Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-2549-IND

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

AND THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN, DEVELOPMENT CREDIT

AND EEC SPECIAL ACTION CREDIT

TO

THE REPUBLIC OF INDONESIA

FOR A

TRANSMIGRATION II PROJECT

May 14, 1979

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

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CURRENCY EQUIVALENTS

Currency Unit - Rupiah (Rp)

$1.00 = Rp 625Rp 100 = $0.160Rp 1 million $1,600

GLOSSARY AND ABBREVIATIONS

Adat - Body of traditional lawARD - Agency for Research and DevelopmentATT - Agricultural technical team within the Ministry of AgricultureBRI - Bank Rakyat Indonesia - Peoples' Bank of IndonesiaDGA - Directorate-General of Agrarian AffairsDGC - Directorate-General of CooperativesDGE - Directorate-General of EstatesDGFCA - Directorate-General of Food Crops AgricultureDGH - Directorate-General of HighwaysDGLS - Directorate-General of Livestock ServicesDGT - Directorate-General of TransmigrationDIP - Daftar Isian Projek - Project implementation budgetGOI - The Government of IndonesiaINPRES - Instruksi Presiden - "Presidential Instruction" - a rural

improvements programIPEDA - Iuran Pembangunan Daerah - land taxJMT - Office of the Junior Minister for TransmigrationMarga - A community grouping under traditional (Adat) lawMOA - Ministry of AgricultureNES - Nucleus estate and smallholder projectsODM - Overseas Development Ministry of the United Kingdom GovernmentRepelita I - First Five-Year Development Plan (1969/70-1973/74)Repelita II - Second Five-Year Development Plan (1974/75-1978/79)Repelita III - Third Five-Year Development Plan (1979/80-1983/84)

GOVERNMENT OF INDONESIAFISCAL YEAR

April 1 - March 31

INDONESIA FOR OFFICIAL USE ONLY

TRANSMIGRATION II PROJECT

Loan, Credits and Project Summary

Borrower: Republic of Indonesia

Amount: $90 million (Bank), $67 million (IDA) and approximately/i$5.5 million (EEC Credit)

Terms: Bank loan for 20 years including 5 years of grace withinterest at 7.9% p.a. IDA Credit on standard IDAterms. EEC Credit on standard EEC Special ActionCredit terms.

Project Description: The proposed project would launch a land developmentprogram along the Trans-Sumatera highway by resettlingabout 30,000 families from impoverished areas of Javaand Bali, as well as from Sumatera, on four sites inthe province of Jambi in Sumatera. It would alsoupgrade the conditions of 4,000 transmigrant familieswho were recently settled in the same area. Theproject would provide physical infrastructure, landclearing, agricultural inputs and services, communityfacilities and technical assistance to help theGovernment in implementing the project and developingthe transmigration program.

The project would create 30,000 new farms, open upupland food crop production on 36,000 ha and increasecrop production on another 4,800 ha, directly benefit-ting some 34,000 farm families or 170,000 people. Atfull project development, per capita farm income isestimated at $125 compared with incomes of potentialtransmigrants and existing settlers of about $35.

Risks: The major risks are environmental and organizational.Environmental risks will be minimized through appropriateland clearing techniques, crop rotation and soil conserva-tion practices, the supply of farm inputs and improvedextension services. Institutional risks will be minimizedthrough a new organizational framework for coordinationamong the implementing agencies. Although coordinationdifficulties are likely to persist, when weighedagainst GOI's ambitious transmigration program and theneed to introduce in the field the new organizationframework, the organization risks associated with thisproject are acceptable.

/1 The EEC Credit is calculated in a basket of currencies. The dollarequivalent is subject to fluctuation.

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

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Estimated Cost:

Local Foreign Total($ million)

Site preparation 15.7 40.9 56.6Site development andsettler relocation 27.5 20.7 48.2

Agricultural supportservices 12.5 21.6 34.1

Investigations and designs 4.6 5.4 10.0

Base cost 60.3 88.6 148.9

Physical contingencies 8.6 14.3 22.9Expected price increases 29.0 41.2 70.2

Total 97.9 144.1 242.0

Financing Plan:(net of taxes)

Foreign Local Total…---- ($ million) ----

Bank/IDA 144.1 12.9 157.0EEC Special Action Account 4.7 0.8 5.5Government - 79.5 79.5

Total 148.8 93.2 242.0

EstimatedDisbursements:

…---------------- $ million ------------Bank FY 1980 1981 1982 1983 1984 1985 1986

Bank/IDA

Annual 1.0 24.0 27.0 35.0 28.0 37.0 5.0Cumulative 1.0 25.0 52.0 87.0 115.0 152.0 157.0

EECAnnual 0.7 4.8 - - - - -Cumulative 0.7 5.5 5.5 5.5 5.5 5.5 5.5

Rate of Return: 12%

Staff AppraisalReport: No. 2349a-IND dated May 14, 1979.

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THEINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMIENT AND THE

INTERNATIONAL DEVELOPMIENT ASSOCIATION TO THEEXECUTIVE DIRECTORS ON A PROPOSED LOAN, DEVELOPMENT CREDIT AND EEC

SPECIAL ACTION CREDIT TO THE REPUBLIC OF INDONESIA FOR ATRANSMIIGRATION II PROJECT

1. I submit the following report and recommendation on a proposedloan, development credit and EEC Special Action Credit to the Republic ofIndonesia for the equivalent of $90 million, $67 million and about $5.5million, respectively. The loan would have a term of 20 years, includingfive years of grace, with interest at 7.9% per annum; the development creditwould be on standard IDA terms. The credit from the EEC Special ActionAccount would be administered by the Association in accordance with the termsand conditions of the agreement of May 2, 1978 between the Association andthe European Economic Community.

PART I - THE ECONOMY /1

2. The latest economic report on Indonesia, "Indonesia: GrowthPatterns, Social Progress and Development Prospects," of February 20, 1979(No. 2093-IND) was circulated to the Executive Directors on February 26,1979. The report's main findings are that:

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

(b) due to a number of new, mostly exogenous circumstances, includingan expected slowdown in the growth of oil production, Indonesia isnow facing a rapidly tightening overall resource position whichwill make it more difficult to maintain high levels of income andemployment growth, while at the same time preserving monetarystability and external balance;

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

/1 Substantially unchanged from the President's Report on the Second Agri-cultural Training Project (No. P-2506-IND), circulated under cover ofR79-75, dated April 13, 1979, and approved by the Executive Directors onApril 24, 1979.

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

(e) while the next five to ten years may be difficult because of thestructural changes needed to adjust to a post-oil boom era, Indonesia'slong-term development prospects have been significantly enhanced bythe Government's successful population policies which have alreadycontributed to a substantial (approximately 207) reduction offertility in Java and Bali during the past decade. These cruciallyimportant demographic developments will, in due course, particularlyafter the mid-1980s, be reflected in reduced and declining rates ofgrowth of the labor force. Declining labor force growth rates andthe prospects of declining income elasticities of demand for foodjustify the hope and expectation that with sound policies, Indonesiacan and will eventually - possibly within the next two decades -overcome the severe poverty and food security problems that stillplague the country today. The solution of these fundamental problemsthrough the pursuit of a pervasive employment-oriented developmentstrategy would set the economy firmly on a long-term growth pathtowards much higher levels of social and economic developmentinvolving all Indonesians. One of the key components of such astrategy would be to aim at a high rate of labor-intensive manufac-turing development.

Social Developments Since 1970

3. Analysis of data from the National Household Surveys for 1970 and1976 suggests that while overall income disparities have almost certainlywidened, the rapid overall growth of the economy /1 has contributed to aconsiderable improvement in consumption of all income grouDs, including thevery poor. The data further suggest that increases in per capita consumptionwere higher in Java than in the Other Islands and higher in urban areas thanin rural areas. Notwithstanding this, many Indonesians remain extremely poor:in 1976 when average per capita income was about $280,/2 over 50 millionIndonesians (387 of the population) spent less than ~99 (1976 prices andexchange rate).

4. Analysis of data from National Labor Force Surveys shows a remarkablyhigh rate of employment growth (over 4% p.a.) between September 1971 and October1976. But during this period, the labor force also grew at a very high rateand the data suggest that there was a slight increase in the rate of open

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

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

unemployment. Since the labor force grew much faster than population in therelevant age groups, a sharp increase in labor force participation rates, from50% in September 1971 to 55% in October 1976, was observed. Thus, a substantialpart of the increased per capita consumption levels is believed to have beenrelated to increased labor force Darticipation and declining dependency ratios.

5. The share of agricultural employment between 1971 and 1q76 declinedfrom 667 to 62%, implying rapid growth of nonagricultural employment - over7% p.a. or 54% of the total increase in employment. Within the nonagricul-tural sectors, the increase in employment occurred largely in proliferatingsmall-scale enterprises in the manufacturing and service sectors where laborproductivity is thought to be extremely low. This is indicated, inter alia,by the stagnation of real minimum wage levels which are among the lowest inthe world. Employment growth in medium- and large-scale enterprises, whichabsorbed the bulk of industrial investment, was very modest. The broadpicture of rapid employment growth since 1970, though encouraging in manyrespects, thus reveals that a relatively large Part of the incrementalemployment has been of poor quality in residual types of activities.

6. Mtuch progress has been made in recent years with the provision ofeducation services. Enrollment rates increased at all levels of education.For example, primary school enrollment (excluding over-age students) isexpected to reach 85% in 1979 for the 7-12 age group, compared to 60% in1974; dropout rates - while still high - declined, and universal primarveducation appears to be in sight. A promising nonformal education programhas been introduced to increase the basic employable skills of those whonever attended school (presently estimated at 23 million people) and otherswho left school without completing primary education (a further 22 million).Indonesia's adult literacy rate increased to 62% in 1974 which is much higherthan in India (36%), Pakistan (21%), or Bangladesh (237), but lower than inThailand (82%) or the Philippines (87%). Within Indonesia, large differences inlevels of educational attainment between urban and rural areas still exist,but differences between Java and other parts of the country are relativelvsmall.

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

8. Inadequate sewerage and sanitation facilities are still major healthhazards, especially in crowded urban areas. Even if the various targets forrural and urban water supply for the Second Five-Year Development Plan(Repelita II), which ended in March 1979, were fully met, over 100 millionIndonesians will still remain without easy access to safe water in 1979.Similarly, housing conditions are generally very unsatisfactory, especiallyin crowded urban areas. Although simple and inexpensive improvements inwater supply, drainage, footpaths and community facilities, executed through

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YamDung Improvement Projects, including those supported bY the Bank Group,have contributed to better living conditions in several overcrowded urbanareas, specific socio-economic support programs to improve the living con-ditions of the urban poor are needed.

