Document of F E L E C 0 P YThe World Bank

FOR OMCIAL USE ONLY

Rqrt No. P-2505-IND

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENi

TO THE

EXECUTIVE DIRECTORS,

ON A

PROPOSED LOAN

TO

THE REPUBLIC OF INDONESIA

FOR A

LOWIER CIMANUK BASIN FLOOD CONTROL PROJECT-

April 11, 1979

This document ha a restricted ditrbutlem ad may be mod by rewiPits edy In the pedormance oftheir officid duties. Its ctents may net otirwise be diueied widho* Word Bank athoriaton.

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CURRENCY EQUIVALENTS

Currency Unit Rupiah (Rp)US$1 = Rp 625Rp 100 = US$0.16Rp 1 million = US$1,600

WEIGHTS AND MEASURES

1 meter (m) = 39.37 inches1 kilometer (km) = 0.62 miles_1 square meter (sq,m) 10.8 square feet1 cubic meter (Cu m) - 35.5 cubic feet1 hectare (ha) = 2.47 acres1 square kilometer (sq km) = 0.386 square miles

ABBREVIATIONS AND ACRONYMS

BAPPEDA - Provincial Development Planning BoardBAPPENAS - National Development Planning Agency:DGWRD - Director(ate)-deneral of Water Resources DevelopmentDIP - Project Implementation BudgetDOR - Director(ate) of RiversINPRES - Instruksi Presiden - "Presidential Instruction"

- a rural public works program,IPEDA - luran Pembangunan Daerah - Land,TaxO&M - Operation and maintenanceProyek Cimanuk - Badan Pelaksana Proyek-Pengembangan Wilayah Sungai

Cimanuk, "Project ExecutivedBody for Cimanuk:RiverBasin Development":

Repelita I - First Five-Year Development Plan (1969-74)Repelita II - Second Five-Year Development Plan (1974-79)Repelita III - Third Five-Year Development Plan (1979-84)

GOVERNMENT OF INDONESIA FISCAL YEAR

April 1-March 31

FOR OFFICIAL USE ONLYINDONESIA

LOWER CIMANUK BASIN FLOOD CONTROL PROJECT

Loan and Project Summary

Borrower: Republic of Indonesia

Amount: $50.0 million equivalent in various currencies

Terms: 20 years, including 5 years of grace, with interest at7.90Z p.a.

ProjectDescription: The proposed project would assist the Government's efforts

to intensify food production, raise farm incomes, andminimize loss of lives and damage to property caused byflooding of rivers in the Indramayu area of West Java. Theproject consists of: construction of river training, floodcontrol and related works; a river estuary study to enable adescription and analysis to be made of the coastal andlittoral process in the vicinity of Indramayu; and a floodcontrol operations study to ensure that the project workswould function effectively in a flood emergency. Theproject would create a demand for some 27,500 man-yearsof labor over the construction period, and would increaserice production by about 6,100 tons per year by 1989. Theproject would bear moderate risks, as is normal for floodcontrol projects.

Estimated The table below summarizes the estimated cost of the project.Cost:

Local Foreign Total-------$ million-----

Civil Works 18.2 25.1 43.3Equipment and Services 6.8 2.3 9.1

Base Cost 25.0 27.4 52.4

Physical contingencies 4.5 5.4 9.9Price contingencies 9.8 4.9 14.7

Total Project Cost 39.3 37.7 77.0

Financing The proposed loan of $50.0 million would finance the fullPlan: foreign exchange cost of the project and $12.3 million of

local costs. The remaining costs ($27.0 million) wouldbe met by the Government.

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

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Estimated -----------------($ million)------------Disbursements: Bank FY 1980 1981 1982 1983 1984

Annual 1.5 10.5 16.0 15.5 6.5Cumulative 1.5 12.0 28.0 43.5 50.0

Rate of Return: 16%

Staff AppraisalReport: No. 2330b-IND, dated April 2, 1979.

REPORT AND RECOMMENDATION OF THE PRESIDENT OFTHE INTERNATIONAL BANK FOR RECONSTRUCTION ANDDEVELOPMENT TO THE EXECUTIVE DIRECTORS ON APROPOSED LOAN TO THE REpUBLIC OF INDONESIA FORA LOWER CIMANUK BASIN FLOOD CONTROL PROJECT

1. I submit the following report and recommendation on a proposed loanto the Republic of Indonesia for the equivalent of $50 million to helpfinance a Lower Cimanuk Basin Flood Control Project. The loan would have aterm of 20 years, including 5 years of grace, with interest at 7.90 percentper annum.

PART I - THE ECONOMY /1

2. The latest economic report on Indonesia, "Indonesia: GrowthPatterns, Social Progress a.nd Development Prospects," of February 20, 1979(2093-IND) was circulated to the Executive Directors on February 26, 1979.The report's main findings are that:

(a) aided by a massive improvement in the country's resource positionduring the early 1970s and innovative policies, considerableprogress has been made towards raising the level of materialwell-being for the bulk of the Indonesian population, includingthe lowest income groups;

(b) due to a number of new, mostly exogenous circumstances,including an expected slow-down in the growth of oil production,Indonesia is now facing a rapidly tightening overall resourceposition which will, make it more difficult to maintain high levelsof income and employment growth, while at the same time preservingmonetary stability and external balance;

(c) the recent (November 15, 1978) devaluation of the Rupiah fromRp 415 to Rp 625 to the US dollar, while strongly supportive ofthe structural changes required to reduce economic dependence onoil and to improve long-term development prospects, should not beregarded as a substitute for efforts needed to remove physical andadministrative bottlenecks and to develop effective support services;

(d) although the Government (because of the structure of its revenuesand expenditures) is a prime beneficiary of devaluation-inducedincome shifts from import users to net-exporters, significantadditional public sector resource mobilization efforts will beneeded to prevent a sharp decline in the share of Governmentsavings in GNP beyond 1979/80;

(e) while the next five to ten years may be difficult because of thestructural changes needed to adjust to a post-oil boom era, Indonesia'slong-term development prospects have been significantly enhanced by

/1 Substantially unchanged from President's Report, Third Urban DevelopmentProject (No. P-2440-IND), circulated under cover of R79-1, dated January 4,1979, and approved by the Board of Executive Directors on January 16, 1979.

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the Government's successful population policies which have alreadycontributed to a substantial (approximately 20%) reduction offertility on Java and Bali during the past decade. These cruciallyimportant demographic developments will, in due course, particularlyafter the mid-1980s, be reflected in reduced and declining rates ofgrowth of the labor force. Declining labor force growth rates andthe prospects of declining income elasticities of demand for foodjustify the hope and expectation that with sound policies, Indonesiacan and will eventually - possibly within the next two decades -overcome the severe poverty and food security problems that stillplague the country today. The solution of these fundamental problemsthrough the pursuit of a pervasive employment oriented developmentstrategy would set the economy firmly on a long-term growth pathtowards much higher levels of social and economic developmentinvolving all Indonesians. One of the key components of such astrategy would be to aim at a high rate of labor-intensive manufac-turing development.

Social Developments Since 1970

3. Analysis of data from the National Household Surveys for 1970 and1976 suggests that while overall income disparities have almost certainlywidened, the rapid overall growth of the economy /1 has contributed to aconsiderable improvement in consumption of all income groups, including thevery poor. The data further suggest that increases in per capita consumptionwere higher in Java than in the Other Islands and higher in urban areas thanin rural areas. Notwithstanding this, many Indonesians remain extremely poor:in 1976 when average per capita income was about $280,/2 over 50 millionIndonesians (38% of the population) spent less than $90 (1976 prices andexchange rate).

4. Analysis of data from National Labor Force Surveys shows a remarkablyhigh rate of employment growth (over 4% p.a.) between September 1971 andOctober 1976. But during this period, the labor force also grew at a veryhigh rate and the data suggest that there was a slight increase in the rateof open unemployment. Since the labor force grew much faster than populationin the relevant age groups, a sharp increase in labor force participationrates, from 50% in September 1971 to 55% in October 1976, was observed. Thus,a substantial part of the increased per capita consumption levels is believedto have been related to increased labor force participation and decliningdependency ratios.

5. The share of agricultural employment between 1971 and 1976 declinedfrom 66% to 62%, implying rapid growth of nonagricultural employment - over 7%p.a. or 54% of the total increase in employment. Within the nonagriculturalsectors, the increase in employment occurred largely in proliferating small-

/1 GDP grew at 8.0% p.a. As a result of favorable terms of trade developmentsduring most of the period, GDY grew even faster - about 9.5% p.a.

/2 World Bank Atlas (Preliminary estimates for 1977: $300).

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scale enterprises in the manufacturing and service sectors where labor produc-tivity is thought to be extremely low. This is indicated, inter alia, by thestagnation of real minimum wage levels which are among the lowest in theworld. Employment growth in medium- and large-scale enterprises, which absorbedthe bulk of industrial investment, was very modest. The broi. picture ofrapid employment growth since 1970, though encouraging in many respects, thusreveals that a relatively large part of the incremerLtal employment has beenof poor quality in residual types of activities.

6. Much progress has been made in recent years with the provision ofeducation services. Enrollment rates increased at all levels of education.For example, primary school enrollment (excluding over-age students) is ex-pected to reach 85% in 1979 for the 7-12 age group, compared to 60% in 1974;dropout rates - while still high - declined, and universal primary educationappears to be in sight. A promising nonformal education program has beenintroduced to increase the basic employable skills of those who never attendedschool (presently estimated at 23 million people) and others who left schoolwithout completing primary education (a further 22 million). Indonesia'sadult literacy rate increased to 62% in 1974, which is much higher than inIndia (36%), Pakistan (21%), or Bangladesh (23%), but lower than in Thailand(82%) or Philippines (87%). Within Indonesia, large differences in levelsof educational attainment between urban and rural areas still exist, butdifferences between Java and other parts of the country are relatively small.

7. In the field of health care services, there has been a tremendousexpansion of physical infrastructure, including medical training facilities.Almost 3,000 rural health centers, designed to become the principal vehiclesfor the delivery of basic health services, were constructed between 1969 and1977. But much of the new physical infrastructure has so far remained under-utilized due to personnel shortages, and a range of other factors, includingpopular preference for traditional health care services in several areas.

8. Inadequate sewerage and sanitation facilities are still majorhealth hazards, especially in crowded urban areas. Even if the varioustargets for rural and urban water supply for the Second Five-Year DevelopmentPlan (Repelita II), which ended in March 1979, are fully met, over 100million Indonesians will still remain without easy access to safe water in1979. Similarly, housing conditions are generally very unsatisfactory,especially in crowded urban areas. Although simple and inexpensive improve-ments in water supply, drainage, footpaths and community facilities, executedthrough Kampung Improvement Projects, including those supported by the BankGroup, have contributed to better living conditions in several overcrowdedurban areas, specific socio-economic support programs to improve the livingconditions of the urban poor are needed.

The Devaluation of November 15, 1978

9. The recent devaluation of the rupiah from Rp 415 to Rp 625 per USdollar was designed to encourage labor-intensive import substitution andnonoil export growth by reversing some of the adverse relative price shifts inthe economy that had occurred earlier this decade. The opportune timing ofthis drastic and unique policy action is believed to be a strong factor

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enhancing the probability of its success. The strongest immediate effects ofthe devaluation, however, will be a dramatic increase in budgetary revenues inlocal currency terms. Government expenditures will, of course, also increaseas a result of the devaluation but the net budgetary position in terms ofrupiahs should strongly improve. While the recent devaluation will generallytend to facilitate export promotion efforts, great emphasis needs to be placedon the importance of developing effective support services and of reducingadministrative obstacles and other unnecessary cost increasing factors.

10. A number of supportive measures to prevent an upturn in domesticinflation eroding the potential benefits of this devaluation have already beentaken. Such measures include the lowering of import tariffs by 50% on a widerange of intermediate inputs, stringent temporary price controls, and atemporary increase in budgetary subsidies to initially isolate key consumptionitems, such as rice, from the effects of the devaluation. Aside from thebudget's influence on the prices via subsidies, the degree of monetary controlexercised will also be an important factor in minimizing devaluation-inducedinflation. There is likely to be conflict, however, between the needs tocontain devaluation-induced monetary expansion and the need for additionalcredit to promote new private investment in line with the structural objectivesof the devaluation. Nonetheless, a sizeable budget surplus in fiscal 1979/80almost certainly will be needed to assist in neutralizing the effect of a suddensharp increase in the rate of monetary expansion following the devaluation.

11. Prior to the November exchange rate adjustment, balance of paymentsprojections based on current trends and expectations suggested the probabilitythat, without special export promotion efforts, a shortage of foreign exchangewould become a binding constraint on development efforts within the next fewyears. Although it is too early to make more than a very preliminary andspeculative assessment of the effect of the devaluation on imports and exports,there is now less ground for the fear that the balance of payments will becomea development constraint. No dramatic changes, however, are foreseen in theimmediate future; the short-term export response, in particular, is likely tobe constrained by supply rigidities. Ultimately, changes in the size andstructure of imports and exports will be strongly influenced by the effect thatthe devaluation will have on the overall growth performance of the economy.

Food Supply and Demand Prospects

12. Despite impressive achievements in rice production, the pastdecade has seen a continuing decline in Indonesia's food self-sufficiency.Between 1968-77, the composite trend growth rates of domestic food calorieproduction and availability were approximately 3.2% and 3.7%, respectively./lThese growth rates reflect a growing import dependence on rice, sugar, wheatand recently coconut oil, as well as a reduction or disappearance of maize,cassava, meat and coconut product exports. After three years of stagnatingor slow growing rice production due to a combination of poor weather and

/1 The rice trend production growth rate was about 3.5% and the compositetrend for the 5 r-ain secondary staples (maize, cassava, peanuts, sweetpotatoes, and soybeans) was 1.7%.

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pest problems, 1978 showed an unprecedented increase in output (over10%), but import requirements in 1978/79, though much lower than in 1977,are still about 6% of total domestic consumption.

13. Comparison of plausible food supply and demand scenarios suggeststhe likelihuod of increasing import requirements of basic foods and especiallyof rice, wheat, sugar, coconut oil and possibly maize. There is an urgentneed for a comprehensive food production and consumption strategy. In thecase of rice, with the substantial completion of irrigation rehabilitation,the recent shift in emphasis towards extension of irrigated areas and toswamp drainage projects will probably somewhat reduce rice production growthrates, at least through 1985. However, the potential from increasing fertil-izer and insecticide consumption and from improving the local performance ofthe most recent IRRI varieties, suggests that an annual rate of growth ofrice production of around 3% is nevertheless feasible through 1985. Therecent devaluation has provided significant additional room for further riceproducer price increases aimed at stimulating supply.

14. While slower growth in rice productivity is anticipated, a com-parison of yields for secondary crops in a number of countries suggests thatthese crops offer considerable potential for raising Indonesia's domesticfood self-sufficiency. With proper marketing and other support services, therate of growth of secondary crop production could probably be raised from1.7% to 3.5% p.a. A gradual shift in the overall food production and con-sumption pattern from rice to the secondary crops would assist low incomefarmers in unirrigated areas and reduce the cost and risks associated withexcessive rice import dependency.

