Document of 2,

The World Bank

FOR OFFICIAL USE ONLY

Report No.P-3377-IND

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US$5.5 MILLION

TO THE REPUBLIC OF INDONESIA

FOR THE

CENTRAL JAVA PULP AND PAPER ENGINEERING PROJECT

August 24, 1982

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

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CURRENCY EQUIVALENTS

Currency Unit - Indonesian Rupiah

US$1.00 = Rp 625Rp 100 = US$0.16Rp 1 million = US$1,600

ABBREVIATIONS

BAPPENAS - National Planning AgencyBasuki Rachmat - Perum Kertas Basuki Rachmat, a public sector

paper mill in East JavaGOI - Government of Indonesia

KKC - P.T. Kertas Kraft CilacapOji - Oji Paper Company

Perhutani - Perum Perhatani, the State Forest CorporationREPELITA - Five-Year Development Plan of Indonesia

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

INDONESIA'S FISCAL YEAR

April 1 - March 31

FOR OFFICIAL USE ONLY

INDONESIA

CENTRAL JAVA PULP AND PAPER ENGINEERING PROJECT

Loan and Project Summary

Borrower: Republic of Indonesia

Amount: US$5.5 million (including capitalized front-end fee)

Terms: Repayable in 20 years, including 5 years of grace, atthe standard variable interest rate./l

Project The proposed project is to help finance the cost of:Description: (i) basic engineering, procurement assistance including

the preparation of tender documents, prequalification,and bid evaluation for the Central Java pulp and paperproject; (ii) technical assistance in finalizing thewood supply arrangements for the Central Java project;(iii) training of the project staff; and (iv) a pulp andpaper subsectdr study which would provide the basis forthe restructuring of the industry.

The engineering project's main benefit is the timelycompletion of preparation of the Central Java pulp andpaper project to a degree of detail which should reducethe risk of delay and cost overrun during the implementa-tion of the project itself. At the same time, GOI willbe able to complete a foreign exchange financing planfor the project and explore various alternatives ofnon-GOI financial sources for the local cost financingplan. Plans for infrastructure as well as wood supplyarrangements would be finalized and the project organiza-tion strengthened. It would also give GOI and the Bankthe opportunity to review a program for the developmentof the subsector and associated policy reforms. Therisks associated with the implementation of the proposedengineering project are minimal. The work may take longerthan envisaged but the consequences of such delays arenot serious. GOI is seeking Bank financing for theensuing construction project.

/1 This loan could be refinanced if World Bank financing were to be madeavailable to the Republic of Indonesia for the construction project.

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

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Estimated Costs :/l Local Foreign Total------(US$ million)-----

Items

Basic Engineering 0.21 0.48 0.69Tender and Procurement Assistance 0.50 1.15 1.65Preliminary Civil Engineering 0.26 0.67 0.93Study of Wood Supply Arrangements 0.29 0.45 0.74Project Management & Legal Assistance 0.15 0.69 0.84Office & Miscellaneous Equipment 0.10 0.20 0.30Training 0.20 0.40 0.60Pulp & Paper Industry Restructuring Study 0.12 0.25 0.37

Base Cost 1.83 4.29 6.12

Physical contingencies 0.25 0.63 0.88Price contingencies 0.22 0.50 0.72

Project Cost 2.30 5.42 7.72

Front-end fee on the Bank loan - 0.08 0.08

Total Financing Required 2.30 5.50 7.80

Financing Plan:

IBRD - 5.50 5.50Government 2.30 - 2.30

Total 2.30 5.50 7.80

(US$ million)

Estimated Bank FY 1983 1984Disbursements:

Annual 2.0 3.5Cumulative 2.0 5.5

Rate of Return Not applicable.

Staff AppraisalReport: There is no separate appraisal report.

MAP: IBRD 16438

/1 Net of taxes, which are insignificant.

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTTO THE EXECUTIVE DIRECTORS ON A

PROPOSED LOAN TO THE REPUBLIC OF INDONESIA

FOR THE CENTRAL JAVA PULP AND PAPER ENGINEERING PROJECT

1. I submit the following report and recommendation on a proposed loanto the Republic of Indonesia for the equivalent of US$5.5 million (includingthe capitalized front-end fee) to help finance the Central Java Pulp andPaper Engineering Project. The loan would have a term of 20 years, includingfive years of grace, at the standard variable interest rate. The loan couldbe refinanced if World Bank financing for a subsequent pulp and paper projectwere to be made as a result of this project.

PART I - THE ECONOMY

2. A basic economic report, "Indonesia: Growth Patterns, SocialProgress and Development Prospects" (No. 2093-IND dated February 20, 1979),was distributed to the Executive Directors on February 26, 1979, and a countryeconomic memorandum has been prepared in each subsequent year. The latest ofthese, titled "Indonesia: Financial Resources and Human Development in theEighties" (No. 3795-IND dated May 3, 1982) was distributed to the ExecutiveDirectors on May 6, 1982. Annex I gives selected social and economicindicators for the country.

Background

3. The Republic of Indonesia is a highly diverse country spread acrossan archipelago of more than 13,000 islands with a land area of about two mil-lion sq km. It now has a population of over 150 million, growing at about2.2% p.a., and is the world's fifth most populous nation. The country has ahighly diversified resource base, with plentiful primary energy resources,significant mineral deposits, large timber potential and a developed system ofagricultural commodity production and export. A high proportion of theseprimary resources are located on the sparsely populated islands of Sumatra andKalimantan, while two-thirds of the population live on Java which has areaswith some of the highest rural population densities in the world. About 20%of the population live in urban areas in both Java and the Outer Islands, andthe current rate of urban population growth is over 4% p.a. The 1981estimate of GNP per capita is $520, which places Indonesia for the first timeamongst middle income countries./I

Macroeconomic Developments and Resource Management

4. The economy has now been growing at almost 8% p.a. for over adecade. This has been associated with rapid increases in publicexpenditures, total investment and savings. The initial impetus for this

/1 On the basis of the World Bank's system of country classification andAtlas methodology for calculation of GNP.

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occurred in the period of recovery from the turbulence of the mid-60s. TheGovernment took effective action to restore macroeconomic stability,liberalize the economy, rehabilitate infrastructure, and provide incentivesfor domestic and foreign private investment. However for the last decadethe dominant external influence has been the huge expansion, and significantvariability, in foreign exchange earnings from oil. Net exports from the oiland gas sector rose from 80.6 billion in 1973/74 to $10.8 billion in1980/81, when the current account enjoyed a surplus of $2.5 billion. Oilreceipts also provide about 70% of Central Government receipts and havehelped finance the sustained increase in demand via the budget. In 1981/82depressed international markets, combined with continued rapid expansion indemand for imports, led to a $5 billion turnaround in the current account,which registered a deficit of S2.5 billion. However, the economy appearsremarkably resilient in the face of this change: growth was maintained at anestimated 8% in 1981, the reserve cover is more than adequate and the countryis highly creditworthy. The reason for this macroeconomic resilience can inpart be attributed to effective management of the oil-related resource wind-falls. Throughout the 1970s the Government has kept public expendituresbroadly in line with medium-term receipts, through a combination of temporarysavings of windfall gains, reining in of recurrent expenditures in years ofrelative shortage, and changing the extent to which the external oil priceincrease is passed on to domestic consumers. The pattern of expenditures hasalso helped foster diversified growth: of particular note has been thesupport for agriculture, through investment in infrastructure, supportservices and effective use of subsidies to maintain producer incentives. Thisbore fruit in two successive record rice harvests in 1980 and 1981. During1971 to 1980 manufacturing has also enjoyed a high growth rate (of about 14%p.a.) from a very low base, but here sectoral growth has been in spite of amore restrictive policy environment and distorted incentives. Despite thedemonstrated resilience of the macroeconomy to the short-run developments inthe oil market, the likely decline in the relative importance of external oilreceipts implies that Indonesia faces a need for substantial structural changein the eighties. If the pace of development is to be sustained thedevelopment of a strong and diversified nonoil production and export base isessential. This will have to be supported by major investments in newinfrastructure - particularly in transportation and electric power - if arapidly modernizing production base is to be serviced.

Incomes, Employment and Human Development

5. Despite the high concentration of the resource windfalls, theavailable evidence, from household expenditures surveys, indicates a fairlywide distribution of the benefits of growth and a reduction in povertyincidence over the past ten years. This is also borne out in the basic healthindicators, with a 25% reduction in the infant mortality rate and an increasein life expectancy from 47 to 53./I These improvements should not, however,mask the continued existence of widespread poverty. Almost 50% of the

/1 On the basis of the 1971 and 1980 population censuses.

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population are estimated to have been in this condition in 1978. The core ofthe poverty problem continues to be in rural Java, where landless laborersform a large, and possibly rising, fraction of the population, and where, formost of the 1970s, there is little evidence of any rise in real agriculturalwages. However, in the last two years of good rice harvests, it is likelythat significant improvements occurred on Java, while agricultural incomes onparts of the Outer Islands dependent on export crops have declined in the faceof the international recession.

6. In the future the availability of productive employment will be akey determinant of the distribution of income. The labor force will grow atabout 3% p.a., equivalent to around 2 million people p.a., in the next decade.In 1980 agriculture still accounted for 55% of employment, and industry only13%, while the growth of services employment, from 24% of the total in 1971 to32% in 1980, was the main mechanism for providing incremental employment inthe 1970s. The growth in service incomes was partly sustained by rising oilincomes in the 1970s; if services are to continue to be a major source oflabor income there is again a strong case for diversifying the pattern ofproductive growth. Open unemployment, at 4% in 1980, is not yet a seriousproblem - it is concentrated amongst secondary school leavers waiting for highincome work; the key issues are of widespread underemployment (seen in shortworking hours in some sectors) and low wages. To tackle this a sustained risein labor demand is crucial - through the maintenance of overall growth and theencouragement of labor-intensive choice of techniques in production,especially in the industrial sector.

7. In the 1970s there was substantial progress in extending the pro-vision of social services throughout the population. Universal enrollment inprimary education has been virtually achieved and the enrollment rate injunior secondary schools is now 35%. However, the weak educational base ofthe population continues to be a major obstacle to rapid economic developmentand a substantial further expansion of secondary and tertiary education willbe necessary as well as a major effort to raise the quality of the wholesystem. The situation is similar in the health sector. There has been alarge expansion in facilities, notably at the level of the district and below,but continued expansion and an improvement in quality will be necessary toraise standards. This will have to be complemented by a major expansion inwater supply and sanitation if the improvement in indices of mortality andmorbidity in the 1970s is to be maintained. Currently only 18% of the ruraland 40% of the urban population have access to safe water /1 compared withGovernment targets of 60% and 75%, respectively, for 1990.

Policy for Structural Change

8. Indonesia's past growth performance has been good, but the countryis now faced with the need both to put the nonoil economy on to a viablelong-run growth path and to effectively improve the basic needs situation of

/1 Government estimates for 1981.

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the poor. The maintenance of a high level and an improved structure ofinvestment will be crucial to this. This will involve substantial investmentby the public sector, especially in economic and social infrastructure, com-plemented by improvements in the policy environment to provide an appropriateincentive structure for private sector investment.

9. In industry, the Government of Indonesia (GOI) is planning a programof large-scale natural resource-based investments, in refineries, LNG, petro-chemicals, fertilizer, cement, pulp and paper, basic metals and mining. Thiswill broaden the industrial base, but will have very limited employmentimplications. Of greater importance for both employment and exports is theencouragement of small- and medium-scale private manufacturing through animprovement in the economic environment. The 1978 devaluation of 33% againstthe US dollar significantly improved the profitability of labor-intensiveimport substitution and export industries. Furthermore, the GOI has initiateda general review of the trade regime, with a view to removing the distortionscaused by the wide variations in rates of effective production. It has alsoembarked on a program designed to promote the expansion of nonoil exports,including export financing arrangements, export insurance, improved portsprocedures, export processing zones and a system of export certificates (dutyrebates). However, the private sector suffers from significant domesticconstraints to its expansion, including a heavy regulatory burden, especiallyin the area of investment licensing, and a distorted and poorly developedfinancial system. Further policy reforms to alleviate these constraints areneeded to create an environment conducive to private investment.

10. The energy sector is at the core of the structural adjustmentproblem. Oil and gas now account for 98% of domestic consumption of commer-cial energy and demand has been growing rapidly. If Indonesia is to avoid aserious reduction in foreign exchange earnings from the oil sector in the1990s, it is essential to diversify energy usage and improve the efficiency ofenergy consumption. This will require both price and investment measures. InJanuary 1982 domestic oil prices were increased by over 60%, and this followeda 40% increase in May 1980. This was a decisive step, but domestic prices arestill only about 55% of the average opportunity cost and price relativitiesbetween products diverge widely from those prevailing on the internationalmarket. In addition a major program of investment is planned, with public andprivate participation, in coal exploration and development, exploitation ofhydro and geothermal resources, and a sixfold increase in electric powergeneration in the coming decade.

11. Agriculture will continue to be of great importance for exportrevenue (accounting for almost 75% of 1980 nonoil exports), food productionand employment. Rice production has been steadily rising to a record level ofabout 22 million tons in 1981, compared with 13 million a decade earlier.This achievement is largely a result of the provision of new and the rehab-ilitation of existing irrigation systems and the dissemination of newagricultural technology particularly with respect to the timely de ivery ofseeds and fertilizers. Future investment in physical infrastructure,especially in irrigation and rural roads, combined with a favorable marketenvironment and good support services will be the main determinants of further

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expansion in food production. In the past tree crops have suffered fromrelative neglect, and the age structure of the trees is now very old, but GOIhas a highly ambitious program of rehabilitation and replanting, necessitatingsubstantial investment in manpower and improved organization of distributionand marketing. Transmigration remains a high priority program for promotingdevelopment in underpopulated regions, providing opportunities for landlessfamilies on Java, Bali, and Lombok, and relieving economic and environmentalpressures on those densely populated islands.

Financing Development - Domestic Resources and External Capital Flows

12. Structural adjustment will require a high investment rate, and anexpanding level of public services; it also involves adapting to a decliningrelative level of oil rents. The problem of financing development is clearlycentral. This will require a major increase in resource mobilization throughthe public sector, through a combination of reduced subsidies on petroleumproducts and increased nonoil taxes. In 1980 it is estimated that taxes onthe domestic economy were only 6% of GDP, if the domestic oil subsidy isnetted out, compared with well over 10% for comparable countries. The 1982/83budget represents a significant effort to improve the situation, with ahalving in the annual level of the oil subsidy and a 15% budgeted increase innonoil taxes, but this will have to be sustained in following years. Inaddition to public resource mobilization it is becoming increasingly importantto encourage the growth and improve the efficiency of distribution of finan-cialized savings, through an improved financial regime and the development ofa domestic capital market.

13. Even with effective measures to mobilize domestic resources therewill be a substantial need for foreign savings in the 1980s, of which themost important component will be in the form of medium- or long-term debtflows. Total disbursed and outstanding external public debt was almost $16billion at the end of 1981 and undisbursed debt amounted to an additional $11billion. The Inter-Governmental Group on Indonesia remains a principal sourceof external capital, including Official Development Assistance, to thecountry. During the 1970s, however, Indonesia experienced an unusually rapidtransformation in its public debt structure from a situation of heavy relianceon official concessional loans to increasing use of private, nonconcessionaland variable interest loans in the second half of the decade. In 1981 privatesource debt accounted for 52% of new commitments of public debt. The factthat Indonesia remains highly creditworthy at the beginning of the 1980s, andthe efficiency with which GOI has managed debt, are clear indicators of howfar the country has progressed. However, the debt servicing capacity dependson commodity production rather than a broad industrial base, and this makesIndonesia somewhat more vulnerable to developments in international markets.The implication is that debt utilization should remain very prudent, and thatthere will be a continued justification for official debt of long maturitiesin the 1980s. If the measures to support structural adjustment are imple-mented then present projections indicate that Indonesia's financingrequirements can be met with the debt service ratio remaining below 20%throughout the decade.

pART II - BANK GROUP OPERATIONS IN INDONESiA /I

14. As of March 31, 1982, Indonesia had received 48 IDA creditstotalling S931.8 million, and 67 Bank loans amounting to S4,562.0 million.IFC investments totalled $136.8 million. The shere of the Bank Group inIndonesia's total (disbursed) external debt outstanding at the end of 1980was about 10.7%, and the share of debt service about 7.1%. By the end of1981, these ratios increased to around 11.2% and 7.4%, respectively. Annex IIcontains a summary of IDA credits, Bank loans and IFC investments as ofMarch 31, 1982, as well as notes on the execution of ongoing projects.Given the critical importance of agriculture (including transmigration) foremployment, food security and exports, over one-third of Bank Groupsupported projects have been in this sector. In addition, loans and creditshave been extended to virtually all other sectors of the economy, includingtransportation, education, urban development, water supply, rural develop-ment, nutrition, industrial development financing (including small-scaleindustry), power, telecommunications, population and technical assistance.