The Devaluation of November 15, 1978

q. The recent devaluation of the rupiah from Rp 415 to Rp 625 per USdollar was designed to encourage labor-intensive import substitution andnonoil export growth by reversing some of the adverse relative price shifts inthe economy that had occurred earlier this decade. The opportune timing ofthis drastic and unique policy action is believed to be a strong factor inenhancing the probability of its success. The strongest immediate effects ofthe devalulation, however, will be a dramatic increase in budgetary revenues inlocal currencv terms. Government expenditures will, of course, also increaseas a result of the devaluation buit the net budgetary Position in terms ofrupiahs should improve strongly. While the recent devaluation will generallytend to facilitate export promotion efforts, great emphasis needs to be placedon the importance of developing effective supoort services and of reducingadministrative obstacles and other unnecessary cost-increasing factors.

10. A number of supportive measures to prevent an upturn in domesticinflation eroding the potential benefits of this devaluation have already beentaken. Such measures include the lowering of import tariffs by 507 on awide range of intermediate inputs, stringent temporary price controls, and atemporary increase in budgetary subsidies to isolate initially key consumptionitems, such as rice, from the effects of the devaluiation. Aside from thebudget's influence on the prices via subsidies, the degree of monetary controlexercised will also be an important factor in minimizing devaluation-inducedinflation. There is likelv to he conflict, however, between the need tocontain devaluation-induced monetary expansion and the need for additionalcredit to promote new private investment in line with the structural objectivesof the devaluation. Nonetheless, a sizeable budget surplus in fiscal 1979/80almost certainly will be needed to assist in neutralizing the effect of a suddensharp increase in the rate of monetary expansion following the devaluation.

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

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Food Supply and Demand Prospects

12. In spite of impressive increases in rice production, Indonesia'sfood self-sufficiency has declined continually over the past decade. In par-ticular, there has been a growing import-dependence on rice, sugar, wheat,and recently coconut oil, which is predicted to continue (paras. 28-29). Tomeet this problem, an overall food production and consumption strategy isvital. The Third Five-Year Development Plan (Repelita III) has placed newemphasis on the need to increase production of secondary crops such as maize,cassava, soyabeans, and groundnuts, particularly in order to decrease Indonesia'simport-dependency on rice. Yields of secondary crops in other countriesindicates that they hold significant potential for increasing Indonesia's foodself-sufficiency and improving the food security of low-income families inIndonesia's unirrigated areas (para. 30).

Overall Growth and Employment Prospects

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

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

External Aid and Creditworthiness

15. The heavy foreign borrowing in 1974, 1975 and the early part of1976, together with a hardening of average terms during those years, hasraised the level of debt service payments which reached about $1.5 billion in1978, or about 18% of projected export earnings. The debt service ratio /1was 16% in 1976 and 17% in 1977; the ratio is expected to remain below 20% in1979 and 1980. This is the encouraging result of restraint with regard tonew borrowing in 1976 and 1977 and the recent replacement on more favorable

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

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terms of S575 million remaining payments on cash loans (originally totallingSl billion) which had been obtained in 1975 from a number of private banks inthe wake of the Pertamina crisis. Total new loan commitments declined from a

peak of $3.4 billion in 1975 to 12.3 billion in 1978. Most of the declinewas achieved through a reduction in commercial borrowing. This means that

average loan terms have recently begun to soften again, which will be reflectedin future debt service payments.

16. The Inter-Governmental Group on Indonesia (IGGI) continues to be

the principal source of external capital, including Official DevelopmentAssistance (ODA), to the country. Total ODA (bilateral and multilateral)

commitments in 1977/78 (including grants) amounted to about S1.4 billion: theIGGI (including the World Bank Group and Asian Development Rank) accountedfor over 907 of this amount. The Bank's most recent economic report onIndonesia recommends that total ODA to Indonesia should reach at least

S1.93 billion in 1979/80, including both loans and grants, of which at least707 should be on concessional and semi-concessional terms. At the meeting of

the IGGI in April 1979 the indications of probable commitments in 1Q79/80 madeby bilateral and multilateral IGGI members amounted to about this level; themeeting therefore concluded that the Bank's recommendations would he approxi-

mately met.

17. The Bank's overall assessment of Indonesia's external accountsindicates that the country will be able to finance essential imports of

consumer, intermediate and capital goods and to meet its debt service obliga-tions. The debt service ratio is expected to remain below 20%. Although the

November 15 Rupiah devaluation will provide a one-time revenue windfall, theGovernment will need to raise substantial additional non-oil revenues over the

coming years if the relatively higb rate of domestic investment already reachedis to be maintained. The Government has been quite cautious in increasingcurrent expenditures and there does not appear to be much scope for reducingthem further; expenditures should, in fact, rise in step with the growth inGNP and inflation, to permit reasonable growth in Government salaries as wellas materials expenditures, a significant part of which is development-related.In view of the pressure on public sector resources and since Indonesia's

total external financing requirements are in excess of the foreign exchange

components of the many projects planned for financing from external sources,a limited measure of local cost financing is considered justified.

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PART II - BANK GROUP OPERATIONS IN INDONESIA /1

18. As of March 31, 1979, Indonesia had received 40 IDA creditstotalling $680.8 million /2, and 37 Bank loans amounting to $1,903.0 million.IFC investments have totalled $61.3 million. The share of the Bank Groupin Indonesia's total (disbursed) external debt outstanding at the end of1977 was about 8%, and the share of debt service about 1.8%. By the end of1978, these ratios are estimated to have increased to around 12% and 5%,respectively. Annex II contains a summary of IDA credits, Bank loans andIFC Investments as of March 31, 1979, as well as notes on the execution ofongoing projects.

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

20. The discussion in Part I of this report underscores the need for adevelopment program which will provide increasingly productive work oppor-tunities and incomes for Indonesia's presently underemployed and growing laborforce and increase agricultural production, particularly of food crops.One of the major objectives of the Third Five-Year Development Plan (RepelitaIII) is to increase employment through programs directed towards improving theincomes of the poor and their living standards.

/1 Except for para. 22, substantially unchanged from the President's Reporton the Second Agriculural Training Development Project (No. P-2506-IND),circulated under cover of R79-75, dated April 12, 1979, and approved bythe Executive Directors on April 24, 1979.

/2 Includes amounts ($1.1 million) cancelled.

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While several of these programs are likely to be suitable for Bank Groupfinancing, it will be some time before they are ready for implementation.However, as part of this new focus, a small enterprise development project,designed to increase non-agricultural employment in rural areas and smalltowns, has already been approved by the Executive Directors, and an integratedrural development project should be ready for presentation to the ExecutiveDirectors in a few months. With respect to agriculture development, projectsare being prepared further to improve and expand research and extensionservices, rehabilitate and expand irrigation systems, assist in watershedmanagement and village development, and develop presently underutilized landin areas outside Java for transmigrants and other smallholders. The proposedproject is another step in implementing these programs. In addition to thefamily planning program, which continues to have high priority, other areas ofparticular importance for Bank Group assistance will be the improvement ofurban services through construction of urban water supply systems and furtherexpansion of neighborhood improvement programs, support for industrial develop-ment and the improvement and expansion of higher education, particularly ofengineers, accountants and agriculture specialists, as well as primary andnonformal education. Finally, Bank Group financing continues to be importantfor the Government's program of infrastructure rehabilitation and expansion,particularly in transport and power, which will continue to require very largeinvestments for many years before these facilities are adequate to supportIndonesia's development. Compared to past lending activities, many of theseprojects and programs reflect the shift of emphasis in the Government'sdevelopment objectives from rehabilitation and expansion to a better balancedand more equitable and employment-oriented economic growth strategy.

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

22. Although overall project implementation performance in Indonesiais now about the average for the Bank, the Bank and the Government havebecome concerned in recent months about the level of disbursements which inthe last year or so has shown a declining trend. Many of the problems seemto be attributable to cumbersome procedures for procurement and payment ofcontracts, including issuance of letters of credit. In other cases, projectspecific problems and unfamiliarity of some project executing agencies

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with procedures also cause difficulties. A number of steps have been takenby the Government and the Bank in an attempt to address these problems. Inthe last year, two Bank missions were sent to Indonesia to analyze and makerecommendations for simplifying budgetary and financial procedures; theGovernment is now reviewing their reports. The Government and the Bank arealso holding regular joint review meetings in order to identify projectspecific as well as more general problems and to work out corrective measures.The first of these meetings was held in early March this year in Jakarta on afew selected projects and a second meeting is scheduled for June. During theIGGI meeting in April 1979 the Government announced several ameliorativemeasures designed to streamline the more complex budgetary and financialprocedures which seem to affect implementation of almost all projects.Although, as a result of these initiatives an improvement in implementationperformance is now anticipated, constant follow-up in this area will benecessary in the coming months.

23. The proposed loan would be the ninth lending operation presentedto the Executive Directors this fiscal year and would bring total lending toIndonesia this year to $619 million. Projects for nucleus estate and small-holder development and for rural development are expected to be ready forpresentation within the next few months.

PART III - RURAL DEVELOPMENT AND TRANSMIGRATION

The Agricultural and Rural Sector

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

25. Role and Performance. Although agriculture's contribution to GDPand exports has declined during the past 15 years (from 55% to 33% and from55% to 23%, respectively), the rural sector remains of overwhelming importanceto the vast majority of the Indonesian people in terms of employment, incomesand food production. Some 80% of the country's 133.5 million people livein rural areas, and agriculture employs about two-thirds of the total laborforce. Over the period 1972-1977, the growth rate of agricultural productionhas been uneven, averaging 3.7% p.a. while total GDP grew at about 7% p.a.

26. Development Problems and Potentials. In Java, the cultivable landis almost fully utilized, and in some areas agricultural land use alreadyexceeds ecologically safe limits. In 1976, about 82 million people lived inJava, which has 45% of the cropped area but only 7% of Indonesia's land area.About one-third of Java's rural population is landless, and a large propor-tion of the remainder cannot support themselves on incomes from their ownfarms. Outside Java there are large areas of unused cultivable land, lessfertile than those in Java, and other natural resources to be exploited.

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Development Strategies

27. Employment. Perhaps the single most important challenge facing theIndonesian Government is to guide and structure the development process insuch a way that the creation of new opportunities for gainful employment atleast keeps pace with the growth of the labor force. The changes associatedwith modernization in rural Java are generally labor-saving, so that farmingis increasingly becoming a part-time activity. Modern manufacturing andservices have been unable to absorb fully the incremental labor force.Future employment strategy will include labor-intensive export industries andsmall-scale rural enterprises, producing for the domestic market. There mayalso be potential for more productive agricultural employment through increasedcropping intensity and a shift to higher value crops and livestock, includingfruits and vegetables grown on house compounds.

28. Food Crops. Despite impressive achievements in rice production, thepast decade has seen a continuing decline in Indonesia's food self-sufficiency.Between 1968 and 1977, the composite trend growth rates of domestic food calorieproduction and availability were approximately 3.2% and 3.7%, respectively./1These growth rates reflect a growing import dependence on rice, sugar, wheatand recently coconut oil, as well as a reduction or disappearance of maize,cassava, meat and coconut product exports. After three years of declininggrowth rate in rice production due to a combination of poor weather andpest problems, 1978 has shown a large increase in output (over 10%), butimport requirements in 1978/79, though much lower than in 1977/78, were stillabout 6% of total domestic consumption.

