Document of FILE CopyThe World Bank

FOR OMCIAL USE ONLY

Report No. P-2506-IND

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO

THE REPUBLIC OF INDONESIA

FOR A

SECOND AGRICULTURAL TRAINING PROJECT

April 12, 1979

| This document has a restricted distnibutfon Ond may be used by recipients only in the perforance oftheir official duties. Its contents may not otherwise be disclosed withot World Bank authorization.

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CURRENCY EQUIVALENTS

US$ 1 Rp 625Rp I - US$0.0016Rp 1 million - US$1,600Rp 1 billion - US$1,600,000

GLOSSARY

AARD - Agency for Agricultural Research and DevelopmentAAETE Agency for Agricultural Education, Training and

ExtensionBAPPENAS - National Planning AgencyBIMAS - Mass Guidance - a farm input-credit package programGT - Gross tonINPRES - Presidential Instruction - a rural public works

programIPB - Agricultural University, BogorMOA - Ministry of AgricultureNATI - National Agricultural Training InstitutePIU - Project Implementation UnitRepelita - National Five-Year Development Plan (Repelita I,

1969-74; Repelita II, 1974-79; Repelita III,1979-84)

SPP - Agricultural Development School (senior secondarylevel)

GOVERNMENT OF INDONESIA FISCAL YEAR

April 1 - March 31

SCHOOL YEAR

July 1 - June 30

INDONESIA FOR OFFICIAL USE ONLY

SECOND AGRICULTURAL TRAINING PROJECT

Loan and Project Summary

Borrower: Republic of Indonesia

Beneficiary: Ministry of Agriculture

Amount: $42 million

Terms: 20 years including 5 years of grace period at aninterest rate of 7.9% p.a.

Project Description: The proposed project constitutes the second phase of aprogram initiated under Cr. 288-IND to improve thequality and supply of middle-level agriculturalmanpower. The proposed project would: (a) upgrade12 existing agricultural development schools and threeexisting in-service training centers; and (b) establishfive new agricultural development schools and 7 newin-service training centers. The majority of theseschools and centers would be located in provincesoutside Java. In addition the project would introducecourses in animal health and rural home improvement inall agricultural development schools and trainingcenters. The project would develop and introduce anagricultural management training program and includesfellowships and technical assistance for management,training, procurement, preparation of future educationprojects, middle level agricultural manpower survey,and tracer study. The main benefit of the projectwould be to help ease the shortage of qualifiedmiddle-level agricultural manpower. Given the positiveoutcome of the first project (Cr. 288-IND), no unusualrisks are foreseen.

Estimated Cost: /1 Local Foreign Total----------($ milllion)--------

Agricultural development schools 16.82 14.64 31.46In-service training centers 5.92 5.21 11.13Technical assistance ) 1.57 4.66 6.23Fellowship and studies )

Base Cost 24.32 24.50 48.82

Contingencies

Physical 2.43 2.45 4.88Price 8.55 8.72 17.27

Total Project Cost 35.30 35.67 70.97

/1 Totals may not add up due to rounding.

This docufnent 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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Financing: The proposed loan of $42 million would cover 64% ofthe total cost of the project excluding taxes andreserved procurement of vehicles (100% of the foreignexchange cost and 18% of the local cost). The Govern-ment would finance the remaining 36% from its budgetaryresources.

Estimated Disbursements:

Bank FY 1980 1981 1982 1983 1984 1985…--- -----($ million) -------- - -

Annual 0.5 1.0 4.5 13.0 20.0 3.0Cumulative 0.5 1.5 6.0 19.0 39.0 42.0

Staff Appraisal Report: No. 2274d-IND dated April 9, 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 FOR

A SECOND AGRICULTURAL TRAINING PROJECT

1. I submit the following report and recommendation on a proposedloan to the Republic of Indonesia for the equivalent of $42 million for20 years including a grace period of 5 years at an interest rate of 7.9% p.a.to help finance a Second Agricultural Training Project.

PART I - THE ECONOMY /1

2. The latest economic report on Indonesia, "Indonesia: GrowthPatterns, Social Progress and Development Prospects," of February 20, 1979(No. 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

LI Substantially unchanged from the President's Report on the Third UrbanDevelopment Project (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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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. ks 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).

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 broad picture ofrapid employment growth since 1970, though encouraging in many respects, thusreveals that a relatively large part of the incremental 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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in enhancing the probability of its success. The strongest immediate effectsof the devaluation, however, will be a dramatic increase in budgetary revenuesin local currency terms. Government expenditures will, of course, alsoincrease as a result of the devaluation but the net budgetary position interms of rupiahs should strongly improve. While the recent devaluation willgenerally tend to facilitate export promotion efforts, great emphasis needs tobe placed on the importance of developing effective support services and ofreducing administrative obstacles and other unnecessary cost increasingfactors.

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./IThese 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 main secondary staples (maize, cassava, peanuts, sweetpotatoes, and soybeans) was 1.7%.

-5-

pest problems, 1978 showed an unprecedented increase in output (over

10%), 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 suggests

the likelihood of increasing import requirements of basic foods and especially

of rice, wheat, sugar, coconut oil and possibly maize. There is an urgent

need for a comprehensive food production and consumption strategy. In the

case of rice, with the substantial completion of irrigation rehabilitation,

the recent shift in emphasis towards extension of irrigated areas and to

swamp drainage projects will probably somewhat reduce rice production growth

rates, at least through 1985. However, the potential from increasing fertil-

izer and insecticide consumption and from improving the local performance of

the most recent IRRI varieties, suggests that an annual rate of growth of

rice production of around 3% is nevertheless feasible through 1985. The

recent devaluation has provided significant additional room for further rice

producer 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 that

these crops offer considerable potential for raising Indonesia's domestic

food self-sufficiency. With proper marketing and other support services, the

rate of growth of secondary crop production could probably be raised from

1.7% 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 income

farmers in unirrigated areas and reduce the cost and risks associated with

excessive rice import dependency.

Overall Growth and Employment Prospects

15. Medium-term prospects, as determined by developments already in

motion and by exogenous factors such as the expected temporary stagnation

in oil production, suggest that it will be difficult to achieve an overall GNP

growth 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 the

past decade. But if the broad pattern of relationships between output growth,

employment growth, and personal consumption growth observed for the period

1970-76 does not drastically change, a GNP growth rate of 6-6.5% could still

be 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 the

Third Five-Year Development Plan (Repelita III), which started in April 1979.,8

16. As the economy is entering a difficult period of adjustment to post-

oil boom conditions involving structural changes in the pattern of production

and 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 and

inexhaustible resource: people. The devaluation may be expected to facilitate

the structural changes that are needed. With improved incentives for an employ-

ment-oriented strategy and adequate Government investment and institutional

support services for agriculture and small industries, it should in due course

be 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 again, 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. The Bank's overall assessment of Indonesia's external accountsindicates that the country will be able to finance essential imports ofconsumer, intermediate and capital goods and meet its debt service obligations.The debt service ratio is expected to remain below 20%. Although the November15 Rupiah 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; expenditures should, in fact, rise in step with the growth in GNP andinflation, to permit reasonable growth in Government salaries as well asmaterials expenditures, a significant part of which is development related.In view of the expected increase in the pressure on public sector resources,the devaluation notwithstanding, a limited measure of local cost financing isconsidered justified.

L1 Ratio of debt service payments to commodity export earnings, with oiland gas on a net basis.

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PART II - BANK GROUP 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 $1.903.0 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, Bank 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 toimprove agricultural training and research have also been financed by theBank Group. More recently, an effort to aid the Government's transmigrationprogram has been initiated. In the industrial sector, while the major thrusthas been 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 the President's Report on the Third UrbanDevelopment Project (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 in

rural areas and small towns, has already been approved by the ExecutiveDirectors, and an integrated rural development project has been appraised and

should be ready for presentation to the Executive Directors this fiscal year.

