi

a H

ighe

r Edu

catio

n fo

r R

elev

ance

and

Eff

icie

ncy

(IM

HER

E-cl

osed

on

Dec

31,

20

12);

Res

earc

h an

d In

nova

tion

in S

cien

ce a

nd

Tech

nolo

gy P

roje

ct (R

ISET

)

Kno

wle

dge:

The

Rol

e of

Po

litic

s and

Evi

denc

ed B

ased

Po

licy

Mak

ing:

The

Cas

e of

Te

ache

r Ref

orm

in In

done

sia;

Ed

ucat

ion

PER

; Ind

ones

ian

Scho

ol G

rant

s Pro

gram

R

evie

w; E

xpan

ding

O

ppor

tuni

ties a

nd B

ld

Com

pete

ncie

s for

You

ng;

Indo

nesi

a Li

fe L

ong

Lear

ning

; Loc

al G

over

nanc

e

112

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

com

pare

d to

oth

er c

ount

ries

in th

e re

gion

Cap

acity

Ass

essm

ent S

urve

y;

Surv

ey V

ideo

Stu

dy; I

mpa

ct

eval

uatio

n of

teac

her

certi

ficat

ion;

Impa

ct

eval

uatio

n of

EC

ED p

roje

ct

with

a fo

cus o

n sc

hool

re

adin

ess;

Pro

ject

ions

and

as

sess

men

t of s

kills

dem

and;

H

ighe

r edu

catio

n st

udie

s on

fund

ing

mod

aliti

es a

nd la

bor

mar

ket l

inka

ges,

Infr

astru

ctur

e as

sess

men

t, A

ccre

dita

tion

and

qual

ity

assu

ranc

e an

d eq

uity

and

ac

cess

to h

ighe

r edu

catio

n;

TA o

n sk

ills d

evel

opm

ent

fund

; Sup

port

for 2

015

five

year

dev

elop

men

t; St

reng

then

ing

Publ

ic

Fina

ncin

g of

Indo

nesi

a's

Kno

wle

dge

Sect

or; I

CT

in

Educ

atio

n; B

uild

ing

capa

city

aw

aren

ess o

n sa

fe sc

hool

s.

Adv

isor

y: IF

C a

dvis

ory

serv

ices

to tr

ain

fam

ers f

or

impr

ovin

g th

eir y

ield

s and

to

finan

cial

sect

or e

mpl

oyee

s for

la

unch

ing

new

fina

ncia

l pr

oduc

ts

Soci

al In

sura

nce

Prov

ide

univ

ersa

l co

vera

ge o

f soc

ial

insu

ranc

e to

pro

tect

w

orke

rs a

nd th

e po

or

Onl

y 50

% o

f the

pop

ulat

ion

curr

ently

has

hea

lth in

sura

nce

and

only

abo

ut 1

2% o

f the

po

pula

tion

has a

ny k

ind

of

pens

ion,

old

age

savi

ngs,

1. C

onve

rsio

n of

Jam

sost

ek to

a

not-f

or-p

rofit

inst

itutio

n th

at c

an

adm

inis

ter t

he S

JSN

pen

sion

and

old

ag

e sa

ving

s pro

gram

s

Ach

ieve

d. R

oadm

ap h

as b

een

com

plet

ed a

nd la

unch

ed.

Gov

ernm

ent r

egul

atio

ns

rega

rdin

g th

e ro

adm

ap h

as b

een

issu

ed

Kno

wle

dge:

Adv

isor

y se

rvic

es to

Bap

pena

s, D

JSN

(n

atio

nal s

ocia

l sec

urity

co

unci

l), th

e M

inis

try o

f

113

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

from

adv

erse

life

eve

nts

or e

xter

nal s

hock

s th

roug

h th

e fiv

e na

tiona

l soc

ial

insu

ranc

e (S

I) p

rogr

ams

outli

ned

in th

e SJ

SN

(nat

iona

l soc

ial s

ecur

ity

syst

em) L

aw a

nd th

e B

PJS

(nat

iona

l soc

ial

secu

rity

adm

inis

trato

rs)

Law

, cov

erin

g al

l fo

rmal

and

info

rmal

se

ctor

wor

kers

.

deat

h be

nefit

or w

ork

acci

dent

insu

ranc

e.

Com

plex

ity o

f ass

urin

g fis

cal

sust

aina

bilit

y in

clud

ing

prop

er in

vest

men

t of p

rogr

am

asse

ts.

Nee

d to

qui

ckly

tran

sfor

m th

e le

gal s

truct

ure

and

busi

ness

pr

oces

ses o

f the

ad

min

istra

tors

.

Com

plex

ity o

f exp

andi

ng

mem

bers

hip

and

colle

ctin

g co

ntrib

utio

ns fr

om th

e fo

rmal

an

d in

form

al se

ctor

s and

pr

oper

ly tr

acki

ng th

ose

cont

ribut

ions

ove

r tim

e.

Lack

of g

over

nmen

t cap

acity

an

d ex

perie

nce

with

m

anag

ing

the

risks

of S

I pr

ogra

ms.

2. E

xpan

d m

embe

rshi

p an

d im

prov

e co

ntrib

utio

n co

llect

ion

from

the

form

al a

nd in

form

al se

ctor

s.

Part

ially

Ach

ieve

d. T

he S

JSN

H

ealth

pro

gram

beg

an o

n Ja

nuar

y 1,

201

4 an

d is

not

ex

pect

ed to

ach

ieve

uni

vers

al

cove

rage

unt

il th

e en

d of

201

9.

Mos

t eff

orts

wer

e fo

cuse

d on

in

stitu

tiona

l tra

nsfo

rmat

ion

and

prog

ram

con

solid

atio

n.

Nev

erth

eles

s, so

me

prog

ress

w

as m

ade

in e

nrol

ling

info

rmal

se

ctor

wor

kers

and

exp

andi

ng

the

num

ber o

f wor

kers

pai

d fo

r by

the

gove

rnm

ent.

Mem

bers

hip

expa

nsio

n w

ill

rece

ive

mor

e at

tent

ion

in C

Y15

an

d C

Y16

. The

BPJ

S Em

ploy

men

t pro

gram

s do

not

begi

n un

til Ju

ly 1

, 201

5, a

nd

ther

efor

e m

embe

rshi

p ex

pans

ion

is n

ot y

et a

n is

sue.

A

ccor

ding

to th

e go

vern

men

t ro

adm

ap, m

embe

rshi

p ex

pans

ion

will

take

pla

ce m

ore

slow

ly, b

y 20

19.

Labo

r, th

e M

inis

try o

fFi

nanc

e an

d ot

hers

Pe

nsio

n an

d ol

d ag

e sa

ving

s ro

adm

apD

raft

Whi

te P

aper

on

SJSN

pe

nsio

n co

mpl

eted

. O

ther

s in

prog

ress

)B

ackg

roun

d pa

pers

on

retir

emen

t age

, cov

erag

e of

th

e po

or in

em

ploy

men

t pr

ogra

ms,

and

use

of su

rplu

s in

adm

inis

trato

rs a

nd so

cial

in

sura

nce

fund

s com

plet

ed)

Mod

elin

g co

mpl

eted

. In

put

files

nee

ded

for t

estin

g al

tern

ativ

e as

sum

ptio

ns a

nd

desi

gns i

n pl

ace

Dev

elop

men

t of P

olic

y N

otes

on

var

ious

asp

ects

of S

JSN

(f

ive

Polic

y N

otes

com

plet

ed

and

publ

ishe

d so

far)

114

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

Pro-

Poor

–Pr

omot

ing

Com

mun

ities

, Pro

tect

ing

the

Vuln

erab

le a

nd Im

prov

ing

Hea

lth O

utco

mes

Pove

rty

Tar

getin

g

Red

uce

abso

lute

po

verty

and

impr

ove

inco

me

dist

ribut

ion

thro

ugh

soci

al

prot

ectio

n th

at is

bas

ed

on th

e fa

mily

, co

mm

unity

em

pow

erm

ent a

nd

expa

nsio

n of

eco

nom

icop

portu

nitie

s of t

he lo

w

inco

me

popu

latio

n.

From

12%

pov

erty

in

2012

, Gov

ernm

ent i

s ta

rget

ing

for s

ingl

e di

gits

by

2014

.

Aro

und

110

mill

ion

peop

le

still

live

und

er U

S$2

a da

y (B

ank

estim

ate)

; lar

ge

num

ber o

f urb

an a

nd ru

ral

poor

due

to la

ck o

f inc

ome

and

inad

equa

te p

rodu

ctiv

e em

ploy

men

t opp

ortu

nitie

s;

lack

of q

ualit

y se

rvic

e de

liver

y to

poo

r peo

ple;

ac

cess

to e

arly

chi

ldho

od

educ

atio

n re

mai

ns lo

w,

parti

cula

rly fo

r the

poo

r; w

ide

regi

onal

dis

parit

ies

(par

ticul

arly

, eas

tern

pr

ovin

ces)

; poo

r are

vu

lner

able

to sh

ocks

such

as

food

pric

e in

crea

ses,

natu

ral

disa

ster

s

1.

Nat

iona

l sho

ck m

onito

ring

syst

em d

evel

oped

and

ope

ratio

nal.

2. P

over

ty p

rogr

ams m

anag

emen

t un

its u

sing

the

natio

nal r

egis

try o

f po

or a

nd v

ulne

rabl

e ho

useh

olds

to

iden

tify

bene

ficia

ries.

Targ

et: 4

pro

gram

s by

2015

Ach

ieve

d.A

nat

iona

l cris

is

mon

itorin

g sy

stem

was

co

mpl

eted

and

ado

pted

by

the

Nat

iona

l Tea

m fo

r the

A

ccel

erat

ion

of P

over

ty

Red

uctio

n (T

NP2

K),

hous

ed in

th

e O

ffice

of t

he V

ice

Pres

iden

t. Th

e da

shbo

ard

was

up

load

ed to

thei

r int

erna

l w

ebsi

te d

urin

g ea

rly 2

014

and

is n

ow in

use

.

Ach

ieve

d. 4

pro

gram

s use

d th

e re

gist

ry to

iden

tify

bene

ficia

ries:

1) T

he U

DB

was

use

d in

201

3 fo

r ide

ntifi

catio

n of

the

15.5

m

illio

n ho

useh

olds

that

re

ceiv

ed a

soci

al p

rote

ctio

n ca

rd (K

artu

Per

lindu

ngan

So

sial

), w

hich

ent

itled

them

to

rece

ive

a te

mpo

rary

un

cond

ition

al c

ash

trans

fer

(Ban

tuan

Lan

gsun

g Se

men

tara

M

asya

raka

t, B

LSM

)(ii

) add

ition

al a

lloca

tions

of

rice

dist

ribut

ed th

roug

h th

e R

ice

for t

he P

oor (

Bera

s M

iski

n, R

aski

n) p

rogr

am(ii

i) fin

anci

al a

ssis

tanc

e fo

r po

or st

uden

ts (B

antu

an u

ntuk

Si

swa

Mis

kin,

BSM

)

Fina

ncin

g: I

NST

AN

SI D

PL;

ECED

STA

TCA

P-C

ERD

AS,

an

d IF

C in

vest

men

ts in

to

mic

rofin

ance

inst

itutio

ns

Kno

wle

dge:

AA

A

supp

ortin

g H

ouse

hold

shoc

k m

onito

ring

and

resp

onse

pr

ojec

t; in

tegr

atio

n of

po

verty

redu

ctio

n pr

ogra

ms;

so

cial

ass

ista

nce

refo

rm;

PNPM

Rur

al E

cono

mic

Im

pact

Sim

ulat

ion;

Vill

age

Infr

astru

ctur

e C

ensu

s;

Inci

denc

e of

Ben

efits

of

Hou

seho

lds;

IFC

adv

isor

y se

rvic

es fo

r ben

efitt

ing

smal

l fa

rmer

s and

out

-gro

wer

s.

115

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

3. I

ncre

ased

par

ticip

atio

n in

EC

ED

serv

ices

par

ticul

arly

for t

he p

oor

Base

line

(201

0): G

ross

enr

ollm

ent

rate

of 3

3 %

of 4

-6 y

ear o

lds e

nrol

led

in E

CED

Targ

et: 7

2%

(iv) t

he d

atab

ase

was

als

o us

ed

to e

xtra

ct b

enef

icia

ry li

sts f

or

the

expa

nsio

n of

Pro

gram

K

elua

rga

Har

apan

(PK

H),

the

cond

ition

al c

ash

trans

fer

prog

ram

.

Mos

tly A

chie

ved.

Bas

ed o

n D

ata

Poko

k PA

UD

201

4: G

ER

for 3

-6 y

ear-

olds

is 6

5.16

%

(sin

ce th

e fig

ure

of 6

5.16

% is

fo

r 3-6

rath

er th

an 4

-6 a

nd w

ith

3 ye

ar-o

lds l

ess l

ikel

y to

be

in

ECED

pro

gram

s, th

e 72

%

targ

et fo

r 4-6

yea

r-ol

ds m

ay

have

act

ually

bee

n m

et)

Com

mun

ity

Dev

elop

men

t

Impr

oved

loca

l-lev

el

(sub

-dis

tric

ts a

nd

villa

ges)

gove

rnan

ce,

qual

ity o

f ser

vice

de

liver

y an

d so

cio-

econ

omic

con

ditio

ns in

ru

ral a

reas

thro

ugh

wid

er im

plem

enta

tion

of p

over

ty re

duct

ion

and

com

mun

ity

empo

wer

men

t pro

gram

s an

d th

e pr

ovis

ion

of

inve

stm

ent r

esou

rces

to

supp

ort p

ropo

sals

de

velo

ped

by

com

mun

ities

, usi

ng a

Com

mun

ity D

evel

opm

ent

thro

ugh

the

PNPM

pro

gram

ha

s bee

n ex

pand

ed to

reac

h ov

er 6

0,00

0 vi

llage

s. Im

pact

ev

alua

tion

show

s it t

o be

an

effe

ctiv

e pr

ogra

m, b

ut it

ne

eds t

o co

nsol

idat

e pr

ogra

m

man

agem

ent,

enha

nce

parti

cipa

tion,

par

ticul

arly

by

wom

en a

nd m

argi

naliz

ed

grou

ps.

1. 2

.5m

com

mun

ity m

embe

rs

parti

cipa

te d

irect

ly in

mee

tings

; 80%

be

nefic

iarie

s fee

l tha

t pro

ject

in

vest

men

ts re

flect

ed th

eir n

eeds

; >5

0% o

f poo

rest

com

mun

ities

in

volv

ed in

pla

nnin

g an

d de

cisi

on-

mak

ing;

35%

of v

illag

es p

rovi

ded

feed

back

on

heal

th a

nd e

duca

tion

2. W

omen

act

ivel

y in

volv

ed in

de

cisi

on-m

akin

g

Targ

et: 5

0% o

f wom

en in

pl

anni

ng/d

ecis

ion-

mak

ing

mee

tings

; 30

% o

f wom

en in

com

mun

ity

over

sigh

t tea

ms

Mos

tly A

chie

ved.

No

data

on

bene

ficia

ries’

opi

nion

s on

whe

ther

pro

ject

inve

stm

ents

re

flect

ed th

eir n

eeds

; 50%

of

poor

est c

omm

uniti

es in

volv

ed

in p

lann

ing

and

deci

sion

-m

akin

g m

eetin

gs; 3

3% o

f vi

llage

s pro

vide

d fe

edba

ck o

n he

alth

and

edu

catio

n se

rvic

es

Mos

tly A

chie

ved.

45%

of

wom

en in

pla

nnin

g/de

cisi

on-

mak

ing

mee

tings

; 32%

of

wom

en in

com

mun

ity o

vers

ight

te

ams

Fina

ncin

g:PN

PM R

ural

IV;

PNPM

Rur

al 2

012-

2015

; PN

PM G

ener

asi;;

PSF

M

DTF

; JSD

F; K

DP

Sula

wes

i; Ju

stic

e fo

r the

Po

or; C

PDA

; IFC

inve

stm

ent

in M

BK

is e

xpec

ted

to a

ssis

t th

is m

icro

-fin

ance

inst

itutio

n to

reac

h on

e m

illio

n lo

w-

inco

me

wom

en e

ntre

pren

eurs

at

the

base

of t

he p

yram

id b

y 20

17. S

imila

rly, I

FC’s

en

gage

men

t with

BTP

N is

ex

pect

ed to

als

o le

ad to

si

gnifi

cant

reac

h of

MSM

E cl

ient

s.

Kno

wle

dge:

PN

PM R

ural

Ec

onom

ic Im

pact

Sim

ulat

ion;

116

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

parti

cipa

tory

pla

nnin

g pr

oces

s.

Enha

nce

acce

ss to

he

alth

and

edu

catio

n se

rvic

es a

mon

g th

e po

or

3. I

mpr

oved

com

mun

ity a

cces

s to

and

utili

zatio

n of

hea

lth a

nd

educ

atio

n se

rvic

es in

the

targ

eted

ar

eas.