29. Comparison of plausible food supply and demand scenarios suggeststhe likelihood of increasing import requirements of basic foods and especiallyof rice, wheat, sugar, coconut oil and possibly maize. There is an urgentneed for a comprehensive food production and consumption strategy. In thecase of rice, with the substantial completion of irrigation rehabilitation,the recent shift in emphasis towards extension of irrigated areas and swampdrainage projects will probably somewhat reduce rice production growthrates, at least through 1985. However, the potential for increasing fertil-izer and insecticide consumption and for improving the local performance ofthe most recent IRRI varieties, suggests that an annual rate of growth ofrice production of around 3.5% is nevertheless feasible through 1985. Therecent devaluation has provided significant additional room for further riceproducer price increases aimed at stimulating supply.

30. While slower growth in rice productivity is anticipated, a com-parison of yields of secondary crops in a number of countries suggests thatthese crops offer considerable potential for raising Indonesia's domesticfood self-sufficiency. With proper marketing and other support services, therate of growth of secondary crop production could probably be raised from

/1 The rice trend production growth rate was about 3.5% and the compositetrend for the 5 main secondary staples (maize, cassava, peanuts, sweetpotatoes, and soybeans) was 1.6%.

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1.7% to 3.5% p.a. A gradual shift in the overall food production and con-sumption pattern from rice to the secondary crops would assist low-incomefarmers in unirrigated areas and reduce the cost and risks associated withexcessive rice import-dependency.

31. Tree Crops. The Government has embarked on a major effort todevelop smallholder treecrops outside Java as part of its transmigration andnational rubber and coconut replanting programs. The objective is to improveproduction on existing blocks while developing large areas of new land forsettlement. One of the Government s main approaches has been to use publicestate companies to plant tree crops on land to be settled by local landlessfamilies and transmigrants. This approach is appropriate in view ofIndonesia's scarce managerial and technical capabilities.

32. The Role of the Government. The capacity of the IndonesianGovernment to plan and implement agricultural and rural development programshas generally improved over the past decade. However, future programsresponsive to the Government's stated objectives will necessarily be morecomplex than those which the Government has followed up to now. They willrequire closely coordinated "packages" of research, extension, inputs,credit, land development, transportation and marketing improvements. Withthe more complex organizational requirements of future programs, implementa-tion capacity is likely to become the limiting factor in Indonesia's economicand social development. It is, therefore, of the utmost importance that theGovernment continue its efforts to strengthen key rural development institu-tions.

33. Bank Group Lending Strategy. There is general agreement between theBank Group and the Government on the overall objectives and strategies proposedfor the rural sector. While views sometimes differ on the relative emphasisto be given to different investments and on the technical design of someprojects, such differences are not profound and are likely to be resolvedwith further analysis and dialogue. The Bank Group is devoting considerablestaff time to various analyses of the rural sector (e.g., employment, irriga-tion development, support services, and food crop production).

34. The Bank Group has been, and should continue to be, involved in abroad range of agricultural and rural activities in Indonesia. Since theFirst Irrigation Project in 1968, the Bank Group has rapidly expanded itsagricultural and rural lending to include virtually all segments of agriculture.Credits already closed and for which Project Completion Reports have beenprepared (e.g., Estates I, Irrigaton I) showed excellent rates of returnranging from 25% to 33%. Taking 1974 as the base year, Bank Group-assistedprojects will contribute almost 60% of the increase in palm oil output by1980, about 16% of incremental sugar production and 6% of incremental rice andrubber. Four continuing trends in the Bank Group's agricultural lending toIndonesia are: (a) a shift from rehabilitation to new development activities;(b) a shift from support of state enterprises to direct support of smallholders;(c) increased emphasis on rainfed systems; and (d) greater emphasis on develop-ment of the Other Islands. All these trends are consistent with the Govern-ment's changing policies.

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Transmigration

35. Past Program Performance. The Indonesian transmigration program isone of the largest organized resettlement efforts in the world. Since 1905successive Governments have sponsored the migration of poor farmers from theovercrowded inner islands - particularly Java - to relatively underutilizedneighboring islands - particularly Sumatera. All told, Government programshave transferred nearly one million settlers.

36. Following W4orld War II, the Government resumed the transmigrationprogram with ambitious targets but limited financial support. Under thesecircumstances pre-settlement preparation was poor. Sites were often remoteand inaccessible, and villages inappropriately located and occasionallyremoved from their agricultural lands. IWithout adequate policies for thecompensation of indigenous farmers, land tenure conflicts and enmity betweenethnic groups occurred. Migrants often spent most of the first year clearingtheir agricultural land and were frequently below self-sufficiency when theirsubsistence supplies ceased. Most were without access to agricultural inputssuch as fertilizer and hybrid seed, and were unfamiliar with cropping stra-tegies suitable to their land. In spite of these problems, however, the hardwork and initiative of the settlers produced many settlements which providedviable alternatives to subsistence in Java.

37. During the first two Five-Year Development Plans (1969-79) the goalsof the program were shifted; the Government began to emphasize the contribu-tion of transmigrants to regional development and it required that settlerwelfare be improved. Bilateral assistance for transmigration began in 1971and expanded after 1974, and with increased funding, project preparationimproved. However, three main problems continued to affect the size andeffectiveness of the program. First, sector coordination between Governmentrlinistries and Departments was inadequate. Second, the resources of theDirectorate-General of Transmigration (DGT) itself were severely strained.The DGT alone was responsible for planning and implementing land clearance,road construction, infrastructure development and resettlement; it arrangedfor the provision of land titles, health services, agricultural extension andschools. With limited manpower and a small budget the complex task of settle-ment had long taxed the resources of the DGT, but between 1974 and 1979 theattempt simultaneously to expand the scale of the program and sophisticationof all components resulted in increasing target shortfalls. Third, a wideranging controversy over several technical aspects of the program (para. 41)has cast doubt in some quarters about the program's technical feasibility, andpartly explains the frequent changes in the approach to transmigration as wellas the delays in initiating a massive site identification/preparation effort.

38. Confronted by ongoing management problems and the continuingcontradiction between size of targets and their shortfalls, the Governmentreorganized the transmigration program in preparation for Repelita III.Under the new arrangement, responsibility for project implementation has beentransferred to the agencies normally responsible for each sector. All

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agencies are coordinated by a newly appointed Junior Minister of Transmigration,who is responsible to the Minister of Transmigration and the President andwho is assisted by special representatives of each of the implementingagencies (paras. 59-61).

39. Transmigration will be a central feature of the Third Five-YearDevelopment Plan (Repelita III, 1979-84). The Government has begun preparationfor moving 500,000 families during this period, mostly landless farm laborersand small part-time farmers from Java, to frontier areas mainly in Sumatera,Kalimantan and Sulawesi. This is a sevenfold increase over settlement ratesachieved during the Second Five-Year Plan (Repelita II). The problems involvedin making this quantum jump are enormous, but the Government is convinced thatfailure to accelerate the rate of development in the Other Islands wouldjeopardize the national goals of providing jobs, raising per capita incomes,increasing food crop production, promoting national integration and achievinga better balanced and sustained use of natural resources in the country as awhole. Bank Group contributions to this effort are envisioned both in supportof specific projects and in overall program development.

40. Issues and Uncertainties. Throughout the history of transmigrationa number of justifications have been put forward in support of transmigration,the most important of which are to: (a) alleviate population pressures inJava; (b) create employment opportunities; (c) increase food and tree cropproduction; (d) improve the living conditions and incomes of impoverished andlandless laborers from Java; (e) promote balanced regional development; and(f) strengthen the influence of the Central Government in the Other Islands.While all of the above considerations have played a role in the transmigrationprogram, even today different degrees of emphasis are given to each factor byvarious Government agencies as well as external donors. The Bank Group hasdiscussed all aspects of these problems with the Government and, while it isclear that not all supporters of the transmigration program can be satisfiedsimultaneously, nevertheless the Government at the highest levels is con-vinced that transmigration will contribute to national development and it isconcerned that projects be undertaken and groundwork for a vastly expandedtransmigration program be laid.

41. There are also technical and policy issues on which differencesof opinion exist. These issues have been examined carefully by Bank staffduring the different stages of project preparation. Given the complex natureof these issues and the current state of knowledge, there can be no certaintythat the approach proposed under this project would successfully resolve allof them. However, the staff is convinced that appropriate precautionarymeasures have been introduced and that on balance the proposed project istechnically sound.

42. The following is a summary of the main issues and the manner inwhich they have been addressed under the proposed project:

(a) Land Use for Food Crop Production. Results from research workin Sumatera as well as examination of existing settlementsconfirm that, with proper soil conservation and the application offarm inputs, sustained food crop cultivation on marginal soils in

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the Other Islands is feasible. As indicated in para. 75, theGovernment's ability to provide adequate and timely farm inputs

and supporting services poses a certain risk to sustained culti-

vation, but this risk was judged to be acceptable. Questions

have also been raised on the type of land to be opened - primary

forest (which minimizes land tenure problems) or grasslands (which

preserves the forest but leads to conflicts with local farmers).

While the use of grasslands has the dual advantage of reclaiming

unused wasteland and preserving valuable timber land, opening up

of such land is considered reasonable in instances where forest

land is located along main transport arteries (as is the case in

the proposed project).

(b) Land Clearing. In assessing the appropriate methods, i.e., mech-

anical vs. manual, for opening new lands without damaging the soil

or destroying valuable timber, and whether such methods should

maximize speed of implementation or employment, the most advantageous

approach was found to be a combination of both methods. Tinder the

proposed project all timber at least 30 cm in diameter at breast

height would be cut by hand or chain saw, and the clearing of all

remaining timber and the windrowing would be done mechanically.

Initial land clearing under the project would be limited to about

one-third of the settler's holding.

(c) Appropriate Target Incomes, Farm Size and Village Plans (i.e., Nucle-

ated vs. Linear). With several different development modes having

been adopted for settlements in the Other Islands, it is impractical

to adopt a uniform target income or farm size. The current Govern-

ment policy of providing settlers on rainfed schemes with 3.5 ha

farms which are generally suitable for both food crop production

(2.0 ha) and tree crops (1.5 ha) should enable farmers to diversify

their operations, make full use of available family labor, and

enjoy incomes well above those prevailing in rural Java. As for

village plans, past experience in transmigration settlementssuggests that small blocks of 25 - 50 households, which combine the

features of both nucleated and linear villages, are best suited to

the social and agricultural requirements of the settlers. The

proposed project is consistent with the above policy.

(d) Government Support to Settlers. On the issue of the degree of finan-

cial support which settlers require, as indicated in para. 43, finan-cial constraints and the desire to accommodate the largest possible

number of settlers must be weighed against the need to ensure the

economic viability of the new settlements. The investment of

S4,250/family under the proposed project would ensure such viability

at an income level somewhat higher than the average rural income.