15. During Repelitas I and II, and in line with the objectives of thesefirst two Five-Year Plans, a high proportion of Bank Group lending wasdirected initially toward the rehabilitation and then the expansion ofinfrastructure and production facilities. Special attention was also givento meet the shortage of skilled manpower and technical assistance needed forpreinvestment studies and project execution. Repelita III, published inearly 1979, stressed the need for continued high growth and stability, butdeparted from previous plans by placing special emphasis on more equitableincome distribution and poverty alleviation. This focus, which was fully inline with the conclusions of the basic economic report, required greaterattention to employment generation (particularly in the industrial sector)and to improvements in basic public services. While Bank lending was alreadyconsistent with these objectives, increased emphasis has been given to thesepriorities.

16. Although the country has moved from a position of resource surplusto deficit, as discussed in Part I, it is essential that the developmentmomentum be maintained. This will require both effective policy reform,notably in improving the environment for private investment, and majorinvestments in industry, infrastructure, treecrop development and humanresources development. The Bank's program of lending and economic work isbeing geared to support the required measures. The primary emphasis of Bankinvolvement will be on policy and institutional development and technicalassistance in the key sectors. This will involve a close integration betweensector work and lending and the gradual broadening of lending to the sub-sector and sector level in order to assist with policy issues at this level.

/1 Substantially unchanged from the President's Report on the Coal Explora-tion Engineering Project (No. P-3298-IND) circulated under cover ofR82-131, dated May 3, 1982, and approved by the Executive Directorson May 20, 1982.

17. rhe only significant shift in the composition of lending involves arapid expansion planned in the education sector, a direct response to thesevere shortage of skilled manpower. In the industrial sector, in-depthsector work focused on a policy for the promotion of labor-intensive, export-oriented growth has been substantially completed, and it is planned to followthis with a series of industrial projects. In energy, sector work andcontinued lending is concentrating on policies to diversify Indonesia's energybase, rationalize pricing and improve sectoral planning. Irrigation andtreecrops will continue to absorb a substantial portion of lending in view ofthe importance of these sectors, and continued support for transport isanticipated. Continued lending in the areas of provision of social services,in population, health and nutrition, urban development and water supply willincreasingly emphasize institutional support and the development of innovativelow-cost solutions. For example, the proposed health project will focus onimproving the working of the whole health care system at the level of aspecific province.

18. For about the last two years the Bank and GOI have made a majoreffort to improve disbursement performance, which deteriorated rapidly in thelate 1970s. The disbursement ratio (the ratio of actual disbursements duringthe fiscal year to cumulative undisbursed amount at the beginning of thefiscal year) declined frGm about 26% in FY77 to about 13% in FY80. TheBank-wide average was 21.31% in FY80; the comparable ratios for Thailand andNigeria were 21.2% and 17.31%, respectively, in the same year. While much ofthis decline was merely a result of the rapid increase in commitments whichtook place during this period (total Bank/IDA commitments to Indonesiaincreased by 122% in the FY77/79 period compared to a Bankwide increase of83%), it also reflected increasing implementation difficulties. Many of theproblems appear to be related to GOI's cumbersome budgetary, procurement andpayment procedures, including issuance of tender documents and opening ofletters of credit. These problems are further compounded by the severeshortages of both managerial and technical manpower. A number of steps havebeen taken by GOI and the Bank to address these issues. Several special Bankmissions have visited Indonesia to analyze the problems and make recommenda-tions for simplifying budgetary and financial procedures. The GOI and theBank have also instituted formal and regular joint review procedures toidentify general and project specific problems and work out correctivemeasures. In addition, procurement seminars were held in Jakarta in September1979 and November 1981. As a consequence of these joint initiatives, GOI hastaken several measures to streamline some of the complex budgetary andfinancial procedures affecting project implementation. In addition, the Bankis helping the GOI in a special effort to identify problems in the construc-tion industry with a view to developing appropriate remedial actions andpolicies. Weaknesses in the domestic contracting industry have been identi-fied as one of the major causes of implementation problems in Indonesia.Finally, to reduce initial project implementation difficulties, manyoperations are now being presented for Board consideration at a later stage inthe project cycle. Indications are that, as a result of these efforts,improvements are taking place. This was reflected in an increase in

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disbursements from $204.0 million in FY79 to $277.8 million in FY80, $373.5million in FY81, and $501.3 million in FY82, implying a disbursement ratio ofaround 18%. While it is important that the Bank and GOI maintain theirefforts, these trends are encouraging.

19. From 1968 until 1974, all lending to Indonesia was made through IDA.Due to the country's improved creditworthiness following the commodity and oilprice boom in 1973/74, the bulk of the Bank Group's subsequent lending hasbeen through IBRD loans, with a modest amount of IDA lending being justifiedprimarily on poverty grounds, as the per capita GNP was well below the IDAcutoff of $625. Given Indonesia's much improved balance of payments position,IDA lending was discontinued in FY80.

20. The proposed project constitutes the first lending operation pre-sented to the Executive Directors this fiscal year. Projects under advancedstage of preparation and appraisal include the Third Transmigration, SeventhNucleus Estates and Smallholder, Twelfth Power, Twelfth Education and theFirst Health projects.

PART III - TEE INDUSTRIAL SECTOR AND SUBSECTOR

Industrial Sector

21. With the rehabilitation of the Indonesian economy in the mid-1960s,GOI set out to develop Indonesia's hitherto small industrial sector withthe principal objective of exploiting and processing the country's naturalresources, and thereby expanding employment and increasing incomes. Otherelements of the overall industrial development objective have been widerregional dispersion of development and the stimulation of indigenous entre-preneurship. GOI pursued these objectives by directly investing in theindustrial sector, especially in the aftermath to the first oil boom in 1973,by creating private sector incentives and by regulating private sectorinvestment activities through a comprehensive licensing system.

22. From 1971 to 1980, the industrial sector, including mining andenergy, grew at an average annual rate of 11% (manufacturing grew by 14%),compared with about 8% for the economy as a whole. Industry now accounts forabout 33% of Gross Domestic Product, compared with 14% in 1960 and 20% in1970. But manufacturing, which typically is the most dynamic component of theindustrial sector, represented only 9% of GDP in 1980, a low proportion whencompared with Malaysia (23%), Thailand (20%), the Philippines (26%) andSingapore (28%).

23. The industrial growth that took place in the 1970s, was in mostpart confined to large capital intensive industries such as cement,fertilizers, steel and paper. These were also largely import substitutingindustries. Given its high capital intensity and protection the industrialsector that emerged, while impressive in terms of its early growth, was not

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_iapable of generating a Large number of employment opportunities or capableof replacing oil exports as a future source of export revenues.

24. Although the devaluation of the rupiah in November 1978 and theintroduction of export incentive schemes led to a substantial growth inmanufacturing exports (from a very small base), industrial growth has beenslowing over the past several years. This is due, in part, to the gradualsaturation of the readily accessible import substitution markets. It isalso apparent that some of the many policy measures which were designed tostimulate industrial development have become so complex that they may now beobstructing rather than facilitating the attainment of these objectives.The Bank recently completed a review of the industrial sector which focusseson specific problems related to the trade regime, the regulatory climate,the financial policy environment and policies towards private foreigninvestment, and makes a number of recommendations designed to improve thepolicy and institutional environment and stimulate industrial activity.

25. With respect to policy reforms, a number of areas were identifiedas being of primary importance. The trade regime is biased against exportsin general and industrial exports in particular. A reform of the tariffsystem so as to reduce the export bias and to move towards a more neutraltrade regime will therefore be an important element in the structuraladjustment of the industrial sector. This area has received increased GOIattention and an overall tariff reform is currently being considered (para. 9above). GOI has also taken steps to improve export procedures. Thelicensing system is also candidate for reform, in particular to increasecompetition among existing and potential entrants to the sector. Movementin this area by GOI, however, has been limited. Finally, while industrialfinance remains poorly developed, there has been recent movement designed toincrease the availability of export financing.

Pulp and Paper Subsector

26. Background. Indonesia's per capita consumption of paper in 1980was 3 kg, well below consumption levels in the Philippines (10 kg), Thailand(10 kg), Malaysia (22 kg), and Singapore (73 kg). However, paper consump-tion (currently about 480,000 tons per year) has grown at an average rate of13% annually during the past decade, compared with world-wide growth figuresof about 3-4%. Domestic supply has expanded even more rapidly: up from18,000 tons (about 12% of demand) produced in six mills in 1970, to 230,000tons (about 48% of demand) in 29 mills in 1980. Much of this new capacityhas been in small privately-owned paper mills without integrated pulpingfacilities. Such mills merely convert imported pulp into paper, withoutusing Indonesia's abundant fiber resources. Consequently, the burden ofimports has shifted from paper, where import duties are as high as 60%, topulp on which there is no import duty. While mills of this type may be

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financially attractive due to a distorted incentive scheme, they are typi-cally small and inefficient and yield very low economic rates of return.GOI recognizes this diseconomy as one of the most important policy issuesfacing the industry.

27. The annual demand for paper in Indonesia is expected to reachabout 1.2 million tons by 1990 at which time per capita consumption would be7 kg. Existing mills could satisfy only about 20-25% of this paper demandand less than 10% of the pulp required to produce it. As Indonesia has thepotential to develop fiber sources which could be economically utilized andfurther improved to satisfy much of the local pulp and paper demand andprovide the basis for an export-oriented industry in the future, the highpriority attached by GOI to the development of this subsector is wellfounded. However, it is important that this development takes place in anoptimal manner.

28. Development Options and Policy Framework. A Bank review of thepulp and paper subsector in 1981 examined three alternative courses ofdevelopment during the 1980s: (i) continuation of the present investmentpattern; (ii) establishment of selected economically-sized integrated mills;and (iii) restructuring of the existing industry concurrently withestablishing integrated mills. The first option was concluded to beeconomically unattractive and could be taken only if the present high tariffon selected grades of paper is maintained. While the second option isreasonably economic, the review concluded that the third option is the mosteconomic and attractive because it addresses all the major weaknesses of thesubsector (para. 26). The proposed engineering loan would assist GOI withdeveloping this approach.

29. While it has been GOI's intention that tariff protection andlicensing policies should be used to encourage an efficient industry, thiseffort has not been successful in pulp and paper because of a combination ofseveral factors: (i) the distorted incentive scheme, reflecting the hightariffs on paper relative to pulp and energy subsidies; (ii) the financialunattractiveness of large integrated plants since they require a longgestation period and capital contributions that could not be readilyfinanced by the private sector; (iii) the lack of infrastructure,particularly in the Outer Islands where most of the fiber resources arelocated; and (iv) the presently limited availability of sizeable plantationforests that can supply sufficient homogenous fiber resources for paperproduction at economic scales. To ensure economic and rational growth ofthe subsector in the future, GOI should begin to address these constraints.Specifically it should focus on (i) redesigning the incentive scheme so asto encourage efficient production; (ii) investing in and operatingefficient, integrated pulp and paper mills; (iii) improving the structureand operations of existing mills; and (iv) improving the fiber resource baseto support further expansion of the industry.

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30. Energy pricing, tariff reform, industrial restructuring, andbroader mobilization of non-GOI resources into th.e pulp and paper industryare key issues in promoting rational development of the pulp and paper sub-sector. In respect to energy pricing, the progress that has already beenachieved is noted above (para. 10). The high tariffs on selected grades ofpaper (notably printing and writing paper, kraft linerboard and fluting)need to be lowered, and in this respect the proposals currently being con-sidered by the GOI as part of a general tariff reform are the appropriatepolicy response. It is anticipated that these proposed adjustments,together with reduction in energy subsidies already effected, would reducethe average effective rate of protection for the pulp and paper industry toabout half the level prevailing in 1980. Though still high, this effectiverate would be one of the lowest among import substitution industries inIndonesia.

31. A major restructuring of the pulp and paper industry will also berequired during the 1980s to complement these tariff and energy priceadjustments. In a competitive environment, if a paper mill were to operateprofitably, it would have to be highly specialized, or an integrated,economically-sized plant with maximum attention to operational and energyefficiencies. Such an environment would also encourage existing mills torationalize their operations. However, short-run adjustment difficultiesfor the existing mills which are mostly owned by the private sector could beserious unless industrial restructuring programs are carefully planned andimplemented concurrently. For example, a preliminary analysis suggests thatunder the reduced tariff levels currently being examined by GOI most of themills below 5,000 tons per year capacity (whether integrated or not),accounting for 17 of the 29 existing mills, would incur significant losses ifthey were to maintain existing modes of operation. Therefore, as part of theproposed engineering project, GOI plans to inititate a study designed toaddress the major policy issues facing the subsector and prepare a restruc-turing program for the pulp and paper industry. Terms of Reference for thisstudy have been finalized and agreed upon between GOI and the Bank. A localcounterpart team consisting of representatives of the selected IndonesianPulp and Paper Manufacturers Association member companies, as well asBandung Cellulose Institute staff, is being organized to participate in t-1*work.

32. GOI is also exploring ways and means to increase the participationof non-GOI resources in financing the industry, and has proposed the forma-tion of a working committee represented by Ministries of Finance andIndustry as well as BAPPENAS (the National Planning Agency) to system-atically explore and evaluate the viability of various means toaccomplishing this objective. GOI has decided to use the Central Java pulpand paper project as a pilot case. Through supervision of the proposedengineering project as well as further preparation of the constructionproject, the Bank will be actively involved in these subsector widediscussions and assist GOI in achieving the subsector objectives.

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33. At the project level, the Bank Group is currently working on twolarge-scale pulp and paper projects. While the Central Java project beingconsidered here is the more advanced, a project to develop an integratedforest industry complex in East Kalimantan is also being considered. GOI hasasked IFC to assist in financing the project itself, and the Bank in financ-ing the infrastructure. GOI is committed to implement this project in theprivate sector with some participation from foreign private partners.Because of its isolated location, the East Kalimantan project is complicatedand expensive and is likely to take a considerable amount of effort and timeto promote.

PART IV - THE ENGINEERING PROJECT

34. The Central Java pulp and paper project was first reviewed by theBank in the course of the 1976 Industrial Sector Mission which concluded thatit was one of the most promising pulp and paper projects under considerationby GOI. Although GOI has spent several years trying to attract privateinvestment for this project, it has been considered too large and complex bydomestic investors, and foreign interest has been confined to the supply ofequipment and technical assistance. GOI thus assigned Perum Perhutani(Perhutani), the state forest corporation, which manages all the forestr-ources in Java, including the plantation forests designated for theCencral Java pulp and paper project, to commission prefeasibility andfeabl-iiity studies for the project by the Finnish Consultants, Jaakko PoyryOy. Up, thieir completion in May 1981, the Bank reviewed these studies, andwork to da:.e indicates that the Central Java pulp and paper project appearsto be techni.illy sound, and financially and economically viable. Prelim-inary financial and economic rates of return are in the acceptable range.The Bank subsequently agreed to consider an engineering project to completepreparation and assist in the confirmation of the viability of the CentralJava pulp and paper project. In addition, as part of the engineeringproject, GOI and the Bank will continue a subsector dialogue on the restruc-turing of the pulp and paper industry with the goal of bringing about thepolicy and structural changes necessary to ensure the rational development ofthe industry (paras. 30-32). A Bank mission in February 1982 appraised theengineering project. Negotiations were held in Jakarta from July 29 to July31, 1982, with the Indonesian delegation led by Mr. Nico Kansil, Director forPlanning, Directorate General for Basic Chemical Industries, Ministry ofIndustry. Since this is an engineering project, no separate staff appraisalreport has been prepared. Supplemental project data are in Annex III.

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Background

35. The Central Java pulp and paper project would be the first large-scale integrated wood-based pulp and paper mill in the country. Thedecision, in principle, to proceed with a large capital-intensive publicsector project at this time reflects a number of concerns. First, whilehighlighting the importance of small- and medium-scale industry, the Bank'sindustrial sector review (paras. 24-25) emphasized that large capital-intensive projects would remain appropriate in areas where efficiencycriteria support such technology, and where Indonesia has a comparativeadvantage; such is the case in respect to pulp and paper. Second, thequestion of public as opposed to private sector development is basically oneof timing. Active GOI attempts to interest domestic and foreign privateinvestments in this and other large-scale pulp and paper projects have notbeen successful to date; indeed a private Indonesian firm returned thelicense to develop this project to GOI in 1978. As the Bank's analysisclearly indicates that the restructuring should be phased over time, GOI hasa choice between taking the lead in developing a project such as this one orfacing a significant delay in moving the subsector toward more efficientintegrated mills. Since the proposed Central Java pulp and paper project isexpected to (i) efficiently utilize and expand Indonesia's long fiberresources, (ii) produce sack kraft paper, on which there is no tariffprotection, at internationally competitive prices, and (iii) demonstrate theviability of this type of operation as an efficient investment; GOI partic-ipation in and promotion of such a project is considered fully justified.Moreover, GOI has indicated its willingness to examine how its participationin this investment can be divested over time.