With respect to agricultural development, projects are being prepared to

further improve and expand research and extension services, rehabilitate and

expand irrigation systems, help replant smallholder rubber and coconutplantations, assist in watershed management and village development, and

develop presently underutilized land in areas outside Java for transmigrantsand other smallholders. In addition to the family planning program, which

continues to have high priority, other areas of particular importance for

Bank Group assistance will be improvement of urban services through construc-

tion of urban water supply systems and further expansion of neighborhoodimprovement programs, and improvement and expansion of higher education

particularly of engineers, accountants and agriculture specialists, as well

as primary and nonformal education. The proposed Second Agricultural TrainingProject is another step in supporting these programs. Finally, Bank Groupfinancing continues to be important for the Government's program of infrastruc-

ture rehabilitation and expansion, particularly in transport and power, which

will continue to require very large investments for many years before thesefacilities are adequate to support Indonesia's development. Compared to past

lending activities, many of- these projects and programs reflect the shift ofemphasis in the Government's development objectives from rehabilitation andexpansion to a better balanced and more equitable and employment-oriented

economic 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 the

rapid increase in Indonesia's oil income which enabled Indonesia to borrow onless concessional terms, it was decided that all lending to Indonesia after

June 30, 1974, would be on Bank terms. Since 1974, the Government has savedand invested almost all of the increase in its oil revenues and greatlyexpanded its development expenditures which reached about $6 billion in

1977/78. 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 always

qualified 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 without

impairing its ability to service its external debt. Accordingly, starting inFY78, a portion of Bank Group lending to Indonesia has again been provided on

IDA terms.

24. The proposed loan is the fifth lending operation presented to theExecutive Directors this fiscal year and would bring total lending to Indonesiathis year to $272 million. Projects for rural development, transmigration,provision of industrial financing through a development finance company(BAPINDO), water supply, technical assistance, road betterment and power are

expected to be ready for presentation in the next few months.

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PART III - THE AGRICULTURAL EDUCATION SECTOR

Development Strategy and Manpower Implications

25. The success of the Government's programs for the development of theagricultural sector depends critically on effective implementation of itsstrategy to provide more and better support services to farmers. Central tothis strategy are the intensification of research activities and the improve-ment and expansion of extension programs. Key constraints to accomplishingthese objectives are: (a) the serious shortage of well trained, middle-levelmanpower to serve as agricultural technicians for production, research andextension activities; and (b) the lack of higher level manpower with trainingin project management.

26. Agricultural technicians are at present concentrated predominantlyin Java. However, the urgent need to boost both food production and agricul-tural exports has underlined the necessity to increase the flow of advice anddiversity of technical assistance to all farmers throughout Indonesia.Hence, it is desirable that more technicians be trained and their training bediversified. At the same time, it is also apparent that future agriculturaland rural development in Indonesia will critically depend on improvedefficiency of production in existing areas in Java, Bali and Madura, as wellas through the development of new areas in the Other Islands. Such programswill require not only considerable financial resources, but also a largenumber of well trained agricultural project managers who can ensure efficientand timely execution and operation of more complex projects.

27. The existing agricultural education and training system has notresponded adequately to provide the trained technicians required to undertakethese tasks. The Ministry of Agriculture (MOA) estimates that within the next10 years, about 4,000 additional middle level technicians p.a. would beneeded. The shortages of well trained, middle-level manpower are due both toinsufficient output of the senior secondary agricultural schools (calledagricultural development schools) and to the fact that most of the graduatesare poorly trained because of general substandard quality of most of theschools, particularly those administered by the provincial governments. Ofabout 2,880 technicians graduating from the existing agricultural developmentschools (99), only about 1,000 received adequate training from the 15 schools,14 of which were upgraded under Credit 288-IND and one with FAO assistance.Because of the quantitative shortage of graduates, several extension servicesof the MOA have had to meet their staffing needs with substantial numbers ofnongraduates. This situation, coupled with the poor quality of the majorityof existing graduates, has created a substantial need for in-service training.Such training is also needed to keep MOA staff abreast of technologicaldevelopments. The current in-service training programs are inadequate tomeet these needs. At the higher level, manpower with expertise in managementof agricultural projects and extension programs is scarce due to the absenceof appropriate preservice or in-service training programs for universitygraduates who fill these positions. Assistance to the agricultural educationand training system is needed, therefore, to increase the quality and quantityof its output and to improve the relevance of its preservice and in-servicetraining programs to Indonesia's long-term agricultural manpower requirements.

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The Agricultural Education and Training System

28. Betwee-; 19C0 and 1970, there was a significant expansion of middle-and higher level agricultural education and training programs. During thisperiod they expanded from one university faculty of agriculture, one seniorsecondary agricultural school and virtually no in-service training, to 46faculties of agriculture, 96 senior secondary agricultural schools, and anin-service training capacity of about 1,000 MOA staff per year. However,this rapid growth was not accompanied by a sufficient growth in financial andhuman resources. Substandard institutions and training centers were theresult. Since 1970, the Government has initiated measures to address theseproblems. At the higher level, the agricultural faculties of the country'stwo leading universities, Bogor and Gaja Mada, together with foreign expertsprovided by USAID, are assisting in upgrading the agricultural faculties atsix other universities. With continued USAID assistance, the Governmentplans to extend this upgrading to 14 more universities within the next fiveyears. At the middle level, the Government, with assistance under theIDA-financed first agricultural training project (Cr. 288-IND, 1972), hasupgraded 14 senior secondary agricultural schools and 16 in-service trainingcenters. An institutional framework for coordination and administration ofmiddle-level agricultural education and training was also established underthe project, with the creation of the Agency for Agricultural Education andTraining /1 under the MOA. Since 1970, FAO has also provided some assistanceat the middle level through upgrading one senior secondary school and onein-service training center, both specializing in marine fishery. Theseimprovements in training have been made within the context of an integratedprogram for research, extension and training. Bank Group assistance has beenprovided for all three components, including, in addition to Cr. 288-IND, theAgricultural Research and Extension Project (Ln. 1179-IND, 1975) and theNational Food Crops Extension Project (Ln. 1267-IND, 1976).

29. Administration and Management. The Agency for Agricultural Educa-tion, Training and Extension (AAETE) has been assigned the role of centralizingand rationalizing the planning and management of all middle-level agriculturaleducation and training programs. To accomplish this task, the Agency's func-tions include: (a) assessing and planning training programs and prescribingrelevant improvements in curricula for all middle-level agricultural institu-tions; (b) accreditation of all agricultural development schools; (c) adminis-tration of the budget of all national agricultural development schools andall in-service training programs; and (d) preparation and administration offinal examinations to graduating students of all agricultural developmentschools to determine their eligibility for graduation. The AAETE consists ofa Secretariat, responsible for the training budget and administrative services,and three Bureaus: Agricultural Education, Personnel Training and AgriculturalExtension, which are responsible for preservice programs, in-service programs,and providing guidance and assistance to the Directorates General of the MOA inplanning and carrying out their extension programs.

/1 This was renamed the Agency for Agricultural Education, Training andExtension in accordance with a Presidential Decree in 1974.

