world bank document fileto spend about us$1.4 billion on higher education during the last three...

Document of

The World Bank

FOR OFFICIAI USE ONLY

/A.i~~~~~~~~~.Report No.P- 5 4 59-IND

.

MEMORANDUM AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US$150.0 MILLION

TO THE

REPUBLIC OF INDONESIA

FOR A

SECOND HIGHER EDUCATION DEVELOPMENT PROJECT

FEBRUARY 27, 1991

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

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CURRENCY EqUIVALENTS(as of February 1991)

Currency Unit = Indonesia Rupiah (Rp)

US$1.00 = Rp 1,901Rp 1 million = US$526

FISCAL YEAR

April 1 - March 31

ACADEMIC YEAR

July 1 - June 30

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

CPIU - Central Project Implementation UnitDGHE - Directorate General for Higher EducationESC - Environmental Study CenterGOI - Government of IndonesiaGOJ - Government of JapnHEDP I - First Higher Education Development Project (Ln. 2944-IND)IUC - Inter-university CenterMIS - Management Information SystemREPELITA - Five Year Economic Development Plan

FOR OFFICIAL USE ONLY

INDONESIA


Loan and Project Summary

Borrover: Republic of Indonesia

Loan Amount:. US$150.0 million equivalent

Terms: Repayable in 20 years, including 5 years of-grace at theBank's standard variable interest rate.

Financing Plan: Local Foreign Total-(US$ million) -

Government 122.8 0.0 122.8IBRD 59.8 90.2 150.0Government of Japan 2.9 6.7 9.6

Total /a 185.5 96.9 282.4

Economic Rate ofReturn: Not Applicable

.Staff AppraisalReport: Report No. 9263-IND

IBRD No. 20718R

/a Includes identifiable taxes and duties of US$7.6 million equivalent.

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.

MEMORANDUM AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOANTO THE REPUBLIC OF INDONESIA

FOR A SECOND HIGHER EDUCATION DEVELOPMENT PROJECT

1. The following memorandum and recommendation on a proposeddevelopment loan to the Government of Indonesia (GOI) for US$150 millionequivalent is submitted for approval. The proposed loan would have a term of20 years, including a grace period of 5 years, at the Bank's standard variableinterest rate, and would finance a three-year time-slice of the highereducation expenditure program, excluding previously committed foreign-assistedand purely GOI-financed projects. The GOI intends to seek a loan of US$9.6million from the Government of Japan (GOJ) to cofinance Environmental StudyCenters (ESCs) included in the proposed project.

2. Background. Enrollment in primary and secondary schools inIndonesia has increased 5-6 times in the last 20 years. Enrollment in highereducation has grown almost as much in only 10 years, despite severe cuts inall educational development budgets during 1985-88 caused by lower oil prices.The budgetary situation has now improved substantially, although Indonesiastill spends a lower percentage of GDP (3.1%) on education than othercountries in a similar stage of development (typically 4-5X). The GOI intendsto spend about US$1.4 billion on higher education during the last three yearsof REPELITA V (1991192-1993/94) corresponding to a 40? increase over theprevious three years. It is a major objective of the GOI to expand andimprove higher education to =;p-ort economic development. Presently, about554,000 students, of whom around 402 are women, are enrolled in 45 publicuniversities and four art institutes, and about 1,010,000 students areenrolled in 850 private universities. Enrollment in public universities isexpected to increase little, whereas private enrollment is expected to growabout 10% annually in the coming y irs. The main issues in the highereducation subsector, which were idcttified in the first Higher EducationDevelopment Project (HEDP I), include: (a) low quality and inefficiency inuniversity teaching and research; (b) imbalance between industrial needs forprofessional and technical manpower and the fields of study chosen byuniversity students; and (c) weak planning, institutional management, andimplementation capability in large parts of the subsector. In spite ofsubstantial progress already made by GOI, these issues still need to beaddressed.

3. The Government's Subsector Strategy. The GOI's development strategyfocuses on: (a) educational quality and efficiency -- raising universityteacher qualifications, improving university-based research, and fullydeveloping the Inter-university Centers (IUCs) and a national universitylibrary network; (b) human resource needs -- supporting secondary schoolscience teacher training, improving education in basic science and engineeringat public and private universities and polytechnics, developing environmentaleducation and research, and strengthening postgraduate training and research,particularly in science and technology; and (c) planning and management --developing the administrative staffs in universities and the DirectorateGeneral for Higher Education (DGHE), expanding and improving a management

-2-

information system (MIc), carrying out planning and management studies, andsupporting project implementation.