Targ

ets:

>80

% o

f pre

gnan

t wom

en

rece

ivin

g 4

pren

atal

car

e vi

sit;

80%

of

chi

ldre

n un

der 5

wei

ghed

m

onth

ly; 5

0% o

f pre

gnan

t wom

en

atte

ndin

g nu

tritio

n co

unse

ling

sess

ion;

50%

of c

areg

iver

s of

child

ren

unde

r 2 a

ttend

ing

nutri

tion

coun

selin

g se

ssio

n; 7

0% ju

nior

se

cond

ary

enro

llmen

t rat

e

Mos

tly A

chie

ved.

91%

of

preg

nant

wom

en re

ceiv

ing

4 pr

enat

al c

are

visi

t; 75

% o

f ch

ildre

n un

der 5

wei

ghed

m

onth

ly; n

o da

ta o

n pr

egna

nt

wom

en a

ttend

ing

nutri

tion

coun

selin

g se

ssio

n; n

o da

ta o

n ca

regi

vers

of c

hild

ren

unde

r 2

atte

ndin

g nu

tritio

n co

unse

ling

sess

ion;

90%

juni

or se

cond

ary

enro

llmen

t rat

e

Vill

age

Infr

astru

ctur

e C

ensu

s;

Inci

denc

e of

Ben

efits

of

Hou

seho

lds;

Loc

al L

evel

In

stitu

tions

III;

Com

mun

ity

Man

agem

ent o

f Dev

elop

men

t Po

rtfol

io; R

evol

ving

Loa

n Fu

nd S

tudy

; Gov

erna

nce

Rev

iew

; Int

egra

ted

MIS

for

PNPM

; TA

to P

okja

Pe

ngen

dali,

Bap

pena

s, K

PDT;

TA

to A

ceh

Loca

l G

over

nmen

t; Pa

pua

anal

ytic

al w

ork;

PN

PM R

ural

Se

ntin

el V

illag

e St

udy

Food

Sec

urity

and

R

ural

Dev

elop

men

t

Incr

ease

food

secu

rity

and

cont

inue

the

revi

taliz

atio

n of

ag

ricul

ture

to e

nhan

ce

self-relian

ce in

food

, in

crea

se th

e co

mpe

titiv

enes

s of

agric

ultu

ral p

rodu

cts,

incr

ease

the

inco

me

leve

l of f

arm

ers,

and

cons

erve

env

ironm

ent

and

natu

ral r

esou

rces

Red

uce

depe

nden

ce o

n im

ports

for s

tapl

e fo

ods

whi

le d

iver

sify

ing

food

co

nsum

ptio

n

The

polic

y of

rice

self-

suff

icie

ncy

limits

the

amou

nt

of re

sour

ces a

vaila

ble

for

farm

div

ersi

ficat

ion

and

agric

ultu

ral d

evel

opm

ent

syst

ems.

Lim

ited

acce

ss to

tech

nolo

gy

and

mar

ketin

g se

rvic

es d

ue to

w

eak

capa

city

of l

ocal

and

na

tiona

l gov

ernm

ent R

&D

an

d ex

tens

ion

serv

ices

pr

even

ts th

e em

erge

nce

of

viab

le a

grib

usin

ess

ente

rpris

es a

nd fa

rm

dive

rsifi

catio

n.

Com

mod

ities

are

exp

orte

d w

ith li

mite

ddo

mes

tic v

alue

ad

ditio

n an

d is

sues

of q

ualit

y,

mar

ket p

ositi

onin

g, a

nd

1. M

oder

nize

d cl

ient

and

mar

ket

orie

nted

mar

ketin

g an

d ex

tens

ion

serv

ices

acc

essi

ble

by sm

allh

olde

rs.

Base

line:

less

than

10%

of f

arm

ers’

ac

cess

tech

nolo

gy a

nd m

arke

t in

form

atio

n th

roug

h IC

T.

2. I

ncre

ased

val

ue a

dditi

on in

sm

allh

olde

r-ba

sed

agric

ultu

ral e

xpor

tva

lue

chai

ns (e

.g. c

offe

e, c

ocoa

, and

te

a) c

oupl

ed w

ith h

ighe

r pro

duct

ivity

an

d m

ore

effic

ient

mar

ketin

g sy

stem

s.

Base

line:

Reg

ulat

ory

and

polic

y fr

amew

ork

of v

alue

cha

ins o

f sm

allh

olde

r-ba

sed

expo

rtabl

e co

mm

oditi

es is

wea

k w

ith lo

w

capa

city

of s

uppo

rt sy

stem

s.

Ach

ieve

d.10

% o

f IA

AR

D’s

re

sear

ch a

nd m

anag

emen

t sta

ff

unde

rtook

adv

ance

d tra

inin

g in

ac

cred

ited

fore

ign

inst

itutio

ns

thru

the

SMA

RTD

pro

gram

Ach

ieve

d. M

oT la

unch

ed

Act

ion

Plan

s for

enh

anci

ng th

e su

stai

nabi

lity

and

com

petit

iven

ess o

f at l

east

one

sm

all-h

olde

r bas

ed b

ever

age

crop

(e.g

. cof

fee,

coc

oa, o

r tea

)

Fina

ncin

g:Fa

rmer

Em

pow

erm

ent t

hrou

gh

Agr

icul

tura

l Tec

hnol

ogy

and

Info

rmat

ion

(FEA

TI) t

o en

hanc

e ac

cess

to te

chno

logy

an

d m

arke

t inf

orm

atio

n fo

r fa

rmer

s; S

usta

inab

le

Man

agem

ent o

f Agr

icul

tura

l R

esea

rch

and

Tech

nolo

gy

Dis

sem

inat

ion

Proj

ect

(SM

AR

T-D

) to

enha

nce

R&

D a

nd te

chno

logy

di

ssem

inat

ion

in A

gric

ultu

re;

Wat

er R

esou

rces

and

Ir

rigat

ion

Sect

or M

gmt

(WIS

MP2

) to

enha

nce

wat

er

secu

rity

and

wat

er se

rvic

e de

liver

y in

14

prov

ince

s and

10

1 di

stric

ts;

117

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

Impr

ove

inco

me

of

smal

lhol

ders

and

ex

pand

opp

ortu

nitie

s fo

r non

farm

inco

me

activ

ities

.

com

petit

iven

ess i

n th

e va

lue

chai

ns p

ersi

st.

Mec

hani

sms t

o pr

omot

e im

prov

ed se

rvic

e pr

ovis

ion

and

plan

ning

in ir

rigat

ion

and

wat

er re

sour

ces m

anag

emen

t no

t yet

ope

ratio

nal.

3. Im

prov

ed w

ater

reso

urce

and

irr

igat

ion

infr

astru

ctur

e an

d se

rvic

e de

liver

y an

d pa

rtici

pato

ryan

d pl

anni

ng a

nd c

oord

inat

ion

mec

hani

sms e

stab

lishe

d.

Targ

et:W

ater

secu

rity

impr

oved

in

at le

ast 5

0 irr

igat

ion

Dis

trict

s.

Part

ially

Ach

ieve

d.Th

e G

over

nmen

t iss

ues a

serv

ice

orie

nted

irrig

atio

n po

licy

and

esta

blis

hes a

con

cept

for

mod

erni

zatio

n of

irrig

atio

n m

anag

emen

t of l

arge

scal

e na

tiona

l irr

igat

ion

syst

ems.

Dam

Ope

ratio

nal

Impr

ovem

ent a

nd S

afet

y Pr

ojec

t (D

OIS

P); t

o en

hanc

e sa

fety

and

wat

er se

curit

y in

ar

eas c

over

ed b

y 34

dam

s and

re

serv

oirs

;

IFC

inve

stm

ents

in

agrib

usin

ess c

ompa

nies

with

a

view

to e

nhan

ce fo

od

secu

rity

or to

pro

vide

su

stai

nabl

e liv

elih

oods

to

poor

farm

ers.

IFC

’s

inve

stm

ent i

n th

e W

ings

G

roup

and

May

ora

Inda

h su

ppor

t the

pro

duct

ion

of n

ew

food

and

nut

ritio

nal p

rodu

cts.

Kno

wle

dge:

TA o

n Fo

od

Secu

rity

to M

oA;

TA to

the

MoP

W o

n irr

igat

ion

man

agem

ent

mod

erni

zatio

n [r

epor

t su

bmitt

ed N

ov 2

013]

and

po

licy

deve

lopm

ent;

Enha

ncin

g Su

stai

nabi

lity

of

Ind’

s Maj

or A

gric

ultu

ral;

Adv

isor

y:IF

C a

dvis

ory

serv

ices

wor

k in

sust

aina

ble

palm

oil

to im

prov

e su

stai

nabl

e liv

elih

oods

for

outg

row

ers

Hea

lth O

utco

mes

H

igh

out-o

f-po

cket

spen

ding

fo

r hea

lth.

1. Q

ualit

y as

sura

nce

polic

ies

gove

rnin

g th

e ed

ucat

ion

of h

ealth

pr

ofes

sion

als w

ith e

stab

lishm

ent o

f

Not

Ach

ieve

d.C

ompr

ehen

sive

an

alys

is o

f sup

ply

side

av

aila

bilit

y an

d re

adin

ess

Fina

ncin

g: O

ngoi

ng a

nd

deliv

ered

: H

ealth

Pr

ofes

sion

als E

duca

tion

118

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

Impr

oved

pop

ulat

ion

heal

th o

utco

mes

, in

clud

ing

impr

ovem

ents

in

life

exp

ecta

ncy

and

redu

ctio

ns in

mat

erna

l m

orta

lity

and

mal

nutri

tion

to m

eet

MD

G ta

rget

s by

2015

Acc

ess t

o sa

fe w

ater

an

d sa

nita

tion

is a

maj

or

fact

or in

the

heal

th a

nd

over

all w

elfa

re o

f In

done

sian

s and

ex

pand

ing

cove

rage

is a

pr

iorit

y

Low

and

var

iabl

e le

vels

, di

strib

utio

n an

d su

pply

of

heal

th se

rvic

es, e

spec

ially

in

poor

and

rura

l are

as.

Ris

ing

HIV

/AID

S ep

idem

ic,

espe

cial

ly in

sele

ct p

rovi

nces

Slow

redu

ctio

n in

mat

erna

l m

orta

lity,

des

pite

rela

tivel

y hi

gh le

vels

of s

kille

d bi

rth

atte

ndan

ce a

nd in

stitu

tiona

l de

liver

ies

Chr

onic

mal

nutri

tion

and

stun

ting

rate

s

Acc

ess t

o sa

fe w

ater

has

st

agna

ted

sinc

e 20

01 a

t les

s th

an h

alf t

he p

opul

atio

n, in

pa

rticu

lar u

rban

cov

erag

e fr

om 6

0 pe

rcen

t to

abou

t 50

perc

ent b

y 20

09

Acc

ess t

o sa

nita

ry fa

cilit

ies

sign

ifica

ntly

low

er th

an o

ther

co

mpa

rabl

e co

untri

es in

the

regi

on

inde

pend

ent N

atio

nal A

ccre

dita

tion

Age

ncy,

and

Nat

iona

l Age

ncy

for

Com

pete

ncy;

acc

redi

tatio

n of

7

heal

th p

rofe

ssio

nal s

choo

ls.

2. 7

mill

ion

peop

le p

rovi

ded

with

pi

ped

wat

er su

pply

and

3.4

mill

ion

peop

le p

rovi

ded

with

impr

oved

sa

nita

tion

unde

r PA

MSI

MA

S

com

plet

ed; s

tudy

of h

uman

re

sour

ces f

or h

ealth

(HR

H)

polic

ies c

ompl

eted

; ana

lysi

s of

Jam

pers

al/J

amke

smas

pol

icie

s to

ach

ieve

UH

C o

f mat

erna

l he

alth

car

e co

mpl

eted

; sec

ond

Inte

grat

ed B

iolo

gica

l and

B

ehav

iora

l Sur

vey

(IB

BS)

in

Papu

a pr

ovin

ces c

ompl

eted

; ec

onom

ic a

naly

sis o

f H

IV/A

IDS

prog

ram

s co

mpl

eted

; ana

lysi

s of

mul

tisec

tora

l det

erm

inan

ts o

f do

uble

bur

den

of m

alnu

tritio

n (D

BM

) com

plet

ed.

Ach

ieve

d. 7

.8 m

illio

n pr

ovid

ed

with

pip

ed w

ater

supp

ly a

nd

7.69

mill

ion

with

impr

oved

sa

nita

tion

unde

r the

PA

MSI

MA

S pr

ogra

m

Qua

lity;

PA

MSI

MA

S A

F;

Urb

an W

ater

Sup

ply

&

Sani

tatio

n TF

; GPO

BA

Ja

karta

and

Sur

abay

a ;

WA

SAP;

IFC

arr

ange

d fin

anci

ng o

f U

S$85

mill

ion

for M

oya

Wat

er, a

priv

ate

sect

or

oper

ator

pro

vidi

ng c

lean

w

ater

to T

anga

reng

and

oth

er

publ

ic w

ater

util

ities

, whi

chw

as su

bseq

uent

ly c

ance

lled

Kno

wle

dge:

Pol

icy

dial

ogue

on

uni

vers

al h

ealth

cov

erag

e;

supp

ly si

de a

vaila

bilit

y an

d re

adin

ess a

sses

smen

t; H

RH

st

udy;

HIV

/AID

S IB

BS

surv

ey; H

IV/A

IDS

econ

omic

an

alys

is; D

BM

ana

lysi

s.To

tal S

anita

tion

and

Sani

tatio

n M

arke

ting,

Urb

an

Was

tew

ater

Man

agem

ent;

Sura

baya

wat

er p

olic

y ad

vice

; W

ASA

P; W

ater

and

Sa

nita

tion

Fina

ncin

g Pr

ogra

m; A

sses

smen

t for

W

ater

Fin

anci

ng F

acili

ty;

Lam

pung

wat

er p

roje

ct T

As.

IFC

adv

isor

y se

rvic

es fo

r st

ruct

urin

g w

ater

sect

or P

PP

proj

ects

119

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

Pro-

Gre

en –

Ens

urin

g Su

stai

nabl

e D

evel

opm

ent a

nd Im

prov

ing

Dis

aste

r Res

ilien

ce

Env

iron

men

t, N

atur

al

Res

ourc

es a

nd

Clim

ate

Cha

nge

Con

serv

atio

n an

d ut

iliza

tion

of th

e na

tura

l en

viro

nmen

t tha

t su

ppor

ts su

stai

nabl

e ec

onom

ic g

row

th a

nd

incr

ease

d w

elfa

re o

f the

pe

ople

GH

G e

mis

sion

re

duct

ion

of 2

6% b

y 20

20 a

ccom

pani

ed b

y th

e co

ntro

l and

m

anag

emen

t of d

isas

ter

risks

, in

orde

r to

prep

are

for t

he e

xpec

ted

impa

cts

of c

limat

e ch

ange

.

Prom

ote

rene

wab

le

ener

gy so

urce

s as p

art

of a

sust

aina

ble

deve

lopm

ent s

trate

gy

Def

ores

tatio

n, p

eat b

urni

ng,

habi

tat l

oss;

glo

bally

si

gnifi

cant

em

issi

ons:

for

ests

an

d la

nd u

se c

hang

e.

Frag

men

ted,

ove

rlapp

ing

and

dece

ntra

lized

land

use

au

thor

ity h

ampe

rs a

bilit

y to

m

anag

e fo

rest

and

pea

t lan

ds.

Clim

ate

chan

ge:

thre

at to

de

velo

pmen

t, es

peci

ally

the

poor

; vul

nera

bilit

y in

ag

ricul

ture

, wat

er

man

agem

ent,

heal

th,

prep

ared

ness

, res

ilien

ce.

1. F

und

for R

EDD

est

ablis

hed

with

le

gal,

tech

nica

l and

man

ager

ial

capa

city

to su

ppor

t and

fina

nce

Indo

nesi

a’s N

atio

nal R

EDD

+ St

rate

gy

2. P

hase

III o

f CO

REM

AP

prov

idin

g ex

pand

ed su

ppor

t for

cor

al

and

mar

ine

prot

ectio

n.

3. G

over

nmen

t of J

akar

ta la

unch

ing

gree

n bu

ildin

gs c

ode

for c

omm

erci

al

build

ings

in th

e ci

ty.