Overall Growth and Employment Prospects

15. Medium-term prospects, as determined by developments already inmotion and by exogenous factors such as the expected temporary stagnationin oil production, suggest that it will be difficult to achieve an overall GNPgrowth rate of more than 6-6.5% during the next 3-5 years. This is consider-ably less than the average growth performance of the economy during thepast decade. But if the broad pattern of relationships between output growth,employment growth, and personal consumption growth observed for the period1970-76 does not drastically change, a GNP growth rate of 6-6.5% could stillbe consistent with an overall employment growth target rate of around 3% p.a.The Government has already announced a GNP growth target of 6.5% p.a. for theThird Five-Year Development Plan (Repelita III), which started in April 1979.

16. As the economy is entering a difficult period of adjustment to post-oil boom conditions involving structural changes in the pattern of productionand the sources of savings, more reliance will have to be placed on agricul-ture and industry and on the mobilization of Indonesia's most abundant andinexhaustible resource: people. The devaluation may be expected to facilitatethe structural changes that are needed. With improved incentives for an employ-ment-oriented strategy and adequate Government investment and institutionalsupport services for agriculture and small industries, it should in due coursebe possible to raise the overall growth rate of the economy to at least 7% or 8%,which would be a major help in accelerating the further elimination of poverty.

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External Aid and Creditworthiness

17. The heavy foreign borrowing in 1974, 1975 and the early part of1976, together with a hardening of average terms during those years, hasraised the level of debt service payments which reached about $1.5 billion in1978, or about 18% of projected export earnings. The debt service ratio /1was 16% in 1976 and 17% in 1977; the ratio is expected to remain below 20% in1979 and 1980. This is the encouraging result of restraint with regard tonew borrowing in 1976 and 1977 and the recent replacement on more favorableterms of $575 million remaining payments on cash loans (originally totalling$1 billion) which had been obtained in 1975 from a number of private banks inthe wake of the Pertamina crisis. Total new loan commitments declined from apeak of $3.4 billion in 1975 to $2.3 billion in 1978. Most of the declinewas achieved through a reduction in commercial borrowing. This means thataverage loan terms have recently begun to soften agats, which will be reflectedin future debt service payments.

18. The Inter-Governmental Group on Indonesia (IGGI) continues to bethe principal source of external capital, including Official DevelopmentAssistance (ODA), to the country. Total ODA (bilateral and multilateral)commitments in 1977/78 (including grants) amounted to about $1.4 billion; theIGGI (including the World Bank Group and Asian Development Bank) accountedfor over 90% of this amount. The Bank's most recent economic report onIndonesia recommends that total ODA to Indonesia should reach at least$1.93 billion in 1979/80, including both loans and grants. of which at least70% should be on concessional and semi-concessional terms. At the meeting ofthe IGGI in May 1978 the indications of probable commitments in 1978/79 madeby bilateral and multilateral IGGI members amounted to $1.6 billion; themeeting concluded that the Bank recommendations would be approximatelymet. As a result of the pattern and terms of external borrowing duringthe recent past, net resource transfers from abroad are expected to declinein 1978/79 to about $500 million, even if the recommended level of new ODAcommitments is reached.

19. Our overall assessment of Indonesia's external accounts indicatesthat the country will be able to finance essential imports of consumer,intermediate and capital goods and meet its debt service obligations. Thedebt service ratio is expected to remain below 20%. Although the November 15Rupiah devaluation will provide a one time revenue windfall, the Governmentwill need to raise substantial additional non-oil revenues over the comingyears if the relatively high rate of domestic investment already reached is tobe maintained. The Government has been quite cautious in increasing currentexpenditures and there does not appear to be much scope for reducing themfurther; they should, in fact, rise in step with the growth in GNP and infla-tion, to permit reasonable growth in Government salaries as well as materialsexpenditures, a significant part of which is development related. In view ofthe expected increase in the pressure on public sector resources, the devalua-tion notwithstanding, a limited measure of local cost financing is consideredjustified.

/1 Ratio of debt service payments to commodity export earnings, with oiland gas on a net basis.

PART II - WORLD BANK OPERATIONS IN INDONESIA /1

20. As of February 28, 1979, Indonesia had received 40 IDA creditstotalling $680.8 million, and 37 Bank loans amounting to $1,913.0 million.IFC investments have totalled $61.3 million. The share of the Bank Groupin Indonesia's total (disbursed) external debt outstanding at the end of1977 was about 8%, and the share of debt service about 1.8%. By the end of1978, these ratios are estimated to have increased to around 12% and 5%,respectively. Annex II contains a summary of IDA Credits, Dauk- Loans andIFC Investments as of February 28, 1979, as well as notes on the execution ofongoing projects.

21. To date, the Bank Group has financed projects in virtually allsectors of the Indonesian economy, although there has been particular stresson agriculture, which accounts for over one-third of all lending. Most ofthe loans for agriculture have been for rehabilitation and expansion ofproductive capacity, both for food and tree crop development. Severalnational programs to provide credit inputs and advice to farmers and topromote agricultural research have also been financed by the Bank Group.More recently, an effort to aid the Government's transmigration programhas been initiated. In the industrial sector, while the major thrust hasbeen on expanding fertilizer production on the basis of Indonesia's gasresources and on establishment and improvement of development finance institu-tions, a credit has also been extended to finance a small enterprise develop-ment project. The main emphasis in education has been on upgrading thequality of education, improving primary and secondary education and manpowertraining as well as on expanding non-formal education. In the social sector,the Bank Group has financed projects for urban development (through neighborhoodimprovement programs), urban water supply, family planning, and nutrition.A major portion of Bank Group financing has been used to rehabilitate andexpand Indonesia's inadequate infrastructure, particularly in the power andtransportation sectors. Credits have also been extended to finance a tele-communications project and a tourism project. Finally, the Bank Group hasassisted the Government's efforts to prepare and formulate its developmentprograms and projects through four technical assistance credits and a loanfor a natural resource survey and mapping project.

22. The discussion in Part I of this report underscores the need for adevelopment program which will provide increasingly productive work oppor-tunities and incomes for Indonesia's presently underemployed and growing laborforce and increase agriculture production, particularly of food crops. Effortsto increase employment through programs directed towards improving the incomesof the poor and their living standards are expected to be one of the major

/1 Substantially unchanged from President's Report, Third Urban DevelopmentProject (No. P-2440-IND), circulated under cover of R79-1, dated January 4,1979, and approved by the Executive Directors on January 16, 1979.

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objectives of Repelita III. While several of these programs are likely tobe suitable for Bank Group financing, it will be some time before they areready for implementation. However, as part of this new focus, a small enter-prise development project designed to increase non-agricultural employment inrural areas and small towns, has already been approved by the ExecutiveDirectors, and an integrated rural development project should be ready forpresentation to the Executive Directors this fiscal year. With respect toagriculture development, projects are being prepared to further improve andexpand research and extension services, rehabilitate and expand irrigationsystems, help replant smallholder rubber and coconut plantations, assist inwatershed management and village development, and develop presently under-utilized land in areas outside Java for transmigrants and other smallholders.In addition to the family planning program, which continues to have highpriority, other areas of particular importance for Bank Group assistance willbe the improvement of urban services through construction of urban water supplysystems and further expansion of neighborhood improvement programs, and theimprovement and expansion of higher education particularly of engineers,accountants and agriculture specialists, as well as primary and nonformaleducation. Finally, Bank Group financing continues to be important for theGovernment's program of infrastructure rehabilitation and expansion, parti-cularly in transport and power, which will continue to require very largeinvestments for many years before these facilities are adequate to supportIndonesia's development. Compared to past lending activities, many of theseprojects and programs reflect the shift of emphasis in Government's developmentobjectives towards a more balanced and more equitable and employment-orientedeconomic growth strategy.

23. Bank Group lending to Indonesia started in 1968 and between 1968 and1974, all Bank Group lending to Indonesia was on IDA terms. Following therapid increase in Indonesia's oil income which enabled Indonesia to borrow onless concessional terms, it was decided that all lending to Indonesia afterJune 30, 1974, would be on Bank terms. Since 1974, the Government hassaved and invested almost all of the increase in its oil revenues and greatlyexpanded its development expenditures which reached about $6 billion in1977/78. For reasons discussed in Part I above, and notwithstanding theNovember 1978 devaluation, both the budgetary and balance of payments situa-tions may be difficult in the years ahead. Thus, while Indonesia has alwaysqualified for assistance on concessional terms on grounds of its low percapita income and the quality of its economic management, such terms are nowalso necessary to enable it to maintain a high level of investment withoutimpairing its ability to service its external debt. Accordingly, starting inFY78, a portion of Bank Group lending to Indonesia has again been provided onIDA terms.

24. The proposed loan is the fourth lending operation presented to theExecutive Directors this fiscal year and would bring total lending to Indonesiathis year to $230 million. Projects for rural development, transmigration,development finance company (BAPINDO), water supply, road betterment andpower are expected to be ready for presentation in the next few months.

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PART III - THE AGRICULTURAL AND RURAL SECTOR

25. Objectives. The major national objectives in the agricultural andrural sector in Indonesia are to: (a) create produtive employment to raisethe incomes of the rural poor, (b) increase domestic food supply to keep pacewith rising demand, (c) expand agricultural exports, particularly of small-holder tree crops, and (d) ensure productive, sustainable use of Indonesia'sland, water and other natural resources.

26. Role and Performance. Although agriculture's contribution to GDPand exports has declined during the past 15 years (from 55% to 33% and from55% to 23%, respectively), the rural sector remains of overwhelming importanceto the vast majority of the Indonesian people in terms of employment, incomesand food production. Some 80% of the country's 135.5 million people /1 livein rural areas, and agriculture employs about two thirds of the total laborforce. Except for oil palm and tea, agriculture is dominated by smallholderproduction; there are some 14.4 million smallholders producing subsistenceand cash crops on 14.2 million ha. There are also 1,800 estates occupying2.2 million ha producing mainly rubber, sugar, tea, palm oil and tobacco.Over the past five years, the growth rate of agricultural production hasbeen uneven, averaging 4% p.a., while total GDP grew at 8% p.a.

27. Development Problems and Potential. In' Java, tLe cultivable landis almost fuly utilized and in some areas agricultural land use alreadyexceeds ecologically safe limits. In 1976 about 82 million people lived inJava, which has 45% of the cropped area but only 7% of Indonesia's landarea. About one-third of Java's rural population is landless, and a largeproportion of the remainder cannot support themselves on income from theirown farms. Outside Java, there are large areas of unused cultivable land,less fertille than in Java, and other natural resources to be exploited.While the inhabitants of these islands do not have high standards of living,they are generally better off than most in rural Java.

28. Employment. Perhaps the single most important challenge facing theIndonesian Government is to guide and structure the development process insuch a way that the creation of new opportunities for gainful employment doesat least keep pace with the growth of the labor force. The changes associatedwith modernization in rural Java are generally labor-saving, so that farmingis increasingly becoming a part-time activity. M4odern manufacturing andservices have been unable to fully absorb the incremental labor force.Successful locally administered public rural works programs (INPRES), may bedifficult to expand due to limited budget and implementation capacity. Futureemployment strategy will probably include stress on labor-intensive exportindustries and small-scale rural enterprises producing for the domesticmarket. There may also be potential for more productive agricultural employ-ment through increased cropping intensity and a shift to higher value cropsand livestock, including fruits and vegetables grown on house compounds.

/1 Estimate for mid-1978 based on the Inter-Censal Population Survey ofM4arch 1976.

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29. Food Crops. Despite the heavy emphasis on rice production in thepast, the gap between domestic production of and demand for food appears to bewidening. Production of rice and the principal nonrice food crops has notkept pace with the growth in aggregate demand over the past few years. Tokeep rice imports at some reasonable fraction of world rice trade, demandmust be shifted to other domestic and imported staples, and the rate of growthof rice production should ideally approach 4% p.a. compared to an average of3.5% p.a. over the past decade, and only 1.7% over 1974-77./i Improved watermanagement and agricultural supporting services are essential for increasingrice yields and production. On Java there remains much scope for more effi-cient water use, through construction and/or improvement of additional tertiaryand quarternary canals. On the Other Islands there is considerable potentialfor new irrigation systems, including tidal and swamp land development. Onboth Java and the Other Islands, secondary food crops also offer promisingdevelopment prospects. For example, there is much room for yield improvementthrough intensified research and supporting services, and great scope forthe expansion in harvested area. A food policy which emphasizes secondarycrop production as well as rice would serve the twin goals of growth andequity as many of the poorest parts of Java and the Other Islands are bestsuited to dry land farming.

30. Tree Crops. The Government has embarked on a major effort todevelop smallholder tree crops outside Java, as part of its transmigrationand national rubber and coconut replanting programs. The objective is toimprove production on existing blocks while developing large areas of newland for settlement. One of the Government's main approaches has been touse public estate companies to plant tree crops on land to be settled bylocal landless families and transmigrants. The estate companies provide arange of services including planting material, land clearing and planting,inputs, processing and marketing facilities for the smallholders. Thisapproach is well taken in view of Indonesia's scarce managerial and technicalcapabilities.

31. Transmigration. Transmigration offers substantial opportunitiesfor impfoving social equity and the economic use of Indonesia's two mainunderemployed resources: Javanese labor and land in the Other Islands.Transmigration has long been hampered by unrealistic expectations about itspotential contribution to regional development and the solution of Java'spopulation problems, overambitious targets and weak, uncoordinated implemen-tation. These problems are now being addressed and the Bank is engaged in awide ranging discussion with the Government on its transmigration program andthe manner in which the Bank can assist. Organizational aspects of trans-migration, the design of farming systems and the package of services whichwill support successful, long-term settlement are among the issues beingexamined.

/1 This low growth rate was the result of below average harvests caused byinadequate and untimely rainfall in many areas of Java and by pest anddisease damage to high yielding varieties. Production from the 1977/78crop is reported to be much improved.

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32. The Role of the Government. The capacity of the IndonesianGovernment to plan and implement agricultural and rural development programshas generally improved over the past decade. However, future programs

responsive to the Government's stated objectives will necessarily be morecomplex than those which the Government has followed up to now. They willrequire closely coordinated "packages" of research, extension, inputs,credit, land development, transportation and marketing improvements. Multi-agency integrated area development programs in Java and land settlementschemes in the Other Islands will require stronger field organizations ofGovernment line agencies and local governmental authorities, as well as new

administrative arrangements. With the more complex organizational require-ments of future programs, implementation capacity is likely to become thelimiting factor in Indonesia's economic and social development. It istherefore of utmost importance that the Government continue its efforts tostrengthen the key rural development institutions.

33. Bank Lending Strategy. There is general agreement between theBank and the Government on the overall objectives and strategies proposedfor the rural sector. While views sometimes differ on the relative emphasisto be given to different investments and on the technical design of someprojects, such differences are not profound and are likely to be resolvedwith further analysis and dialogue. The Bank is devoting considerable stafftime to various analyses of the rural sector (e.g. employment, irrigationdevelopment, support services and food crop production) in order to improveits understanding of the needs of the sector and the Government's policies.