36. The Central Java pulp and paper mill would be owned andconstructed by P.T. Kertas Kraft Cilacap (KKC) which is in the process ofbeing incorporated based on the Government Regulation No. 2/1982. Theincorporation of KKC would be a condition of effectiveness of the proposedengineering loan (Section 6.01(a) of the draft Loan Agreement). The mill,expected to be located at Cilacap on the southern coast of Central Java, isplanned to have a capacity to produce about 106,000 tons per year of sackkraft paper. Cilicap is well located with regard to infrastructure, andclose to the wood supply and product market. It would be based on tropicalpine (Pinus merkusii) plantations located in Perhutani's concession inCentral Java, which would provide sufficient wood raw material to theproposed mill based on a long-term contract between KKC and Perhutani. Itis anticipated that the price of wood would take into account all therelevant costs of the operations and replacement of the plantation. Thisplantation is one of the few significant long fiber resources in Indonesiaand represents an important opportunity for the production of those gradesof pulp and paper which require high strength properties. Three suchproducts, newsprint, sack kraft and kraft linerboard, were examined duringthe course of the prefeasibility study. Due to the expected rapid expansionof cement sack demand, GOI chose sack kraft as the main product for theCentral Java Pulp and paper project. The mill will also be able to

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produce linerboard and thus adjust to changing market conditions. The sackkraft, to be produced for the first time in Indonesia, will be marketeddomestically to cement companies, and to a lesser extent, to fertilizer andother commodity producers. Assuming the project's construction phaseproceeds as expected, by the time it reaches full capacity in 1991, thetotal demand for sack kraft is expected to reach about 120,000 tonsannually.

37. GOI has tentatively decided to procure the mill in two packages.The first package, representing about 60-70% of the estimated total installedplant cost would be on a fixed price basis, and would include detailedengineering, imported equipment and materials, supervision of overall plantconstruction and commissioning. The second package would cover localsupplies of equipment and materials, construction and civil works, on a reim-bursable cost basis. This approach to procurement is designed to achievethe benefit of a fixed price for most of the installed plant cost, whileremoving the uncertainty for foreign bidders in relation to local supply ofgoods and services. In order to ensure proper coordination and clear linesof responsibility for the implementation of the construction project thesupplier of the first package should be responsible for the overall coordina-tion and the supervision of the plant construction and commissioning. Whilethere is a risk that seeking a fixed price on such a large, complex packagemay add to its price, GOI considers this risk acceptable in eliminating anylater cost overruns and minimizing delays. The GOI and the Bank willconsult with each other with regard to the suitability of the proposedprocurement arrangements for the construction of the Cilicap paper millduring the course of the proposed engineering project.

38. There is strong interest in cofinancing the Central Java projectamong bilateral sources, commercial banks and other financial institutions.Proceeding with the engineering project would ensure more accurate costestimates and allow appropriate time to structure the most attractivefinancing package. Concerning local financing, GOI has decided to use theCentral Java project as a pilot case for the mobilization of domesticnon-GOI resources (para. 32). These resources could include investments fromcommercial banks, pension funds, and insurance companies. Similarly, GOI hasexpressed its interest in ultimate disinvestment of the Central Javaproject, options for pursuing this would be examined during implementationof the engineering project.

The Engineering Project: Objectives

39. The Bank's preappraisal of the Central Java project in February1982, while supporting the project's economic viability, concluded that thefollowing additional information was needed to fully prepare the con-struction project and to attract the maximum amount of cofinancing: (a)engineering and procurement arrangements for the two packages; (b) woodsupply arrangements; and (c) preparation of more accurate capital costs andfinancing plan.

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Thus the decision was made by GOI to proceed on the basis of two-phases; anengineering project to be followed by a construction project if the millviability is confirmed. The objectives of the engineering project would befour-fold: (i) to complete preparation of the construction project asdescribed above; (ii) to confirm the technical, financial and economicviability of the construction project, and to permit implementation toproceed expeditiously; (iii) to complete the financing plan; and (iv) toundertake further studies, with the aim of reaching agreement with GOI on afuture course of action for the rational development of the pulp and paperindustry.

Project Description

40. The engineering project would consist of four components asdescribed below:

Part A - Assistance in Developing the Central Java Mill

41. Part A of the engineering project would consist of providingtechnical assistance for carrying out basic engineering and the evaluationof the environmental impact of the project, prequalification of potentialsuppliers, preparation of tender documents, tender evaluation, and contractnegotiation for the first package (para. 37). It would also include prelim-inary civil engineering and procurement assistance for local constructionand erection services. Additional funds would be provided for other pro-fessional services required, including legal and management assistance. Itwould also include an allowance for office and other equipment required tofacilitate project start-up.

Part B - Assistance in Developing the Wood Supply Arrangements

42. Part B of the engineering project would provide technical assist-ance to Perhutani in developing appropriate wood-supply arrangementsincluding plantation, logging and transportation programs, road designs andenvironmental protection measures. The existing pine plantation covers52,000 ha of Perhutani's 100,000 ha concession in Central Java. Perhutanihas designated some 40,000 ha of the former area for the Central Javaproject, reserving the rest for contingencies and other operations. Inaddition, Perhutani has ongoing programs to expand the pine plantationwithin its concession by 10,000 ha over the coming five years and also toreforest as required. The feasibility study and subsequent review by theBank have confirmed that the wood supply is adequate to meet the woodrequirements of the Central Java project. However, some of the terrain inthe plantation areas is hilly, and it would be necessary to prepare acareful logging and wood transportation program. During the past fouryears, Perhutani has been implementing a mountain logging project financedby the Japan International Cooperation Agency, under which some 60Perhutani personnel have been trained for cable logging. Other loggingmethods have been examined, including animal skidding, manual skidding andmechanical skidding. GOI will consult with the Bank on conclusions and

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recommendations relating to tne wood supply progran, and would establish atimetable, acceptable to the Bank, for the implementation of the program(Section 3.03(b)(ii) of the draft Loan Agreement).

Part C - Training

43. lost of the training required prior to the start-up of the CentralJava project would be carried out in the context of the construction project.However, the engineering project would include a training component, primarilyaimed at making provision to allow training of key personnel in KKC andPerhatani. GOI will be asked to forward a training program to the Bank byFebruary 1, 1983 and to initiate this program in accordance with a timetableacceptable to the Bank (Section 3.03(b)(iii) of the draft Loan Agreement).

Part D - Subsector Restructuring Study

44. During the implementation of the proposed engineering project, thesubsector studies would be continued, primarily focusing on tariff reductionsand industrial restructuring. Tne implementation of tariff adjustmentcurrently under examination by GOI, would be expected to include major tariffreductions on paper, and would be pursued in the context of the overallindustrial sector and trade dialogue between GOI and the Bank. The restruc-turing study for the pulp and paper industry to be included in the engineeringproject would focus on the impact of policy changes and the needed restruc-turing of existing pulp and paper firms to make them economically viable(para. 31). Terms of Reference for the study have been agreed during thenegotiations, and the consultants required to assist GOI on the study would behired by February 1, 1983 (Section 3.02(a)(iv) of the draft Loan Agreement).GOI agreed to consult with the Bank on the study's recommendations andfindings and thereafter to take such measures as may be agreed to stimulateeconomic development of the pulp and paper industry (Section 3.03(b)(iv) ofthe draft Loan Agreement).

Project Implementation

45. The primary executing agency of the engineering project would be aProject Management Team, which is to be established and maintained within theKKC, and whose staffing program would be satisfactory to the Bank (Section3.01(b) of the draft Loan Agreement). The nucleus of the Project ManagementTeam has already been staffed with experienced personnel from Perum KertasBasuki Rachmat, which is one of five public sector paper mills in Indonesia.Basuki Rachmat operates a small well-managed integrated wood-based pulp andpaper mill in Banyuwangi, East Java, with a well-qualified technical staff,most of whom have received some specialized overseas training in pulp andpaper technology. The investigations of wood supply arrangements (para. 42)would be implemented by Perhutani using staff from its headquarters in Jakartaand the Central Java office in Semarang. Finally, the industrialrestructuring study (para. 44) would be executed by the Directorate General ofBasic Chemical Industries of the Ministry of Industry. Coordination among the

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agencies implementing the various components of the engineering project wouldbe ensured by a Project Steering Committee to be established by January 1,1983 under the Ministry of Industry, which would include representatives ofBAPPENAS, the Ministries of Finance, Industry and Agriculture, Perhutani andKKC (Section 3.01(e) of the draft Loan Agreement).

46. Because the planning, implementation and operation of pulpwoodlogging and paper production of this scale are new to Indonesia, GOI hassought the services of a Technical Advisor. Oji Paper Company (Oji) has beenidentified to serve this role. Oji is Japan's largest producer of pulp andpaper, and of sack kraft paper of the type to be produced in the proposedCentral Java mill; in addition, it has extensive project experience both inindustrialized and developing countries and it manages substantial forestresources. GOI is negotiating two separate technical assistance contractswith Oji, the first to assist KKC in the preparation, construction and opera-tion of the mill, and the second to assist Perhutani in the wood supplyarrangements; both of these contracts are to include the necessary trainingprograms. The scope of work for these contracts would be divided into twoseparate phases, one for the engineering project and the other for the con-struction project. At completion of the engineering project, a comprehensivereview of the project's viability would be made and the scope of work for theconstruction project phase would be reviewed and adjusted based on the resultsof the engineering project. The contract for KKC is at an advanced stage ofnegotiations and is expected to be signed within two months. Employment ofengineering consultants to serve as Technical Advisor for KKC under termssatisfactory to the Bank is a condition of effectiveness (Section 6.01(b) ofthe draft Loan Agreement). Forestry consultants to serve as Technical Advisorfor Perhutani would be employed by February 1, 1983 to allow the projectimplementation to proceed according to the present schedule (Section 3.02 (ii)of the draft Loan Agreement).

47. The engineering project would be implemented over the 18-monthperiod between September 1982 and March 1984. Upon employment of theTechnical Advisor, the engineering assistance for the main package would beinitiated, including basic engineering, tender documents, bid evaluation andcontract negotiations. Based on the availability of cofinancing and progressto be made in mobilization of non-GOI resources, a revised financing plan forthe construction project would be prepared and the project's viability wouldbe reconfirmed prior to the final decision to proceed with the constructionproject. The Technical Advisor would also assist with the development ofdetailed wood supply arrangements. The Restructuring Study is scheduled tostart by February 1, 1983 and it is anticipated that the final report will becompleted by October, 1983.

Project Cost and Financing

48. The total cost of the proposed engineering project (net of taxes,which are expected to be insignificant) is estimated at US$7.7 millionequivalent. The total financing requirements, are estimated at

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U$7 .8 mil,Loi-1 t_ivalent, of which US$5.5 million is foreign exchange,including the front-end fee. The Technical Advisor's services during theterm of the engineering project would require about 280 man-months ofexpatriate consultant services and have an estimated total cost of US$3.9million. The average man-month cost, including salary, costs, fees, inter-national travel and subsistence, is expected to be about US$11,400. Inaddition to these personnel costs, the contract cost includes the cost oflocal transportation, local office operating expenses and some other minoritems. The local components of the engineering project costs are primarilyrelated to the personnel costs of the Project Management Team and Perhlutani,including travelling, operating expenses and overheads.

49. The Bank loan of US$5.5 million would be lent at the standardvariable interest rate for 20 years, including a grace period of five years.The borrower for the engineering project would be GOI, which would delegateresponsiblity for the implementation of the various parts of the Project asdetailed in paras. 41-45. Funds would be made available to KKC and Perhutaniby GOI as equity (Section 3.01(c) and 3.01(d) of the draft Loan Agreement,respectively)

Proctirement and Disbursement

50. GOI's selection of Oji as the Technical Advisor has been accepted bythe Bank. The loan would include financing the Technical Advisor's servicesduring the term of the engineering project. Other services to be financedunder the loan would also be procured according to the Bank's guidelines forthe use of consultants. The only goods to be procured under the loan would be(i) office and other equipment required to facilitate the Project ManagementTeam's (and later KKC's) establishment and operation during the term of theengineering project (US$200,000) and (ii) proprietary spare parts for theexisting forestry equipment to be used by Perhutani for training (US$50,000).As the items for KKC are small, they would be procured using prudent shopping.The proprietary spare parts for Perhutani would be procured from the originalequipment suppliers after Bank's review and approval.

51. Disbursements for consulting services and training would be madeagainst 100% of foreign expenditures. Disbursement for equipment for KKC andspare parts for Perhutani would be made against 100% of foreign expendituresand 100% of local ex-factory expenditures. Project activities are expected tobe completed by March 1984 and the closing date of the Loan would be September30, 1984.

Accounts and Audits

52. KKC and Perhutani would maintain separate accounts for all costsrelating to project investments. These accounts would be audited byindependent auditors acceptable to the Bank, and the audited accounts wouldbe submitted to the Bank within six months of the end of the fiscal year(Section 4.02(d) of the draft Loan Agreement).

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Benefits and Risks

53. The engineering project's main benefit would be the timely comple-tion of preparation of the Central Java pulp and paper construction projectto a degree of detail needed to confirm project viability, and substantiallyreduce the risk of delay and cost overrun during the implementation of theconstruction project. At the same time, GOI would be able to complete afinancing plan. Plans for infrastructure as well as wood supply arrangementswould be finalized and the construction project organization would bestrengthened. It would also give GOI time to complete a restructuring studyfor the pulp and paper industry.

54. The risks associated with implementation of the proposed projectwould be minimal. The work may take longer than envisaged but the conse-quences of such delays would not be serious. Developing a firm financingplan could prove difficult and/or cause delays but the proposed engineeringproject would ensure that project outlays are minimized prior to finalizingthe total financing package for the construction project.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

55. The draft Loan Agreement between the Republic of Indonesia and theBank and the report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the ExecutiveDirectors separately. Special conditions of effectiveness include theincorporation of KKC (para. 36) and the employment of engineering consultantsfor KKC (para. 46).

56. I am satisfied that the proposed loan would comply with theArticles of Agreement of the Bank.

PART VI - RECOMMENDATION

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

A. W. ClausenPresident

Attachments

August 24, 1982Washington, D.C.

- 20 - ANNEX IPage 1 of 5 pages

INDONESIA - SOCIAL INDICATORS DATA SHEET

INDONESIA REFERENCE GROUPS (WEIGHTED AVERAGESAREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)/ a

TOTAL 1919.3 MOST RECENT LOW INCOME MIDDLE INCOMEAGRICULTURAL 316.5 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC

GNP PER CAPITA (US$) 80.0 140.0 430.0 261.4 890.1

ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENI) 124.7 121.9 225.4 448.7 701.7

POPULATION AND VITAL STATISTICSPOPULATION, MID-YEAR (TEOUSANDS) 94680.0 116143.0 146557.0LRBAN POPULATION (PERCENT OF TOTAL) 14.6 17.1 20.2 17.3 32.4

POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILLIONS) 216.0STATIONARY POPULATION (MILLIONS) 376.3YEAR STATIONARY POPULATION IS REACHED 2110

POPULATION DENSITYPER SQ. KM. 49.3 60.5 74.6 158.1 255.9PER SQ. KM. AGRICULTURAL LAND 355.9 378.8 452.4 355.9 1748.0

POPULATION AGE STRUCTLRE (PERCENT)0-14 YRS. 40.7 44.0 40.1 36.8 39.9

15-64 YRS. 56.2 53.4 56.9 59.7 56.865 YRS. AND ABOVE 3.1 2.5 3.1 3.5 3.3

POPULATION GROWTH RATE (PERCENT)TOTAL 2.1 2.0 2.3 2.0 2.3URBAN 3.7 3.6 4.0 3.3 3.9

CRUDE BIRTH RATE (PER THOUSAND) 46.8 40.7 35.3 29.3 31.8CRUDE DEATH RATE (PER THOUSAND) 24.5 17.2 13.3 11.0 9.8GROSS REPRODUCTION RATE 2.8 2.7 2.2 2.0 2.0FAMILY PLANNING

ACCEPTORS, ANNUAL (THOUSANDS) .. 181.1 2216.0USERS (PERCENT OF MARRIED WOMEN) .. 0.2 27.1 19.3 36.3

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

PER CAPITA (1969-71=100) 93.0 102.0 113.0 108. l 115.6

PER CAPITA SUPPLY OFCALORIES (PERCENT OF

REQUIREMENTS) 86.3 93.9 101.7/c 97.3 106.4PROTEINS (GRAMS PER DAY) 38.2 42.4 44.9/c 56.9 54.4

OF WHICH ANIMAL AND PULSE 5.6 6.2 6.6/c 20.0 13.9

CHILD (AGES 1-4) MORTALITY RATE 22.9 16.8 11.3 10.9 6.7

HEALTHLIFE EXPECTANCY AT BIRTH (YEARS) 41.2 47.3 53.1 57.8 59.8INFANT MORTALITY RATE (PERTHOUSAND) 149.9 120.9 92.7 89.1 63.7

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TOTAL .. 3.0 12.0/d 32.9 32.0LRBAN ,, 10.0 35.07d 70.7 51.9RURAL ,, 1.0 6.d7d 22.2 20.5

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. 12.0 15.0/e 18.1 37.7URBAN ,, 50.0 60. 7e 72.7 65.7RURAL .. 4.0 5.07; 4.7 24.0

POPULATION PER PHYSICIAN 46778.7 26498.5 13674.6 3297.8 8540.4POPULATION PER NURSING PERSON 4517.0 7672.8 8871.6 4929.3 4829.4POPULATION PER HOSPITAL BED

TOTAL 1360.3 1644.6 1609.9/d 1100.4 1047.5URBAN 251.8 .. 699.0/d 301.3 651.6RURAL ,. .. 3166.8/d 5815.7 2597.6

ADMISSIONS PER HOSPITAL BED .. .. 22.4/e .. 27.0

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL 4.4 4.8URBAN 4.9 5.3 .