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30. Since its establishment in 1972, the Agency has made notable

progress towards achieving its goals. Strengthening of its capabilities is

still required, however, particularly with regard to its planning and evalua-

tion functions. AAETE's current planning activities are focused only on the

immediate training needs of the MOA, with little or no attertion being given

to the long-term development of training programs based on future manpower

requirements. The Agency's capacity in this area could be improved by

further strengthening its planning and evaluation unit with qualified staff

who could assess, on a continual basis, the long-range agricultural manpower

needs and plan agricultural education and training programs accordingly. In

addition, the Agency should develop a better system to evaluate the placement

and performance of the agricultural development school graduates and the

effectiveness of the in-service training given to MOA staff.

31. Preservice agricultural education is carried out by 99 agricultural

development schools (grades 10-12), which are the principal source of

Indonesia's middle-level agricultural manpower. In total, these schools

enroll about 12,000 students and graduate about 2,800 technicians annually.

Seventeen of the schools are funded and administered by the national govern-

ment and 82 by provincial governments or the private sector. There are two

general types of these schools according to their field of training: agricul-

ture, which includes training in crops, animal husbandry and inland fishery;

and marine fishery. All the agriculture-type schools follow a curriculum

composed of: (a) a core, designed to provide the broad background needed by

workers in the mixed farming system which is predominant in Indonesia (72% of

teaching time); and (b) courses devoted to specialization in crops, animal

husbandry or inland fishery (28% of teaching time). This curriculum was

introduced under Cr. 288-IND. The marine fishery schools follow a cur-

riculum introduced by FAO. At present, no schools provide specialized

training in forestry, a field in which a preservice program is badly needed.

32. Fourteen national agriculture-type schools and one national marine

fishery school have been upgraded with IDA and FAO assistance, respectively,

and are operating satisfactorily. However, government programs and policies

have changed since improvements to the agriculture-type schools were completed.

The schools lack: (a) sufficient teaching facilities and equipment to offer

needed courses for rural home improvement extension workers and animal

health technicians; and (b) adequate student hostels for all students (they

have hostels for only 75% of the students). Schools are generally located

far from residential areas, and are not served by public transportation.

Consequently day students have to walk long distances to and from school and

are often absent during the rainy season. The two national schools, which

have not been upgraded (an inland fishery and a marine fishery school), lack

sufficient classroom and laboratory facilities and equipment and are poorly

situated for practical training.

33. Since the national schools can produce only one-fourth of the demand

for graduates each year, the Government relies heavily on provincial and

private schools to produce needed manpower. However, the quality of graduates

they produce is generally poor as most of them operate with substandard

physical facilities, equipment and materials, and inadequate financial

- 12 -

support, with few qualified teachers and with insufficient farmland.The need to upgrade the provincial schools is particularly urgent from thestandpoint that, at present, only 12 of Indonesia's 26 provinces haveimproved agricutural development schools and only five other provinces aregiven limited access to them. The provinces without access to good qualityschools are located mostly outside of Java and Bali. For this reason, thequality of agricultural extension services in these provinces suffers, as itis difficult to attract well-trained graduates to these areas from Java.

34. In-service training is currently offered at 23 in-service trainingcenters which give courses to a total of about 5,650 MOA personnel annually.Thirteen of these centers specialize in agriculture (crops, livestock, andinland fishery), three specialize in marine fishery, and six specialize inforestry. These 22 centers provide: (a) remedial programs to upgrade theskills of staff with no preservice training; and (b) courses of varying lengthto keep staff abreast of technological change in their fields and to give themadditional specialized training in response to changes in emphasis of theGovernment's development programs. This longer in-service training comple-ments the shorter recurrent training to extension staff under the trainingand visit system being introduced through Ln. 1267-IND. The average durationof these courses is two months at the agriculture centers and four months atthe marine fishery centers. The forestry centers offer a ten-month remedialprogram in addition to its two-month refresher courses since no preserviceforestry training is available. The remaining center, called the NationalAgricultural Training Institute (NATI), conducts courses of two months'average duration in administration and management for higher-level MOA staffand provides three-month pedagogical training for teachers of middle-levelagricultural education and training institutions. Sixteen of these centers,including NATI, were improved under Cr. 288-IND and one has been improvedwith FAO assistance; they are operating satisfactorily. However, the improvedagriculture centers do not have sufficient facilities to offer programs forrural home improvement extension workers and livestock technicians or tostrengthen training in animal husbandry in response to new priorities of theGovernment. The six centers which have not been improved (two marine fisheryand four forestry centers) are unable to provide adequate practical trainingdue to insufficient workshops and equipment.

35. Not only should the deficiencies in the existing training centersbe rectified to improve the quality of training programs, but there is alsoa pressing need to open new centers to meet the demand for in-servicetraining of MOA's technical staff, which is expected to increase from itspresent number of about 25,000 to more than 40,000 within the next 10 years.New centers, in particular, should be opened to serve nine provinces which donot now have access to in-service training. These are generally the sameprovinces which do not have access to improved agricultural develop-ment schools and, therefore, have a relatively greater need for in-servicetraining.

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Plans and Strategy in Middle-Level Education and Training

36. The Government's long-term strategy for improvement of the qualityand for increasing the supply of middle-level agricultural manpower consists

of two phases. The first phase focuses on:

(a) the establishment of a central agency to be responsible for (i)planning and managing all middle-level agricultural training inthe country; and (ii) administering all agricultural training

programs of the MOA; and

(b) the improvement of selected national agricultural training institu-

tions (preservice and in-service) to meet the country's mosturgent training needs, largely for food crops extension agents and

technicians.

This first phase has been successfully implemented under the First Agricul-

tural Training Project (Credit 288-IND) which has recently been completed.The major achievements attributable to this project are the establishment of

the Agency for Agricultural Education Training and Extension, which had awidespread impact on improving the quality of agricultural training in

Indonesia. As a result, all the project institutions (14 Agricultural

Development Schools and 16 In-Service Training Centers) attained enrollment

targets and the drop-out rates of project schools decreased from 24% in 1971to 2.6% in 1977. Also, all the project schools and centers follow relevant

curricula. Factors which adversely affected the implementation of theproject were delays of 15 months (caused by, inter alia, late appointment of

consultant architects and late acquisition of land) and cost overruns of 73%over the appraisal estimate (caused by delays and higher inflation ratesthan expected at appraisal). The second phase of the strategy, which the

Government intends to implement through the proposed Second AgriculturalTraining Project during the Third Five-Year Development Plan Period(Repelita III, 1979/80-1983/84), would focus on:

(a) establishing new agricultural training programs in fields (ruralhome improvement, forestry (preservice) and animal health) which

were not included in the first phase;

(b) establishing new preservice and in-service institutions in pro-vinces, mainly on islands outside Java, which have inadequate

access to agricultural training facilities; and

(c) further strengthening of the planning and administrative capabil-ities of the AAETE.

Previous Bank Group-Financed Education Projects

37. To date, the Bank Group has extended assistance totaling $144.4 mil-lion to the education sector in Indonesia. Investments have pursued the main

objectives of meeting critical manpower requirements, improving quality andincreasing equity. In the absence of a comprehensive analysis of the sector,

Bank Group lending initially financed three relatively small projects that

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met evident educational and manpower needs: the first education project(Cr. 219-IND) provided an improved quality of technical training at thesecondary level; the second project (Cr. 288-IND), as discussed above,created a national a3ricultural training agency and expanded output ofmiddle-level agricultural manpower, and the third project (Cr. 387-IND),provided textbooks and in-service teacher training to improve the quality ofprimary education. Subsequent projects were identified on the basis of acomprehensive government education study and a Bank sector survey (ReportNo. 443a-IND, dated February 5, 1975): the fourth project (Ln. 1237-IND) ishelping to meet manpower requirements by providing vocational/technical andpublic administration training; the fifth project (Ln. 1433-IND) aims toimprove primary and secondary teacher training; and the sixth project (Ln.1486-IND) pursues the equity objective by strengthening nonformal education.In response to shortages of higher level manpower, the Bank conducted asubsector survey on higher technical education in 1977. This survey identi-fied the need to establish a new system to train middle-level technicians,which is being assisted under the recently approved polytechnic project(Cr. 869-IND). Future Bank-assisted projects are expected to continue tosupport a broad range of activities in the sector through a second project inhigher technical education and repeater projects in such priority areas astextbooks, teacher training and non-formal education.