34. The Bank has been and should continue to be involved in a broadrange of agricultural and rural activities in Indonesia. Since the firstirrigation credit was made in 1968, the Bank has rapidly expanded its agri-cultural and rural lending to include support for estate and smallholder treecrops, fertilizer production and distribution, sugar estates, support services,transmigration, livestock and fisheries. Credits already closed and forwhich Project Completion Reports have been prepared, e.g. First IrrigationRehabilitation (Cr. 127), First Agricultural Estates (Cr. 155), showedexcellent rates of return ranging from 25% to 33%. Taking 1974 as a baseyear, Bank-financed projects will contribute almost 60% of the increase inpalm oil output by 1980, about 16% of incremental sugar production and 6% ofincremental rice and rubber. Four continuing trends in Bank agriculturallending to Indonesia are: (a) a shift from rehabilitation to new developmentactivities; (b) a shift from support of state enterprises to direct supportof smallholders; (c) an increased emphasis on rainfed systems; and (d) greateremphasis on development of the other islands. All these trends are consistentwith the Government's changing policies.

The Irrigation Subsector

35. Rice is the dominant irrigated crop in Indonesia. Of an estimated8.4 million ha of rice harvested in 1977, 7.2 million ha were irrigated orgrown under wet land conditions. Irrigation systems cover a service areaof about 5 million ha, of which about 4 million ha are of a quality which

- 12 -

is adequate for irrigated rice production. Java accounts for 60% of theirrigated area. Average paddy yields on Java are about 3.2 ton/ha comparedwith 2.8 ton/ha in the Other Islands. Although irrigation has long beena major feature of Indonesian agriculture, by the late 1960s, the systemsbuilt during the colonial period were in a state of complete disrepair.Irrigation development during the first two development plan periodsconcentrated heavily on the rehabilitation of these systems. Constructionof new systems, mainly to serve as the basis for transmigration projectsoutside Java, lagged behind.

36. With the rehabilitation of most existing irrigation systems eithercompleted or under way, future irrigation development in Indonesia will shiftto the construction of new gravity systems and swamp and tidal land developmentoutside Java. This shift does not mean, however, that irrigation developmenton Java should stop. Many of the existing systems still need to be fullyrehabilitated or upgraded at relatively low cost, and the limited potentialfor large storage and groundwater should be developed to expand dry seasoncropping as far as economically feasible. A recent Bank review of Indonesia'sirrigation program /1 concluded that, to expand rice production at the samerate as demand (about 4% per year), the level of annual investment in irriga-tion should be increased by about 20% by the end of the Third Five-Year Plan(1984). This in turn would require strengthening of the Directorate-Generalof Water Resources Development (DGWRD), training and staff development, and anexpansion of agricultural supporting services.

37. The Bank Group agricultural operations in Indonesia were evaluatedin an OED Report dated August 9, 1978, No. 2166 (SecM 78-649). The OEDconclusions were that, despite some deficiencies, Bank Group financed agri-cultural projects have been of overall good quality and are likely to con-tribute substantially to increased production. However, there are a number ofaspects related to the performance of most major irrigation systems in Javawhich continue to inhibit the realization of optimal benefits and whichthreaten to shorten the systems' serviceable lives. The poor state ofdrainage and road networks continually depresses cropping intensities andyields and seriously hampers the flow of extension services; widespreadinundation of villages and agricultural land, caused by overflowing of majorrivers traversing the project areas, has resulted in the reconstruction orrelocation of threatened irrigation canals, highways and communication lines;and improper land use on the catchments of these rivers is accelerating soilerosion and giving rise to serious sedimentation and siltation problemsdownstream.

38. The Bank is working closely with the Government in addressing theseproblems. The Sixth Irrigation Project (Loan 1100-IND) included soil conser-vation pilot projects in the Cimanuk Basin, and these efforts will be continuedunder a proposed watershed development project currently being considered forBank financing. Studies and investigations designed to alleviate drainage

/1 Bank Report No. 2027a-IND, "Indonesia - Irrigation Program Review,"October 16, 1978.

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problems in Bank-assisted irrigation systems along the north coast of Javawere components of the Seventh Irrigation Project (Loan 1268-IND); thesestudies have resulted in the financing of flood control, drainage and roadnetwork improvements in the Ciujung area (Eighth Irrigation Project: Loan1434-IND) and in the Cisedane area (Twelfth Irrigation Project: Loan 1645-IND).

PART IV - THE PROJECT

39. The proposed project was prepared by Proyek Cimanuk, an executivebody in the Directorate-General of Water Resources Development (DGWRD) in theMinistry of Public Works, with consultant assistance from SMEC (Australia)and Gadjah Mada University (Indonesia). The project was appraised in June1978 but subsequent processing was delayed by a decision by the Governmentto reduce the scope of the project and the need to reflect the November 15,1978 devaluation of the rupiah. A Staff Appraisal Report (No. 2330b-IND,dated April 2, 1979) is being distributed separately. Supplementary projectdata are provided in Annex III. Negotiations were held in Washington fromMarch 12 to March 16, 1979 with an Indonesian delegation led by Mr. JuliantoMoeliodihardjo, Secretary General of the Ministry of Public Works.

40. For a number of years the Government has attempted to check thetendency of major rivers to change their regimes and overflow their banks.However, due primarily to limited available funding, construction of rivertraining and flood control works has been piece-meal, and the completed workshave often been inadequate. In order to gain a more comprehensive picture ofsoil and water management problems in a complete river basin the Government,with consultant assistance funded under the Eleventh Irrigation Project (Loan1579-IND), has embarked on a Master Plan for the Cimanuk Basin. While it willbe some time before the Master Plan is completed, the priority of certaininvestments, such as the flood control works on the Lower Cimanuk River, isalready clear. The river has consistently overtopped its banks and changedits meander patterns; it has breached its dikes at several places on numerousoccasions and caused serious flooding. The physical problems of this flooddamage are compounded by an inadequate maintenance program for the riverlevees, the absence of a flood warning system, and poor communications. Theproposed project has been designed to assist the Government in its floodcontrol and river training efforts.

Features of the Project

41. The propbsed project consists of the rehabilitation and improvementof river training and flood control works on the Lower Cimanuk River andother small rivers that cause annual flooding of the Indramayu area in WestJava, including most of the service area of the Rentang irrigationsystem. While flood control works, including levee banks, cutoffs and a newriver mouth, have been constructed at various times along the Lower Cimanukand the other rivers, these have, in many cases, not been adequately designedor maintained and are only partly effective. In recent years, an average of4,250 ha has been inundated, with consequent damage to crops and public andprivate property and loss of life. Without the project, these losses wouldincrease as the existing protection works deteriorate further.

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42. The project provides for construction of an hydraulic controlstructure on the Cimanuk River at Bankir, downstream of its confluence withthe Rambatan Channel, thereby increasing flood protection for the town ofIndramayu. From its present width of 45-50 m, the Rambatan Channel would bewidened to about 80 m and material excavated from the channel would be usedto augment existing flood embankments along each bank. In addition, theproject would also provide for the construction of bank stabilization andriver training works along acute bends (totalling about 34 km in length) thatare subjected to considerable erosive forces during high flood flows; reha-bilitation or construction of about 175 km of flood protection levees;construction of road bridges at Bankir and Pangkalan; and procurement ofvehicles and equipment for supervision of construction.

43. In order to better understand the interaction of river hydraulicand sedimentation processes of tides, currents, winds, littoral drifts andsalinity, the project includes a Cimanuk River Estuary Study with the primaryobjective of assembling basic data, upon which a description and analysis willbe made of the coastal and littoral processes in the vicinity of Indramayu.The project further provides for a Flood Control Operations Study, designed toensure that the project works would function effectively in a flood emergency.To this end, the study would focus on: (a) establishing communications andflood warning systems for the Lower Cimanuk Basin; (b) devising a system forthe operation and maintenance of the project works; and (c) recommending aprogram for monitoring the project works in order to refine design standardsfor future projects.

Organization and Management

44. The proposed project would be implemented by Proyek Cimanuk, anexecutive body of DGWRD. Proyek Cimanuk shares most of its staff with thelong-established Directorate of Rivers (DOR)/l which supervised earlier studiesand investigations for the project. DOR has responsibility for the controlof floods, river-borne sediments and volcanic mud flows throughout Indonesia.The staff of Proyek Cimanuk is being strengthened under Loan 1579-IND for theexecution of the Cimanuk Basin Master Plan (para. 40). With consultantand advisory assistance provided under Loan 1579-IND, and to be provided underthe proposed project, Proyek Cimanuk should have no difficulty in executingthe project works. The field organization would be headed by a SubprojectManager, who would coordinate the flood control works. Working under himwould be a Deputy Subproject Manager and assistants in charge of surveys,design, construction and administration, who would look after all technicaland administrative aspects. An assurance has been obtained that ProyekCimanuk would at all times be staffed with competent and qualified personnel(Section 4.03 of the Loan Agreement).

/I The Director of Rivers is presently also Project Manager of ProyekCimanuk; a full-time Project Manager will be appointed later in 1979.

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45. The project provides for overseas and local training of ProyekCimanuk personnel. It is expected that overseas training would be providedin project management, project administration, soil and water conservation,operation and maintenance (O&M) and other technical subjects. Local trainingwould be given for project planning, construction supervis:oa and O&M ofriver training, flood control and soil conservation works. The details ofthis program would be worked out in conjunction with the training adviserprovided under the Twelfth Irrigation Project (Loan 1645-IND). An assurancehas been obtained that a program for the training of Proyek Cimanuk staff,satisfactory to both the Bank and the Government, would be furnished to theBank by December 31, 1979 (Section 3.04 of the Loan Agreement).

Technical Assistance

46. Since Proyek Cimanuk does not have the in-house capability to carryout fully the works and studies included in the proposed project, provisionhas been made for the services of expatriate and local consultants duringimplementation. The project also addresses the need to strengthen theDirectorate of Rivers (DOR) and Proyek Cimanuk through the utilization of theservices of an advisor on project planning, management and administration.In all, about 180 man-months of foreign and about 90 man-months of localconsulting and advisory services are expected to be required. Assuranceshave been obtained that engineering consultants and a management advisor,whose qualifications, experience, and terms and conditions of employment aresatisfactory to both the Bank and the Government, would be engaged to: (a)assist in the completion of detailed designs, tender documents and constructiondrawings, the evaluation of bids and the supervision of construction; (b)carry out (i) the Cimanuk River Estuary Study, and (ii) the Flood ControlOperations Study; and (c). provide management advisory services to the DOR andProyek Cimanuk (Section 3.02 of the Loan Agreement). The employment of theengineering consultants to carry out the services referred to under (a)and (b)(ii) above would be a condition of effectiveness of the proposed loan(Section 5.01 of the Loan Agreement).

Project Costs and Financing

47. The total project cost is estimated at $77.0 million (exclusiveof direct taxes), with a foreign exchange component of $37.7 million (49%).The cost estimates include physical contingencies of 20% for civil works and10% for equipment and services. The estimated price contingencies assumeannual rates of inflation declining from 20% to 10% for local costs (reflectingthe expected impact of the recent devaluation) and constant at 7% for foreigncosts. These price increases which are based on recent trends, total 20% ofthe base cost (in early 1979 prices) plus physical contingencies. Consultantcosts have been estimated at $9,500 per man-month (including all overheads,housing and travel) for expatriates and $1,300 per man-month for local firms.The proposed Bank loan of $50.0 million would finance the project's fullforeign exchange cost ($37.7 million) and $12.3 million of local costs, or65% of total project costs and about 31% of local costs. Financing of local

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costs is justified as this project is of high priority for the agriculturaldevelopment program and because of the tightening domestic resource constraints(para. 19). The remaining expenditures ($27.0 million) would be met byannual Government budgetary appropriations.

Procurement and Disbursement

48. Except for two start-up vehicles, which would be purchased by theconsultants following quotations from local suppliers, vehicles for construct-ion and operation ($60,000) would be procured under international competitivebidding procedures in accordance with Bank Guidelines. For purposes of bidevaluation, a preference equal to 15% of the c.i.f. cost of the importedgoods or the customs duty, whichever is lower, would be extended to qualifieddomestic manufacturers. Equipment for the studies and laboratory and officeequipment ($150,000) would either consist of small or specialized items, orof items required in small amounts and would not be suitable for ICB. Thisequipment would therefore be procured by the consultants through prudentshopping after solicitation of offers from at least three suppliers.

49. Contracts for the construction of the Bankir hydraulic controlstructure ($6.9 million) and widening of the Rambatan Channel ($6.7 million)would be awarded on the basis of international competitive bidding proceduresin accordance with Bank Guidelines. Qualified local contractors would begranted a margin of preference of 7-1/2% in the evaluation of bids. Theremaining civil works ($51.0 million) are rather simple in scope and, inorder to be attractive to foreign contractors, packages would need to bevery large. This would be impractical, given the number of worksites and theneed to ensure an even flow of design work. These works would, therefore, becarried out following competitive bidding advertised locally in accordancewith the Government's procedures and regulations. There is sufficient flexi-bility inherent in the Government's local competitive bidding proceduresto ensure that such procurement would be carried out efficiently and economi-cally. Assurances have been obtained that: (a) the works would be groupedinto a number of suitable contracts (minimum value $500,000) that would enablelarge local contractors and joint ventures of small local firms to bid withinthe classes for which Government regulations require them to be prequalified;(b) to minimize late construction starts, tenders would be advertised as biddocuments are completed and bids would be processed even before the projectimplementation budget (DIP) is signed, although contract award and signingwould only be done after the DIP is approved; (c) price adjustment clauseswould be included in contracts extending beyond one year; and (d) for contractsestimated to cost $1,000,000 or more, documents would be submitted to the Bankfor review before bidding and award (Schedule 4 of the Loan Agreement).

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50. Disbursements of the proposed loan would cover 70% of total costsfor civil works; 100% of total expenditures for consultants' and advisoryservices, including training and start-up vehicles; 100% of foreign expendituresfor directly imported goods; 95% of local expenditures for locally manufacturedgoods; 65% for imported goods procured locally, excluding vehicles; and 40%of local expenditures for locally manufactured vehicles.

Operation and Maintenance (O&M)

51. Proyek Cimanuk would be responsible for the operation and main-tenance of bank stabilization, river training and flood control works in theLower Cimanuk Basin during construction and for one year following completionof the project. The Provincial Public Works Directorate would thereafterassume responsibility for O&M. While Provincial Public Works arrangementsfor staffing and funding the operation and maintenance of irrigation systemsand associated internal drainage works have been established under previousirrigation projects, similar arrangements for river training and floodcontrol works on major rivers are unclear and have so far been unsatisfactory.These aspects would be investigated under the Flood Control Operations Studyincluded in the project. Assurances have been obtained that: (a) all worksrehabilitated, constructed or modified under the project would be adequatelyoperated and maintained in accordance with sound engineering and financialpolicies and practices; (b) by September 30, 1980, the Government wouldfurnish to the Bank for its review an O&M program for the bank stabilization,river training and flood control works constructed under the project, includ-ing staffing and funding requirements, together with a flood warning system;and (c) by April 1, 1981, it would start implementation of the O&M programand flood warning system and keep the Bank informed about the progress oftheir implementation (Section 4.04 of the Loan Agreement).