4. Until 1990, public universities had little autonomy in planning andbudgeting. In July 1990, the Government passed a decree granting autonomy topublic universities in financial management, academic programming, andinstitutional organization. Financial autonomy will allow universities toretain income from student tuition, research, services and consultancies, andother sources. Academic autonomy will permit public universities to designand offer study programs based upon their individual perception of nationaland local priorities, and institutional autonomy will enable them to devisethe organizational structures considered best suited to their individualneeds.

5. Rationale for Bank Involvement. The Bank has been closelyassociated with the development of Indonesia's higher education subsectorsince 1977 through a series of Bank-assisted projects. Until 1987, the Bank'sinvolvement in the higher education subsector consisted of support forselected programs which were considered deficient in educational quality orquantity of output. Also, new programs, such as the polytechnics and the IUCsfor postgraduate training, were initiated with Bank assistance. As a resultof a joint GOI-Bank analysis of subsectoral issues and policies, the Bank'sstrategy changed towards support for the whole subsector, especially in policymatters and resource management. This was clearly reflected in HEDP I(1988/89 - 1990/91), which provided assistance during the last year ofREPELITA IV and the first two years of REPELITA V to most areas of highereducation, with an emphasis on the academic, financial, institutional andpolicy framework of the subsector. As a major source for financing highereducation in Indonesia during the 1980s, the Bank is well placed to corcinueto support in these important areas during the remaining three years ofREPELITA V.

6. Project Objective and Description. The objective of the proposedproject is to provide further support for the GOI's efforts to implement itshigher eaucation subsectoral strategy through the following components, mostof which were initiated and successfully implemented under HEDP I:

(a) Improvement of Quality and Efficiency through: (i) academic staffdevelopment, involving about 8,500 fellows from public and privateuniversities in overseas and in-country degree programs at themaster's (S2) and doctoral (S3) levels and about 1,000 fellows innon-degree programs; (ii) support for public and private universityresearch on a competitive basis, including both research grants andresearch guidance, with particular emphasis on science andtechnology; (iii) support for the IUCs; and (iv) support for thedevelopment of university libraries, including a national librarynetwork;

(b) Meeting Human Resource Needs through: (i) strengthening secondaryschool science teacher training, (ii) strengthening undergraduateand postgraduate education in mathematics and natural sciences;(iii) support for four science and technology centers which would

_3-

provide laboratory and library space for private universitystudents; (iv) support for the accelerated engineering program inkey disciplines at selected universities; (v) consolidation ofpolytechnics; (vi) upgrading of 12 ESCs, expected to be partlyfinanced through the loan from the GOJ; and (vii) support forphysical facilities for agriculture, engineering, and a pre-medicalprogram at three universities; and

(c) Improvement of Planning and Management through: (i) managementtraining for university administrators and key staff of the DGHE,with special regard to the issues related to the recently announcedautonomy for public universities; (ii) further development of theMIS; (iii) conducting several policy and evaluation studies,including a comprehensive study of university graduates and a studyon private higher education development strategy; and(iv) strengthening the capacity of the Central ProjectImplementation Unit (CPIU).

7. Actions Agreed. During negotiations, the GOI has agreed to:(a) implement the project in accordance with the Higher Education ProgramGuidelines and the related Action Plan as agreed with the Bank; (b) ensurethat the ESCs become integrated into the academic and organizational structureof the host universities; (c) strengthen the CPIU to handle increasedresponsibilities; and (d) undertake an annual review with the Bank of thecurrent and forthcoming year's expenditure programs.

8. Benefits. The proposed project would help continue and enhance thepolicy reforms initiated under HEDP I. This would lead to: (a) higheracademic standards and improved teaching and research in public and privateuniversities, with some 8,500 new master's or doctoral degree holders; (b)increased support for national economic development through quantitative andqualitative improvements in science teacher training and skilled personneldevelopment in science and technology; (c) improved support forenvironmentally sound development; and (d) improved planning and management,both locally and centrally in the DGHE, through training programs andimprovements in the MIS.

9. Risks. There are no major risks. All components, except the ESCs,are a continuation of activities supported under HEDP I or other Bank-assistedprojects. The CPIU and local staff are thus experienced in the implementationof project activities. The implementation of the ESC component would besupported by the CPIU and by qualified international experts over the wholeproject period, thereby mitigating the risk related to this new component.

