INDONESIA Country Partnership

Framework 2016-2020

WHO WE ARE

Established in 1944.Headquartered in Washington D.C.

The World Bank

Group comprises five

institutions managed

by their 188 member

countries

We have more than 10,000 employees in more than120 offices worldwide

OUR GOALS

SIX DECADES of PARTNERSHIP

World Bank President

Robert McNamara

opens first decentralized Bank

office in Jakarta. Bank

provides first IDA credit

of $5 million for

irrigation project

NutritionIntervention PilotProject establishes

800 nutritioncenters On visit to Indonesia,

World Bank PresidentWolfensohn urgesPresident Soehartoto address growing

governance andcorruption issues

Followingthe 1997 Asia Crisis,

the Bank re-shiftsIndonesia program,

with a modest portfolioand a focus on tackling

corruption andCommunity

development

World Bankextends $250 millionfund for EmergencyReconstruction to

Indonesia, Sri Lanka,the Maldives,post tsunami

tragedy

Banksupports expansion

of PNPM to anational community

development program, reaching65,000villages

Respondingto the global financialcrisis, the Bank leads a$5.5 billion rainy-dayfund from the ADB,

Japan and Australia

INDONESIA’S POTENTIAL

CURRENT PORTFOLIO OF IBRD INVESTMENTS

• US$ 6,740 million, including major Trust Funds and Contingency Financing.

• 25 Projects in the following sectors:

6

ONGOING IBRD OPERATIONS

7

*) Blended IDA+IBRD project

No. Sector Project Name Amount (in

$m)

1 PNPM Urban 2012 - 2015 266

2 PNPM Rural 2012 - 2015 650

3 Ind. Infrastructure Guarantee Fund 30

4 Local Government DAK + AF. 720

5 Jakarta Urgent Flood Mitigation Project 140

6Education & Health Research and Innovation in Science and Technology Project 95

7 Power Transmission Development 225

8 Power Transmission Development II 325

9 Upper Cisokan Pumped Storage 640

10 Geothermal Clean Energy Investment 175

11 Government FM n Revenue Adm. Proj. *) 55

12 Scholarship SPIRIT 113

13 Statistical STATCAP CERDAS 47

14 Transport Western Indonesia National Roads 250

15 Environment & Natural

Resources

Coral Reef Rehabilitation and Mgt. Program Phase III + GEF

57

16 Dam Operational DOISP 50

17 Third WSSLIC + AF. *) 246

18 Water Resources WISMP 2 150

19 Sustainable Mgt of Agricultural Research and Technology

Dissemnination

80

20 Finance & Markets Infrastructure Finance Facility IIFF 100

21 Macroeconomics & Fiscal

MgtPERISAI DPL DDO 2,000

Social, Urban and Rural

Energy & Extractives

Governance

Water & Agriculture

IFC INVESTMENTS

• Between FY06 -FY15, IFC Indonesia committed over US$4.2 billion in 80 projects (of which US$1.5 billion is mobilization).

• Total portfolio = approx. US$2.24 billion in 31 clients, as of June 2015.

IFC investments include:• Financial markets• Chemicals• electric power• food and beverages• agriculture and forestry • oil, gas & mining• utilities• plastics & rubber• transportation & warehousing• construction & real estate• manufacturing and education

sectors. .

Advisory Activities include for:• corporate governance • sustainable financing (green

banking)• agri-financing• forestry and agribusiness• non-financial services for banks• simplification of business start–

up procedures and building permits

• providing transaction advice for public-private partnerships (PPPs) in infrastructure.

MIGA GUARANTEES

MIGA has issued guarantees in excess of US$400 million

on a gross basis, for two active projects in energy and

extractive industries.

The Weda Bay Nickel

project ($207M at

issuance) supports

the exploration

phase for a cobalt-

nickel mine with a

hydrometallurgical

processing plant.

