The World Bank. Do_uet of. FOR OMCAuL USE ONLY. Rcwt No. P-4087-IND REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Do_uet of The World Bank FOR OMCAuL USE ONLY REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERAATIONAL BANK OF RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALEN TO US$160 MILLION TO TEE REPUBLIC OF INDONESIA FOR A FIFTH TRANSMIGRATION PROJECT (NATIONAL MAPPING AND SETTLEMENT PLANNING) May 20, 1985 Rcwt No. P-4087-IND This dxlmo b a r""eskcd _ihfd an noy be u Y eips Od Inoes t6he Pm ommue Of : ~~tldr OMWdu& s m ma ads otulus ble dbdn wif WorM B"lc morbw_

2 CURRENCY EQUIVALENTS Currency unit = Indonesian Rupiah (Rp) US$1.00 = Rp 1,100 Rp 1 million = US$909 GOVERNMENT OF INDONESIA FISCAL YEAR April 1 - March 31 INDONESIAN FIVE-YEAR PLANS Repelita I - First Five-year Plan, RepeLita II - Second Five-year Plan, Repelita III - Third Five-year Plan, Repelita IV - Fourth Five-year Plan, PRINCIPAL ABBREVIATIONS AND ACRONYMS USED BAROSURTANAL - Badan Koordinasi Survey dan Pemetaan Nasional; National Coordinating Agency for Surveying and Mapping BAPPENAS - Badan Perencanaan Pembangunan Nasional; National Development Planning Agency DGSP - Directorate General for Settlement Preparation (MOT) GOI - Government of Indonesia MOT - Ministry of Transmigration PLP - Penyiapan Lahan Pemukiman; Directorate of Land Preparation within DGSP SFSE - Site Feasibility Studies and Engineering SOE - Statement of Expenditure TAG - Technical Advisory Group within Directorate of Planning (DGSP) GLOSSARY Bina Program (Pankim) - Directorate of Planning and Programming within the Directorate General of Settlement Preparation (MOT) Other Islands - The islands of Indonesia excluding Java, Madura, Bali and, occasionally, Lombok.

3 FOR OMCIAL USE ONLY INDONESIA FIFTH TRANSMIGRATION PROJECT (National Mapping and Settlement Planning) Loan and Project Summary Borrrower: Amount: Terms: Project Description: Republic of Indonesia US$160 million equivalent Repayable in 20 years, including a five-year grace period, at the standard variable interest rate. The project would be a continuation of the Bank's assistance to the Government of Indonesia (GOI) in base mapping and transmigration settlement planning. Its-main objectives would be to (a) support the planning of transmigration and other development programs in the Other Islands by accelerating the national mapping program; (b) promote the welfare of transmigrants and local people through better physical planning of settlements; (c) improve tbe qualitqy and economic viability of the transmigration program by providing program support to the Ministry of Transmigration; and (d) strengthen the skills of GOI staff and domestic consultants. The project would finance: (a) a four-year time slice of the national mapping program consisting of aerial photography, and the preparation of base maps and altimetric levelling networks in the Other Islands; (b) physical planning for 300,000 sponsored and spontaneous transmigrant families to be settled in Sumatra, Kalimantan and Irian Jaya; and (c) a transmigration program review, technical assistance, and training for the project executing agencies and domestic consultants. The project would strengthen the social and environmental monitoring and evaluation of the transmigration program by coordinating efforts to solve problems that may arise during implementation and providing detailed guidance to central and provincial government teams to safeguard the interest of local peoples and protect the environment. The project executing agencies would be the National Coordinating Agency for Surveying and Mapping (Bakosurtanal) and. three offices of the Ministry of Transmigration: the Directorate of Planning and Programming, the Directorate of Land Preparation and the Staff Training Center. IThis document has a esicted distibution and may be used by recpients only in the perfonrmae of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

4 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ii - The major project risk would be that GOI may be unable to use the information provided under the project in a timely manner due to financial and managerial constraints. There is also some concern about the potential impact of the project on local populations. These subjects have been considered in the project design through program support, training, revised terms of reference for consultants and improved monitoring procedures. Estimated Costs Local Foreign Total -(US$ million) Aerial Photography and Base Happing Settlement Planning Program Support Total Base Costs /a Physical contingencies Price contingencies Total Project Costs /a Financing Plan: IBRD GOI Total 1' Estimated Disbursements: Bank FY ==- (US$ million) Annual Cumulative Rate of Return: Not applicable for this project. Staff Appraisal Report: No IND, dated May 16, Maps: IBRD No. A18787, A18791, A18792, A18794 /a Including taxes and duties estimated at US$8.3 million. Total project costs excluding taxes and duties are estimated at US$267.0 million.

5 REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF INDONESIA FOR A FIFTH TRANSMIGRATION PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Indonesia for the equivalent of US$160 million to help finance a Fifth Transmigration Project (National Mapping and Settlement Planning). The loan would have a term of 20 years, including five years of grace, at the standard variable interest rate. PART I - THE ECONOMY 2. A basic economic report, "Indonesia: Growth Patterns, Social Progress and Development Prospects" (No IND dated February 20, 1979), was distributed to the Executive Directors on February 26, 1979, and a country economic memorandum has been prepared in each subsequent year. The latest of these, entitled "Indonesia: Policies for Growth and Employment" (No IND dated April 23, 1985), was distributed to the Executive Directors on April 30, Annex I gives selected social and economic indicators for the country. Background 3. The Republic of Indonesia is a highly diverse country spread across an archipelago of more than 13,000 islands with a land area of about two million sq km. It now has a population of over 155 million, growing at about 2.1% p.a., and is the world's fifth most populous na_ion. The country has a diversified resource base, with plentiful primary energy resources, significant mineral deposits, large timber potential and a developed system of agricultural commodity production and export. A high proportion of these primary resources are located on the sparsely populated islands of Sumatra and Kalimantan, while two-thirds of the population live on Java, which has areas with some of the highest rural population densities in the world. About a quarter of the population lives in urban areas, and the current rate of urban population growth is about 4% p.a. The 1983 estimate of GNP Y7r capita is US$560, which places Indonesia among middle income countries.- Macroeconomic Developments and Resource Management 4. Until 1981, the economy had been growing at almost 8% p.a. for over a decade. This growth was associated with rapid increases in public expenditures, total investment and savings. The initial impetus for this occurred in the period of recovery from the turbulence of the mid-1960s. The Government of Indonesia (GOI) took effective action to restore macroeconomic stability, 1/ On the basis of the World Bank's system of country classification and Atlas methodology for calculation of GNP.