PART IV - THE PROJECT

38. The proposed project was prepared by AAETE with the assistance ofFAO and consultants. A Bank mission appraised it in July/August 1978, andnegotiations were held in Washington, D.C., from March 5 to 9, 1979. TheIndonesian delegation was led by Mr. Salmon Padmanagara, Head of the AAETE.Annex III of this report contains supplementary project data. A StaffAppraisal Report (No. 2274d-IND, dated April 9, 1979) is being distributedseparately to the Executive Directors.

Project Objectives

39. The proposed project constitutes the second phase of the Govern-ment's long-term strategy to improve the quality and supply of middle-levelagricultural manpower. Accordingly, the project would pursue the followingobjectives:

(a) to upgrade the quality and increase the output of existingpreservice and in-service agricultural training institutions;

(b) to provide good quality preservice and in-service trainingfacilities in selected provinces outside of Java and Baliwhere agricultural training is poor or nonexistent:

(c) to develop new training programs in response to needs arisingout of Government's development plans for efficient management ofagricultural projects; and

(d) to strengthen the evaluation, planning and management capabilitiesof the AAETE.

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Detailed Project Components

40. Agricultural Development Schools (estimated outlay: $31.5 million,excluding technical assistance and contingencies). This component wouldupgrade 12 existing agricultural development schools (11 provincial andone national) and establish five new such national schools. Eight of theseexisting schools would be relocated to sites more suitable for providingadequate practical training. Each project school would have a capacity of240 students. Eight of the schools would specialize in crops, five in animalhusbandry, one in inland fishery, one in marine fishery and two in forestry.In accordance with Government's decision to finance fully animal husbandry-oriented schools, the three schools of this type which are to be upgradedwould be converted from provincial into national schools. To avoid fundingproblems at the remaining eight provincial project schools, assurances wereobtained that the Government would cause the necessary recurrent funds to beprovided when the project schools become fully operational (Section 4.03(a)of the draft Loan Agreement).

41. The curriculum developed under Cr. 288-IND would be adopted by the14 project schools of the agriculture type but would be subject to reviewand revision, as necessary. At the same time, new courses in rural homeimprovement would be developed and introduced at these schools as well as atthe 14 agriculture schools already improved under the first phase project. Athree-year curriculum for forestry technicians would be developed for thetwo project forestry schools. The one project marine fishery school wouldfollow the curriculum used at the school improved by FAO, with revisionsto be made as necessary upon review. A 40-place 100 GT training vesselwould be provided by the project for practical training of students of themarine fishery school.

42. Also under this component, the 14 schools improved under Cr. 288-IND would be provided with additional facilities and equipment to enablethem to offer courses in rural home improvement and to strengthen trainingin animal husbandry. They would also be provided with additional studentboarding places so that all students would live on campus (para. 32). At thesame time, the capacities of three of the 14 schools which were designed for120 students each, would be expanded to 240. This would mean that, uponproject completion, the capacity of all 32 improved schools will have beenstandardized at 240 and the output of improved schools will have beenincreased from about 1,000 to 2,400.

43. At full operation of the project, a total of 403 full-time teacherswould be needed for the 31 improved project schools, an increase of 119 overpresent numbers. No problems are foreseen in recruiting the requiredadditional teachers. Since there are no preservice training courses foragricultural teachers in Indonesia, the Government has provided assurancesthat, all full-time teachers of the project schools requiring pedagogicaltraining, would have completed the in-service teacher training course givenby the National Agricultural Training Institute, no later than June 30,1985 (Section 3.04 of the draft Loan Agreement).

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44. In-service TraininR Centers (estimated outlay: $11.1 million,excluding technical assistance and contingencies). This component wouldinclude the upgrading of three existing in-service training centers (twoforestry and one marine fishery) and establishment of six new agriculturalin-service training centers in provinces where no in-service training is

presently available and, one animal health center to cater to the in-servicetraining needs of animal health assistants. This would increase the numberof well-equipped training centers from the current 17 to 27, and would leaveonly three existing centers in need of upgrading. These three centers werenot included in the proposed project as the Government was consideringrelocating them and had not made a firm decision by the time of appraisal.Under the project, the capacity of three of the already improved centers andof the National Agricultural Training Institute (NATI) would be increased sothat each agricultural in-service training center, the marine fishery centerand the animal health center would have 60 places; the forestry centers wouldhave 80; and NATI, 200. When all training facilities are completed, the

training places would increase from the present 1,490 to 2,060, and thenumber of trainees per annum from 5,650 to 8,240.

45. At all agriculture in-service training centers, new courses wouldbe added for female extension workers (rural home improvement) and for animalhealth assistants, and existing programs for livestock technicians would bestrengthened. This would entail provision of additional teaching facilitiesand equipment at the 13 agricultural training centers which were improved underthe first phase project (Cr. 288-IND). Two of these centers would be providedwith additional facilities with assistance from the Japanese Government. Atthe NATI, a training program in project management would be developed and in-troduced for MOA and provincial agricultural staff involved in the managementof agriculture projects and extension programs. About 80% of NATI's trainingplaces would be used for this program until the training needs of projectmanagers are satisfactorily met.

46. Each in-service training center would have five qualified full-timestaff and would use qualified part-time teachers from the agriculturaluniversities and senior staff of the MOA as necessary. No problems areforeseen in recruiting the needed staff for the new centers. As in the caseof the agricultural development schools, assurances were obtained that allfull-time teachers of the in-service training centers who require pedagogicaltraining, will have taken the in-service teacher training course at NATI, nolater than June 30, 1985 (Section 3.04 of the draft Loan Agreement).

47. Technical Assistance (estimated outlay: $3.2 million, excludingcontingencies). To provide support for training programs under the project,about 10 man-years of specialist services would be provided to assist inthe development and implementation of relevant curricula. A naval architect(six man-months) would also be provided to assist in preparing the design andspecifications of the marine training vessel. About six man-years of fellow-ships for short courses and 124 man-years of fellowships for degree programswould be provided by the project for teachers of the project agriculturaldevelopment schools and in-service training centers. In addition, sevenman-years of fellowships would be provided for key staff of the planning andevaluation unit of AAETE. The Government and the Bank have agreed on detailsof the programs for the specialist services and for the fellowships.

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48. Four man-years of specialist services would be provided to strengthenthe educational planning and management capabilities of the AAETE. Thespecialists would assist in strengthening the planning and evaluation unitof the AAETE, in setting up and coordinating a student tracer system, incarrying out a middle level agricultural manpower survey and a tracer study ofpast graduates of the 14 agricultural development schools improved under thefirst phase project (Credit 288-IND). In addition, the specialists wouldassist in developing the project management training program at NATI. Assur-ances were obtained that (a) by June 30, 1980:

(a) the planning and evaluation unit of the AAETE would have beenstrengthened;

(b) plans for carrying out the manpower survey and tracer studiesshall have been prepared, reviewed by the Bank and be readyfor implementation; and

(c) the training program for agricultural project and extension programmanagers shall have been developed in consultation with the Bank;

and (b) by June 30, 1981, the tracer system would have been set up in eachproject institution, and the manpower survey and tracer studies completed(Section 3.05 of the draft Loan Agreement).