The Rajamandala Hydropower

project ($200M at issuance)

targets the building of

Indonesia’s energy capacity to

sustain its economic progress,

while moving away from

traditional reliance on

expensive oil fired generation.

Country Partnership Framework 2016-2020

Objective:

To operationalize WBG support to the Government of Indonesia to eliminate poverty, generate prosperity and share this more widely amongst all its people.

10

COUNTRY PARTNERSHIP FRAMEWORK 2016-2020

Selectivity:

11

SELECTIVITY

CPF engagement areas and support beams

12

CPF ENGAGEMENT AREAS

ENGAGEMENT AREA 1:

DELIVERING NATIONAL INFRASTRUCTURE

Under-investment= congestion, poor logistics performance, power shortages, lack of clean water and sanitation. Undermined productivity growth, competitiveness, poverty reduction. Public spending increased, but improvements in outputs and outcomes have been disappointing.

The central government, through the Ministry of Public Works, has expressed a strong interest in World Bank support.

WBG engagement at the national level will be concentrated on the sectors : Water and sanitation; Irrigation and dams; Housing; Rapidly-urbanizing secondary cities; and Integrated Tourism Infrastructure, Institutions and Skills.

13

5.3 5.87.0

0

1

2

3

4

5

6

7

8

Actual(3 percent)

Scenario I(5 percent)

Scenario II(10

percent)

A decade of underinvestment in infrastructure = a huge ‘infrastructure gap’. Total infrastructure investment 3 to 4 percent of GDP, compared to China’s 10 percent and India’s 7.5 percent.

Average real GDP growth over 2001-11 under different scenarios of infrastructure growth.

Potential impact on 2011 GDP per capita

USD 3470USD 3645

USD 4130 Percent

Engagement Areas 2 : Energy for All

GOI commitments:

(i) reducing, and better targeting, energy subsidies to improve productive and resource allocative efficiency,

(ii) expanding electricity access

(iii) scaling-up renewable energy deployment by 2025; and

(iv) mobilizing a partnership program on energy conservation to incentivize industrial enterprises to convert to energy efficient technologies.

14

ENGAGEMENT AREA 1:

ENERGY FOR ALL

Energy sector in Indonesia = low electricity tariffs + high subsidies to PLN.

IWBG’s engagement is expected to include interventions in: (i) Strengthening Sector Governance and Sustainability (ii) Supporting Renewable Energy and Low Carbon Development, (iii) Expanding Access to Modern Energy Services through non-coal generation,

transmission and distribution and (iv) Enabling gas sector policy formulation and investment planning.

Engagement Areas 3 : Maritime and Connectivity

Poor logistics acts as both a drag on growth and a major contributor to inequality.

The costs of logistics--moving goods around the country, as well as imports and exports in and out of Indonesia- is about 24% of GDP. Thailand, on the other hand, spends about 16% of GDP doing the same.

This difference amounts to some US$ 70 billion per year that could have been used more productively.

Poor connectivity and logistics impacts the poor the most.

15

ENGAGEMENT AREA 1:

MARITIME AND CONNECTIVITY

Indonesia’s marine and coastal natural resources are among the richest in the world, but the country is not benefitting in terms of growth, livelihoods and environmental services which they provide.

Recognizing these challenges, President Jokowi, in his first days in office, made making Indonesia into a ‘Maritime Nation’ a pillar of his development agenda.

Against this background, WBG’s engagement in this area will focus on a number of the most critical challenges where the Government has requested our help.

ENGAGEMENT AREA 4:

LOCAL INFRASTRUCTURE AND SERVICES

Inequality of opportunity from birth accounts for a persistently high share of income inequality later in life.

One-third of all consumption inequality in Indonesia is due to factors that are outside of an individual’s control.

A combination of unequal access to quality services to build human capital (leading to inequalities in child health and nutrition as well as skills) and the rising skill premium in the labor market, result in increasing unequal access to good jobs and ultimately increasing inequality.

16

This inequality of access must be reduced.

