Do_ument of

The World Bank

FOR OFFICIAL USE ONLY

a~' So s pv o B-z-'

Report No. P-4221-IND

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED HOUSING SECTOR LOAN

IN AN AMOUNT EQUIVALENT TO USt275 MILLION

TO THE

REPUBLIC OF INDONESIA

June 2, 1986

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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CURRENCY EQUIVALENTS

Currency Unit = Indonesian Rupiah (Rp)US$1.00 = Rp 1,100

Rp 1 million = US$909

FISCAL YEAR

GOI: April 1 - March 31State Banks: January 1 - December 31

WEIGHTS AND MEASURES

i square meter (m2) = 10.8 squ re feet] hectare (ha) = 10,000 m or 2.471 acres

ABBREVIATIONS AND ACRONYMS

BI - Bank Indonesia (the Central Bank)BKPN - National Housing Policy BoardBPKP - State Audit AgencyBTN - Bank Tabungan Negara (a State Savings and Housing Bank)GOI - Government of IndonesiaKampung - Densely populated informal settlement areasKIP - Kampung Improvement ProgramKPR - Public Homeownership CreditLPPI - Institution for the Development of Banking in IndonesiaPERUMNAS - National Urban Development CorporationREPELITA - National Five-Year Development Plan (Repelita I, 1969-74;

Repelita II, 1974-79; Repelita III, 1979-84; Renelita IV,1984-89; Repelita V, 1979-94)

FOR OMCLAL USE ONLY

INDONESIA

HOUSING SECTOR LOAN

Loan and Project Summary

Borrower: Republic of Indonesia.

Beneficiary Agencies: Bank Tabungan Negara (BTN), and National UrbanDevelopment Corporation (PERUMNAS).

Loan Amount: US$275 million equivalent.

Loan Terms: Payable in 20 years, including 5 years of grace, atthe standard variable interest rate.

On-Lending Terms: The Government of Indonesia (GOI) would on-LendUS$268.9 million equivalent to BTN for mortgagefinancing at a fixed interest rate of 11.5Z with arepayment term of 20 years, including 5 years ofgrace. GOI would bear the foreign exchange andinterest rate fluctuation risks of the Bank loan.The end-user interest rates for mortgage loans wouldbe 9-15Z with a 20 year repayment term.

Project Description: The project would assist GOI in meeting itsobjectives to: (a) expand access to housing financefor low and middle income househ4olds; (b) reduceoverall subsidies and target the remaining subsidies,to the lowest income groups; (c) reduce the relianceof the housing finance system on government fundsand introduce new instruments for resourcemobilization; (d) stimulate the production of morelow-cost housing by both public and privatedevelopers; (e) generate employment at low foreignexchange cost; and (f) strengthen the keyinstitutions in the housing sector, namely BTN andPERUMNAS, and assist the Office of the StateMinister for Housing in developing and monitoringhousing sector policies and programs. The projectcomprises: (a) a credit line to BTN which would beused to finance a share of total mortgage lendingcommitments (195,000 housing units) during the lastthree years of the Fourth National Five-YearDevelopment Plan (Repelita IV); and (b) technicalassistance and equipment for BTN, PERUMNAS and theOffice of the State Minister for Housing.

Project Risks: The risks associated with this project include:(a) the possibility that institution-buildingefforts at BTN could be prolonged and consequently

Thb document ha a restncted disWibution and may be used by recipients only in the performanceof their official dutieL Its contents may not otherwise be disckmed without World Bank: authorization.

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BTN's effectiveness in performing the functionsassigned to it under the project would be reduced;(b) the risk that BTN could not fully implementGOI's new policies regarding the size distributionof units and that its recent lending patterns wouldcontinue; (c) the risk that because of loanprocessing and other problems, PERUMNAS' deliverycapacity would be limited; and (d) the risk thathigher income groups would appropriate the housingtargetted for lower income groups, due to strongdemand and limited overall supply of housing. Theserisks have all been taken into account in designingthe project and are believed to be manageablethrough the proposed BTN Policy Statement, BTN andPERUMNAS Institutional Action Programs, technicalassistance and the proposed periodic reviews of theprogram.

Estimated Costs:

Local Foreign Total(US$ million) - _

Housing Program 962.1 240.5 1,202.6Technical Assistance and Equipment 2.9 3.2 6.1

Total Project Cost /a 965.0 243.7 1208.7

Financing Plan:

Beneficiary Downpayments 272.7 - 272.7Government Budget 200.0 - 200.0Bank Indonesia 162.0 - 162.0BTN 299.0 - 299.0Bank loan 31.3 243.7 275.0

Total 965.0 243.7 1,208.7

Estimated Disbursements:

Bank FY 1987 1988 1989 1990 1991(USs million)

Annual 22.0 88.0 96.3 48.9 19.8Cumulative 22.0 110.0 206.3 255.2 275.0

Rate of Return: 15%

Staff Appraisal Report: No. 6053 -IND, dated May 29, 1986.

Map: IBRD No. 19760.

/a Including taxes and duties estimated at US$60 million equivalent.

REPORT AND RECOMMENDATION OF THE PRESIDENT OFTHE INTERNATIONAL BANK FOR RECONSTRUCTION

AND DEVELOPMENT TO THE EXECUTIVE DIRECTORSON A PROPOSED LOAN TO THE REPUBLIC OF INDONESIA FOR

THE HOUSING SECTOR

1. I submit the following report and reconmmendation on a proposedHousing Sector loan to the Republic of Indonesia for the equivalent of US$275million. The loan would have a term of 20 years, including 5 years of grace,at the standard variable interest rate. The Government of Indonesia (GOI)would on-lend US$268.9 million equivalent to Bank Tabungan Negara for mortgagefinancing at a fixed interest rate of 11.5: with a repayment term of 20 years,including 5 years of grace. The GOI would bear the foreign exchange andinterest rate fluctuation risks of the Bank loan. The end-user interest ratesfor mortgage loans would be 9-15% with a 20 year repayment term. Theremaining US$6.1 million equivalent would be provided to BTN, PERUMNAS and cheOffice of the State Minister for Housing for technical assistance and relatedequipment.

PART I - THE ECONOMYW

2. An economic report entitled "Indonesia: Adjusting to Lower OilRevenues" (No. 6201-IND, dated May 20, 1986) was distributed to the ExecutiveDirectors on May 27, 1986. Annex I gives selected social and economicindicators for the country.

Background

3. The Republic of Indonesia is a highly diverse country spread acrossan arch'pelago of more than 13,000 islands with a land area of about two mil-lion km . It now has a population of over 158 million, growing at about 2.2Zp.a., and is the world's fifth most populous nation. The country has adiversified resource base, with plentiful primary energy resources, signifi-cant mineral deposits, large timber potential and a developed system of agri-cultural commodity production and export. A high proportion of these primaryresources are located on the sparsely populated islands of Sumatra andKalimantan, while two thirds of the population lives on Java, which has areaswith some of the highest rural population densities in the world. About aquarter of the population lives in urban areas, and the current rate of urbanpopulation growth is about 4% p.a. The 1983 estimate of GNP y7r capita isUS$560, which places Indonesia among middle-income countries.-/

1/ Substantially unchanged from the President's Report on a HighwayMaintenance and Betterment Project (No. P-4330-IND), circulated undercover of R86-144, dated May 28, 1986.

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

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Macroeconomic DeveLopments and Resource Management

4. During the 1970s, the Indonesian economy grew at almost 8% p.a.This growth was associated with rapid increases in public expenditures, totalinvestment and savings. Following the turbulence of the mid-1960s, theGovernment of Indonesia took effective action to restore macroeconomicstability, liberalize the economy, rehabilitate infrastructure, and provideincentives for domestic and foreign private investment. However, the dominantexternal influence was the huge expansion, and significant variability, inforeign exchange earnings from oil. Net earnings from oil and LNG exportsrose from US$0.6 billion in 1973/74 to US$10.6 billion in 1980/81, when thecurrent account enjoyed a surplus of US$2.1 billion. Oil and LNG also pro-vided about 60Z of budget revenues by 1980/81 and helped finance a sustainedincrease in demand. The pattern of expenditures helped foster diversifiedgrowth. Of particular note has been the support for agriculture throughinves;ment in infrastructure and support services. This supported anagricultural growth rate of almost 4% p.a. and led to the recent achievementof self-sufficiency in rice. Manufacturing also enjoyed a high growth rateduring the 1970s (of about 14% p.a.), although this was from a very low baseand predominantly oriented toward the protected domestic market.

5. Since 1981, the economy has been buffeted by unfavorable externaldevelopments, especially for oil. Accordingly, the external terms of tradehave deteriorated by 18% over the past four years. In response, theGovernment acted decisively to stabilize the economy and provide a basis forlonger-term structural adjustment. Related measures included: (a) restraintson public investment and reductions in budget subsidies; (b) maintenance of aflexible exchange rate policy (following a major devaluation in March 1983);(c) wide-ranging structural reforms in the taxation and financial systems; and(d) a major reorganization of customs, ports and shipping operations. Thesemeasures have had a positive impact on the balance of payments, with thecurrent account deficit reduced from US$7.2 billion (8.5% of GNP) in 1982/83to an estimated US$2.0 billion (2.6% of GNP) in 1985/86. Domestic inflationhas also been reduced to less than 5% in 1985. However, this stabilizationprocess has involved a heavy cost in terms of lower investment and growth.Since 1981, GDP growth has averaged only 2.6% p.a.; adjusting for populationgrowth and the terms of trade loss, per capita incomes have fallen. Theindustrial sector has been patticularly hard hit, with low rates of capacityutilization and emerging financial problems in many enterprises.

6. The economic outlook for Indonesia is dominated by the recentcollapse and uncertain prospects for world oil markets. Preliminaryindicators are that Indonesia's net oil/LNG export earnings could fall byalmost 60% during 1986/87. Because of the cautious management strategyadopted by the Government in recent years, Indonesia is better placed thanmost oil exporters to cushion the short-term impact of lower oil revenues.External reserves stand at over US$10 billion (equivalent to nine months ofimports) and another US$2 billion is available in undrawn commercialcredits. However, the Government is still legitimately concerned about theimpact of a prolonged shortfall in oil revenues. Despite tight controls overpublic external borrowing in recent years, the debt service ratio had reached25% by 1985 and will rise further (even without new borrowing) over the nextfew years. The scope, therefore, for additional borrowing to cover theresource gap is limited. Instead, the Government has opted for further

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cutbacks in government expenditure. Already, an austerity budget has beenannounced for 1986/87, with total expenditure budgeted to decline by 7Z (22Zfor development expenditure). With continued prudence and some recovery inoil prices, the current account deficit could be brought back to less than 3Zof GNP over the next three years. However, economic Performance would remainhighly constrained, with GDP growth close to 22 p.a. and declining per capitaincomes.

Policies for Growth and Adjustment

7. As already noted, the Indonesian Government, faced with lower oilrevenues, is acting to maintain balance of payments and domestic financialstability through demand restraint. However, over the medium term,Indonesia's ability to achieve its goals of sustainable growth with equitywill depend crucially on the skill with which it manages the transition fromoil dependency toward a more diversified, semi-industrial economy. Some ofthe elements of this strategy, including structural reforms in the taxationand financial systems, are already in place. However, successful adjustmentwill require continued action in three key policy areas: management of thepublic investment program (and improvements in the regulatory/policy environ-ment for private investment), rationalization of the external trade regime anddevelopment of the financial sector.

8. The projected import constraint imposes serious limitations on therate at which Indonesia can undertake new investments over the next fewyears. At the same time, some reallocation of resources towards regionaldevelopment and the social sectors might be justified, in order to reduce theimport content of investment while still meeting the Government's equity andemployment objectives. It is therefore important that mechanisms are estab-lished to facilitate orderly and rational adjustments to the public investmentprogram. Possible options include preparation of multiyear expenditure plans(at least for the larger projects), identification of a core program of highpriority projects and strengthening of project appraisal/selection proce-dures. The Government is also considering ways to improve project implemen-tation, so that investment returns can be realized more promptly. Given thebudgetary constraints, it is expected that the private sector will be calledupon to play an increasingly important role in capital formation. Toencourage this process, the Government recently announced simplifications ininvestment approval procedures and a major internal reorganization of theInvestment Coordinating Board. These measures were followed, in May 1986, bya package of regulatory reforms to make Indonesia more attractive to foreigninvestments.

9. The recent decline in the price of oil has cLearly demonstrated theimportance of reducing the economy's heavy dependence on a single source offoreign exchange and, more generally, the need to rationalize the externaltrade regime. The Government has set a target of doubling non-oil exports innominal terms over the next five years. This target should be attainableprovided that economic recovery in the industrial economies is sustained,Indonesia's access to those markets is not constrained by protectionistmeasures and, most important, Indonesia follows appropriate trade and exchangerate policies. The Government has already introduced a range of export promo-tion measures intended to improve export incentives, ensure ready access tofinance for exporters, raise product quality and enhance marketing capacity.

Most recently, in May 1986, the Government announced a policy package designedto ensure that exporters would have access 'o raw materials and intermediateinputs at international prices. However, over the longer term, there is noeffective substitute for comprehensive trade reform. On the import side,Indonesia's trade regime has historically been characterized by a predilectionfor high tariffs and quantitative restrictions. In March 1985, the Governmentannounced a major reduction in the range and level of nominal importtariffs. However, other actions including increased use of import quotas/bansand regulations requiring higher local content in production have served topromote some potentially costly and uneconomic investments which could provecounterproductive to the export drive.

10. The Government's decision to move towards a more liberal financialenvironment raises a number of issues relating to resource mobilization,financial intermediation and credit allocation. Over the longer '~erm, as thescope for subsidized credit is reduced, the banking system will have to playan increasingly important role in mobilizing domestic resources. However,during the transition period, some potential conflicts between the resourcemobilization and credit allocation objectives could arise. For examplL. theincrease in deposit rates following the recent financial reforms, whileencouraging resource mobilization, has also led to high real lending rateswhich have tended to dampen investment and credit demand. This in turn mayrestrain economic activity. It is therefore important to find ways to reducethe high intermediation costs of banks. Consideration should also be given toother ways of mobilizing financial resources, including development of acapital market, expansion of the banking network (especially in rural areas)and selective relaxation of restrictions on private banks (combined withincreased bank supervision).