RURAL 4.3 4.7

AVERAGE NUMBER OF PERSONS PER ROOMTOTAL .. 1.5URBAN .. 1.6 .

RURAL .. 1.5

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL .. .. ..URBAN .. .. ..RURAL .. .. ..

ANEX I-21 - Page 2 of 5 pages

INDONESIA - SOCIAL INDICATORS DATA SHEET

INDONESIA REFERENCE GROUPS (WEIGHTED AVERACESM OST RECENT ESTIMATE)L-

MOST RECENT LOW INCOME MIDDLE INCOME1960 /b 1970 /b ESTIMATE /b ASIA i PACIFIC ASIA & PACIFIC

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 71.0 78.0 94.0 97.4 96.2HALE 86.0 83.0 100.0 101.0 99.8FEMALE 58.0 73.0 89.0 87.8 92.1

SECONDARY: TOTAL 6.0 16.0 22.0 53.0 37.6MALE 10.0 21.0 27.0 63.8 41.1FEMALE 3.0 11.0 18.0 41.3 34.1

VOCATIONAL ENROL. (E OF SECONDARY) 20.4 22.1 19.8 1.7 20.8

PUPIL-TEACHER RATIOPRIMARY 38.8 28.9 37.2 37.7 35.5SECONDARY 14.0 13.1 17.0 20.2 25.0

ADULT LITERACY RATE (PERCENT) 39.0 56.6 62.0 52.1 73.1

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION 1.1 2.1 3.5/c 1.5 9.8RADIO RECEIVERS PER THOUSAND

POPULATION 7.2 22.0 41.9 35.4 116.5TV RECEIVERS PER THOUSAND

POPULATION 0.1 0.8 8.6 3.2 37.6NEWSPAPER (-DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION 11.0 .. 17.7/d 16.4 53.7CINEMA ANNUAL ATTENDANCE PER CAPITA 2.8 .. 0.871 3.6 2.8

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 34791.4 41069.9 52582.0

FEMALE (PERCENT) 27.8 30.9 29.3 29.5 33.6AGRICULTURE (PERCENT) 75.0 66.0 58.0 70.0 52.2INDUSTRY (PERCENT) 8.0 10.0 12.0 15.0 17.9

PARTICIPATION RATE (PERCENT)TOTAL 36.7 35.4 35.9 40.0 38.5MALE 54.2 49.5 51.0 51.8 50.5FEMALE 20.0 21.6 20.9 23.8 26.6

ECONOMIC DEPENDENCY RATIO 1.2 1.3 1.2 1.0 1.1

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS .. .. 23. 5/dHIGHEST 20 PERCENT OF HOUSEHOLDS .. .. 49.47/dLOWEST 20 PERCENT OF HOUSEHOLDS .. .. 6.67dLOWEST 40 PERCENT OF HOUSEHOLDS .. .. 14.47.

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

URBAN .. .. 136.0 133.8 194.7RURAL .. .. 112.0 111.5 155.1

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 119.0 .. 178.2RURAL .. .. 98.0 .. 164.9

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

URBAN .. .. 28.0 43.8 24.4RURAL .. .. 51.0 51.7 41.1

Not availableNot applicable.

NOTES

/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countriesamong the indicators depends on availability of data and ia not uniform.

/aa China included in total only.

/b Unless othervise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent Estimate, between 1978 and 1980.

/c 1977; /d 1976; /e 1975.

May, 1982

ANNEX IPage 3 of 5 pages

_N0(-I COS 07 1151 INOICITORS

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of the sobjeetoosetr-y s-sos opt ic-pof Ifeosc -11 ts -r-ers gusehos Ni2d Inton North A-ste ard ghd - Eat' -o hee ohass ef, -s-eO g-p

soot-slt-ra affinistsa) ls tbnref-r'eo gross d ats sh nsoesar IpopIt-lo eightol ariethosee Moeic' eas isisto ons thes selfotnaJ-royoIfsthrtos..ir. Es grosea at s st- tteas toseso _o sroag sI _ostrisss h satr od ro ,altlr fdtand fIos dhof.r- -aorf- e-I he e-dserto Os re.iotio - Ieoot d onoedtsst-rsossstbe. hseaor are -tisoses .l nsrts ose Isate o

on Odtatra aTs-naoosgtht s--esy ad tfroornesogssep.

AREA (nhossnd .,.ks. ( Poolaee er(soolsl ltd - sna,,l echos a-d coal - Pop;iattos (tota.1T-rs - Tesoi .- sor crre sor- te as-onshar el and -osen ; i9N data urhos, sod -orl) o felld by thnor ress.tss sashe of hespit, sa ,tdsAgttoitolr-l E-- Etts ef egreleoral- area sord lrep--ereisyoe pocoe-s- ly aaailahle so, puo1e ond prosot genera'. a-ssestaiand hEsopitsoIadnefor crps. patues Irnt ad stdohee gardoso -c Os I fl la,;ll data- hu IOt setis str osoaE r t o t snerosnt sfehe or boot er peysitla- Etassl inh-on s -aedicg ,rtc.s tpely IosoEN? PER CAPITh Il)- too per sspssa r-tsn- ot c-cos raEspoo.eltls

5r e efd.-rttnta ene etd hess

eslard byeaseee--ctte tthed Is Wor-d Eace Aolos (1978-t0 hauts); ,d6C, an rsolssenossraetlc 1 stafo Ic I lb,su (ho byeff1.ad 1921 daa-otte`asotiat, sosrep fdte t.) s..hofrt-ptes uem-

ENERGY CENNIEPOTIOt PEE CAPITA - Acu-s anoue.yetoe of s-sraci sl ee-rll s,-Ysucl -uyeo b- huspltalo tonlude 7Hec Prsilipal/geerai has-tit.

sraitty) Ec ktlegaa tIeo eooain trsptn C5t. 19I- e 1979 r-ster ,-JEosis pbo on lou r n so sysdo-saiota- Ades,osts err Fgyy,otal fe3d - PTal. n-ct, ot dlsi-iun-sa disth-rg-

h Ifoes ht.piools deeded by teehste sIt I-PEPULATrONt ANE hOIsTA STAISTIlS

Msidfoelt en tt-trrth Aas I de uf -ely 1; 19f0, ,9711 . s 19ff MC) Gdata astf lelastd(pcespete-od - tesol. ocEan, and rerol1-

dif-tree d, inltele- ofI coo ora daffassr btaisiey tO duos -edtbouas olsE eds o I fo o- tsy f-oe h istloirdd Eea Iong _eunr_ta 19ff. 1ff. std 1922 dora, tee -aoetld ts sa - -i-a psrpso--

PeeasttOl Pejttsanu ooOjfyar -ss -f hl e r s- <so,so r,nd rural ntgnfoste nlpeolslr by -~ oduesAoo asro-lfy ard eretlse caseforo res;-eeoee ic foaissg roe lIt o-pr- aee srosn- n

ontlofeeoetsosteohoeehoetraoa-oget ,eeoesro d noroa a it- 5Eato e-rcotfe r orolabas aersIrol-it-el,taod fea-o -Isle -repttaly -not- zecogue 71. 'er-, Ito1- taro - esaeld.tf cs lsees seIoogNatea

1 Ifor ferstOt..y a,sao 00ete sl susfd bee ,old. ofde IoIo chat, te r IedslofsdLra-ooer..ee-

sod f-ri f-ilyseed far preo -oe 1-oror - ted CIrsllro,sedatso

__cp_,the birth rat io eusi Os st. drah rote nd,, aed d sheag Inteer neerle-t of al e as the prisaty I er soa eeoons feaeoesseaents, - This so acrErot In,y afte frc-t,ossl rathes ~-o1

rseiay nI-boSt-9 feolt ns;srsul, is loft ehdree aged 6-lith~rreeoarnm-ssf-eelotosoteot re-rd-oerleean,eter-eh grcer d,, eaosa1

usedlsr dsfats l eedihl1gor If peoiaryeduoasin;fr

lothr ....f. i' teco-daosdeboso t alaeu foa-Csspstnd astesch tedrmont beef. 05 t0505 reqo loon at loa.t feo~Ir yearn . ppeetd primary letetts

Per-ta-tiOner.-y ate ppl it re-ttd - ITh- hya Istn -tee .... c py se prss~dtdes erstu iosa las - rset-her erf-iOni on-trth- for rPOplo

PeesOanOon frostey eosfade-Per so- km. - Mod -aeo psgs,-ainr pee sos- etlone.e- ( I eear.)0 lsonareollooopj L -cee- erIf edo - eerts- eoiE-e

ton alore; 0960, 197f aed 1971 dat deld t e'a -Inedsncs r.1er otr rs hn srh prs todepred-Pnrso.kmafri-Ltt-alla-df-lcpe da-sab..eforagriclo-ralaned a-tly -sca ddopa-er-sfor -dare On.e-L --eI'll96, 197, aed 1979 d-l,- F",il -abr r,at -Iuear ted .oe oaeeT_ asedrte-nlpdssiPepolat-o tee tSeesee (yr-ert - e -de 11-14 (oar. - ki, tOe-sE (11- prte-yasod ae-edery l,ss dissdd`n heeby s o trte sso the64 O-yerl,e ns-'d . ...ossorr at . por teesessIfs -yosca pu errespsddis eris

laIen; 16G. 197fi asd 19ff oaoaI- Idosls _Iser Z rate (persona) - Ll-t-at -eao aelo1 so read ad -rose)PeptOeroso leot Ese (eryons -es,fr l r-s1tboeonof -esl odsapoorresgo of ta-1 fosd- y~a a_ o byasad eIe_

yea opolanooo- for190h.96-,ar 1(71-flPop1.iett G..ee tose Es leenset -absr. Ah- se I -ot Itaee of <habs rp CONSldCTION

I...e.. fet 19ff-hf, 1960-70~ - us 1970f-8C-0.rfrae tete rplste . .. e.f... oars s-opes etorRoe eehfat -yr heusasd - Aosa- 1-r hereth, eec ohot-d ef nid-ys Aar "eafe leesnte right poeteset;e feoblaes ere o

pepofIotide; 1961. 1970, sed 19ff asoCraft Erothjfate (set hoan)- A-aul do--or -c tc-sssd leid-eeor fadIf fRotraesreosn Auofltl) -tyos ofrescs fe -rdioppeylatEon; 1960, 1971. and 1900 dOts csdeadesass gonoraf ya-Ott per tho...asd cIfepta .e .te rsu-_

teosa~P ord-ue-tPe Os-A-nrage enste It da-ghoet- wos .. dl hoeae lI,ne _reoitrs r estre_ fe _sd is ye-oct eto rbfEatrto ef. radiohereo -ar -risette p-otod t- the ee cr proeaf-p(Itl fre- -000 ea rff-e; ease foe reess y-oru retes It-eoaebloeststtitj reset stoo

1

e, lic-yea- oaeesfe Ic 16,I190 ad 1960. e to ouec- u1heltbd lidseieteF-osly ?Ia.oIntgeeoor,denta (ehoo-seea - -enea ec-b- ef -- ter-s Re etesee-_ee hoeae po tie) - Th r-elero far breadea- to

of _tc_h-rettrs' ore-oendoraose--e of nar-es e0-, re-Ote e-era- t .reeu sls are, el-e-ee yoeelo-s-;- e -desloeee-d OlTVer-erFe-oOyP1.laretsC- a rr,s(prt-feforrIod-deuae, - rerarfnessttcoaoood isye~ s-seee srtaoTVIteroea ineffrt-.emeorhild-b-arfe age (Of-g yas obo~1 to bsh-e-rr -it,os so-fensy_eCircuasion(P eteas otl e -fo she aortge tOe-aO. earnled ..one ie sass eg g-ru. s'l-iseoIf 'oyserl trseeypc dofteed asyr idia

peblittatoo d.. sate Preeel soI nenie -srol ete- iti -oniardd-PCODR ANR NfUTIbg te o file' if is aperr as lease fet saostrkIdtfe af Pod- efese pe as 1969-I1=l0y) - lefee of pee eapita -- srel (see- Ao l -ttesdens pee l t perber otd Iso three... o-,fpotrlef Id ttoneer Poutessladddrretc-ya, drdt1essy-fns5 roseartrlas5oi nst t dri-tosirea

itsdsaOndrraras- Cadieel sot- eor-- ino-ryg-u e-g. h -ord netleis

te r nldrd5

Aggg-rgae yr-d-ssOo of rah seeris oasd LABIOAR FORCEs ....t.se.t p_-dre PrOt 00 5g.to,If-h, 9190, s.1900 ie- ~ so.ul -sbeossrIr (treosardo) -t0 oso -ee persos, inrladfeg

penfe d -Anilatle spp-Es- -- ri-en tsn.-s roeets-inpoten 1rs ttoersi;1960, 1971 aed 1900 data-e-oeaaeagesi tesack- NotsypIesr-eldraom-i ed,cea ,P.~- Fpr.setsI-yeoeao feeeorseae-seleofpeq I'llOa oe Os feed pres-ossg, -ed Ido-f diosetri s,I fIot Agrtseltsre ty-re-) Lobee lo-eeiesesg frestre h-eslgasf7oett ee asI-nte h, y FOd easd sebn tose noesfr e-r-a aef lb~icg eoP et-tort of -ete Ohor -b r - 10, '971 and 191 data-.etey ate h-aitb osfrehrt,teo s-sdarirgoe--- bo-y a Ithe,age feeoylr-e - L.teIe is sie--,esosraenefrstg

osde farecse of poplastr -se alo lsE1 eec-s hey u-er a- and lr cts atte go s a td 0t Isa lacer forteh-ostod le-e; e961-6b. 0970 one1(7-7 d19o (IO, 1(70 ant 1990 data,

ertooppoyetoodpenasy fesocpelco-.eadtsdesoelonoton - fe- e,estrraers rosemastofs-etsl,ssl.odfteuleltstgorseaqoird-eso fo olesssi statotedo -r rroe -r esss e-esse f'L.tae -d erdPyy-,ea efal "e earr eey

a Iosen f 6g Ir-as If t-eu pr-ti per d,r on 20 eSse afer960s lt, 1970, ord beg0 det- T-rse ur -ed en ILO's partleiparie rate-dlaepe-raea,shorhlhsacscaohtlo -tse Prai,cto -1 Tteaides cslesgg-sOL steotei l -bpseos -rttglrr-d a-t-a p-ones as noc aeere foeseee,r-W, P-poses a Peel etoh T~Io iedoo IeeSaco Resi - R,ntee poys sac -see ba 5f a-d oter1d esad fSrc-y; 1961-65. 1970 oed I9t? da,- so e to 0 _aOocfe

Pere"e'll protIc t py - lefsasmaa euo-Pnero eoyfdoessededcOoed Ira, ani,dnlo aef poles Is g-as pir doe~ 1(61-65, 1970 and (sf7 daa L\lOMEhDIfTRItLTIyf

tre yasd -saoIo 111 onlr- ; in f-i, lyy r .70

as' - -h-o2tc'd4

at- hOrsh;n1961, 1970 and 19f easdts- an 1so bdh _sre _oeo esni sosdrs esoefsIIohe Ortlt ar per_ejd -sea atone f hsttads ~-c year Etei-,ds Abeele, frrybasLrl(t epo -ar - aed -tel efogeI Pet,toos-odoIoe tsihllfh O,leOad,Odf0ata- Osle P'ette,oeohec n (elbla-iutiegssteuegte rrtesse_lote-eoa.te.afneo-e- se_eeolsaeea,eoiputssta fadegsrsrsa_ ahe o sete(otl,ran a(acP sObto,eh raes sod safe, ffonoli

sasecsash eat r~eccsee- e hoIf se ye1so as eiees, a n 5t-st ef aesro poot eee e e nd Ireaoae e orter-eIetagose rb,eresyeeeoee. pey-sletes Ora - -atlas77 -roaspelte yono-oal-aoa yseratr ra nltsrsdfe h taeenaderr so, bOet osthit e rsotal aeese1 (hu Ioos -tecoa areas incstr o Ite flaaoome (I rel(eest rrontee-1e, o apyta

P tuof r otr fsh eorl adrrl rret feptals(eeeto)osse usls

h-sosae sO p-O rstd Io as psseot tato o spas ne lss,thei rate -roeag dosea. t roso5eetoo

lo tstb latoe -n r1 r, ct t ,

Peptaton ee ersng Pen Por-1.fepsslo rsside- by sen-enIf hyaeoen E--g c--n Nl II iinal-a-deofietr-e .. doa -sss..hasaessa-n-rts r-oestaleoseeaeol -d-,ch DP-1-sortinga teo Olirartes.