(e) Interests of Local Population in Settlement Areas, and Promotion of

Spontaneous Migration. Suitable measures to protect the interests

of the local population in sites selected under the proposed projectas well as measures to attract spontaneous (i.e. unsponsored)

settlers are discussed in para. 48 below.

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(f) Use of Consultants in the Transmigration Program. In the shortrun, because trained manpower is in short supply throughout Indonesiaand there is the additional problem of attracting civil servants onfixed salaries to work in frontier areas, heavy reliance on consult-ants is inevitable. The proposed project will attempt to correctthis situation by providing training and constructing houses andother facilities for Government personnel in the settlement areas.

43. Recent Government thinking on transmigration, therefore, may besummarized as follows. First, there is a need for a massive increase in thetransmigration program. Transmigration can reduce pressures on marginal landsin the overcrowded areas of Java and Bali; can absorb a portion of theagricultural labor force displaced by landlessness and technological change;can reduce food crop deficits and increase tree crop exports by bringingunutilized lands into production; and can contribute to regional developmentby attracting infrastructure and services to sparsely populated areas andcreating growth poles around which future development can take place.Secondly, largely due to budgetary constraints, transmigration on the scaleenvisioned by the Government must be carried out at low investment persettler. The Government recognizes, however, that substantial public sectorinvestments at the initial stages of the program are necessary to promotesettler self-sufficiency, increase the economic viability of the community,and lead to spontaneous migration and regional growth.

44. Transmigration I. In FY77, the Bank made a loan of $30 million foran experimental project (Loan 1318-IND) intended to upgrade 12,000 settlerfamilies and establish a new community for 4,500 more. Both of these schemesare located in Sumatera in rainfed areas of low agricultural productivity -areas considered typical of the marginal lands in the Other Islands availablefor future projects. New migrants were provided with five hectares of land,of which one-half ha was clean cleared and one ha in immature block-plantedrubber. They also received draft animals and agricultural inputs aimed atpromoting early agricultural surplus. The project was intended to test theassumption that viable migrant communities could be established in areas ofrainfed agriculture in the Other Islands.

45. After nearly two years, the rehabilitation part of the project issomewhat behind schedule but settler welfare in the new community of Baturajais encouraging. The 400 families in Unit I had nearly one ha per family inagricultural production and a survey of settlers' incomes suggested anaverage family income of $545, which was about 15% above the minimum sub-sistence level defined at appraisal as $475, and substantially above estimatedannual farm incomes in Java (about $265) in the stratum from which migrantscome. These higher incomes have resulted because the settlers have farmedmore intensively and cleared larger areas than projected at appraisal, andbecause project construction has provided considerable off-farm work oppor-tunities. There are now 1,300 sponsored families in Baturaja and, as evidenceof the relative attraction of this community, the first 400 families haveattracted 485 spontaneous settlers in their first 18 months on site. Whilemigrants in Baturaja are doing well, overall project performance is behindschedule. Weak organization and management are the major factors limiting

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project progress, a general problem exacerbated by the introduction of neworganizational arrangements unfamiliar to the DGT. The realignment ofadministrative and technical responsibilities outlined in paras. 58-62 belowshould lead to an improvement in the execution of this project and alsoenhance the Government's capability to implement a large-scale transmigrationprogram.

PART IV - THE PROJECT

46. Project site selection was based on the results of the South SumateraRegional Study carried out by Bonn University and Robert R. Nathan Associates.Detailed investigations and site preparation were carried out by the Director-ate General of Transmigration (DGT) in the Ministry of Manpower and Transmi-gration, and the Directorate General of Highways (DGH) in the Ministry of PublicWorks, with technical assistance from the United Kingdom Overseas DevelopmentMinistry (ODM) under British bilateral aid. The project was appraised inFebruary and July 1978. Staff Appraisal Report (No. 2349a-IND, dated May 14,1979), is being distributed separately. Supplementary project data areprovided in Annex III. Negotiations were held in Washington from April 9 to17, 1979, with the Indonesian delegation led by Dr. Saleh Affif, DeputyChairman of BAPPENAS.

Project Formulation

47. The project would be the first to assist the Government's expandedtransmigration program under the Third Five-Year Plan. It would create employ-ment opportunities, increase food crop production, improve the living condi-tions and incomes of the settlers, reduce pressures on marginal lands inJava and Bali, and settle sparsely populated areas of Jambi province, thuscontributing to regional development and creating growth poles around whichfuture development can take place. Unlike the settlements under the Trans-migration I project, which were based partially on tree crop development, theproject emphasizes food crop development in response to national priorities toincrease food crop production and the need to keep settlement costs low. Thisshift was also influenced by the recent wide availability of fertilizer inIndonesia, by current research work and field trials on food crop productionin rainfed areas, and by encouraging food crop yields obtained by migrants inthe Transmigration I project. This emphasis on food crops does not preclude,however, the future development of tree crops in the area, and in fact theproject encourages such diversification at a later stage. To strengthen theorganization and management of the project and the Government's expandedtransmigration program, the proposed project would provide considerabletechnical assistance to the implementing agencies. It would also prepare theway for several future projects through aerial photography, surveys, mapping,feasibility studies and detailed design work.

48. In order to minimize conflict with the local population, projectsites were carefully limited to uninhabited areas. Furthermore, about 10% ofall settlers would be selected from among the local population. Since thesepeople are generally shifting cultivators and rubber tappers unfamiliar withthe language or culture of the people from Java, close attention would be

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given during implementation to their integration within the settlements and tothe provision of project components appropriate for them. Project servicesand facilties would also be extended to some 4,000 transmigrant families whowere recently settled by the Government on one of the project sites. Finally,since spontaneous movement of migrants meets the ultimate goal of resettlementin a less costly, less cumbersome and, perhaps, less risky manner than fullGovernment support, some land would be reserved under the project in order topromote such spontaneous settlement.

Project Description

49. The proposed project would launch a land development programalong the Trans-Sumatera Highway by resettling about 30,000 families fromimpoverished and ecologically threatened areas of Java and Bali (90%) as wellas from Sumatera (10%) on four sites in the province of Jambi. It would alsoupgrade the conditions and services provided to 4,000 transmigrant familieswho were recently settled in the same area.

50. The project's main features are as follows:

(a) Land Clearing and Site Preparation. Clearance of about 37,500 haof forested land for resettling 30,000 new families and about7,500 ha for roads and public facilities. Construction of a 30 m x1,200 m airstrip at Sarolangun, upgrading of the airstrip at RimboBujang to 30 m x 1,200 m, and provision of air communicationsfacilities at both airstrips. Construction of above 700 km ofaccess and link roads, and about 1,700 km of village roads, and ofoffices, quarters and service facilities for project personnel atHfuara Bungo and each of the five sites.

(b) Community Development and Settler Relocation. Construction of:about 30,000 transmigrant houses with sanitary facilities; about7,600 shallow wells (10-15 m) and about 300 deep wells (80 m) forwater supply; and community facilities including sub-health centers,schools, places of worship, village halls, offices and quarters forofficials, guest houses and stores, markets, banks and post offices.Distribution of agricultural implements and a subsistence foodsupplement over 12 months to the 30,000 families, and provision ofmalaria control in the settlement areas.

(c) Agricultural Support Services. Construction of buildings andrelated facilities for two seed farms, one plant protection brigade,the livestock component and about 75 village cooperatives. Distribu-tion of an initial package of annual crop and vegetable seeds andperennial seedlings to new settlers, and fertilizer and pesticideinitially at subsidized prices to support food cropping by newsettlers and the existing transmigrant families. Purchase anddistribution of about 8,800 head of cattle.

(d) Investigations and Designs. Aerial photography, soil surveys,forestry inventories, slope association studies and mapping requiredto identify future settlement sites and prepare projects to settleabout 150,000 transmigrant families on about 225,000 ha.

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(e) Monitoring and Evaluation. Establishment of a monitoring, evalua-tion and research unit to monitor and evaluate the entire transmi-gration program, in particular the proposed project, and carry outsupplementary data collection when needed.

(f) Consultants, Training and Equipment. Provision of consultantsto assist with the implementation of the above project components,training of project staff, and procurement of equipment, vehiclesand supplies.

Detailed Features

51. Land clearing of forest areas for food crop production would berestricted to land of under 8% slope, with the top soil disturbed as little aspossible. Erosion control measures would be undertaken on all cleared areas.The settlements would be arranged in small neighborhood blocks of 25-50households, and a village would consist of several of these blocks (250-500families in each) around a central service area. The project would provideadministrative and community facilities in the villages, such as health,educational, religious and cooperatives infrastructure and services. Forevery 2,000 families, it would also provide a main village with additionalservices. The 'Directorate-General of Transmigration would provide each familywith a standard package consisting of clothes, cooking utensils, and tools,plus a subsistence ration of staple foods distributed in-between harvestsduring the settlers' initial year. In the event of crop failure or othercircumstances beyond the control of the participating farmers during thefirst year of settlement, the Government would distribute rice and otheressential commodities for the second year of settlement (Section 3.07(a) and(b) of the draft Development Credit Agreement).

52. Each transmigrant family would be given 3.5 ha of land, of which2.0 ha would be suitable for food cropping and 1.5 ha for tree crops. Theproject would clear 1.25 ha/family of the food cropping land, leaving 2.25 ha/family in forest for future development. To ensure the new settlers' landrights under the project, the Government would ensure that each such settlerwould receive a certificate evidencing rights to land use (Hak Pakai) for hishouse lot and 1.75 ha of other land within one year after his arrival, and tothe remaining 1.50 ha of land within two years after his arrival; and wouldreceive a certificate evidencing full land ownership (Hak Milik) to the full3.50 ha within 5 years after arrival on site (Section 3.15 of the draftDevelopment Credit Agreement). The project would supply transmigrants with avariety of agricultural inputs such as seeds, fertilizer, pesticides anddraft cattle. On arrival at the site, each settler family would receivean initial supply of annual food crop seed and perennial tree crop seedlings.The family would also receive fertilizers and pesticides at considerablysubsidized prices for the first three years. The families' repayments forthese fertilizers and pesticides would be used to establish revolving creditfunds for farmers' future purchases of crop inputs. Under a future, secondstage of development, the Government would plan, organize and assist thetransmigrants to develop their remaining 2.25 ha for food crops and perennialtree crops. The Government would submit to the Association for review and

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comment by December 31, 1980, a plan for agricultural and other development ofthe remaining 2.25 ha per family. In the clearing and development of theremaining hectarage, the Government would minimize fragmentation of the 2 haper family provided for the house lot and foodcropping area (Section 3.11 (a)and (b) of the draft Development Credit Agreement).