6 -2- liberalize the economy, rehabilitate infrastructure, and provide incentives for domestic and foreign private investment. However, the dominant external influence over the past decade has been the huge expansion, and significant variability, in foreign exchange earnings from oil. Net ezports from the oil and gas sector rose from US$0.6 billion in 1973/74 to US$10.6 billion in 1980/81, when the current account enjoyed a surplus of US$2.1 billion. Oil receipts also provided about 60% of Central Government receipts by 1980/81 and helped finance a sustained increase in demand. The pattern of expenditures has also helped foster diversified growth. Of particular note has been the support for agriculture, through investment in infrastructure and support services. This supported an agricultural growth rate of almost 4% p.a. over the past decade, and Led to the recent achievement of self-sufficiency in rice. Manufacturing also enjoyed a high growth rate during the 1970s (of about 14Z p.a.), although this was from a very low base and predominantly oriented toward the protected domestic market. 5. During 1982, the Indonesian economy was affected adversely by the protracted international recession and the accompanying decline in export earnings, especially from oil. These developments Led to a sharp turnaround in Indonesia's external resource position and a fall in real per capita incomes. In response, the Government acted promptly to ensure that the country's balance of payments situation was manageable and to provide a basis for longer-term structural transformation. Particular attention was paid to reducing Indonesia's dependence on oil for export earnings and public revenues. Specific measures introduced over the past two years include: (a) a 28% devaluation of the rupiah against the US dollar in March 1983, without any change in the policy of full convertibility; (b) a major rephasing (postponement/cancellation) of Large-scale and import-intensive public investments, especially in the industrial sector; (c) successive price increases for petroleum products, which have largely eliminated domestic subsidies; (d) a far-reaching financial reform, including the liberalization of interest rates and the abandonment of credit ceilings; (e) introduction of a comprehensive tax reform program, aimed at increasing government revenues by broadening the tax base, simplifying the structure of rates and improving administration; and (f) an ongoing effort to reduce the unfavorable impact of the regulatory framework, including simplification of investment approval procedures and a major reorganization of customs, ports and shipping operations. 6. These measures, aided by more favorable trends in the world economy. are already having their desired impact. GDP, led by strong performance in the oil (including LNC and refining) and agriculture sectors, rose by an estimated 4.7% in 1983 and 6.5% in The balance of payments situation is

7 -3- also improving. In particular, the current account deficit was reduced from US$7.1 billion (8.5Z of GNP) in 1982/83 to an estimated US$1.9 billion (2.4% of GNP) in 1984/85. The major factors responsible for this improvement are import cuts, resulting from the Government's efforts to curb aggregate demand, and higher export earnings from non-oil products, due to recovr.-y in the industrial countries and the Government's policies to promote non-oil exports. The Government's restraint is also evident in the budget, where real expenditures have probably fallen over the past three years. This fiscal discipline, in turn, helped keep domestic inflation down to about 12% in 1983 and 9Z in 1984, despite the inevitable pressures associated with the 1983 devaluation and the petroleum price adjustments. Policies for Medium-Term Growth and Transformation 7. Sustained growth of the non-oil economy by at least 5% p.a. is probably necessary to have a significant impact on employment creation and poverty alleviation over the remainder of this decade. To promote such a growth rate, without generating unmanageable balance of payments pressures, is one of the major challenges facing the Government. Successful transformation of the economy will require continued action in three key policy areas: management of the public investment program (and improvements in the regulatory/policy environment for private investment), rationalization of the external trade regime and development of the financial sector. 8. The projected import constraint imposes serious limitations oh the rate at which Indonesia can undertake new investments over the next few years. At the same time, some reallocation of resources towards agriculture and the social sectors might be justified, in order to reduce the import content of investment while still meeting the Government's employment objectives. It is therefore important that mechanisms are established to facilitate orderly and rational adjustments to the public investment program. Possible options include preparation of multi-year expenditure plans (at least for the larger projects), identification of a core program of high priority projects and strengthening of project appraisal/selection procedures. The Government is also considering ways to improve project implementation, so that investment returns can be realized more promptly. Given the budgetary constraints, it is expected that the private sector will be called upon to play an increasingly important role in capital formation. To encourage this process, the Government recently announced simplifications in investment approval procedures and a major internal reorganization of the Investment Coordinating Board. 9. The recent decline in the price of oil has clearly demonstrated the importance of reducing the economy's heavy dependence on a single source of foreign exchange and, more generally, the need to rationalize the external trade regime. The Government has set a target of doubling non-oil exports in nominal terms over the next five years. This target should be attainable provided that economic recovery in the industrial economies is sustained, Indonesia's access to those markets is not ccnstrained by protectionist measures and, most importantly, Indonesia follows appropriate trade and exchange rate policies. The Government has already introduced a range of export promotion measures intended to improve export incentives, ensure ready

8 -4- access to finance for exporters, raise product quality and enhance marketing capacity. However, over the longer term, there is no effective substitute for comprehensive trade reform. On the import side, Indonesia's trade regime has historically been characterized by a predilection for high tariffs and quantitative restrictions. In March 19B5, the Government announced a major reduction in the range and level of nominal import tariffs. However, other actions -- including increased use of import quotas/bans and regulations requiring higher local content in production - have served to promote some potentially costly and uneconomic investments which could prove counterproductive to the export drive. 10. The Government's decision to move towards a more liberal financial environment raises a number of issues relating to resource mobilization, financial intermediation and credit allocation. Over the longer term, as the scope for subsidized credit is reduced, the banking system will have to play an increasingly important role in mobilizing domestic resources. However, during the transition period, some potential conflicts between the resource mobilization and credit allocation objectives could arise. For example, the increase in deposit rates following the recent financial reforms, while encouraging resource mobilization, has also led to high real lending rates which have tended to dampen investment and credit demand. This in turn may restrain economic activity. It is therefore important to find ways to reduce the high intermediation costs of banks. Consideration should also be given to other ways of mobilizing financial resources, including development of a capital market, expansion of the banking network (especially in rural areas) and selective relaxation of restrictions on private banks (combined with increased bank supervision). Incomes, Employment and Human Development 11. Indonesia's physical, human and economic resources are very unevenly distributed between its main regions. Java, for example, accounts for almost 50% of Indonesia's GDP and 62% of its population, but only 7X of its land area. Although all five of the country's main regions experienced rapid per capita growth in the 1970s, regional differences in output tended to widen. To a large extent, differences in performance are -ssociated with the importance of the mineral sector, particularly petroleum. However, there are two important processes at work in Indonesia which enable the benefits of growth to be more evenly spread than indicated by output trends. The first of these is migration. Between 1971 and 1980, 4.3 million people (or 16% of the natural increase in population) resettled permanently in provinces outside those of their birth. Approximately 1.7 million people moved from Java to the Other Islands, of whom one million were resettled through the official transmigration program. There has also been substantial rural-urban migration both between and within provinces. The second process is the redistribution of income through the government budget. Regional variations in per capita consumption are much less pronounced than differences in per capita output. This is largely due to the impact of taxation on the oil sector. 12. An analysis of household expenditures indicates that Indonesia's rapid economic development has been accompanied by significant progress in rtducing poverty. Between 1970 and 1980, the proportion of the population