ANNEX iPage 4 of 5 pages

- 23 -

Population : 147.4 million (mid-1980)GNP per Capita: US$430 (1980)

INDONESIA - ECONOMIC INDICATORS

Amount Annual growth rate (x)(million USS at (at constant 1973 prices)current prices) Actual Projected

Indicator 1980 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985

NATIONAL ACCOUNTSGross domestic product /a 70,024 5.0 6.9 8.8 6.9 5.3 9.7 7.8 7.3 7.3 7.4 7.4

Agriculture 18,003 0.0 4.7 1.3 5.2 4.0 5.5 3.4 3.5 3.5 3.5 3.5Industry 29,227 5.6 11.1 14.2 5.9 5.5 9.0 9.0 9.0 9.0 9.0 9.0Services 22,794 10.1 5.9 12.0 8.9 6.9 8.5 8.5 8.5 8.5 8.5 8.5

Consumption 48,976 6.9 6.4 7.9 8.5 9.9 11.6 8.7 7.8 7.2 8.2 6.0Gross investment 15,176 14.6 6.0 16.0 15.0 4.4 17.8 13.1 12.5 12.5 12.5 12.5Exports of GNFS 21,365 -9.7 12.5 22.4 1.9 -1.0 -4.2 -5.3 8.2 13.6 1.0 2.5Imports of GNFS 15,494 7.9 8.1 22.2 15.6 13.9 13.6 18.5 7.2 13.4 3.2 0.5

Gross national savings 17,576 -19.7 12.0 33.3 -2.1 37.1 -2.1 -5.0 9.6 9.0 7.4 12.3

PRICESGDP deflator (1973 = 100) 166 190 214 237 311 400 440 493 542 591 638Exchange rate 415 415 415 442 623 625 625 625 625 625 625

Share of GDP at market prices (x) Average annual increase (%)(at current prices) (at constant 1973 prices)

1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90

Gross domestic product 100 100 100 100 100 100 3.9 8.4 7.5 7.3 7.5Agriculture 54 47 32 26 22 17 2.7 4.1 4.1 3.5 3.5Industry 14 18 34 42 44 46 5.2 12.0 9.7 9.0 9.0Services 32 35 35 33 36 36 4.8 9.7 9.0 8.5 7.5

Consumption 91 89 79 70 74 74 4.1 8.4 8.9 8.6 7.6Gross investment 8 14 20 22 26 27 4.8 18.3 11.7 12.5 7.8Exports of GNFS 13 13 23 31 23 18 3.6 9.2 8.7 3.7 3.2Imports of GNFS -13 -16 -22 -22 -23 -19 3.2 22.1 14.0 8.7 4.9

Gross national savings 8 9 17 25 25 22 6.1 23.1 14.4 4.8 7.3

As % of GDP1960 1970 1975 1980

PUBLIC FINANCE lbCurrent revenues 11.7 10.1 10.5 23.4Current expenditures 14.0 8.4 9.3Surplus (+) or deficit (-) -2.3 +1.6 +7.1 +10.1Capital expenditure n.a. 5.0 10.7 13.5Foreign financing 0.2 3.5 3.7 3.4

1960-70 1970-75 1975-80 1980-85 1985-90

OTHER INDICATORSAnnual GNP growth rate (%) 4.5 7.6 6.9 7.3 7.3Annual GNP per capita growth rate (x) 2.4 5.1 4.5 4.9 5.0Annual energy consumption growth rate (x) 2.9 16.0 15.0 11.0 10.0

ICOR 2.2 2.2 3.1 3.4 3.8Marginal savings rate 0.30 0.48 0.30 0.18 0.26Import elasticity 1.2 2.8 1.9 1.2 0.7

/a At market prices.Th Central Government only, on an April-to-March fiscal year basis.

East Asia and Pacific ProgramsMay 20, 1982

-24 -ANNEX I

Population 147.4 million (mid-1980) Page 5 of 5 pages5NP per Capita: USS430 (1980)

INDONESIA - BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT(Millions USS at current prices)

Actual Estimate ProjectedIndicator 1977 1978 1979 1980 1981 1982 1983 1984 1985 1990

BALANCE OF PAYMENTS /a1. Exports 10,861 11,353 17,494 22,245 21,878 21,882 30,108 33,243 36,790 60,953

(a) Oil & LNG (gross) 7,354 7,374 11,323 16,661 17,593 16,420 22,869 24,279 25,975 37,119(b) Nonoil 3,507 3,979 6,171 5,584 4,285 5,462 7,239 8,964 10,815 23,834

2. Imports (including net NFS) -10,686 -11,493 -14,035 -18,649 -23,202 25,807 -31,886 -35,253 -38,187 -65,903(a) Oil sector -2,909 -3,364 -4,348 -5,884 -7,658 -8,318 -10,585 -9,972 -10,006 -16,051(b) Nonoil imports -7,241 -7,543 -9,028 -11,790 -14,509 -16,389 -19,999 -23,755 -26,399 -46,657(c) NFS (net) -536 -586 -659 -975 -1,035 -1,100 -1,300 -1,526 -1,782 -3,195

3. Resource balance 175 -140 3,459 3,596 -1,324 -3,895 -1,778 -2,010 -1,397 -4,9504. Factor services -865 -1,015 -1,261 -1,205 -1,203 -602 -1,034 -1,253 -1,650 -3,899

(a) Interest public debt -441 -514 -772 -819 -973 -1,096 -1,307 -1,534 -1,801 -3,359(b) Other (net) -424 -501 -489 -386 -230 494 273 281 151 -548

5. Capital grants 66 46 52 76 67 100 100 100 100 1006. Balance on current account -624 -1,109 2,198 2,467 -2,460 -4,397 -2,712 -3,163 -2,947 -8,7497. Direct foreign investment 285 271 217 140 178 200 350 450 600 1,0008. Public M & LT loans

(a) Disbursement 1,956 2,205 1,865 2,536 2,356 3,969 4,536 5,182 5,772 11,113(b) Amortization -825 -1,548 -1,329 -953 -1,000 -1,361 -1,567 -1,872 -2,225 -4,924(c) Net disbursements 1,131 657 536 1,583 1,356 2,600 2,969 3,310 3,547 6,189

9. Other capital (net) -140 891 -1,261 -1,454 86 500 800 800 700 2,00010. Change in reserves (- increase) -651 -708 -1,690 -2,736 840 1,097 -1,407 -1,397 -1,900 -44011. Net official reserves 2,208 2,916 4,606 7,342 6,502 5,405 6,812 8,209 10,109 13,189

Reserves in months of nonoilimports + NFS 3.4 4.3 5.6 6.9 5.0 3.7 3.8 3.9 4.3 3.2

Memorandum ItemNet foreign assets of the banking

system /d - - 6,906 10,787 10,798 9,101 9,908 11,305 13,205 17,285Total reserves in months of nonoil

imports + NFS 3.4 4.3 8.6 10.1 8.3 6.2 5.6 5.3 5.6 4.4

EXTERNAL CAPITAL AND DEBT /bGross Disbursements 1,956 2,205 1,865 2,536 2,356Concessional Loans 442 484 433 679 802

Bilateral 381 448 399 631 729IDA 49 29 30 42 68Other 12 6 5 6 5

Nonconcessional Loans 1,514 1,721 1,432 1,858 1,552Official export credits 218 271 61 25 154IBRD 191 168 199 331 106Other multilateral 16 12 46 52 86Private - source 1,089 1,270 1,126 1,450 1,206

External Debt (fixed-term)Debt outstanding & disbursed /d 11,658 13,107 13,233 14,882 15,529

Official - source 7,077 8,390 8,434 9,400 9,746Private - source 4,583 4,717 4,799 5,482 5,783

Undisbursed debt 4,475 5,839 7,932 9,454 11,288

Debt ServiceTotal service payments 1,262 2,062 2,101 1,772 1,974

Interest 441 514 771 819 973Payments as % exports /e 11.6 18.2 12.0 8.0 9.0

Average Interest Rate on New Loans(%) 6.3 7.6 6.6 8.4 9.1Official - source 5.4 4.6 5.0 5.0 7.8Private - source 8.6 10.2 8.6 12.8 10.4

Average Maturity of New Loans(Years) 20.5 18.7 19.1 19.0 15.6Official - source 23.9 30.1 25.8 24.8 20.8Private - source 10.4 8.6 11.1 10.0 10.7

As % of debt outstanding at end of 1981Maturity structure of debt outstanding

Maturities due within 5 years 30.9Maturities due within 10 years 60.2

Interest structure of debt outstandingInterest due within first year 4.1

/a On an April-to-March fiscal year basis./b Excludes private nonguaranteed loans./c Includes foreign assets of deposit money banks in addition to official reserves./d At end of period. East Asia and Pacific Programs7e Oil exports treated on gross basis. August 24, 1982

-25 - ANNEX II

Page 1 of 28 pages

THE STATUS OF BANK GROUP OPERATIONS IN INDONESIA

A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1982)

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

Twelve Loans and thirty-four Credits fully disbursed 586.50 491.50 -

400 1973 Smallholder and Private Estate Tea - 7.80 2.42428 1974 Pulo Gadung Industrial Estate - 16.50 7.84479 1974 Bali Tourism - 16.00 3.67514 1975 Jatiluhur Irrigation Extension - 30.00 3.821100 1975 Sixth Irrigation 65.00 - 9.141179 1976 Agricultural Research & Extension 21.50 - 3.931197 1976 National Resource Survey & Mapping 13.00 - 4.621236 1976 Fourth Highway 130.00 - 22.791237 1976 Fourth Education 37.00 - 8.281250 1976 Second Shipping 54.00 - 10.661267 1976 National Food Crops Extension 22.00 - 3.461268 1976 Seventh Irrigation 33.00 - 8.631318 1977 Transmigration and Rural Development 30.00 - 4.221336 1977 Second Urban Development 52.50 - 7.871337 1977 Tanjung Priok Port 32.00 - 9.891365 1977 Sixth Power 116.00 - 34.041373 1977 Nutrition Development 13.00 - 7.011433 1977 Teacher Training-Fifth Education 19.00 - 11.621434 1977 Eighth Irrigation 63.00 - 38.641435 1977 Ninth Irrigation 35.00 - 8.871472 1977 Second Population 24.50 - 14.231486 1978 Non-Formal Education 15.00 - 7.921499 1978 Nucleus Estates and Smallholders I 65.00 - 30.231513 1978 Seventh Power 109.00 - 40.41785 1978 Small Enterprise Development - 40.00 9.671578 1978 Tenth Irrigation 140.00 - 119.301579 1978 Eleventh Irrigation 31.00 - 19.78827 1978 Rural Credit - 30.00 7.791604 1978 Nucleus Estates & Smallholders II 65.00 - 59.75869 1979 Polytechnic - 49.00 42.91

- 26 - ANNEX II

Page 2 of 28 pages

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

1645 1979 Twelfth Irrigation 77.00 - 56.591653 1979 Third Urban Development 54.00 - 33.25898 1979 Fifth Technical Assistance - 10.00 8.731691 1979 Lower Cimanuk Basin Flood Control 50.00 - 39.501692 1979 Second Agricultural Training 42.00 - 27.751696 1979 Fifth Highway 130.00 - 101.931703 1979 Fourth BAPINDO 50.00 - 14.61919 1979 Transmigration II - 67.00 41.871707 1979 Transmigration II 90.00 - 90.001708 1979 Eighth Power 175.00 - 130.371709 1979 Second Water Supply 36.00 - 32.96946 1980 Yogyakarta Rural Development - 12.00 11.041751 1980 Nucleus Estates & Smallholders III 99.00 - 74.42984 1980 Smallholder Rubber Development - 45.00 39.31995 1980 Fifteenth Irrigation - 45.00 36.43996 1980 National Agriculture Extension II - 42.00 40.991811 1980 Fourteenth Irrigation 116.00 - 104.031835 1980 Nucleus Estates & Smallholders IV 42.00 - 36.911840 1980 National Agricultural Research 35.00 - 35.001014 1980 National Agricultural Research - 30.00 29.571869 1980 Third Population 35.00 - 34.811872 1980 Ninth Power 253.00 - 230.621898 1981 Smallholder Coconut Development 46.00 - 44.951904 1981 University Development 45.00 - 44.761950 1981 Tenth Power 250.00 - 225.271958 1981 Swamp Reclamation 22.00 - 21.141972 1981 Fourth Urban Development 43.00 - 43.002007 1981 Nucleus Estate and Smallholder V 161.00 - 160.242011 1981 Second Small Enterprise Development 106.00 - 78.592049 1982 Jakarta-Cikampek Highway 85.00 - 85.002056 1982 Eleventh Power 170.00 - 170.002066 1982 Second Seeds 15.00 - 15.002079 1982 Bukit Asam Coal Mining /1

Development & Transport 185.00 - 185.002083 1982 Rural Roads Development /1 100.00 - 100.002101 1982 Second Teacher Training 80.00 - 80.002102 1982 Second Textbook /1 25.00 - 25.002118 1982 Sixteenth Irrigation /1 37.00 - 37.002119 1982 Seventeenth Irrigation /1 70.00 - 70.002120 1982 National Fertilizer Distribution /1 66.00 - 66.00

/1 Not yet effective.

- 27 - ANNEX II

Page 3 of 28 pages

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

Total Bank loans and IDA credits 4,562.00 931.80less cancellations -23.13 -1.65

Total 4,538.87 930.15of which has been repaid -119.73 -4.19

Total now outstanding 4,419.14 925.96

Amount sold to third party 28.24Amount repaid by third party -27.21 -1.03

Total now held by Bank and IDA /a 4,418.11 925.96

Total undisbursed 2,981.09 287.33 3,268.42

/a Prior to exchange adjustment.

ANNEX II- 28 - Page 4 of 28 pages

B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1982)

Fiscal Type of Loan Equity Totalyear Obligor business --- (US$ million) ----

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 0.4 - 0.41977 P.T. Kamaltex Textiles 1.3 0.2 1.51979 P.T. Daralon Textiles 0.9 - 0.91980 P.T. Papan Sejahtera Capital Market 4.0 1.2 5.21980 P.T. Indo American

Industries Glass Dinnerware 11.1 0.9 12.01980 P.T. Semen Andalas Cement and

Indonesia ConstructionMaterial 48.0 5.0 53.0

1982 P.T. Saseka Gelora Leasing Capital Market 4.0 0.3 4.3

Total gross commitments 118.8 18.0 136.8

Less: sold or repaid and cancelled 77.5 3.4 80.9

Total held by IFC 41.3 14.6 55.9

Undisbursed (including participant's portion) 50.0 0.3 50.3

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Page 5 of 28 pages

C. STATUS OF PROJECTS IN EXECUTION /1As of March 31, 1982

These notes are arranged by sectors in the following order:

Page No.Agriculture

Irrigation (514, 1100, 1268, 1434, 1435, 1578, 6-101579, 1645, 1691, 1811, 995, 1958, 2118 and 2119)

Other Agricultural Projects (400, 1318, 1707/919, 1499, 10-131604, 1751, 1835, 984, 1898 and2007)

Agriculture Support Services (1179, 1267, 996, 1840/1014 and 2066) 13-15Rural Development (946) 15

Agro-Business and Credit (785, 827 and 2011) 15-16

Education (869, 1237, 1433, 1486, 1692, 1904, 2101 and 2102) 16-19

Energy (1365, 1513, 1708, 1872, 1950, 2056 and 2079) 19-21

Industrial Development and FinanceIndustrial Estates (428) 21Development Finance Companies (1703) 21

Population and NutritionPopulation (1472 and 1869) 22Nutrition (1373) 22-23

Technical Assistance (898 and 1197) 23

TransportationFertilizer Distribution (2120) 24Highways (1236, 1696, 2049 and 2083) 24-25Marine Transport (1250) 25Ports (1337) 26

Tourism (479) 26

Urban Development (1336, 1653 and 1972) 26-27

Water Supply (1709) 28

/1 These notes are designed to inform the Executive Directors regarding theprogress of projects in execution, and in particular to report anyproblems which are being encountered and the action being taken to remedythem. They should be read in this sense, and with the understanding thatthey do not purport to present a balanced evaluation of strengths andweaknesses in project execution.

ANNEX II- 30 - Page 6 of 28 pages

C. PROJECTS IN EXECUTION

AGRICULTURE

Irrigation

Credit No. 514 Jatiluhur Irrigation Extension: $30 Million Credit ofOctober 3, 1974; Effective Date: January 10, 1975;Closing Date: December 31, 1982

Initial organizational difficulties, extensive changes in the designof project works and delays in awarding civil works contracts are expected tosubstantially delay project completion by four years. All major contractsfor civil works have been awarded, and the last of these is expected tobe completed by mid-1984. The total project cost is currently estimatedto be about 90% over the appraisal estimate.