Part

ially

Ach

ieve

d.R

EDD

+ Su

ppor

t Fac

ility

MD

TF

esta

blis

hed

at th

e W

B to

su

ppor

t GoI

to se

t up

a na

tiona

l TF

for R

EDD

+ im

plem

enta

tion

Ach

ieve

d. P

hase

III o

f C

OR

EMA

P de

liver

ed a

nd

unde

r im

plem

enta

tion

Ach

ieve

d. G

over

nmen

t of

Jaka

rta la

unch

ed G

reen

B

uild

ing

regu

latio

n nu

mbe

r 38,

ef

fect

ive

2013

Fina

ncin

g:R

EDD

+ Su

ppor

t Fac

ility

M

DTF

; Gre

en G

row

th

Dev

elop

men

t Sup

port

Prog

ram

; FC

PF R

eadi

ness

G

rant

;AM

AN

–G

rant

with

JS

DF

Supp

ort;

AA

A o

n M

appi

ng a

nd C

usto

mar

y La

nd ri

ghts

; FIP

For

est

Man

agem

ent D

evel

opm

ent

Proj

ect;

FMU

supp

ort s

yste

m

MD

TF (c

o-fu

ndin

g FI

P fu

nd);

DG

M fo

r Ind

igen

ous

Peop

les a

nd L

ocal

C

omm

uniti

es (u

nder

pr

epar

atio

n w

ith F

IP fu

nd);

Day

ak d

evel

opm

ent P

roje

ct –

Gra

nt (u

nder

pre

para

tion

with

JS

DF

Supp

ort);

Par

tner

ship

fo

r Mar

ket R

eadi

ness

(PR

M)

gran

t was

und

er p

repa

ratio

n;In

do-W

AV

ES P

rogr

am w

as

unde

r pre

para

tion;

HC

FC P

hase

Out

Man

agem

ent P

lan;

CO

REM

AP

CTI

Pha

se 3

;C

CR

ES (G

EF);

Solid

Was

te M

anag

emen

tIm

prov

emen

t Pro

ject

for

Reg

iona

l and

Met

ropo

litan

C

ities

was

und

er p

repa

ratio

n (m

ight

not

mak

e it

into

the

blue

boo

k];

120

Gre

at re

new

able

ene

rgy

pote

ntia

l rel

ativ

ely

unta

pped

du

e to

nee

d fo

r im

prov

ed

pric

ing

and

inve

stm

ent

clim

ate

ince

ntiv

es.

Pow

er se

ctor

is fa

stes

t gr

owin

g so

urce

of e

mis

sion

s, m

ainl

y fr

om c

oal b

ased

po

wer

gen

erat

ion.

Lack

of c

oord

inat

ion

of

polic

ies a

nd in

cent

ives

for

envi

ronm

enta

lim

prov

emen

t an

d cl

imat

e ch

ange

m

itiga

tion;

wea

k ec

onom

ic

ince

ntiv

es; p

olic

y di

stor

tions

.

Lim

ited

ince

ntiv

es fo

r firm

s to

dev

elop

fore

st p

lant

atio

n an

d cl

imat

e ch

ange

miti

gatio

n pr

ogra

m o

n de

grad

ed

gras

slan

ds a

nd to

app

ly b

est

prac

tices

bec

ause

of h

igh

cost

s and

risk

s, as

wel

l as

lack

of k

now

ledg

e an

d ex

perie

nce

in b

lend

ing

fore

st-

base

d cl

imat

e ch

ange

m

itiga

tion

and

com

mer

cial

fo

rest

ry in

vest

men

t

Lim

ited

acce

ss to

fina

nce

for

priv

ate

sect

or fo

rest

ry

ente

rpris

e, p

artic

ular

ly a

long

su

pply

cha

ins b

etw

een

upst

ream

and

dow

nstre

am

activ

ities

.

Land

fill G

as R

ecov

ery

proj

ect;

IFC

com

plet

ed th

e fo

ur-y

ear

Indo

nesi

a Su

stai

nabl

e Fo

rest

ry P

roje

ct, w

ith

indu

stria

l for

est p

lant

atio

n fir

ms a

nd th

e In

done

sia

Woo

d Pr

oduc

ers A

ssoc

iatio

n.IF

C su

ppor

ted

for C

iput

ra

Dev

elop

men

ts, f

or se

lect

G

reen

bui

ldin

gs.

IFC

supp

orte

d C

iput

ra

Res

iden

ce ,

in d

evel

opin

g

Gre

en B

uild

ings

pro

ject

s.Pr

ivat

e se

ctor

FIP

fina

ncin

g fo

r for

estry

ent

erpr

ise

Kno

wle

dge:

RED

D+

Adv

isor

y Se

rvic

es o

n FR

EDD

I (A

AA

and

TA

);R

EDD

+ Su

ppor

t Fac

ility

to

supp

ort N

atio

nal R

EDD

+ im

plem

enta

tion;

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y di

alog

ue a

nd A

AA

on

Gre

en G

row

th D

evel

opm

ent

Supp

ort t

o B

APP

ENA

S on

ke

y po

licy

reco

mm

enda

tions

fo

r the

nex

t RPJ

MN

; AA

A o

n Fo

rest

and

Non

-For

est L

and;

Fore

st C

arbo

n Pa

rtner

ship

Fa

cilit

y (A

AA

and

TA

);W

AV

ES P

rogr

am to

supp

ort

Gre

en D

evel

opm

ent A

gend

a w

as u

nder

pre

para

tion;

AA

A o

n B

enef

it Sh

arin

g; T

A

and

Inpu

ts to

ong

oing

Pa

rtner

ship

for M

arke

t R

eadi

ness

(PM

R),

AA

A o

n m

appi

ng, a

nd c

usto

mar

yla

nd

Rig

hts

121

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

IFC

adv

isor

y se

rvic

es in

are

as

of c

lean

ene

rgy

deve

lopm

ent,

sust

aina

ble

ener

gy fi

nanc

e,

gree

n ba

nkin

g, su

stai

nabl

e fo

rest

ry/ a

grib

usin

ess,

gree

n bu

ildin

g de

velo

pmen

t etc

.

Dis

aste

r R

isk

Man

agem

ent

Enha

nce

capa

bilit

ies t

o im

prov

e di

sast

er ri

skpr

epar

edne

ss,

miti

gatio

n m

easu

res,

and

post

-dis

aste

r re

cove

ry a

nd

reco

nstru

ctio

n re

spon

sive

ness

to

stre

ngth

en su

stai

nabi

lity

Dup

licat

ion

of e

ffor

ts d

ue to

th

e pl

etho

ra o

f dev

elop

men

t pa

rtner

s in

Dis

aste

r Ris

k R

educ

tion

(DR

R);

new

D

isas

ter M

anag

emen

t A

genc

y st

ruct

ure

may

not

ha

ve th

e ca

paci

ty to

m

ains

tream

DR

R

1. C

reat

e ev

iden

ce-b

ased

exa

mpl

es

of p

ract

ical

and

con

cret

e di

sast

er a

nd

clim

ate

risk

redu

ctio

n an

d ad

apta

tion

mea

sure

s (e.

g., s

afer

scho

ols,

resi

lient

vill

ages

and

urb

an w

ards

w

ith D

RR

pla

n an

d in

vest

men

t pr

ogra

m) t

hat c

an b

e sc

aled

up

and

repl

icat

ed n

atio

nally

2. C

omm

unity

-bas

ed se

ttlem

ent

reco

nstru

ctio

n in

corp

orat

ed a

s a

Gov

ernm

ent p

rogr

am

Ach

ieve

d. M

ains

tream

ing

adap

tatio

n an

d re

silie

nce

issu

es

into

PN

PM in

urb

an a

reas

in 4

hi

gh ri

sk p

rovi

nces

, and

in sa

fe

scho

ol re

habi

litat

ion

usin

g G

over

nmen

t’s D

AK

Mos

tly A

chie

ved.

GoI

led

disa

ster

fund

(IM

DFF

-DR

) as

new

mec

hani

sm to

in

stitu

tiona

lize

dono

r sup

port

with

Dis

aste

r Man

agem

ent

Fund

(DM

F) e

stab

lishe

d an

d op

erat

iona

l with

Wor

ld B

ank

as

trust

ee, p

rovi

ding

gra

nt c

o-fin

ance

to g

over

nmen

t rec

over

y pr

ogra

m

Fina

ncin

g:O

ngoi

ng Z

ero

Con

tinge

nt a

nd D

isas

ter

Miti

gatio

n C

ompo

nent

s in

WIN

RIP

and

PN

PM U

rban

II

I; PN

PM R

ural

III A

F. C

o-fin

anci

ng o

f GFD

RR

in

PNPM

-Urb

an II

I for

co

mm

unity

bas

ed p

reve

ntio

nan

d pr

epar

edne

ss in

vest

men

t,.

Add

ition

al F

inan

cing

from

D

isas

ter M

anag

emen

t Fun

d (D

MF)

to C

SRR

P fo

r hou

sing

an

d se

ttlem

ent r

ehab

ilita

tion

in M

t. M

erap

i

Kno

wle

dge:

GFD

RR

N

atio

nal r

isk

asse

ssm

ent

stud

y/m

appi

ng a

s the

bas

is

for G

oI’s

Nat

iona

l Dis

aste

r M

anag

emen

t Pla

n 20

09-2

014

and

Nat

iona

l Act

ion

Plan

for

DR

R 2

009-

2014

. Ind

ones

ia

Dis

aste

r Ris

k Fi

nanc

ing

Stud

y an

d po

licy

dial

ogue

, C

apac

ity B

uild

ing

mod

ule

on

PDN

A a

nd P

ost D

isas

ter

Rec

over

y; IF

C a

dvis

ory

serv

ices

to P

T A

sura

nsi

Mai

park

Indo

nesi

a to

dev

elop

a

new

inde

x-ba

sed

insu

ranc

e

122

Indo

nesi

a’s L

onge

r-te

rm

Obj

ectiv

esIs

sues

and

Obs

tacl

esD

evel

opm

ent R

esul

ts T

o W

hich

the

WB

G W

ill C

ontr

ibut

eA

ctua

l Ach

ieve

men

ts a

t end

of

CPS

Per

iod

WB

G M

odes

of E

ngag

emen

t

prod

uct c

alle

d Ea

rthqu

ake

Inde

x In

sura

nce.

Dev

elop

men

t and

util

izat

ion

of In

aSA

FE ri

sk a

naly

sis

geos

patia

l too

l inc

ludi

ng

met

hodo

logy

for h

azar

d m

appi

ng. P

ublic

atio

n of

Saf

e Sc

hool

Tec

hnic

al G

uide

lines

.

123

Sub-annex 3:1a: Achievements for the Pro-Growth Engagement

1. Under this engagement area, the WBG objective was to support development results to promote prosperity and growth across multiple sectors: strengthened macro stability and crisis management, improved the quality of public spending and financial management, maintained financial sector stability while enhancing access, improved the regulatory environment for competition and innovation, supported private sector companies in increasing competitiveness, improved connectivity and logistics performance, and increased the quantity and efficiency of investment in infrastructure while leveraging private sector participation. Overall performance under the pro-growth engagements was uneven resulting in an objective rating to be moderately satisfactory (see performance ratings against pro-growth indicators in the table below).

2. In support of macro stability and crisis management, the IBRD provided knowledge services to support crisis preparedness and led in late FY11 a package of contingency fiscal financing of approximately US$5 billion that included US$2 billion Program for Economic Resilience, Investment and Social Assistance (PERISAI) DPL-DDO, around US$3 billion from the Government of Japan (JPY120 billion), AUD1 billion from the Government of Australia, and US$500 million from the Asian Development Bank. Monitoring and coordination mechanisms facilitated a flexible response, including crisis-related provisions in the budget that allowed revision for expenditures and financing sources under a streamlined parliamentary approval process. The PERISAI DPL-DDO has been extended a number of times with the current closing date in December 2015.

3. IBRD engagement on the quality of spending and institutional capacity included development policy lending and knowledge services. There was a significant breakthrough on the fiscal side, with dialogue and knowledge services supporting politically difficult and long delayed measures to reduce fuel subsidies. Following the one-off 34 percent average gasoline and diesel price increase in November 2014, a new fuel subsidy scheme came into effect on January 1, 2015 under a Presidential Regulation (Perpres No. 191/2014). This adjustment is expected to help improve the quality of spending by switching resources to needed investment in infrastructure and social protection, among other areas. Still, shortfalls in executing the capital budget highlight continuing challenges in implementing public infrastructure, which is plagued by poor coordination, slow procurement processes, and delays in regulating new land acquisition legislation.

4. Bank support through the DPL series of Institutional, Tax Administration, Social and Investment (INSTANSI), supported by AAA financed by the EU, the Netherlands, and Switzerland, concluded in December 2014. This policy based lending helped strengthen financial management and budget processes. GoI has introduced medium-term budget forecasting tools and M&E processes to inform future budget allocations and regulations for accrual based accounting policies and chart of accounts. The roll out of the integrated budget and treasury management information system (SPAN) to 222 treasury offices was completed and the system operational since February 2015. AAA and TA provided by the Bank through Swiss trust fund financing introduce support to a Government Debt and Risk Management (DGRM) advisory program for risk modeling, contingent liabilities and asset liability management. Bank technical assistance also successfully supported a government/data portal and regulation on e-government/e-services.

124

5. Other institution building interventions during the CPS were somewhat less successful including for improved tax administration (Project for Indonesia Tax Administration Reform/PINTAR) which had to be cancelled and data sharing and coordination (Statistical Capacity Building Change and Reform for the Development of Statistics Project/STATCAP-CERDAS) which continues to struggle despite a restructuring.

6. The subnational PFM program, Public Expenditure Analysis and Capacity Harmonization (PEACH), closed in August 2014 after delivering six provincial updated PERs and the Sulawesi Development Diagnostics. IBRD lending supported the Local Government and Decentralization Project (DAK) program which is successfully providing incentives to local governments for better quality local infrastructure delivery. This is likely to become one of the Government flagship programs aimed at the one of the core problems of infrastructure delivery with additional financing provided in 2014 to further scale up the program and further extension expected in the next CPF period. This will be augmented by a better targeted set of subnational service delivery support using innovative tools first used by the Bank in LCR (RAAP and MIGESTION). IFC worked sub-nationally through subnational Doing Business reforms and PPP structuring for local governments.

7. Financial Sector - The WBG delivered a variety of lending and knowledge services to support financial sector stability and crisis preparedness, diversification, financial inclusion and support for economic development in collaboration with Australia, Canada, Finland, the Netherlands, Switzerland, and the USA. Box 1 describes the joint IBRD/IFC program to help transform the financial sector.

Box 1: The World Bank-IFC Joint Approach in the Financial Sector

Drawing upon the full range of WBG products for the financial sector.

For the World Bank, this included extensive use of AAA products such as sector diagnostics, policy notes, policy advice, and discrete technical assistance, investment lending and development policy lending in support of the GoI’s medium-term reform agenda.

For IFC, this included US$525 million Investment Services committed in FY15 for expanding access to finance for micro and agri-finance, micro, small and medium enterprises & sustainable finance. In FY15, IFC FIG AS supported BTPN in developing and extending non-financial services to SMEs. IFC pilot to extend housing micro-loans was a partnership with Holcim Indonesia (a leading cement sector company) and Bina Artha Ventura (a micro-finance institution). IFC further supported Danamon Bank and Bank Muamalat to develop and extend innovative agri-financial services to SMEs in rural areas. IFC had also supported the establishment of a few new private equity fund managers (e.g. Falcon House Partners) that would expand the availability of growth capital to the medium-sized companies in Indonesia.

F&M GP (IFC) supported development and expansion of innovative, inclusive and sustainable financial services to low income households and MSMEs in the areas of digital financial inclusion, responsible microfinance, financial infrastructure (credit reporting and secured transactions), capital markets development for infrastructure finance, and insurance (earthquake index insurance project).

125

Strengthening synergies.

With a focus on active collaboration, as well as coordination, the IBRD took the lead on legislative and regulatory reforms and institutional development, while the IFC focused on building private sector capacity. The financial sector policy dialogue was led respectively by IBRD with the relevant regulators and GoI while IFC facilitated feedback from private sector stakeholders on the policy making process.

In selected areas, IBRD and IFC joined their resources to provide advice and support under single engagements with financial regulators. The most recent example was the advisory services engagement with Bank Indonesia where both IFC and IBRD experts were deployed in 2012 to produce a joint report with findings and recommendations related to “branchless banking”/agent banking reforms. These recommendations were taken into account by BI in its guiding principles for the five bank pilots in “branchless banking”/agent banking in 2013. In 2014, IBRD and IFC continued to join their resources in supporting the BI and OJK to issue the respective regulations. IBRD and IFC continued to collaborate closely in all areas of the financial sector development under the joint IBRD-IFC Finance and Markets Global Practice Group.

Expected Impact

Efforts were expected to have a transformational influence on the financial sector and supported the GoI in building a sound, stable and inclusive financial sector. The expected long term impact are: (i) Increased resilience and stability of the financial sector; and (ii) A deeper financial sector supporting an inclusive and sustainable growth. (Specific targets for the CPS period are found in the Results Matrix).

8. Development milestones were mostly met and reflected a stable banking sector that has continued to increase lending in a sound manner, with credit growth of 21 percent in 2013. The reformed fuel pricing system allowed lower economic fuel prices to be transmitted to consumers at 34 percent average increase in gasoline and diesel prices in November 2014. Inflation pressures were subsequently contained with credit growth decelerated to 11.4 percent year-on-year in December 2014, almost halving its 2013 high. Non-bank financial institutions kept pace and represented around 20 percent of financial assets.

9. Indonesia’s new Financial Services Authority (OJK) became fully operational and the Financial System Stability Coordination Forum (FKSSK) started to function. With the support of IBRD and Toronto Centre, the FKSSK conducted a financial crisis simulation, which identified gaps in the GoI crisis management framework. The PERISAI DPL-DDO and the Financial Sector Reform and Modernization DPL (FIRM) supported this process with the latter completed in December 2013. IFC assisted OJK in launching a Corporate Governance Road Map, which detailed a series of planned regulatory changes expected to enhance corporate governance performance in capital markets. To promote greater access, IFC had committed almost US$637 million to five financial institutions targeting SME and micro-finance in the past three years. IFC supported pilots for a new financial instrument to provide micro-lending to small farmers, and partnering with a leading cement sector company and a micro-finance institution to extend micro-housing loans.