Incomes, Employment and Human Development

11. Indonesia's physical, human and economic resources are very unevenlydistributed among its main regions. Java, for example, accounts for almost50% of Indonesia's GDP and 62% of its population, but only 7Z of its landarea. Although all five of the country's main regions experienced rapid percapita growth in the 1970s, regional differences in output tended to widen.To a large extent, differences in performance are associated with the impor-tance of the mineral sector, particularly petroleum. However, there are twoimportant processes at work in Indonesia which enable the benefits of growthto be more evenly spread than indicated by output trends. The first of theseis migration. Between 1971 and 1980, 4.3 million people (or 16% of the natur-al increase in population) resettled permanently in provinces outside those oftheir birth. Approximately 1.7 million people moved from Java to the OtherIslands, of whom one million were resettled through the official transmigra-tion program. There has also been substantial rural-urban migration bothbetween and within provinces. The second process is the redistribution ofincome through the government budget. Regional variations in per capita con-sumption are much less pronounced than differences in per capita output. Thisis largely due to the impact of taxation on the oil sector.

12. An analysis of household expenditures indicates that Indonesia'srapid economic development has been accompanied by significant progress inreducing poverty. Between 1970 and 1980, the proportion of the populationliving in poverty declined from 572 to 40%; the decline was particularly rapid

in the Other Islands and in urban areas. The core of the poverty problem con-tinues to be in rural Java, where landless laborers form a large, and possiblyrising, proportion of the population and where, for most of the 1970s, thereis little evidence of any rise in real agricultural wages. However, there wasa significant rise in real agricultural wages around 1980-81 associated withthe sharp increase in rice output and booming overall economic growth.Increases in rural nonagricultural and urban wages also occurred at thebeginning of the 1980s. Despite the slowdown in economic growth and stabili-zation measures since 1982, the limited available evidence suggests that wagesand incomes have held up, partly as a consequence of continued agriculturalgrowth.

13. In the future, the availability of productive employment will be akey determinant of income distribution. The labor force is expected to growat about 2.3Z p.a. over the next decade, while economic growth will be lowerthan in the 1970s. The resultant squeeze in the labor market could lead tostagnant or declining labor income, especially in rural areas and the urbaninformal sector. Given the balance of payments constraint facing the country,Indonesia's employment outlook depends crucially on the pattern of economicgrowth, and in particular the extent of labor absorption in the commodity-producing sectors. Although over the long term the structural shift inemployment away from agriculture should continue, this sector will stillaccount for half or more of total employment and the growth in agriculturalincomes will be an important determinant of job opportunities elsewhere innonfarm activities. This will require continued priority to agriculture inthe form of supportive pricing and investment policy, with some shift inemphasis toward the Other Islands. On Java, attention will need to be paid tGissues of agricultural diversification and the pace of mechanization. Withrespect to the industrial sector, the development of an efficient, relativelyexport-oriented pattern of production can also contribute to significant laborabsorption in the medium to long term, especially in Java; this wili involve acontinuing major role for small-scale firms. If a favorable evolution of theemployment situation is to occur, there will also need to be an appropriatepattern of public expenditure and supportive policies for the urban informalsector; finally, the transmigration program can make a substantial contribu-tion, provided it is closely coordinated with complementary agriculturalinve3tment programs, in tree crops, wate- resources and livestock development.

14. There has been substantial progress in extending the provision ofsocial services throughout the population. Universal enrollment in primaryeducation has been virtually achie.ed and the enrollment rate in secondaryschools is now abour 35%. However, the weak educational base of the popula-tion continues to De a major obstacle to rapid economic development and asubstantial further expansion of secondary and tertiary education will benecessary as well as a major effort to raise the quality of the whole system.In the health sector, there has been a large expansion in facilities, notablyat the subdistrict level, but continued investment and an improvement inquality will be necessary to increase effectiveness. This will have to becomplemented by a major expansion in water supply and sanitation if theimprovement in indices of mortality and morbidity during the 1970s is to bemaintained. By 1981, only 18% of the rural and 40% of the urban populationhad access to safe water, compared with government targets of 60% and 75%,respectively, for 1990.

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External Capital Flows

15. The recent improvement in Indonesia's balance of payments situationis evidence of the Government's commitment to manage short-term economicshocks. The ongoing program of economic reforms should also help to hold thecurrent account deficit to sustainable levels over the medium term, despitethe impact of lower oil revenues. Even so, continued resource transfers fromabroad will be essential to sustain modest GDP growth (2% p.a.) over the nextthree years. Staff projections indicate that new public medium- and long-term(MLT) borrowing will have to average about US$4.8 billion p.a. from 1986/87 to1988/89, including about US$2.4 billion p.a. of official development assis-tance and the balance from import-related credits and untied borrowing.Indonesia is well placed to arrange the necessary financing on reasonableterms; the Government's record of economic management is good and acomfortable cushion of external reserves has been rebuilt over the past twoyears.

16. Total public debt outstanding at the end of 1985 is estimated atUS$28 billion, with an additional US$15 billion of undisbursed commitments.Of the total debt disbursed and outstanding, official assistance (includingnonconcessional multilateral aid) accounts for 48% and obligations at variableinterest rates for only 21%; there is no short-term public debt. The averagematurity of public MLT debt at the end of 1985 is estimated at 16 years. TheGovernment continues to manage its external debt quite prudently. Until 1981,Indonesia had succeeded in maiataining its public debt service ratio, based ongross exports, at below 10%. However, because of the sharp drop in oil exportreceipts over the past three years, the ratio rose to about 20% in 1985. Withthe projected levels and composition of borrowings and export earnings,Indonesia's public debt service ratio would rise to about 28% in 1986 and thengradually decline in later years. With private MLT debt included, the totaldebt service ratio would rise from 25% in 1985 to around 33% in 1986 and thendecline again. While debt management will require careful attention in thecoming years, the projected debt service ratios are not excessive by inter-national standards.

PART II - BANK GROUP OPERATIONS IN INDONESIA 3/

17. As of March 31, 1986, Indonesia had received 48 IDA credits total-ling US$896.49 million (less cancellations) and 107 Bank loans amounting toUS$8,149.54 million (less cancellations). IFC commitments totalledUS$163.2 million. Annex II contains a summary of IDA credits, Bank loans andIFC investments as of March 31, 1986. The share of the Bank Group inIndonesia's total (disbursed) external debt outstanding at the end of 1983 was13.1%, and the Bank's share of debt service 10.3%, compared with 13.3% and7.9%, respectively, in 1982. From 1968 until 1974, all lending to Indonesiawas made through IDA. Due to the country's improved creditworthiness follow-ing the commodity and oil price boom in 1973/74, the bulk of the Bank Group's

3/ Substantially unchanged from the President's Report on the HighwayMaintenance and Betterment Project (No. P-4330-IND), circulated undercover of R86-144 and dated May 28, 1986.

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lending in the remainder of the 19709 W2S through IBRD loans, with a modestamount of IDA lending being justified primarily on poverty grounds, as the percapita CNP was well below the IDA cutoff level. IDA lending was discontinuedin FY80. Given the critical importance of agriculture (including transmi-gration) for employment, food security and exports, over one third of BankGroup-assisted projects have been in this sector. In addition, loansandcredits have been extended to virtually all other sectors of the economy,including transportation, education, urban development, water supply, ruraldevelopment, industrial developmert financing (including small-scaleindustry), power, telecommunications, population and nutrition, and technicalassistance.

18. During Repelitas I (1969-74) and II (1974-79), and in line with theobjectives of these first two Five-Year Plans, a high proportion of Bank Grouplending was directed initially toward the rehabilitation and then the expan-sion of infrastructure and production facilities. Special attention was alsogiven to meeting the shortage of skilled manpower and technical assistanceneeded for preinvestment studies and project execution. Repelita III (1979-84), published in early 1979, stressed the need for continued high growth andstability, but departed from previous plans by placing special emphasis onmore equitable income distribution and poverty alleviation. This focus, whichwas fully in line with the conclusions of the Bank's economic work, requiredgreater attention to employment generation (particularly in the industrialsector) and to improvements in basic public services. While Bank lending wasalready consistent with these objectives, increased emphasis has been given tothese priorities. However, the adverse economic developments that occurred inthe latter half of the plan period and the measures taken to address them, ledto a reshaping of development objectives for Repelita IV (1984-89). Theseemphasize restoring growth of incomes and employment while continuing finan-cial prudence, promoting structural change toward a more diversified economy,and maintaining efforts to improve income distribution and alleviatepoverty. This shift in focus has underscored the need to follow through onreforms that have already been initiated, seek increased efficiencies in theeconomy, mobilize domestic resources to finance needed investments andrecurrent expenditures, and foster a policy envireament conducive to theachievement of required changes.

19. The Bank has geared its lending and economic work program to addressthese needs and to maintain a high level of resource transfer. The approachis to continue to emphasize the ongoing dialogue on economic policy that hasbeen a cornerstone of the Bank's relationship with the Government for manyyears, and to coordinate discussion of macroeconomic issues with advice oninstitutional and policy reform in important sectors and subsectors, coupledwith lending operations and technical assistance that meet priority needs andsupport institutional improvements in specific areas. Emphasis in economicwork is being given to trade and industrial issues, development of the finan-cial system, and public resource management. In the lending program, agricul-ture continues to receive the most attention. However, the program is broadlybased, and includes increasing emphasis on education and human resource deve-lopment. Continued attention is being given to power and energy, where theBank is concentrating on policies to diversify Indonesia's energy base,rationalize pricing and improve sector planning. In transportation, the Bankis focussing on efficiency improvements in the maritime sector and on improv-ing the national network of highways and rural roads. In urban development

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and water supply, lending is being directed more and more to developing inno-vative low-cost solutions, providing for cost recovery and strengthening localinstitutions, in order to minimize demands on the government budget and decen-tralize the responsibility for addressing basic needs. In all, the Bank'slending program is intended to contribute about 20% of Indonesia's capitalrequirements during the next 3 years and is expected to be an importantcatalyst in attracting other funds. Where possible, we are seeking also towiden the impact of Bank lending through technical assistance, as well ascomplementary investments and coordinated policy dialogue with other donors.This is especially true in our lending programs for power, urban development,water supply and transportation.

20. There has4,een an improvement in the last few years in thedisbursement ratio - from a low of 13% in FY80 to over 17% in FY85. The poorFY80 ratio was in large part merely a result of the rapid increase in commit-ments during the FY77-79 period, when total Bank/IDA commitments to Indonesiaincreased by 122% compared to a Bank-wide increase of 83%. However, it alsoreflected implementation difficulties arising out of the Government's budget-ary, procurement and payment procedures, as well as the severe shortage ofmanagerial and technical manpower in Indonesia. A number of steps have beentaken by the Government and the Bank to address these issues. Several specialBank missions have visited Indonesia to analyze the problems and make recom-mendations for simplifying budgetary and financial procedures. The Governmentand the Bank have also instituted formal and regular joint review proceduresto identify general and project-specific problems and work out correctivemeasures. Procurement seminars were held in Jakarta in September 1979,November 1981 and May 1984. As a consequence of these joint initiatives, thegovernment has taken measures to streamline some of the complex budgetary andfinancial procedures affecting project implementation. In addition, in orderto reduce disbursement delays due to initial project implementation difficul-ties, many operations are now being presented for Board consideration at alater stage in the project cycle. The combiaed effects of all of these acti-vities are reflected in the increase in disbursements from US$206 million inFY79 to US$728 million in FY85. It is nevertheless clear that continuedefforts to improve project implementation and the pace of disbursements arerequired, as Indonesia continues to show a disbursement ratio below the Bank-wide average. A number of initiatives are underway. The Bank is helping theGovernment in a special effort to identify problems in the construction indus-try with a view to developing appropriate remedial actions and policies, asweaknesses in the domestic contracting industry have been identified as one ofthe major causes of implementation problems in Indonesia. Efforts are alsounderway to develop standardized tender documents in order to speed theprocurement process, and to improve project monitoring and land acquisitionprocedures. It is the Bank's and the Government's intention to devote conti-nued attention to these and other aspects of project implementation in thecoming year, in order to ensure that maximum benefit is realized from theGovernment's investments, Bank-assisted and other.

4/ The ratio of actual disbursemenzs during the fiscal year to thecumulative undisbursed amount at the beginning of the fiscal year.

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PART III - THE HOUSING SECTOR

21. Housing Demand and Supply. The urban population of Indonesiaincreased at a rate of about 4% per year during the decade of the 1970s,reaching 33 million in 1980, which represented 22% of the country's totalpopulation of 147 million. The urban population is expected to continue grow-ing at a rate of more than 4% per year (almost twice the overall populationgrowth rate) during the next two decades, leading to an urban population of76 million or 36Z of the total by the year 2000. Every year, an estimated2.2 million new urban residents (or 400,000 households) will require housingand urban services. In addition, nearly two thirds of the urban housing stockin 1980-81 was built out of semipermanent or temporary materials (often with auseful life of less than 10 years). The upgrading and replacement of theseexisting dwellings constitutes a significant qualitative backlog. Moreover,about 16% of the estimated 6.2 million urban households in 1980 shared theirdwelling unit with at least one other household, indicating a considerablequantitative backlog as well.

22. The supply of housing is segmented into (a) a formal or regulatedsupply produced in accordance with government regulations by private and pub-lic sector developers who have legal access to land and institutional finance;and (b) an informal or unregulated supply produced by individuals and builderslacking legal access to land and finance and providing an often physicallydeficient and legally insecure shelter. The annual output of the formalhousing developers has ranged from about 40,000 to 65,000 units during thepast five years, with private developers accounting for an increasing share ofthe total (more than 80% Gf total output in 1984-85). This annual outputrepresents less than 20% of estimated annual household formation during thisperiod. Moreover, supply patterns have been shifting during the last fiveyears towards more profitable larger units, and therefore do not correspond tothe structure of demand, which is heavily weighted towards the low cost unitsaffordable by the bulk of the population. In view of the limited formalhousing supply, most urban households have relied on informal builders andcreditors to meet minimal shelter requirements. Informal housing constructionhas been quantitatively very significant, but the widening gap between formalsupply and demand has generated a large qualitative and quantitative backlogof unsatisfied demand for housing (para. 21). To reduce this backlog, thetotal volume of new housing needed during the next two decades will signifi-cantly exceed the estimated 400,000 units per year required to accommodate newhouseholds.