Loan No. 1100 Sixth Irrigation: $65 Million Loan of April 10, 1975;Effective Date: June 20, 1975; Closing Date: June 30, 1984

The project is currently expected to be completed by March 1985,about four years behind the original completion date. This is mainly due to adelay of more than one year in the completion of bidding documents, followedby a delay of about two years due to delayed land acquisition, delayedpayments to contractors and the effects of the 1978 Rupiah devaluation.Another year's delay has been added lately by the constant postponement ofdrainage works in both Rentang and Cerebon subprojects due to overall budgetconstraints imposed by the GOI on the Directorate General of Water ResourcesDevelopment annual budget during the last three years. Disbursements arecurrently about 73% of the appraisal estimate. Because of the continuingdelays in this project the Closing Date has been postponed by two years.

Loan No. 1268 Seventh Irrigation: $33 Million Loan of June 4, 1976;Effective Date: September 21, 1976; Closing Date:December 31, 1983

The main components of the project are tertiary development on anarea of 100,000 ha served by irrigation systems rehabilitated under previousprojects and the construction of 6,000 ha of a new irrigation system in theSadang area of South Sulawesi. The construction of tertiaries has progressedwell and gained such a momentum that the scope of work was increased to115,000 ha. About 111,000 ha have been completed and the balance wasexpected to be completed by March 1982. The construction of North Sadanghas suffered a delay of about four years due to design revisions and lateaward of contracts. The completion of the project by March 1984 depends onthe timely provision of budgetary allocations from GOI.

- 31 - ANNEX IIPage 7 of 28 pages

Loan No. 1434 Eighth Irrigation: $63 Million Loan of June 6, 1977Effective Date: July 7, 1977; Closing Date: March 31, 1983

The main components of the project are rehabilitation of the MadiunIrrigation System (Stage I) serving an area of about 75,000 ha, including30,000 ha of tertiary development, pilot ground water scheme for 2,800 ha inthe Madiun-Solo area and the improvement of flood control, drainage and roadnetworks on 5,700 ha of coastal land in Ciujung. Only the drainage works androad improvement in both the Ciujung and Madiun subprojects are expected to bedelayed due to budget constraints and lack of experienced staffing. GOI willmaximize the use of consultants to overcome this latter problem.Disbursements are currently about 63% behind the appraisal estimate.

Loan No. 1435 Ninth Irrigation: $35 Million Loan of June 6, 1977; EffectiveDate: July 7, 1977; Closing Date: December 31, 1984.

The project includes (a) rehabilitation of 8,000 ha of irrigationsystem, drainage rehabilitation on 19,000 ha of the Sedeku area in CentralJava; (b) new irrigation pumping system on 3,280 ha at Sungai Dareh-Sitiung(Stage I) in West Sumatra for transmigrants; and (c) feasibility studies often small to medium irrigation projects, Sungai Dareh-Sitiung (Stage II),with detailed designs. Delay in completion of the Sedeku irrigation drainagerehabilitation by about three years continues, compared to appraisalestimate. The Sungai Dareh-Sitiung (Stage I) construction has progressedwell, with pumps commissioned and trial runs made. The main and secondarycanals are also completed and the tertiary network 80% completed.Feasibility studies of ten small to medium irrigation systems of Sungai Dareh-Sitiung (Stage II) have been completed. Disbursements are about 71% ofappraisal estimate.

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

The project includes: (a) rehabilitation and improvements of about34,700 ha of Kali Progo irrigation system; (b) improvements of about 19,900 haof Way Seputih; (c) improvements and expansion of about 63,100 ha of WaySekampung irrigation projects; (d) studies and detailed designs of two damsassociated with (b) and (c) above; (e) studies of Dumoga and Gumbasa irriga-tion projects; and (f) consulting services for the above and also studies oftwo dams in the Kali Progo project area and extension of irrigation to Bekri,West Rumbia, Way Kandis and Way Ketibung in Lampung Province. Due to initialdelays in survey and mapping of the irrigation service areas, delay in decid-ing canal capacities till completion of the dam studies and staff shortageduring the years 1979 and 1980, the implementation of Way Seputih and WaySekampung components are behind schedule by about two years. However, thefield surveys and the dam studies have now been completed and the staffingsituation has improved. The construction tempo and standard of constructionin the Kali Progo area has also improved. Among its large dams constructionprojects the GOI is proposing to give priority to the construction of the

-32- ANNEX II

Page 8 of 28 pages

Batutegi Dam which will ensure full benefits of the Way Sekampung irrigationstudies. The Dumoga irrigation project studies were completed and includedin Irrigation XV (Credit 995-IND). Disbursements are currently 33% ofappraisal estimate.

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

The Cipamingkis irrigation subproject, to serve an area of about7,600 ha is progressing well, the headworks with intake structure were completed by end 1981. The main and secondary canals to serve 3,820 ha are pro-gressing on schedule, but there is a setback of nine months in the last3,450 ha. A delay of 9-12 months is expected in assigning consultants fortertiary design, with a consequent delay in tertiary construction. The pro-ject is currently estimated to be completed by mid 1984, a delay of 18 monthscompared to appraisal estimate. The hydrological measurement program isexpected to be completed by March 1984, with a delay of about 2 1/2 years.Disbursements are about 41% of appraisal estimate. It is expected that therewill be $4 million savings which will be used to finance the tertiaries forthe Jatiluhur Irrigation Extension Project (Credit 514-IND) which did notcater for the intensity of canals as needed.

Loan No. 1645 Twelfth Irrigation: $77 Million Loan of December 29, 1978.Effective Date: May 10, 1979; Closing Date: March 31, 1984.

The Jatiluhur Tertiary Development on an area of 186,000 ha isproceeding on schedule; construction on 103,731 ha has been completed andthe balance of the area would be covered in two fiscal years 81/82 and82/83. The Cisedane drainage works have been delayed; two small contracts ofabout $2 million were awarded in January-February 1981, and are about 30-40%completed. All studies are expected to be completed by July 1982.Disbursements are about 35% of the appraisal estimates.

Loan No. 1691 Lower Cimanuk Basin Flood Control: $51 Million Loan ofMay 7, 1979; Effective Date: October 16, 1979;Closing Date: March 31, 1984.

The main components of the project are flood protection levees, bankstabilization and river training works on the lower Cimanuk river, widening ofthe Rambatan Channel and construction of a hydraulic control structure atBangkir, the Cimanuk river estuary study and the flood control operating andflood forecasting study. Good and satisfactory progress has been made on thecivil works and various studies. Civil works are expected to be completed bymid-1984. The latest supervision mission recommended that the implementingagency should consider using the savings under the project for procurement ofadditional Operation and Maintenance equipment such as large to medium-sizedredgers, dozers, draglines, dump trucks and loaders. The equipment will beuseful for emergency repairs of other rivers such as Cisanggarung which causesdamage during the wet season. The latest project cost estimates indicate that

ANNEX II33 Page 9 of 28 pages

$6-8 million loan funds will remain unused by the completion of the project.The list of equipment to be procured using the savings under the Loan is beingreviewed.

Loans No. 1811 Fourteenth Irrigation: $116 Million Loan of April 3, 1980,Effective Date: July 3, 1980; Closing Date: January 31, 1986

The main components of the project are construction and rehabilita-tion of drainage and flood protection works on the Serang River to reduceflooding of some 61,000 ha of farm land, rehabilitation of the MadiunIrrigation System (Stage II) serving about a 65,000 ha area and tertiarydevelopment serving a 120,000 ha area in the Pemali Comal and Pekalen Sampeansubprojects. The project contracts for flood mitigation works for the SerangRiver have been awarded after one year's delay. The project also experiencesbudget constraints. Works in the Madiun area and the tertiary development areprogressing well ahead of schedule.

Credit No. 995 Fifteenth Irrigation: $45 Million Credit of April 3, 1980Effective Date: July 3, 1980; Closing Date: January 31, 1985

The project includes: (a) the completion of the Kosinggolanirrigation system on about 5,000 ha and construction of the new Torautirrigation system on about 6,600 ha; (b) catchment protection and a naturereserve on an area of about 100,000 ha; (c) institutional support to theDirectorate General of Water Resources Development (DGWRD) through consultancyservices and training; (d) strengthening of mapping capabilities; and (e)studies and investigations of four irrigation systems. Construction of theToraut headworks and the first two kilometers of the main canal commenced inearly 1981 and two major contracts are programmed for award by mid-1982,behind schedule 12 months. The Dumoga catchment protection and Nature Reserveis yet to be started, and was delayed awaiting approval of a management planand budget allocation by GOI. Implementation of this component is behindschedule by 12 months. All the consultants for studies and institutionalsupport to the DGWRD are engaged and contracts signed. Disbursements to endSeptember 1981 were 54% of appraisal estimate.

Loan No. 1958 Swamp Reclamation: $22 Million Loan of March 31, 1981;Effective Date: July 9, 1981; Closing Date: December 31, 1986

The project assists GOI's effort to reclaim and settle swamps byimplementing a 9,000 ha swamp reclamation and settlement project at KarangAgung, South Sumatra. In addition to physical works, the project comprisesthe preparation of future swamp investments, an ecological impact study, aninvestigation of groundwater for drinking, and project monitoring. The majorworks contract for construction of canals was awarded end-1981 and consultantsfor construction supervision were assigned in March 1982. Consultants forstudies are being recruited. The project completion is likely to be delayeddue to the eight months' delay in the start of construction.

34 - ANNEX IIPage 10 of 28 pages

Loan No. 2118 Sixteenth Irrigation: $37 Million Loan of April 5,1982; Effective Date: Not yet effective; Closing Date:December 31, 1987.

The project will complete construction of the Sitiung IrrigationSystem (Stage II) in Sumatra to serve about 7,600 ha of transmigrant andlocal farmer lands; improvement of management systems of the DirectorateGeneral of Water Resources Development (DGWRD); training and support forwater users and their associations; expansion of DGWRD's basic hydrologicaldata network; and studies for development of the Cisanggarung River Basinand detailed design of the Jatigede Dam.

Loan No. 2119 Seventeenth Irrigation (East Java Province):$70 Million Loan of April 5, 1982; Effective Date: Not yeteffective; Closing Date: December 31, 1988.

This is the first irrigation project to be concentrated in asingle province and implemented through a provincial irrigation service. Itwill rehabilitate existing surface irrigation systems serving about 50,000ha; developing groundwater irrigation systems to serve about 13,000 ha;upgrading operation and maintenance for about 140,000 ha of irrigationsystems already rehabilitated; and strengthening of the East Java ProvincialIrrigation Service.

Other Agricultural Projects

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

The project provides for credit through Bank Rakyat Indonesia(BRI) to improve productivity on 10,000 ha smallholder tea and 3,200 haprivate estates tea, rehabilitation of five private estate tea factories,construction of two new factories for smallholder leaf; training of exten-sion staff and tea growers, studies for marketing, diversification and BRImanagement. The project is making a substantial contribution to smallholdertea industry with 8,500 participants against the appraisal estimate of7,000. Of the five private tea estates participating, two are excellent,two are fair and one is poor. Progress on construction of the PTP XIIfactory, to process smallholder and estate tea, is satisfactory. Extensionand training has helped about 16,000 smallholders. Due to availability ofinputs on the open market at lower price, performance of P. T. Pertaniregarding input distribution has been disappointing during 1981 resulting inslowing down disbursements. The project still suffers from weak management,although, at the request of the Association, the GOI has initiated a seriesof actions to accelerate the disbursement rate. It is doubtful if thebalance of Credit of over $2 million can be disbursed by December 31, 1982,the new Closing Date, unless the situation improves.

ANNEX II- 35 - Page 11 of 28 pages

Loan No. 1318 Transmigration and Rural Development: $30 MillionLoan of July 21, 1976; Effective Date: March 30, 1977:Closing Date: December 31, 1982

After a rather slow start which resulted in extension of theClosing Date to December 31, 1982, the project has shown continuous progresssince mid-1980 and is expected to be completely disbursed by end-1982. InBaturaja, 4,400 families (98% of target) have been settled and 1,300 shallowwells (91% of revised target) have been established. The pasture develop-ment program is well established in Baturaja and Way Abung and 8,800 cattle(93% of target) have been distributed in both sites. Rubber developmentis almost completed with only 400 ha (6% of target) to be planted in 1982.Disbursements have now reached 75% of appraisal estimates.

Loan No. 1707 Transmigration II: $90 Million Loan and $67 Million Credit of(Cr. No. 919) June 1, 1979; Effective Date: October 4, 1979;

Closing Date: December 31, 1985

Uncertainties about land availability, slow land clearing, andweak management and coordination have caused implementation delays. Inparticular, detailed surveys indicated that only about 12,000 of theanticipated 30,000 families could be settled in the area originallydesignated based on a food crops farm model. Disbursements to date areabout 56% of appraisal estimates. However, in recent months, progress hasbeen made in resolving these difficulties. GOI has put foward a plan forsettling 30,000 families in Jambi and adjacent provinces; detailed surveysof the proposed areas and procedures for compensation for local landholdersare awaited. Performance of the first land clearing contractor hasimproved; and a second land clearing contract has been signed. Severalsteps are being taken to improve project coordination by the office of theJunior Minister of Transmigration. The substantial program of screening andevaluation of future transmigration sites, executed by 11 consulting firms,will be completed in June 1982.

Loan No. 1499 Nucleus Estates and Smallholders I: $65 Million Loanof November 18, 1977; Effective Date: January 12, 1978;Closing Date: June 30, 1984

The nucleus estates have planted about 60% of the 11,500 ha ofrubber to be established for smallholders and will complete about 72% by theend of the 1981 planting season; have constructed about 3,400 settler housesand settled about 1,035 families. In their own estates, the nucleus estateshave rehabilitated 18,400 ha of rubber, planted 7,200 ha of rubber, 3,700 haof coconuts, and 5,600 ha of oil palm, exceeding project targets for rubberplanting and rehabilitation. Three rubber factories and one palm oil millhave been constructed. However, as there were start-up delays in somesmallholder planting, and some civil works construction will not be completedon schedule, an extension of the Closing Date to June 30, 1984 has beenagreed to.

ANNEX II- 36 - Page 12 of 28 pages

Loan No. 1604 Nucleus Estate and Smallholders II: $65 Million Loan ofJuly 12, 1978; Effective Date: September 13, 1978;Closing Date: December 31, 1983

Progress with rubber and infrastructure development has slowedbut construction of settler houses, preparation of food crop areas and theenrollment of settlers are on target. Action has been taken to speed up thelogging operations and the project is expected to be mainly completed byJune 1985, except for the rubber replanting component in Jambi Provincewhere farmer response has been poor. Particular efforts are being made toencourage farmer participation but the 4,500 ha replanting target isunlikely to be achieved by that date. The project Closing Date will haveto be extended to June 30, 1985.

Loan No. 1751 Nucleus Estates and Smallholders III: $99 MillionLoan of August 13, 1979; Effective Date: November 12, 1979;Closing Date: December 31, 1986

All implementing agencies have made good progress. Although somecomponents are slightly behind schedule, the overall project is on or slightlyahead of schedule. About 7,500 ha of rubber have been planted, half of whichis for smallholders. About 420 settler houses are occupied and garden lotsestablished. In 1982, one of the estates, PTP I, was upgraded to-take overresponsibility for completing the Alue Iemerah smallholder component underNES I (1499-IND).

Loan No. 1835 Nucleus Estate and Smallholders IV: $42 MillionLoan of May 16, 1980: Effective Date: August 11, 1980;Closing Date: December 31, 1986

Smallholder oil palm planting is on schedule and of excellentquality. Village layout, settler house construction, and road developmentare a little behind schedule due to problems of land availability. However,these problems are being actively addressed by the implementing estate(PTP X) and the Project Coordinating Committee, and project completion islikely by target date.

Credit No. 984 Smallholder Rubber Development: $45 Million Creditof April 3, 1980; Effective Date: May 23, 1980;Closing Date: March 31, 1986

The project continues to progress satisfactorily, by early 1982 over9,700 ha rubber or 85% of plan was planted. Disbursements by end 1981amounted to $3.8 million out of an estimated $5.0 million but are expected tocatch up soon. Delays in road construction are affecting project implementa-tion and supervision, and measures to speed up progress are under review.Training of field staff and smallholders will be kept strictly practical;

ANNEX II_ 37 - Page 13 of 28 pages

visual aids are being prepared. Creation of a trainer/coordinator positionat provincial level but working at the Project Management Unit level is beingconsidered. The creation of an internal audit unit and timely recruitment ofstaff to deal with financial matters is urgently required. Four studies,including a feasibility study, for an eventual second project are nearing com-pletion and after review by GOI will be submitted to the Bank for review andcomment. There are no major problems with this project, apart from therequirement to strengthen management and the seriously delayed procurement ofvehicles.

Loan No. 1898 Smallholder Coconut Development: $46 MillionLoan of August 25, 1980; Effective Date: November 25, 1980Closing Date: June 30, 1986

The development and rehabilitation of coconut plantings are about30% ahead of appraisal estimates but there is need for improvement in projectmanagement. The transfer of responsibility for administrative and technicalcontrol from the provincial estate crop services to the project implementingunit is delayed and is expected to take place shortly.