Project Costs and Financing

53. The total project cost is estimated at $242 million (exclusiveof local, provincial and national taxes), of which $144.1 million (58%) isin foreign exchange. Project costs are in mid-1979 prices. These costestimates include physical contingencies consistent with the degree of prepar-ation and complexity of the various project elements: about 25% for landclearing and roads; 15% for construction of buildings; and 10% for services,equipment, and supplies. The cost estimates also include allowances forexpected price increases during project execution (41% of base cost plusphysical contingencies). Based on recent similar contracts in Indonesia,consultant costs have been estimated at $8,700/man-month (including alloverheads, housing and travel) for expatriate firms and $1,200/man-month forlocal firms.

54. The proposed Bank loan of $90 million and IDA credit of $67 millionwould finance the full foreign exchange cost of the project ($144.1 million)plus $12.9 million of local costs (para. 17). An EEC Special Action Creditof about $5.5 million would supplement these funds (para. 56 and 57).The Government would meet the remaining expenditures out of annual budgetaryallocations.

Procurement and Disbursements

55. Except for 15 start-up vehicles which would be purchased under theconsultants' contracts, vehicles, equipment and supplies ($7.9 million)would be procured under international competitive bidding procedures inaccordance with Bank Group guidelines. A preference equal to 15% of thec.i.f. cost or the customs duty, whichever is lower, would be extended toqualified local manufacturers in the evaluation of bids. Equipment, spareparts and supplies costing less than $10,000 each and limited to a total of$2.0 million, which are not suitable for international competitive bidding,would be purchased through normal Government procurement procedures which areacceptable to the Bank Group. There are sufficient suppliers of such goods toensure adequate competition. Contracts for mapping ($4.8 million) would beawarded following local competitive bidding in accordance with normal Govern-ment procedures. Contracts for consultants' services ($24.2 million) would beawarded in accordance with Bank Group guidelines on the uses of consultants.

56. The construction of roads ($33.3 million) and land clearing ofthe settlement sites ($40.7 million) would be executed by the same contrac-tor. They would be divided into five contracts covering about 9,000 ha each,which would be awarded following international competitive bidding. A 7-1/2%preference would be allowed to qualified local contractors in the evaluation

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of bids. All female cattle and 20% of bulls ($6.8 million) would be importedfollowing prudent shopping, and 80% of the bulls ($0.2 million) would beprocured locally. The construction of settler housing and water supply($22.1 million) and agricultural infrastructure and community facilities($17.0 million), which are relatively small and widely scattered in area andtime span, would not be of interest to international contractors. Theseworks would be carried out following local competitive bidding procedureswhich were reviewed and found acceptable. The EEC credit would be used forcivil works and equipment produced in or supplied from any of the EEC MemberStates or any developing country which is eligible to be a recipient of an EECSpecial Action Credit.

57. Disbursements would be made at the following rates: (a) 80% oftotal expenditures for civil works; (b) 100% of foreign expenditures fordirectly imported goods, equipment, vehicles and cattle; 95% of ex-factorycosts for locally manufactured goods and equipment; 65% of total expendituresfor imported goods and equipment procured locally, excluding vehicles; and40% of local expenditures for locally procured cattle and locally assembledvehicles; (c) 100% of total expenditures for mapping, consultants, researchand training; (d) 60% of total cost of relocation and subsidies to settlers;and (e) 100% of foreign expenditures and 50% of local expenditures foragrochemicals. The EEC Special Action Credit would be disbursed according tothe same percentages as the Bank Group financing of the project, and isexpected to be totally disbursed within two years. In consultation with theBank Group, savings under the proposed loan and credits would be applied tofinancing additional settlements. Disbursements are expected to be completedby December 31, 1985.

Organization and Management

58. Weak organization and poorly coordinated implementation and managementresponsibilities have been major flaws in past efforts to develop the transmi-gration program. To overcome this and to enable the expansion and accelerationof the transmigration program, Presidential Decree No. 26 was formulated andissued on August 31, 1978. Principally this decree allocated responsibilityfor transmigration implementation to the various ministries ordinarily respon-sible for each sector, and proposed a means of coordinating the implementingagencies. The decree established a ministerial level Coordinating Board,reporting directly to the President, to set broad policy guidelines forprogram implementation and to promote inter-agency coordination. It describesthe duties of the Junior Minister for Transmigration who, assisted by a manage-ment board, is responsible for the day-to-day execution of the CoordinatingBoard's policies. This management board consists of the heads of all partici-pating Directorates-General, who would receive direct budget allocations toexecute their functions in keeping with standard financing and institutionalprocedures in Indonesia. To promote integration of line agencies in thevarious regions, the Decree charges the Governor and a Provincial Committeefor Transmigration with responsibility for coordinating all the participatingagencies at the provincial level.

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59. The project management organization is as follows: the JuniorMinister of Transmigration, working through his Secretariat in Jakarta, wouldhave primary responsibility for coordinating the activities of all agenciesinvolved in the proposed project and the overall transmigration program. Hewould monitor the preparation, implementation and impact of project componentsand assure their timely execution. To this end, a Project Coordinator and aRegional Project Coordinator would be appointed with their line of authorityto the office of the Junior Minister.

60. The Project Coordinator within the Junior Minister's Office wouldcoordinate the activities of all the implementing agencies, each of whichwould appoint a liaison officer in Jakarta to work exclusively on the proposedproject. The main agencies which would be involved in the project include:(a) the Directorate-General of Highways (DGH) in the Ministry of PublicWorks, (b) the Directorate-General of Transmigration (DGT) within the Ministryof Transmigration and Manpower, (c) the Directorate-General of Food CropsAgriculture (DGFCA) within the Ministry of Agriculture (MOA), (d) theAgency for Research and Development (ARD) in the MOA, (e) the Directorate-Generalof Livestock Services (DGLS) within the MOA, (f) the Directorate-General ofAgrarian Affairs (DGA) in the MOA, and (g) the Directorate General of Coopera-tives (DGC) within the Ministry of Trade and Cooperatives.

61. Directly under the Project Coordinator would be a Regional Projectcoordinator at the project headquarters in Muaro Bungo who would coordinatethe operations of the field staff of the implementing agencies. Generally,these staff would consist of a head of field operations, stationed in MuaroBungo, and on-site staff in the settlement areas. The project headquartersstaff would be supplemented by internationally and locally recruited consultants,attached to each agency. The head of field operations for each of the lineagencies would coordinate closely with the provincial authorities. On-sitestaff from line agencies, headed by a deputy field or site manager, would beresponsible for the day-to-day operations of the project at each of the fivesites. The Government would, by June 30, 1979, appoint qualified and experi-enced staff as follows: (i) a Project Coordinator, (ii) a Regional ProjectCoordinator, (iii) a Site Manager for each of the implementing agencies ateach of the project sites. It would also designate a Liaison Officer foreach of the implementing agencies in Jakarta and at field project headquarters.The Association would be afforded an opportunity to comment on the quali-fications and experience of the Project Coordinator prior to that appointment(Section 3.12 (i), (ii) and (iii) of the draft Development Credit Agreement).Candidates for most of these appointments have already been identified. TheGovernment would cause each participating agency to submit to the Association,by June 30, 1980, for review and comment a detailed plan of its operationsand responsibilities under the project (Section 3.10 of the draft DevelopmentCredit Agreement).

62. The proposed project would provide for the training of JMT, DGT, DGH,DGFCA, DGLS, and DGA personnel to upgrade their capability in implementingthis project as well as future projects in the transmigration program.

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Implementation

63. The Overseas Development Ministry of the UK (ODM) has investigatedand surveyed four of the project sites and produced maps at 1:40,000 scale onland use, soils, slope associations, timber resources and recommended landuse. ODM has also prepared outline development plans for these projectsites. Using this work as a basis, local consultants under DGH's supervisionare preparing detailed site plans, implementation schedules and biddingdocuments for the four proposed sites.

64. The project would be implemented from mid-1979 to March 1985.Land clearing and road construction for the first phase of the settlementunits (about 9,000 ha each) are expected to begin in early 1980. Landclearing operations and village center and settler housing construction wouldbe carried out over a four and a-half year period, ending in December 1984.The proposed sites for roads, village centers and seed farms would be clearedfirst. The construction of roads, infrastructure for agricultural supportservices, community facilities and housing for transmigrant families wouldfollow sequentially, with the last housing unit expected to be completed byDecember 1984. Transmigrant families would begin to arrive on site inOctober 1980, and would all be settled by March 1985. Beginning in October1980 and finishing in March 1985, fertilizers and pesticides would be suppliedto the transmigrants under the project during the first three years aftertheir arrival on site.

Agricultural Production

65. The project would make rainfed agricultural production possibleon 36,000 ha by clearing presently forested areas and providing extensionservices, seeds, fertilizer, pesticides, plant protection services, anddrying, processing and storage facilities and services. Of this area, trans-migrant families would farm 30,000 ha to annual food crops and 6,000 ha togardens of vegetables, fruit trees and perennial tree crops. By also provid-ing the existing settlers with agricultural supporting services for the areasthey are already farming (1.2 ha/family), the project would increase agricul-tural production on an additional 4,800 ha of rainfed land. Crops grownwould include paddy, corn, cassava and leguminous cash crops such as soybeans,peanuts, ricebean and cowpeas. At full agricultural development, estimatedannual aggregate crop production in the project area would be: paddy, 58,000tons; corn, 27,000 tons; cassava, 163,000 tons; and leguminous cash crops,14,000 tons.

Cost Recovery

66. In accordance with Government policy, project beneficiaries wouldpay no taxes or direct project charges until DGT transfers administration ofthe settlements to the Provincial Government, around the start of year seven.Project farmers would then pay a land tax (IPEDA). Since the land tax isassessed as a percentage of the value of farm production, the amounts collectedwould increase as crop yields rise in response to the project. At fullagricultural development in the project areas, IPEDA would reach an estimated$14.40/ha.

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67. In determining the extent of cost recovery and the relation ofproject charges to benefits, cost and rent recovery indices have been calcu-lated. The cost recovery index is 5%, and the rent recovery index is 17%.These recovery rates, which are low by comparison with other agriculturalprojects in Indonesia, are acceptable in view of the inherent risk and hardshipassociated with the project. In addition, they are acceptable because even atfull development farm incomes are only expected to be about 20% of theestimated per capita GNP at that time, and because higher recovery rateswould require higher incomes, which in turn would require higher Governmentinvestments, and would thus be self-defeating. A higher recovery rate wouldbe feasible, however, from investments associated with development of thebalance of the transmigrants' holding.

Benefits and Justification

68. The project would create 30,000 new farms and associated settle-ments in Jambi province. It would make upland food crop production possibleon 36,000 ha, and increase crop yields and production on another 4,800 hagrowing upland crops and gardens. It would directly benefit some 34,000farm families or 170,000 people, and by creating potential employmentopportunities in other sectors to service the agricultural settlements,indirectly benefit at least another 17,000 families. Project constructionwould provide considerable employment opportunities to the settlers. Forexample, land clearing operations would need some 1.5 million man-days (or6,200 man-years) of unskilled labor. Farming operations would require anadditional 10.5 million man-days (or 44,000 man-years) of labor annually.Additionally, most of the jobs the project would create can be considerednew jobs since, in their areas of origin in Java and Bali, the transmigrantswere doing work of low productivity and their leaving the labor force wouldnot greatly reduce local production. Service jobs, such as those in adminis-tration and health, are unlikely to be reduced because the transmigrantsleave an area.