10. The WBG supported a greater role for the financial sector in economic development through the joint IBRD-IFC financed Indonesia Infrastructure Finance Facility (IIFF) for long term financing. In 2013, IIFF leveraged IDR2.5 trillion in commitments to a number of projects in the transportation, energy, and telecommunications. The WBG also assisted Bank Indonesia in facilitating a market study relating to proposed branchless banking regulations.

126

11. Competitiveness - The WBG engagement, in collaboration with Australia, Canada, Finland, the Netherlands, New Zealand, Switzerland, and the USA, focused on contributing to improving competiveness through better trade logistics and ease in Doing Business. IBRD support went beyond expectation of the Investors Relation Unit to include investment facilitation more broadly, some of which had shown positive impact. These were now part of a broader set of reforms included in a policy package announced in October 2013. This accelerated effort to improve the business environment, especially related to small- and medium-enterprises, consisted of 17 actions across eight Doing Business areas. IFC had been supporting the Jakarta Provincial Government in streamlining business start-up procedures and cutting the time from 29 days down to 3 days.

12. However, despite the reform measures outlined above, significant concern remains with regard to the investment climate. A series of measures resulted in increased regulatory uncertainty. The government finally issued the long-awaited revised Negative Investment List (DNI). The new regulation includes provisions to further open a few sectors to foreign investment (increases in foreign ownership limits) and to facilitate PPPs in some sectors (e.g. energy). At the same time, new restrictions to foreign investment are added in many sectors, including energy and mineral resources, trade/distribution and horticulture. In addition, a number of legislative and regulatory changes have added to uncertainty and could worsen the investment climate overall, depending on how they are regulated and implemented. A new industry law was issued that provides the Ministry of Industry with authority to potentially intervene in the market and even in individual firm’s decisions. Legislation in the mining sector designed to enhance local value-added has similarly resulted in uncertainty among investors.

13. Connectivity - The connectivity agenda had moved forward with WBG support through development policy lending (Connectivity DPL series) and knowledge services. A National Logistics Blueprint guided relevant agencies; logistics indicators for monitoring progress in policy reform was drafted; and an action plan identified 15 quick wins. Private sector participation in logistics and telecom was advancing. The GoI issued a National Port Masterplan; new ports in Makassar and Surabaya were being tendered to private investors; and a scheduling system would improve freight shipment. IFC financed one of the country’s leading telecom tower operators to expand their services to remote areas. IFC also provided equity capital to Blue Bird, the largest taxi company in Indonesia. Regulations governing railways were enhanced to attract the private sector and use of existing infrastructure. Furthermore, performance-based contracting was being promoted for the road sector.

14. ICT has benefited from knowledge services for improved management of radio spectrum to support mobile broadband rollout in underserved areas; introduction of unified/open licensing regime; open access to passive infrastructure to support more competitive fixed broadband market. IFC provided US$50 million loan funding for a telecom tower operator to assist in establishing telecom towers and connectivity across the country, including in frontier regions. However, a broadband project in eastern Indonesia was put on hold due to a corruption case with Ministry of Communications. Overall, broadband penetration rate reached the target of 30% in 2014.

127

15. Infrastructure – New projects in the infrastructure sector for IBRD in the CPS period included Power Transmission II and Infrastructure Guarantee Fund (IIGF). In energy,implementation of a large portfolio of ongoing projects continued throughout the CPS period in addition to the signing of the new Power Transmission II. Although overall the energy portfolio suffered from serious disbursement lags, particularly in the Upper Cisokan Pumped Storage, progress started to be seen in the Geothermal Clean Energy Investment Project where PGE has developed 170MW of new geothermal capacity. In addition several pieces of important technical and advisory work were delivered including a gas development master plan, an energy efficiency financing program and just in time policy advice on tariff structures and other regulatory reforms in the sector. This work is having a direct impact on energy sector policy and has laid the foundation for the Energy sector DPL series under the proposed future CPF.

16. During FY13-14, IFC invested close to US$400 million (including mobilization) in infrastructure projects including wind and hydro power, water, logistics, and telecommunication towers sectors. MIGA’s two guarantees were also in the energy and extractives sector.

17. In other areas of infrastructure, implementation continued in projects associated with irrigation, in dam improvement, roads and flood control (Water Resources and Irrigation Management (WISMP II), Dam Operational Improvement (DIOSP) and Western Indonesian Road Improvement Project (WINRIP), and flood control (Jakarta Urgent Flood Mitigation Project). While all suffered from implementation delays, important intermediate results were achieved. In the irrigation sector, the program supported the rehabilitation of 29 large dams and the improvement of more than 200,000 hectares in irrigated command area, improving water security and contributing to continued irrigation production. On flood management in Jakarta, initial progress was made to initiating complex dredging operations on floodways, canals and retention basins. In the case of roads, with the implementation delays of WINRIP, the results indicator for expected outcomes was reduced in the Results Matrix to a more feasible level at mid-term of this CPS period. The WINRIP program successfully supported 87 kilometers of road improvements, with contracts for a further 550 kilometers of road improvements under a bidding process or implementation at the close of the CPS period.

18. In addition to IBRD lending, a large body of AAA and TA, primarily financed by and with technical support from Government of Australia, provided assistance to the Government at the central and local levels on a number of critical infrastructure issues. In urban transport, the Bank supported the city of Surabaya to develop a feasibility study for an integrated transit-oriented development (TOD) concept plan as part of the Surabaya Mass Transit System (SMART) under development. Additionally, in the roads sector, the findings of the Road Sector Public Expenditure Review (2012) supported the Ministry of Public Works, Directorate General of Highways, to focus on critical weaknesses in the maintenance of national, provincial and district roads. On infrastructure finance, the Bank has supported the development of a detailed business plan and operational model for a Regional Infrastructure Development Fund (RIDF) that will be implemented through PT. SMI to support access to debt financing for local governments for economically viable infrastructure projects. Bank supported AAA during the CPS period helped Bappenas develop a Roadmap for Housing Policy (2015), which serves as the technical and policy foundation for the GoI National Affordable Housing Program.

128

19. IFC also faced challenges in the ability to provide financing for certain infrastructure projects. For example, the financing of toll roads could not go forward given the risk allocation, in connection with areas such as termination compensation, rendered the concession agreements non-bankable according to international standards. In the water sector, IFC successfully syndicated project financing for bulk water supply to the Tangerang utility company (PDAM) alongside Indonesia Infrastructure Finance (IIF) and PT Sarana Multi Infrastruktur - Persero (PT. SMI). However, the project was put on hold after local elections, when the newly elected mayor launched an investigation of the award of the service agreement. The sponsor decided to cancel the loan while the investigation was in progress.

20. PPPs: The IIGF was established to support the institutional framework for PPPs in infrastructure and complementary IFC advisory services provide support for structuring PPP projects in water and power sector projects. Supported by knowledge services, a Government Viability Gap Funding (VGF) mechanism also became operational. However, regulatory uncertainty and lack of coordination at the national level as described in main text of this CLR continue to impact negatively on PPPs and of the writing of this CLR, no PPP has yet succeeded in Indonesia. It is too soon to judge whether the WBG investment in the VGF will bear fruit.

129

Sum

mar

y of

Ach

ieve

men

ts u

nder

the

Pro-

Gro

wth

Pill

ar

Indi

cato

rT

arge

t/B

asel

ine

Ach

ieve

dR

atin

g as

per

CPF

CL

R R

atin

g Sc

ale

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

ed1.

Con

nect

ivity

: Acc

eler

ate

grow

th a

nd e

nhan

ce e

quity

thro

ugh

dom

estic

con

nect

ivity

1.1)

Impr

oved

rank

ing

of

Indo

nesi

a’s L

ogis

tics

Perf

orm

ance

Inde

x

Base

line

(201

2):

Indo

nesi

a ra

nked

at

59

Indo

nesi

a’s 2

014

LPI r

anki

ng

has i

mpr

oved

to 5

3X

1.2)

Incr

ease

d ac

cess

for

broa

dban

d in

tern

et se

rvic

es fo

r po

pula

tion

Base

line:

5%

in

2011

Targ

et: 3

0% b

y 20

15

By

end

of C

Y20

14:

Bro

adba

nd: 3

4.5%

The

sect

or is

gro

win

g fa

st

and

a 37

% p

enet

ratio

n by

end

of

CY

2015

is e

xpec

ted

X

1.3)

Red

uced

cos

t and

tim

e to

ex

port

and

impo

rt, a

s ind

icat

ed

in th

e D

oing

Bus

ines

s Sur

vey

Base

line

(201

2):

Expo

rt: 1

7 da

ys,

US$

644

per

cont

aine

r; Im

port:

27

day

s, U

S$66

0 pe

r con

tain

er

Doi

ng B

usin

ess 2

015:

Ex

port:

17

days

, US$

572

per

cont

aine

r; Im

port:

26

days

, U

S$64

7 pe

r con

tain

er

X

2. C

ompe

titiv

enes

s: E

nhan

ce c

ompe

titiv

enes

s thr

ough

impr

oved

env

iron

men

t, in

clud

ing

open

, com

petit

ive

sust

aina

ble

and

incl

usiv

e m

arke

ts fo

r bus

ines

s to

expa

nd a

nd in

crea

se p

rodu

ctiv

ity2.

1) P

olic

y fr

amew

ork

adop

ted

to im

prov

e co

mpe

titiv

enes

s th

roug

h be

tter t

rade

logi

stic

s

Base

line:

Sco

re in

20

12Lo

gist

ics

Perf

orm

ance

In

dica

tors

(LPI

) for

lo

gist

ics q

ualit

y co

mpe

tenc

e of

2.8

5 fo

r bor

der

man

agem

ent o

f 2.5

3Ta

rget

: Im

prov

ed

2014

LPI

scor

e on

lo

gist

ics c

ompe

tenc

e of

3.0

0 an

d bo

rder

m

anag

emen

t of 2

.7;

Nat

iona

l Sin

gle

Win

dow

act

ing

as

the

sing

le re

fere

nce

for c

ross

-bor

der

trade

and

in

trodu

ctio

n of

2014

LPI

on

logi

stic

s co

mpe

tenc

e: 3

.21;

LPI

on

bord

er m

anag

emen

t: 2.

87;

INSW

task

forc

e an

d st

eerin

g co

mm

ittee

set u

p by

a

Pres

iden

tial R

egul

atio

n; S

SO

mec

hani

sm u

sed

by 6

ag

enci

es

X

130

Indi

cato

rT

arge

t/B

asel

ine

Ach

ieve

dR

atin

g as

per

CPF

CL

R R

atin

g Sc

ale

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

edsi

ngle

sign

-on

for a

ll pa

rtici

patin

g ag

enci

es2.

2) Im

prov

ed re

gula

tory

en

viro

nmen

t, in

tera

genc

y co

ordi

natio

n, a

nd c

onsu

ltativ

e pr

oces

s in

busi

ness

en

viro

nmen

t tha

t affe

ct

com

petit

iven

ess o

f Ind

ones

ia’s

pr

ivat

e se

ctor

, fac

ilita

te

inno

vatio

n an

d in

vest

men

t fa

cilit

atio

n an

d se

rvic

es

Base

line:

50

days

to

star

t a c

ompa

ny; 5

70

days

to e

nfor

ce

cont

ract

; wea

k co

nsul

tativ

e pr

oces

ses p

rior t

o is

suan

ce o

f re

gula

tions

; un

coor

dina

ted

inve

stm

ent p

olic

y;

wea

k in

vest

or

inqu

iry h

andl

ing

Targ

ets:

30

days

to

star

t a c

ompa

ny; l

ess

than

500

day

s to

enfo

rce

cont

ract

; co

ordi

nate

d in

vest

men

t pol

icy

and

impr

oved

tra

nspa

renc

y in

re

gula

tory

mak

ing;

im

prov

ed

perf

orm

ance

of

inve

stor

inqu

iry

hand

ling

Doi

ng B

usin

ess 2

015:

52.

5 da

ys to

star

t a c

ompa

ny; 4

71

days

to e

nfor

ce a

con

tract

; co

nsul

tativ

e re

gula

tory

m

akin

g pr

oces

s rem

ains

w

eak;

inve

stm

ent p

olic

y co

ordi

natio

n im

prov

ed

durin

g th

e ne

gativ

e in

vest

men

t lis

t (D

NI)

pr

oces

s; in

vest

or in

quiry

ha

ndlin

g sy

stem

impr

oved

at

the

Inve

stm

ent C

oord

inat

ion

Boa

rd (B

KPM

); th

e la

w w

as

refo

rmed

in 2

015

but D

B

met

hodo

logy

reco

rded

onl

y th

e pr

actic

e, b

ut n

ot c

hang

es

in th

e la

w, w

hich

requ

ires a

29

day

redu

ctio

n, f

rom

52.

5 to

33.

5 da

ys

X

3. F

inan

cial

Sec

tor:

Pro

mot

e th

e de

velo

pmen

t of a

stab

le, e

ffici

ent a

nd in

clus

ive

finan

cial

sect

or in

Indo

nesi

a in

ord

er to

fost

er a

ccel

erat

ed e

cono

mic

gro

wth

, re

duce

pov

erty

and

stre

ngth

en e

cono

mic

com

petit

iven

ess o

n a

sust

aina

ble

basi

s3.

1) M

aint

ain

finan

cial

sect

or

stab

ility

, dee

pene

d fin

anci

al

sect

or a

nd st

reng

then

ed p

rivat

e se

ctor

thro

ugh

impr

oved

re

gula

tory

and

supe

rvis

ory

fram

ewor

ks; m

aint

aine

d so

undn

ess o

f ban

king

sect

or

Base

line:

Key

fin

anci

al ra

tios o

f ba

nks (

CA

R, N

PL,

NIM

) are

soun

d an

d LD

R is

75%

(Dec

20

11)

As o

f Mar

201

5, N

PLs a

re a

t a

soun

d 2

.3%

. CA

R is

at a

so

und

20%

. N

IM st

able

, LD

R a

bove

80%

the

who

le

perio

d

X

131

Indi

cato

rT

arge

t/B

asel

ine

Ach

ieve

dR

atin

g as

per

CPF

CL

R R

atin

g Sc

ale

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

edTa

rget

s: B

anki

ng

finan

cial

indi

cato

rs

rem

ain

soun

d an

d LD

R a

t min

imum

80

%3.

2) G

row

ing

capi

tal m

arke

t an

d N

BFI

and

a h

ighe

r acc

ess

to fo

rmal

fina

ncia

l ser

vice

s by

the

Mic

ro-S

MEs

and

un

ders

erve

d po

pula

tions

Base

line:

41%

of

hous

ehol

ds h

ave

acce

ss to

ban

k ac

coun

ts; b

anki

ng

loan

to S

MEs

is

50%

(201

1);

disb

urse

d K

UR

(c

redi

t pro

gram

for

SME)

am

ount

ed to

ID

R 6

3 tri

llion

(2

011)

Targ

ets:

Ban

k lo

ans

to S

ME

cont

inue

to

grow

and

are

m

aint

aine

d at

50%

of

tota

l ban

k lo

ans;

pr

opor

tion

of

hous

ehol

ds w

ith

savi

ngs a

ccou

ntin

crea

sed

KU

R e

xcee

ded

targ

et in

201

3 &

201

4 th

roug

h O

ct,

disb

urse

men

t rea

ched

IDR

33

.1 tr

illio

n or

90%

of 2

014

targ

et. T

here

was

1.7

mill

ion

new

acc

ount

hol

ders

of

Tabu

ngan

ku in

the

first

se

mes

ter o

f 201

4.O

JK is

fully

ope

ratio

nal a

s an

inte

grat

ed fi

nanc

ial s

ecto

r au

thor

ity a

s of J

an 2

014;

the

Coo

rdin

atio

n Fo

rum

for

Fina

ncia

l Sys

tem

Sta

bilit

y (F

KSS

K) i

s ope

ratio

nal.

FKSS

K m

eetin

g is

qua

rterly

&

the

Dep

utie

s FK

SSK

m

eetin

g is

mon

thly

.In

fras

truct

ure

Fina

nce

Faci

lity

is p

rovi

ding

long

te

rm fi

nanc

ing

for

infr

astru

ctur

e pr

ojec

ts; a

s of

end

Sep

2014

, IIF

F, th

e so

le

proj

ect i

mpl

emen

ting

agen

cy,

has e

nter

ed in

to ID

R 3

.2

trilli

on c

redi

t com

mitm

ents

fo

r var

ious

infr

astru

ctur

e pr

ojec

ts su

ch a

s tol

l roa

d,

tele

com

mun

icat

ions

, pow

er

gene

ratio

n an

d ai

rcra

ft m

aint

enan

ce fa

cilit

y.

Alto

geth

er, t

hese

co

mm

itmen

ts le

vera

ged

X

132

Indi

cato

rT

arge

t/B

asel

ine

Ach

ieve

dR

atin

g as

per

CPF

CL

R R

atin

g Sc

ale

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

edab

out I

DR

29

trilli

on to

tal

finan

cing

from

all

parti

cipa

ting

lend

ers

4. In

fras

truc

ture

: Inc

reas

e th

e le

vel a

nd e

ffici

ency

of p

ublic

and

pri

vate

inve

stm

ents

in in

frast

ruct

ure

to m

eet n

eeds

and

stre

ngth

en c

ompe

titiv

enes

s4.