49. Project Management and Pre-investment Studies (estimated outlay:$3.0 million, excluding contingencies). The project would also providespecialist services to assist in procurement, in conducting feasibilitystudies and preparing future education projects, and in carrying out projectevaluation studies including the preparation of project completion reports.

Project Cost and Financing

50. The total project cost is estimated at about $71 million, includingabout $3.0 million of taxes. The total cost also includes a contingencyallowance of $22.2 million consisting of (a) physical contingencies estimatedat 10% of the base cost and price contingencies averaging 32% of the basecost plus physical contingencies. Costs for the technical assistance programare estimated as follows: $80,000/man-year for expatriate specialist ser-vices; $13,000 man-year for fellowships for overseas training; $2,000/personfor overseas travel; and $750/person/month subsistence for short-term fellow-ships. The proposed loan of $42.0 million would finance 100% of the foreignexchange cost and 18% of local cost, equivalent to 64% of the total projectcost, excluding taxes and the cost of vehicles. Financing of local costs isjustified as this project is of high priority for the agricultural developmentprogram and because of the tightening domestic resource constraints (para.19). The Government would finance from its own funds the remaining 36%,including the cost of domestically assembled vehicles, which it intends toprocure under local procedures which do not conform to the Bank's procurementguidelines.

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Project Implementation

51. The project would be implemented by the Project ImplementationUnit (PIU) which was established within the AAETE for the first phase project.A decree was issued by the Minister of Agriculture on January 22, 1979 tomaintain and strengthen the PIU. The PIU would consist of a Director, whoreports directly to the Head of the AAETE; two Deputy Directors; and qualifiedsupport staff. Because of the extensive coverage of the project (54 sites),separate provincial implementation committees would be organized as imple-menting arms of the PIU for each project site. These committees would becomposed of representatives of the Provincial Departments of the Ministries ofAgriculture, Public Works and Home Affairs. All PIU staff would be appointedin April 1979 when the Government's new fiscal year starts. Professionalservices required for civil works and procurement of furniture under theproject would be carried out by qualified consultant architect firms accept-able to the Bank. The consultant architects have been appointed. Substan-tial progress has been made in the preparation of site sketch plans. Funds(about $320,000) to pay for these professional preparatory services priorto signing of the proposed Loan Agreement have been provided under the Bank'sProject Preparation Facility. To avoid delays in project implementationbecause of problems in acquiring sites or inaccessibility of sites, theGovernment has provided assurances that (a) by December 31, 1979, it wouldfinalize the acquisition of the necessary land for all the proposed projectsites (30 ha for each project school and 10 ha for each project in-servicetraining center), and (b) it would repair or construct, prior to the start ofbuilding construction, the necessary access roads for newly opened sites(Section 3.08 of the draft Loan Agreement).

Procurement and Disbursement

52. Procurement. Contracts for civil works, furniture and equipmentwould be grouped to the extent practicable to increase competition in bidding.Civil works contracts would be awarded on the basis of competitive biddingadvertised locally but foreign contractors would be permitted to submit bids.Indonesia has well-developed building industries, and foreign firms notalready established in Indonesia are unlikely to bid due to the relativelysmall bid packages and the scattered construction sites. Bidding wouldfollow government procurement procedures which are acceptable to the Bank.Except for vehicles, contracts for furniture and equipment, exceeding $50,000would be awarded on the basis of international competitive bidding in accord-ance with Bank Group Guidelines. Vehicles would be financed entirely by theGovernment (para. 50). Except for vehicles, equipment and furniture whichcannot be grouped to form packages exceeding $50,000 would be awarded on thebasis of competitive bidding, advertised locally, subject to an aggregateamount of $1.2 million. In comparison of bids for equipment and furniture,qualified local manufacturers would be given a preferential margin of 15% onthe c.i.f. cost of competing imports or the customs duty, whichever is lower.In addition, except for vehicles, miscellaneous items in packages not exceed-ing $15,000 and subject to an aggregate total not exceeding $0.5 million,could be purchased off-the-shelf on the basis of at least three price quota-tions. Instructional materials and books would also be procured on the basis

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of normal government procedures for such items or, where appropriate, frompublishers after negotiations for bulk purchases. Review of tender evaluationdocuments would be required prior to the award of civil works contractsexceeding $200,000 and furniture and equipment contracts exceeding $50,000.

53. The proposed loan would be disbursed on the basis of: (a) 60% ofthe cost of civil works; (b) 100% of the c.i.f. cost of imported furniture,materials and equipment; (c) 95% of the ex-factory cost of locally manufac-tured furniture, materials and equipment; (d) 65% of the cost of furniture,materials and equipment procured locally; and (e) 100% of the _ost of fellow-ship and professional and specialist services. No disbursement will be madefrom the loan against vehicles. Funds drawn from the Project PreparationFacility, not exceeding $320,000, will be reimbursed from the loan on thedate of the effectiveness of the proposed loan (para. 4 of Schedule 1 to thedraft Loan Agreement).

Monitoring and Evaluation

54. The PIU Director and his Deputies would closely monitor projectimplementation and periodically evaluate the attainment of project objectives.The planning and evaluation unit of the AAETE, which would be strengthenedunder the project, would assist the PIU to develop a monitoring and evaluationplan and in carrying it out during the project implementation period. Atthe end of each calendar year, starting from December 1980 through theClosing Date of the proposed loan, a project evaluation report would beprepared by the PIU and sent to the Bank (Section 3.07 of the draft LoanAgreement). The evaluation reports would be used in preparing the projectcompletion report.

Project Benefits and Risks

55. The principal benefit of the proposed project would be to help easethe shortage of qualified middle-level agricultural manpower, which shortagehas been a major constraint to implementation of the Government's developmentplans for the agricultural sector. At full project operation, the output ofimproved agricultural development schools would satisfy the following approxi-mate percentages of annual requirements of the Ministry of Agriculture (MOA)for specialized staff: 50% in agronomy; 90% in livestock production; 50% ininland fisheries; 25% in marine fisheries; and 40% in forestry. In addition,each year, the skills of 7,320 existing MOA staff would be upgraded throughcourses taken at the agriculture, animal health, forestry and marine fisheryin-service training centers. About 800 agricultural higher level staff and120 agricultural teachers would be trained annually at the National Agricul-tural Training Institute (NATI). The project would also provide betterdistribution of training opportunities among the provinces of the country,particularly in the islands outside Java, Bali and Madura. Furthermore,institutional strengthening of the Agency for Agricultural Education, Trainingand Extension (AAETE) would enable the Agency to prepare and implement middle-level education and training programs to meet Indonesia's long-term agricul-tural manpower requirements.

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56. No unusual risks are foreseen in achieving the objectives of theproposed project, since it would be essentially a follow-up to the successfullycompleted first agricultural training project (Cr. 288-IND). There would be astrong and experienced implementation unit under the AAETE which would befurther strengthened in accordance with a Ministerial Decree already published.Substantial progress has been made in designing the proposed project toprevent a recurrence of the problems which occurred during implementation ofthe first project, i.e., delays in the appointment of consultant architectsand in the acquisition of some project sites, including building of accessroads to project sites.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

57. The draft Loan Agreement between the Republic of Indonesia and theBank and the Recommendation of the Committee provided for in Article III,Section 4 (iii), of the Articles of Agreement are being distributed to theExecutive Directors separately.

58. Special conditions of the project are listed in Section III ofAnnex III of this report.

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

PART VI - RECOMMENDATION

60. I recommend that the Executive Directors approve the proposedloan.

Robert S. McNamaraPresident

Attachments

April 12, 1979Washington, D.C.