10. Recommendation. I am satisfied that the proposed loan would comply

with the Articles of Agreement by the Bankc and recommend that the Executive

Directors approve the proposed loan.

Barber B. ConablePresident

Attachments

February 27. 1991Washington. D.C.

Schedule A

INDONESIA


Estimated Costs and Financing Plan(USS million)

Estimated Costs fa Local Foreign Total

Quality and efficiency 111.8 30.0 141.8Selected fields of study reflecting human 52.4 52.7 105.1

resource needsPlanning, management, and implementation 4.0 1.9 5.9capacity

Total Base Costs 168.2 84.6 252.8

Physical contingencies 6.6 7.0 13.6Price contingencies 10.7 5.3 16.0

Total Costs 18S.5 /a 96.9 282.4 /a

Financing Plan

Government of Indonesia 122.8 0.0 122.8IBRD 59.8 90.2 150.0Government of Japan 2.9 6.7 9.6

Total 185.5 96.9 282.4

La Inclusive of taxes and duties estimated at US$7.6 million equivalent

Schedule BPage 1 of 2

INDONESIA


Procurement Methods(US$ million, including contingencies)

Procurement procedure TotalCategory of Expenditure ICB LCB Other /a N.A. costs

Civil works - 25.1 3.0 - 25.4(16.5) (0.0) (16.5)

Equipment 28.8 5.3 2.7 - 36.8(22.6) (4.1) (1.3) (28.0)

Books, journals and - - 9.9 - 9.9instructional materials (7.6) (7.6)Furniture - 2.2 0.2 - 2.4

(1.7) (0.1) (1.8)Overseas training - - 23.6 - 23.6

(20.7) (20.7)In-country training - - 97.3 - 97.3

(43.8) (43.8)Technical assistance - - 11.0 - 11.0

(8.7) (8.7)Research - - 16.1 - 16.1

(16.1) (16.1)Project management - - 8.0 - 8.0

(6.8) (6.8)Related operations and - - - 10.6 10.6maintenance (0.0) (0.0)Related salaries - - - 41.3 41.3

(0.0) (0.0)

Total 28.8 32.6 169.1 51.9 282.4(22.6) (22.3) (105.1) (0.0) (150.0)

Note: Figures in parentheses are the respective amounts financed by the Bank.

/a Other procurement procedure includes: (i) prudent shopping;(ii) negotiated purchases for books and journals; (iii) consultantservices in accordance with Bank guidelines; (iv) research activities tobe awarded on a competitive basis; and (v) GOJ procedures.

Schedule BPage 2 of 2

INDONESIA


Disbursements(US$ million)

I of expendituresCategory Amount to be financed

Civil works 15.0 70%

Equipment, furniture, books, 36.9 100? of foreign expendi-journals, and instructional tures; 1002 of localmaterials expenditures (ex-faLtory

costs); and 65Z of otherlocally procured items

Overseas training 18.8 lOOS

In-country training 41.9 452

Technical asssitance 8.0 1OOS

Research 14.7 1002

Project Management 6.2 1002

Unallocated 8.5

Total 150.0

Estimated IBRD Disbursements

Bank Fiscal Year 1992 1993 1994 1995

Annual 23.0 58.0 59.0 10.0Cumulative 23.0 81.0 140.0 150.0

Schedule C

INDONESIA


Timetable of Key Project Processing Events

(a) Time taken to prepares One year

(b) Project prepared bys Government with IBRD assistance

(c) First IBRD missions October 1989

(d) Appraisal mission departuret September 1990

(e) Negotiations: February 19, 1991

(f) Planned date of effectivenesst June 1991

(g) List of relevant PCRs and PPARs:

Credit/Loan No. Proiect PCR Date PPAR No.

Ln. 1433-IND First Teacher Training March 1985 6315

Cr. 869-IND First Polytechnic October 16, 7847Development 1987

Ln. 1904-IND First University March 1990 9247Development

Schedule )Page 1 of 4

STATUS OF BANK CROUP OPERATIONS IN INDONESIA

A. STATE.tENT OF BANK LOANS AND IDA CREDITS Za(as of December 31, 1990)

_ Amount (US$ million)Loan/ Bank IDACredit Fiscal Original Principal Undis-number Year Purpose (ess cancellation) bursed

Seventy-eight Loans and forty-eight credits 5,765.90 901.61fully disbursed

Of which SECALS, SALs and Program Loans I_

2780 1987 Trade Policy Adjustment 300.002937 1988 Second Trade Policy Adjustment 300.003080 1989 Private Sector Development 350.00