9 - 5 - living in poverty declined from 57Z to 40%; the decline was particularly rapid in the Other Islands and in urban areas. The core of the poverty problem continues to be in rural Java, where landless laborers form a large, and possibly rising, proportion of the population and where, for most of the 1970s, there is little evidence of any rise in real agricultural wages. However, there was a significant rise in real agricultural wages around , associated with the sharp increase in rice output and booming overall economic growth. Increases in rural non-agricultural and urban wages also occurred at the beginning of che 1980s. Despite the slowdown in economic growth and stabilization measures since 1982, the limited available evidence suggests that wages and incomes have held up, partly as a consequence of continued agricultural growth. 13. In the future, the availability of productive employment will be a key determinant of income distribution. The labor force is expected to grow at about 2.3X p.a. over the next decade, while economic growth will be lower than in the 1970s. The resultant squeeze in the labor market is not expected to lead to a dramatic increase in unemployment but there ;.s a serious risk of stagnant or declining labor income in both rural areas and the urban informal sector. Given the balance of payments constraint facing the country, Indonesia's employment outlook depends crucially on the pattern of economic growth, and in particular the extent of labor absorption in the commodityproducing sectors. Although over the long term the structural shift in employment away from agriculture should continue, this sector will still account for half or more of total employment and the growth in agricultural incomes will be an important determinant of job opportunities elsewhere in non-far'- activities. This will require continued priority to agriculture in the form of supportive pricing and investment policy, with some shift in emrhasis toward the Other Islands. On Java, attention will need to be paid to issues of agricultural diversification and the pace of mechanization. With respect to the industrial sector, the development of an efficient, relatively export-oriented pattern of production can also contrinute to significant labor absorption in the medium to long term, especially in Java; this will involve a continuing major role for small-scale firms. If a favorable evolution of the employment situation is to occur, there will also need to be an appropriate pattern of public expenditure and supportive policies for the urban informal sector; finally, the transmigration program can make a substartial contribution, provided it is closely coordinated with complementary agricultural investment programs, in tree crops, water resources and livestock development. 14. There has been substantial progress in extending the provision of social services throughout the population. Universal enrollment in primary education has been virtually achieved and the enrollment rate in secondary schoois is now about 35%. However, the weak educational base of the population continues to be a major obstacle to rapid economic development and a substantial further expansion of secondary and tertiary education will be necessary as wll as a major effort to raise the quality of the whole system. In the health sector, there has been a large expansion in facilities, notably at the sub-district level, but continued investment and an improvemenc in quality will be necessary to iacrease effectiveness. This will have to be complemented by a major expansion in water supply and sanitation if the improvement in indices of mortality and morbidity during the 1970s is to be

10 -6- maintained. By 1981, only 18% of the rural and 40Z of the urban population had access to safe water, compared with government targets of 60% and 752, respectively, for External Capital Flows 15. The recent improvement in Indonesia's balance of payments situation is evidence of the Government's commitment to manage short-term economic shocks. The ongoing program of economic reforms should also help to hold the current account deficit to sustainable levels over the medium term. Even so, continued resource transfers from abroad will still be essential if the Government's modest growth targets (5% p.a.) for the next five years are to be achieved. Staff projections indicate that new public medium- and long-term (MLT) borrowing will have to average about US$5.2 billion p.a. over the next three years, including about US$2.5 billion p.a. of official development assistance and the balance from import-related credit* and untied borrowing. Indonesia is well placed to arrange the necessary financing on reasonable terms; the profile of existing debts is good and a comfortable level of external reserves has been rebuilt over the past two years. 16. TotaL public debt outstanding at the end of 1984 is estimated at US$22.9 billion, with an additional US$14.0 billion of undisbursed commitmeents. Of the total debt eisbursed and outstanding, official assistance (including non-concessional multilateral aid) accounts for 50% and obligations at variable interest rates for only 24Z; there is no skort-'term public debt. The average maturity of public MLT debt at the end of 1984 is estimated at 16 years. The Government continues to manage its external debt quite prudently. Until 1982, Indonesia had succeeded in maintaining its public debt service ratio, based on net exports (i.e., net of oil sector imports), at or below 20%. However, because of the sharp drop in oil export receipts over the past three years, the ratio rose to 252 in With the projected levels and composition of borrowings and export earnings, Indonesia's public debt service ratio, again based on net exports, would rise to about 30% in 1989 and then gradually decline in later years. With private MLT debt included, the total debt service ratio, based on the conventional concept of gross exports, would rise from 21% in 1984 to around 24% in 1989 and decline back to 22% by While debt management will require careful attention in the coming years, -..e projected debt service ratios are not excessive by international standards. PART II - BANK GROUP OPERATIONS IN INDONESIA As of March 31, 1985, Indonesia had received 48 IDA credits totalling US$938.5 million (less cancellations) and 93 Bank loans amounting to 2/ Substantially unchanged from the President's Report on the Second Health (Manpower Development) Project (No. P-4040-IND), circulated under cover of R85-117, dated April 25, 1985, and approved by the Executive Directors on May 14, 1985.