69. This project would serve as a nucleus for further development throughthe attraction of spontaneous transmigrants and as a center for private andfurther Government investment, and would enlarge and enhance services availableto the existing population. It would help reduce crowded conditions in thetransmigrants' home areas, and would support the Government's policies ofincreasing domestic food production, employment, and the moving towardsself-sufficiency in rice production, thus reducing foodgrain imports.

70. Under the project, the cost of site preparation, community develop-ment and resettlement is $4,250 per family. This cost is in constant mid-1979prices, and excludes price contingencies and costs attributed to nationalprograms and the preparation of future projects. This can be compared with$6,600 ($5,000 in early-1976 prices) per family for similar items underthe Transmigration I project.

71. The economic rate of return for the project is 12%. This rate wastested in regard to its sensitivity to fluctuations of a number of keyvariables. The analysis indicates that the rate of return is only moderatelysensitive to an increase in project costs, but is quite sensitive to a

- 24 -

decrease in total benefits or a delay in the commencement of benefits.However, it is of interest that paddy yields, the most important crop to beproduced, could fall by 20% and the project would still have a 10% economicrate of return.

72. Project beneficiaries would mainly be landless or near-landlesslaborers with incomes in the three lowest income percentiles and below thecritical consumption level. At full project development, per capita incomeswould have increased from an estimated $35 at present to $125.

Risks

73. The major risks pertaining to the proposed project are environmentaland organizational. These risks are discussed briefly below.

74. Environmental. Most of the potential environmental risks associatedwith the introduction of food crops relate to the land clearing phase andsubsequent erosion hazards. Without proper precaution, the sudden removal ofthe tree canopy and exposure of the soils to the heavy rainfall could easilylead to denudation of these fragile soils. Several precautionary measureshave been introduced to safeguard against such a development. First, allsites have been carefully surveyed and mapped, and land clearing limited to0-8% slope for food crops and 8-15% for tree crops. All steeper areas wouldbe left in forest. Second, on food cropping areas, intermittent contourguidelines of grass and trees would be established, and farmers would cultivateand plant their crops on the contour. Third, farmers would be supplied withfertilizers at reduced prices for the first three years; this, along with anintensive extension effort, should ensure that they will maintain a cover cropon their land throughout the year, thereby reducing the danger of soil erosion.

75. Organizational. While arrangements have been made under the projectfor proper land clearing and the supply of inputs and supporting services, andthe Presidential Decree of August 1978 has established a framework for closercoordination among the implementing agencies, the new system has yet to befully tested under operation. Failure on the part of the project managementto coordinate the activities of the different agencies and to provide thesettlers with adequate and timely farm inputs and supporting services couldeasily lead to a substantial reduction in agricultural production and farmincomes. Although the danger of such a failure is real, the phasing ofsettlement activities under the project, the heavy input of Governmentstaff and consultants, the advanced stage of project preparation, and theGovernment's strong commitment to the transmigration program should helpminimize the risk.

PART V - LEGAL INSTRUIENTS AND AUTHORITY

76. The draft Loan Agreement between the Republic of Indonesia andthe Bank, the draft Development Credit Agreement between the Republic ofIndonesia and the Association, the Report of the Committee provided for in

- 25 -

Article III, Section 4 (iii) of the Articles of Agreement of the Bank, the

Recommendation of the Committee provided for in Article V, Section 1 (d) of

the Articles of Agreement of the Association, and the draft Special Action

Credit Agreement between the Republic of Indonesia and the Administrator of

the Special Action Account are being distributed to the Executive Directors

separately.

77. Special conditions of the project are listed in Section III of

Annex III.

78. I am satisfied that the proposed loan and credit would comply with

the Articles of Agreement of the Bank and Association, respectively, and that

the Special Action Credit would comply with the Agreement between the EEC and

its Member States and Association.

PART VI - RECOMMENDATION

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

and credits.

Robert S. McNamaraPresident

by I. P. M. Cargill

AttachmentsWashington, D.C.

May 14, 1979

ANNEX I

- 26 - Page 1 of 5

INDONESIA - SOCIAL INDICATORS DATA SHEET

REFERENCE GROUPS (ADJUSTED AVERAGESINDONESIA /a

LAND AREA (THOUSAND SQ. EM.) - MOST RECENT ESTIMATE)TOTAL 1904.3 SAME SAMIE NEXT HIGIERAGRICULTURAL 283.8 MOST RECENT GEOGRAPHIC INCOME INCOME

1960 lb 1970 /b ESTIMATE /b REGION Ic GROUP /d GROUP /e

GNP PER CAPITA (US$) 70.0 140.0 300.0 616.0 182.9 432.3

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

POPULATION AND VITAL STATISTICSTOTAL P(iPULATION, MID-YEAR

(!I lIU IONS) 94.7 117.6 133.5URBAN POPULATION (PERCENT OF TOTAL) 14.9 17.5 17.9 30.1 15.0 24.2

POPULATION DFNSITYPER SQ. KM. 50.0 62.0 70.0 156.8 46.8 42.7PER SQ. KM. AGRICULTURAL LAND 337.0 419.0 470.0 794.8 254.1 95.0

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

15-64 YRS. 55.3 /f 53.5 55.1 55.4 53.3 52.865 YRS. AND ABOVE 2.6 If 2.5 2.8 3.2 2.9 3.0

PO'ULATION GROWTH RATE (PERCENT)l'OTAL 2.1 2.0 2.0 2.3 2.4 2.7.RBAN .. 3.7 /R 2.6 5.1 4.0 8.8

CRl0DE BIRTH RATE (PER THOUSAND) 46.0 45.9 40.3 34.6 44.3 42.2CRUDE DEATH RATE (PER THOUSAND) 25.4 20.6 19.9 8.7 19.7 12.4GROSS REPRODUCTION RATE 2.8 3.2 2.5 2.6 2.9 3.2FAMILY PLANNING

ACCEPTORS, ANNUAL (THOUSANDS) .. 181.1 1979.0USERS (PERCENT OF MARRIED WOMEN) .. 0.2 13.7 22.1 14.6 14.2

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

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

PER CAPITA SUPPLY OFCALORIES (PERCENT OF

REQUIREMENTS) 39.0 91.0 98.0 108.7 92.3 99.5PROTEINS (GRAMS PER DAY) 43.0 43.0 43.8 57.7 50.0 56.8

OF WIICH ANIMAL AND PULSE 15.0 /h 14.0 16.6 17.0 13.9 17.5

C'ILD (AGES 1-4) MORTALITY RATE .. .. .. 4.0 .. 7.5

HEA' THLIFE EXPECTANCY AT BIRTH (YEARS) 47.5 45.0 45.3 59.0 45.8 53.3INFANT MORTALITY RATE (PERTHOUSAND) 125.0 /f,i .. 116.0 44.0 102.7 82.5

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TOTAL .. 3.0 11.0 21.9 26.4 31.1URBAN .. 10.0 41.0 58.3 63.5 68.5RURAL .. 1.0 4.0 9.8 14.1 18.2

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. 12.0 15.0 28.6 16.1 37.5URBAN .. 50.0 60.0 66.6 65.9 69.5RURAL .. 4.0 5.0 14.8 3.4 25.4

POPULATION PER PHYSICIAN 41380.0 /t 26830.0 16930.0 4103.1 13432.7 9359.2POPULATION PER NURSING PERSON .. 7770.0 jj 7310.0 / 1520.2 6983.3 2762.5POPULATION PER HOSPITAL BED

TOTAL 1370.0 1670.0 1430.0 657.1 1157.6 786.5URBAN .. 1130.0 .. 145.5 183.3 278.4RURAL .. 1890.0 .. 1011.8 1348.8 1358.4

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

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL 4.4 4.8 .. 5.2 5.2URBAN 4.9 5.3 .. 5.2 4.8

RURAL 4.3 4.7 .. 5.4 5.3

AVERAGE NUMBER OF PERSONS PER ROOMTOTAL .. 1.5 ..

URBAN .. 1.6 .. .. 1.8 2.3

RURAL .. 1.6 ..

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL .. _, .. 39.1 25.9 28.3

URBAN .. ..

RURAL .. .. .. 8.7 10.3

ANNEX I- 27 - Page 2 of 5

INDONESIA - SOCIAL INDICATORS DATA SHEET

REFERENCE GROUPS (ADJUSTED AVERAGESINDONESIA /a

- MOST RECENT ESTIMATE)SAME SAME NEXT HIGHER

MOST RECENT GEOGRAPHIC INCOME INCOME1960 /b 1970 lb ESTIMATE /b REGION /c GROUP /d GROUP /e

EDUCAT IONADJUSTED ENROLLMENT RATIOS

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

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

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

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

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

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION 1.0 2.0 3.0 9.3 3.1 7.2RADIO RECEIVERS PER THOUSAND

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

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

EMPLOYMENTTOTAL LABOR FORCE (THOUSANDS) 34600.0 44200.0 48430.0 /1

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

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

ECONOMIC DEPENDENCY RATIO 1.4 1.3 1.2 1.2 1.3 1.3

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

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

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

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

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

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

ESTIMATED POPULATION BELOW POVERTYINCOME LEVEL (PERCENT)

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

Not availableNot applicable.

NOTES

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

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

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

September 1978

- 28 - ANNEX IDEFINITIONS OF SOCIAL INDICATORS Page 3 of 5

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

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

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

care are not included. Rural hospitals, however, isclude he-th and - --lNP PFR CAPITA (USS) - GNP per capita estimates at current narket prices, cal centers not permanently staffed by a physician (but by a medical an-

calculated by same conversion method as World bank Atlas (1975-77 basis); sistant, nurse, midwife, etc.) which offer in-patiest accommodation and1961, 1970, and 1977 data. provide a limited range of medical facilities.

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

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

Average size of household (persons per household) - total, urban. and rural-fOPTLLTIDN AND VITAL SiATISTICS A household consists of a group of individuals who share living quartersTotal population, mid--ear (millions) - As Of July 1; if not available, and their main meals. A boarder or lodger may or may nor be included in

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

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

Foyulation density dwellings, respectively. Dwellings exclude non-permanent structures andPer sq. Iky. - Mid-year population per square kiloneter (100 hectares) unoccupied parts.oi totol area Access to electricity (percent of dwellings) - total, urban, and rural -

Per so. k.t agriculture lind - Computed as above for agrioultural land Conventional dwellings with electricity in liviog quarters as percentageonly. of total, urban, and rural dwellings respectively.