23. Housing Policies, Institutions and Programs. Ove: the past decade,government housing policies and programs have evolved from a relatively margi-nal activity to a key component of social policy. The Government's firstpolicy initiatives in the housing sector began in 1974 with the establishmentof the National Urban De-zelopment Corporation (PERUMNAS) to produce low costhousing, the National Housing Policy Board (BKPN) to coordinate housingpolicy, and a homeownership financing program (KPR) for purchasers of PERUMNAShousing, through the State Savings and Housing Bank (Bank Tabungan Negara orBTN). Although the scale of PERUMNAS' program remained quite limited in rela-tion to overall demand, PERUMNAS steadily expanded its output from 50,000units constructed during Repelita II to approximately 80,000 units builtduring Repelita III. More than half of these were core units of 15-21 m

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built on serviced sites with design standards and costs affordable by lowincome urban families.

24. Government housing policy was ezpanded in 1978 when BTN was autho-rized to provide mortgage finance for housing units built by private deve-lopers and construction finance was made available through the state comuner-cial banks for up to 75% of total construction costs. In addition, theGovernment created a Junior Minister of Housing position under the BKPN (sub-stantially upgraded to full state ministry status in 1982) to more effectivelyformulate and coordinate housing policy, in collaboration with the Ministry ofPublic Works. BTN processed only a few thousand mortgage loans duringRepelita II but its mortgage lending operations increased rapidly duringRepelita III when it processed loans for more than 190,000 units (of which 45%were built by PERUMNAS).

25. By the end of Repelita III, BTN and PERUMNAS had become the dominantinstitutions in the housing sector, under the general guidance of the Officeof the State Minister for Housing and the Ministry of Public Works. The basicpolicy framework established over the previous decade was to build or providemortgage financing for housing aimed at households between the 20th and the80th percentile of the urban income distribution (equivalent to monthlyincomes of about Rp 80,000 and Rp 300,000 respectively in 1985) with theKampung Improvement Program (KIP) addressing the need for shelter-relatedservices for those below the 20th percentile. In general terms, PERUMNAShousing was aimed at those below the median income and the privately builtunits financed by BTN catered to the needs of those above the median income(approximately Rp 175,000 per month in 1985). The housing finance system hascontinued to be dominated by BTN, designated as the main financial interme-diary in the sector. Other institutional sources of housing finance, such asa semiprivate mortgage institution (P.T. Papan Sejahtera) established in 1980,cater to a higher income clientele (over Rp 300,000 per month) on a verylimited scale, averaging less than 1000 loans per year. Apart from BTN andP.T. Papan, there are no other specialized mortgage lending institutions inIndonesia, though some large employers and commercial banks reportedly providehousing loans to their employees and clients.

26. In accordance with Government policy, BTN has provided mortgageloans for up to 90-95% of the value of housing units at highly concessionaryinterest rates ranging from 5-9X over a 5-20 year term. These high loan tovalue ratios and low lending rates have been made possible by an annual flowof government funds into BTN to finance the housing program. The funds usedby BTN to finance PERUMNAS housing have been obtained from yearly budgetaryallocations, and since 1982 all funds for PERUMNAS have been channelledthrough BTN as mortgage finance rather than directly as constructionfinance. BTN's mortgage lending for privately developed units has beenfinanced by low cost (3%) liquidity credits from Bank Indonesia and to a muchlesser extent (about 10Z of funding requirements) from the Tabanas savingsprogram, through which BTN mobilizes individual savings, largely via the postoffice network. Housing is one of the priority programs qualifying for BankIndonesia liquidity credits, through which the Governmenr has traditionallychanneled its financial savings into the banking system to achieve a varietyof development objectives. The low cost of these funds has enabled BIN tomaintain low mortgage lending rates, following government policy in thesector.

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27. Sectoral Issues and Constraints. Although the government policiesand programs described above have led to a significant increase in housingproduction and mortgage financing during the past five years, a variety ofconstraints have limited the impact and potential for expansion of thesesteps. First, artificially low mortgage lending rates have been maintained byBTN through an almost complete reliance on government funds. These lendingrates have in turn sharply limited BTN's capacity to mobilize nongovernmentresources in order to expand mortgage finance. Therefore, the availability ofhousing finance, and hence the supply of housing, has been heavily constrainedby government lending policies.

28. Second, the subsidies implied by BTN's lending Lrms have not beenclosely targetted to the lowest income groups. From the outset, a wide rangeof income groups has had access to subsidized mortgage finance. Moreover, dueto t2e shift in BTN lending in recent years towards the larger units (45-70 m ) produced by private developers, the bulk of the subsidies have in factbeen received by higher income households. Although PERUMNAS expanded its lowcost housing program considerably during Repelita III, BTN mortgage lendingfor privately constructed units increased much more rapidly, in response tothe strong demand for housing finance generated by developers building highlyprofitable larger units. Hence, BTN funds have been increasingly directed tothe corresponding narrower segments of the housing market (i.e., those withincomes above the median). This trend in the composition of BTN's lendingprogram continued into Repelita IV, raising questions about the allocation anddistribution of government resources.

29. In addition to the above-mentioned constraints, a number of problemsof a policy, institutional or regulatory nature have limited the effectivenessof the Government's housing policies. PERUMNAS' lack of autonomy with regardto project selection, pricing, allocation and sales policies, coupled withBTN's loan processing bottlenecks led, inter alia, to the following: (a) slowmortgage loan processing for PERUMNAS beneficiaries, resulting in e largebacklog of unsold units by the end of Repelita III, and a slowdown in the paceof construction due to the lack of sales revenue; (b) preferential treatmentto certain occupational groups (i.e., civil servants) in the allocation ofunits; and (c) construction of housing for which there is limited demand, suchas flats in larger cities, and projects in a large number of small cities tofurther the Government's geographical equity objectives. Land and regulatorybottlenecks have also constrained the supply of housing. Cumbersome proced-ures for land acquisition, combined with land speculation, have increased thetime and cost required to secure adequate land for housing construction.Moreover, the restrictive regulations affecting private land and housingdevelopment (e.g., prohibiting developers from building small units or requir-ing a minimum plot size) and the difficulty and delays in obtaining landtitles have limited access to formal housing finance and restricted investmentin housing.

30. Recent Policy Developments. In September 1985, after extensivediscussion of sectoral constraints (para. 27-29), the Government took severalpolicy initiatives designed to improve sector performance. These measuresincluded: (a) an upward revision of mortgage lending rates to a range of 9-15Z; (b) raising downpayment requirements to 10-40% of house values; (c) theexplicit redirection of BTN's lending program for the remaiuing three years ofRepelita IV towards smaller mortgage loans affordable by lower and middle

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income groups; (d) the introduction of a fully blended system of funding whichlimits low cost government funds for BTN and encourages BTN to mobilize non-government resources; (e) giying developers other than PERUMNAS permission tobuild house types below 36 m ; and (f) guaranteeing access to government-supported housing to any person whose income is below the prescribed ceiling(Rp 300,000 per week) without restrictions based on occupational status. Inaddition, the Government recently initiated specific measures to strengthensector institutions, including managerial, procedural and other institutionalchanges involving BTN and PERUMNAS.

31. The new higher lending terms represent a major change which wouldreduce the magnitude and improve the targeting of interest subsidies, whileallowing BTN to mobilize more nongovernment resources. Although the newinterest rates remain below commercial lending terms (e.g., 18% forP.T. Papan's mortgage loans), with local inflation rates projected at 6% orless in the foreseeable future, interest rates of 9-15Z would clearly bepositive in real terms, in contrast to negative mortgage lending rates overthe past three years. Moreover, this upward revision of mortgage lendingterms constitutes an important step in the context of an overall financialsector strategy of reducing the excessive reliance of priority credit programson Bank Indonesia (BI) liquidity credits (Indonesia, Policies and Prospectsfor Long-term Financial Development, Report No. 5501-IND dated July 10, 1985).

32. The reorientation of BTN's lending program would completely reverserecent trends and channel more than two thirds of BTN loans and almost half ofthe mortgage funds for the remaining three years of Repelita IV to the low-cost units affordable by households at or below the median income (para.42). The changes in the composition of the program would enable BTN to reachmore households at a lower total program cost and target interest subsidiesmore closely to the lowest income groups. To address the large demand forhousing the Government plans to provide mortgage finance for some 325,000units in Repelita IV, of which about 130,000 have already been financed in thefirst two years. The remaining three-year program of 195,000 units would bedistributed in accordance with th2 recently announced policy changes (i.e., atleast 135,000 units would be 36 m units or smaller, affordable by householdsat or below the median income). To achieve this distribution, the Governmentannounced that in addition to PERUMNAS, piivate developers will now also bepermitted to build house types below 36 m . This very important regulatorychange may not be enough to induce private developers to build a large amountof low-cost housing, but it eliminated a key regulatory restriction in thesector. Further modifications in the regulatory and incentive system faced byhousing developers are espected to emerge from a housing market study to becarried out under the proposed loan, which would examine demand patterns andsupply processes for housing and identify specific constraints and solutions.

33. The recent measures taken by the Government, formally announced in aMinisterial Decree dated September 10, 1985, and a letter to BTN's Board fromBI dated September 9, 1985, represent a very significant turning point in theevolution of Indonesian housing policy. These changes in sector policies andrelated regulatory and institutional measures constitute an important step inthe longer term process of sector rationalization and provide the basis forthe proposed Bank loan. To provide a broader context for these measures, theGovernment has prepared a Housing Sector Policy Statement which outlinescurrent and future objectives as well as arrangements for implementation and

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monitoring of recent policy changes. The objectives that the Governmentintends to pursue include: (a) further reducing reliance of the housingfinance system on Government funds; (b) expanding access to home ownership toa broader range of income groups; (c) targetting subsidies more efficiently;(d) eliminating regulatory controls which adversely affect the housing market;and (e) introducing more competition in the mortgage financing market.

34. Experience with Past Bank Lending. Bank involvement in Indonesia'shousing sector dates back to the intitial sites and services componentincluded in the Jakarta Urban Development Project (Loan 1040-IND) whichfinanced some 8,000 serviced residential lots (most with a core unit) and alsoprovided start-up assistance for PERUMNAS and BTN housing activities. Theproject was completed in December 1980 and the Project Performance AuditReport was issued in June 1983 (Report No. 4620). The report noted earlydisagreements over design standards and allocation criteria, but concludedthat the project largely achieved the objective of demonstrating that sitesand services with core units represented a viable approach to the provision oflow income housing. This approach, with a minimum habitable core house oneach site, was accepted by Government and became an integral part of thePERUMNAS program. In the Fourth Urban Development Project (Loan 1972-IND),the Bank renewed its assistance to the housing sector with a component whichfinanced some 11,000 core units in eight cities as well as substantialtechnical assistance for PERUMNAS and BTN. This project is underimplementation and quantitative physical targets and institutional goals havenow been nearly attained. A major lesson of this project has been theimportance of adequate policies (e.g., regarding project selection, pricing,allocation and sales) to complement the increased construction capacity ofPERUMNAS. In addition, the establishment of close links between PERUMNAS andBTN, and more generally the institutional development of BTU, have been shownto be important elements of successful sector performance. These lessons havebeen incorporated in the design of the proposed Loan.

35. Future Lending Strategy. The Bank's approach to the housing sectorhas evolved from the financing of pre-identified site-specific operations, asin the First and Fourth Urban Development Projects, to taking a more globalperspective on the sector and its relationship to the Indonesian economy.Specifically, in processing future lending operations, the Bank expects tofocus most of its attention on issues such as overall program composition,lending terms and conditions, resource mobilization, regulatory constraintsand institutional development, and their links to macroeconomic and financialsector concerns. This lending strategy would address not only the Govern-ment's quantitative goals in the sector, but also key policy and institutionalaims, such as the consolidation of a housing finance system with mortgagelending rates that permit the mobilization of non-government resources, aswell as further strengthening of the key sector institutions. The proposedloan would be the first operation in Indonesia financed by the Bank focussingexclusively on the housing sector, and has emerged from a two-year dialogue onsector issues and significant policy changes have already taken place duringthe process of preparation (paras. 30-33). The rationale for the Bank'sinvolvement would be to continue to act as a catalyst for sector policy andinstitutional changes.

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BANK TABUNGAN NEGARA (BTN)

36. Organization and Management. Bank Tabungan Negara (BTU) was createdby Presidential Decree under the State Savings Bank Act (Act No. 20) of1968. Its original objective of stimulating savings was amended in 1974, whenthe Ministry of Finance assigned BTN the responsibility for mortgage financingof housing units built by PERUMNAS. This new objective was expanded furtherin 1978 when BTN was authorized to provide mortgage financing for housingunits built by private developers. Under the supervision of Bank Indonesiaand the Ministry of Finance, BTN has now become the country's only majorhousing bank, with its key function being the provision of mortgage financingto both publicly and privately developed housing units. BTN is managed by aBoard of Directors comprising a President Director and two other ManagingDirectors all of whom are appointed by the Government for a five-year term.The current Board was appointed in March 1985 and includes a member of theprevious Board as President Director as well as the former head of BTN'sFinance and Accounting Department and a third Managing Director who is new toBTN. The Board members act as Chief Executive Officers making all majorpolicy decisions and supervising their implementation through various "biros"or departments in BTN's head office in Jakarta as vell as BTN's 11 brancheslocated around the countrY.

37. Staffing. Currently BTN has 1,733 staff members, about 20% of whichare employed in its head office and the remainder in the 11 branch offices.Only about 100 staff members are university graduates and over 1,000 are highschool graduates. About 75Z of university graduates are employed in BTN'shead office with the branches having a maximu;m of four and in some cases nouniversity graduates at all. Thus BTN's staff, especially at the branchlevel, has a relatively low level of educational attainment. BTN's new Boardrecognizes that more intensive efforts need to be made to attract qualifiedstaff and to train the existing staff in order to implement more effectivesystems for handling BTN's present and projected volume of operations. Con-firmation was obtained at negotiations that BTN will, as part of itsInstitutional Action Program (para. 38), induct newly recruited universitygraduates and finalize arrangements with the Institution for the Developmentof Banking in Indonesia (LPPI) to provide trainers and assistance to BTN's newTraining Department. BTN has also designated staff in each branch who willact as counterparts to consultants assisting BTN in the implementation of newmanual and automated systems. Consultant assistance would also be providedunder the proposed loan to develop a comprehensive manpower development plan,which would identify in detail BTN's recruitment and training needs.