The WBG’s engagement is organized around two major pillars: strengthening the decentralization framework to improve local service delivery, and differentiated approaches to urban and rural service delivery:

(a) very large metropolitan areas which provide a high percentage of national economic activity (Jakarta and Surabaya), (b) rapidly urbanizing secondary cities and (c) rural regions, particularly the disadvantaged.

ENGAGEMENT AREA 5:

SUSTAINABLE LANDSCAPE MANAGEMENT

An estimated 20 percent of income of rural populations stem from natural resources. Insecure access to land and resources is a major cause of poverty in rural communities.

The main underlying causes of deforestation and inefficient land use are:

• weak governance

• poor land use planning administration

• adverse financial and fiscal incentives.

17

GoI has initiated a number of ambitious initiatives and started some regulatory change processes which, if successfully implemented, would begin to address many of these issues.

WBG assistance to GoI would cover support for design and implementation of a Landscape Program focused on improving management of, and benefits from, terrestrial natural assets.

A particular emphasis will be on supporting Land Management and Spatial Planning and reducing the constraints created by Indonesia’s dual land management system.

ENGAGEMENT AREA 6:

COLLECTING MORE AND SPENDING BETTER

Indonesia’s revenue-to-GDP (15.2 percent in 2014) and tax-to-GDP (11.3 percent) ratios are very low by international standards.

Just as important as collecting more, however, is ‘spending better’ –improving the composition and delivery/execution of spending. The need for improved spending mix to reflect the Government’s development priorities is even more salient at the sub-national level.

18

Budget execution and project implementation often falls short of the amount allocated in the Budget particularly for infrastructure investment.

WBG aims to support the Government in the following key areas: (i) advancing energy (fuel and electricity)

subsidy reforms through consistent implementation and improved transparency,

(ii) improving quality of spending (allocative efficiency, effectiveness, and implementation) in key areas

(iii) improving quality of spending and service delivery of selected sub-national governments, and

(iv) (iv) strengthening institutional capacity to modernize procurement and contract management and to improve the control environment.

SUPPORTING BEAM 1:

BUSINESS CLIMATE AND FUNCTIONING MARKETS

Growth, jobs and poverty reduction will depend a great deal on a growth strategy that is supported by the private sector as the engine of growth.

In addition to enabling and predictable regulation (as well as infrastructure availability), private sector growth is predicated upon well-functioning product and factor markets.

19

The bulk of impact from relaxing binding constraints on the functioning of markets would benefit MSMEs which represent 99% of companies in Indonesia, account for 57% of GDP value-added, and provide 97% of all employment.

WBG will focus on bringing together private capital in support of public policy.

IFC will continue to support private sector companies and businesses both through financing and advisory services in select areas, as will MIGA through its guarantee products.

SUPPORTING BEAM 2:

SHARED PROSPERITY, EQUALITY AND INCLUSION

Eliminating extreme poverty and boosting shared prosperity requires applying a poverty and inequality lens to government policies across the board along with dedicated policies to protect the poor and help them move out of poverty into productive lives.

But dedicated policies are also needed now to protect today’s poor and vulnerable and to help them move into productive lives.

20

This beam will mainly be supported through knowledge services and it is organized around four components:

• Improving the poverty and inequality focus of policies supported by other CPF engagements.

• Strengthening of safety nets, • Developing graduation programs for the poor and

related support.• Improving the implementation of SJSN to provide

effective protection to all citizens (health) and workers (employment programs).

Inclusion and sharing prosperity will require the creation of more productive jobs.

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

IMPLEMENTATION OF

COUNTRY PARTNERSHIP FRAMEWORK

• Covers the five year period from FY16 to FY20

• Underpins lending program with analytical work

• Will be reviewed and refined every 2 years if needed

• Collaborated with Government

• Consulted with stakeholders (civil society

organizations, development partners, private sector)

• To be finalized by December 3rd, 2015

21