1) In

crea

sed

effe

ctiv

e km

of

natio

nal r

oads

mai

ntai

ned

and

deve

lope

d

Base

line:

1500

Km

m

aint

aine

d th

roug

h be

tterm

ent w

orks

an

d 30

00 k

m

deve

lope

d (2

005)

Targ

et:I

ncre

ase

by

25%

/yea

r ove

r 20

11-2

015

perio

d

Cum

ulat

ive

Mai

nten

ance

A

chie

vem

ent 2

011-

2014

: 4,

792

km (4

4% o

f tar

get),

of

whi

ch 3

% c

ontri

bute

d by

W

BG

Cum

ulat

ive

Roa

d D

evel

opm

ent A

chie

vem

ent

2011

-201

4: 1

2,27

0 km

(57%

of

targ

et),

of w

hich

1%

co

ntrib

uted

by

WB

G

Dat

a fo

r 201

5 no

t yet

av

aila

ble

X

4.2)

Red

uced

pow

er

infr

astru

ctur

e bo

ttlen

ecks

to

mee

t dem

and

and

incr

ease

ac

cess

Targ

et:R

educ

e po

wer

supp

ly

inte

rrup

tion

time

per

cust

omer

from

5h

/yea

r to

2h/y

ear

(201

2-20

15)

2013

: 5.7

6h/c

usto

mer

X

4.3)

Incr

ease

d pr

ivat

e in

vest

men

t in

infr

astru

ctur

e th

roug

h th

e PP

P fr

amew

ork

Expe

cted

to b

e on

trac

k on

ce

Via

bilit

y G

ap F

undi

ng

(VG

F) a

ppro

ved

for

Lam

pung

or U

mbu

lan

wat

er

supp

ly

X

5. L

ocal

Gov

ernm

ent:

Stre

ngth

en lo

cal g

over

nmen

t ins

titut

ions

to im

prov

e ac

coun

tabi

lity

and

incr

ease

the

leve

l and

of i

mpa

ct p

ublic

spen

ding

on

serv

ice

deliv

ery

and

supp

ort m

etro

polit

an a

reas

and

med

ium

-siz

ed c

ities

to im

prov

e in

fras

truc

ture

5.1)

Impr

oved

fidu

ciar

y, so

cial

an

d en

viro

nmen

tal m

anag

emen

t as

wel

l as t

echn

ical

pe

rfor

man

ce o

f LG

s in

the

deliv

ery

of b

asic

serv

ices

fin

ance

d us

ing

DA

K tr

ansf

ers

Expa

nd P

EAC

H to

ad

ditio

nal p

rovi

nces

PEA

CH

pro

gram

was

not

co

ntin

ued,

and

a n

ew

enga

gem

ent o

n lo

cal s

ervi

ce

deliv

ery

is c

urre

ntly

bei

ng

final

ized

X

133

Indi

cato

rT

arge

t/B

asel

ine

Ach

ieve

dR

atin

g as

per

CPF

CL

R R

atin

g Sc

ale

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

ed5.

2) Im

prov

ed c

apac

ity o

f re

sear

ch in

stitu

tions

, med

ia a

nd

CSO

s to

asse

ss a

nd m

onito

r su

b-na

tiona

l PFM

(PEA

CH

): en

hanc

ed c

apac

ity o

f loc

al

inst

itutio

ns to

ana

lyze

and

m

onito

r pub

lic e

xpen

ditu

re a

nd

PFM

and

to d

eman

d be

tter

loca

l gov

ernm

ent p

erfo

rman

ce

in th

ese

area

s

Thro

ugh

the

PEA

CH

initi

ativ

ePE

AC

H p

rogr

am c

ompl

eted

in

Aug

201

4 w

ith a

ll de

liver

able

s inc

ludi

ng 6

pr

ovin

cial

upd

ate

PER

s de

liver

ed

X

6. M

acro

econ

omic

and

Fis

cal M

anag

emen

t: St

reng

then

cen

tral g

over

nmen

t cap

acity

for i

mpl

emen

ting

cont

inge

ncy

finan

cing

, cri

sism

anag

emen

t and

qua

lity

evid

ence

-bas

ed m

acro

and

fisc

al p

olic

y6.

1) E

nhan

ced

Gov

ernm

ent’s

ab

ility

to m

eet i

ts fi

nanc

ing

need

s and

mai

ntai

n cr

itica

l pu

blic

exp

endi

ture

s, as

m

easu

red

by c

ontin

ued

acce

ss

to m

arke

ts, a

nd le

vel o

f m

aint

enan

ce a

nd c

apita

l ex

pend

iture

s

Targ

ets m

et fo

r 201

2 an

d 20

13 a

nd o

n tra

ck in

201

4w

ith n

et se

curit

ies i

ssua

nce

reac

hed

104%

of t

he ta

rget

ba

sed

on th

e re

vise

d bu

dget

, w

ith g

ross

secu

ritie

s iss

uanc

e at

100

%

X

6.2)

Bud

get a

lloca

tions

in

form

ed b

y m

onito

ring

and

eval

uatio

n. In

crea

se in

the

num

ber o

f lin

e m

inis

tries

and

ag

enci

es re

porti

ng th

roug

h B

RIS

A (t

he m

onito

ring

and

eval

uatio

n sy

stem

) fro

m a

ba

selin

e of

zer

o in

FY

11

Fore

cast

ing

tool

s in

plac

e w

ith e

xpan

ded

disc

ussi

on o

f m

ediu

m-te

rm m

acro

fisc

al

sens

itivi

ty a

naly

sis a

nd

proj

ectio

ns in

the

annu

al

budg

et fi

nanc

ial n

ote.

H

owev

er, e

xpen

ditu

re

allo

catio

ns fr

om th

e M

TFF

of

the

prev

ious

yea

r are

not

use

d as

the

star

ting

poin

t for

di

scus

sion

s on

the

budg

et in

th

e fo

llow

ing

year

. Opt

ions

to

stre

ngth

en th

e in

stitu

tiona

l ar

rang

emen

t with

in th

e M

oF

for p

repa

ring

the

MTF

F ar

e be

ing

exam

ined

in th

e

X

134

Indi

cato

rT

arge

t/B

asel

ine

Ach

ieve

dR

atin

g as

per

CPF

CL

R R

atin

g Sc

ale

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

edco

ntex

t of o

ngoi

ng tr

aini

ng

enga

gem

ent.

BR

ISA

is a

web

-bas

ed

Bur

eauc

ratic

Ref

orm

(BR

) M

onito

ring

and

Eval

uatio

n Sy

stem

whi

ch w

as la

unch

ed

natio

nally

in 2

012.

The

ad

min

istra

tor o

f BR

ISA

is

the

Nat

iona

l BR

Man

agem

ent

Uni

t cal

led

UPR

BN

und

er

the

Min

istry

of

Adm

inis

trativ

e an

d B

urea

ucra

cy R

efor

m

(Men

PAN

-RB

). U

ntil

mid

of

2013

, the

re h

ad b

een

mor

e th

an 7

0 lin

e m

inis

tries

and

ag

enci

es th

at h

ave

repo

rted

thei

r BR

pro

gres

s to

the

Men

PAN

-RB

. How

ever

, with

ch

ange

of l

eade

rshi

p, th

is

M&

E sy

stem

has

bee

n m

ade

inac

tive

sinc

e en

d of

201

3.7.

Str

engt

heni

ng th

e Pu

blic

Sec

tor:

Str

engt

hen

cent

ral g

over

nmen

t ins

titut

ions

and

syst

ems t

o en

hanc

e pu

blic

fina

ncia

l man

agem

ent a

nd g

over

nanc

e to

in

crea

se th

e de

velo

pmen

t im

pact

of p

rior

ity b

udge

t exp

endi

ture

s7.

1) S

treng

then

ed m

ulti-

year

pe

rspe

ctiv

e in

fisc

al p

lann

ing,

ex

pend

iture

pol

icy

and

budg

etin

g

Targ

et:i

mpr

ove

PEFA

PI-

12 ra

ting

to a

t lea

st a

B+

by

2015

No

new

PEF

A a

sses

smen

t co

nduc

ted.

Whi

le th

ere

was

so

me

prog

ress

on

impr

ovin

g th

e tra

nspa

renc

y of

the

MTE

F pr

oces

s, it

is u

nlik

ely

to b

e su

ffic

ient

to im

prov

e th

e C

+ ra

ting

for P

I-12

X

7.2)

Num

ber o

f lin

e m

inis

tries

re

ceiv

ing

unqu

alifi

ed o

pini

ons

for t

heir

annu

al fi

nanc

ial

stat

emen

ts

Base

line:

63%

of

Min

istri

es &

A

genc

ies i

n Fi

nanc

ial S

tate

men

tTa

rget

:85%

of

Min

istri

es &

76%

X

135

Indi

cato

rT

arge

t/B

asel

ine

Ach

ieve

dR

atin

g as

per

CPF

CL

R R

atin

g Sc

ale

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

edA

genc

ies i

n Fi

nanc

ial S

tate

men

t fo

r FY

2013

7.3)

Impl

emen

t new

Fin

anci

al

Man

agem

ent I

nfor

mat

ion

Syst

em in

all

177

Trea

sury

Lo

cal O

ffic

es

Syst

em d

evel

opm

ent

com

plet

ed in

201

3; S

PAN

ro

lled

out t

o al

l 222

trea

sury

of

fices

with

100

% o

f all

finan

cial

tran

sact

ions

co

nduc

ted

thro

ugh

the

syst

em

as o

f Feb

201

5

X

Tota

l for

Pro

-Gro

wth

En

gage

men

t:N

AN

A7

25

30

Perc

enta

ge o

f Tar

get

Indi

cato

rs fo

r Pro

-Gro

wth

En

gage

men

t:N

AN

A41

.18%

11.7

6%29

.41%

17.6

5%0%

136

Sub-annex 3:1b: Achievements for the Pro-Jobs Engagement

1. The pro-jobs engagement area complements that of the pro-growth to focus on human capital development to reduce a large skills gap. While sustained growth can work to absorb more workers into the market and investment can enhance the equity of growth, improving human development is fundamental for increasing labor productivity and shared prosperity. 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. The focus of WBG engagement was to support strengthening the overall governance and management of the education system, improving the education quality and performance of teachers, enhancing human resource capacity in R&D, and facilitating the institutional transformation required to implement a nation-wide social insurance reform. With a more direct role in job creation, IFC, apart from its support for access to finance, worked directly with manufacturing companies that generated good quality jobs as well as with SMEs to develop supply chain linkages. Overall rating for the pro-jobs engagements is satisfactory (see performance ratings against pro-jobs indicators in the table below).

2. IFC and MIGA had a direct role in job creation through engagement with individual companies and support to the SME sector. IFC in addition to its support for access to finance, worked directly with manufacturing companies that generated good quality jobs as well as with SMEs to develop supply chain linkages. Investments in companies such as PT Panca Amara Utama (greenfield ammonia manufacturing facilities) supported direct job creation in remote islands. Investments in PT Mayora Indah Tbk and the Wings Group supported job creation in hundreds of thousands of SMEs in their supply chains. IFC’s financing for food products companies had links also to hundreds of thousands of small retail and trading chain partners for these companies. IFC financing to banks such as PT Bank Danamon Tbk and PT Bank Mayora were to expand their SME financing, whereas to others such as PT Mitra Bisnis Keluarga Tbk and Bank BTPN was for expanding their microfinancing operations. IFC also provided equity support to PT Blue Bird Tbk, the leading taxi services operator in Indonesia which provides employment to tens of thousands of near poor drivers. MIGA had two active projects guaranteed for investment during the CPS period:the Rajamandala Hydropower IPP (guarantee issuance of US$200 million) and the Weda Bay Nickel(guarantee issuance of US$207 million).

3. The WBG also supported government efforts to increase access to quality education and training. The Government has made education a priority, and since 2009 allocated 20 percent of the national budget to the sector. While increases in investment have led to significant improvements in education access and equity, the quality of basic education remained persistently low and unevenly distributed across regions. In the latest OECD PISA international learning assessments, three-quarters of Indonesian 15 year olds were rated at or below the lowest benchmark—a level associated with only rudimentary levels of proficiency and a lack of higher order thinking skills. Improving access and quality of secondary education, as well as making better use of existing resources, including improvements in teacher competency, remains as significant challenges in the sector. To illustrate, student teacher ratios are very low in Indonesia compared with other middle income countries. Recent analytical work shows that raising basiceducation student-teacher ratios to the average for lower middle income countries could save as much as 16% of the total education budget.

137

4. Through a program of knowledge services, supported primarily by the Netherlands and the EU, the WBG helped to identify challenges and develop solutions to improve the quality and management of teachers, education financing and the local delivery of education services, which were incorporated in the 2015-2019 RPJMN. The BERMUTU project, which supported the implementation of the Teacher Law, contributed to increasing the number of teachers with at least S1 (bachelor) degree by more than 800,000 by the end of CY2015, well above the target. The WBG also helped the government develop a blueprint for reforming the skills training system in order to address the skills shortage in the short term. The Bank’s intervention in quality and affordable Early Childhood Education and Development (ECED) targeted local level service delivery concentrating on 6,000 ECED centers in 3,000 poor villages, increasing preschool enrollment and school readiness, particularly among poor children. During this CPS period, two operations— Research and Innovation in Science and Technology Project (RISET) and Sustainable Management of Agriculture Research and Dissemination Project (SMARTD)—were initiated to support research and innovation and to enhance technology development and uptake. Both operations are on track to reach their targets to enhance staff capacity but it is too early to judge the impact of either operation on the pro-jobs agenda. Overall, whilst improvements in educational quality in the country are lagging, the analytic work undertaken by the Bank has provided the data and set the agenda for the next 5 year period.

5. The WBG has also been the leading partner in assisting the government with the reform of its social security system. This is arguably the biggest and most extensive social security reform in the world, and the most intensive engagement on social insurance reform anywhere in the Bank. The Bank worked with multiple ministries and organizations, including Ministry of National Development Planning/National Development Planning Agency (Bappenas), National Social Security Council (Dewan Jaminan Sosial Nasional or DJSN), Financial Services Authority (Otoritas Jasa Keuangan or OJK), Ministry of Finance, Ministry of Labor, Coordinating Ministry for Human Development and Culture (Kemenko PMK) and Coordinating Ministry for Economic Affairs (Kemenko Ekonomi), as well as other partners including ADB, Australia, Germany, and the ILO, to deliver a large program of knowledge, technical assistance and capacity building services. The Bank team provided extensive assistance with capacity building, communication and consensus building and assisted the government with the design of the system and provided extensive inputs to the Roadmap for Implementation of the Employment Programs, which was launched by the government in April 2014 and was subsequently issued as part of a Presidential Regulation. Key areas of support included membership expansion, contribution collection, risk management training, improvements in governance, reductions in error, fraud and corruption (EFC) risk, and use of the unique ID (NIK) in social security administration. The Bank team used the Bank’s PROST model to provide extensive analysis of the cost, required contributions and long-term fiscal sustainability of the SJSN programs.

138

Sum

mar

y of

Ach

ieve

men

ts u

nder

the

Pro-

Jobs

Eng

agem

ent

Indi

cato

rT

arge

t/B

asel

ine

Act

ual

Rat

ing

as p

er C

PF C

LR

Rat

ing

Scal

e

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

ed1.

Edu

catio

n: P

rovi

de g

ood

qual

ity e

duca

tion

to a

ll In

done

sians

and

to p

rodu

ce a

smar

t and

com

petit

ive

wor

k fo

rce;

enh

ance

rese

arch

and

dev

elop

men

t, sc

ienc

e an

d te

chno

logy

1.1)

Impr

oved

edu

catio

n qu

ality

and

per

form

ance

of

teac

hes;

incr

ease

d nu

mbe

r of

basi

c ed

ucat

ion

teac

hers

mee

ts

acad

emic

qua

lific

atio

n m

anda

ted

by th

e Te

ache

r Law

Base

line

(201

1):

35%

of t

each

ers i

n pr

imar

y an

d 80

% o

f ju

nior

seco

ndar

y sc

hool

s hol

d S1

de

gree

or m

ore

Targ

et:8

2% o

f pr

imar

y an

d 98

%

juni

or se

cond

ary

scho

ol te

ache

rs h

old

S1 d

egre

e or

mor

e.