38. Policies and Procedures. A Policy Statement spelling out key guide-lines and safeguards related to BTN lending and financial operations wasagreed upon at negotiations. The Policy Statement, which would be formallyadopted by BTN as a condition of loan effectiveness, covers, inter alia, thefollowing: (a) BTN adherence to objectives of GOI's housing program,including the composition of the program and financing terms; (b) BTNfinancial policies, to be monitored through key financial ratios; (c) internalpolicies which ensure attainment of objectives; and (d) reportingrequirements. Although the internal policies and procedures followed by BTNare well established, its operational experience with mortgage lending islargely limited to the past five years. With the rapid growth of lending

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volume, deficiencies in several areas of BTN's performance have becomeincreasingly apparent. Although BTN appraisal and supervision of privatedeveloper projects is quite detailed despite the large number of projectsprocessed, branch staff is generally not adequately tkained to perform thesefunctions analytically. As a result, the substantial volume of informationgenerated during this process is not summarized selectively to facilitatemanagement review and there is evidence that BTN's past rules roncerning,inter alia, the size distribution of units within projects and maximum unitprices and applicant incomes have not been followed. Generally lax enforce-ment of BTN's rules and regulations by a Largely untrained staff, lack ofuniform procedures among branches and inadequate safeguards and information,have therefore led to a situation where corporate goals and objectives havenot been satisfactorily achieved. Moreover, the lack of systematic loanaccounting and follow-up procedures has led to increasing payment arrears onBTN's loan portfolio (para. 45). To improve BTN's operational performance,its new Board has already taken steps to gain better control of branch opera-tions (e.g., efforts to improve arrears management) and provide expanded stafftraining. Measures to strengthen its operational performance and specificchanges in certain practices have been agreed with BTN's management and areincorporated into the Institutional Action Program, with technical assistanceprovided under the proposed loan for new systems implementation, manpowerplanning and a management adviser. Assurances were obtained at negotiationsthat BTN would implement the program according to a schedule agreed with theBank and BTN would periodically review with the Bank progress made in thevarious areas.

39. Links with PERUMNAS. BTN's initial mortgage lending activities wereclosely linked to the public housing program built by PERUMNAS, and until1982-83, PERUMNAS accounted for more than half of BTN's annual lending opera-tions. However, due to the bottlenecks described below, loans for units builtby PERUMNAS have declined in the past three years, and the resulting salesbacklog and drop in sales revenue has slowed the PERUMNAS construction pro-gram. In contrast to its treatment of private developers, BTN has untilrecently processed loans for the beneficiaries of PERUMNAS projects withoutappraisals or commitment letters for these projects. However, after 1982,PERUMNAS stopped receiving budgetary funds directly and therefore requiredBTN's commitment letter in order to obtain construction finance for its pro-jects. Since BTN has been receiving budgetary funds earmarked for PERUMNASmortgage loans, it has given commitment letters without requiring detailedproject appraisals. However, BTN has raised questions at later stages aboutPERUMNAS projects and beneficiaries, slowing down loan origination even thoughthe units were in most cases already allocated. In mid-1985, some 43,000 com-pleted PERUMNAS units were awaiting mortgage loan processing by BTN, althoughthis backlog was stibstantially reduced in early 1986 by an emergency salesprogram (para. 40).

40. There are several reasons for the operational problems which arosebetween BTN and PERUMNAS, including: (a) a lack of early contact betweenPERUMNAS and BTN staff regarding project and beneficiary selection; (b)inadequate BTN staff for loan processing at the required time and place; (c)delays by PERUMNAS in establishing the sales price of the units, since untilrecently this was done by its parent Ministry (Public Works); (d) the lack ofan immediate sale policy (i.e., the practice of allowing beneficiaries to movein before loan processing); (e) unmarketable units built by PERUMNAS in small

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towns due to external pressures; and (f) a variety of specific problemsranging from irregular plots which differ from those indicated in the originalcommitment letter to inadequate downpayments and disagreements over thecreditworthiness of some PERUMNAS beneficiaries. These problems have now beenidentified in detail and regular meetings are now caking place between theBoards and senior staff of the two institutions to resolve them. BTN hasspecifically committed itself to create, inter alia, "flying brigades" tosupplement local branch staff if necessary, and initiate regular appraisals ofPERUMNAS projects as part of the commitment letter process in order to ensureearly interaction with PERUMNAS and facilitate subsequent loan processing.PERUMNAS has developed and discussed with BTN a detailed inventory of allprojects and the specific bottlenecks affecting loan processing in each. Inaddition to this ongoing emergency sales program to clear the backlog ofunsold units, PERUMNAS management has agreed to implement an InstitutionalAction Program which incorporates measures to prevent future backlogs and willimprove the agency's operational and financial performance for the remainderof Repelita IV and beyond. The content of this Action Program and a detailedtimetable for implementation and review was agreed at negotiations.

41. Past Operational Performance. BTN's lending operations duringRepelita III expanded at a remarkably fast pace, as the demand for housingfinance increased rapidly and funds were made available from GOI's budget andBank Indonesia. BTN's mo-tgage loan portfolio increased sharply from only5,260 units financed du:±ng Repelita II for a mortgage value of Rp 11.6 bil-lion to 191,938 units during Repelita III for a total mortgage value ofRp 593.1 billion. Due to the bottlenecks mentioned above (para. 40), BTN'slending operations during t!Lis period were increasingly directed to the largerand higher cost housing units built by private developers rather than the lowcost housing built by PERUMNAS. Of BTN's total mortgage lending duringRepelita III, only 41% of the Ioans and 18X of the funds were for the smallercore housing units (below 36 m ) which were affordable for households at orbelow the median urban income. More than 85% of the PERUMNAS units financedby BTN during this period were core housing units while only 5Z of privatelydeveloped units were in thi s category. The remaining units financed by BTNranged in size from 36-70 mi, and 36X of the total funds disbursed weredirected at units in the 60-70 m range, which were affordable only byhouseholds above the 80th percentile.

42. Repelita IV Program. BTN's lending program for Repelita IV callsfor the financing of some 325,000 housing units, of which about half would bebuilt by PERUMNAS and the remaining half by private developers. In the firsttwo years of Repelita IV, BTN has financed about 130,000 units (of which 37%are PERUMNAS units) for a total of Rp 728.7 billion. Of this total, only 39%of the loans and ibout 14% of the funds have been directed to the smallerunits (below 36 m ), affordable by households ai or below the median income,while the largest units ranging between 60-70 m consumed about 40% of thefunds. BTN's lending program for the remaining tF ee years of Repelita IVcomprises financing commitments for nearly 195,000 housing units for a totalof about Rp 1,023 billion in current prices. Based on decisions taken at thehighest level in c-overnment (paras. 30-33), the future lending program hasbeen significantly reoriented and targetted towards smaller, lower cost unitsaffordable to lower and middle income groups. Specifically, more than twothirds of the total number of units to be financed by BTN in the rpmainingthree years of Repelita IV would be the smaller units below 36 m2 affordable

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at or below the median income under the new lending terms and conditions.About one half of the mortgage funds to be disbursed by BTN would bechannelled to households in the bottom half of the income distribution. Anagreement was reached at negotiations that BTN's lending program would bereviewed periodically with the Bank and revisions or corrective mfeasurestaken, if needed, to ensure compliance with the agreed overall composition ofthe program.

43. Recent Financial Performance. Between FY1981/82-FY1984/85, BTN'stotal assets more than tripled to Rp 991 billion in FY1984/85. BTN's mortgageloan portfolio was valued at Rp 817 billion by the end of March 31, 1985,representing about 82% of its total assets. BTN's lending operations havebeen funded primarily from GOI contributions in the form of quasi-equity andBank Indonesia liquidity credits with a concessional interest rate of 3% p.a.,in addition to the funds mobilized through its own resources. BTN mobilizedthe largest amount of the funds through liquidity credits from Bank Indonesia,which funded 68% of the total housing loan portfolio in FY1984/85, followed byGOI contributions (20%) and BTN's own resources (12%).

44. BIN's income increased more than fivefold between FY81/82 andFY84/85 to Rp 78 billion in FY1984/85. BTN's operations, which reached thebreak-even level in FY81/82. showed a significant profit of Rp 5.2 billion inFY82/83 and this profit further increased almost fourfold to Rp 19.8 billionin FY1984/85. The return on equity increased steadily over this period andreached 8.6% in FY84/85 as compared to 0.2% in FY81/82 and 5.8% in FY82/83.This performance was primarily due to a decline in the cost of funds relativeto interest income and a considerable decrease in the ratio of payroll coststo income. In FY1984/85 BTN earned an average interest income of 7.9% onaverage total assets and its average cost of funds was 3.0% of total assets,yielding an interest spread of 4.9Z in FY1984/85 as compared to 3.0% inFY1981/82. This substantial increase in its interest spread, due to a greaterproportion of low cost funds being used for the more profitable larger units,clearly contributed to BTN's increased profitability over this period.

45. Regarding the quality of BTNs loan portfolio, arrears in principaland interest on its portfolio amounted to Rp 11.7 billion as of March 31,1985, representing 1.4% of the entire outstanding portfolio. These arrearsfigures probably overstate the problem since they include payment delays ofone month and do not take into account unrecorded aggregate payments receivedby BTN from paymasters and other banks for which loan accounts have not beenclearly identified. Nevertheless, BTN's loan portfolio affected by arrearsincreased considerably from 0.8% in March 1982 to 1.4% in March 1985. Signi-ficant risks to BTN's cash flow and financial position would arise if thesearrears on installments receivable continued to grow and, more important, ifthey reflected uncollectable loans which needed to be written off. The reori-entation of its portfolio to lower cost units targetted at lower income house-holds could well increase the risk of growing arrears. BTN recognizes thispotential problem and has initiated a "crash" program to collect overdueinstallments, as well as a more systematic effort to improve arrears manage-ment which has been agreed with BTN as part of its Institutional ActionProgram.

46. Future Financial Performance. It is estimated that new housingLoans valued at Rp 470 billion were disbursed by BTN in FY85/86, and a further

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Rp 1,023 billion would be disbursed during the program period (FY86/87-FY89/90). BTN's net housing loan portfolio of Rp 817 billion in FY84/85 isprojected to increase to Rp 2,033 billion by the end of FY89/90, representingmore than 85% of the total assets throughout the program period. Interestincome from housing loans will increase substantially over the program period(FY86/87-FY89/90), reflecting the recent change in interest rates on BTN's newhousing loans. However, since BTN will be relying less on low-cost governmentresources, its cost of funds is also expected to increase. BTN's financialprojections indicate that BTN's spread and profitability will remain at asatisfactory level over the program period despite its increased cost offunds. The net interest spread would be at least 32 over the next few yearsand net working capital would increase steadily as the current ratio reaches2.7 by the end of FY88/89. Over the project period, BTN would maintain itssound financial position, as indicated by the current, debt service, anddebt/equity ratios. The current and debt service ratios would be maintainedabove a minimum level of 1.5 and 1.2 respectively, while the debt/equity ratiowould remain below a maximum of 6.0. The projections assume that BTN wouldtake all necessary actions to improve the collection of principal and interestreceivables and to avoid arrears on mortgage loans to a maximum extent duringthe project period.

47. Resource Requirements. BTN's projected resource requirements on adisbursement basis amount to a total of fp 1023.4 billion for the projectperiod FY86/87-FY89/90. The resources from GOI, BI and IBRD would cover about68% of the financing requirements, with BTN covering the remaining Rp 329 bil-lion. BIN will rely mainly on savings operations and internal cash generationthrough its lending operations to meet its share of the projected resourcerequirements. The financial projections indicate that BTN should be in a goodposition to meet these requirements. Although these projections show a com-fortable level of cash reserves, in view of GOI's budgetary limitations, BTNmay face some uncertainty regarding the expected GOI contributions. Thedetailed financing plan for the period FY86/87 to FY89/90 was reviewed andconfirmed during negotiations. In the future, BTN intends to mobilize addi-tional non-government resources through several new instruments, includingtime deposits aimed at institutional investors and a saving-for-housing schemefor the general public. These new instruments are now being designed andtested by BTN and are expected to make a significant contribution to financingBTN's lending in the medium-term.

PART IV -- THE PROJECT

48. Project Origin and Formulation. The proposed project was identifiedin the context of a sector review in November 1983. This review identifiedthe key areas of policy reform needed to enable GOI to achieve its objectivesand targets. The recommendations of this review were a subject of extensivediscussion between the Bank and the Government over a period of nearly twoyears. In September 1985, the Government announced significant changes insector policies (paras. 30-33). The project was prepared by the Office of theState Minister for Housing, with BTN and PERUMNAS assistance. The project wasappraised in October 1985, and a postappraisal mission visited Jakarta inFebruary/March 1986. Negotiations were held in Washington, D. C. on May 5-9,1986. The Indonesian delegation was Led by Mr. Oskar Surjaatmadja, Director

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General for Domestic Monetary Affairs, Ministry of Finance. SupplementaryProject Data are in Annex III. The Staff Appraisal Report (No. 6053-IND) isbeing circulated separately to the Executive Directors.

49. Project Objectives and Description. The objectives of the proposedproject, in line with GOI goals for Repelita IV, would be to: (a) expandaccess to housing finance for low and middle income households; (b) reduceoverall subsidies and target the remaining subsidies to the lowest incomegroups; (c) reduce the reliance of the housing finance system on governmentfunds and introduce new instruments for resource mobilization; (d) stimulatethe production of more low-cost housing by both public and private developers;Ce) generate employment at low foreign exchange costs; and (f) strengthen thekey institutions in the housing sector, namely the BTN and PERUMNAS, andassist the Office of the State Minister for Housing in developing andmonitoring housing sector policies and programs. The proposed loan would havethe following components: (a) a credit line to BTN which would be used tofinance a share of total mortgage lending commitments during the last threeyears of Repelita IV (para. 42); and (b) technical assistance and computersand other equipment for BTN and PERUMNAS to strengthen their operational per-formance and management, and for the Office of the State Minister for Housingto develop its capacity for housing policy formulation and monitoring. Thetechnical assistance for BTN and PERUMNAS would include: assistance in theimplementation of new systems, manpower planning studies and advisory servicesfor management, project monitoring and computerization. The technical assist-ance for the Office of the State Minister for Housing would include a study ofhousing market behavior in urban Indonesia focussing on demand patterns andsupply constraints, a postconstruction study of low-cost housing projects, andadvisory services for housing policy analysis and a study of land titl.ngbottlenecks for BTN-financed housing. Detailed terms of reference have beenagreed upon for technical assistance. BTN consultants would be appointedbefore loan effectiveness.