Loan No. 2007 Nucleus Estate and Smallholder V: $161 Million Loan ofJune 26, 1981; Effective Date: October 21, 1981;Closing date: June 30, 1988

Smallholder development program to establish 53,000 ha of treecrops (rubber, oil palm, coconuts), food crops and house gardens in WestJava, West Kalimantan and Bengkulu provinces with public sector estates asimplementing agents. The project has made a good start including thenurseries establishment, initial planting for the smallholders in West Java,construction of some roads, estates offices and smallholders' houses.

Agriculture Support Services

Loan No. 1179 Agricultural Research and Extension I: $21.5 MillionLoan of December 19, 1975; Effective Date: February 23,1976; Closing Date: December 31, 1982

Overall progress in the project continues. Civil works in SungaiPutih and Sembawa (rubber) and Sukamandi (rice and palawija) are stillbehind schedule and are now expected to be completed by mid-1982. Most ofof the field and workshop equipment, furniture and vehicles have been receivedand contracts for laboratory equipment and chemicals for Margahayu (highlandvegetables) and for Sungai Putih and Sembawa have been awarded. Ten agri-cultural information centers (AICs) under the Agency for AgriculturalEducation, Training and Extension have been constructed, furnished andequipped and two additional centers at Aceh and Ambon are under construction.Extension materials are being produced and distributed from the completedAICs. Dibursements under the project have been improving consistently.

ANNEX II- 38 - Page 14 of 28 pages

Loan No. 1267 National Food Crops Extension; $22 Million Loan ofJune 4, 1976; Effective Date: September 21, 1976,Closing Date: December 31, 1982

The project management unit now has all six Assistant Directors ona full-time basis. As of December 1981, the total number of field levelextension workers and middle line extension workers is 11,396 against thetarget of 11,620 and of subject matter specialists 399 against the target of320. All civil works are expected to be completed shortly. Procurement ofall vehicles, equipment and furniture has been completed. In-service train-ing of extension staff and short-term and long-term courses abroad have beenconducted more or less according to target. The project and all disburse-ments are expected to be completed by the Closing Date of December 31, 1982.

Credit No. 996 Second National Agricultural Extension: $42 MillionCredit of April 3, 1980; Effective Date: July 3, 1980Closing Date: March 31, 1986

The project is the second phase of the national program forstrengthening extension services covering transmigration areas, estatecrops, livestock, inland fisheries, soil conservation activities in additionto food crops in 26 provinces. The project management unit now has all sixAssistant Directors, all Divisional Chiefs and all sectional heads, excepttwo, on full-time basis. As of December 1981, the strength of field levelextension workers (PPL), middle level extension workers (PPM) and subjectmatter specialists (PPS) in the thirteen new provinces are 1,705, 356 and104 against target of 2,956, 1,069 and 318, respectively. The shortfall isdue to difficulties in recruiting PPLs and PPSs for the Other Islands.Construction of 57 Rural Extension Centers (RECs) and renovation of 31 RECsin East Java has been completed. Tenders for all the remaining civil worksare in the process of issue. Procurement of vehicles out of GOI funds inlagging behind. In some provinces the Training and Visit system has alsobeen introduced for subsectors other than food crops.

Loan No. 1840 National Agricultural Research: $35 Million Loan and $30(Cr. No. 1014) Million Credit of May 16, 1980; Effective Date: July 16,

1980; Closing Date: June 30, 1990

The project is the second phase in the strengthening of the overallinstitutional framework of the Agency for Agricultural Research and Develop-ment for agricultural research in fruits, lowland vegetables, livestock,fisheries, forestry and estate crops other than rubber and industrial crops.Directors for the Central Research Institutes and for Research Institutesand Centers already approved by the Minister of Agriculture have beenappointed. Civil works for the six locations planned for 1980/81 are going

ANNEX II- 39 - Page 15 of 28 pages

ahead and contracts for most of the civil works planned for 1981/82 have beenawarded. More than fifty candidates for long-term local fellowships have beenselected, as well as a consulting firm to provide technical assistance.

Loan No. 2066 Second Seeds $15 Million Loan ofJanuary 15, 1982; Effective Date: March 11, 1982;Closing Date: June 30, 1989

This project provides for: establishment of 18 medium SeedProcessing Centers (SPCs) for the National Seed Corporation, P. T. Pertaniand Cooperatives; six small SPCs for Cooperatives; additional equipment andfacilities for five Food Crops Research Institutes (FCRIs), Provincial SeedFarms and Seed Control and Certification Services; establishment of adiploma course on seed technology at the Bogor Agricultural Institute; andin-service training, technical assistance and studies for strengthening theinstitutions operating in the seed subsector. Locations for the five mediumSPCs to be constructed in the first year have been decided and landacquisition is in progress. Tender documents for the SPCs are beingfinalized for issue of tender shortly. Long-term consultants are alsoexpected to be appointed shortly.

Rural Development

Credit No. 946 Yogyakarta Rural Development: $12 Million Credit ofAugust 13, 1979; Effective Date: December 5, 1979;Closing Date: March 31, 1987

Now that the problem of shortage of vehicles has been resolved,progress with physical implementation and field operations has been good.Previous delays of about one year, such as those in the agriculturalcomponents of the project, have been reduced to six months. Temporaryfinancing gaps due to delays in the release of FY81/82 project funds havelargely been covered by the provincial government. The current estimate ofmid-1987 for project completion should be made earlier during the nextsupervision mission, if the present momentum is maintained. In the meantthis project is no longer considered a project with major problems.

AGRO-BUSINESS AND CREDIT

Credit No. 785 Small Enterprise Development: $40 Million Creditof April 7, 1978; Effective Date: August 17, 1978;Closing Date: December 31, 1984

The project provides financial and technical assistance tostrengthen Bank Indonesia's (BI) small credit programs, KIK/KMKP. The threefield units established under the project in Central Java, East Java, and WestSumatra are developing new lending approaches and assisting handling banks in

ANNEX II

-40 _ Page 16 of 28 pages

project promotion and preparation. On the whole, progress under this project(SEDP I) has been satisfactory. The credit component of the project has beenfully disbursed, but the technical assistance component will not be fullydisbursed for two years. The Closing Date has been postponed to enabledisbursements for the technical assistance component to be made.

Credit No. 827 Rural Credit: $30 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 smallholders,primarily for fisheries, perennial crops and livestock, and technical assis-tance to Bank Rakyat Indonesia (BRI) for program development, trainingin term lending, credit procedures and accounting and management informationsystems. Due primarily to delays in obtaining consultancy services,the project is about nine months behind schedule. Following extensionof the project to cover additional provinces and commodities, it israpidly catching up.

Loan No. 2011 Second Small Enterprise Development: $106 Million Loan ofJune 26, 1981; Effective Date: October 16, 1981; ClosingDate: December 31,1984

From the three regions covered under SEDP I (Credit 785-IND) thisproject is expanded to cover all 27 regions in Indonesia where the SmallInvestment (KIK)/Small Permanent Working Capital Credit (KMKP) program hasbeen in operation since 1974. In addition to credit and technical assistanceto the banking system, the project provides for the strengthening ofnonfinancial support services for small scale enterprises by the Ministry ofIndustry. This is being financed by $6 million from the proceeds of thisloan. Following a slow start, the latter component is beginning to moveforward satisfactorily. The credit component is progressing satisfactorilyand disbursements are on schedule.

EDUCATION

Credit No. 869 Polytechnic: $49 Million Credit of December 29, 1978;Effective Date: May 11, 1979; Closing Date: June 30, 1985

The project objectives are to establish a new system for trainingengineering technicians, improve the quality of accountancy training andpractices, and assist in strengthening education planning and management. Theproject would establish a Technician Education Development Center (TEDC), sixpolytechnics and four accountancy development centers and include technicalassistance and associated studies. The project is making good progress andimplementation is on schedule without a cost overrun. The TEDC building hasbeen completed and construction of the six polytechnics started in 1982.Equipment contracts for the TEDC and the six polytechnics have been awarded.

ANNEX II- 41 - Page 17 of 28 pages

The expert services and fellowship program are progressing satisfactorily.The accountancy component after initial delays, is now making good progress.Study contracts have been awarded or are being awarded. Disbursements are onschedule.

Loan No. 1237 Fourth Education: $37 Million Loan of April 15, 1976;Effective Date: June 17, 1976; Closing Date: December 31,1982

The loan is helping to finance physical facilities and relatedtechnical assistance for: (a) two faculties of technology at existingteacher training colleges and four new centralized workshops for technicaltraining for the Ministry of Education and Culture (MEC); (b) 17 newvocational training centers, an existing instructor training center and25 mobile training units for the Ministry of Manpower (MOM); and (c) newpremises for the National Institute of Administration (LAN), the country'sprincipal civil service training institution. The completed MEC subprojectis problem-free and facilities are operating satisfactorily. The MOMsubproject has made some progress but is about two and a half years behindschedule with a 16% cost overrun. Problems faced include poor equipmentprocurement management, shortage of funds, low utilization of completedfacilities, poor quality of training (less than 50% of trainees placed in.employment), and partial compliance on covenants. The LAN component hasmade no progress for over two years and is now about three and a half yearsbehind schedule, mainly due to the default of the civil works contractor forprice escalation disputes with GOI. Furniture and equipment procurement hasnot commenced. It is unlikely that this component will be completed by thepresent Closing Date. The GOI has been informed of the overall status andurged to take remedial actions.

Loan No. 1433 Teacher Training: $19 Million Loan of June 6, 1977;Effective Date: July 7, 1977; Closing Date: June 30, 1983

The project is now progressing satisfactorily. About 36% ofcivil works have been completed. Phase I is 95% completed. Phase II isapproximately 75% completed. Tendering for the third and final phase hasbegun and construction is expected to be finished this year. Furniture isbeing supplied to completed buildings according to schedule. Equipmentprocurement is about one year behind schedule. The first cycle began inJuly 1981 and will finish in mid-1982. Four hundred teacher trainers andadministrators are being trained and will conduct local seminars. Projectstudies are nearing completion. While disbursements are currently only 31%of appraisal estimates, it is expected that they will accelerate consider-ably during the coming months. Despite earlier delays and the low disburse-ment level, the project is expected to be completed as planned.

.ANNE( IL

- 42 - Page 18 of 28 pages

Loan No. 1486 Non-Formal Education: $15 Million Loan ofSeptember 14, 1977; Effective Date: November 4, 1977;Closing Date: June 30, 1983

The project aims at strengthening the Department of Education'snonformal education programs in seven provinces. Financing would cover:civil works to renovate two existing and establish four new provincialcenters, instructional equipment and vehicles, in-service training, materialsdevelopment, a basic learning fund, and related technical assistance. Of thesix Balai PENMAS (directorates for out-of-school education) centers, five havebeen completed. All furniture and equipment are already on site. About 90%of the staff training program is meeting appraisal targets and production anddistribution of pretested learning materials is accelerating. The technicalassistance program is on schedule; local staff are gradually replacing foreignconsultants. Disbursements will increase substantially this year and areexpected to reach 90% of appraisal estimates.

Loan No. 1692 Second Agricultural Training: $42 Million Loan of May 7,1979; Effective Date: July 31, 1979; Closing Date:June 30, 1985

The project constitutes the second phase of GOI's long-term strategyto improve the quality and supply of middle level agricultural manpower. Goodprogress continues to be made. On average 45% of construction has been com-pleted at the 47 project institutions and implementation is well ahead ofschedule. Disbursements exceeded the revised estimate by more than 200% byMarch 31, 1982. Technical assistance is now well underway, fellowshiputilization remains up to schedule, and the curriculum is being revised.

Loan No. 1904 University Development: $45 Million Loan ofNovember 13, 1980; Effective Date: January 22, 1981;Closing Date: December 31, 1986

The project is the first phase of a long-term university developmentprogram. Its main objectives are to increase the output of high level man-power and improve the quality of university education in the fields ofengineering, science, agriculture, and economics (including business admin-istration and accountancy), as well as strengthen the management of theoverall university system. Arrangements for physical development are aboutsix months behind schedule except at the University of Indonesia. The addi-tional land required for the University of Gadjah Mada and the new site forthe University of Andalas have been acquired. Short lists of campus planningand architectural consultants for all the universities are being finalized.The initiation of technical assistance provisions are about fifteen monthsbehind schedule. A contract is being negotiated with an external agency toadminister the program of fellowships and visiting professors. Two contractsare being finalized with the British Council for the training of universityadministrators and textbook editors. There have been no indications tosuggest that project costs will be other than estimated at appraisal.

43 ANNEX IIPage 19 of 28 pages

Loan No. 2101 Second Teacher Training: $80 Million Loan of April 5,1982; Effective Date: Not yet effective; Closing Date:June 30, 1988

The project seeks to improve the skills, competence andeffectiveness of the education staff involved in primary and secondaryeducation and educational administration.

Loan No. 2102 Second Textbook: $25 Million Loan of April 5,1982; Effective Date: Not yet effective; Closing Date:June 30, 1987

The project will support the establishment of the Integrated Text-book Project, a permanent organization to plan and manage textbook developmentactivities; a Center for Curriculum Development, which would develop improvedcurricula for primary and secondary schools, and an improved nationaldistribution system for all textbooks for primary and secondary schools.

ENERGY

Loan No. 1365 Sixth Power: $116 Million Loan of February 4, 1977;Effective Date: June 6, 1977; Closing Date: June 30, 1983

Construction work on the project has reached its final stage. The200 MW Unit No. 4 was synchronized on November 26, 1981 and has been in com-mercial operation since March 1982. Unit No. 5 is expected to be incommercial operation around July 1982. The associated studies have beencompleted.

Loan No. 1513 Seventh Power: $109 Million Loan of February 3, 1978($15 million cancelled November 30, 1980); Effective Date:June 30, 1978; Closing Date: December 31, 1983

All contracts were awarded at highly competitive costs with a sub-stantial reduction in foreign costs and, therefore, $15 million of the ori,nal loan of $109 million has been cancelled. The Bank also agreed to theinclusion of the following additional studies in the scope of the project:(a) Sunda Strait submarine cable feasibility; (b) optimization of location offuture thermal plants: (c) power sector management information system design;and (d) energy pricing study. Construction work at the site has been delayedby about 15 months. Commercial operation of the 200 MW generating unit isexpected in July 1983. Construction of the associated transmission lines isprogressing satisfactorily. The feasibility study of the East Java coal-firedthermal power station site has progressed to the point of selection of a suit-able site. Contracts for the studies (a), (b) and (c) mentioned above havebeen signed, and work is progressing satisfactorily. There has been noprogress on item (d) so far.

- 44 - ANNEX IIPage 20 of 28 pages

Loan No. 1708 Eighth Power: $175 Million Loan of June 1, 1979; EffectiveDate: November 5, 1979; Closing Date: December 31, 1984

The project continues to encounter a number of problems and slippednearly eleven months behind schedule by September 1981 compared to eightmonths in May 1981. However, progress since then has improved and theestimated delay as of January 1982 was 48 weeks. The main causes of the delaywere: (a) late finalization of contracts, and (b) tardy performance of thelocal contractor for piling work. Most contract awards have now been made andthe commissioning date for Unit No. 1 at Suralaya is expected to be October1984. Disbursements, though much lower than the appraisal estimates, are inline with the revised projections prepared in July 1981. The project cost isexpected to remain within the appraisal estimate.

Loan No. 1872 Ninth Power: $253 Million Loan of June 13, 1980; EffectiveDate: October 24, 1980; Closing Date: September 30, 1985

This project is experiencing delays. However, the commissioningdate of the second unit of Suralaya is now expected to be June 1985, i.e. twomonths behind schedule. The EHV project is delayed by almost one year due todelay in finalizing contract awards. All major contracts are expected to befinalized by May 1982. Progress of land acquisition for the substation andthe transmission lines is satisfactory.

Loan No. 1950 Tenth Power: $250 Million Loan of March 6, 1981;Effective Date: April 23, 1981; Closing Date: June 30,1987

All major contracts for construction and installation of generatingequipment required for the Saguling hydroelectric project have been placedwith an estimated saving in total project costs of about $99 million. Con-struction work started at the main dam site in August 1981, and has encoun-tered problems in regard to timely completion of diversion tunnels which arecrucial to achieve river diversion planned end-May 1982. However, during 1982steps are being taken by the GOI to divert the river and modify the laterconstruction program to ensure that original construction targets are met.Other project subcomponents are progressing satisfactorily. No cost orunanticipated time overruns are expected.

Loan No. 2056 Eleventh Power: $170 Million Loan ofNovember 16, 1981; Effective Date: April 15, 1982;Closing Date: June 30, 1986

Implementation of the project is proceeding on schedule. Contractsworth about $30 million have already been evaluated and approved by the Bank.No problems are foreseen at this stage.

- 45 - ANNEX IIPage 21 of 28 pages

Loan No. 2079 Bukit Asam Coal Mining Development and Transportation:$185 Million Loan of January 22, 1982; Effective Date:Not yet effective; Closing Date: September 30, 1987

The project would provide indigenous coal as a substitute for oil(mainly for power generation in West Java) and strengthen the institutionsinvolved in Indonesia's coal mining sector. The project consists of: anexpansion of the existing coal mine and the provision of the necessaryinfrastructure at Bukit Asam; the upgrading of the railway link to Panjang;and the provision of a ship for the transportation of coal across the SundaStrait to Suralaya, together with associated terminal.