11 -7- US$7,021.0 million (less cancellations). IFC commitments totalled US$163.2 million. Annex II contains a summary of IDA credits, Bank loans and IFC investments _s of March 31, The share of the Bank Group in Indonesia's total (disbursed) external debt outstanding at the end of 1983 was 13.1%, and the share of debt service, 10.3% compared with 13.3Z and 7.9Z, respectively, in From 1968 until 1974, all lending to Indonesia was made through IDA. Due to the country's improved creditworthiness following the commodity and oil price boom in 1973/74, the bulk of the Bank Group's lending in the remainder of the 1970s was through IBRD loans, with a modest amount of IDA lending being justified primarily on poverty grounds, as the per capita GNP was well below the IDA cutoff level. IDA lending was discontinued in FY80. Given the critical importance of agriculture (including transmigration) for employment, food security and exports, over one-third of Bank Group-assisted projects have been in this sector. In addition, loans and credits have been extended to virtually all other sectors of the economy, including transportation, education, urban development, water supply, rural development, industrial development financing (including small-scale industry), power, telecommunications, population and nutrition, and technical assistance. 18. During Repelitas I ( ) and II ( ), and in line with the objectives of these first two Five-Year Plans, a high proportion of Bank Group lending was directed initially toward the rehabilitation and then the expansion of infrastructure and production facilities. Special attention was also given to meet the shortage of skilled manpower and technical assistance needed for preinvestment studies and project execution. Repelita III ( ), published in early 1979, stressed the need for continued high growth and stability, but departed from previous plans by placing special emphasis on more equitable income distribution and poverty alleviation. This focus, which was fully in Line with the conclusions of the basic economic report, required greater attention to employment generation (particularly in the industrial sector) and to improvements in basic public services. While Bank lending was already consistent with these objectives, increased emphasis has been given to these priorities. However, the adverse economic developments that occurred in the latter half of the plan period and the measures taken to address them, led to a reshaping of development objectives for Repelita IV ( ). These emphasize restoring growth of incomes and employment while continuing financial prudence, promot-ing structural change toward a more diversified economy, and maintaining efforts to improve income distribution and alleviate poverty. This shift in focus has underscored the need to follow through on reforms that have already been initiated, seek increased efficiencies in the economy, mobilize domestic resources to finance needed investments and recurrent expenditures, and foster a policy environment conducive to the achievement of required changes. 19. The Bank has geared its lending and economic work program to address these needs and to maintain a high level of resource transfer. The approach is to continue to emphasize the ongoing dialogue on economic policy that has been a cornerstone of the Bank's relationship with the Government for many years, and to coordinate discussion of macroeconomic issues with advice on institutional and policy reform in important sectors and subsectors, coupled with lending operations and technical assistance that meet priority needs and support institutional improvements in specific areas. Emphasis in economic

12 -8- work is being given to trade and industrial issues, development of the financial system, and public resource management. In the lending program, agriculture continues to receive the most attention. However, the program is broadly based, and includes increasing emphasis on industrial development and education. Less emphasis is being given to power and energy, where the Bank is concentrating on policies to diversify Indonesia's energy base, rationalize pricing and improve sector planning. In transportation the Bank is focussing on efficiency improvements in the maritime sector and on improving the national network of highways and rural roads. In urban development, water supply and population, lending is being directed more and more to developing innovative low-cost solutions, providing for cost recovery and strengthening local institutions, in order to minimize demands on the Government budget and decentralize the responsibility for addressing basic needs. In all, the Bank's lending program is intended to contribute about 20Z of Indonesia's capital requirements during the next three years and is expected to be an important catalyst in attracting other funds. Where possible, we are seeking also to widen the impact of Bank lending through technical assistance, as well as complementary 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 hal/been a notable improvement in the last few years in the disbursement ratio- from a low of 13% in FY80 to 19Z in FY84. The poor FY80 ratio was in large part merely a result of the rapid increase in commitments during the FY77-79 period when total Bank/IDA conmitments to Indonesia increased by 122Z compared to a Bank-wide increase of 83Z. However, it also reflected implementation difficulties arising out of the Government's budgetary, procurement and payment procedures. The severe shortage of managerial and technical manpower of course compounds the problem. A number of steps have been taken by the Government and the Bank to address these issues. Several special Bank missions have visited Indonesia to analyze the problems and make recommendations for simplifying budgetary and financial procedures. The Government and the Bank have also instituted formal and regular joint review procedures to identify general and project-specific problems and work out corrective measures. In addition, procurement seminars were held in Jakarta in September 1979, November 1981 and May As a consequence of these joint initiatives, the Government has taken measures to streamline some of the complex budgetary and financial procedures affecting project implementation. The Bank is helping the Government in a special effort to identify problems in the construction industry with a view to developing appropriate remedial actions and policies. Weaknesses in the domestic contracting industry have been identified as one of the major causes of implementation problems in Indonesia. In order to reduce initial project implementation difficulties, many operations are now being presented for Board consideration at a later stage in the project cycle. As a result of these efforts, improvements are taking place. In addition, in order to ease the Government's resource constraints ind maintain the pace of project implementation in 3/ The ratio of actual disbursements during the fiscal year to the cumulative undisbursed amount at the beginning of the fiscal year.

13 -9- priority areas, steps were taken under the Special Assistance Program to accelerate disbursements in 17 ongoing projects in the treecrops and irrigation sectors and one project each in the energy and transport sectors. The combined effects of all of these activities are reflected in the increase in disbursements from US$206 million in FY79 to US$764 million in FY84. It is nevertheless important that the Bank and the Government maintain their efforts. PART III - THE TRANSHIGRATION PROGRAM The Agricultural Sector 21. Objectives. GOI's major objectives for the agricultural and rural sector are to: (a) create productive employment to raise incomes of the rural poor; (b) increase domestic food supply to keep pace with rising demand; (c) expand agricultural exports, particularly of tree crops; and (d) ensure productive, sustainable use of Indonesia's varied land, water and other natural resources. 22. Role and Performance. Despite a 4Z average annual growth in production, agriculture's share of GDP declined from 40Z in 1968 to 30X in 1983, due mainly to the increased value of oil production. Nevertheless, the agricultural and rural sector remains of overwhelming importance to the great majority of Indonesians. Nearly 80% of the population lives in rural areas, and agriculture is the major source of income for about two-thirds of rural households and one-tenth of urban households. Some 16 million smallholder families produce subsistence and cash crops on 14 million ha, while 1,800 estates occupying 2.2 million ha produce mainly rubber, sugar, tea, palm oil, aad tobacco. 23. Food Crops. GOI has traditionally concentrated on increasing the production of rice, the preferred staple food of the great majority of Indonesians. Rice production increased rapidly (4.5Z p.a.) between 1970 and 1983, chiefly due to irrigation rehabilitation and the increased use of fertilizer and high-yielding seed. Estimated 1984 production is 25.5 million tons and it is expected that a large measure of self-sufficiency can be sustained. However, over the past decade, the output of secondary food crops (maize, cassava, soybeans, peanuts and sweet potatoes) grew more slowly, at an average of only 1.6% p.a. Yield improvement through intensified research and support services, and expansion of the harvested area, would serve many of the poorest areas of Java and especially the Other Islands where transmigration is opening up more land. A food policy which emphasizes secondary crop production as well as rice would serve the twin goals of growth and equity, as many of the poorest parts of Java and the Other Islands are best suited to secondary crops.