50. Project Costs. The total cost of the housing program for whichfinancing commitments would be provided during the period 1986-1987 to 1988-89(described in para 42) is estimated at Rp 1,322.8 billion (US$1,202.6million), of which US$169.3 million, or 20%, are estimated to be direct andindirect foreign exchange costs. Taxes and duties are estimated at aboutRp 66 billion (US$60 million). The base cost estimates for the housingprogram (expressed in December 1985 prices) are based on unit sales prices forhousing units of the type to be financed under the project, which are in turnbased on the actual experien e of recent PERUMNAS projects and the annuallyrevised maximum prices per m set by the Directorate General of HumanSettlements (Cipta lCarya) of the Ministry of Public Works and followed byBTN. Costs for the technical assistance component (US$6.1 million) includeabout 600 man-months of consultant services, of which about 145 are foreignconsultant services, as well as equipment and training (US$.8 million).Estimated price increases over the project period amount to about 13% of basecosts. Price increases for local costs are estimated at 6% p.a. and forforeign costs at 7.2% for 1986, 6.8% for 1987 and 1988 and 7.0Z for 1989.

51. Financing Plan and On-lending Terms. The proposed Bank loan ofUS$275 million would finance the housing program's full foreign exchange costof approximately US$240.5 million and US$28.4 million of local costs, as wellas the full cost (US$6.1 million) of technical assistance. In addition to the

- 20 -

Bank's 23% sharep the other sources of funds which would finance the balanceof the program include beneficiary downpayments (23%) liquidity credits fromBank Indonesia (13%), budgetary funds from the Ministry of Finance (16%) andresources mobilized by BTN itself (25Z). The proposed Bank loan would be madeto the Government, which would on-lend to BTN the portion earmarked formortgage Loans (US$268.9 million) under a Subsidiary Loan Agreement. The on-lending rate for BTN would be fixed at 11.5% with a 20-year term, including 5years of grace. The Government would bear the foreign exchange and interestrate fluctuation risks of the Bank loan which are expected to be covered bythe spread between the Bank's current rate and the proposed on-lending rate toBTN. The remainder of the Bank loan (US$6.1 million), which would financeconsuLtant assistance and equipment, would be passed on to the Office of theState Ministry for Housing, and to BTN and PERUMUAS under Subsidiary LoanAgreements. The signing of the Subsidary Loan Agreements with BTN andPERUMNAS would be conditions of effectiveness. These on-lending terms andconditions were confirmed at negotiations. In addition, arrangements betweenBTN and Bank Indonesia for provision of Bank Indonesia financing of US$162million equivalent in liquidity credits at a rate of 3% p.a. for a 20-yearterm, would be formalized as a condition of loan effectiveness.

52. BTN would use the proceeds of the Bank loan to finance loans toeligible borrowers at its new lending terms and conditions. BTN's lendingterms are of three types, differentiated according to mortgage loan size:Type A: 9% interest over 20 years with a 10% down payment, applicable tomortgage loans of Rp 3.5 million or less (1985 prices); Type B: 12% interestover 20 years with a 20% down payment, applicable to mortgage loans of betweenRp 3.5 and Rp 5.0 million; and Type C: 15% interest over 20 years with a 25%down payment, applicable to mortgage Loans of between Rp 5.0 and Rp 7.7 mil-lion. The mortgage size ranges to which the above terms would be appliedcorrespond2 to various house types. Type A terms would apply to housing unitsof 15-21 m , Type B terms would apply to units of 27-36 m , and Type C termswould apply to the remaining units in the program, although down-paymentrequirements would differ for the largest (70 mO) units and the flats includedin the program. The mortgage loan sizes to which the different terms wouldapply would be updated periodically to take into account revisions in CiptaKarya's maximum unit price guidelines, and in consultation with the Bank.

53. Eligibility, Review and Approval Procedures. Eligibility for BTNfinancing would be determined through the appraisal of projects and individualloan applicants. BTN's eligibility criteria would be revised in accordancewith GOI's new policies, including, inter alia, the following specific revi-sions: (a) the required size distribution of units wi 2hin projects would bemodified to at least a 70/30 ratio between small (36 m and below) and largehouses; and (b) monthly income of the borrowers receiving mortgage loans wouldnot exceed Rp 300,000 (roughly equivalent to the 80th percentile) and allapplicants meeting this income criterion would be eligible, regardless ofoccupation. The revised criteria would be incorporated into BTN's PolicyStatement. All developer projects and individual mortgage applicants who meetBTN's revised eligibility criteria would be eligible for Bank financing. Inaddition, steps would be taken under the PERUMNAS Institutional Action Programto adopt a lottery system for allocation of units to eligible applicants.Most of the approximately 300 privately developed subprojects appraised andfinanced by BTN annually in the past 2 years comprise between 50 and 300units, with total financing ranging from about Rp 250 million (US$227,000) to

- 21 -

Rp 2.1 billion (US$1.9 million). About half of PERMUNAS' 30 new projects peryear comprise more than 300 unitsi but the individual loans are typicallylower, so total financing costs are in the same range. Initially, allsubprojects with a total financing cost exceeding Rp 1.3 billion (US$1.2 mil-lion) or exceeding 250 housing units (whichever is lesa) would be reviewed andapproved by the Bank prior to approval by BTN. BTN would, before approving acomuitment to a developer, submit a completed Subproject Appraisal Summary tothe Bank (in an appraisal format agreed at negotiations) for each subprojectabove this free limit. For subprojects below this limit, BTD would alsocomplete and retain a Subproject Appraisal Summary and these subprojects wouldbe subject to a posteriori review by the Bank on a sample basis. However, ifthe first 20 projects reviewed are acceptable, the Bank would considerincreasing the subproject free limit during the loan period. The Bank wouldalso review the proposed annual programs of PERMUNAS and a periodic sample ofindividual subloans for different types of units.

54. Procurement. About 99% of the proposed loan would finance BTNmortgage disbursements, and would thereby indirectly finance civil works andgoods contracts for infrastructure and housing construction. For all con-tracts indirectly financed by the loan, procurement procedures specific toeach type of developer, public and private, would apply. PERUMNAS, which isexpected to account for about half of the loan would award most civil workscontracts following Local Competitive Bidding procedures which are satisfac-tory to the Bank and lead to ef_cient housing construction. Individualcontracts placed by PERUMNAS typically do not exceed about US$1 million, dueto its practice of subdividing construction on individual sites into severalcontracts tailored to suit local contracting capacity. Where possible,PERMUNAS will package work in general contracts suited to larger contrac-tors. Contracts exceeding the equivalent of US$5 million would be tenderedunder International Competitive Bidding procedures, where prequalification ofinterested bidders shows that foreign bidders can be expected to compete.PERUMNAS has already acquired suitable sites to fulfill most of the RepelitaIV housing program and has initiated land acquisition arrangements for theestimated remainder of 800 ha. Private developers, which are expected toaccount for the other half of the loan, typically use a mixture of outsidecontracting and in-house workforces to execute construction. Followingprocurement practices laid down by BTN, they are required to engage a licensedarchitectural/engineering firm to prepare designs and certify constructioncompliance with specifications, and both BTN and the relevant local authoritybuilding inspectorate scrutinize design and construction practices. AboutUS$6.1 million of the loan would be used to finance technical assistance andequipment for institutional development. Equipment would be procured eitherby local prudent shopping or directly from manufacturers to ensurecompatibility with existing equipment on terms and conditions satisfactory tothe Bank. Consultant services would be procured following Bank guidelines.

55. Disbursement. The proceeds of the proposed Bank loan of US$250million would be committed over a period of three years (mid-1986 to mid-1989), and expected to be fully disbursed in four and one half years, with theclosing date set at December 31, 1991. The disbursement projections are basedon actual and expected performance in the sector. However, the pace of actualdisbursements would be a function of the ability of PERUMNAS and privatedevelopers to generate projects and BTN's capacity to process the associatedloan volume. In view of the large number of small subloans, disbursements

- 22 -

would be made by the Bank periodically on a reimbursement basis, coveringabout 29% of BTN's total eligible mortgage disbursements over the programperiod, against Statements of Expenditure for an aggregate value of not lessthan US$500,000 submitted by BTN. The supporting documents would be retainedby BTN and be available for inspection by the Bank. Disbursement percentageswould be linked t? the size of units financed by BTN, i.e., 50% for thesmallest (15-21 m , Type A loans), 45% for the medium-size (27-36 m2, Type Bloans) and 40Z for the larger (45-54 m2, Type C loans). Disbursements formortgages of type C would not exceed US$60 million (22% of total loan pIoceedson-lent to BTN), and the Bank would not disburse against loans for 70 munits, flats or dormitories. Retroactive financing of up to US$15 millionwould be provided, to cover BTN disbursements between April 1, 1986 and thedate of loan signing. Disbursement for consultant services would be 100% ofexpenditures. For equipment, the disbursement rate would be 100Z of foreignexpenditures; or 95% of local expenditures (ex-factory); or 65% ofexpenditures for locally procured items.

56. Accounts and Audits. Assurances were obtained at negotiations thatBTN would maintain procedures and records adequate to monitor the progress ofits operations and financial condition. BTN's accounting systems and internalcontrol procedures are presently deficient and need to be improved. BTN's1983 and 1984 financial statements were given a qualified audit report by theState Audit Agency (BPKP), due mainly to discrepancies in financial accountsbetween headquarters and branches, and there have been substantial delays inthe submission of the 1984 audited financial statements. However, the 1984audit report showed significant improvement, reflecting steps taken to addressthese deficiencies by appointing a special audit team to review and clarifythe discrepancies in certain accounts, training internal audit staff, andappointing a public accounting firm to assist in strengthening internal auditand control functions. Assurances were obtained at negotiations that BTNaccounts would be auditied by independent external auditors satisfactory tothe Bank, apart from the assistance being contracted for its internal auditingunit, and that the auditors' reports, together with BTN's audited financialstatements, would be submitted to the Bank not later than nine months afterthe close of each financial year. Under the proposed loan, technicalassistance would be provided to BTN- to strengthen, inter alia, its accountingand auditing practices, particularly in the area of Loan accounting.

57. PERUMNAS has also received qualified audit reports in recentyears. For PERUMNAS, the principal qualification has been insufficientdocumentation of financial transactions incurred in the period 1975/76-1982/83. Steps have been taken to review and determine the amount of theseaccounts by a special audit team appointed by BPKP and the management ofPERUMNAS. Other steps to be taken have been included in the InstitutionalAction Program for PERUMNAS and involve implementation of new accountingsystems with ongoing consultant assistance.

58. Monitoring Arrangements. The Bank would monitor the progress of theproposed program with the help of quarterly reports, financial statements andsupporting documents which would be submitted to the Bank by BTN and theOffice of the State Minister for Housing within one month after the end ofeach quarter. The format of these reports and the related reportingprocedures were agreed at negotiations. In addition, BTN would prepare andsubmit annual operating plans covering all of its activities. These

- 23 -

monitoring procedures would be supplemented by supervision missions.Supervision effort would initially concentrate on monitoring BTN's adherenceto new policies and procedures in its lending operations and on theInstititutional Action Programs of BTN and PERUMWAS. In addition to BTN'sreporting requirements to the Bank, the State Minister for Housing would chaira Coordinating Comittee which would monitor the program. The Office of theState Minister for Housing, in collaboration with BTN and PERUMNAS, wouldprepare the Project Completion Report.

59. Project Benefits. In quantitative terms, the project would providemortgage finance for nearly 195,000 housing units built by the public and pri-vate sector, thus easing one of the key constraints to a larger housingsupply. Moreover, the project would reorient the housing program by modifyingthe size distribution of the units financed towards the smaller units afford-able by lower and middle income households, in sharp contrast to the recentpattern of mortgage finance (paras. 41-42). Specifically, more than twothirds of the units and half of the morLgage funds would be directed to bene-ficiaries with incomes at or below the median. The social or impact of theproject would therefore be very significant. It is estimated that at leastone third of the more than one million people benefitting from the projectwould be below the urban relative poverty threshold for Indonesia (estimatedat US$245 per capita in 1983 prices). Moreover, it is estimated that housinginvestment of the magnitude proposed under this project would generate roughly340,000 person-years of direct employment and approximately 135,000 person-years of indirect employment in the building materials industry.

60. Economic Rate of Return. The economic rate of return for the pro-ject was calculated using the following assumptions regarding project benefitsand costs. Imputed rents were estimated using data on market rents for dwell-ings of various sizes in three urban locations in Indonesia. Using thismeasure of benefits, as well as the total costs of the housing program (net oftaxes) and annual maintenance costs, the economic rate of return was estimatedat 15Z. More exte,nsive and reliable rental data would probably yield a muchhigher economic rate of return due to the limited supply and strong demand forwell-located low-cost housing units. In addition, the economic justificationof the project would be enhanced by considering the incremental benefits ofsubsequent housing improvements made by beneficiaries, the benefits brought byche project to low income people who rent space from the beneficiaries and thepossible lowering of the rate of increase of housing rents due to increasedsupply.

61. Project Risks The major risks associated with this projectinclude: la) the possibility that institution-building efforts at BTN couldbe prolonged and consequently BTN's effectiveness in performing the functionsassigned to it under the project would be reduced; (b) the risk that BTN willnot fully implement GOI's new policies regarding the size distribution atunits and that its recent lending patterns will continue; (c) the risk thatbecause of loan processing and other problems, PERUMNAS' delivery capacitywill be limited; and (d) the risk that higher income groups will appropriatethe low-cost housing targetted for lower income groups, due tc strong demandand limited overall supply of housing. These risks have all been taken intoaccount in designing the project and are believed to be manageable through theBTN Policy Statement, Institutional Action Programs, technical assistance andperiodic progress reviews.

- 24 -

PART V RECOMMENDATION

62. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank and recommend that the Executive Directors approvethe proposed loan.

A. W. ClausenPresident

AttachmentJune 2, 1986Washington, D.C.