- 21 - ANNEX IPage 1 of 5

INDONESIA - SOCIAL INDICATORS DATA SHEET

REFERENCE GROUPS (ADJUSTED AVERAGESINDONESIA /a

LAND AREA (THOUSAND SQ. EM.) - MOST RECENT ESTIMATE)

TOTAL 1904.3 SAME SAME NEXT HIGIIER

AGRICULTURAL 283.8 MOST RECENT GEOGRAPHIC INCOME INCOME

1960 Lb 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP /e

GNP PER CAPITA (USS) 70.0 140.0 300.0 616.0 182.9 432.3

ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 129.0 120.0 178.0 522.0 88.9 251.7

POPULATION AND VITAL STATISTICSTOTAL POPULATION, MID-YEAR

(MILLIONS) 94.7 117.6 133.5

URBAN POPULATToN (PERCENT OF TOTAL) 14.' 17.5 17.9 30.1 15.0 24.2

ROPULATION DFNSITYIPER SO. KM. 50.0 62.0 70.0 156.8 46.8 42.7

I'ER SQ. KM. AGRICULTURAL LAND 337.0 419.0 470.0 794.8 254.1 95.0

PoPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 42.1 /f 44.0 42.1 40.8 43.6 44.9

15-64 YRS. 55.3 7f 53.5 55.1 55.4 53.3 52.8

65 YRS. AND ABOVE 2.6 /f 2.5 2.8 3.2 2.9 3.0

PO 'ULATION GROWTH RATE (PERCENT)i'OTAL 2.1 2.0 2.0 2.3 2.4 2.7

JRBAN .. 3.7 /I 2.6 5.1 4.0 8.8

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

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

GROSS REPRODUCTION RATE 2.8 3.2 2.5 2.6 2.9 3.2

FAMILY PLANNINGACCEPTORS, ANNUAL (THOUSANDS) .. 181.1 1979.0

USERS (PERCENT OF MARRIED WOMEN) .. 0.2 13.7 22.1 14.6 14.2

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

PER CAPITA (1970-100) 96.5 100.0 102.7 106.8 96.4 104.3

PER 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 WIHICH ANIMAL AND PULSE 15.0 /h 14.0 16.6 17.0 13.9 17.5

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

HEA',THL'FE EXPECTANCY AT BIRTH (YEARS) 47.5 45.0 45.3 59.0 45.8 53.3

INFANT MORTALITY RATE (PERTHOUSAND) 125.0 /fi .. 116.0 44.0 102.7 82.5

ACCESS TO SAFE W4TER (PERCENT OF

POPULATION)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

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL *- 12.0 15.0 28.6 16.1 37.5

URBAN .. 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 /j 7310.0 /i 1520.2 6983.3 2762.5

POPULATION PER HOSPITA6t BEDTOTAL 1370.0 1670.0 1430.0 657.1 1157.6 786.5

URBAN .. 1130.0 .. 145.5 183.3 278.4

RURAL *- 1890.0 .. 1011.8 1348.8 1358.4

ADMISSIONS PER HOSPITAL BED .. .. .. 19.0 19.5 19.2

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL 4.4 4.8 .. 5.2 5.2

URBAN 4.9 5.3 .. 5.2 4.8

RURAL 4.3 4.7 5.4 5.3

AVERAGE NUMBER OF PERSONS PER ROOMTOTAL .. 1.5 ..

URBAN .. 1.6 .. .. 1.8 2.3

RURAL '' 1.6 ..

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL .. 63.5 .. 39.1 25.9 28.3

URBAN .. 75.5 ..

RURAL .. 39.1 .. .. 8.7 10.3

- 22 - ANNEX Irage 2 of 5

INDONESIA - SOCIAL INDICATORS DATA SHEET

REFERENCE GROLUPS (ADJUSTED AVERAGESINDONESIA /a

- MOST RECENT ESTIMATE)SAME SAME NEXT HIGHER

MOST RECENT GEOGRAPHIC INCOME INCOME1960 /b 1970 lb ESTIMATE Lb REGION /c GROUP Id GROUP fe

EDUCATIONADJUSTED 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 fk 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 LI

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 ft .. 17.3 20.3 19.5HIGHEST 20 PERCENT OF HOUSEHOLDS .. 52.0O/ .. 45.6 45.1 48.9LOWEST 20 PERCENT OF HOUSEHOLDS .. 6.8 ft .. 6.5 5.7 5.9LOWEST 40 PERCENT OF HOUSEHOLDS .. 17.3 ft .. 17.3 16.8 15.7

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (US$ PER CAPITA)

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

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. .. .. 100.8 143.7

RURAL .. .. 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 group 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 otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent Estimate, between 1973 and 1977.

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

September 1978

- 23 -DEFINITIONS OF SOCIAL INDICATORS ANNEX I

Page 3 of 5S2Un: The adjusted group averages for each indicator are population-weighted geometric meana, excluding the extreme values of the indicator and the mostpopulated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. Due to lack of data,group averages for Capital Surplus Oil Eiporters and indicators of access to water and eacrets disposal, housing, income distribution and poverty aresimple population-weighted geometric means without the exclusion of extreme values.

LAND AREA (thousand sq. km) Population per hospital bed - total, urban, and rural - Population (total,Total - Total surface area comprising land area and inland waters. urban, and rural) divided by their respective number of hospital bedsAgricultural - Most recent estimate of agricultural area used temporarily available in public and private general and specialized hospital and re-

or permanently for crops, pastures, market and kitchen gardens or to habilitation centers. Hospitals are establishments permanently staffed bylie fallow. at least one physician. Establishments providing principally custodial

care are not included. Rural hospitals, however, include health and medi-GNP PER CAPITA (US$) - GNP per capita estimates at current market prices, cal centers not permanently staffed by a physician (but by a medical os-

calculated by same conversion method as World Bank Atlas (1975-77 basis); sistant, nurte, midwife, etc.) wh'ch offer in-patient accommodatinn and1960, 1970, and 1977 data. provide a limited range of medical facilities.

Admissions per hospital bed - Total number of admissions to or dischargesENERGY CONSUMPTION PER CAPITA - Annual consumption of commercial energy from hospitals divided by the number of beds.

(coal and lignite, petroleum, natural gas and hydro-, nuclear and geo-thermal electricity) in kilograms of coal equivalent per capita. HOUSING

Average size of household (persons per household) - total, urban, and rural-POPULATION AND VITAL STATISTICS A household consists of a groap of individuals who share living quartersTotal population, mid-year (millions) - As of July 1; if not available, and their main meals. A boardec or lodger moy or ay nout be included in

average of two end-year estimates; 1960, 1970, and 1977 data. the household for statistical purposes. Statistical definitions of house-Urban population (percent of total) - Ratio of urban to total popula- hold vary.

tion; different definitions of urban areas may affect comparability Average number of persons per room - total, urban, and rural - Average num-of data among countries. ber of persoos per room in all, urban, and rural occupied conventional

Population density dwellings, respectively. Dwellings exclude non-permanent structures andPer sq. km. - Mid-year population per square kilometer (100 hectares) unoccupied parts.

of total area. Access to electricity (percent of dwellings) - total, urban, and rural -Per as. km. agriculture land - Computed as alove for agricultural land Conventional dwellings with electricity in living quarters as percentage

only. of total, urban, and rural dwellings respectively.Population age structure (percent) - Children (0-14 years), working-age

(15-64 years), and retired (65 years and over) as percentages of mid- EDUCATIONyear population. AdJusted enrollment ratios

Population growth rate (percent) - total, and urban - Compound annual Primary school - total, and female - Total and female enrollment of all agesgrowth rates of total and urban mid-year populations for 1950-60, at the primary level as percentages of respectively primary school-age1960-70, and 1970-75. populations; normally includes children aged 6-11 years but adjusted for

Crude birth rate (per thousand) - Annual live births per thousand of different lengths of primary education; for countries with universal edu-.id-year population; ten-year arithmetic averages ending in 1960 and cation enrollment may exceed 100 percent since some pupils are below or1970 and five-year average ending in 1975 for most recent estimate. above the official school age.