Monitoring

52. A plan for monitoring the technical effectiveness of the projectworks would be drawn up under the Flood Control Operation Study and localauthorities would continue to keep records of flood occurrences and damages.A program to monitor benefits accruing from Bank-assisted irrigation anddrainage works, together with other social aspects, is being implementedunder Loan 1100-IND. Since this program includes the Rentang irrigation area(the benefit area of the proposed project works), the existing monitoringprovisions would be sufficient to enable the benefits of the project works tobe measured.

Cost Recovery

53. No direct recovery of project costs is proposed. As floods in theLower Cimanuk area are random in their occurrence, determination of thedirect beneficiaries in any particular year is impossible. Averaging ofbenefits over the 1.7 million benefitting population would lead to values solow that collection of charges would be administratively impracticable.

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Moreover, at present some 90% of the beneficiaries have per capita incomesbelow the estimated absolute poverty level and cost recovery from this groupwould be inequitable. The project would, however, result in some increase inGovernment revenues from the IPEDA land tax, which is based on productionlevels, and from road user taxes. Because yield and traffic increases wouldbe small in absolute amount and widespread in incidence, these revenueincreases would be difficult to quantify.

Benefits and Justification

53. Project benefits are equivalent to the reduction in flood damagethat would result from the construction of the project works, includingdamage to crops, roads, bridges, levees and other infrastructure, and housesand household effects. Damage records from 1970-77, a period during whichflooding was fairly representative of long-term average flooding conditions,have been used to model the present level of damage. The damage estimates forhouses and infrastructure are based on actual records. The estimated damageto crops, which would be about 20% of all damage, is based on the actualaverage area flooded and an assessment of the average loss of income from aflood event. Damage to rice crops may take one of two forms, depending on themonth in which the flood occurs. In the first case, where the flood occurslate in the wet season, the advanced paddy crops inundated by the floodwaterswill suffer a yield reduction which may vary from negligible to total, depend-ing on the depth and duration of inundation, the velocity and turbidity ofthe water, and the age of the crop. For the flood regime of the CimanukBasin, such losses would average about 25% of the normal yield in the areaaffected by the flood. Under present conditions, the average loss of wet-season paddy would be 1.0 ton/ha. As damaging floods do not occur in the dryseason, dry-season cropping would be unaffected. The second case is whereflooding occurs early in the wet season, completely destroying the immaturerice crop. There is, however, time for the farmer to replant his crop but,because of the delay in planting, the paddy yield will be reduced by about 5%and the opportunity to plant a dry-season crop lost. These losses, plus thesunk cost in inputs and labor of the destroyed crop, would result in totallosses amounting to about 25% of income, approximately equivalent to the firstcase.

54. By providing control over floods up to a recurrence interval ofonce in 25 years, the project would substantially reduce average yearlydamage to crops, roads, canals and houses and eliminate recurring threats toproduction and household activities, as well as prevent loss of human lives.Floods greater than the once-in-25-years event would continue to causedamage but, since such damages would be approximately the same with orwithout the project, they have been excluded from the economic analysis.Incremental rice production resulting from the reduction in flooding would beabout 6,100 tons per year by 1989. The project would create a demand forsome 27,500 man-years of labor over the construction period. At present,assuming no flood occurs, average total incomes (on-farm plus off-farm) in theproject area are about $50 per capita for an owner-operator and about $40 percapita for a sharecropper. About 90% of the project area farmers have percapita incomes below the estimated absolute poverty level; in the event offlooding, about 40% of each family's annual income will be lost./l Taking

/1 Including crop yields, damage to houses and household effects, and lossof small livestock.

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into account the probability of flooding and randomness of such occurrences,present average annual loss (equivalent to the benefits of the project) isonly about $5 per family but is expected to rise to $15-20 by 1989. By thattime, as a result of the benefits of past investments in irrigation andextension services, average per capita incomes for non-flooded farmers wouldrise to $70 for an owner-operator and $50 for a sharecropper.

55. For the purposes of economic evaluation, unskilled labor forproject construction and farm operations has been shadow priced at 50% of themarket wage rates (reflecting the considerable unemployment and underemploymentin the project area), and a period of 25 years and salvage valuie of 20% ofinitial costs have been assumed. Under these assumptions, the economic rateof return is expected to be 16%.

Environmental Effects

56. Since the benefit area of the proposed project has been undercultivation for many years, the land use would not change appreciably,although the quality of agricultural activity would improve following projectimplementation. There would be a temporary disruption of the flora and faunain the vicinity of the construction sites but, due to its tropical character,the disturbed area would be restored to its natural condition within a year.The impact of the project works on sedimentation and delta formation at themouths of the Cimanuk River and Rambatan Channel would be investigated underthe Estuary Study included in the project. The proiect works would lessenthe dislocation of families or entire villages due to flooding, would rendertransportation less subject to interruption, and would eliminate the need torelocate previously threatened infrastructure.

Risks

57. While the economic rate of return of the project is not undulysensitive to any of the major assumptions made in its derivation, the projectdoes bear moderate risks. The most important is the risk of a damaging floodduring the construction period or of a flood exceeding the design flood inthe first few years after completion. In either case, the project workscould be damaged and significant financial and economic losses could ensue.However, such risks are normal for flood control projects. There is alsosome risk that the project works will not be adequately operated and main-tained; this risk has been minimized by the inclusion of the Flood ControlOperations Study in the project.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

58. The draft Loan Agreement between the Republic of Indonesia and theBank and the Report of the Committee provided for in Article III, Section4(iii) of the Articles of Agreement are being distributed to the ExecutiveDirectors separately.

59. Special conditions of the project are listed in Section III ofAnnex III. The employment of engineering consultants would be a condition ofeffectiveness of the proposed loan.

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60. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.

PART VI - RECOIMMENDATION

61. I recommend that the Executive Directors approve the proposed loan.

Robert S. McNamaraPresident

AttachmentsApril 11, 1979Washington, D.C.

ANNEX I-21- Page 1 of 5

INDONESIA - SOCIAL INDICATORS DATA SIIFEET

REFERENCE CROIUPS (AD JUSTED AVERArFSIN7ONESIA O N

I AND AREA (THOUSAND SM. KH.) - _t)ST RECENT ESTIMATF)

ToTAL 1904.3 SAW. SAME NEXT HIGHER

AGRICULTURAL 283.8 MOST RECENT GEOGRAPHIC INCOME INCOME1960 Lb 1970 /b ESTIMATE Lb REGION /c GROUP /d GROUP /e

G§P PFR CAPITA (US$) 70.0 140.0 300.0 616.0 182.9 432.3

RIERCY CONSUMPTION PER CAPITA(KILOGRAMS OF COAI. EQUIVALENt) 129.0 120.0 178.0 522.0 88.9 251.7

tPl'PULATION AND VITAL STATISTICSTOTAL POPULATION, MID-YEAR

(?IIl,l IONS) 94.7 117.6 133.5URBAN POPULATION (PERCENT OF TOTAL) 14.9 17.5 17.9 30.1 15.0 24.2

POPULATION DENSITYPER SQ. KM. 50.0 62.0 70.0 156.8 46.8 42.7

PER SQ. KM. AGRICULTURAL IAND 337.0 419.0 470.0 794.8 254.1 95.0

POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 42.L /L 44.0 42.1 40.8 43.6 44.9

15-64 YRS. 55.3 j. 53.5 55.1 55.4 53.3 52.8

65 YRS. AND ABOVE 2.6 if, 2.5 2.8 3.2 2.9 3.0

PO.'ULATION GROWTH RATE (PERCENT)IOTAL 2.1 2.0 2.0 2.3 2.4 2.7

URBAN *- 3.7 LI 2.6 5.1 4.0 8.8

lRIDE BIRTH RATE (PER THOUSAND) 46.0 45.9 40.3 34.6 44.3 42.2

'RUDE DEATH RATE (PER THOUSAND) 25.4 20.6 19.9 8.7 19.7 12.4

ROSS REPRODUCTION RATE 2.8 3.2 2.5 2.6 2.9 3.2

FAMILY PLANNINGACCEPTORS, ANNUAL (THOUSANDS) .. 181.1 1979.0USERS (PERCENT OF HARRIED WOMEN) .. 0.2 13.7 22.1 14.6 14.2

FOID AND NUTRITIONNDEX OF POOD PRODUCTIONPER CAPITA (1970-100) 96.5 100.0 102.7 106.8 96.4 104.3

i ER CAPITA SUPPLY OFCALORIES (PERCENT OF

REQUIREMENTS) 89.0 91.0 98.0 108.7 92.3 99.5

PROTEINS (GRAMS PER DAY) 43.0 43.0 43.8 57.7 50.0 56.8

OF lIACH ANIMAL AND PULSE 15.0 Lh 14.0 16.6 17.0 13.9 17.5

(H1LD (AGES 1-4) MORTALITY RATE .. .. .. 4.0 .. 7.5

NE} _TH[IFE EXPECTANCY AT BIRTR (YEARS) 47.5 45.0 45.3 59.0 45.8 53.3

1NFANT MORTALITY RATE (PERIROUSAND) 125.0 Ifi .- 116.0 44.0 102.7 82.5

A XESS TO SAFE WATER (PERCENT OFP PULATION)

TOTAL .. 3.0 11.0 21.9 26.4 31.1

URBAN .. 10.0 41.0 58.3 63.5 68.5

RURAL .. 1.0 4.0 9.8 14.1 18.2

AXESS TO EXCRETA DISPOSAL (PERCENT0? POPULATION)

TOTAL .. 12.0 15.0 28.6 16.1 37.5URBAN .. 50.0 60.0 66.6 65.9 69.5

RURAL .. 4.0 5.0 14.8 3.4 25.4

POPULATION PER PHYSICIAN 41380.0 /i 26830.0 16930.0 4103.1 13432.7 9359.2

POPULATION PER NURSING PERSON .. 7770.0 LI 7310.0 LI 1520.2 6983.3 2762.5Pi(PULATION PER HOSPITAL BED

TOTAL 1370.0 1670.0 1430.0 657.1 1157.6 786.5URBAN .. 1130.0 .. 145.5 183.3 278.4

RURAL .. 1890.0 .. 1011.8 1348.8 1358.4

AINISSIONS PER HOSPITAL BED .. .. .. 19.0 19.5 19.2

HOU 1INGA'.ERAC.E SIZE OF HOUSEHOLD

WTAL 4.4 4.8 .. 5.2 5.2URBAN 4.9 5.3 .5.2 4.8

RURAL 4.3 4.7 .. 5.4 5.3

ALVERAGE NUMBER OF PERSONS PER ROOMrOTAL .. 1.5 ..

URBAN 1.6 1.8 2.3RURAL 1. .6 .

AC.ESS TO ELECTRICITY (PERCENTOF DWELLINGS)

OTAL 63.5 39.1 25.9 28.3IRRAN *- 75.5 81IURAL .. 39.1 . 8.7 10.3,

ANNEX I-22- Page 2 of 5

INDONESIA - SOCIAL INDICATORS DATA SHEET

REFERENCE GROUPS (ADJUSTED AVERAGEStNDONESIA /s

- ffOST RECENT ESTIMATE)SAMF. SAMF. NEXT HIGHER

MOST RECENT GEOGRAPHIC INCOME INCOME1960 lb 1970 Lb ESTIMATE Lb REGION /c GROUP /d GROUP Le

EDUCAT I ONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 67.0 75.0 81.0 95.6 62.9 75.8FEMALE 55.0 70.0 75.0 93.7 45.9 67.9

SECONDARY: TOTAL 6.0 15.0 18.0 43.3 14.4 17.7FEMALE 3.0 11.0 13.0 38.6 8.8 12.9

VOCATIONAL (PERCENT OF SECONDARY) 20.0 22.0 21.0 11.3 6.6 7.4

PUPIL-TEACHER RATIOPRIMARY 39.0 29.0 30.0 30.0 38.5 34.3SECONDARY 14.0 13.0 15.0 25.4 19.8 23.5

ADULT LITERACY RATE (PERCENT) 47.0 /k 59.0 62.0 /k 84.0 36.7 63.7

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION 1.0 2.0 3.0 9.3 3.1 7.2RADIO RECEIVERS PER THOUSAND

POPULATION 7.0 .. 39.0 97.6 31.1 71.1TV RECEIVERS PER THOUSAND

POPULATION ,, 0.7 ,, 21.8 2.8 14.1NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION .. .. 16.0 25.9 6.0 16.3CINEMA ANNUAL ATTENDANCE PER CAPITA .. .. .. 4.6 1.4 1.6

EMPLOYMENTTOTAL LABOR FORCE (THOUSANDS) 34600.0 44200.0 48430.0 L

FEMALE (PERCENT) 27.9 31.0 34.2 33.2 24.2 28.0AGRICULTURE (PERCENT) 75.0 69.0 60.1 48.4 60.7 54.1INDUSTRY (PERCENT) 8.4 9.7 8.2

PARTICIPATION RATE (PERCENT)TOTAL 54.1 49.9 52.6 38.9 39.8 37.8MALE 79.8 68.7 73.8 48.6 53.3 50.3FEMALE 29.4 32.1 36.8 28.4 19.6 20.9

ECONOMIC DEPENDENCY RATIO 1.4 1.3 1.2 1.2 1.3 1.3

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS .. 33.7 /a .. 17.3 20.3 19.5HIGHEST 20 PERCENT OF HOUSEHOLDS .. 52.0 /a .. 45.6 45.1 48.9LOWEST 20 PERCENT OF HOUSEHOLDS .. 6.8 /m .. 6.5 5.7 5.9LOWEST 40 PERCENT OF HOUSEHOLDS .. 17.3 It *- 17.3 16.8 15.7

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN .. .. 125.0 140.8 88.5 155.9RURAL .. .. 95.0 112.8 71.9 97.9

ESTIMATED RELATIVE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN .. .. .. .. 100.8 143.7RURAL .. .. 55.0 76.8 42.0 87.3

ESTIMATED POPULATION BELOW POVERTYINCOME LEVEL (PERCENT)

URBAN .. .. 55.0 27.7 46.0 22.9RURAL .. .. 59.0 40.4 48.0 36.7

Not availableNot applicable.

NOTES

/a The adjusted grGup averages for each indicator are population-weighted geometric means, excluding the extremevalues of the indicator and the most populated country in each group. Coverage of countries among theindicators depends on availability of data and is not uniform.

/b Unless othervise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent Eatimate, between 1973 and 1977.