-25- NNEX IPage 1 of 6 pages

%M%n Evwn ai_ im)5 NM (MR ugcw ow) #

iwtooL twob unms ASIA & *ACIPtC L.r. AIRICA4 CO

i- t.uhafl g. 0TOTAL l1ol.3 191o.3 1919.3

MRIOILTU3|a. 296.W 307.1 31.35

PM cQ (go) *- * 60.0 1011.1 1875.9

tZIlo OPr OUl .IQUIVALT) U.O 93.0 191.0 536.8 913.6

Pormatil ND* VIRAL 31A!13110POPULATION.MD-TRAR CTMOU3*ANDS) 94480.0 114201.0 1 53469.00334 POPULATION C OF TOTAL) 14.6 17.1 24.1 33.9 67.7

POPIILATIOU PUOZRCTIOUPOPULATION IN Tan 2000 (CILL) 212.0STATIORI POPULATION CHILL) 368.0POPULTION HONIUDI 1.3

POPULATION DES111IPR 3Q. Ml. 49.3 60.5 61.1 386.9 44.0mm sq. M1. AR. LAN 319.3 375.4 483.4 1391.2 91.1

POPULATION Ml9 STuCTU3it (3)0-14 1TA 40.7 4.0 40.6 33.2 38.3

15-64 13. 36.2 53.4 55.0 57.7 57.165 AMD AS0 3.0 2.3 3.5 3.5 4.2

POPULATION G1OlS Ra CZ)TOTAL 2.1 2.0 2.2 2.3 2.4uRBA 3.7 3.6 4.3 4.1 3.6

CRUDE 3III Ra (MER iNOUS) 44.2 41.0 34.0 30.1 30.9*UDE ORATE uam (M s) 22.9 17.6 12.S 9.4 *.0-23 BR3UucTIOU RATE 2.7 2.7 2.1 1.9 2.0

FAIL PLNINFLAMACMOEB. TIAL U0) .. 13l. 3051.0 /.usas CZ or *REIR WuN) .. .. 58.0 56.5 45.3

FOOD AM 02IUW1I1 0K OOD roPa. PE CAPITA(1969-71-100) 93.0 102.0 123.0 124.4 109.6

PR CAPA SUPLr OFC*LORIES (Z 0F 1R1TS) 79.0 92.0 112.0 115.7 113.2p31ms (cam M DAY) 34.0 41.0 53.0 60.3 69.4OF HIIIH ANDIL AND PUE 6.0 6.0 7.0 /A 14.1 34.2

CEIILD (AGZS 1-4) DRA13 RATE 21.9 13.1 13.0 7.2 4.8

LIFE 31Cr. AT SI2D (SM) 41.2 47.0 53.5 60.6 64.3IN=A M . RATE (M THWS) 150.0 121.0 101.0 64.9 59.7

ACSS TO SAVE NATE (CR0?tOAL .. 3A 23.0 *4.0 65.3URN .. 10.0 40.0 57.6 76.5RURAL .. 1.0 18.0 37.1 44.2

ACCZeSS TO EXCRT& DI3POSAL(I o POFPULATIOUI

TOTAL .. 15.0 23.0 50.1 56.3URBAN .. 19.0 20.0 52.9 73.458*L .. 14.0 24.0 ".7 25.5

POPULATICO PE PRSICIA 46760.0 26510.0 11530.0 / 7751.7 1909.7POP. Pm NUS N PERSON 4310.0 L 7680.0 2300.0 2464.8 303.2POP. PER OSPITAL RED

TOTAL 1360.0 1650.0 1720.0 h 1112.1 362.0WUAN 250.0 .. 700.0 J 651.4 422.0

RURAL .. .. 3160.0 2596.9 2716.7

ADNISSICUS PER EDSPITAL IED .. .. .. 41.1 27.5

AVIRAGE SUZE OF HOOSENOLOTOTAL 4.4 4.3URBAN 4. 5.3 .. .RURAL 4.3 4.7

AtERAGZ N0. Or PRSOKS/ROOKTOTAL .. 1.5IURBA .. 1.6

RDURL .. 3.5 . ..

PRCUrITMCE OF MIELLINGS VIT- ELCT.TOTAL .. ..ORN ....

38*1 .. .. . ..

AMNEX I

- 26 - Page 2 of 6 pagesINDONESIA - SOCIAL INDICATORS DATA SHECTINONESIA REFERZNCE CROUPS (EIGUITED AVERAES) /a

HN;T (MOST RECENT ESTINATE) /b1sso/-k 1 97 n1bRECECNT MIDDLE INCOME MIDDLE INCOME

1960t! STiIT/b ASIA 4 PACIFIC LAT. AMERICA S CAR

ADJUSTED ENROLLMENT RATIOSPRIMARY: TOTAL 71.0 77.0 I00.0 100.7 106.7

MALE 16.0 03.0 106.0 104.4 108.5FENALE 58.0 71.0 94.0 97.2 104.6

SECNDARY: TOTAL 6.0 15.0 33.0 47.8 46.2MALE 10.0 20.0 38.0 50.6 42.7FEMALE 3.0 10.0 27.0 44.8 44.9

VOCATIONAL (Z OF SECONDART) 20.4 22.1 13.9 18.4 13.3

PUPIL-TEAZE RATIOPRIUARY 39.0 29.0 29.0 30.4 29.9SECONDARY 14.0 13.0 16.0 2Z.2 16.7

COUTIONPASSENGER CARS/THOUSAND POP 1.1 2.1 4.4 ic 10.1 46.0RADIO RECEIrERS/THOUSAND FOP 7.2 21.9 131.2 172.9 328.3TV RXCEIVElISTIUWSAD POP 0.1 0.8 22.6 58.5 112.4MUSPAPER (DAILY GUIRAL

INTEREST") CIRCULATIONPER TIIOUSAND POPULA?ION 11.0 .. 14.9 65.3 91.1

CINEMA ANNUAL ATTENDANCE/CAPITA 2.8 .. 1.0 Ic 3.4 2.4

1M FORCETOTAL LABOR FORCE (TOWS) 34791.0 41090.0 54417.0

FEMALE (PERCENT) 27.8 30.9 29.3 33.6 23.6AGRICULTURZ (PERCET 75.0 66.0 58.0 Ic 52.2 31.4INDUSTRY (PERCENT) 8.0 10.0 12.0 T 17.9 24.3

FARTICIPATION RATE (PERCErN)TOTAL 36.7 35.4 35.0 38.9 33.5MALE 54.2 49.5 49.6 50.8 51.3FEMALE 20.0 21.6 20.4 26.8 15.9

ECONMIC DEPENDENCE RATIO 1.2 1.3 1.3 1.1 1.3

loca= DISUIUTISPERCENT OF PRIVATE INCQZtECEIVED BYHIGHEST 5S OF MOUSEOLDS .. .. 23.5 I..HIGHEgr 20X OF DOSEOLWDS .. .. 49.4 48.0LWEST 20S OF HOUSEHOLDS .. .. 6.6 6.4LOWEST 4*O oF HOUSEHOLDS .. .. 14.4 7i 15.5

ESTDIATED ABSOLTE POVERTY INCOMLEVEL (USS PER CAPITA)

URDUM .. 124.0 /h 124.0 /h .. 280.3RWUAL .. 106.0ok th 10.o 7iT 151.9 185.3

ESTIMATED RELATIVE POVERTY lNCOMLEVEL (USS PEL CAPITA)

URU .. .. 119.0 /b 177.9 519.8RURAL .. .. 98.D 7 164.7 359.7

ESTMATED POP. BELOW ABSOLUTEPOVERTY INCOME LEVEL CE)URN .. 51.0 /h 26.0 /h 23.5RURL .. 59.07S 44.o7i; 37.8

NOT AVAILABLZNOT APPLICALE

N O T E S

/a The group avarages for each inadcator are population-weighted aritbeetic fmana. Coverage of countriesaong the indicators depends on availability of data aad is not uniform.

/b Unless otherwose noted. 'Data for 1960" refer to any year between 1959 and 1961; "Data for 1970" betveen1969 and 1971; and data for 'Most Recent Estimate" between 1981 and 1983.

/c 1980; /d 1977: /a 1979; /f 1962; /I 1976; lh 1980 pric".

JUNE, 1985

-27- ANNEX IPage 3 of 6 pages

DW ITUfmm OF SOCIAL M11CA101111

e_pibi hi. od ts lack ofiadm dhlou md oseu _ad by iin omui h uhtqsedn.l.da m isil,idd~KMrob aiu of inexiiinda. indin. oNMb NaW chsmmhainsl .qfto dhfinmb.".a oommul&no u romp am (I) ft-womtry pow of ido meW.' ineany am (2) a *iUy VWg nub Asmauh, ar nr asp I_o,_ tam thu any

jo.hsaue_in). 1. thu _ os dma se awa ampoar uimws aishmd a fir nicaso, _ ouly wyw t(th.coutin inaroep emudaa Ibrtb tbha im eSlmtheonwra tof counirimamoqthe tadlr dapuudlav.i tilsy ofdad ad not unia..

eaion m_umbei iusad in agum efoanndlnsarsao4mThsavamps_ o amonly mmlii ocorpariag wa f m laideCAo adt aiMtd cay and N I amnosn

AREA (dtousand sq.im.) CMd* hB Rare (pw rthno)-Numberoflive birts in the yearrbrd-Total surfae ame compnrnS land area and inland waer per tousnd of mid-yar popudaion 1960.1970. and 193 data.1960.1970 and 1983 dat. Cr;* Dend R.m (pr c1lm.and)-Number of deat in the year

gF -Estime of agricultual are used temporaily or per thoused of mild-yer popWlatio 1960. 1970. d 1983 data.peranenldy for crop. patures, market and kitchen grdens or to Graso Aproin RdeC -Average number of daughters a womanle fallow. 1960. 1970 and 1982 data. wiu bear in her normal rproductive period if she expene

prment age-dfciic fility rat.; usuay five-year averages erdingGNP PER CAPfTA (USS)-GNP per capita estimates at curt in 1960.1970. and 19113.arket pnces cakulated by same conversion method as World F A A (dWaamto-Annual fum-

0amt Atha (1981-83 basis); 1983 data. berof acceptors of birth-contrd devic underauspiceosf national

ENERGY CONSUMPTION PER CAPITA-Annual apparnt famiy plning progamn.consumption of commrial prinary energy (coal and lgnite. Faup Pf*--wrVs (pormto of morrinnewp-The peren-petroleum natural gas and hydro-. nudear and geothernal cec- tage of mauied ome ofchild-bering age wbo are practcing ortncity) in kilograms of oil equivalent per capita: 1960. 1970. and who husbands are pracicing any form of conutrpton. Women1982 data. of child-bearing age are generally women aged 15-49. although for

some countr#is contraceptive usage is measured for other agePOPULATION AND VITAL STATISTICS group.

oterelalisfIati. M id- Yedr (thousands -As of July I; 1960. 1970. FOODANDN ONand 1983 data. FO N UR O

Urban ?qai.m (pem of rota)-Ratio of urban to total In ef Fd ePdRwde Ai.r Cdpa (150-71 - IJOrJ-lndex of perpopulaton different definitons of urban areas may affect compar capta annual producton of all food commodities Productioability of data among countries; 1960. 1970. and 1983 data. ixdudes annal feed and seed for agricultr Food commoditiesinclude primary commodities (eg.g sugarcane instad of sugar),pdaprie. Pnjeaim which ae edible and contai nutrients (eg. coffee and tca arePop,raoin year 2000-Thc projection of population for 2000. exduded); they ompri cereals, root crops, pulis oil seeds.made for each economy separately. Starting with information on vegetabes. fruits. nuts. susucane and sugar bet livesock andtotal population by age and sex. fertility rates. nortality rates. and livstock products. Aggreapte production of each country is basedinernational migation in the base year 1980. these parmeters on national average producer price weights; 1961-65. 1970. andwere projcted at five-year intervals on the basis of generalized 1982 dataassumptions until the population became stationary. - CO,s. Siff& efclmi (perct e f{u mnuJ-comput-Stationaw populatian-Is one in which age- and sex-specific mor- ed from calorie equivalent of net food supplies available in countrytality rates have not changed over a long period. while age-spcific per capita per day. Available supplies comnprise domestic produc-fertility rates have simultaneously remained at replaceent klvel tion. imports less exports. and changes in stock. Net suppliesinet reproduction rate- II. In such a population. the birth rate ts exelude animal feed. seeds for use in agriculture. quantities used inconstant and equal to the death rate, the age structure is also food processing. and losses in distribution. Requiremnents wereconstant. and the growth rate is zero. The stationary population estimated by FAO based on physiological needs for normal activitysize was estimated on the basis of the projected characteristics of and health considering environmental temperaturz. body weights.the population in the year 2000. and the rate of decline of fertility age and sex distribuuon of population, and allow.ng 10 percent forrate to replacement level, waste at household kvel; 1961. 1970 and 1982 data.Popldation omenrtu-ls the tendency for population growth to Pr Caita Sipply of Pwma{ (graa per deryj-Protein content ofcontinue beyond the time that replacement-leve fertility has been per capita net supply of food per day. Net supply of food is definedachieved. that is. even after the net reproduction rate has reached as above. Requirerents for all countries established by USDAunity. The momentum of a population in the year r is mcasured as provide for minimum allowances of 60 grams of total protein pera ratio of the ultimate stationary population to tbe populaiion in day and 20 grms of animal and puise protein. of which 10 gramsthe year t. given the assumption that fertility remains at replae- should be aninal protein. These standards.are lower than those ofrnent lcvd from year r onward. 9S5 data. 75 grms of total protein and 23 graun of aninal protein as anPopuiron Degity average for the world. proposed by FAO in the Third World FoodPer sq.kn-Mid-year population per square kilometer (100 hec- Supply; 1961. 1970 and 1982 datatares) of tota area 1960. 1970. and 1983 data. hr Cvatka Prtemin S& Frohm AtaSin mod Fhlse-Protern supplyPer sqAm. agriczdftrlanmd-Computed as above for agricultural offood derived from animals and pulses in grams per day; 1961-65.land only. 1960. 1970. and 1982 data. 1970 and 1977 dat.