Crude death rate (per thousand) - Annual deaths per thousand of mid- Secondary school - total, and female - Computed as abone; -econdary edoca-year population; ten-year arithmetic averages ending in 1960 and 1970 tion requires at least four years of approved primary instruction; pro-and five-year average ending in 1975 for most recent estimate. vides general vocational, or teacher training instructions for pupils

Gross reproduction rate - Average number of daughters a woman will bear usually of 12 to 17 years of age; correspondence courses are generallyin her normal reproductive period if she experiences present age- excluded.specific fertility rates; usually five-year averages ending in 1960, Vocational enrollment (percent of secondary) - Vocational institutions in-1970, and 1975. clude technical, industrial, or other programs which operate indcpcndently

Family planning - acceptors, annual (thousands) - Annual number of or as departments of secondary institutions.acceptors of birth-control devices under auspices of national family Pupil-teacher ratio - primary, and secondary - Total students enrolled isplanning program. primary and secondary levels divided by numbers of teachers in the corre-

Family planning - users (percent of married women) - Percentage of sponding levels.married women of child-bearing age (15-44 years) who use birth-control Adult literacy rate (percent) - literate adults (able to rend and write) asdevices to all married women in same age group. a percentage of total adult population aged 15 years and ov-r

FOOD AND NUTRITION CONSUMPTIONIndex of food production per capita (1970=100) - Index number of per Passenger cars (per thousand population) - Passenger cars co-prise notor cars

capita annual production of all food commodities. seating lees than eight per-ons; ecludes ambulances, hearses and militaryPer capita supply of calories (percent of requirements) - Computed from vehicles.

energy equivalent of net fond supplies available in country per capita Radio receivers (per thousand Population) - All types of receioers I-o radioper day. Available supplies comprise domestic production, imports less broadcasts to general public per thousand of population; enclndes unlicensedeaports, and changes in stock. Nat supplies e-clude animal feed, sands, -eceiwers in countries and in years when rngiatratico of radio nets woo inquantities used in food processing, and losses in distribution. Re- effect; data for recent years may not be comparable since cost countriesquirements were estimated by PAO based on physiological needs for nor- abolished licensing.mal activity and health considering environmental temperature, body TV receivers (per thousand population) - TV receivers for broadcast to generaiweights, age and sea distributioss of population, and allowing 10 per- public per thousand ,-pulation; exsludes unlicensed TV receivers in ouscent for waste at household level. tries and in years when registration of TV sets was in effect.

Per capita supply of protein (grams per day) - Protein content of per Newspaper circulation (per thousand population) - Shows the average cir-ula-capita net supply of food per day. Net supply of food is defined as tion of "daily general interest newspaper", defined as a periodical publi-above. Requirements for all countries established by USDA provide for cation devoted primarily to recording general sews. It is considered toa minimum allowance of 60 grams of total protein per day and 20 grams be "daily" if it appears at least four times a w-nk.Of animal and pulse protein, of which 10 grams should be animal protein. Cinema annual attendance per capita per year - Basod on thc curler of tickersThese standards are lower than those of 75 grams of total protein and sold during the year, including admissions to drive-in cines.as and .obile23 grams of anisal protein as an average fur the world, proposed by units.FAO in the Third World Food Survey.

Per capita protein supply from animal and pulse - Protein supply of food EMPLOYMENTderived from animals and pulses in grams per day. Total labor force (thousands) - Economically active persons, including armed

Child (ages 1-4) mortality rate (per thousand) - Annual deaths per thous- forces and unemployed but excluding housewives, students, tc. Defioi-and in age group 1-4 years, to children in this age group. tions in various countries are not comparable.

Female (percent) - Female labor force as percentage of total labor force.HEALTH Agriculture (percent) - Labor force in farming, forestry, hu.ting and fishing

Life expectancy at birth (years) - Average number of years of life as percentage of total labor force.remaining at birth; usually five-year averages ending in 1960, 1970, Industry (percent) - Labor force in mining, construction, manufa-turing andand 1975. electricity, water and gas as percentage of total labor force.

Infant mortality rate (per thousand) - Annual deaths of infants under Participation rate (percent) - total, male, and female - Total, male, codone year of age per thousand live birhts. fexaae labor force as percentages of their respective popiastons.

Access to safe water (Percent of population) - total, urban, and rural - These are ILO's adjusted participation rates reflectiog age--noNumber of people (total, urban, and rural) with reasonable access to str,.crore of the population. snd long tine trend.safe water supply (includes treated surface waters or untreated but Economic dependency ratio - Ratio of population under 15 and 65 and over touncontaminated water such as that from protected boreholes, springs, the labor force in age group of 15-64 years.and sanitary wells) as percentages of their respective populations.In an urban area a public fountain or standpost located not more INCOME DISTRIBUTIONthan 200 meters froe a house may be considered as being within rea- Percentage of private income (both in cash and kind) receivod by richest 5sonable access of that house. In rural areas reasonable access would percent, richest 20 percent, poorest 20 percent, and poorest 40 percentimply that the housewife or members of the household do not have to of household.spend a disproportionate part of the day in fetching the family'swater needs. POVERTY TARGET GROUPS

Access to excreta disposal (percent of population) - total, urban, and Estimated absolute poverty incce level (US$ per capita) - atb-a and r-ca -rural - Number of people (total, urban, and rural) served by excreta Absolute poverty income level is that income level below whsch a 'inic-.i

disposal as percentages of their respective populations. Excreta nutritionally adequate diet plus essential non-fond requiremeots in notdisposal may include the collection and disposal, with or without affordable.treatment, of human excreta and waste-water by water-borne Systems Estimated relative poverty income level (US0 per capita) - urban en rtoal -or the use of pit privies and similar installations. Relative p-oerty income level is that income level less than ose- cord

Population per physician - Population divided by number of practicing per capita personal income of the countrv.physicians qualified from a medical school at university level. Estimated population below povorty income level (perrooc) - -rIas and rral -

Population per nursing person - Population divided by number of Percent of population (arbor and rtoal) who ore either "bsolutr -.oor" orpracticing male and female graduate nurses, practical nurses, and "relative poor" whichever is greater.assistant nurses.

Ec .n..c and Sooie1 .c divuio

EcnmcAnalysis, cod Perioctiors Po -t ur -et

-24- ANNEX IPage 4 of 5

ECONOMIC INDICATORS

GROSS NATIONAL PRODUCT In 1977 - ANNUAL RATE OF GRO0.irH (%, constant prices)

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

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

OUTPUT, LABOR FORCE ANDPRODUCTIVITY IN 1976

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

US$ Mln. _% Mln. % US--$

Agriculture 11t624 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/.verage .37,339 100.0 56.4 50. 662100.0

GOVERNMENT FINANCECENTRAL GOVERN}INT

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

Current Receipts 2,877 3,535 18.6 18.6Current Expenditure 1,610 2,149 10.4 11.3Current Surplus 1,26.7 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 and PRICES l972 1973 1974 1975 1976 1977(Ti1lion Rp outstanding end periodT

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

(Percentages or Index Numbers.)