/c East Asia & Pacific; /d Low Income ($280 or less per capita 1976); /e Lover Middle Income ($281-550per capita. 1976); /f Excludes W. Irian; /A 1961-71; /h 1961-63; /i 1962; /I Includingmidwives; /k Aged 10 years and over; /1 Excludes rural areas in East Nusa Tenggara, Maluku andIrian Jay&; fm Income recipients.

September 1978

ANNEX I-23 - Page 3 of 5

DEFINTTIONS OP 'IDCIAL rNDICAIOtSS

Notes: Aitbo-gh the dais are drawn fros .oo.-tee gne rally judged the east authoritative and reli.abl, It should also be noted that the- may not be inter-nainlyc-parahte hb--aus of the lackof stadardinod definitions and concepts used by different countries in collecting the data. The data ore, nonetheless,

usefut to desc.ribe ards of -agniltude, indicate trends, and chrarsterire certain najon difference he t.eencountries.

mch adjusted Raro ~avrsoos far each indicator are population-weighted geometric means, excluding the extreme vlesof the indicator end the eastpopuILaed country to neb hgroup. Coverago of coun.tries a%mog the Indicators depends on aveilahility of data acd to not onifn-m boa to lath of data,gRuop averugee far Capial larpic.oOil toparere and Indioators of see.s to ester and eacreuc disposai, housfng, income distributiaon and poverty aream.ple population-oaf rh.ed genuecric means cithout the .. scIusie of setrene values.

LANDo ARti (thousand sq. k.) Penniatian ner basnital hod - tntal, urban, and .rurl - Papulation (total,Total - Trtal surface 'trea comprising land area and inland watar.. urban, and rural) divided by the ir renpective number nf hospital bedsAariulsst ... I - Vest rc. out eouimaf e of agricultural arsa used temporarily available in public and private general and specislised hospital sod ro-

or pernanenc. ly froo ups. paus, aker and kituhen gardens or to habilitatian setr.Hospital urn nestablishmonen. por--stly stuffed bylie fallow, at least one physician. Etetbliohoents providing principally cuetodia2.

rare are not included. Rural hospitule. howaver, include healtb aod nail-bIP PtR CAITA (CII- f pr apt esiae tcurrent market prices. Cal cenxters not perman.ently ataf fed by a physician (hut by a nndiral as-

46 ~ ~ ~ ~ ~ clultdby name onrerMon eethsd as World Rank Aries (t9P5-77 basis); siat.at, nre adio etc.) Which offer in-patiant acecnmdation and1960, 1970, and 1977 data, provide a linited range of mndical facilitie..

Adnission. per hospital bed - Total number of admissions to or dischargesENERGY CONIUMPTGIN PER M,AITk - Annual Consumption of comoercial energy from hospitals divided by the snumbe of beds..

(coal anlinite ptrtclao, natural gsed hydra-, nuclear and Seo-thnraa'lele~ctricityp) is kilograms of naal eqnuivalent per ropits. HOUSING

Average altes of household (persons per household) - total, urba.Iasd _rural-- ~~~~~PiPIJLAIIIN' APD VITALi ST J,StitCS A household conisitr of a group of individuals who shar living quaters.

Total poculatio-. id-~t .2

fcilinl - As Of7July 1; if eat available, and their naIn ea1e. A baarder or lodger nay or nay no eicldd Iceverao of en ed-yo eiute 19Sf. 1970 and 1977 data, the hous ehold for statistical purpuseu. Statistical definisinna of hcouse-

Urban Pupuutc (Cpercnt of total) -Ratio fofrban to tntal Vpoula- hold vary.Lie.; diffa.rnt def :icu of urban areaa may affect comparability Average somber of prera... per room - total, urban, and rural - Average om

of data among counts ea bar uf peroona per room to all, urban, and rural occupied conventional.Psulardon density dwellings respectively. Dwellings e..olude sos-permanent arructursa andPer as. ho.- M4d-pair popuistino per square kilometer (100 bectaree) Unoccaple parts,

otoaarea. Access, tu electricit (ponc.. of. d-e11ingo) - total. urban, and rural -Perf ent. ho aricultuet land - Compotnd as ahove for agricultural leand Conventional, dwellingo wih eletririaty ix living quarters as p-erretage

osly. of total, orba". and rural dwellings respectively.Population age tutr (nnet hildren (0-li years),..crking-age

(13- 64 year-),tandnotred ( yarn. and aver) as percenragen of mid- EDUCATIONyer population. Adjusted enrol.ent rutics

.Psplstin eroceth rats (percect) - total, and urban - Campound annual Prmr col ttal, an.d fo..alo - Tota a1 nd female enrollont of all ageagrscrh ruron of total and urban old-pear populations for 1950-60, at the Primary lovo1 an per-ntuges nf repectively primary school-age1960-70, an 1970-71. papulatiuns; normally includes children aged k-li years but adjusted f or

Grain birth re(pr thousand) - AnnualI live births per thousand of differeut lengtho of primary education; for couarriea s-irb unirersal edo-nid-year population; ten-yeor arithontic averages ending in 1961 and Cation anru11i.ant nay naceed li percent since sme Pupils are below or1970 and ficc-pear soetgo .odi.g in 1975 for most recent estimate. above the officiulh school age.

Crude doa-tcae pe thousand ) - A...aI de-tba per thcuoaud of aid- Secondary achn - total, and feml Computed a above; aeco.daryadu.a-yearpp cuaticc; ct. -ear arthmetic s-eragne ending in 1960 and 1970 titem requirest lean.t four yean fappra.ved Pr imary,isro s pro-and fire-peer -v_rul ending in 197) fur unut rocenL.tasiats. vide. general vccationml, aT teacher training intu fin on Pupils

fro oroucc faIr, -i Avog number of.daughters a wuoan will bear sualIly of 12 to 17 years of age; ctroupondeoco. c.u.ue. are generallyin her conra ruptnortiv per iod if she eperlanreo preae.nt age- eacluded.Papeific ic,tiliry rates; usually five-year averges e.diog in 1960. vocatto.u. enrollment fyoccent of secondary) - Vucatinnal institutions In-1970, end 1975. clude tobmIcuI, induotrial, or other programs which nyerate icdepeodemtly

family Plaon ing-coc prom, I' annal ...onodu - Annual number of or asdearmnt o ecndr inoitceuaCceptors cf birth-control dieu_ under auspices of national family Puoll-toacber ratio - pnimor~y. and secon'dary - Total tcdenta enrolled Inpluncing program. primary and ...condury levels divided hy numbers of treachorn in the ctotte

Feam, i .. oloicouee(ror f narrird ... eco) - Percaeae f a?osding le-elo.maredwmn of chil-b aic ge (l-i er) h `uebrirt-motrro1 Adult'literacy rate (percent) - Litorate adults Cable to toad and w-ita) as

deviuns to all married ooeeo in same age group. a percentage of tutul odult papulatiun aged 1) yeara and ove.t

FOOD1 AND ItThtTRI~M CONSUMPTPIONIndex ci food proute. o rpe cupita (197010i0) - Indro nmber of pee Passenge.r cars (per thnu..aad pupulutint) - Passenger cara comprien motor carecupita annulpou. Icoobal food cmoodirioc ecatiog less than eight parsons.; nocludes ambulances, hearses a.d oilirary

For cap6ita uoco aoio(eroto ourm , -f Computed from veicle...enegy eqoicalent ot net food ouppylis a-iIubln Ic counroy per capita. Radio receivncn (por thooac- nolalol-All types of rciesfor radiopen day. iA-ilable eupplien ounpnise donea.cic production, importa lons hroadcastu to generl1 public per tho..oa.rd cf population; e.cludos unlica--deckerte, ond choge:in croci. lot cupplicio c-1udo aelmaI food, aoedo, raeivor n ic .cuouric und In Yearo nI-o rngductation of radio aoa oiqa-tlito. usd'in enu pLco.uuin- and boson. in distribution. Re- efict drofo recont peur may no ecmucl ic otcutrie

q'cooccreo reo-d by FAG based oc pybpnnocgiiul ...edu for no- aboliuhed lieorcuicg.e-l aciiyad no. ith -oriderocg esire tu -pe-pntc.-, o:oivno rev hoovod coulticrl - TV cecee-ro for broadcas.t to generAucIgyc,' geo od no: diotci.ioulofuc popolativn. and ullrmicg 10 par- public portnhcuuacd populatico; ocluesunicec...d TV receic-- in re.s-co for cauce ur huocehold lec-l. tmien und in yeorsvbeo. rogiltrutlcc c Ti sets was it, ff-ac.Per onia ryo ofro-noi (fRees. per day) - Protein content of per Neropp.ctcr ulto (nriuadpclao) S- h ts ho a-orgo cua

cupit. ct supply o. food per day . bee supply of feud Is defined so tior of 'duilp gonteal iccorcut cr uc.dof iced 00 0 pcrlodicat p&-i-ubrue bo T lmou--t fun o-Il c..ctrfes estubilirhd by USDA provide for cation devoted primarily to re..ordici grceru1 inns. It in cIcidered! toa .mnau alloanc ofc6) g-ano of total protein per day and 20 grano he 'daily" if it appoa- an -- . Lrau .foo tie a..eb.of animaland paIneprote in, of uhich IC grama should be anicl protein. Cinema .ccuaI attodarce per caoita percver - boned on rho cooler of tIcketsThese staudurds are bear than those of 75 gram of total protein and sold during rho yeac, i-oluding .i-i.ut.c to drtv-in cicenan und mobile23 gcumn of animal Lotein an an avrage for the aurld, propose.d by units..PAO in the Third fo Id Food Su-vY.

Par ceyits potcin -00 yjoi soimal and pulen - Protein supply of faud EhiPLOYhCNTdrrived frnomaia ,and yalu_ in gram pen day. Total labor frcco (thu.....do) - Ecro..cilsly active persons, ir-luding amd

Child (ages L-4) morttiy er.tac (pot tho..... l - Annual deathe per thbma- farc an...d -cotlayed hut eoidoghueivs rdeots, etc. Defini-and in age group 1-.. years .ichibldros in chin age graup. tiens in vari... contrie.sare not com parable.