Pepakfiou Age Srrncre (prce)-Children (0-14 years). work- Ca (ages 1.4) Dea* Roe (per thousad)-lNumber of deaths ofing age (I5-64 years). and retired (65 years and over) as percentage children aged 14 years per thousand children in the same ageof mid-year population; 1960. 1970. and 1983 data. group in a given year. For most developing countres data derived14,p.hti. Growth Rat (percemn)-r.eal--Annual growth rates of from life tables; 1960. 1970 and 1983 data.total mid-year population for 1950-60. 1960-70. and 1970-83. HEALTH

Poplnim Growth Rae (percent)-wh.a-Annual growth rates Lf Eqeesacy at Brt (pws)-Number of years a newbornof urban population for 1950-60. 1960-70. and 1970-83 data. infant would five if prevailing patterns of mortality ror al people

ANNEX I- 28.- Pag 4 of 6 papea

at the tme of of In birth weo wutay the in dthroughout is Ufe; APWUechw Atdo -prbWy, wd secoW7-Tothl students en-1960, 70 and 1983 data. rolbd In primry nd uonduy velb divided by numbers ofli6_ Mu,1t Roe (.Nur of Iafnts wbo die aeSin i. th corrponding lmb.before fahng onm year of ae per thousad Ive birth In a Sivayear, 1960.1970 and 1933 dati. CONSUMPrIONActa to * SO am. (jwerl q' p. _ I im,d hsqw C.. (Pm. enmt d p hr cr cam-rwel-Number of peopb (to4L u li u d urnal with r_onbl pdr motor crs seti le ta iht po excludes bul

acmcge to safe water sp*Pl (clude tueated surfbe wtrs or ances, heums amd milita vehiclel.vaounted but uncom Inated w such that from protectd Rob R.KmP o ,m. tuhuaendp.p.-AdIm)-AI type of rever.boreholes, sp d a sanitay web) a pemrnta of their repec for radio broadcuts to g pubic per thousand of population;tive popultn In an urbn ar a public froutain or gt xcludes unliened nceivers in countris and in yrs whenlocatd not more tan 200 meterrom a hous may be cosideredon ounuiesoand in yu fotu being within rasnble akm or that hous. In rarl u rstmon of adio t was in el ct data for -it yer mymasonable scem would imply that the houewife or membas of h not be cmparble sn most countrie abohed lcensing.household do not have to spend a dispropoionae part of the day TVRqm.(pm. dpepdatm)-TV river for broadctin retching the filys wter need_ to dg public per thond populatin exludes unleed TVA feto hEx faiYl (pom fo_ reevers in countrie and in year whn reitaion of TV ms wumid ral-Number of people (totaL urban, and ural) served by in elec.eceta disposal u pentags of their rpecte populatou. (prm. u t°eu IY * howstheaver-Excrt dispowl may include the collection and disposaL with or ae crcultion of Idaily genal intet newspp,- dened u awithout treatment, of human exce and waste-water by water- peiodica pubicaton devoted primarily to rcording geesl nes.bome systems or the use of pit privies and similr installations. It is consided to be "daily" if it appWS at beat four time. a e.AP.I1t1dn Phyuideas-fpulation divided by number of prac- CinmJ A_Iae Atsmndm per Cqpea per Yem.-Bued on thetising physicia qualified from a medical school at university kvd. number of tickets sold during the yem indcuding admiions toPepultln per Nusn Pmwso_.-lpulation divided by number of dunvein cinemau and mobile units.prticing male and female graduate nurses, assistant nurses,practcl nures and nursng auiliis. OR FORCEPopulae p. Hopl Brd--tei4 . ad rwa -P pulation TotlW Labor Fom (Shoussuds)-Economically active persns, in-(total, urban, and ural) divided by their repective number of cludig anmed forces and unemployed but excluding houewives,hospital beds available in puablc-and private. general and specialied students. ecm, covering population of all ages. Definitions inhosptals and rhabiitaton center Hospitals are establishmts vaious countries are not compamrble 1960. 1970 and 1983 data.permanently stffed by at klet one physician. Establishments prov- Fewsk (perAnt)-FemaLe labor fore a percentage of toul labording principa0y custodial cae are not induded. Rural hospitals form.however. ioncude health and medical centers not permanenty staffed Agvkare (pecen)-Labor force in fiarming forsy, huntingby a physician (but by a medical asistant. nurse midwife. etc.) and fishing u percentage of total labor force; 1960. 1970and 1980wwhi ofTer in-pant aommnodation and provide a limited nrn data.of medical facilities Inustry (pamcent-Labor force in mining, consrcM, manu-Adusso wr oespiea Bed-Total number of admissions to or facruring and eleticity water and ps as percentage of total labordischarges from hospial divided by the number of beds. force: 1960, 1970 and 1980 data

Pkpdti Rate (pect x-ta-l k,_dunHOUSING or activity tes ore computed as total, mal, and female bor foreA,e Size of HoehdW (pen. per heseUl)-lot, when, as percentags of totaL male and fmale population of al agesandraral--A household consit of a group of individuals who shar respectively; 1960. 1970. and 1983 data. These a bued on ILO'sliving quartm and their main meals. A boarder or lodger may or participati atos reflecting aeset suctue of the population. andmay not be included in the household for staical purpowe long dme rend. A few esimates are from national soures.Average Number of Pesn pr Roorm-otal. wien, and Pert- Ecnomic Dependewy Rati-Rado of population under 1S, andAverage number of persons per room in all urban. and rural 65 and over, to the working agc population (those aged 15-64).occupied conventional dwellings. respectively. Dwellings exdudenon-permanent structures and unoccupied parts. INCOME DSERIBUTIONPercntge of DweEngs wit Elescier -tot d, wn, ad nr- PSerent of Teot Dspesaek ntm (both in ca ed ktndJ)-Conventional dwellings with electricity in living quarters as pecen- Accruing to percentile groups of households ranked by total house-tage of total, urban. and rural dwellings respectively. hold income.

EDUCATION POVETY TARGET GROUPSA4wtrd Ewafivo Rados The foflowing estmtes are very approxinate meaures of povertyRrmary schoo - toaL mgale and fenale-Gross tot&L male and evels, and should be interpreted with consideable cauon.female enroUment of aU ages at the primy level as perntag of Esdwed Abs r Povery Incom Leed (US pe ep _rspetiv pnmary school-ag populations While many couni and rwaL-Absolute poverty income level is that income levelconsider primary school age to be 6-11 year others do not The below which a minimal nutritionaUy adequate diet plus essentialdifferences in countzy practices in the ages and duration of shool non-food requirements is not affordable.are reflected in the ratios given. For some countnies with universl Estdmeed Relahe P1vet Inoc.r Levd (U.=per capita)-urieneducaonm gross enrollment may exceed 100 pct nce some nod raL-Rural reativc poverty income kvel is one-third ofpupils are beow or above the country's standard primary-school avema per capita peson income of the country. Urban level isageB derived from the mral level with adjusment for higher cost ofSecory sciool - tos. mak and femlue-Computed as above; living in urban arasecondary education r5quires at les four years of approved pni- Estimed Ppult. Beow Absollute Pory Ineo Lvd l(pe-mary instrucon provides gneraL vocaionaL or teacher training ceand ua- f- Prcent of populaio (urban and rurlinstructions for pupils usually of 12 to 17 years of ae: correspond- who are 'absolute poor."ence courss are gerlly excluded.Vocanal Emiolbmen (percent of secondry)-Vocational insdtu- Compaive AnalysIs and Data Diviontions include tchnical industrial or other progams which opeate Economic Analyss and Projectio Dearmentindepeadently or as deparents of secondary intituions. June 1985

- 29- M.I I

INNENIIA - EOIIIC INICATIE Page 5 of &

Pepsltiam a 155.U2 million loid-IMUIP per Capita, UISO II3 Ustiutel

lasal gratb ratSI n(t contant I3 prilesiusot ------------------- ----- -_- - -___ ----------------.................. - ---- -_ ---

(milli" US4 at ktual Est. Projectedcwrrzt prc ) - --- ---------- ._ _. _ ---- .__ ------- _-- ...

Indicator 19313 9111 IM2 1903 19m9 1983 1936 1937 1913 1939 199 1995

NATIONAL ACCEJTSGrua dwstic product la 9I,076 7.4 -0.3 3.3 6.6 1.1 1.0 2.0 3.2 3.0 3.6 5.0

Agrliclture 19,468 4.8 1.1 1.9 5.9 3.2 2.5 2.5 2.7 3.0 3.0 3.0Industry 29,457 5.0 -3.2 Z.O 11.4 -3.3 1.1 2.7 3.7 2.0 2.4 2.2Services 32,152 12.1 7.4 5.3 5.3 4.0 0.0 1.0 3.0 4.0 5.0 0.0

C.asaptiol 53,712 11.7 2.1 -0.1 1.0 2.1 -0.9 0.9 2.9 3.5 4.4 *.1gros Innvstas.t 22,187 32.9 9.3 -10.4 6.1 -7.2 -12.3 -1.4 2.2 4.9 2.6 6.4Enports of WNFS 21,949 -9.5 -10.9 14.6 4.8 -2.2 7.7 6.3 5.1 2.1 2.9 1.3laprts of SNFS 21,773 20.5 4.4 -11.1 -10.1 -9.9 -13.6 0.4 3.9 5.2 t.2 5.9

Gross national avings 17,567 -1.7 -11.3 12.0 23.2 0.3 14.1 3.3 2.9 3.0 2.2 2.5

PRICESP deflatrr 11913200) 92 U 100 109 114 125 137 148 157 166 215

Exchange rate 1Np r WUl 632 661 909 1026 1111

Shur of GW at arwkt prices (I) Avrage anvual increase (11fat current prices) lc fat cnstant 1983 prices)

1970 97 1930 23 19o 2995 1970-75 1975-90 9190-85 1985-90 1990-5

erms domstic product 100 100 100 100 100 too 9.4 7.4 3.6 2.6 4.2Agriculture 47 32 25 24 25 23 4.1 3.3 3.4 L27 3.0Industry 10 34 41 35 35 31 12.0 9.9 0.6 2.4 1.9Servicus 35 35 35 40 40 45 9.7 9.5 b.B 2.6 6.7

Cenusption 99 79 71 H9 he 71 9.4 9.2 3.2 2.1 5.2Gross in cstt 14 20 23 25 21 22 19.3 12.2 5.0 -1.0 5.2Espots prf WS 13 73 32 26 29 25 9.2 2.9 -1.1 4.9 1.2mports of 6IFS -16 -22 -27 -20 -to -2S 22.1 14.0 -LO -0.3 4.5

Gross satiosl savings 9 17 25 25 29 25 23.1 14.2 3.9 5.0 2.3

As I o4 GDP

1970 1975 1900 19E4

PIILIC FINANE lbCurrent revnuem 10.1 17.4 20.9 19.6Currnt expsnditures 9.4 9.9 11.9 11.0Surplus 1.6 7.5 9.0 7.6Capital expenditure 5.0 11.3 12.1 11.tForeign financing 3.5 3.7 3.1 4.0

1970-75 1975-90 1910-1O 198590 190-95

OTam INDICA-liS

Ainual W1P growth rate I21 7.6 7.1 3.4 2.9 4.4baal GNP per capita grouth rate it) 5.1 4.7 1.2 0.9 2.3Anual osrgy conusuptin growth rate ID2 11.2 11.0 N.A. N. A. N.A.

icES 2.2 3.3 7.9 9.5 5.0Nrpinal savings fate 0.48 0.29 0.27 0.51 0.15Import elasticitv 2.9 0.94 -0.55 -0.10 1.07

la At sarket pricelb Central ovarnmnt only, on an April-to-March fiscal yer basis.7c At cemstant prices fr 1980 osn.

East Asia and Pacific Regional OfficeBav 19B6

mmmii - tNtAEO -ieMISa, (DIE CeVTL a m R nu...

HUm sill. at cant lucaS

Paonataiu, a 303.62 miliii. WaId ElDIP Pr Capita. 054 IllS aulasatel.. ... .. .. __........ .... ... __............ _. ........ _. __... ... ..... _... . . ... __ ..... . ...... ... . ....... . .. .. .......

ctual i'lit. Prjecte, ._._ __ _~~~~~~~~. .. __ ... _........ .. . . ........... _... . _._ .__ ..... . _..

It13 l 112 1tt3 l 114 I3 I91b LIM1 19111 39m I 39' me m

--------- --.--------. . ........ I........ ................... _ ............... _............ .............. .. .. . ..... . .......... ................... .... . .....

uLa Iif Pawelg r............ ...............

1 ' wiets 2.m1 39,372 20,J2n 20,921 36,65 10,1611 ,nm 20,n 22,m 2-5,01 35,mntiII ail WA La totsl 11,21 14,140 14,0W 14.029 12,425 1,4 9,722 11,151 12,5I 3,13I 11.T1tlb) k..i1 4.110 3,921 5,30 5,901 5,101 A,=2 1,114 1,113 1,21 10.396 11 3,6Iti IFS III 500 01z 51 All n1 20 952 1,131 1,251 2,134

:. Irt, 22,M 22,339 2,12 n1,n4 31,14 15,209 11,104 11,t3& 19,521 21,212 32,13.al ail ftw 5,401 ,1102 3,1 2.495 3,109 3.0 3,3 115 3,, 2M,94 4,2n *,124llop b.o aowta 14,536 15,124 14.2t 12,15 10125 9,992 30,0k 13,655 12,111 140,92 21,301

itti 01 2,931.221 2,142 2,147 2,240 2,22S 2,33 2,s521 2.144 2,11 4,15S. Onnorc e tall. 424 3,11471 115 3,t91 2,213 ;3121 3,314 3,151 ,4t1 3,25t 4,7154. factuw sar.ict 11.2301 13,4201 C4.3291 15,0459 10,1121 1 3,h5I 14,251 14,1311 15,t231 13,2521 £4,5211

.al Iuc.agtm 2,1n 1,209 19 910 9I4 tlI 9,0"0 "5 3,023 1935 II061 Payots i4,90 i4,r29, 15,642 %4,0411 i5,114 1,5401 15,2II Is,9o 11,00 1.ll a211

5. C tal ireta 41 105 9n ot0 130 IO 1350 150 I30 351 150I ISaa c. ca rren t C_.." 12,1171 .1,a2l 14,210) 11,060 11,960 15,S51 12,5191 112911 11,4311 11,243 111.421

l,rKt r reap aie.vt.at 1al 311 939 245 21 230 125 425 49t ioo 9090. Patl ii t LI Ian 1,321 3,00 3,11 3 2,.20 1,151 3.12 '2,914 311i 3,.493 I5 1.2129 Ot lr ctttIal 26011 6143 031 2.15 42 1,051 416 l119 113OI 15121 12211 3513. Ctmae is raw,.", - msac rl 9 3,M350 11.19 94293 14141 4 lo0 I IlI 12 11awIt. 30 flcial raiwrn 6.354 3.04 4n 3 5.312 5.111 5.6 5.312 5.1103 3.119 5,19 5.110

mwets . WS 4.4 : 3.5 4.3 54. 5.1 .4 M L 4.5 4.1 2.1

Parade Its..... .. .....