Subtotal: 950.00

1840 1980 National Agricultural kesearch 35.00 - 2.132007 1981 Nucleus Estate and Smallholders V 102.90 - 10.872101 1982 Second Teacher Training 79.59 - 0.462214 1983 Twelfth Power 292.50 - 31.172232 1983 Nucleus Estate and Smallholders VII 96.00 - 25.462236 1983 Jakarta Sewerage and Sanitation 22.40 - 2.432275 1983 East Java Water Supply 30.60 - 0.362288 1983 Transmigration IV 46.00 - 10.182290 1983 Second Polytechnic 107.40 - 5.612300 1983 Thirteenth Power 273.00 - 4.502341 1984 Third Agricultural Training 63.30 - 7.712344 1984 Nucleus Estate and Sme .holder Sugar 70.30 - 11.352355 1984 Second Nonformal Education 43.00 - 1.842408 1984 Fifth Urban Development 39.25 - 2.372431 1984 Second Swamp Reclamation 65.00 - 27.702443 1984 Fourteenth Power 210.00 - 16.482472 1985 Secondary Education and 78.00 - 7.46

Management Training2474 1985 Upland Agriculture and Conservation 11.30 - 6.90

La The status of the projects listed in Part A is described in a separatereport on all Bank/IDA-financed projects in execution, which is updatedtwice yearly and circulated to the Executive Directors on April 30 andOctober 31.

Eb Approved during or after FY80.

Schedule DPage 2 of 4

Amount (US$ million).oatl/ Bank IDAJrcdit Fiscal Original Principal Undis-tiumber Year Purpose (less cancellation) bursed

2494 1985 Smallholder Rubber Development II 89.00 - 42.592529 1985 Fourth Population 35.13 5.362542 1985 Second Health (Manpower Development) 38.30 - 1?.062543 1985 Kedung Ombo Multipurpose Dam 156.00 - 3¶,.23

and Irrigation2547 1985 Second University Development 147.00 - 50.132560 1985 West Tarum Canal Development 43.40 - 17.162577 1985 National Ports Development 82.69 - 34.812r78 1985 Transmigration V 97.00 - 15.422599 1986 Science and Technology Training 93.00 - 10.982628 1986 Smallholder Cattle Development 32.00 - 11.812632 1986 Second East Java Water Supply 43.30 - 4.332636 1986 Second Nutrition & Community Health 33.17 11.492638 1986 Nusa Tenggara Agariculture Support 33.00 - 15.352649 1986 Central and West Java Irrigation 166.00 - 81.462690 1986 Gas Distribution 34.00 - 19.922702 1986 Export Development 64.50 - 7.852705 1986 Manpower Development and Training 58.10 - 13.632717 1986 Highway Maintenance and Betterment 300.00 - 9.232725 1986 Housing Sector Loan 200.00 - 5.222748 1987 Third National Agricultural Extension 55.00 - 25.772757 1987 Telecommunications Technical Assistance 14.50 - 0.492773 1987 Fisheries Support Services 24.50 - 18.662778 1987 Power Transmission & Distribution 226.00 - 66.342800 1987 BRI/KUPEDES Small Credit 101.50 - 1.282816 1987 Urban Sector Loan 270.00 - 16.102817 1987 Regional Cities Urban Transport 51.00 - 8.182879 1988 Industrial Energy Conservation 21.00 - 12.092880 1988 Irrigation Subsector 234.00 53.332881 1988 Second Rural Roads Development 190.00 - 88.042891 1988 Railway Technical Assistance 28.00 - 18.782930 1988 Forestry Institutions & Conservation 30.00 - 19.622932 1988 Jabotabek Urban Development 150.00 - 108.612940 1988 Accountancy Development 113.00 - 94.762944 1988 Higher Education Development 140.30 - 47.782979 1988 Second Export Development 165.00 - 61.392992 1989 Tree Crop Human Resource Development 18.40 - 15.133000 1989 Tref Crop Processing 118.20 - 107.073031 1989 Agriculture Research Management 35.30 - 30.77


Amount (US$ million)Loan/ Bank IDACredit Fiscxal Original Principal Undis-number Ytear Purpose (less cancellation) bursed