Femal (perent - Female labcr force aspececag Ioftur labor fcrc.liEALIH Aroluefoot)-Labor force cfamig foetry, hutin Dad fiehingLife e, ecrt-oy at hi tb (pears) - Average number of yecra of life asp-rtctof of total lahor force.

- ~~~~~~~remaining at bcirt; ..suoliy five-year aegsending in 1960, 1970, Industry (percnt) - L.abnr force in mining. co..strutiar, manufacturisg andnand 1971. etyleorriIcir1 y,rcatec and gas at percomtugo of total labor force.nfant Mortaiyrt (pnertouan) - 1Ana deaths nf infents undar.... Pric ticio rac loercan.. - total, mule, and female - Total, male, sad

one year of age per tho..ua.i Ium bihits, female labor f.to -eu pocaentugoc of rheir ce-p-oic- populalooi.IAccess to safe water oeccent of populationo) - total, urban, and rural - These are ILO1 adjorted participatlon nretx reflecting ape-scIfobot of poopie it t.l. urban, and ruca1) with coasn.oablo -acco to trroctue af rho popolatia, Inod funf tine trend.soft water supply (Lnlocld.. treated suf- acewatore or unrreered but tcnnon.io doed-ccv ratio - fRatso of pcpo.latio under lb and 65 and aver rauscoeromloatad wane: ouh 00 that from prtotectd rhcrebale. springs, the lab.:or force in age group of 15-ho year.and ..oitary wollul A. porocotagco of their cepciepopulatiosa.In an urban are a alic -Icutuin or standpost located net mare INICOMIE DISTRIBU2TIONthan lii00.... fcc. s heo_n nap be cons idere.d as being within rem- P"erontae nf pcivate income (hock in caseh and kind) receivod by richest 5sonahbe coent of t'u hon... InTenl areas. reasonabl.e acess wou ld percent. riohoe 20 percent. peorese 20 percent. aed p-orrot 40 percentimplp that the hou-oife or nenbera of the hb..oebold do not have ce of households.spend a :prpnt .ote pact of tha day in fetching the fseily's

Acceno to en-t-ta din-onu1 lo'Erceet ef pclco)-ttal, urbam, and Estinated absolute poverty incoma level (US$ per capital - urban and rural -ttl- Poohor of pauple (tutoI, urban,and rural) nerved by e.cceta Absolute porcerty income level Is that income le-e below which a ninicaldisposa-l as percet ges nf their respootive oul na.Excrete nutrri-inllyadrquotn diet plus .. raatca1 non-food reqontcets Is matdiapal ma.I y mlo,ldy the c-i1etino aod diapo...l, with or withaut affocdabe..treetnet, of hua ..crero and waste-water bp water-borne systems Eacixared relation poserty itomo level (US$ per capita) - rbas sand rural -or thcoe apit pilienosicir Ion.allaticna. Relative poverty IInoc Ib-I Is that inoose level lees than one-third

PeouluIvoprov4 a - FPcpcltiio divided by number of practielug Per capita peaolIncam uf the coun..try.Ph-yxiviar qualifioi from a cilca1 school at noivratty level. EstimateD.. pultien bal1n pverty I..... levo1 f.recat) - arbor and rural-

Populoti.n pet notir4 p-rn- - Pupulaciuc divided by number of Pr teoo poplton(ro and crl.. ) abe are either 'absolute poet' orprcticing male enod female praduate nurses, practicaltos, and relative, poor" whichever Ia greate..esistoot Iruax

Economic and Serial Data DictalomEconomic Anaiyais sod Projections Department

ANNEX I-24 - Page 4 of 5

ECONOMIC INDICATORS

GROSS NATIONAI PRODUCT IN 1977 - ANNUAL RATE OF GROWTH (%, constant prices)

US$ Mln. % 1960-65 1965-70 1971-77

GNP at Market ?rices 44,386 100.0 1.9 4.9 7.8Gross Domestic Investmaent 8,667 19.5 3.3 11.5 13.4Gross National Saving 8,448 19.0 5.8 5.1 16.9Current Accoun; Balance - 725 - 1.6Exports of Goois, NFS 7,592 17.1 1.5 7.8 10.0Imports of Goods, NFS 7,489 16.9 0.2 10.9 18.0

OJTPUT, LABOR }'ORCE ANDPRODUCTIVITY IL 1976

2/Value Added Labor Force- V. A. Per Worker

US$ M'n. % Min. % US- -$

Agriculture 11,624 31.1 35.3 62.6 329 49.7Industry 12,672 33.9 4.7 8.3 2,696 407.3Services 13,043 35.0 13.4 23.8 973 147.0Unallocated - - 3.0 5.3

Total/Av3rage37,339 5Or.O 10.0 662 100.0

GOVERNMENT FINA:'CECENTRAL GOVERNMENT

(Rp. Billion) % of GDP1976/77 1977/78 1976 1977

Current Receipt, 2,877 3,535 , 18.6 18.6Current Exoenditure 1,610 2,149 10.4 11.3Current Surplus 1,267 1,387 8.2 7.3Capital Expenditures 2,044 2,157 13.2 11.3External Assistance (net) 784 773 5.0 4.0

MONEY, CREDIT anl PRICES l972 1973 1974 1975 1976 1977(Bilion Rp outstanding end period)-

Money and Quasi loney 695 987 1,452 1,978 2,631 3,147Bank credit to Piblic Sector 129 153 209 990 1,051 865Bank Credit to Plivate Sector 524 932 1,186 1,376 1,737 2,063

(Percentages or Index Numbers)

Money and Quasi loney as % of GDP 15.2 14.6 14.8 16.3 17.0 16.5General Price Incex (1966 = 100) 807 1,928 1,370 1,640 1,873 2,094Amnual percent ge changes ins

General Price Incex 25.7 27.4 33.3 19.7 14.2 11.8Bank credit to Ptblic Sector -14.0 18.6 36.6 473.7 6.2 -17.7Bank credit to Private Sector 65.3 77.9 27.2 16.0 26.2 18.8

NOTE: All conver3ions to dollars in this table are at the average exchange rate prevailing during the periodcovered.

1/ Conversion at an exchange rate of Rp 415 - US$12t Total labor fo'ce; unemployed are allocated to sector of their normal occupation. "Unallocated"' consists

mainly of unemi)loyed workers seeking their first job.

not availablenot applicable

East Asia & Pacific Programs

February 28, i979

- 25 -

ANNEX IPage 5 of 5

TRADE PAYMENTS AND CAPITAL FLOWS

BAEANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1974-76)

1975 1976 1977(Provisional) US $ Mln %

(Millions US $)

Exports: 4,738 6,183 7,592 Oil 2,906 57.1

Oil (net) 2,921 3,567 4,243 Timber 605 11.9

Non-oil 1,817 2,216 3,349 Rubber 461 9.1

Imports - -6,352 -7, 89 Palm Oil 117 2.3

Resource Gap - 795 - 169 103 Tin 107 2`1

Factor service: - 462 - 646 - 828 Coffee 104 2.0

Interest - 178 - 362 - 473Investment Income - 284 -- 284 - 355 All other commodities 791 15.5

Balance on Current Account -1,257 815 - 725 Total 5,7- 100,0

Direct Foreign Investment 497 329 286 EXTERNAL DEBT, DECEMBER 31, 1977

Net NLT BorrowingDisbursements 2,395 2,327 1,988 US $ Mln

Amortization - 322 - 625 - 826

Subtotal 2,073 1,702 1,162 Public Debt, incl. guaranteed 11,391

Capital Grants .. Non-Guaranteed Private Debt

Other Capital (net) -2,250 - 205 )474 Total outstanding & DisbursedOther items n.e.i - 46 - .604 )Increase in Reserves (+) - 983 736 1,197 DEBT SERVICE RATIO for 1977- -

Gross Reserves (end year) 590 1,494 2,494

Net Reserves (end year) 490 1,226 2,423 Public Debt, incl. guaranteed 17.1

Non-Guaranteed Private DebtFuel and Related M4aterials Total outstanding & Disbursed

Imports 93 119 28ofi which: Petroleum 89 114 26

Exportsof which: Petroleum 2,921 3,567 4,243 IBRD/IDA LENDING, (Feb. 28, 1979)(Million US $):

RATE OF EXCHANGE IBRD IDA

2/ Outstanding & Disbursed 596.1 490.7Through - Aug. 1971 Since - 1971- Undisbursed 1,306.9 189.0

US $ l.OO = Rp 375 US $ 1.00 = Rp 415 Outstanding incl. Undisbursed 1,903.0 679.7

Rp IODo = US $2.67 Rp lQ0 = US $2.41

1/ Ratio of Debt Service'to Exports of Goods and Non-Factor Services, with oil exports on a net basis

(i.e. excluding factor payments and imports of the oil companies).

2/ Since 11/15/78US$ 1.00 = Rp 625Rp 1000 = US$ 1.60

. not available

. not applicable

East Asia & Pacific Programs

February 28, 1979

- 26 -ANNEX IIPage 1 of 20 pages

THE STATUS OF BANK GROUP OPERATIONS IN INDONESIA

A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of February 28, 1979)

US$ millionLoan/ AmountCredit Fiscal (less cancellations)Number Year Purpose Bank IDA Undisbursed

One Loan and seventeen Credits fully disbursed 50.0 228.1 -

220 1971 Third Irrigation Rehabilitation 14.5 0.2259 1971 Tea 15.0 0.7260 1971 Second Highway 34.0 0.2289 1972 Fourth Irrigation Rehabilitation 12.5 0.2300 1972 Population 13.2 3.2318 1972 Inter-Island Fleet Rehabilitation 8.5 2.0319 1972 Fourth Agricultural Estates 11.0 2.0355 1973 Beef Cattle Development 3.6 0.2358 1973 North Sumatra Smallholder Development 5.0 0.8387 1973 Third Education 13.5 4.7388 1973 Third Highway 14.0 0.1399 1973 West Java Thermal Power 46.0 4.8400 1973 Smallholder and Private Estate Tea 7.8 6.3405 1973 Sugar Industry Rehabilitation 50.0 0.8428 1974 Pulo Gadung Industrial Estate 16.5 10.1436 1974 Private Development Finance Co. of

Indonesia (PDFCI) 10.0 0.7451 1974 Fourth Technical Assistance 5.0 1.9479 1974 Bali Tourism 16.0 10.7480 1974 Fisheries Credit 6.5 2.1514 1975 Jatiluhur Irrigation Extension 30.0 22.4785 1978 Small Enterprise Development Project 40.0 35.9827 1978 Rural Credit 30.0 30.0869 1979 Polytechnic /a 49.0 49.0

1005 1974 Railway 48.0 3.91040 1975 Jakarta Urban Development 25.0 2.51049 1975 Five Cities Water Supply 14.5 8.51089 1975 Second Fertilizer Expansion 115.0 1.61100 1975 Sixth Irrigation 65.0 49.81127 1975 Fourth Power 41.0 4.71139 1976 Fertilizer Distribution 68.0 1.51179 1976 Agricultural Research & Extension 21.5 19.21197 1976 National Resource Survey & Mapping 13.0 8.51236 1976 Fourth Highway 130.0 100.2

/a Not yet effective.

- 27 - ANNEX IIPage 2 of 20 pages

US$ million

Loan/ Amount

Credit Fiscal (less cancellations)

Number Year Purpose Bank IDA Undisbursed

1237 1976 Fourth Education 37.0 31.2

1250 1976 Second Shipping 54.0 46.7

1254 1976 Third Fertilizer Expansion 70.0 14.3

1259 1976 Fifth Power 90.0 76.7

1267 1976 National Food Crops Extension 22.0 15.8

1268 1976 Seventh Irrigation 33.0 21.5

1318 1977 Transmigration and RuralDevelopment 30.0 23.2

1336 1977 Second Urban Development 52.5 22.0

1337 1977 Tanjung Priok Port 32.0 23.9

1363 1977 Second Private DevelopmentFinance Co. of Indonesia(PDFCI-II) 15.0 12.5

1365 1977 Sixth Power 116.0 86.9

1373 1977 Nutrition Development 13.0 12.9

1433 1977 Teacher Training-Fifth Education 19.0 17.8

1434 1977 Eighth Irrigation 63.0 61.1

1435 1977 Ninth Irrigation 35.0 31.21437 1977 Development Finance Co.

(BAPINDO III) 40.0 26.6

1472 1977 Second Population 24.5 23.9

1486 1978 Non-Formal Education 15.0 14.4

1499 1978 Nucleus Estates and Smallholders I 65.0 61.7

1513 1978 Seventh Power 109.0 108.4

S 009 1978 Bukit Asam Coal Mining and TransportEngineering 10.0 9.1

1578 1978 Tenth Irrigation 140.0 139.7

1579 1978 Eleventh Irrigation 31.0 29.0

1604 1978 Nucleus Estates and Smallholders II 65.0 65.01645 1979 Irrigation XII /a 77.0 77.0

1653 1979 Third Urban Development /a 54.0 54.0

Total 1,903.0 679.7 1,495.9of which has been repaid 13.8 0.0

Total now outstanding 1,889.2 679.7

Amount sold 28.1 0.0

Total now held by Bank and IDA /b 1,861.1 679.7Total undisbursed 1,306.9 189.0 1,495.9

/a Not yet effective./b Prior to exchange adjustment.

- 28 -ANNEX IIPage 3 of 20 pages

B. STATEMENT OF IFC INVESTMENTS (as of February 28, 1979)

Fiscal Type of US$ millionYear Obligor business Loan Equity Total

1971 P.T. Semen Cibinong Cement 10.6 2.5 13.11971 P.T. Unitex Textiles 2.5 0.8 3.31971 P.T. Primatexco

Indonesia Textiles 2.0 0.5 2.51971 P.T. Kabel Indonesia Cable 2.8 0.4 3.21972 P.T. Daralon Textile

Manuf. Corp. Textiles 4.5 1.5 6.01973 P.T. Jakarta Int. Hotel Tourism 11.0 - 11.01973 P.T. Semen Cibinong Cement 5.4 0.7 6.11974 P.T. Primatexco.

Indonesia Textiles 2.0 0.3 2.31974 P.T. Monsanto Pan Electronics 0.9 - 0.91974 P.T. PDFCI Devel. Fin. Co. - 0.5 0.51974 P.T. Kamaltex Textiles 2.4 0.6 3.01976 P.T. Semen Cibinong Cement 5.0 1.5 6.51976 P.T. Semen Cibinong Cement - 1.1 1.11977 P.T. Daralon Textile

Manuf. Corp. Textiles 0.3 - 0.31977 P.T. Kamaltex Textiles 1.4 0.1 1.5

Total 50.8 10.5 61.3

Less: sold or repaid and cancelled 29.2 1.8 31.0

Total held by IFC 21.6 8.7 30.3

Undisbursed (including participant's portion) - - -

-29- ANNEX II

Page 4 of 20 pages

C. PROJECTS IN EXECUTION /1

These notes are arranged by sectors in the following order:

Agriculture PagesIrrigation (Cr. 289, 514, Ln. 1100, 1268, 1434, 1435, 1578,

1579 and 1645/2) 5-6Other Agriculture Production (Cr. 259, 319, 355, 358, 400,

405, 480, Ln. 1318, 1499 and 1604) 6-9Agriculture Support Services (Ln. 1179 and 1267) 9-10

Agro-Business and Credit (Cr. 785 and 827) 10

Education (Cr. 387, 869/2, Ln. 1237, 1433 and 1486) 11-12

Energy (Cr. 399, 1127, 1259, 1365 and 1513) 12-13

Industrial Development and FinanceFertilizer Production (Ln. 1089 and 1254) 14Industrial Estates (Cr. 428) 14Development Finance Companies (Ln. 1437, Cr. 436 and Ln. 1363) 15Coal Mining (Ln. S-9) 15

Population and Nutrition

Population (Cr. 300 and Ln. 1472) 15-16Nutrition (Ln. 1373) 16

Technical Assistance (Cr. 451 and Ln. 1197) 16-17

TransportationFertilizer Distribution (Ln. 1139) 17Highways (Ln. 1236) 17Marine Transport (Cr. 318 and Ln. 1250) 18Ports (Ln. 1337) 18Railways (Ln. 1005) 18

Tourism (Cr. 479) 19

Urban Development (Ln. 1040, 1336 and 1653/2) 19-20

Water Supply (1n. 1049) 20

/1 These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to report anyproblems which are being encountered and the action being taken toremedy them. They should be read in this sense, and with the under-standing that they do not purport to present a balanced evaluation ofstrengths and weaknesses in project execution.

/2 Not yet effective.

- 30 -ANNEX IIPage 5 of 20 pages

C. PROJECTS IN EXECUTION

AGRICULTURE

Irrigation

Credit No. 289 Fourth Irrigation Rehabilitation: US$12.5 Million Creditof March 9, 1972; Effective Date: May 5, 1972; ClosingDate: June 30, 1979.

The construction program has escalated in cost by 150% over theappraisal estimate, due to an increase in the magnitude of the works andunexpected inflation. The project is expected to be completed shortly.Feasibility studies included in the project have been concluded and ground-water investigations are nearing completion.

Credit No. 514 Jatiluhur Irrigation Extension: US$30 Million Creditof October 3, 1974; Effective Date: January 10, 1975;Closing Date: December 31, 1980.

Initial organizational difficulties and late awarding of thefirst construction contract have caused a delay of about 2 years in theproject schedule. The first construction activity started in February 1977and contracts for over 70% of the project works have been let. Based on bidprices for the first contract and revised quantity estimates on the basis ofdetailed design, total project cost is now estimated to be about 140%over the appraisal estimate.

Loan No. 1100 Sixth Irrigation: US$65 Million Loan of April 10, 1975;Effective Date: June 20, 1975; Closing Date: June 30, 1982.

Good progress has been made on the rehabilitation works, butconstruction of new works is behind schedule because of delays in preparingcontract documents. The two largest contracts have still not been let.Substantial cost overruns are anticipated due to unavoidable major changes inthe design of the Sampean Baru dam and unit price increases in other compo-nents. These will be verified as bids are received for the major contracts.

Loan No. 1268 Seventh Irrigation: US$33 Million Loan of June 4, 1976;Effective Date: September 21, 1976; Closing Date:December 31, 1981.

The implementing agencies have engaged the consultants. Construc-tion is underway in the North Sadang and tertiary development areas, andstudies being funded under the project are expected to be completed shortly.The mapping program is progressing satisfactorily. Disbursements are aheadof schedule.

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Loan No. 1434 Eighth Irrigation: US$63.0 Million Loan of June 6, 1977;Effective Date: July 7, 1977; Closing Date: March 31, 1983.

Disbursements are somewhat ahead of schedule, and the project isbeing implemented satisfactorily.

Loan No. 1435 Ninth Irrigation: US$35.0 Million Loan of June 6, 1977;1977; Effective Date: July 7, 1977; Closing Date:December 31, 1981.

While delays have arisen due to inadequate mapping in the SungaiDareh-Sitiung area, the project is ahead of schedule and progressing satis-factorily. Some tender documents have been prepared and contracts areexpected to be let this year. Disbursements are ahead of schedule.

Loan No. 1578 Tenth Irrigation: US$140 Million Loan of June 6, 1978;Effective Date: August 16, 1978; Closing Date:December 31, 1984.

Initial delays in hiring consultants and in preparing tenderdocuments are slipping the start of project construction behind the appraisalestimate.

Loan No. 1579 Eleventh Irrigation: US$31 Million Loan of June 6, 1978;Effective Date: August 16, 1978; Closing Date:December 31, 1983.

A smooth start has been made on some components but two componentsare behind schedule due to unforeseen technical problems and delays indrawing up tender documents.

Loan No. 1645 Twelfth Irrigation: US$77 Million Loan of December 29,1978. Not yet effective; Closing Date: March 31, 1984.

Consultant contracts are being finalized and a smooth start toproject implementation is being made.

Other Agriculture Production

Credit No. 259 Tea: US$15 Million Credit of June 24, 1971; Effective Date:September 17, 1971; Closing Date: August 31, 1979

Nearly all the targets set at appraisal have been achieved one yearahead of project completion, but factory capacity still has to be expanded

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to take account of the increased production which exceeds appraisal estimatesby about 6,000 tons, or 30%. Financial, technical and managerial performancehas been excellent. Inflation and additional construction and equipmentcosts are expected to increase project costs by about 17% above appraisalestimate, but the economic rate of return is good and is expected to be over20%.

Credit No. 319 Fourth Agricultural Estates: US$11 Million Credit ofJune 28, 1972; Effective Date: January 30, 1973;Closing Date: June 30, 1981.