[Tar

get r

evis

ed b

ased

on

upd

ated

bas

elin

e da

ta]

Dat

a fr

om th

e 20

14 N

UPT

K

data

base

: 64%

of S

D a

nd

88%

of S

MP

teac

hers

with

an S

1 de

gree

X

1.2)

Impr

oved

pub

lic R

&D

hu

man

reso

urce

cap

acity

Targ

et:

Mas

ters

or

PhD

deg

ree

hold

ers

in p

ublic

rese

arch

in

stitu

tes (

LPN

K)

incr

ease

s fro

m 1

5%

to 1

7%

LPN

K in

stitu

tiona

l as

sess

men

ts

com

plet

ed a

nd

refo

rm m

ilest

ones

set

As p

er th

e R

ISET

Pro

ject

A

nnua

l Wor

k Pl

an 2

015,

the

num

ber o

f sta

ff w

ith S

2 an

d S3

deg

rees

is a

bout

3,1

00 o

ut

of 1

4,49

8 to

tal s

taff,

or a

bout

21

%

X

2. S

ocia

l Ins

uran

ce: P

rovi

de u

nive

rsal

cov

erag

e of

soci

al in

sura

nce

to p

rote

ct w

orke

rs a

nd th

e po

or fr

om a

dver

se li

fe e

vent

s or e

xter

nal s

hock

s thr

ough

the

five

natio

nal s

ocia

l ins

uran

ce (S

I) p

rogr

ams o

utlin

ed in

the

SJSN

(nat

iona

l soc

ial s

ecur

ity sy

stem

) Law

and

the

BPJS

(nat

iona

l soc

ial s

ecur

ity a

dmin

istra

tors

) La

w, c

over

ing

all f

orm

al a

nd in

form

al se

ctor

wor

kers

2.1)

Con

vers

ion

of Ja

mso

stek

to

a n

ot-fo

r-pr

ofit

inst

itutio

n th

at c

an a

dmin

iste

r the

SJS

N

pens

ion

and

old

age

savi

ngs

prog

ram

s

Roa

dmap

cov

erin

g SJ

SN p

ensi

on a

nd

old

age

savi

ngs

prog

ram

s com

plet

ed

Roa

dmap

has

bee

n co

mpl

eted

and

laun

ched

. G

over

nmen

t reg

ulat

ions

re

gard

ing

the

road

map

has

be

en is

sued

X

139

Indi

cato

rT

arge

t/B

asel

ine

Act

ual

Rat

ing

as p

er C

PF C

LR

Rat

ing

Scal

e

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

ed2.

2) E

xpan

d m

embe

rshi

p an

d im

prov

ed c

ontri

butio

n co

llect

ion

from

the

form

al a

nd

info

rmal

sect

ors

Des

ign

and

finan

cing

st

rate

gy, i

nclu

ding

in

vest

men

t pol

icy,

fo

r SJS

N p

ensi

on a

nd

old

age

savi

ngs p

lans

fin

aliz

ed.

The

SJSN

Hea

lth p

rogr

am

bega

n on

Janu

ary

1, 2

014

and

is n

ot e

xpec

ted

to

achi

eve

univ

ersa

l cov

erag

e un

til th

e en

d of

201

9. M

ost

effo

rts w

ere

focu

sed

on

inst

itutio

nal t

rans

form

atio

n an

d pr

ogra

m c

onso

lidat

ion.

N

ever

thel

ess,

som

e pr

ogre

ss

was

mad

e in

enr

ollin

g in

form

al se

ctor

wor

kers

and

ex

pand

ing

the

num

ber o

f w

orke

rs p

aid

for b

y th

e go

vern

men

t. M

embe

rshi

p ex

pans

ion

will

rece

ive

mor

e at

tent

ion

in C

Y15

and

CY

16.

The

BPJ

S Em

ploy

men

t pr

ogra

ms d

o no

t beg

in u

ntil

July

1, 2

015,

and

ther

efor

e m

embe

rshi

p ex

pans

ion

is n

ot

yet a

n is

sue.

Acc

ordi

ng to

th

e go

vern

men

t roa

dmap

, m

embe

rshi

p ex

pans

ion

will

ta

ke p

lace

mor

e sl

owly

, by

2019

.

X

Tota

l for

Pro

-Job

s En

gage

men

t:N

AN

A2

11

00

Perc

enta

ge o

f Tar

get

Indi

cato

rs fo

r Pro

-Job

s En

gage

men

t:N

AN

A50

%25

%25

%0%

0%

140

Sub-annex 3:1c: Achievements under the Pro-Poor Engagement

1. This engagement area was designed to target the poor and vulnerable with interventions to improve their social welfare, livelihoods, and access to finance and services.Policy reform efforts were aimed at improving the effectiveness of poverty reduction programs and addressing the problems associated with high levels of vulnerability by improving and extending safety nets. The WBG aimed to support development results that would enhance the design and performance of household-targeted and community development programs, improve food security through interventions in the private sector, improve health and nutrition outcomes through improved access to quality health care, including maternal and child health services, enhance HIV/AIDS surveillance, and increase access to safe water and sanitation. Overall rating for the pro-poor engagements is satisfactory (see performance ratings against pro-poor indicators in the table below).

2. Poverty Targeting: Through an extensive knowledge services engagement and with support from the INSTANSI DPL, the Bank helped the government to adopt and implement reforms which were proposed in the flagship report, Targeting Poor and Vulnerable Households in Indonesia released in 2012, a series of ‘just in time’ policy notes, the Development Policy Review and a long-term dialogue established between the Bank and the Ministry of Finance. A unified database of more than 24 million poor and vulnerable households, which was created with IBRD support, was used to select beneficiaries for the largest national social assistance programs: (i) health fee waivers (Jamkesmas), (ii) financial assistance for poor students (BSM), (iii) expansion of the conditional cash transfer programs (PKH), and (iv) subsidized rice distribution (Raskin), as well as a number of local government programs.

3. By bringing together the Bank’s high quality macroeconomic policy support with its technical assistance in creating a unified database of more than 24 million poor and vulnerable households, the Bank was able to help the new Government in November 2014 usher in one of the most significant policy reforms in reallocation of budget resources away from US$2.8 billion annual fuel subsidies to temporary and long-term social assistance programs and productive investment in infrastructure. Coverage for BSM (financial assistance for poor students) doubled from 8.7 million to 16.6 million beneficiaries, coverage for the PKH (conditional cash transfers) expanded from 1.5 million households in 2012 to 3.2 million households by 2014, and 15.5 million social protection cards were distributed to households extracted from the unified database. Assistance was also being provided to government partners to mitigate household vulnerability by developing a permanent shock/crisis monitoring system. The WBG also helped to develop a national crisis monitoring system to improve responsiveness to shocks. This national crisis monitoring system was completed and adopted by the National Team for the Acceleration of Poverty Reduction (TNP2K) and is housed in the Office of the Vice President. Finally, a major study on inequality and shared prosperity was completed, informing government policies to reduce inequality.

4. The community-based National Community Empowerment Program (PNPM) programs—Rural, Urban and Generasi—that began over a decade ago and expanded across every rural and urban community during the period of the CPS continued to anchor the WBG’s efforts inimproving sub-district and village level governance, quality of service delivery, and socio-

141

economic conditions in rural and urban areas. With the support of the WBG and other development partners, including ADB, Australia, Canada, Denmark, the EC, IsDB, Japan, the Netherlands, the UK and the USA, PNPM has been an effective platform for channeling development resources, empowering communities and ultimately improving socio-economic conditions in the villages and urban districts where it operates. PNPM demonstrated that quality and cost effective investments in infrastructure and service delivery could be achieved by funneling financing from the central government to the local level by embedding facilitation and community participatory processes in the planning, budgeting, and implementation of activities. PNPM provided the basis for the new Village Law, which the WBG has begun to help implement under the CPS period although the deeper engagement in this area will fall into the new CPF period. The Village Law aims to substantially increase the resources available to and responsibilities of villages while strengthening the systems developed by PNPM to maximize the impact of those resources on rural development. Targets set for direct participation of communitymembers, women involvement in decision-making, and improved community access to and utilization of health and education services in targeted areas were broadly achieved or exceeded.

5. Specifically, PNPM Rural helped finance community driven development projects in around 70,000 villages throughout the country and raised incomes, reduced poverty rates, and increased access to services, especially in poorer households and communities. The PNPM Urban program reached 5.5 million household beneficiaries and provided 9,115 kilometers of roads, 3349 km of drainage and irrigation canals, 131,520 units of solid waste and sanitation facilities, 1,497 community health facilities, 85,437 reconstructed poorest houses in thousands of urban wards across the country. The PNPM Generasi program supported a range of innovative activities around inclusion, frontline service delivery and local governance. The use of incentivized block grants to increase utilization of basic health and education services was tested in 5,400 poor rural villages. The WBG continued to work with donor partners, the ministries of Health and Education, and local governments to improve the quality of health and education services and foster accountability in local service delivery, and partnered with the Millennium Challenge Corporation (MCC) and the Millennium Challenge Account-Indonesia in focusing on nutrition and reducing stunting. IFC’s investment in micro-finance has been supportive and is expected to reach one million low-income women entrepreneurs by 2017.

6. The delivery towards enhanced food security during this CPS period came primarily through interventions with the private sector supported by IFC. Knowledge services in FY13 were used to identify (i) the causes of palm oil smallholder productivity gaps and potential solutions; (ii) current company practices and guidance for community engagement and investment in the sub-sector; and (iii) best practices and funding models to assist smallholders to access certified markets. The WBG joined the Partnership for Indonesian Sustainable Agriculture (PISAgro) with IFC leading the working group on agri-finance, and engaging a partner bank to provide a credit package for cocoa smallholders to increase productivity and farmer income. A Country Situation Analysis (CSA) for engagement in the palm oil sector was initiated to explore sustainable practices for small farmers. A Canadian supported Agribusiness Program was established at IFC for working with private banks to implement a rural business model to manage agricultural risks integral to small farmers and rural business markets. Implementation of the Bank’s Water Resources and Irrigation Management Project II, noted in the infrastructure section under the Pro-Growth pillar above, made seven national and provincial basin agencies fully functional and increased irrigated areas to

142

177363 hectare. In collaboration with ADB, Government of Australia, FAO, and Government of Switzerland, WB also delivered knowledge services that helped to define the medium term plan in anticipation of rapid transformations in the economy, increasing competition for resources (land and water), and the transition for subsistence agriculture to commercially viable farming. A tea revitalization report, in the form of a road map, and coffee value chain assessment were submitted to the Ministry of Trade, Coordinating Ministry for Economic Affairs, Ministry of Industry, Bappenas, Ministry of Agriculture, and Ministry of State Own Enterprises in October 2014 and April 2015, respectively.

7. The WBG supported, through knowledge services32 and financing, government efforts to improve health outcomes particularly in the latter part of the CPS implementation period. Government introduced in January 2014 the National Health Insurance Program (JKN), which aims to provide universal health insurance by 2019. A major WBG study identified significant gaps in primary health facilities, both in terms of inputs and human resources including key services to address the persistent high levels of maternal mortality and child malnutrition. This analysis and the policy recommendations that emerged from it have substantially informed the 2015-19 RPMJM as well as ongoing efforts to increase public funding for health and to improve health service delivery. Through the HPEQ project, the WBG helped develop the first competency-focused accreditation system for health training institutions, with 168 schools being accredited by the end of CY14 and improvements in the percentage of graduates that pass the national competency test. Access to clean water advanced with additional financing for the Rural Water and Sanitation Program (PAMSIMAS). Some 5.1 million people were provided with water and 5.6 million people in 20,000 villages with improved sanitation through the program. IFC had arranged financing of US$85 million for a private sector operator providing clean water to public water utilities, but this was subsequently cancelled. Technical support for an investment financing facility for local water companies is underway, but its establishment is delayed. Discussion is also underway for a linked operation to support urban water supply and sanitation.

8. In the case of access to finance, the WBG’s long-term engagement with Bank Indonesia and OJK resulted in the almost doubling of universal financial access from 20% in 2011 to 36% in 2014 (FINDEX database). The WBG was instrumental in assisting the GoI to re-design its basic savings account (Tabungan-Ku) and launching of the basic micro-insurance product. Seven million new accounts were established in the first few months after the launch.

32 The knowledge services program included a comprehensive analysis of supply side service availability and readiness, covering maternal

health and non-communicable diseases; a study of human resources for health policies; an analysis of measures under the universal health insurance program to help promote improved maternal health care; an analysis of central government expenditures to help identify lessons and inform financing options for future expansion of UHC; an economic analysis of HIV/AIDS programs; second Integrated Biological and Behavioral Survey (IBBS) in Papua provinces; Donor funding for an analysis of multisectoral determinants of double burden of malnutrition (DBM) was not realized, but the issue was brought to the attention of policymakers and the public through a comprehensive study focused on DBM in Indonesia and through the Indonesia Economic Quarterly (IEQ) released in July 2013.

143

Sum

mar

y of

Ach

ieve

men

ts u

nder

the

Pro-

Poor

Eng

agem

ent

Indi

cato

rT

arge

t/B

asel

ine

Act

ual

Rat

ing

as p

er C

PF C

LR

Rat

ing

Scal

e

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

ed1.

Pov

erty

Tar

getin

g: R

educ

e ab

solu

te p

over

ty a

nd im

prov

e in

com

e di

stri

butio

n th

roug

h so

cial

pro

tect

ion

that

is b

ased

on

the

fam

ily, c

omm

unity

em

pow

erm

ent a

nd e

xpan

sion

of e

cono

mic

opp

ortu

nitie

s of t

he lo

w in

com

e po

pula

tion.

Fro

m 1

2% p

over

ty in

201

2, G

over

nmen

t is t

arge

ting

for s

ingl

e di

gits

by

201

41.

1) N

atio

nal s

hock

mon

itorin

g sy

stem

dev

elop

ed a

nd

oper

atio

nal

A n

atio

nal c

risis

mon

itorin

g sy

stem

was

com

plet

ed a

nd

adop

ted

by th

e N

atio

nal

Team

for t

he A

ccel

erat

ion

of

Pove

rty R

educ

tion

(TN

P2K

), ho

used

in th

e O

ffic

e of

the

Vic

e-Pr

esid

ent.

The

dash

boar

d w

as u

ploa

ded

to

thei

r int

erna

l web

site

dur

ing

early

201

4 an

d is

now

in u

se.

X

1.2)

Pov

erty

pro

gram

s m

anag

emen

t uni

ts u

sing

the

natio

nal r

egis

try o

f poo

r and

vu

lner

able

hou

seho

lds t

o id

entif

y be

nefic

iarie

s

4 pr

ogra

ms b

y 20

154

prog

ram

s use

d th

e re

gist

ry

to id

entif

y be

nefic

iarie

s:1)

The

UD

B w

as u

sed

in

2013

for i

dent

ifica

tion

of th

e 15

.5 m

illio

n ho

useh

olds

that

re

ceiv

ed a

soci

al p

rote

ctio

n ca

rd (K

artu

Per

lindu

ngan

So

sial

), w

hich

ent

itled

them

to

rece

ive

a te

mpo

rary

un

cond

ition

al c

ash

trans

fer

(Ban

tuan

Lan

gsun

g Se

men

tara

Mas

yara

kat,

BLS

M)

(ii) a

dditi

onal

allo

catio

ns o

f ric

e di

strib

uted

thro

ugh

the

Ric

e fo

r the

Poo

r (Be

ras

Mis

kin,

Ras

kin)

pro

gram

(iii)

finan

cial

ass

ista

nce

for

poor

stud

ents

(Ban

tuan

unt

uk

Sisw

a M

iski

n, B

SM)

(iv) t

he d

atab

ase

was

als

o us

ed to

ext

ract

ben

efic

iary

lis

ts fo

r the

exp

ansi

on o

f

X

144

Indi

cato

rT

arge

t/B

asel

ine

Act

ual

Rat

ing

as p

er C

PF C

LR

Rat

ing

Scal

e

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

edPr

ogra

m K

elua

rga

Har

apan

(PK

H),

the

cond

ition

al c

ash

trans

fer p

rogr

am.

1.3)

Incr

ease

d pa

rtici

patio

n in

EC

ED se

rvic

es p

artic

ular

ly fo

r th

e po

or

Base

line

(201

0):

Gro

ss e

nrol

lmen

t ra

te o

f 33

% o

f 4-6

year

old

s enr

olle

d in

EC

ED

Targ

et: 7

2%

Bas

ed o

n D

ata

Poko

k PA

UD

20

14, g

ross

enr

ollm

ent r

ate

for 3

-6 y

ear o

lds:

65.

16%

(S

ince

the

figur

e of

65.

16%

is

for 3

-6 ra

ther

than

4-6

and

with

3 y

ear-

olds

are

pro

babl

y le

ss li

kely

to b

e in

EC

ED

prog

ram

s, th

e 72

% ta

rget

for

4-6

year

old

s may

hav

e ac

tual

ly b

een

met

)

X

2. C

omm

unity

Dev

elop

men

t: Im

prov

ed lo

cal-l

evel

(sub

-dis

tric

ts a

nd v

illag

es) g

over

nanc

e, q

ualit

y of

ser

vice

del

iver

y an

d so

cio-

econ

omic

con

ditio

ns in

rur

al

area

s thr

ough

wid

er im

plem

enta

tion

of p

over

ty re

duct

ion

and

com

mun

ity em

pow

erm

ent p

rogr

ams a

nd th

e pro

visi

on o

f inv

estm

ent r

esou

rces

to su

ppor

t pro

posa

ls

deve

lope

d by

com

mun

ities

, usi

ng a

par

ticip

ator

y pl

anni

ng p

roce

ss. E

nhan

ce a

cces

s to

heal

th a

nd e

duca

tion

serv

ices

am

ong

the

poor

.2.

1) D

irect

par

ticip

atio

n of

2.