14 Tree Crops. Tree crops occupy about one-third of total cropped land (coconuts and rubber account for 80X of this), and generate about 43X of total non-oil ezport revenues. Smallholders cultivate 80X of the rubber area and virtually all coconuts, coffee, cloves and pepper. Tea and oil palm are grown primarily on estates. Expansion of smallholder tree crops is of high priority, given the vast area of over-aged and low-yielding smallholder rubber and coconuts, the good market prospects and employment potential, for these crops, and the Other Islands' land availability and natural comparative advantage in them. 25. Area Development. Rural development programs designed to meet basic needs and to generate employment and production have been developed for certain critically poor areas of Java and the Other Islands. Projects in Java are particularly important as cultivable land there is almost fully utilized, and in some higher watersheds cultivation already exceeds environmentally safe limits, contributing to increasing erosion, downstream flooding, and siltation of ports, dams and irrigation canals. GOI is implementing area development, watershed development and upland farming development projects to address this problem. 26. Bank Group Lending for Agriculture. Since the first of 20 irrigation and swamp reclamation projects for Indonesia was approved in 1968, the Bank Group's agricultural lending to the country has rapidly expanded to include 10 projects in estate and smallholder tree crops, plus projects in fertilizer production and distribution, sugar, livestock, fish0ries, research, extension, training, seeds, upland farming, area development, resource surveying and mapping, and transmigration. Within the context of GOI's agricultural objectives and priorities, future Bank lending is expected to focus on: (a) a diversified irrigation, flood protection, drainage and swamp reclamation program to intensify rice cropping on Java and to expand water resources infrastructure on the Other Islands; (b) smallholder and nucleus estate tree crop planting programs emphasizing increased rubber and edible oil production and industrial forest estates; and (c) area development projects, including watershed management and transmigration. Transmigration 27. The Need for a Transmigration Program. Of Indonesia's population of over 155 million, more than 95 million reside in Java, an island with about 7Z of the nation's land. Seventy percent of Java's total area is cultivated and the population density in irrigated areas can reach 2,000 people/sq km. Meanwhile, vast tracts of forest and coastal land lie uncultivated in the Other Islands. The low population densities in some areas (e.g., 12 people/sq km in Kalimantan, 3 people/sq km in Irian Jaya) impede regional development and economic growth. These facts have been so striking for so long that programs to associate the underutilized labor of Java with the underutilized land of the Other Islands have been carried out since the beginning of this century.

15 ObjectLves. The major objectives of Indonesia's transmigration program are to:(a) improve employment opportunities and incomes for impoverished and landless laborers from Java, Madura, Bali and Lombok; (b) alleviate population pressures on these islands, especially in environmentally vulnerable areas; (c) promote balanced regional development; as' (d) increase food and tree crop production. 29. The Government Program. Since Independence in 1949, the Government has assigned high priority to the transmigration program; however, its achievements remained relatively modest until the First Five-Year Plan (Repelita I) in , when 63,000 families moved. This number almost doubled (to 118,000) in and increased even more dramatically (to 535,000) in During , the Government hopes to move 750,000 families, or about 3.7 million people. 30. While transmigration has strong Government support, the program is voluntary and applicants are placed on waiting lists. (The current list includes over 445,000 heads of households, well in excess of the absorptive capacity of settlement sites currently available). Most settlers are young, recently married and with some farming experience to ensure that they adapt to their new surroundings. The overwhelming majority are drawn from the overpopulated upland rural areas of Java. The transmigrants are provided, at Covernment expense, with transport to their new homes, ha of land, a house, food for months, seeds, fertilizers and pesticides for about three years, and necessary implements. Social services, including water supply, health dispensaries and schools, are also provided in the new settlements. 31. The costs of the program have been rising as standards of planning and implementation have improved, but they are still in the range of US$5,000-1,000 per family. They are expected to increase further, as sites are developed in remote parts of Kalimantan and Irian Jaya where transport is difficult and infrastructure is rudimentary. Altogether, the Government expects to spend about US$3 billion, or 5% of the total development budget, on transmigration during the current Plan period. 32. Impact of Transmigration. The transmigration program has benefited the national economy in several ways. First, in the agricultural sector, it has made a substantial contribution to the increase in food production, estimated at about 202 of annual incremental rice production during Repelita III. This increase was achieved through the expansion of cropped areas by at least 500,000 ha. Transmigration has also allowed previously landless farmers to become self-sufficient in food. Second, the transmigration program has had a positive impact on population and employment in both the donor and recipient regions. In Java, it is currently estimated that the transmigration program reduces annual population growth by about one-third. If the target of 750,000 families is achieved, under Repelita IV the population growth of Java will decrease from 1.72 p.a. to 1.1% p.a. The impact on the labor force is even more significant. During Repelita III, transmigration resulted in the creation of about 700,000 new jobs at a unit cost of about US$4,200. During Repelita IV, if settlement targets are met, the program will create an average of about 200,000 new jobs per year, equivalent to about 30% of the annual incremental labor force in Java, at an estimated cost of US$5,200 per job.

16 The program has also had a substantial impact on the country's social welfare. It has provided improved education and health services to transmigrant families and generated a flow of "spontaneous" settlers in and around the new transmigration villages to take advantage of their infrastructure, services and markets. It is estimated that about 169,000 families (or about 30X of all settlers) during Repelita III moved with little or no Government assistance. Less than 5% of those settled are estimated to have returned to their original homes. 34. Finally, the program has had important unquantifiable benefits. It has aided regional development and provided an economic justification for introducing infrastructure such as roads and bridges in sparsely populated areas. While the total number of settlers seems limited, when compared with the 95 million people still living on Java and Bali, transmigration has had important effects at the margin in containing soil exhaustion and erosion in the most densely populated areas of Java and reducing requirements for costly public investments in soil conservation or urban services. Bank Group Involvement in Transmigration 35. Project Lending. The Bank has financed four transmigration and two swamp reclamation projects since 1976, involving total lending of US$438.5 million. While contributing only about 10Z of total financing for the program since 1974, Bank projects have led to substantial improvements, including improved site screening and evaluation, new mapping techniques,-better program fanagement and farming systems, procedures for avoiding waste of valuable forest resources, higher construction standards, more comprehensive support services for the settlers and a higher level of economic and social analysis. Bank projects are directly supporting the settlement of 45,000 families, or about 5% of the Repelita III and IV targets. The main thrust of Bank assistance has been to finance planning studies to ensure the selection of suitable sites and appropriate designs for the eventual settlements. These studies, which emphasize economic and environmental considerations, are undertaken by internationally recruited consultants. They are carried out in three phases: (1) Phase I - regional studies based on existing aerial photography and topographic maps; (2) Phase II - preliminary field evaluation of sites identified under-phase I; and (3) Phase III - detailed engineering and final planning for actual settlement. 36. Only one Bank project (Transmigration I, Ln IND) has been completed to date. The Project Performance Audit Report (No. 5157, dated June 25, 1984) contained very positive findings. After initial delays, the project met most of its targets without additional costs. Targets for road construction, water supply and agricultural production were actually excec'ed. The project was successful in demonstrating that good agricultural results can be achieved on moderately difficult soils, provided farmers apply an adequate package of inputs and soil management techniques. Marketable food surpluses were produced in the areas settled, and the resulting incomes, together with future revenues to be generated by rubber production, are expected to greatly exceed the transmigrants' real incomes at their places of origin. The economic rate of return on the project exceeded appraisal