Money and Quasi MToney as % of GDP 15.2 14.6 14.8 16.3 17.0 16.5General Price Index (1966 = 100) 807 1,9281 1,370 1,640 1,873 2,094Annual percentage changes in:

General Price Index 25.7 27.4 33.3 19.7 14.2 11.8Bank credit to Public 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 conversions 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$12/ Total labor force; unemployed are allocated to sector of their normal occupation. "Unallocated" consists

mainly of unemployed workers seeking their first job.

not ayEilablenot applicable

East Asia & Pacific Programs

Feb:uary 28, 1979

ANNEX I- 25- Page 5 of 5

TRADE PAYMgENTS AND CAPITAL FLOWS

BALANCE 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 -5,533 -6i,352 -7,489 Palm Oil 117 2.3

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

Factor service: - 462 - 646 - 828 Coffee 104 2.0Interest - 178 - 362 - 473Investment Income - 284 - 284 - 355 All other commodities 791 15.5

Balance on Current Account -1,257 - 8T- - 75 Total 5,79T- UQ,0

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

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

Amortization - 322 - 625 - 826Subtotal 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 T o a Db

Increase in Reserves (+) - 983 736 1,197 DEBT SERVICE RATIO for 1977

Gross Reserves (end year) 590 1,494 2,494Net Reserves (end year) 490 1,226 2,423 Public Debt, inel. guaranteed 17.1

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

Imports 93 119 28of 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 - 19717 Undisbursed 1,306.9 189.0

US $ 1.00 = Rp375 US $ 1.00 = Rp 415 Outstanding incl. Undisbursed 1,903.0 679.7Rp 10Q0= US $2.67 Rp 1000 = 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 I0.1436 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 10.7.480 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$ millionLoan/ AmountCredit Fiscal (less cancellations)Number Year Purpose Bank IDA Undisbursed

1237 1976 Fourth Education 37.0 31.21250 1976 Second Shipping 54.0 46.71254 1976 Third Fertilizer Expansion 70.0 14.31259 1976 Fifth Power 90.0 76.71267 1976 National Food Crops Extension 22.0 15.81268 1976 Seventh Irrigation 33.0 21.51318 1977 Transmigration and Rural

Development 30.0 23.21336 1977 Second Urban Development 52.5 22.01337 1977 Tanjung Priok Port 32.0 23.91363 1977 Second Private Development

Finance Co. of Indonesia(PDFCI-II) 15.0 12.5

1365 1977 Sixth Power 116.0 86.91373 1977 Nutrition Development 13.0 12.91433 1977 Teacher Training-Fifth Education 19.0 17.81434 1977 Eighth Irrigation 63.0 61.11435 1977 Ninth Irrigation 35.0 31.21437 1977 Development Finance Co.

(BAPINDO III) 40.0 26.61472 1977 Second Population 24.5 23.91486 1978 Non-Formal Education 15.0 14.41499 1978 Nucleus Estates and Smallholders I 65.0 61.71513 1978 Seventh Power 109.0 108.4S 009 1978 Bukit Asam Coal Mining and Transport

Engineering 10.0 9.11578 1978 Tenth Irrigation 140.0 139.71579 1978 Eleventh Irrigation 31.0 29.01604 1978 Nucleus Estates and Smallholders II 65.0 65.01645 1979 Irrigation XII /a 77.0 77.01653 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 adjustmenf.

-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 IIPage 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) 5-6

Other Agriculture Production (Cr. 259, 319, 355, 358, 400,405, 480, Ln. 1318, 1499 and 1604) 6-9

Agriculture 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) 17

Marine Transport (Cr. 318 and Ln. 1250) 18

Ports (Ln. 1337) 18Railways (Ln. 1005) 18

Tourism (Cr. 479) 19

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

Water Supply (Lnx. 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 weakfiesses in project executions

/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 satisfactorilye Disbursements are aheadof schedule.

-31- ANNEX IIPage 6 of 20 pages

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 completi-6ni but factory &&paci6y still has to be expanded

- 32- ANNEX IIPage 7 of 20 pages

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 Vecau-se of the extensi>ive guppbrt- already being given toNorth Sumatra Province tirough this; and other' ghkk-s4p'&rted projects;

-33 - 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 initiai delays, the overall ffoJ66t is now about18 months behind seAeddP4. Qonstrut'ion of shore faciifti6s at A6bon is

- 34 - ANNEX IIPage 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 Afehitects and engineers, the

- 35- 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).

- 36- ANNEX IIPage 11 of 20 pages

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 diffieulty iii ianaiThg 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.

-38 - ANNEX IIPage 13 of 20 pages

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 1(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; ClosinR 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.

-39- ANNEX IIPage 14 of 20 pages

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 first 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.

-40 ANNEX IIPage 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 consultants.are 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 3 9g 1978, were 30.1% and9.6%, respectively. Iowever, during the J*fiod c6f&Vfd theid have beensome problems with daft coliecti6n, which may be part of the reason for

-41- ANNEX IIPage 16 of 20 paget

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 §&fisfactor:Y and the bulk of thefunds have been committed.

-42- ANNEX IIPage 17 of 20 pages

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 aslovef rate of progredd thdn schedul§d. The proj&et 1b About 25% complete.The delay , eombined With slow prkf§gs, indicate that the project Wiliprobably be completed about 15-18 months after the Closihg Date.

-43- ANNEX IIPage 18 of 20 pages

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 ta 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$48L0 } tlion-LoatL-f J, 14, 1974;Effec teqt Date: August J§ Jtg4.- Closing Date:June 5C, 1979.

Project execution is behind schedule due to initial slow procure-ment and execution of works. Procuremeat is now weil under way and allcontracts have been placed or are about to be placed. Freight and nassenger

-44-- ANNEX IIPage 19 of 2'0 page&

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.

-45- 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 betwee.. the vario-usMinistries and the Water Enterprises, which is expected to expedite currentand future projects in the sector.

- 46 - ANNEX IIIPage I

INDONESIA

SECOND AGRICULTURAL TRAINING PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events

(a) Time taken to prepare project: six months;

(b) Project preparation coordinated by: the Ministry of Agriculturewith the help of FAO;

(c) First presented to the Bank: February 1978;

(d) First mission to consider project: February 1978;

(e) Departure of appraisal mission: July/August 1978;

(f) Completion of negotiations: March 9, 1979;

(g) Planned loan effectiveness: July 1979.

Section II: Special Bank Implementation Actions

Funds amounting to $320,000 from the Project Preparation Facilityfor architectural consultancy services and equipment procurement consultancyservices have been provided to help prepare the project and accelerate itsearly implementation.

Section III: Special Conditions

The Government is:

(a) to cause the provision of the necessary recurrent funds when theproject schools become operational (para. 40);

(b) to ensure that all full-time teachers of the project schools andin-service training centers who require pedagogical trainingwill have completed, no later than June 30, 1985, the in-servicetraining course given at the National Agriculture TrainingInstitute (paras. 43 and 46);

(c) (i) to strengthen the planning and evaluation unit of AAETE;(ii) to prepare the plans for carrying out the agricultural man-power survey and tracer studies, submit them to the Bank for review

- 47 - ANNEX IIIPage 2

and make the agreed plans ready for implementation; and (iii) todevelop and introduce by June 30, 1980, a training program foragricultural project and extension program managers in consultationwith the Bank by (para. 48);

(d) to set up the tracer system in each project institution and completethe manpower survey and tracer studies by June 30, 1981 (para. 48);

(e) to finalize the acquisition of all the necessary land for proposedproject sites (30 ha for each project school and 10 ha for eachproject in-service training center) by December 31, 1979 (para. 51);

(f) to construct or repair access roads to newly opened sites priorto the start of the building construction (para. 51); and

(g) to cause the PIU to prepare and send to the Bank a projectevaluation report on an annual basis starting at the end of 1980(para. 54).

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