Population ago structure (percent) - Children (0-14 years), working-age(15-64 yearn), and retired (hi years and over) as percentages of mid- EDUCATIONyear population. Adjusted enrollment ratios

Population growth rate (percent) - total, and urban - Compound annual Primary school - total, and female - Total and female enrollment of all agesgrowth rates of total and urban mid-year populations for 1950-60, at the primary level as percentages of respectively primary school-aRe1960-70, and 1970-75. populations; normally includes children aged 6-11 years but adjusted for

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

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

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

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

Family pla-ing - users (percent of arried women) - Percentage of sponding levels.married women of child-bearing age (15-44 years) who use birth-control Adult literacy rate (percent) - Literate adults (able to read and write) usdevices to all married women in same age group. a percentage of total adult populatios aged 15 years and over.

FOOD ANI NUTRITION CONSUMPTIONInden of food production per capita (1970-100) - Index number of per Passenger cars (per thousand population) - Passenger cars comprise motor cars

capita annual production of all food commodities. seating less than eight persons; excludes ambulances, hearses and militaryPer capita supply of calories (percent of requirements) - Computed from vehicle.

energy equivalent of net food supplies available in country per capita Radio receivers (per thousand population) - All types of receivers for radioper day. Available supplies comprise domestic production, imports less broadcasts to general public per thousand of population; escludes unlicensedexports, and changes in stock. Net supplies exclude animal feed, seeds, receivers in countries and in years when registration of radio sets was inq.uantities used is food processing, and losses in distribution. Re- effect; data for recent years may not be comparable since most countriesqaireenOts were estimated by FAO based on physiological needs for nor- abolished lic-nsing.sal actioity and health considering environmental temperature, body TV receivers (per thousand population) - TV receivers for broadcast to generaiweights, age and sex distributions of population, and allowing 10 per- public per thousand population; excludes unlicensed TV receivers in coon-cent for waste at household level. tries and in years when registration of TV sets was in effect.

Per capita supply of protein (grams per day) - Protein content of per Newspaper circulation (per thousand population) - Shows the average circula-capita net supply of ood per day. Net supply of food is defined as tion of "daily general interest newspaper", defined as a periodical publi-above. Requirements for all countries established by USDA provide far cation devoted primarily to recording general news. It is considered toa minimum allowance of 60 grams of total protein per day and 20 grams be "daily" if it appears at least four times a week.of animal and pulse protein, of which 10 grams should be animal protein. Cinema annual attendance per capita per year - Based on the number of ticketsThese strodards are lower than those of 75 grams of total protein and sold during the year, including admissions to drive-in cinemas and mobile23 grams of animal protein as an average for the world, proposed by units.FAO in she Third World Food Survey.

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

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

Female (percent) - Female labor force as percentage of total labor force.HEALTH Agriculture (percent) - Labor force in farming, forestry, hunting and fishingL.ife copecta-cy at birth (years) - Average number of years of life as percentage of total labor force.

remaining at birth; usually five-year averages ending in 1960, 1970, Industry (percent) - Labor force in mining, construction, manufacturing andand 19}1. electricity, water and gas as percentage of total labor forc.

Infant mortality rate (per thousand) - Annual deaths of infants under Participation rate (percent) - total, male, and female - Total, male, andone year of age per thousand live birbts. female labor force as percentages of their respecti-e population.

Access to safe water (percent of population) - total, urban, and rural - Chese are ILDIs adiusted partieipation rates refl-ctirg age-tseNumber of people (total, urban, and rural) with reasonable access to str-cture of the populati-n. ond long tine trend.safe vater supply (includes treated surface waters or untreated but Economic dependency ratio - Ratio of populatior coder 15 urd 65 and over tcunonrtamnaoted water such as that from protected boreholes, springs, the labor force in age group of 15-64 vears.and sanitary wells) as percentages of their respective populations.In an urban area a public fountain or standpost located not more INCOME DISTRIBUTIONthan 200 oeters from a house may be considered as being within rea- Percentage of private income (both in cash and kind) received by richest Ss-oable access of that house. In ruIal areas reasonable access would percent, richest 20 percent, poorest 20 percent, and poorest 40 p-entimply that the housewife or members of the household do not have to of households.spend a disproportionate part of the day in fetching the family'swater needs. POVERTY TARGET GROIUPS

Accnss to excreta disposal (percent of population) - total, urban, and Estimated absolute poverty iscome level (US$ per capita) - urban and rota_ -rural - Nunber of pe-ple (total, urban, and rural) served by excrete Absolute poverty income level is that income level below which a minimal

disposal as percentages of their respective populations. Excreta nutritionally adequate diot plot essential non-food requirements is nrcdisposal nay include the collection and disposal, with or without affordable.troa-tnsl, of human escreta and waste-water by water-borne systems Estimated relative povertv income level (US$ per capita) - urban and rural -c- the use of pit privies and similar installations. Relative poverty income level is that income level less than one-third

Fopulation per physician - Population divided by number of practicing per capita personal income of the country.physicians qualified from a medical school at university level. Estimated population below poverty income level (perceot) - urban and rural -

Pqpulation per nursing person - Population divided by number of Percent of population (urban and rural) who are either "absolute poor" orpracticing male and female graduate nurses, practical nurses, and "relative poor" whichever is greater.as-ista-t curses.

Economic and Social Data DivisionEcPnomic Analysis and Projections Department

- 29 - ANNEX IPage 4 of 5

ECONOMIC INDICATORS

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

US$ Mln. % l960-65 1965-70 1971-77

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

OUTPUT, LABOR FORCE ANDPRODUCTIVITY IN 1976

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

US$ Mln. % Min. ES$ __

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

Total/Average I ,37;339 100.0 56.4 lOO O 662 - 00.0

GOVER1NENT FllA1NCECENTRAL GOVERNITNT

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

Current Receipts 2,877 3,535 - 18.6 18.6Current Expenditure 1,610 2,149 10.4 11.3Current Surplus 1,26.7 1,387 8.2 7.3Capital Expenditures 2,044 2,157 13.2 11.3External Assistance (net) 784 773 5.0 4.0

MIONEY, CREDIT and PRICES 1972 1973 1974 1975 1976 1977(Tfillion Rp outstanding end periodT

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

(Percentages or Index Numbers-)

Money and Quasi Moniey as % of GDP 15.2 14.6 14.8 16.3 17.0 16.5General Price Index (1966 = 100) 807 1;028- 1,370 1,640 1,873 2,094

Annual percentage changes in:General Price Index 25.7 27.4 33.3 19.7 14.2 11.8Bank credit to Public Sector -14.0 18.6 36.6 473.7 6.2 -17.7Bank credit to Private Sector 65.3 77.9 . 27.2 16.0 26.2 18.8

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

1/ Conversion at an exchange rate of Rp 415 - US$121 Total labor force; unenployed are allocatei to sector of their normal occupation. "UnallocatedJ' consists

mainly of unemployed wrkers seeking their first job.

not ayailablenot applicable

East Asia & Pacific Programs

February 28, 1979

- 30 - ~~~~~~ANNEX I

-30 - Page 5

TRADE, PAYHENTS AND CAPITAL FLOWS

BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1974-76)

1975 1976 1977(Provisional) US $ Mln %(Millions US $)

Exports: 4,738 6,183 7,592 Oil 2,906 57.1Oil (net) 2,921 3,567 4,243 Timber 605 11.9Non oil 1,817 2,216 3,349 Rubber 461 9.1

Imports -5,533 -6,352 -7,489 Palm Oil 117 2.3Resource Gap - 795 - 169 103 Tin 107 2. 1

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

Balance on Current Account -1,257 - 8T3 - = Total 5,9 100,0

Direct Foreign Investment 497 329 286 EXTERNAL DEBT, DECEMBER 31. 1977Net MLT Borrowing

Disbursements 2,395 2,327 1,988 US $ MlnAmortization - 322 - 625 - 826

Subtotal 2,073 1,702 1,162 Public Debt, incl. guaranteed 11,391Capital Grants Non-Guaranteed Private DebtOther Capital (net) -2,250 - 205 ) 74 Total outstanding & DisbursedOther items n.e.i - 46 - 604 ) - I/ 2Increase in Reserves (+) - 983 736 1,197 DEBT SERVICE PATIO for 197- -/

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

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

Imports 93 119 28of which: Petroleum 89 114 26

Exportsof which: Petroleum 2,921 3,567 4,243 IBRD/IDA LENDING,(March 31, 1979)(Million US

'ATE OF EXCHANGE IBRD IDA

2/ Outstanding & Disb~ursed 616.4 454.1Thru1.00 -Au. 1971 Since - 1971U Undisbursed 1,286.6 185.6TJS Sl.00 =Rp 375 us $ 1.00= Rp 415 Outstanding incl. Ulndisbursed 1,903.0 679.7Rp 1000 =US $2.67 Rp 1000 =US $2.41

l/ Ratio of Debt Service to Exports of Goods and Non-Factor Services, with oil exports on a net basis(i.e. excluding factor payments and imports of the oil companies).

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

not available

not applicable

East Asia & Pacific ProgramsMarch 31, 1979

- 31 - ANNEX IIPage 1 of 20 pages

THE STATUS OF BANK GROUP OPERATIONS IN INDONESIA

A. STATEMFNT OF BANK LOANS AND IDA CREDITS (as of March 31, 1979)

US$ million

Loan/ AmountCredit Fiscal (less cancellations)Number Year Purpose Bank IDA UJndishursed

One Loan and seventeen Credits fully disbursed 50.0 228.1 -

220 1971 Third Irrigation Rehabilitation 14.5 0.2259 1971 Tea 15.0 0.6260 1971 Second Highway 34.0 0.2289 1972 Fourth Irrigation Rehabilitation 12.5 0.2300 1972 Population 13.2 3.0318 1972 Inter-Island Fleet Rehabilitation 8.5 1.8319 1972 Fourth Agriculltural Estates 11.0 2.0355 1973 Beef Cattle Development 3.6 0.2358 1973 North Sumatra Smallholder Development 5.0 0.8387 1973 Third Education 13.5 4.7388 1973 Third Highway 14.0 0.1399 1973 West Java Thermal Power 46.0 3.7400 1973 Smallholder and Private Estate Tea 7.8 6.3405 1973 Sugar Industry Rehabilitation 50.0 0.8428 1974 Pulo Gadung Industrial Estate 16.5 10.1436 1974 Private Development Finance Co. of

Indonesia (PDFCI) 10.0 0.7451 1974 Fourth Technical Assistance 5.0 1.9479 1974 Bali Tourism 16.0 10.4480 1974 Fisheries Credit 6.5 1.9514 1q75 Jatiluhur Irrigation Extension 30.0 22.4785 1978 Small Enterprise Development Project 40.0 34.5827 1978 Rural Credit 30.0 30.0869 1979 Polytechnic /a 49.0 49.0

1005 1974 Railway 48.0 3.91040 1975 Jakarta UJrban Development 25.0 2.51049 1975 Five Cities Water Supply 14.5 8.41089 1975 Second Fertilizer Expansion 115.0 1.31100 1975 Sixth Irrigation 65.0 49.01127 1975 Fourth Power 41.0 3.81139 1976 Fertilizer Distribution 68.0 1.11179 1976 Agricultural Research & Extension 21.5 18.41197 1976 National Resource Survey & Mapping 13.0 8.51236 1976 Fourth Highway 130.0 98.4

/a Not yet effective.