Progress of the project continues to be good, with planting ofrubber and oil palm ahead of appraisal estimates and in excellent condition.The project has been expanded to 15,000 ha (originally 11,400 ha). Theremaining area to be planted is about 3,500 ha, of which 2,300 ha have beencleared and are ready for planting. Technical problems exist in processingand equipment maintenance, but construction of the oil palm mill will beaccelerated and additional capacity for crumb rubber production will also beprovided. Profitability and cost of development at PNP X are satisfactory,while the capital structure of PNP X is to be improved during the course ofthe Nucleus Estates and Smallholders I Project (Loan 1499-IND). PNP X isalso participating in the Transmigration and Rural Development Project(Loan 1318-IND).

Credit No. 355 Beef Cattle Development: US$3.6 Million Credit ofJanuary 31, 1973; Effective Date: May 30, 1973;Closing Date: September 30, 1980.

Several problems seriously delayed project implementation. TheGovernment's budget allocation was insufficient, and financial management andcoordination were weak. Changes in the scope and design of the project,from one of breeding and fattening of beef cattle for export to that ofproduction of improved cattle for domestic sale as draft and breedinganimals, were approved by the Executive Directors in June 1977. The projectwas reviewed in November 1977 and May 1978 and is now being implementedsatisfactorily.

Credit No. 358 North Sumatra Smallholder Development: US$5 Million Creditof February 14, 1973; Effective Date: August 13, 1973;Closing Date: December 31, 1981

Progress continues to be satisfactory, and the expected program ofplanting rubber and oil palm by smallholders was accomplished at the end of1977. By 1981, when the project is completed, these plantings will have beenbrought to maturity. The Government has decided not to expand the project inits present location because of the extensive support already being given toNorth Sumatra Province through this and other Bank-supported projects;

ANNEX IIPage 8 of 20 pages

instead, the Government is seeking the Bank's assistance for smallholderdevelopment projects in other Provinces, including Aceh, Jambi, Riau,S. Sumatra, W. Kalimantan and S. Kalimantan.

Credit No. 400 Smallholder and Private Estate Tea: US$7.8 Million Creditof June 22, 1973; Effective Date: November 30, 1973;Closing Date: March 31, 1982.

Since smallholders and estates prefer a heavier concentration onreplanting and less on rehabilitation, the mix had to be changed, therebyreducing the overall area from 13,200 ha to about 10,200 ha. Althoughproduction will not be affected, since yields from replanted tea are higherthan from rehabilitated tea, costs will exceed appraisal estimates by about77%, since replanting is more expensive than rehabilitation and costs havegenerally increased because of inflation. Delays were experienced in imple-menting the institutional framework for long-term lending, a new venture forBank Rakyat Indonesia (BRI). Because of this, and difficulties in involvingthe private estates in the project, disbursements are behind appraisalestimates. A major review of the project is currently being undertaken by theResident Staff in Indonesia. While the project has experienced difficulties,it is estimated that, because of the project-induced spin-off effects, anarea at least equal in size to the project is being improved. Over 500farmers' groups have been formed to improve tea production supported by aproject training program presently involving nearly 4,000 farmers. Thesedevelopments have been helped by a surge in tea prices (2-1/2 times appraisalestimates). Considerable investment in factory and field development istaking place outside the project, largely financed by short- and medium-termloans from BRI and by private investors.

Credit No. 405 Sugar Industry Rehabilitation: US$50 Million Credit ofJune 26, 1973; Effective Date: April 22, 1974;Closing Date: June 30, 1979.

The rehabilitation of two sugar factories and the constructionof one new factory, financed by the Credit, have been completed on scheduleand trial runs are taking place. The research part of the project is slow inmaterializing; the sugar research station still requires a major consultantinput. The two PTPs involved in the rehabilitation process are both in aparticularly weak financial position, and this problem requires attention.The Government has started an evaluation of the financial status of theindustry, but progress of this study is slow.

Credit No. 480 Fisheries Credit: US$6.5 Million Credit of June 14, 1974;Effective Date: January 8, 1975; Closing Date:June 30, 1979.

After some initial delays, the overall project is now about18 months behind schedule. Construction of shore facilities at Ambon is

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Page 9 of 20 pages

virtually completed. Boat construction is under way and all related equip-ment is on site, ready for installation. While the quality of fishpondlending has suffered some deficiencies in the past, remedial action taken byBank Rakyat Indonesia is gradually improving the situation.

Loan No. 1318 Transmigration and Rural Development: US$30 MillionLoan of July 21, 1976; Effective Date: March 30, 1977;Closing Date: December 31, 1981.

Settlement and construction are lagging about a year behind ap-praisal estimates, partly because of the initial delay in project effective-ness and weak project organization and management. Nonetheless, 1,300migrant families have been settled at Baturaja and are successfully growingfood crops. Initial incomes are satisfactory in spite of inadequate fer-tilizer supplies and poor seed supply, although one third to one halforiginates from construction and rubber planting. These incomes are substan-tially above incomes the transmigrants received in Java. As evidence of therelative attraction of the Baturaja community, 485 spontaneous settlers havealready been attracted to the site. In the existing settled area at WayAbung, there has been little improvement in incomes because fertilisers arenot available on site and delayed road construction limits marketing of cashcrops. Experience to date highlights the need for improving project manage-ment and ensuring that agricultural support services and input supply systemsare in place as settlement proceeds.

Loan No. 1499 Nucleus Estates and Smallholder I: US$65.0 MillionLoan of November 18, 1977; Effective Date: January 12, 1978;Closing Date: June 30, 1982.

This loan became effective in January 1978. Project implementationhas started slowly, due to inadequate budgeting of local funds and appoint-ment of key consultants. Land clearing is in progress and planting materialis being distributed to smallholders.

Loan No. 1604 Nucleus Estate and Smallholder II: US$65.0 MillionLoan of July 12, 1978: Effective Date: September 13, 1978;Closing Date: December 31, 1983.

This loan has recently become effective.

Agriculture Support Services

Loan No. 1179 Agricultural Research and Extension I: US$21.5 Million Loanof December 19, 1975; Effective Date: February 23, 1976;Closing Date: December 31, 1981.

Due to prolonged negotiations over selection and terms and condi-tions of employment of consultants, including architects and engineers, the

ANNEX IIPage 10 of 20 pages

project is about 18 months behind the appraisal implementation estimates.Design of all civil works has been completed, construction of extensioninformation centers is progressing well and expected to be completed in FY79,and the Agency for Agricultural Research and Development (AARD) plans to letcontracts for the remaining civil works shortly. At the present projectedpace of implementation all components, except fellowships, could be completedby the Closing Date.

Loan No. 1267 National Food Crops Extension; US$22 Million Loan of June 4,1976; Effective Date: September 21, 1976; Closing Date:June 30, 1982.

Good progress is being made in the field and, despite organiza-tional difficulties, an effective extension service is being created. Ap-pointments of extension staff are ahead of schedule and the project director-ate has been strengthened by the appointment of three additional AssistantDirectors. Civil works have been resumed and, after recent approval ofprefinancing requests for 1977-78, the training program has been started.Disbursement is lagging in every category due to prefinancing difficultiesand delays in submission of withdrawal applications with supporting documen-tation for equipment and furniture. The new procedure for prefinancing(outlined by the Finance Ministry in October 1978) is expected to help solvethe problem and speed up project implementation and disbursement.

AGRO-BUSINESS AND CREDIT

Credit No. 785 Small Enterprise Development: US$40.0 Million Creditof April 7, 1978; Effective Date: August 17, 1978; ClosingDate: December 31, 1981.

This credit became effective on August 17, 1978. Despite start-updifficulties, Bank Indonesia (BI) is making good progress in revising lendingprocedures and establishing new lending approaches to serve the medium-termcredit needs of small entrepreneurs. Training of BI and handling bank staffis progressing and preparation for studies is on schedule.

Credit No. 827 Rural Credit: US$30.0 Million Credit of June 23, 1978;Effective Date: November 3, 1978; Closing Date: March 31, 1985.

This project provides long-term credit to about 40,000 smallhold-ers, primarily for fisheries, perennial crops and livestock, and technicalassistance to Bank Rakyat Indonesia (BRI) for program development, training,credit procedures and accounting and management information systems. BRI,the implementing agency, is in the process of evaluating proposals forproject consultancy and preparing the lending program for the first year(April 1, 1979 to March 30, 1980).

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EDUCATION

Credit No. 387 Third Education: US$13.5 Million Credit of June 1, 1973;Effective Date: August 29, 1973; Closing Date:December 31, 1981.

The project finances the production and distribution of 138 millionprimary school textbooks in four subjects, and related in-service trainingfor 350,000 primary school teachers and 2,800 supervisory personnel. About90 million project books have been printed and 3,800 tutors and administra-tors and about 400,000 teachers (114% of the project target) have receivedtraining nation-wide. Despite the remarkable quantitative achievements,problems of management, distribution, technology and pedagogy make theproject less effective than it could be. The training program, although onschedule and making good progress, is out of phase with book production,which is almost one year behind schedule due to delays in paper procurement.Textbooks and teacher manuals would benefit from better design, organizationand illustrations, and their content is limited by the national curricula.In response to Bank proposals, the Government has started a major review ofthe project to focus on its relation to other ongoing Government textbookprograms and overall future needs for production of instructional materials.

Credit No. 869 Polytechnic: US$49.0 Million Credit of December 29,1978; Not yet effective; Closing Date: June 30, 1985.

The project is designed to help the Government meet demand for en-gineering technicians and trained accountants. It will introduce a new system(polytechnics) for training technicians at the diploma level by establishinga Technician Education Development Center and six polytechnics in Java andSumatera, and improving the quality of accountancy training by establishingfour accountancy development centers in existing universities.

Loan No. 1237 Fourth Education: US$37 Million Loan of April 15,1976; Effective Date: June 17, 1976; Closing Date:December 31, 1980.

Initially, all three subprojects - under the Ministry of Education(MOE), Ministry of Manpower (MOM), and National Institute of Administration(LAN) respectively - suffered an eight month delay due to late signing ofthe Funds-in-Trust (FIT) Agreements with the UN Agencies providing technicalassistance, as well as contracts with the consultant architects. Further delayshave occurred in the tendering and awarding of civil works contracts for theManpower and LAN components. Overall, the project is about 1-1/2 yearsbehind schedule. About 70% of civil works, 40% of furniture, and 100% oftechnical assistance have been contracted. Implementation of the technicalassistance programs of all subprojects is in line with the FIT Agreements.Overall, the Ministry of Education and LAN components are going well, but theMinistry of Manpower has had difficulty in managing its diverse program of

- 37'-ANNEX IIPage 12 of 20 pages

establishing 17 training centers. Delayed implementation may require post-ponement of the Closing Date by about six months.

Loan No. 1433 Teacher Training: US$19.0 Million Loan of June 6, 1977;Effective Date: July 7, 1977; Closing Date: June 30, 1983.

Implementation of the project closely follows the appraisal sched-ule. The first and second phases of the program to train 160 Indonesianeducators in ways to improve teacher training and develop new curricula havebeen carried out successfully. Curriculum development work is making goodprogress, production of learning material is under way, and the researchdesigns for studies included in the project have been completed. Civil worksare on schedule, but equipment procurement is delayed by about nine months.There are no specific implementation problems at this stage.

Loan No. 1486 Non-Formal Education: US$15.0 Million Loan ofSeptember 14, 1977; Effective Date: November 4, 1977;Closing Date: June 30, 1983.

The project aims at strengthening the nonformal education programsof the Department of Education in seven Provinces. General progress inproject implementation is satisfactory. Renovation of two existing provin-cial centers was completed on schedule, construction contracts for four newcenters are being awarded, and furniture and equipment is being tendered.The technical assistance component is about nine months behind schedule dueto late signing of contracts and the November 1978 devaluation; however, thetraining aspects of the project are on schedule. Recruitment of foreignexperts and domestic consultants is accelerating satisfactorily; initialstaff training, learning materials development, and evaluation activities arebeing carried out. It will be another two years before the project can beexpected to make a significant impact on field activities.

ENERGY

Credit No. 399 West Java Thermal Power: US$46 Million Credit of June 22,1973; Effective Date: August 28, 1973; Closing Date:June 30, 1980.

Project implementation was initially delayed due to the necessityof making additional financing arrangements to meet much higher costs ofequipment resulting from rapid inflation in 1974/75. However, implementationis now progressing smoothly. Both 100 MW generating units have been syn-chronized with the grid and are being loaded slowly.

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Loan No. 1127 Fourth Power: US$41 Million Loan of June 17, 1975; EffectiveDate: October 23, 1975; Closing Date: June 30, 1980.

Construction of the third 100 MW unit at Muara Karang is pro-gressing satisfactorily. The scheduled commissioning date of February 1980is about seven months behind the appraisal target, but no further delays areexpected and there is a good possibility that some of the delays may bemade up. The loan disbursement is proceeding as scheduled in the appraisalreport.

Loan No. 1259 Fifth Power: US$90 Million Loan of May 20, 1976; EffectiveDate: September 20, 1976; Closing Date: March 31, 1981.

All equipment required for the project is scheduled to be procuredin three lots. Nearly 75% of the equipment which was covered by Lot I(valued at $13.6 million) has been received; orders for equipment covered byLot 2, (amounting to $32.4 million) are now being placed. The projectsuffered an initial setback of about one year in procurement action but isnow progressing satisfactorily. It is expected that loan disbursements willbe completed prior to the Closing Date.

Loan No. 1365 Sixth Power: US$116 Million Loan of February 4, 1977;Effective Date: June 6, 1977; Closing Date:December 31, 1982.

Implementation of the project, consisting of 2 x 200 MW steamgenerating units at Muara Karang, is progressing satisfactorily. Orders formajor electrical and mechanical equipment were placed during the periodDecember 1977-February 1978. So far progress is on or slightly ahead ofschedule. Currently, estimated commissioning dates for the units are aboutfour to six months ahead of the appraisal estimate.

Loan No. 1513 Seventh Power: US$109.0 Million Loan of February 3, 1978;Effective Date: June 30, 1978; Closing Date:December 31, 1983.

Tenders for major electrical and mechanical equipment required forthe 200 MW unit, including turbine generator, steam generator, cycle equip-ment, electrical equipment and power transformer, were opened on August 21,1978. Bids have been evaluated and the Bank indicated no objection to therecommendations for award of contracts on February 6, 1979.

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INDUSTRIAL DEVELOPMENT AND FINANCE

Fertilizer Production

Loan No. 1089 Second Fertilizer Expansion: US$115 Million Loan ofFebruary 28, 1975; Effective Date: April 29, 1975;Closing Date: August 31, 1979.