Nt Ireo p sct' of tlebakting systma lb IT,= *.:: 1.4 6. *,531 0,5914 9,900 9t60 9,0 3. 4 I,.30 Ior7 36.2117

Total rarrws is *auth dani I uports IIWS 7.3 0 2 .2 1.1 9.1 9.17 9.1 9.5 71 7.3 4.1

EITEMtiL WITn, a NO IC

Gras laiburanta 2.1n 0., 12 4.,14 3.846 3.524

CacsaY l Lam 194 in itS 5S2 130

lIlartal 1I 402 141 48R 5233ts 1 7r 40 54 5eOther I I a 39 31

srcmnaoisal Lam 1,1 3,503 4,357 3.213 2.t9

Ofical mport credit Il 531 63 4"a 121iOO 33 505 40 m 13.ler Mlt3latWral is 12tb ith 143 li

Pravata-swrce 13, 2,336 3,220 13,9 1,1

ealarlal Dalt #d

al eatstadaal A daswid 35JIG0 3s,515 21.687 22.,12 24,462OFllcaalWtce 10,5 11.11: 12,031 12,821 3,914Prnvatre-re 5j111 7,402 9,44l 11,001 3 1,18

aedlsS ad 6.bt 33,37 12.670 13.11 13 .971 330n

DMt Sar,ara

total wirne arornts 2,007 2.244 2,5481 3S251 4,039Iaterest I94) 11,1451 (.255 11,1241 11t4541

Poygts n t 1 iparts ia 1.2 11.1 12.0 14.6 11.1Total SaDt w.ace ratio If 30.4 134.4 3.7 19. 23.4

Araqe lIatrni atae as Pa Los. III S.7 9,2 1.1 9.1 1.1

111itll-,owcs 1.1 1.1 1.7 8.1 1,4PriaOte-sfoigrc 94 9.5 1.1 9.9 0.5

hwaqs Ilataraity of aM LosM (lsl 15.5 13.2 15. 15.9 15.9

Of4acalimrcs 20.5 20.4 22.3 20.9 21.1Pritato-.uco 11.1 11.1 13.3 9.2 7.4

.__ - -- __ .__,_._ ------- ___ .... . . . _ ___ ........... ___._ ___._.__.._______.........

As I ci dolt sotstsandag at ad 4 1965Itoraty ott ct.w' of dsalt StOtdaal-

atrLthn daratain 3 . rs ar 3RIatritin doa alths 10 vra 47

lattret structr df debt atst anidfInterest rn e ithi first vor 4.5

1. ID a Aerii1-aIich fiscal coa bna.b II esn, foaep amidt of daose t aay bIsi ia aiditat to offacral rn es.

re bImlaas priito d rnr,qarntad Lass me LO a.siam.Id It ad af wartD.to 3bl nports trcatod an ross bous. EaWts iaclade srnasn. DOlt u re acldd praoyat ol nadacatcd LaoM asn 903.14 Irclados varate uiwq,rootd ams.

East ouia Ad pactiac iqisat OI4aceIa, 191

-31 - ANNEX rIPage 1 of 4 pages

THE STATUS OF BANK GROUP OPERATIONS IN INDONESIA

A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1986) /a

Loan/ Amount (USs million)Credit Fiscal (less cancellations)number year Purpose Bank IDA Undisbursed

Forty Loans and forty-four Credits fullydisbursed 1,971.86 777.89 -

1578 1978 Tenth Irrigation 109.00 - 22.961604 1978 Nucleus Estate and Smallholders II 50.50 - 10.401653 1979 Third Urban Development 53.60 - 9.141707 1979 Transmigration II 90.00 - 75.491708 1979 Eighth Power 175.00 - 37.341709 1979 Second Water Supply 35.49 - 4.87946 1980 Yogyakarta Rural Development - 12.00 5.501751 1980 Nucleus Estate and Smallholders III 92.00 - 23.85995 1980 Fifteenth Irrigation - 37.60 5.53996 1980 National Agriculture Extension II - 39.00 19.26L811 1980 Fourteenth Irrigation 116.00 - 36.551835 1980 Nucleus Estate and Smallholders IV 30.00 - 15.691840 1980 National Agricultural Research 35.00 - 35.001014 1980 National Agriculturai Research - 30.00 0.561872 1980 Ninth Power 253.00 - 65.461898 1981 Smallholder Coconut Development 25.00 - 10.511904 1981 University Development 45.00 - 31.261950 1981 Tenth Power 250.00 - 10.971958 1981 Swamp Reclamation 22.00 - 11.701972 1981 Fourth Urban Development 43.00 - 19.662007 1981 Nucleus Estate and Smallholders V 134.00 - 80.692049 1982 Jakarta-Cikampek Highway 85.00 - 66.602056 1982 Eleventh Power 170.00 - 39.422066 1982 Second Seeds 15.00 - 9.34

la The status of the projects listed in Part A is described in a separate report onall Bank/IDA financial projects in execution, which is updated twice yearly andcirculated to the Executive Directors on April 30 and October 31.

-32- ANNEX IIPage 2 of 4 pages

Loan/ Amount (US$ million)Credit Fiscal (Less cancellations)number year Purpose Bank IDA Undisbursed

2079 1982 Bukit Asam Coal Mining Development andTransport 185.00 - 65.84

2083 1982 RuraL Roads Development 85.00 - 32.272101 1982 Second Teacher Training 79.59 - 64.192102 1982 Second Textbook 25.00 - 21.222118 1982 Sixteenth Irrigation 37.00 - 15.662119 1982 Seventeenth Irrigation (East Java 70.00 - 36.31

Province)2120 1982 National Fertilizer Distribution 66.00 - 31.352126 1982 Nucleus Estate and Smallholders VI 55.50 - 43.772153 1982 Coal Exploration Engineering 25.00 - 14.562199 1982 Central Java Pulp and Paper Engineering 5.50 - 4.032214 1983 Twelfth Power 300.00 - 223.082232 1983 Nucleus Estate and Smallholders VII 138.90 - 136.432235 1983 Provincial Health 27.00 - 23.25i2236 1983 Jakarta Sewerage and Sanitation 22.40 - 19.222248 1983 Transmigration III 101.00 - 54.162258 1983 Public Works Manpower Development 30.00 - 24.742275 1983 East Java Water Supply 30.60 - 17.352277 1983 Fifth BAPINDO 208.90 - 131.242288 1983 Transmigration IV 63.50 - 59.142290 1983 Second Polytechnic 107.40 - 105.472300 1983 Thirteenth Power 279.00 - 171.842341 1984 Third Agricultural Training 63.30 - 52.432344 1984 Nucleus Estate and Smallholder Sugar 79.20 - 47.842355 1984 Second Non-Formal Education 43.00 - 34.892375 1984 Second Provincial Irrigation Dev. 89.00 - 60.312404 1984 Highway Betterment 240.00 - 185.232408 1984 Fifth Urban Development 39.25 - 35.452430 1984 Third Small Enterprise Development 204.65 - 96.732431 1984 Second Swamp Reclamation 65.00 - 62.732443 1984 Fourteenth Power 210.00 - 196.071950-1 1985 Supplemental Loan for Tenth Power

(1950-IND) 50.00 - 19.752472 1985 Secondary Education and Management

Training 78.00 - 73.58

- 33 ANNEX rIPage 3 of 4 pages

Loan/ Amount (US$ million)Credit Fiscal (less cancellations)number year Purpose Bank IDA Undisbursed

2474 1985 Upland Agriculture and Conservation 11.30 - 11.272494 1985 Smallholder Rubber Development I1 131.00 - 131.002529 1985 Fourth Population 46.00 - 46.002542 1985 Second Health (Manpower Development) 39.00 - 39.002543 1985 Kedung Ombo Multipurpose Dam and

Irrigation 156.00 - 156.002547 1985 Second University Development 147.00 - 147.002560 1985 West Tarum Canal Improvement 43.40 - 43.402577 1985 National Ports Development 111.00 - 111.002578 1985 Transmigration V /a 160.00 - 160.00259-9 1986 Science and Technology Training 93.00 - 93.002628 1986 Smallholder Cattle Development /a 32.00 - 32.002632 1986 Second East Java Water Supply /a 43.30 - 43.302636 1986 Second Nutrition and Community Health 33.40 - 33.402638 1986 Nusa Tenggara Agriculture Support /a 33.00 - 33.002649 1986 Central and West Java Irrigation /a 166.00 - 166.00

Total Bank loans and IDA credits 8,149.54 896.49

Of which has been repaid -577.51 -23.38

Total now outstanding 7,572.03 873.11

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

TotaL now held by Bank and IDA /b 7,572.03 873.11

Total undisbursed /c 4,053.25

/a Not yet effective.

/b Prior to exchange adjustment.

/c Includes loans not yet effective.

- 34 - ANNEX IIPage 4 of 4 pages

B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1986)

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

1971 P.T. Semen Cibinong Cement 10.6 2.5 13.11971 P.T. Unitex Textiles 2.5 0.8 3.31971 P.T. Primatexco Indonesia Textiles 2.0 0.5 2.51971 P.T. Kabel Indonesia Cable 2.8 0.4 3.21972 P.T. Daralon Textile Mfg. Corp. Textiles 4.5 1.5 6.01973 P.T. Jakarta Int. Hotel Tourism 9.8 1.6 11.41973 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 Dev. 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 Mfg. Corp. Textiles 0.4 - 0.41977 P.T. Kamaltex Textiles 1.3 0.2 1.51979 P.T. Daralon Textiles 0.9 - 0.91980 P.T. Papan Sejahtera Capital market 4.0 1.2 5.21980 P.T. Indo American Industries Glass dinnerware 11.1 0.9 i2.01980 P.T. Semen Andalas Indonesia Cement and construc-

tion material 48.0 5.0 53.01982/5 P.T. Saseka Celora Leasing Capital market 5.0 0.3 5.31984 P.T. Semen Cibinong Cement 25.0 - 25.0

Total gross commitments 143.6 19.6 163.2

Less: sold or repaid and cancelled 110.8 7.3 118.1

Total held by IFC 32.8 12.3 45.1

Undisbursed (including participant's portion) 1.0 1.0

- 35 -

ANNEX III

INDONESIA

HOUSING SECTOR LOAN

Supplementary Data Sheet

Section I: Timetable of Key Events

(a) Time taken to prepare project: 22 months

(b) Agency which prepared project: Office of the State Minister forHousing, with BTN and PERUMNASassistance

(c) First presentation for Bankconsideration: November 1983

td) Completion of the appraisal October 1985

(e) Completion of negotiations: Hay 1986

(f) Planned date of effectiveness: October 1986

Section II: Special Implementation Actions

None.

Section III: Special Conditions

(a) BTN would adopt a Policy Statement and carry out an InstitutionalAction Program satisfactory to the Bank, and periodic progressreviews would be carried out with the Bank (para. 38);

Cb) PERUMNAS would carry out an Institutional Action Programsatisfactory to the Bank (para. 40); and

(c) Conditions of effectiveness would be:

(i) formal adoption of the Policy Statement by BTN's Board ofDirectors (para. 38);

(ii) appointment of required consultants by BTN (para. 49);

(iii) the signing of Subsidiary Loan Agreements between GOI and BTNand between COI and PERUMNAS (para. 51); and

Civ) formalization of financing arrangements for provision of BankIndonesia liquidity credits to BTN (para. 51).

t_- ,THAILAND 6til; tD

BEnda n ceb A *.c;- .

13 MALAYSIA South Chi:a Sea BRUNEi

*M~1 - I . , / , w>\//

12 9 - I MALAYSIA / 17 0

- ,, 'INGAPORE *-,>.

knb.Pekmib.-r' r

9 POak,IU KALI AN A N /

Paclang 4

* ~~~~~~~~~~~~~~~1 5

1 D.K.I JAKARTA - A A ,- P; Pag-u \_)2 JAWA BA RAT -' P ng . -. 20~ AWA TENGAH 7 8 U -

0.1 Y**OGYAKARTA BEJTuHGI .16

5 JAWA TIMUR Bengkulua_ -' Beni n16

BENGKULU 6 L.V a SUMATERA SELATAN

1JAM TRIAungkngf Java Sea UJungndn im10 JAMBI % 111 SUMATERA BARAT . r ,- .12 SUMATERA UTARA13 OIACEH 14 KALIMANTAN BARAT - 315 KALIMANTAN TENGAH -: 3 : -----t6 KALIMANTAN SELATAN , 0-'- a. ;t.17 KALIMANTANTIMUR -- Surabara18 SULAWESI TENGAH * 5 2SWMAWA1g SULAWESI UTARA 5 'X WBA--A20 SULAWESI SELATAN 4 - lutatam-' (- Y' r'- -

21 SULAWESI TENGGARA 422 BALI / L

10o 2 3 NUSATENGGARABARAT Indian Oceac 2324 NUSA TENGGARA TIMUR25 MALUKU * ,e 1 =2

26 IRIAN ,JAYA 24~a~i. ~w~~.m27 TIMORTIUR Wj R .

1. I06 11C0 11F 120

IBRD 19760120' 12S' 130' 130'1 140'

I io- 455

-1--. s PHILIPPINES

INDONESIA

BANK TABUNGAN NEGARA

( Manado* 0 ~~~~~~~~~PMAONc H&4QMRIB

J " tR~~~~~~ALAo/AAHERA N ONO19

*id& '18

Palu 25

Jay*pur1ao--,

_j.ULAWYLWESI \ i

.-' 21 < - eN IRIAN JAYA

20 SULAWESI I~-. CEm -Kendari BURU Ambw 26 !

B2anda Sea a.

. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I

FLORES X

-- _I ; UMOR Q 100 200 300 400 500 10

W0I.ES

24 Kupang 27 0 100 200 300 400 500 S00 700 800

KILOMETERS

12D 120' 130 13' 140'

JUNE 1985