3040 1989 Industrial Restructuring 284.00 - 223.863041 1989 Small & Medium Industrial Enterprise 100.00 - 70.693042 1989 Third Health 43.50 - 38.233097 1989 Power Sector Efficiency 337.00 - 336.413098 1989 Paiton Thermal Power 354.00 - 325.633112 1990 Public Works Institutional 36.10 - 33.21

Development & Training3133 1990 Highway Sector 350.00 - 306.293134 1990 Professional Human Resource Development 117.50 - 107.743158 1990 Second Secondary Education 154.20 - 142.203180 19S0 Rural Electrification 329.00 - 329.003182 1990 Third Telecommunications 350.00 - 350.003209 1990 Gas Utilization /A 86.00 - 86.003219 1990 Second Jabotabek Urban Development ka 190.00 - 190.003243 1990 Second Forestry Institution 20.00 - 20.00

and Conservation3246 1991 Third Jabotabek Urban Development Ja 61.00 61.003249 1991 Second BRI/KUPEDES Small Credit 125.00 118.36*3267 1991 Second Private Sector Development Lg 250.00 - 250.003282 1991 Fertilizer Restructuring /a 221.70 - 221.70

Total 14.571.72 901.61of whic}. has been repaid 2,116.23 59.17

Total now held by Bank and IDA 12.455.50 842.44Amount sold 88.08of which repaid 44.76

Total undisbursed 4,588.71

/a Not yet effective as of December 31, 1990.

* SAL, SECAL or Program Loan.


B. STATEMENT OF IFC INVESTMENTS (as of December 31. 1990)

(USS million)Undisbursed

Original Total includingFiscal Commitments Held Participants'Year Comnpany Type of business Loan Equity Total by IFC Portion1971/74 P.T. Primatexco Textiles & fibers 4.0 0.8 4.8 -

1971 P.T. Unitex Textiles & fibers 2.5 0.8 3.3 0.3 -

1971/73/ P.T. Semen Cibinong Cement 46.0 5.8 51.8 -

74/76/841971 P.T. Kabel Indonesia Cables 2.8 0.4 3.2 - -

1972/77/ P.T. Daralon Textiles Textiles & fibers 5.8 1.5 7.3 - -

79 Mfg. Corp.1973/89 P.T Jakarta Tourism 9.8 2.7 12.5 2.7 -

Int'l Hotel1974 P.T. Private Dev. Development - 0.5 0.5 0.4 -

Finance Co. of financeIndonesia

1974 P.T. Monsanto Electronics 0.9 - 0.9 - -

1974/77 P.T. Kamaltex Textiles 3.8 0.8 4.5 -

1980 P.T. Papan Sejahtera Housing finance 4.0 1.2 5.2 1.2 -

1980 P.T. Supreme Indo- Dinnerware 11.1 0.9 12.0 - -

American1980/88 P.T. Semen Andalas Cement 48.6 5.0 53.6 22.7 -1982/85 P.T. Saseka Gelora Leasing 5.0 0.4 5.4 0.4 -

Leasing1988 P.T. Bali Holiday Tourism 11.3 - 11.3 2.8 -1988 P.T. Asuransi Jiwa Insurance - 0.3 0.3 0.3 -1989 P.T. Monterado Mining 8.0 2.0 10.0 5.5 -1990 P.T. Astra / Manufacturing 12.5 12.5 25.0 12.5 -1990 Federal Motor La Manufacturing 12.5 - 12.5 - -1990 Nomura Fund Ctry. Fund - 3.0 3.0 1.5 -1990 Bank Umum Nacional Dev. finance 10.0 - 10.0 10.0 10.01990 Bank Niaga Dev. finance 7.5 - 7.5 7.5 7.51990 Raja/Pendopa Oil exploration - 4.2 4.2 4.2 3.41990 P.T. Agro Muko Plantations 10.5 2.2 12.7 12.7 9.01990 Indo Rama Synthetics Textiles 12.0 - 12.0 12.0 12.01991 Argo Pantos Textiles - 13.0 13.0 13.0 -

Total 228.5 57.9 286.6 109.6 41.9

1989 P.T. Kalteng /b Mining - 1.4 1.4 - -

1990 P.T. Kayu NIC /c Wood products 12.2 0.9 13.1 13.1 13.11991 Argo Pantos /c Textiles 83.0 - 83.0 30.0 83.01991 P.T. Petrochemical /c Petrochemicals 325.0 15.0 340.0 90.0 340.3

La Loan subsequently cancelled./b Loan approved but subsequently dropped./c Not yet signed as of December 31, 1990.

MAP SECTION

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