5m c

omm

unity

mem

bers

Targ

ets:

80%

be

nefic

iarie

s fee

l th

at p

roje

ct

inve

stm

ents

re

flect

ed th

eir

need

s; >

50%

of

poor

est c

omm

uniti

es

invo

lved

in p

lann

ing

and

deci

sion

-mak

ing

mee

tings

; 35%

of

villa

ges p

rovi

ded

feed

back

on

heal

th

and

educ

atio

n se

rvic

es

No

data

on

bene

ficia

ries’

op

inio

ns o

n w

heth

er p

roje

ct

inve

stm

ents

refle

cted

thei

r ne

eds;

50%

of p

oore

st

com

mun

ities

invo

lved

in

plan

ning

and

dec

isio

n-m

akin

g m

eetin

gs; 3

3%of

vi

llage

s pro

vide

d fe

edba

ck

on h

ealth

and

edu

catio

n se

rvic

es

X

2.2)

Wom

en a

ctiv

ely

invo

lved

in

dec

isio

n-m

akin

gTa

rget

: 50%

of

wom

en in

pl

anni

ng/d

ecis

ion-

mak

ing

mee

tings

;30

% o

f wom

en in

co

mm

unity

ov

ersi

ght t

eam

s

45%

of w

omen

in

plan

ning

/dec

isio

n-m

akin

g m

eetin

gs; 3

2% o

f wom

en in

co

mm

unity

ove

rsig

ht te

ams

X

145

Indi

cato

rT

arge

t/B

asel

ine

Act

ual

Rat

ing

as p

er C

PF C

LR

Rat

ing

Scal

e

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

ed2.

3) Im

prov

ed c

omm

unity

ac

cess

to a

nd u

tiliz

atio

n of

he

alth

and

edu

catio

n se

rvic

es in

th

e ta

rget

ed a

reas

Targ

ets:

>80

% o

f pr

egna

nt w

omen

re

ceiv

ing

4 pr

enat

al

care

vis

it; 8

0% o

f ch

ildre

n un

der 5

w

eigh

ed m

onth

ly;

50%

of p

regn

ant

wom

en a

ttend

ing

nutri

tion

coun

selin

g se

ssio

n; 5

0% o

f ca

regi

vers

of

child

ren

unde

r 2

atte

ndin

g nu

tritio

n co

unse

ling

sess

ion;

70

% ju

nior

se

cond

ary

enro

llmen

t rat

e

91%

of p

regn

ant w

omen

re

ceiv

ing

4 pr

enat

al c

are

visi

t; 75

% o

f chi

ldre

n un

der 5

w

eigh

ed m

onth

ly; n

o da

ta o

n pr

egna

nt w

omen

atte

ndin

g nu

tritio

n co

unse

ling

sess

ion;

no

dat

a on

car

egiv

ers o

f ch

ildre

n un

der 2

atte

ndin

g nu

tritio

n co

unse

ling

sess

ion;

90

% ju

nior

seco

ndar

y en

rollm

ent r

ate

X

3.Fo

od S

ecur

ity a

nd R

ural

Dev

elop

men

t: In

crea

se fo

od s

ecur

ity a

nd c

ontin

ue th

e re

vita

lizat

ion

of a

gric

ultu

re to

enh

ance

sel

f-reliance

in fo

od, i

ncre

ase

the

com

petit

iven

ess o

f agr

icul

tura

l pro

duct

s, in

crea

se th

e in

com

e le

vel o

f far

mer

s, an

d co

nser

ve e

nvir

onm

ent a

nd n

atur

al re

sour

ces.

Redu

ce d

epen

denc

e on

impo

rts

for s

tapl

e fo

ods w

hile

div

ersi

fyin

g fo

od c

onsu

mpt

ion.

Impr

ove

inco

me

of sm

allh

olde

rs a

nd e

xpan

d op

port

uniti

es fo

r non

farm

inco

me

activ

ities

.3.

1) M

oder

nize

d cl

ient

and

m

arke

t orie

nted

mar

ketin

g an

d ex

tens

ion

serv

ices

acc

essi

ble

by s

mal

lhol

ders

Base

line:

less

than

10

% o

f far

mer

s ac

cess

tech

nolo

gy

and

mar

ket

info

rmat

ion

thro

ugh

ICT.

10%

of I

AA

RD

’s re

sear

ch

and

man

agem

ent s

taff

un

derto

ok a

dvan

ced

train

ing

in a

ccre

dite

d fo

reig

n in

stitu

tions

thru

the

SMA

RTD

pro

gram

X

3.2)

Incr

ease

d va

lue

addi

tion

in

smal

lhol

der-

base

d ag

ricul

tura

l ex

port

valu

e ch

ains

(e.g

. cof

fee,

co

coa,

and

tea)

cou

pled

with

hi

gher

pro

duct

ivity

and

mor

e ef

ficie

nt m

arke

ting

syst

ems

Base

line:

R

egul

ator

y an

d po

licy

fram

ewor

k of

va

lue

chai

ns o

f sm

allh

olde

r-ba

sed

expo

rtabl

e co

mm

oditi

es is

w

eak

with

low

ca

paci

ty o

f sup

port

syst

ems.

MoT

laun

ched

Act

ion

Plan

s fo

r enh

anci

ng th

e su

stai

nabi

lity

and

com

petit

iven

ess o

f at l

east

on

e sm

all-h

olde

r bas

ed

beve

rage

cro

p (e

.g. c

offe

e,

coco

a, o

r tea

). [O

n tra

ck]

X

146

Indi

cato

rT

arge

t/B

asel

ine

Act

ual

Rat

ing

as p

er C

PF C

LR

Rat

ing

Scal

e

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

ed3.

3) Im

prov

ed w

ater

reso

urce

an

d irr

igat

ion

infr

astru

ctur

e an

d se

rvic

e de

liver

y an

d pa

rtici

pato

ry p

lann

ing

and

coor

dina

tion

mec

hani

sms

esta

blis

hed

Targ

et:W

ater

se

curit

y im

prov

ed in

at

leas

t 50

irrig

atio

n D

istri

cts.

The

Gov

ernm

ent i

ssue

s ase

rvic

e or

ient

ed ir

rigat

ion

polic

y an

d es

tabl

ishe

s a

conc

ept f

or m

oder

niza

tion

of

irrig

atio

n m

anag

emen

t of

larg

e sc

ale

natio

nal i

rrig

atio

n sy

stem

s

X

4. H

ealth

Out

com

es: I

mpr

oved

pop

ulat

ion

heal

th o

utco

mes

, inc

ludi

ng im

prov

emen

ts in

life

exp

ecta

ncy

and

redu

ctio

ns in

mat

erna

l mor

talit

y an

d m

alnu

triti

on

to m

eet M

DG

targ

ets b

y 20

15.

4.1)

Qua

lity

assu

ranc

e po

licie

s go

vern

ing

the

educ

atio

n of

he

alth

pro

fess

iona

ls w

ith

esta

blis

hmen

t of i

ndep

ende

nt

Nat

iona

l Acc

redi

tatio

n A

genc

y,

and

Nat

iona

l Age

ncy

for

Com

pete

ncy

Targ

et: a

ccre

dita

tion

of 7

hea

lth

prof

essi

onal

scho

ols

Com

preh

ensi

ve a

naly

sis o

f su

pply

side

ava

ilabi

lity

and

read

ines

s com

plet

ed.

Stud

y of

hum

an re

sour

ces f

or

heal

th (H

RH

) pol

icie

s co

mpl

eted

.

Ana

lysi

s of

Jam

pers

al/J

amke

smas

po

licie

s to

achi

eve

UH

C o

f m

ater

nal h

ealth

car

e co

mpl

eted

.

Seco

nd In

tegr

ated

Bio

logi

cal

and

Beh

avio

ral S

urve

y (I

BB

S) in

Pap

ua p

rovi

nces

co

mpl

eted

.

Econ

omic

ana

lysi

s of

HIV

/AID

S pr

ogra

ms

com

plet

ed.

Ana

lysi

s of m

ultis

ecto

ral

dete

rmin

ants

of d

oubl

e bu

rden

of m

alnu

tritio

n (D

BM

) com

plet

ed.

X

147

Indi

cato

rT

arge

t/B

asel

ine

Act

ual

Rat

ing

as p

er C

PF C

LR

Rat

ing

Scal

e

Ach

ieve

dM

ostly

A

chie

ved

Part

ially

A

chie

ved

Not

A

chie

ved

Not

V

erifi

ed4.

2) Im

prov

ed sa

nita

tion

Targ

ets:

7 m

illio

n pe

ople

pro

vide

d w

ith p

iped

wat

er

supp

ly a

nd 3

.4

mill

ion

peop

le

prov

ided

with

im

prov

ed sa

nita

tion

unde

r PA

MSI

MA

S

7.8

mill

ion

prov

ided

with

pi

ped

wat

er su

pply

and

7.6

9 m

illio

n w

ith im

prov

ed

sani

tatio

n un

der t

he

PAM

SIM

AS

prog

ram

Fina

ncin

g fa

cilit

y to

supp

ort

PDA

M te

chni

cal a

ssis

tanc

e an

d in

vest

men

ts is

del

ayed

un

til F

Y15

.

X

Tota

l for

Pro

-Poo

r En

gage

men

t:N

AN

A5

41

10

Perc

enta

ge o

f Tar

get

Indi

cato

rs fo

r Pro

-Poo

r En

gage

men

t:N

AN

A45

.45%

36.3

6%9.

09%

9.09

%0%

148

Sub-annex 3:1d: Summary of Achievements for the Pro-Green Engagement

1. Indonesia is well-endowed with natural capital and is a steward to some of the world’s greatest terrestrial and marine biodiversity. However, its natural wealth, resources, and quality of life are increasingly threatened by rapid, unsustainable development compounded with over-exploitation of forests and marine ecosystems. Indonesia’s total greenhouse gas emissions are estimated to account for over six percent of the global total. Forestry and land use emissions are by far the largest source. Indonesia’s emissions from energy consumption are also growing. Severe and annual forest fires, connected with the largely illegal clearing of forests and draining of peat lands, have immensely negative economic, health, and environmental impact on Indonesia and neighboring countries. Insufficient investment in institutional capacity, corruption, and inconsistent policies and practices, are contributors to these problems. WBG engagements sought to promote sustainable green growth, climate change adaptation and mitigation, and disaster risk management. Bank programs were designed to promote sustainable natural resources management, mainstream adoption of green growth parameters across core growth sectors, uptake of sector specific climate change adaptation and mitigation efforts and disaster risk management actions aimed at reversing the negative consequences that have plagued the poor and vulnerable living in rural (in particular forest dependent communities and fisher and coastal communities, both amongst the poorest of the poor in Indonesia) and marginal urban areas. Four out of five pro-green targets were achieved during the CPS period.

2. Under the sustaining the environment and climate change adaptation sub-engagement area there were three key milestones, two of which were achieved and one was partially achieved. At the request of GoI, the Bank took a lead role in supporting and advising on the establishment of the REDD+ Agency and its institutional and funding mechanisms to facilitate mobilization of a $1 billion grant from Norway for the REDD+ Partnership. The REDD+ Support Facility MDTF was established at the Bank to assist the government to set up a national trust fund to implement a strategy to reduce emissions and improve governance and accountability in the forest and land sectors. The national trust fund, however, is not yet on line due to the new administration’s institutional reorganization efforts to embed the REDD+ Agenda and financing package within existing Government structures, including the newly merged Ministries of Environment and Forestry (rather than in a stand-alone REDD+ Agency). This result area is rated partially achieved.

3. The third phase of the Coral Reef Rehabilitation and Management Program-Coral Triangle Initiative was approved and is under implementation building on ten years of successful engagement in the sector. The third phase of this Program is designed to strengthen communities’ capacity to manage their natural resources and improve their livelihoods as well as better adapt to climate change impacts through increased economic and ecological resilience, more sustainable local livelihoods, and education and awareness. The proposed Sumatra Habitat Conservation to support terrestrial biodiversity project was transferred to UNDP for implementation due to selectivity measures to support programmatic engagement rather than small stand-alone projects during the Bank Group’s reorganization. The project is currently being implemented by UNDP. COREMAP II project focused on supporting coastal communities to sustainably co-manage use of coral reef resources to enhance community welfare in priority districts. 84% of fisher and coastal communities in program management areas confirmed that COREMAP II had a positive impact on their welfare. Target indicator was 70%. At EOP, COREMAP 2 project areas showed an

149

average increase in income of 21% since 2008, more than twice the original project target for this indicator.

4. The Bank also began a policy dialogue with central ministries on mainstreaming green growth principles into medium and long term investment and development planning. This work has influenced greening of the five year Medium Term Development Plan (2015-2019) with targets for a number of key sectors including agriculture, energy, forestry, transport, urban development, industry and marine and fisheries, among others. It has also supported engagement with the private sector through the Indonesia Chamber of Commerce and its broad membership to influence and support private sector collaboration and commitment to adopt green growth elements in their investments alongside the public sector financing.

5. IFC achieved progress on its Green Buildings Program. IFC’s knowledge and advisory services resulted in the Government of Jakarta launching the Green Building code for environmental and energy efficient buildings. Now, IFC is engaging with the Ministry of Public Works and with the cities of Bandung and Makassar to expand these codes to other cities. In parallel, IFC launched its EDGE certification program in Indonesia, a voluntary program allowing private sector developers to obtain green buildings certification sponsored by IFC. One of IFC’s property development clients – PT Ciputra Residences Tbk, issued a bond wherein the company committed to invest money towards green buildings projects, and they achieved EDGE certification for three of their housing development projects. Implementation of the ongoing Geothermal Clean Energy Development Project is advancing with several large tenders anticipated this year with support from New Zealand. IFC provided infra-venture development financing of US$2 million to a wind-energy project developer in Sulawesi, the first private sector grid-connected wind power project in Indonesia. IFC is also planning to finalize an investment of US$292 million of equity, loan and mobilized financing for a hydro power project in FY14.

6. IFC through its Environmental and Social Risk Management for Financial Institutions (ESRM for FIs) program worked with Otoritas Jasa Keuangan (OJK) since June 2013 to promote and implement a sustainable finance program. The program supported OJK with development of the “Roadmap on Sustainable Finance in Indonesia”, which was launched in December 2014. The program supported OJK on the issuance of sustainable finance policy in Indonesia. The program also supported individual banks to apply Environmental and Social (E&S) best practices when providing financing. In the long term, increasing financing screening through improved E&S standards will contribute to more sustainable green economic growth.

7. During the CPS period, the WBG’s support also expanded into forest governance. Indonesia is one of eight pilot countries of the US$70 million Forest Investment Program (FIP) of the Climate Investment Funds (CIF). IBRD and IFC worked to develop new public and private sector projects under the FIP-CIF. The Forest Carbon Partnership Facility-REDD+ Readiness Project was implemented to assist, among other activities, in developing reference scenarios and verification systems adapted to local realities. The Forestry and Non-Forestry Lands AAA, completed in FY14, reviewed policies and issues pertaining to the allocation of land rights. A grant from the Japan Social Development Fund (JSDF) Support Program was approved with the objective of helping government improve governance and participatory land mapping for indigenous communities. Building on the recently completed Indonesia Sustainable Forestry

150

Project, IFC engaged with a large private sector plantation forestry and wood processing company to further strengthen and demonstrate sound environmental and social management systems. The WBG also leveraged international climate finance in assisting Indonesia to manage its solid waste and capture methane in the CF Makassar Landfill Gas Project and CF Bekasi Landfill Gas Flaring Project. The WBG supervised the HCFC Phase-Out in the PU Foam Sector Project which aimed to help Indonesia fulfill its obligations under the Montreal Protocol. The proposed GEF supported Chiller Energy Efficiency Project, however, was dropped due to a lack of agreement on the financing mechanism.

8. Development targets under the disaster risk management engagement were largely achieved. The Bank worked in collaboration with the governments of Australia, Japan and New Zealand to support advances in mainstreaming adaptation and resilience, leveraging multi-donor contributions with government reconstruction spending, and setting regulations for executing sovereign disaster insurance. Six mid-sized cities and four high risk provinces mainstreamed adaptation and resilience measures into their respective urban development, investment, and community driven development programs. Resilience was also mainstreamed in the government funded school rehabilitation program through the formulation of technical guidelines and building capacity on earthquake resistant construction. The government-led disaster management fund (IMDFF-DR) is on track as a mechanism to institutionalize donor support in case of large scale natural disasters for which Indonesia may want assistance. US$5 million was pledged to complement the government’s US$500 million annual public reconstruction spending.

9. At the same time, however, the CPS period marked a period of very substantial loss of forest cover, continued desecration of coral reefs and fisheries, and increasing GHG emissions. Over the last 10 years, 12 million ha of forest was lost and more than 70 million ha has been degraded. 75% of main rivers, and 15 main lake eco-systems are heavily polluted by agriculture, mining and industry. Some 65% of Indonesia’s coral reefs are considered threatened from over-fishing and almost half are threatened from destructive fishing practices. Indonesians, especially the 150 million who live in coastal and forest areas, suffer from this the most without reaping any benefit. Forests which should generate over US$4 billion annually in revenue are only contributing $300 million and some $20 billion in potential revenue for local fishing communities is being lost to illegal fishing. On a global scale, Indonesia is the fifth-largest emitter of GHG when its land-use change and forestry (LUCF) emissions are included in its profile and the eighth-largest emitter when these emissions are excluded. The vast majority (62%) come from LUCF, with emissions from this sector increasing 65% in absolute terms since 1995. The activities primarily responsible for this are deforestation and peat degradation, most recently associated with the expansion of palm oil plantations. Greenhouse gases from mangrove and sea grass destruction are apotentially important, but not currently counted, source of emissions. Given this situation, it is essential to question whether WBG has been ambitious enough, or indeed whether we have been able to engage and have an impact on the “pro-green” agenda in a way that could impact on this downward spiral. The fact that the targets in the results framework for the CPS were largely met at the same time that the environmental and climate change indicators deteriorated so substantially, indicates that our interventions may have been at the margins. For that reason, although the results framework indicators were largely achieved, the overall rating for the pro-green pillar is rated moderately satisfactory. Seeking out a more ambitious agenda for the environment in the next CPF is included in the ‘lessons learnt’ section.