17 estimates by 29Z, and 27% more "spontaneous" settler families were attracted to the main projected settlement than had been expected. 37. Other Bank projects are being implemented satisfactorily, although one of them (Transmigration II, Ln. 1707/Cr. 919-IND) has had to be re-formulated to achieve its original objectives, and the first Bank project devoted entirely to planning assistance (Transmigration III, Ln IND) experienced start-up delays as a result of problems in supplying aerial photographs and the slow production of Phase II studies. Steps have been taken to address these proaems and to prevent their recurrence in other projects. 38. Transmigration Sector Review. In 1981, the Bank reviewed the COI upland and swamp transmigration programs (Transmigration Program Review, Report No IND). A major conclusion was that income prospects from rainfed food crops were limited and a greater role should be given to mixed farming systems including tree crops in upland schemes. The report also recommended that increased attention be given to site selection and evaluation, institution-building, and staff training, and that a major effort be made to promote better resource utilization through the development of grasslands and the utilization of timber from cleared forest areas. In FY85 a study is being undertaken to find means to accelerate spontaneous migration in orde-z to lower overall transmigration program costs per family, and in FY86 the: Transmigration Sector Review of 1981 will be revised. In March 1985, GOI organized a meeting in Jakarta to discuss the transmigration program, which was attended by most members of the Inter-Governmental Group for Indonesia (IGGI). International Assistance for Transmigration 39. Other multilateral and bilateral agencies have contributed substantially to the transmigration program. Among the major contributors are the Asian Development Bank (US$34 million), the Federal Republic of Germany (US$30 million), the Netherlands (US$10 million), USAID (US$21 million) and the World Food Program (US$66 million). FAO, France, the United Kingdom and the UNDP have also provided technical assistance to the Ministry of Transmigration. Other countries, such as Australia and Canada, have contributed indirectly by providing substantial assistance to Bakosurtanal for the aerial surveying and mapping of the Other Islands. The Ministry of Transmigration's current "pipeline" of projects, to be financed by the Bank, ADB, WFP, UNDP, Japan, USAID and other countries, amounts to about US$750 million. Institutional Arrangements 40. Until 1983, when the Ministry of Transmigration was established, the transmigration program was administered by several Ministries, particularly Manpower &nd Transmigration, Public Works, Agriculture and Home Affairs. The new Ministry has made considerable progress in improving the management and implementation of the program, but needs to do more to increase its effectiveness. The various steps associated with settlement of transmigrant families (mobilization, transport, planning and construction) have been streamlined, but follow-up development activities, such as input supply, extension, credit and land titling - which are still the responsibility of other Ministries -

18 have been less smooth, and require further coordination. Financial monitoring and staff training within che Ministry also need to be strengthened. 41. The Ministry has a total staff of about 11,100 people, most of whom work within two large branches of the Ministry - the Directorate Ceneral for Settlement Preparation (DGSP), which is responsible for planning and constructing transmigration settlements, and the Directorate General for Mobilization and Development (DGMD), which supervises selection of, and provision of necessary inputs and services to, the transmigrants. Assistance to DGSP would be the main thrust of the proposed project, as it has been under Transmigration III. DGSP consists of five Directorates, two of which - the Directorate of Planning and Programming (Bina Program) and the Directorate of Land Preparation (PLP) - would be responsible for the major components of the project (paragraphs below). 42. An agency which has become increasingly important for the preparation of overall settlement plans is the National Coordinating Agency for Surveying and Mapping (Bakosurtanal). This agency was established in 1969 to coordinate land resource inventories and evaluation surveys and to produce all base topographic and thematic maps for public use. It has made significant strides during the last fifteen years in developing its staff and technical capabilities, with assistance from the Bank (National Resource Surveying and Mapping Project, Ln IND), the Asian Development Bank and bilateral assistance agencies (especially Australia and Canada). To improve the time-_ liness and-quality of its contribution to the transmigration program, Bakosurtanal has recently agreed to enter into a formal arrangement with MOT to produce necessary mapping information for settlement planning. PART IV - THE PROJECT Background 43. The proposed project was prepared by the Directorate General for Settlement Preparation (DGSP) within the Ministry of Transmigration and by the National Coordinating Agency for Surveying and Mapping (BakosurtanaL). The preparation work was partly finaiced under the Third Transmigration Project- (Ln IND). The project wes appraised in November/December Neg3tiations were held in Washington from May 3 to May 8, 1985 and the Indonesiandelegation was led by Mr. Sayuti Hasibuan, Deputy Chairman for Manpower and Population Affairs, National Development Planning Agency. A Staff Appraisal Report (No IND) is being distributed separately. A Loan and Project Summary is at the front of this Report. Supplementary project data are contained in Annex III. Project Objectives and Description 44. The project's main objective would be to improve the quality of site selection so as to promote the welfare of transmigrants and local people living in the vicinity of the transmigration areas and support sound regional development. This objective would be accomplished by:

19 (a) accelerating and expanding the surveying and mapping capabilities of Bakosurtanal to support transmigration and other development programs in the Other Islands; (b) assisting the Directorate General for Settlement Prep.-ation (DGSP) within MOT in carrying out a third round of site feasibility studies and physical plans for 300,000 sponsored and spontaneous transmigrant families; (c) providing program support and training to Bakosurtanal and DGSP to improve their overall operations and, in particular, their capacity to supervise thejimplementation of physical plans and settlement construction works; and (d) improving the ability of DGSP to undertake economic, social and environmental monitoring and evaluation of proposed sites and farming systems for both transmigrants and local populations living in the settlement areas. 45. The project would finance the following components: (a) AeriaL Photography and Base Mapping: a four-year time-slice of the national-mapping program consisting of aerial photography at scale 1/50,000 covering about 520,000 sq km in West Kalimantan, Sumatra and East Timor; base topographic maps at scale 1/50,000 of Kalimantan, Sulawesi and part of Irian Jaya (about 1,100 sheets), and at scale 1/100,000 of Irian Jaya (about 120 sheets); and leveling networks of Sumatra, Sulawesi and par:s of Kalimantan for a total length of about 9,000 km; (b) Transmigration Settlement Planning: (i) Phase I studies (regional development maps at scale L/250,000), comprising the review of existing settlement unit maps, and land resource and Land use maps, so as to identify potential settlement areas for Repelita IV and the early years of Repelita V; (ii) Phase II studies (site screening and evaluation at scale 1/50,000) for about 330 potential settlement sites in Sumatra, Kalimantan and Irian Jaya, involving aerial photo interpretation and field reconnaissance surveys of a gross area of about 20,000 ha per site (these studies would (a) screen potential settlement sites; (b) assess the suitability of the area for a particular type of development; (c) determine the local people's views regarding development of the area for transmigration; and (d) draw up a master plan at scale 1/50,000 for each settlement); and