INDUSTRIAL DEVELOPMENT AND FINANCE

Industrial Estates

Credit No. 428 Pulo Gadung Industrial Estate: $16.5 Million Credit ofSeptember 14, 1973; Effective Date: November 13, 1973;Closing Date: December 31, 1982

The Pulo Gadung Industrial Estate is now scheduled for completionin 1982. Of 415 ha of raw land earmarked for acquisition, 358 ha had beenpurchased as of mid-1981, 164 ha of developed land reserved for factory usehas been sold to 210 firms. At full capacity production, employment isexpected to be around 23,000 workers; 9,700 of whom have been hired so far.Despite the slow development of the estate resulting in protracted disburse-ment of the credit and substantially higher cost than estimated atappraisal, PT JIEP's financial performance has been satisfactory. Someadjustments of its dividend, cost and price policies were neverthelesscalled for and were recommended to PT JIEP during the last supervisionmission. GOI has agreed to designate 22.6 ha of the Pulo Gadung IndustrialEstate as an Export Processing Zone (EPZ) with PT JIEP as the sole adminis-trator. The Closing Date of the Credit was therefore postponed by two yearsto December 31, 1982, reallocating the remaining funds for the establishmentof the EPZ. However, development of the EPZ has been delayed because therequired Presidential Decree and subsequent operating license by theDepartment of Trade and Cooperatives have not yet been issued.

Development Finance Companies

Loan No. 1703 Fourth BAPINDO: $50 Million Loan of June 1, 1979;Effective Date: September 25, 1979; Closing Date:September 30, 1983

This project is being implemented satisfactorily. BAPINDO is makinggood progress in implementing the General Improvement Program provided underthe project -which involves major institutional reforms and wider delegation ofauthority to branches. Commitments have increased rapidly since the lastsupervision mission. Disbursements have also caught up and are expected to befully disbursed by the Closing Date.

- 46 -

ANNEX IIPage 22 of 28 pages

POPULATION AND NUTRITION

Population

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

All civil works are completed and the buildings are occupied andoperational. The mobile service units provided under the project are making asignificant contribution to the recruitment of contraceptive acceptors.On-going activities comprising training, population education and research arescheduled to be completed by the end of 1982. A loan saving of $7.0 millionhas been reallocated for the purchase of equipment in support of projectactivities and procurement is expected to be completed by December 1982. Onlyabout $10.3 million, or 42%, has been disbursed out of the loan. A sizeableproportion of the balance will be disbursed by the Closing Date, but notthe full loan amount. The GOI does not intend to request an extension of theClosing Date.

Loan No. 1869 Third Population: $35 Million Loan of June 13, 1980;Effective Date: September 10, 1980; Closing Date:.March 31, 1985

While some progress has been made on the implementation of non-construction components, civil works have experienced start-up delays due to(a) a protracted process of hiring consultants to prepare building plans andcontract documents, (b) difficulties of land acquisition, (c) inadequatestaff, and (d) failure to make adequate provisions in the budget for the firstyear of project activities. Consultants have been engaged and contractors areexpected to be awarded in July 1982 and construction is schedule to start inAugust. A sufficient number of building sites have now been acquired. Thestaff dealing with civil works has been augmented by detaching four engineersfron the Ministry of Public Works to assist the National Family PlanningCoordinating Board with civil works. Adequate budgetary provisions have beenmade. Initial delays in physical implementation are reflected in slowdisbursement. The Bank is intensifying supervision efforts in order toaccelerate physical progress and improve the rate of disbursement.

Nutrition

Loan No. 1373 Nutrition Development: $13 Million Loan of March 14,1977; Effective Date: March 31, 1977; Closing Date:March 31, 1983

Most of the civil works are completed and the buildings arefunctioning. The ongoing construction work is scheduled to be completed bythe end of 1982. Staff training, both in-country and abroad, is proceedingrapidly, as well as the use of consultants. Many of the on-going activities

- 47 -ANNEX IIPage 23 of 28 pages

are additional to the original project activities as a result of thereallocation of loan savings of $4.0 million. They are, however, expected tobe completed by December 1982. Sustained efforts are being made to helpexpedite the implementation of these activities. Disbursement is laggingsomewhat because only $6.0 million, or 46% of the loan, has been disbursed.When the on-going activities are completed towards the end of 1982,disbursement should rise sharply.

TECHNICAL ASSISTANCE

Credit No. 898 Fifth Technical Assistance: $10 Million Credit of May 7,1979; Effective Date: September 5, 1979; Closing Date:March 31, 1984

Progress under this project is satisfactory.

Loan No. 1197 National Resource Survey and Mapping: $13 Million Loanof February 5, 1976; Effective Date: April 2, 1976;Closing Date: December 31, 1983

The National Coordinating Agency for Surveys and Mapping(BAKOSURTANAL) complex at Cibinong is completed, and most of the cartographicphotographic processing, including color photo processing equipment andprinting equipment required to produce maps, are installed. Computerequipment for resource analysis including a topographic data bank and flatbedplotter has been installed. Various resource evaluation activities have beenundertaken using these facilities. Recruitment and training of new staff,particularly at junior and middle level has recently been accelerated. Thenew photography operation financed under the parallel Canadian Project wasdelayed as a result of which the Bank agreed to extend the Closing Dateuntil December 31, 1983. The photography operation started in July1981 and is expected to be completed by the new Closing Date.

ANNEX II- 48 - Page 24 of 28 pages

TRANSPORTATION

Fertilizer Distribution

Loan No. 2120 National Fertilizer Distribution: $66 Million Loan of April 5,1982; Effective Date: Not yet effective; Closing Date:June 30, 1986

This project will increase agricultural production in Indonesia bysubstantially expanding the capacity to distribute fertilizer to farmers.Funds are also provided for preparation of future maritime transport projects,including master plans and detailed engineering for several ports.

Highways

Loan No. 1236 Fourth Highway: $130 Million Loan of April 15, 1976;Effective Date: August 13, 1976; Closing Date:December 31, 1982

The project although now substantially completed has been underimplementation for nearly six years. Because of slow execution, the ClosingDate has been postponed by two years to December 31, 1982. The only componentstill ongoing is the road betterment program and the related consultancies forworks supervision. Other consultancies have been completed satisfactorily,sometimes with substantial delays. Four road sections have been transferredfrom the Fifth to the Fourth Highway Project. Bank participation inexpenditures to be incurred in 1982 on these contracts would fully utilize thesurplus.

Loan No. 1696 Fifth Highway: $130 Million Loan of June 1, 1979 ($6.8 Mil-lion cancelled June 30, 1981); Effective Date: August 28,1979; Closing Date: December 31, 1984

Project implementation, which started nearly two years ago, issubstantially behind schedule. The causes for delay are: (a) the ambitiousproject objectives, which translate into program-type components and numerousconsultancies; (b) overcentralization of the Directorate General of Highways(DGH); (c) a shift of senior staff within DGH; and (d) new developmentguidelines of the GOI under Repelita III emphasizing the spread of investmentsover a larger number of projects with reduced standards. However, work hasnow been started on nearly all project components, and a firm action programhas been set up for the bridge replacement program and the last consultancyin the original program. There is still a reasonable chance of completingthe project with a total delay of only one year. The Provincial Departmentsof Public Works programs of support works were just started in January1982 with mobilization of consultants and after road maintenance equipmenthad been ordered. $6.8 million of the loan has been cancelled due tomisprocurement of road maintenance equipment.

49 ANNEX IIPage 25 of 28 pages

Loan No. 2049 Jakarta-Cikampek Highway: $85 million Loan of October 9, 1981;Effective Date: February 9, 1982; Closing Date:December 31, 1987

The project will increase road capacity between Jakarta andCikampek (about 70 km to the east) by construction of a new toll road and byimprovements to the existing highway. Consultants have been selected forconstruction supervision, and contract negotiations are underway. Bid openingfor the four sections of road works is somewhat behind schedule but is nowscheduled for late May 1982. Land acquisition has been completed up to andincluding negotiations with property owners, and payment of compensation isimpending.

Loan No. 2083 Rural Roads Development: $100 Million Loan of January 22,1982; Not yet effective; Closing Date: December 31, 1986

The project will improve rural road infrastructure in selectedprovinces by strengthening the capacity of the district public works agenciesand implementing an expanded program of rural roads works; and support a ruralroad development program for a three-year period in five Indonesian provinces.The project also contains components for training and technical assistance.Implementation of the various project components is still at an early stage.Bids were received in March 1982 for road construction and maintenanceequipment and bid evaluation is being carried out at present. Steps havebeen taken for hiring consultants to provide technical assistance to thedistrict public works acquires and to assist the Directorate General ofHighways in preparing further rural roads programs.

Marine Transport

Loan No. 1250 Second Shipping: $54 Million Loan of May 20, 1976;Effective Date: October 8, 1976; Closing Date:December 31, 1982

The project is part of the first phase of the Government's Inter-Island Fleet Development Program and is designed to modernize, expand andimprove the efficiency of the inter-island fleet. Commitment of funds forship procurement, delivery and rehablitation has reached $46.8 million of the$47.4 million allocated. All but $1.0 million of the balance, which isallocated for technical assistance and preparation of the proposed MaritimeTransport project has been committed. The Closing Date of the loan has beenextended by one year to December 31, 1982. Funds amounting to $5.8 millionhave been received by P.T. Pengembangan Armada Niaga Nasional (PANN) theshipping development corporation and project entity for ship procurement, frominsurance on the loss of one vessel financed by the loan. These funds will beutilized to procure replacement tonnage as if they were original loan funds.All PANN financial and physical operations appear to be satisfactory.

ANNEX II

_ 50 - Page 26 of 28 pages

Ports

Loan No. 1337 Tanjung Priok Port: $32 Million Loan ofNovember 4, 1976; Effective Date: March 3, 1977;Closing Date: December 31, 1983

The Government-financed works in Basin III, delayed due to theimpact of the 1978 Rupiah devaluation, the Basin III civil works financed bythe Bank loan, also delayed due to the devaluation, and civil works financedby the Bank loan in the Regional Harbor are completed. Several Bank-financedstudies which are proposed or have been completed, will enable the GOI toidentify components of a further ports project suitable for Bank financingprobably in FY84. Overall estimated project costs remain approximately atappraisal levels despite an increase in civil works costs.

TOURISM

Credit No. 479 Bali Tourism: $16 Million Credit of June 14, 1974;Effective Date: December 4, 1974; Closing Date: June 30,1982

With the exception of the amenity core and the extension of someutility services, infrastructure at Nusa Dua is complete. The access roadto Nusa Dua from the airport and the Denpasar bypass road were completed andopened for traffic in December 1980. The preparation of additional infra-structure improvements and possible participation by the Bali Tourism Deve-lopment Board (BTDC) in hotel investment for Nusa Dua utilizing the uncom-mitted portion of the credit is underway. The market for tourism to Balihas held up well in 1980/81. Hotel occupancies in international standardhotels in Bali exceed 80%. The construction of a first hotel (450 rooms) byGaruda at Nusa Dua is progressing well for completion in December 1982. Thenegotiations with Club Mediterranee for a holiday village are underway withthe expectation that a final agreement will be reached in May, before theloan Closing Date of June 30, 1982.

URBAN DEVELOPMENT

Loan No. 1336 Second Urban Development: $52.5 Million Loan ofNovember 4, 1976; Effective Date: March 28, 1977;Closing Date: June 30, 1983

The project consists of provision of basic infrastructuralfacilities including footpaths, drainage, water supply and human wastedisposal to about 3,000 ha of densely populated slum areas in Jakarta and374 ha in Surabaya. Community health workers are to be trained under a pilotprogram in both cities. Except for the provision of about 19 health clinics(out of 45 planned), the physical program, covering about 3,435 ha kampungs(neighborhoods) in Jakarta and 441 ha in Surabaya, is essentially complete.

- 51 - ANNEX IIPage 27 of 28 pages

Supplementary technical assistance studies related to future projectspreparation and utilizing the accrued loan residual have been recentlyagreed upon. To facilitate the financing of these studies, the Bank, inDecember 1981, extended the loan Closing Date from December 31, 1981 toJune 30, 1983.

Loan No. 1653. Third Urban Development: $54 Million loan of January 31,1979; Effective Date: September 26, 1979; Closing Date:December 31, 1984

The project provides basic infrastructural facilities (KIP) includ-ing roads, footpaths, water supply, and sanitation to impoverished, low-income kampungs (neighborhoods) in the cities of Jakarta (750 ha),Surabaya (580 ha) Ujung Pandang (375 ha), Semerang (310 ha) and Surakarta(170 ha), benefitting a total population of about 2.25 million. Acomprehensive solid waste management program is also included in Jakartaand Surabaya, together with a drainage program in Surabaya. About 775community health workers are to be trained in the above two cities to workin the improved kampungs. The KIP component of the project is nearingcompletion in all project cities. The implementation progress of sectoralcomponents (solid wastes and drainage), even though better than in theprevious years, has been affected by land acquisition problems, lack ofcounterpart financing and a less-than-satisfactory project management.These problems are being resolved and the progress of the components shouldaccelerate during FY82/83. The overall project is expected to be completedby mid-1984, still within the appraisal completion date.

Loan No. 1972 Fourth Urban Development: $43 Million Loan ofMay 8, 1981; Effective Date: September 9, 1981;Closing Date: September 30, 1986.

The project expands the Bank's assistance to GOI's basic shelterprograms evolved in earlier projects and concentrated mainly in Jakarta andthe major cities of East Java to nine provincial capital cities spreadthroughout Indonesia. Basic infrastructure and housing facilities will beprovided through slum improvement and sites and services developments on Z.

total of over 2,000 ha benefitting an estimated 500,000 persons. Improve-ments to citywide infrastructure deficiencies in main drainage, water supplyand solid waste disposal will be studied and implemented in three cities. Anational urban mapping program covering 125 cities will be undertakenproviding base data for future city planning, land registration and valuationprograms. Institutional development is a prominent feature and technicalassistance for management, training and feasibility studies to various urbanauthorities and agencies will be provided. Physical provisions under thekampung (neighborhood) improvement program have been underway in the projectcities and improvement in their management is expected from the fieldappointment of consultants in March 1982. Field implementation of the sitesand services scheme in these project cities commenced in September 1981.

-52- ANNEX IIPage 28 of 28 pages

The technical assistance program is proceeding satisfactorily with theappointment of all crucial management advisory staff completed.

WATER SUPPLY

Loan No. 1709 Second Water Supply: $36 Million Loan of June 1, 1979;Effective Date: February 29, 1980; Closing Date:December 31, 1984

The project expands and improves existing water supply and distri-bution systems in the cities of Tangerang and Surabaya (both in Java),Jember (Sumatra), Pare-Pare (Sulawesi) and Ambon (Moluku), and provides forthe construction of new systems in Klaten and Purwakarta (both in Java).The total increase in raw water yield in the cities as a result of theproject is projected at 1,770 lit/sec and the total installation of trans-mission and distribution mains will amount to about 375 kms with houseconnections targetted at a total of 40,000 in the project cities. Theproject is also aimed at establishing water enterprises (WEs) in the projectcities and strengthening the skills of WE's staff, as well as the CiptaKarya (Housing and Urban Development) staff, in the areas of administration,financial and operational performance of the enterprises. After consider-able delays (up to 18 months) most of the International Competitive Biddingprocurement contracts for tne supply of pipes and materials are currentlyunder execution. The execution of the civil works in the project cities hasjust commenced. The organizational and management training for the WEs hasbeen underway since September 1981 and is proceeding satisfactorily.

- 53 -ANNEX III

INDONESIA

CENTRAL JAVA PULP AND PAPER ENGINEERING PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events

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

(b) Project prepared by: Ministry of IndustryPerum PerhutaniPerum Kertas Basuki Rachmat

(c) First presented to the Bank: November 1980

(d) Departure of Appraisal Mission: February 1982

(e) Completion of Negotiations: August 1982

(f) Planned Effectiveness: November 1982

Section II: Special Bank Implementation Actions

None.

Section III: Special Conditions

(a) The incorporation of KKC as a legal entity, and the employment ofengineering consultants for KKC are conditions of effectiveness(paras. 36 and 46); and

(b) By February 1, 1983, consultants will be employed to assist theGOI in the preparation of a pulp and paper restructuring study(para. 44).

- 54 - ANNEX IV

INDONES IA

CENTRAL JAVA PULP AND PAPER ENGINEERING PROJECT

Disbursement Schedule for Bank Loan(US million)

Bank Fiscal Quarterly Disbursements Cumulative DisbursementYear/Quarter Amount % Total Amount % Total

1983 II 0.1 1.8 0.1 1.8III 0.6 10.9 0.7 12.7

IV 1.3 23.7 2.0 36.4

1984 I 1.1 20.0 3.1 56.4II 1.0 18.2 4.1 74.6

III 0.8 14.5 4.9 89.1IV 0.6 10.9 5.5 100.0

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