The project (PUSRI III) was commissioned April 9, 1977, one monthahead of schedule. During the eight months of operation in 1977, the projectoperated at 66% capacity utilization, which increased sharply to about 92% in1978 with the overcoming of initial technical problems. Certain auxiliaryfacilities, now being installed, are expected to be completed by mid-1979.The project is not expected to show a cost overrun.

Loan No. 1254 Third Fertilizer Expansion: US$70 Million Loan of May 20,1976; Effective Date: August 15, 1976; Closing Date:December 31, 1980.

The project (PUSRI IV) was commissioned November 26, 1977, aboutfour months ahead of schedule. During 1978, PUSRI IV produced nearly 470,000tons of urea, reflecting a capacity utilization of 83% in the .'rst yearof operation. Some auxiliary facilities are planned to be expanded by1980. The project is not expected to show a cost overrun.

Industrial Estates

Credit No. 428 Pulo Gadung Industrial Estate: US$16.5 Million Creditof September 14, 1973; Effective Date: November 13,1973; Closing Date: December 31, 1980.

The estate is progressing satisfactorily. Of 430 ha of raw landearmarked for acquisition, 313 ha has been acquired and acquisition ofanother 31 ha is under negotiation. 119 ha of developed land have been soldto 99 firms. Employment in these firms at full capacity will be around19,000 and an estimated 1,400 persons are employed on the average in bothfactory construction and land development. Overall, operations are profit-able. The return on capital investment, which is now projected to be 22%, issignificantly higher than the appraisal forecast of 13.4%. This is due todeveloped land values rising faster than the cost of raw land and development.The project's development has been slower than forecast at appraisal, and theClosing Date has been postponed to December 31, 1980.

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Page 15 of 20 pages

Development Finance Companies

Loan No. 1437 BAPINDO III: US$40.0 Million Loan of June 6, 1977;Effective Date: September 23, 1977; Closing Date:September 30, 1981.

At the time of loan appraisal (October 1976) BAPINDO was facingmany problems, including high portfolio arrears and slow loan processing.Accordingly, the Bank sought and reached understanding with BAPINDO and theGovernment on a comprehensive Program of Action designed to remedy BAPINDO'sweaknesses and achieve further improvements. A recent Bank mission foundthat BAPINDO has effectively implemented the Program and achieved satisfac-tory progress.

Credit No. 436 Private Development Finance Company of Indonesia (PDFCI):US$10 Million Credit of November 2, 1973; Effective Date:March 6, 1974; Closing Date: June 30, 1979.

This Credit is fully committed.

Loan No. 1363 Second PDFCI: US$15 Million Loan of January 28, 1977;Effective Date: April 21, 1977; Closing Date: June 30, 1981.

The project is proceeding satisfactorily.

Coal Mining

Loan S-9 Bukit Asam Coal Mining and Transport Engineering:US$10.0 Million Loan of May 19, 1978; Effective Date:December 22, 1978; Closing Date: December 31, 1983.

This loan became effective on December 22, 1978, and consultantsare in place.

POPULATION AND NUTRITION

Population

Credit No. 300 Population: US$13.2 Million Credit of April 20, 1972;Effective Date: November 2, 1972; Closing Date:December 31, 1979.

The Indonesian national family planning program appears to haveslackened somewhat. As of October 31, 1978, 30.0% of eligible couples inJava and Bali were estimated to be currently using contraception; thecomparable figure for the 10 provinces of the Other Islands covered bythe program is 8.2%. These figures as of March 30, 1978, were 30.1% and9.6%, respectively. However, during the period covered there have beensome problems with data collection, which may be part of the reason for

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the decline. The report of the consultant engaged to determine the needs forin-house computer facilities for the National Family Planning CoordinationBoard (NFPCB) is now being evaluated. Of the construction component, theremaining two paramedical training schools are scheduled to be completed byAugust 1979. No completion date has yet been estimated for one provincialoffice building, which was destroyed by fire in September when it was halfcompleted. Other project activities which remain to be completed, includingthe fellowship training program and several research studies, will also becompleted by August 1979.

Loan No. 1472 Second Population: US$24.5 Million Loan of July 6, 1977;Effective Date: August 4, 1977; Closing Date:April 30, 1983.

Considerable progress has been made on the civil works and procure-ment aspects of the project. Of the 21 facilities, contracts have beenawarded for 20, and design drawings for the remaining building approved. Theprovincial offices and training centers are scheduled to be completed bySeptember 1979, and the National Family Planning Training Center (NFPTC) byMay 1980. Development of the national population education program and thenational family planning training program is proceeding well.

Nutrition

Loan No. 1373 Nutrition Development: US$13.0 Million Loan ofMarch 14, 1977; Effective Date: March 31, 1977; ClosingDate: March 31, 1982.

Initial progress under the project is satisfactory. The NutritionIntervention Pilot Project, the anemia control and home gardens components,as well as the fellowships program, are proceeding with minor delays. TheNutrition Academy has increased its student enrollment from 100 to 160, and48 graduates are expected this year, compared with 25 prior to project start.Construction of the Nutrition Academy was completed in February 1979. TheFood Technology Development Center is about 50% completed, and the Center forResearch and Development in Nutrition about 63%. While monitoring andevaluation units for each component have been operational for six months, thecentral monitoring and evaluation unit of the Project Secretariat is juststarting to be staffed.

TECHNICAL ASSISTANCE

Credit No. 451 Fourth Technical Assistance: US$5 Million Credit ofJanuary 2, 1974; Effective Date: February 15, 1974;Closing Date: December 31, 1979.

Progress under the project is satisfactory and the bulk of thefunds have been committed.

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Loan No. 1197 National Resource Survey and Mapping: US$13.0 Mil-lion Loan of February 5, 1976; Effective Date: April 2,1976; Closing Date: December 31, 1981.

The BAKOSURTANAL complex at Cibinong is now structurally completed,and most of the cartographic, photographic processing, and printing equipmentrequired to produce maps has arrived and is being installed. Resource evalu-ation activities, including the compilation of data for Southern Sumatraand a study for the Directorate-General of Estates of coconut lands to bereplanted in Sulawesi and Lombok, are also proceeding in the new complex.Recruitment and training of new staff, particularly junior operatives,has accelerated. The new photography financed under the Canadian parallelproject will shortly be available, by which time BAKOSURTANAL hopes to haveinstalled color photo processing equipment and to have fully trained special-ized teams of operatives in the various map production fields.

TRANSPORTATION

Fertilizer Distribution

Loan No. 1139 Fertilizer Distribution: US$68 Million Loan ofJuly 10, 1975; Effective Date: August 28, 1975;Closing Date: June 30, 1979.

The project has been substantially completed at a cost 20% belowthe appraisal estimate. Work on the five original port depots is completedand the sixth depot, which was approved by the Bank in 1977 as an extensionfinanced from project savings, is nearing completion. All four ships,including the additional ship approved in 1977 and paid for from projectsavings, have been delivered and 52 of 58 inland storage depots are com-pleted. All the ships, port depots and storage depots are operating.Shipping operations have not been as cost effective as they could be, due tosome extent to existing large stocks of fertilizer requiring ships to be usedfor longer distances for exports. Costs have also been increased because ofdelays in ship turnaround time caused by the need to clear customs on inter-island voyages and the cumbersome procedures Involved. These matters arebeing taken up with PUSRI and improvements are expected.

Highways

Loan No. 1236 Fourth Highway: US$130 Million Loan of April 15, 1976;Effective Date: August 13, 1976; Closing Date: December 31,1980.

Virtually all key activities in the initial implementation scheduleagreed with the Government have been completed, although with delays of up toone year. Construction of 1,200 km of roads has been started. Some problemsin executing the road works have been revealed on contracts started in 1976and delays were encountered in awarding some contracts in 1977, causing aslower rate of progress than scheduled. The project is about 25% complete.The delays, combined with slow progress, indicate that the project willprobably be completed about 15-18 months after the Closing Date.

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Marine Transport

Credit No. 318 Inter-Island Fleet Rehabilitation: US$8.5 MillionCredit of June 28, 1972; Effective Date: October 19,1972; Closing Date: September 30, 1979.

Due to sharply increased costs and lack of creditworthy applicants,just over half the tonnage of shipping expected at appraisal will have beenrehabilitated. The Credit has been entirely committed and is expected to befully disbursed by the Closing Date.

Loan No. 1250 Second Shipping: US$54 Million Loan of May 20, 1976;Effective Date: October 8, 1976; Closing Date:December 31, 1980.

Delay in the appointments of a number of consultants has caused aslow start to the project and slowed project implementation and disburse-ments. The acute financial problems of the State Shipping Company (PELNI)have been tackled by the Government and new management is instituting arecovery plan. The project entity (PANN) has committed, and the Bank. hasapproved, $22.3 million of subprojects; the Bank has disbursed and madequalified agreement to reimburse, funds totalling $6.0 million as ofDecember 31, 1978. The recent change in exchange rate may adversely affectthis project in the future and slow disbursements further. This matter isunder study and being reviewed with the Government.

Ports

Loan No. 1337 Tanjung Priok Port Project: US$32 Million Loan of November 4,1976; Effective Date: March 3, 1977; Closing Date:December 31, 1979.

Slow progress on the construction of Government-financed workshas delayed construction of the first component, but progress is beingmade and these works are scheduled for completion in July 1979. The firstconstruction contract for Basin III back up facilities has been awarded andwork is underway. The regional berths component has been delayed by slowwithdrawal of the Army, which was using the site for storage. However, 90%of the land has now been released, the old buildings are being demolished,and a contract for the new works has recently been awarded. These delayswill probably postpone overall completion of the project to mid-1981; it istoo early to estimate the full effect of delays on project cost. The. Govern-ment intends to establish statutory agencies (PERUMS) during 1979 for portsand dredging, functions which are currently administered by governmentdepartments.

Railways

Loan No. 1005 Railway: US$48.0 Million Loan of June 14, 1974;Effective Date: August 16, 1974; Closing Date:June 30, 1979.

Project execution is behind schedule due to initial slow procure-ment and execution of works. Procurement is now well under way and allcontracts have been placed or are about to be 'Ilaced. Freight and cassenger

ANNEX IIPage 19 of 20 pages

traffic declined in 1976, due largely to poor service. However, someimprovements have been made since the first half of 1977 following thearrival of new locomotives and rolling stock, and operations improvedwith the aid of consultants. The financial performance of the railwaycontinues to deteriorate due mainly to increasing costs, including a largewage raise in early 1977, to low traffic levels, and to inadequate tariffsfor major freight commodities. The Government is completing the reorganiza-tion of the railway as a Government Department. It has undertaken to reviewthe role of the railway and determine which traffic should be carried at aprofit and which should be subsidized.

TOURISM

Credit No. 479 Bali Tourism: US$16.0 Million Credit of June 14, 1974;Effective Date: December 4, 1974: Closing Date:August 31, 1979.

Construction of major infrastructure and related facilities forthe Nusa Dua tourism estate is under way and scheduled for completion in mid-1980; construction of the hotel training school has been completed. Thecompletion of project components outside the estate (i.e., roads) is scheduledfor December 1980, about two years later than planned at project appraisal.Visitor traffic to Bali has been growing; it rose by 8% in 1977 to 286,000visitors and by a further 11.5% in the first eight months of 1978. Airaccess is improving with the introduction of new international flights fromSingapore. At present, three potential hotel projects for Nusa Dua are underconsideration; however, while no final commitment has yet been made, changesin the project description (recently approved by the Executive Directors)which would allow use of savings in credit funds for hotel construction mayencourage hotel investment. It is unlikely that a first hotel at Nusa Duacould be completed in 1980 to coincide with completion of the infrastructure.

URBAN DEVELOPMENT

Loan No. 1040 Jakarta Urban Development: US$25 Million Loan ofSeptember 27, 1974; Effective Date: January 15, 1975;Closing Date: June 30, 1979.

The kampung improvement part of the project is substantiallycomplete. Some 2,080 ha have been upgraded, compared with the originalplan of 1,980 ha. The sites and services component is about 75% complete.Problems which have arisen with regard to the standard of materials and theprocedures to be utilized in allocating the plots were resolved last year.About 2,000 settlers have moved on the site and the remaining plots arecurrently being allocated.

ANNEX IIPage 20 of 20 pages

Loan No. 1336 Second Urban Development: US$52.5 Million Loan of November 4,1976; Effective Date: March 28, 1977; Closing Date:March 31, 1980.

The progress of civil works is ahead of schedule, and costs aregenerally within appraisal estimates. Although land acquisition is causingsome delays, efforts are being made to speed up procedures. Progress isbeing made in developing Government capabilities to undertake a nationwidekampung improvement program in the future.

Loan No. 1653 Third Urban Development: US$54 Million Loan of January 31,1979; Not yet Effective; Closing Date: December 31, 1983.

The national kampung improvement program has been expanded in thisproject to include Ujung Pandang, Semarang and Surakarta, as well as follow-up components in Surabaya and Jakarta. The latter includes a new solidwastes component, and will stress drainage and maintenance.

WATER SUPPLY

Loan No. 1049 Five Cities Water Supply: US$14.5 Million Loan ofOctober 31, 1974; Effective Date: May 21, 1975;Closing Date: June 30, 1980.

Due to administrative and managerial problems the project is nowrunning 24 months behind schedule. This delay, together with higher rates ofinflation than anticipated, is expected to increase project costs about 15%above the appraisal estimate. Detailed engineering and preparation of tenderdocuments have been completed, and contracts for all equipment and for majorcivil works have been signed. The project has reached the constructionphase. The reorganization of the Directorate of Sanitary Engineering hasbeen completed, and the establishment and development of local water enter-prises is proceeding satisfactorily. In September 1978, the Governmentissued an interministerial decree defining relationships between the variousMinistries and the Water Enterprises, which is expected to expedite currentand future projects in the sector.

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ANNEX III

INDONESIA

LOWER CIMANUK BASIN FLOOD CONTROL PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events

(a) Time taken to prepare the project: Three years

(b) Agency which prepared the project: Directorate-General ofWater Resources Development,with consultant assistancefunded locally and underLoan 1579-IND.

(c) Date of first presentation to Bank : May 1977Date of first Bank mission toconsider project July 1977

(d) Date of departure of appraisalmission June 1, 1978

(e) Date of completion of negotiations : March 16, 1979

(f) Planned date of effectiveness : July 1979

Section II: Special Bank Implementation Actions

None

Section III: Special Conditions

(a) The employment of engineering consultants would be a conditionof effectiveness of the proposed loan (para. 46).

(b) The Government would:

(i) ensure Proyek Cimanuk be staffed at all times withcompetent and qualified personnel (para. 44);

(ii) furnish to the Bank by December 31, 1979 a programfor the training of Proyek Cimanuk staff (para. 45); and

(iii) furnish to the Bank by September 30, 1980 an O&Mprogram for the works constructed under the project,and by April 1, 1981 start implementing the program(para. 51).

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