20 (iii)phase III studies (feasibility at scale 1/20,000) for about 225 settlement sites, of which 130 would be in Kalimantan, 35 in Sumatra and 60 in trian Jaya. Theme studies would emphasize non-standard farm models such as livestock, tree crops and lowland development in addition to the standard upland food crop model. Each Phase III study would survey in detail a gross area of about 10,000 ha; determine the technical, economic and social feasibility of the proposed development activities (including determination of Land rights, method of participation and compensation arrangements for local people); draw up a settlement structure plan showing the locations of roads, village -boundaries, house Lots, agricultural fields and lands to be cleared; and prepare detailed development plans for the first five years of settlement and indicative plans for the following five years. (c) Program Support and Institution Building: This component would consist of: (i) special studies to support the national transmigration program including: a detailed review of the Repelita IV transmigration program, a socio-economic survey of selected settlements in Central Kalimantan and Irian Jaya, and a limited number of unspecified studies to resolve unforeseen problems during project i'mplementation or as a result of the program review; (ii) continued support for a Central Advisory Group and six Regional Advisory Groups to assist DGSP's Directorate of Planning (Bina Program) and the provincial transmigration offices in project management, accounting, economic and social evaluations, supervision of consultants engaged in settlement planning and training of Bina Program and provincial staff; (iii) establishment of a Central Technical Support Team and seven Regional Technical Support Teams to assist the Directorate for Land Preparation (PLP) by (a- providing liaison with Bina Program and the provincial heads of HOT; (b) preparing standard and special bidding and contract documents; (c) organizing maintenance of transmigration roads and facilities; (d) supervising the final designs and construction works; and (e) training PLP and provincial staff; (iv) establishment of a Technical Assistance Team to assist Bakosurtanal in project management, the development of software and the resolution of scientific and technological problems in automated cartography, digital mapping and advanced geodesy; and (v) staff training for Bakosurtanal, Bina Program, PLP and other MOT directorates, including refresher courses, workshops, overseas fellowships, the production of two films and audio-visual aids; consultant services to MOT's Staff Traini-g Center (Pusdiklat) to identify manpower development requirements and prepare a major

21 Project Implem-ntation training program for MOT staff; and on-the-job training for national consultants through training components included in each Phase II and Phase III study contract. 46. The project would be coordinated and supervised by the existing MOT Coordinator for Bank-assisted projects, who is MOT's Secretary General. A Project Working Group would be maintained within the existing Settlement Planning Technical Team with representatives at the Director level from the following Ministries: Transmigration, Agriculture, Forestry, Home Affairs, Population and Environment, and Social Affairs, as well as from the relevant provincial authorities. The Project Working Group would meet regularly to make recommendations to the Minister of Transmigration on: (a) settlement planning and construction; (b) regional planning and special studies; (c) Phase II studies, including the development options proposed; and (d) Phase III studies, including the choice of the executing agencies for the construction and development of the proposed settlements. 47. In addition, a two-level consultative mechanism would provide guidance to the Minister of Transmigration and DGSP on social and environmental issues, among other matters. Two Technical Teams, chaired by the Director General for Settlement Preparation and the Director General for Mobilization and Developmenc, and including representatives of the Ministries of Home Affairs, Population and Environment, Social Affairs, Porestry and AgricuLture, would make policy recommendations on the planning of the transmigration program, including its social and environmental aspects and any proposals affecting local people. These teams would meet regularly to discuss matters raised by the Government and the Bank. Provincial and district land allocation committees, chaired by the local heads of the land registration branch of the Ministry of Home Affairs (Agraria), would discuss existing land use requirements and possible compensation arrangements with local people affected by the transmigration program. Assurances were obtained during negotiations that the Project Working Group, the two Technical Teams and the provincial and district land allocation committees would be maintained throughout the project (Sections 3.04 and 3.05 of the draft Loan Agreement). 48. Bakosurtanal would be responsible for implementing the aerial photography and base mapping component of the project. Bina Program would be responsible for the settlement planning studies and the special studies. Training of MOT staff would be managed by the Ministry's Staff.-:aining Center (Pusdiklat). 49. It would be a condition of loan effectiveness that Bina Program had selected about one half (165) of potential settlement sites for Phase II studies and that Bakosurtanal had completed about one-third of the aerial survey data and base maps required for the mobilization of the first group of six Phase II and III consultants (Sections 5.01(a) and (b) of the draft Loan Agreement). The Government would also approve and sign the consultant contracts for the Central Technical Support Team (PLP) and the Technical Advisory Team (Bakosurtanal) by loan effectiveness (Section 5.01(c) of the draft Loan Agreement.) It would be a condition of disbursement for the second group of