- 32 - ANNEX II

Page 2 of 20 pages

US$ millionLoan/ Amount

Credit Fiscal (less cancellations)

Number Year Purpose Bank IDA Undisbursed

1237 1976 Fourth Education 37.0 30.9

1250 1976 Second Shipping 54.0 46.6

1254 1976 Third Fertilizer Expansion 70.0 13.5

1259 1976 Fifth Power 90.0 72.9

1267 1976 National Food Crops Extension 22.0 15.5

1268 1976 Seventh Irrigation 33.0 21.0

1318 1977 Transmigration and RuralDevelopment 30.0 22.5

1336 1977 Second Urban Development 52.5 21.9

1337 1977 Tanjung Priok Port 32.0 22.9

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

1365 1977 Sixth Power 116.0 84.8

1373 1977 Nutrition Development 13.0 12.9

1433 1977 Teacher Training-Fifth Education 19.0 17.8

1434 1977 Eighth Irrigation 63.0 61.1

1435 1977 Ninth Irrigation 35.0 31.0

1437 1977 Development Finance Co.(BAPINDO III) 40.0 26.6

1472 1977 Second Population 24.5 23.3

1486 1978 Non-Formal Education 15.0 14.2

1499 1978 Nucleus Estates and Smallholders I 65.0 60.4

1513 1978 Seventh Power 109.0 108.4

S 009 1978 Bukit Asam Coal Mining and TransportEngineering 10.0 8.7

1578 1978 Tenth Irrigation 140.0 137.0

1579 1978 Eleventh Irrigation 31.0 29.0

1604 1978 Nucleus Estates and Smallholders II 65.0 65.0

1645 1979 Irrigation XII /a 77.0 77.0

1653 1979 Third Urban Development /a 54.0 54.0

Total 1,903.0 679.7 1,472.2

of which has been repaid 16.7 0.0

Total now outstanding 1,886.3 679.7

Amount sold 28.1 0.0

Total now held by Bank and IDA /b 1,858.2 679.7

Total undisbursed 1,286.6 185.6 1,472.2

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

- 33 - ANNEX II

Page 3 of 20 pages

B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1979)

Fiscal Type of US$ millionYear Obligor business Loan Equity Total

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

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

Manuf. Corp. Textiles 4.5 1.5 6.61973 P.T. Jakarta Int. Hotel Tourism 11.0 - 11.0-1973 P.T. Semen Cibinong Cement 5.4 0.7 6.11974 P.T. Primatexco

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

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

Total 50.8 10.5 61.3

Less: sold or repaid and cancelled 29.7 1.8 31.5

Total held by IFC 21.1 8.7 29.8

Undisbursed (including participant's portion) - - -

- 34 - ANNEX II

Page 4 of 20 pages

C. PROJECTS IN EXECUTION /1

These notes are arranged by sectors in the following order:

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

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

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

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

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

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

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

Population and Nutrition

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

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

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

Tourism (Cr. 479) 19

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

Water Supply (Ln. 1049) 20

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

/2 Not yet effective.

ANNEX 1IPage 5 of 20 pages

C. PROJECTS IN EXECUTION

ACRI CULTURE

Irrigation

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

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

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

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

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

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

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

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

- 36 - ANNEX IIPage 6 of 20 pages

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

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

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

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

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

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

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

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

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

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

Other Agriculture Production

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

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

- 37 - ANNEX II

Page 7 of 20 pages

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

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

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

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

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

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

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

- 38 - ANNEX IIPage 8 of 20 pages

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

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

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

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

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

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

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

- 39 - ANNEX IIPage 9 of 20 pages

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

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

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

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

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

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

This loan has recently become effective.

Agriculture Support Services

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

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

- 40 - ANNEX IIPage 10 of 20 pages

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

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

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

AGRO-BUSINESS AND CREDIT

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

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

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

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

- 41 - ANNEX IIPage 11 of 20 pages

EDUCATION

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

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

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

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

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

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

-42 - ANNEX II

Page 12 of 20 pages

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

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

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

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

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

ENERGY

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

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

- 43 - ANNEX IIPage 13 of 20 pages

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

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

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

All equipment required for the project is scheduled to be procuredin three lots. Nearly 75% of the equipment which was covered by Lot 1(valued at $13.6 million) has been received; orders for equipment covered byLot 2, (amounting to $32.4 million) are now being placed. The projectsuffered an initial setback of about one year in procurement action but isnow progressing satisfactorily. It is expected that loan disbursements willbe completed prior to the Closing Date.

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

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

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

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

- 44 - ANNEX IIPage 14 of 20 pages

INDUSTRIAL DEVELOPMENT AND FINANCE

Fertilizer Production

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

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

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

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

Industrial Estates

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

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

-45 - ANNEX IIPage 15 of 20 pages

Development Finance Companies

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

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

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

This Credit is fully committed.

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

The project is proceeding satisfactorily.

Coal Mining

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

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

POPULATION AND NUTRITION

Population

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

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

- 46 - ANNEX IIPage 16 of 20 pages

the decline. The report of the consultant engaged to determine the needs for

in-house computer facilities for the National Family Planning CoordinationBoard (NFPCB) is now being evaluated. Of the construction component, theremaining two paramedical training schools are scheduled to be completed by

August 1979. No completion date has yet been estimated for one provincialoffice building, which was destroyed by fire in September when it was half

completed. Other project activities which remain to be completed, includingthe fellowship training program and several research studies, will also becompleted by August 1979.

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

Considerable progress has been made on the civil works and procure-

ment aspects of the project. Of the 21 facilities, contracts have been

awarded for 20, and design drawings for the remaining building approved. Theprovincial offices and training centers are scheduled to be completed bySeptember 1979, and the National Family Planning Training Center (NFPTC) by

May 1980. Development of the national population education program and thenational family planning training program is proceeding well.

Nutrition

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

Initial progress under the project is satisfactory. The Nutrition

Intervention Pilot Project, the anemia control and home gardens components,as well as the fellowships program, are proceeding with minor delays. The

Nutrition Academy has increased its student enrollment from 100 to 160, and

48 graduates are expected this year, compared with 25 prior to project start.

Construction of the Nutrition Academy was completed in February 1979. TheFood Technology Development Center is about 50% completed, and the Center forResearch and Development in Nutrition about 63%. While monitoring andevaluation units for each component have been operational for six months, thecentral monitoring and evaluation unit of the Project Secretariat is juststarting to be staffed.

TECHNICAL ASSISTANCE

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

Progress under the project is satisfactory and the bulk of the

funds have been committed.

- 47 - ANNEX IIPage 17 of 20 pages

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

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

TRANSPORTATION

Fertilizer Distribution

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

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

Highways

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

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

- 48 - ANNEX II

Page 18 of 20 pages

Marine Transport

Credit No. 318 Inter-Island Fleet Rehabilitation: US$8.5 MillionCredit of June 28, 1972; Effective Date: October 19,1972; Closing Date: December 31, 1979.

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

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

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

Ports

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

Slow progress on the construction of Government-financed workshas delayed construction of the first component, but progress is being madeand these works are scheduled for completion in July 1979. The first construc-tion contract for Basin III back up facilities has been awarded and work isunderway. The regional berths component has been delayed by slow withdrawalof the Army, which was using the site for storage. However, 90% of the landhas now been released, the old buildings are being demolished, and a contractfor the new works has recently been awarded. These delays will probablypostpone overall completion of the project to mid-1981; it is too early toestimate the full effect of delays on project cost. The Government intendsto establish statutory agencies (PERUMS) during 1979 for ports and dredgingfunctions which are currently administered by government departments.

Railways

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

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

- 49 - ANNEX II

Page 19 of 20 pages

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

TOURISM

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

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

URBAN DEVELOPMENT

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

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

- 50 - ANNEX IIPage 20 of 20 pages

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

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

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

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

WATER SUPPLY

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

Due to administrative and managerial problems the project is nowrunning 24 months behind schedule. This delay, together with higher rates ofinflation than anticipated, is expected to increase project costs about 30%above the appraisal estimate. Detailed engineering and preparation of tenderdocuments have been completed, and contracts for all equipment and for majorcivil works have been signed. The project has reached the constructionphase. The reorganization of the Directorate of Sanitary Engineering hasbeen completed, and the establishment and development of local water enter-prises is proceeding satisfactorily. In September 1978, the Governmentissued an interministerial decree defining relationships between the variousMinistries and the Water Enterprises, which is expected to expedite currentand future projects in the sector.

- 51 - ANNEX III

INDONESIA

TRANSMIGRATION II PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events

(a) Time taken to prepare project: 2 years

(b) Agency which prepared the project: Directorate-General of Trans-migration (DGT) in the Ministry of Transmigration and Manpowerand Directorate-General of Highways (DGH) in the "linistry ofPublic W4orks, using consultant assistance.

(c) First presentation to Bank: Late 1976

(d) First Bank mission to prepare project: Early 1977

(e) Dates of departure of appraisal mission: February and July 1978

(f) Date of completion of negotiations: April 17, 1979

(g) Planned date of effectiveness: September, 1979

Section II: Special Bank Implementation Actions

None.

Section III: Special Conditions

(i) The Government would submit to the Association for review andcomment by December 31, 1980, a plan for agricultural and otherdevelopment of the 2.25 ha per family remaining after initialclearance of 1.25 ha per family. The Government would minimizefragmentation of the 2 ha per family allocated to the house lotand food crops (para. 52).

(ii) The Government would ensure that participating farmers on thenew sites receive specified agricultural inputs during their

first year of settlement and, in the event of crop failure or othercircumstances beyond the farmers' control, would also provide riceand other essential commodities during their second year aftersettlement (para. 51).

(iii) The Government would ensure that each new settler under the project

would receive legal rights to land use for his house lot and1.75 of other land within one year after arrival on site, and to the

remaining 1.50 within two years after his arrival, and would beaccorded full land ownership to all 3.5 ha within 5 years afterarrival on site (para. 52).

- 52 - ANNX IIIPage 2

(iv) The Government would cause each agency participating under theproject to submit to the Association by June 30, 1980, for reviewand comment a detailed plan of operation indicating how it willhandle its responsibilities and duties under the project (para. 61).

(v) By June 30, 1979, suitably qualified individuals would be appointedas Project Coordinator, Regional Project Coordinator, Site Managersfor each of the implementing agencies, and a Liaison Officerwould be designated for each of the implementing agencies inJakarta and at field project headquarters. The Association wouldbe given an opportunity to comment upon the qualifications of theProject Manager before that appointment (para. 61).

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