151

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153

Sub-annex 3:2: Key Economic & Program Indicators

Forecast in Last CAS Actual Current CPFforecast

Economy (CY) 2012a 2013b 2014b 2015b 2013 2014 2015 2016Growth rates (%)

GDP 6.0 6.3 5.3 5.5 5.6 5.0 4.7 5.3Exports 2.8 5.7 5.7 5.3 4.2 1.0 -0.2 4.7Imports 7.1 4.7 4.8 6.9 1.9 2.2 -3.2 3.6

Inflation (%) 4.4 5.1 6.2 5.2 6.4 6.4 6.8 5.5

National accounts (% GDP)

Current account balance -2.3 -1.6 -2.9 -2.1 -3.2 -2.9 -2.0 -2.6Gross investment 32.7 34.5 33.9 33.8 32.1 32.6 32.3 32.0

Public finance (% GDP)Fiscal balance -2.4 -1.7 -2.6 -2.1 -2.2 -2.2 -1.9 -2.1Foreign financing 0.7 0.6 -0.5 -0.4 0.5 0.5

International reserves(as months of imports) 6.4 6.7 6.8 6.9 5.6 6.7Program (Bank's FY) FY13 FY14 FY15 FY16 FY14 FY15 FY16 FY17

Lending ($ million) 1701 750 1000 1072 500Gross disbursements ($

million)1000 1000 1322 1100 1125

Estimated yearProjected year

154

Sub-annex 3:3 Portfolio Performance and Management

As of Date 08/21/2015

155

Sub-annex 3:4 Analytical and Advisory Activities, FY13-15

Product TF Support

Engagement Area

FY13Economic and Sector Work

Expanding Opportunities and Bld Compentencies for Young Pro-JobsIndonesia Life Long Learning Pro-JobsDevelopment of the Framework and Policies for Infrastructure Pro-GrowthPPIAF Surabaya NRW Management Strategy Pro-PoorPER: Financing Local Governments in ID Pro-GrowthTeacher Reform in Indonesia Pro-Jobs

Technical AssistanceJakarta Fiscal and Bond Issue Pro-GrowthMainstreaming DRR in Indonesia Pro-GreenPromoting Development Effectiveness: Mediation and Community Legal Empowerment Program

Pro-Poor

TF-Aceh Response TA Facility Pro-GrowthSupporting Ind Anti-Corruption Institution GACID - Health & Conflict Prevention Pro-PoorIndonesia Energy Sector Policy Dialogue Pro-GrowthEnhancing Sustainability of Ind.'s Major Agricultural E Pro-PoorSupport for Bureaucracy Reform Pro-GrowthIndonesia's Non Tarriff Measures Pro-GrowthPolicy Dialogue on Services Pro-GrowthFormulation and Implementation of Indonesian Investment Policies Pro-GrowthGeothermal Power Support Program Pro-GrowthIndonesia Viability Gap Financing Pro-GrowthLow-income Housing Policy and Finance Pro-Poor

Product TF Support

Engagement Area

FY14Economic and Sector Work

Local Level Institutions III Pro-PoorIndonesia: Urban Poverty Analysis Pro-PoorIndonesia: Avoiding the Trap Pro-Growth

Technical AssistanceEnergy Efficiency Financing Program Pro-GrowthGas Development Master Plan Pro-GrowthRapid Response Supp. on Fin. Sec. Policy Pro-GrowthDisaster Risk Financing Pro-GreenCorruption Prevention Supports GACREDD Special Advisory Service Pro-Green

156

ID - Logistics and Connectivity Pro-GrowthSupp. for Dev. Gender Engagement in ID GenderSupport for Social Security Reform Pro-JobsIndonesia SP Engagement TA Pro-JobsRapid Response Supp. on Trade Mon. & Pol Pro-GrowthJakarta Metro Transport Agency Workshop Pro-GrowthWSP-Advisory Services Pro-PoorID-TF Local Government Capacity Development Pro-GrowthWSP - Program Administration Pro-PoorLampung Water Distribution PPP Review Pro-Growth

ProgrammaticSupporting ID Corruption Pevention Supports GAC

ID-TF CPDA Implementation Support Pro-Poor

Product TF Support

Engagement Area

FY15Economic and Sector Work

ID-HE Strategic Studies Pro-Jobs

Indonesia Forestry and Non-Forestry Land Policy Stocktaking Pro-Green

Technical AssistanceID - Higher Educ Intro/Dissemination Pro-Jobs

EITI CSO support Indonesia Pro-Growth

Indonesia Clean Stove Initiative Pro-Green

Indonesia Beverage Crops Value Chains TA Pro-Poor

TA- Food Security Policies in Indonesia Pro-Poor

Technical Assistance to KPDT Pro-Poor

Indonesia #10249 Payment System Strengthening #10249 Pro-Growth

Access to Islamic Finance for SMEs Pro-Growth

Supporting Financial Sector Development Pro-Growth

PNPM Mandiri RLF Capacity Bldg & Sust. Pro-Poor

Supp. for Strengthening Sub-National PFM Pro-Growth

Technical Review and Support for Jakarta Flood Management System Pro-Growth

Support for BR Implementation and M/E Pro-Growth

ID HIV Economic Analysis Pro-Poor

ID-TF PNPM Supv. and Monitoring (Urban) Pro-Poor

PNPM Field Operations Pro-Poor

ID-TF for PNPM Communication Strategy Pro-Poor

Disaster and Climate Risk Review Pro-Green

ID: eServices Secure Govt Network Pro-Growth

Radio Spectrum Management for Broadband Pro-Growth

Broadband-ICT Fund-Advisory Support Pro-Growth

Indonesia Port and Road Sector Dialogue Pro-Growth

Structure Assessment and Dev. Op. Procedure for the Ind. Water and Sanitation Invt. Pro-Poor

Ind - Modernizing Water Management Systems Pro-Poor

Rural Sanitation Capacity Building Pro-Poor

157

Strengthening the Ind. National Water & Sanitation Info Services Center for Improved Planning

Pro-Poor

Indon. Rural Sanitation Market Expansion Pro-Poor

Support the implementation of Indonesia National Stretegy on Access Justice Pro-Poor

Prep. Of Technical Guidelines for Safe Schools Pro-Green

TA and Support to Bappenas and Kemenko Kesra (POKJA Pengendalian PNPM Mandiri) Pro-Poor

Technical Review and Support for Jakarta Flood Mgt System Pro-Growth

Supporting the transition of Key Lessons of WASPOLA Facility Pro-Poor

Knowledge Management ProductLearning from the Updated Political Economy on Sanitation in Indonesia Pro-Poor

External TrainingBuilding Performance Audit Capacity of BPK Pro-Growth

ProgrammaticRaising the quality of education Pro-Jobs

Early Childhood Education & Development Pro-Jobs

Improving PFM at the Subnational Level Pro-Growth

Indonesia Health Programmatic AAA Pro-Poor

158

Sub-

anne

x 3:

5a: O

pera

tions

Por

tfol

io (I

BR

D/I

DA

and

Gra

nts)

As o

f Dat

e 07

/31/

2015

159

Sub-

anne

x 3:

5bC

omm

itted

and

Dis

burs

ed O

utst

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ng In

vest

men

t Por

tfol

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As o

f 07/

31/2

015

(In

USD

Mill

ions

)

160

ANNEX 4. SELECTED INDICATORS OF BANK PORTFOLIO PERFORMANCE AND MANAGEMENT

Indicator FY13 FY14 FY15 FY16

Portfolio Assessment

29.0 26.0 22.0 22.0

3.6 3.5 4.2 4.5

17.2 34.6 31.8 31.8

10.6 28.3 31.0 31.0

17.2 34.6 31.8 31.8

10.6 28.3 31.0 31.0

Disbursement Ratio (%) 15.5 23.2 14.4 1.9

Portfolio Management

CPPR during the year (yes/no)

Supervision Resources (total US$)

Average Supervision (US$/project)

Memorandum Item Since FY80 Last Five FYs

Proj Eval by OED by Number 331 30

Proj Eval by OED by Amt (US$ millions) 33,708.4 5,058.2

% of OED Projects Rated U or HU by Number 27.7 40.0

% of OED Projects Rated U or HU by Amt 23.5 28.5

a. As shown in the Annual Report on Portfolio Performance (except for current FY).

b. Average age of projects in the Bank's country portfolio.

c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP).

d. As defined under the Portfolio Improvement Program.e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year:

Investment projects only.

As of Date 10/02/2015

* All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year.

161

ANNEX 5. OPERATIONS PORTFOLIO (IBRD/IDA AND GRANTS)

355

1,562.07

of which has been repaid 47.74

Total Disbursed (Closed) 13,886.68

of which has been repaid 13,162.57

Total Disbursed (Active + Closed) 15,448.75

of which has been repaid 13,210.31

Total Undisbursed (Active) 2,830.84

Total Undisbursed (Closed) 0.00

Total Undisbursed (Active + Closed) 2,830.84

Project IDDevelopm

entObjectives

Implementation

Progress

Fiscal Year IBRD IDA Grants Cancel. Undisb. Orig. Frm Rev'd

P127813 S MS 2014 47.4 0.0 0.0 39.9 9.1 0.0

P130389 S MS 2014 10.0 0.0 8.5 1.9 0.0

P113078 S MS 2012 175.0 0.0 0.0 170.2 295.2 29.4

P085133 MS S 2005 55.0 5.0 0.0 0.0 0.0 0.0

P096532 MS MS 2009 50.0 0.0 0.0 5.4 5.4 5.4

P115763 S MS 2014 2.7 0.0 1.1 0.8 0.0

P092218 S S 2009 100.0 0.0 0.0 0.1 -99.9 0.0

P111577 S MS 2010 720.0 0.0 0.0 454.1 -45.9 14.1

P128832 MS MU 2013 650.0 0.0 0.0 253.4 253.4 55.9

P121842 MU MU 2013 95.0 0.0 0.0 83.0 30.2 0.0

P085375 S S 2006 99.9 137.5 0.0 36.4 -72.0 -9.2

P118916 S S 2013 29.6 0.0 0.0 28.6 2.5 0.0

P117323 MU MU 2011 225.0 0.0 0.0 148.5 0.0 0.0

P111034 MS MS 2012 139.6 0.0 0.0 102.5 61.6 0.0

P125405 S MS 2013 266.0 0.0 0.0 86.2 86.2 0.0

P130048 MS S 2012 2,000.0 0.0 0.0 0.0 0.0 0.0

P118150 MS MS 2011 112.7 0.0 0.0 47.1 0.0 0.0

P123994 MS MS 2014 325.0 0.0 0.0 325.0 115.0 0.0

P106384 MU MU 2011 65.0 0.0 18.0 45.6 53.6 4.4

P117243 MU MU 2013 80.0 0.0 0.0 55.2 32.7 0.0

P112158 MU MU 2011 640.0 0.0 0.0 633.5 381.0 271.0

P114348 MS MS 2011 150.0 0.0 0.0 97.4 78.9 0.0

P090990 MU MU 2011 250.0 0.0 0.0 218.8 156.3 0.0

6,275.2 142.5 12.7 18.0 2,840.4 1,346.0 371.0

a. Intended disbursements to date minus actual disbursements to date as projected at appraisal.

As of 08/31/2015

Sustainable Management of Ag Research

Upper Cisokan Pumped Storage Hydro-E

Water Resources and Irr Mgmt Program 2

Western Indonesia National Roads Impro

Overall Result

* Disbursement data is updated at the end of the f irst w eek of the month.

Jakarta Urgent Flood Mitigation Project

National Community Empowerment Progr

Progr for Econ Resilience, Inv & Soc Ass

Scholarships Program

Second Power Transmission Developme

Strengthening Indonesian Statistics

ID-Local Government and Decentralization

ID-PNPM RURAL 2012-2015

ID-Research and Innovation in S&T

ID-WSSLIC III (PAMSIMAS)

Indonesia Infrastructure Guarantee Fund

Indonesia Power Transmission Developm

Coremap III

Geothermal Clean Energy Investment Pro

Govt Finl Mgt & Revenue Admin Project

ID: Dam Operational Improvement (DOISP

ID-HCFC Phase-out in the PU Foam Secto

ID- Indo Infrastructure Finance Facility

Supervision Rating Original Amount in US$ Millions

Project Name

COREMAP 3

Active Projects Difference BetweenExpected and ActualLast PSR

Closed Projects

IBRD/IDA*

Total Disbursed (Active)

162

ANNEX 6 STATEMENT OF IFC’S HELD AND DISBURSED PORTFOLIO COMMITTED AND

OUTSTANDING PORTFOLIO

As of 08/31/2015 (In USD Millions)

163

ANNEX 7. CONSULTATIONS OF THE DRAFT CPF

The World Bank Group carried out wide-ranging consultations with cross-section of stakeholders including civil society organizations, faith-based organizations, the private sector, and development partners. The following is a summary of comments from the consultations: With Civil Society

Consultations with the civil society organizations were conducted on September 21, 2015 in Jakarta, on September 29, 2015 in Makassar, on October 8, 2015 in Yogyakarta, and on October 12, 2015 in Jakarta. Over 160 participants attended in these four sessions.

Civil society participants emphasized concern for the unmet needs and the inequality of access suffered by people living in the forest, coastal, and remote areas. It was felt that central government-led programs were not able to reach the neediest and that WBG program should prioritize interventions at the local government level and support holistic strategies to reduce inequality, especially in these remote areas. There should be a clear strategy for regional development, especially for Eastern Indonesia, where the tourism sector could thrive.

Poverty should be viewed at the household level and not at the individual level. Programs may be more effective if they have mechanisms in place to help families manage external shocks such as rice price increases. The WBG should increase its role in optimizing the national social insurance system and improving programs to safeguard the poor and vulnerable, including groups with disabilities.

Enhanced investment in human capital, including vocational training and capacity building should be a priority and more investment could improve local service delivery. CSOs expressed strong support for improving the quality of local services, particularly teacher quality and access to quality healthcare. Several civil society organizations highlighted the need to strengthen the quality of teachers through the use of technology. Others suggested that the WBG should work directly with local governments to build their capacity. Many CSOs urged the WBG to assist in the effective implementation of the Village Law to ensure better governance and service delivery.

Some CSOs emphasized that the ‘Landscape Management’ engagement area should be careful not to marginalize farmers. 43 percent of land in Indonesia is affected by contradicting regulations and the WBG was encouraged to work directly with farmers.

Improving energy access is a priority, and the WBG could support bottom-up approaches including empowering villages and sending engineers to remote and coastal areas to teach villagers to build their own energy capacity. CSOs would also like the WBG to explore investments in solar energy and hydropower.

Governance issues were raised and it was suggested that proposed programs, particularly related to revenue collection and public spending, should put in place mechanisms to address potential irregularities. The CSOs also suggested that the WBG should encourage more public participation in pushing for social accountability in this sector.

CSOs familiar with project implementation urged the WBG to focus as much on ‘process’ as on outcomes. At the design stage, they proposed that the project approval process be streamlined to realize results sooner, and that continuity should be part of the selectivity filter for project selection. CSOs also recommended more participation of local communities and non-governmental organizations at the project planning stage and that equal attention should be paid to social cohesion as well as targets for economic growth. Consistent reviews of previous programs and proper planning for an ‘exit strategy’ was also encouraged so that programs could successfully continue without WBG involvement.

164

With the Private Sector Leaders of the private sector expressed concern about the lack of proper education and skills of the Indonesian workforce. They stressed the need for government to improve the educational system to deliver the specialized skills needed in a modern economy. They also highlighted the lack of investment in essential infrastructure including power generation and transmission and the slow progress in the regulatory reform necessary to unlock private capital for investment. Those from the manufacturing sector were particularly concerned about the need to improve Indonesia’s competitiveness, particularly compared to regional competitors, through better infrastructure, logistics, skills and incentives (including tax).

With Development Partners

Consultations with the development partners were conducted on September 16, 2015 with 20 participants.

Development partners supported the analysis in the SCD and the ambitiousness of the engagement areas. They looked to WBG to lead the way on some of the most difficult development challenges where progress had been disappointing over the last several years including in the areas of environment, implementation of large scale infrastructure, the business climate and public sector reform. They agreed that the mode of delivery was important and that filters regarding impact, accountability and government ownership would be determinants of success. They expressed interest in working closely with WBG, supporting the implementation models where bilateral grant assistance either through World Bank trust fund or in parallel programs were leveraged by WBG investment projects and implementation support.

With an ambitious program that involved substantial investment, a strong accountability framework to assess progress would be needed.

165

Map

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