22 eight Phase II and III consultants that Bakosurtanal had completed the second third of aerial survey data and base maps required for the mobilization of chese consultants and that the consultants' contract for the Central Advisory Group in Bina Program had been signed (Schedule 1, paragraph 3 of the draft Loan Agreement). 50. Social and Environmental Evaluations. Because the transmigration program is expanding into more remote areas of Indonesia, the proposed project would include several other features to strengthen social and environmental evaluations and improve the design of project components, especially to take into account the presence of Local populations in the settlement areas and safeguard their interests. First, Phase II and III studies would be strengchened in the field of social evaluations. Consultant terms of reference and staffing would reflect this point. Second, consultants would be required to study development options including the participation of up to 20% local people for a given site (and up to 50% in the case of Irian Jaya). Third, the Central Advisory Group within Bina Program would assist in supervising and monitoring the social and envirornmental aspects of the studies by employing two anthropologists/sociologists and one environmentalist on a full-time basis. Fourth, Phase II and Phase III studies would be reviewed by the Project Working Group to ensure that the social and environmental aspects are adequately covered before proceeding to settlement. Assurances were obtained at negotiations that the Government would take all necessary measures to ensure the settlement of families only in areas already determined to be technically, economically, en'vironmentally and socially viable in accordhnce with criteria satisfactory to the Government and the Bank (Section 3.06 of the draft Loan Agreement). Project Cost and Financing Plan 51. Total project costs are estimated at US$275.3 million including US$8.3 million in taxes and duties and US$141.8 million (52%) in foreign exchange. Base costs are expressed in mid-1985 values. 52. Quantities and costs are based on the experience and estimates of consultants working with MOT under the Transmigration III project. Total physical contingencies are estimated at US$21.2 million, or about 10% of total base costs. Price contingencies assume domestic price increases of 9% in 1984, 8.0% in and 5% in 1991 and thereafter, and foreign price changes of -2.8% in 1984, 5.0% in 1985, 7.5% in 1986, 8.0% in and 5.0% in 1991 and thereafter. Total price contingencies are estimated at 18% of base costs plus physical contingencies. As there are technical limitations to conventional surveying methods over tropical forests, the Government is experimenting with the use of airborne radar and laser mapping systems under the Transmigration III project. It has been assumed that such systems would not be used on the areas to be studied during the proposed project. Should these systems prove to be workable during project implementation, the cost of the Phase II and III studies may decrease. The applicable amount of resulting cost savings would be cancelled from the Bank loan. 53. The proposed Bank loan of US$160.0 million would cover 60% of total project costs (less taxes and duties). The Bank would finance 100% of the

23 project's foreign costs and 14% of local costs (US$18.2 million). The Government of Indonesia would finance the remaining project costs (US$115.3 million) from its own resources. Procurement 54. Detailed procurement procedures are summarized in the table below. Aerial photography and maps (US$23.2 million) would be procured in eight contracts through international competitive bidding (ICB) procedures in accordance with Bank guidelines. Equipment and supplies for the mapping to be carried out directly by Bakosurtanal, and for the training component (US$3.7 million) would be bulked as far as possible in lots of at least US$200,000 and procured through ICB; smaller quantities, up to an aggregate ceiling of US$1.1 million, would be procured through prudent shopping, subject to Bank review. Consultant services (US$223.7 million) would be recruited internationally in accordance with Bank guidelines. However, foreign firms would be requested to associate themselves with local firms in order to carry out the technical assistance and training components which would be built into each contract. Foreign and national firms would be free to choose their associates. For Phase II and Phase III consultants, price considerations would be taken into account in the evaluation of proposals. For othar consulting services, there would be a short-listing of at least five firms by GOI with technical and financial proposals submitted according to the two envelope system. Technical proposals_would be evaluated first according to a point system acceptable to the Bank. After negotiat ions with the highest evaluated firm, the remaining financial proposals would be sent back unopened to the unsuccessful firms (Schedule 4, Section II, of the draft Loan Agreement). Training seminars, workshops, courses, study tours, and fellowships (US$4.2 million) would be arranged in accordance with GOI practices acceptable to the Bank.

24 PROCUREMENT /a (US$ millionf Procurement method Total Project element ICB/b Other/c N.A./d cost Air photos and maps (13.9) t-) (13.9) Equipment and supplies (1.5) (0.7) (2.2) Consultants (131.4) (8.8) (140.2) Training (3.7) (3.7) Administration and overheads (-) (-) Total Cost (Bank-financedd (146.8), (13.2) (160.0) /a IncLuding physical and price contingencies. 7b Including the international recruitment of consultants. Th Other means of procurement include prudent shopping for equipment and supplies, training expenses and direct hire of some consultants. /d Not applicable. Includes Bakosurtanal staff required for map making and GOI administration and overheads. Note: Figures in parentheses are the respective amounts financed by tie Bank. These figures are approximate and depend on the use of unallocated funds. Disbursement 55. The propo:sd loan would be disbursed against: (a) 60Z of total expenditures for aerial photographs, maps, and levelling networks carried out by contract; (b) 60% of total expenditures for equipment, materials and supplies; (c) 100% of foreign expenditures and 60Z of local expenditures for training; and (d) 100% of total expenditures for consultant services, up to US$14 million, and 60% for applications thereafter. 56. Disbursements for most components would be made on the basis of standard documentation. Statements of expenditure (SOEs) would be accepted for materials, spare parts, maintenance services and replacement of equipment purchased directly by Bakosurtanal, in lots up to US$200,000, and for training materials and expenses. Detailed documentation for SOEs would be retained in Indonesia and available to Bank supervision missions.

25 Project works would be completed by December 31, 1989 and disbursements would be finished 12 months thereafter. Because the project is Limited to a four-and-a-half-year time-slice of the transmigration program and because the similar Transmigration III project has been generally carried out in a timely manner. project disbursements are expected to be completed in five-anda-half years, faster than the average for all Indonesian projects which disburse an average of 77Z of total disbursements by the end of five-anda-half years. The loan closing date would be December 31, Monitoring and Evaluation 58. Bina Program, in conjunction with PLP and Bakosurtanal and their respective technical suppoit teams would be responsible for monitoring physical progress and, in particular, for ensuring adherence to the standards set out in the consultants' terms of reference. Special attention would be given to the usefulness of the radar/laser mapping technology when the information is available in 1986, and to the potential impact of the site selection scudies on local people and the environment. 59. One of the special studies to be financed under the project would be a detailed review of the transmigration program in It would cover the major aspects of the transmigracion program including targets, the rate of implementation, budgetary allocations and expenditures, land availability, physical planning, land clearing, construction, farm models, agricultural production and coordinatraon with other agencies.- In addition it would carry out a socio-economic survey of five selected settlements (1 in Sumatra, 2 in Kalimantan, and 2 in Irian Jaya) and make a special assessment of social and environmental aspects. Assurances were obtained at negotiations that this review would be carried out by September 30, 1987; that the Government would discuss the outcome of the review with the Bank by November 30, 1987; and that, based on such discussions, the Government would carry out modifications and additional studies, if necessary, to resolve problems in the project (Section 3.03 of the draft Loan Agreement). Accounts, Audits and Reporting 60-. Project accounts would be audited by independent auditors acceptable to the Bank. It is expected that audits would be carried out by the Inspector General of MOT and by the Director General for State Financial Control (BPKP). Assurances were obtained at negotiations that all implementing agencies involved in the project would maintain separate accounts for the project, and all contracts, orders and receipts would be kept for at least one year after the closing of the loan. The audited accounts would be consolidated and transmitted to the Bank within nine months of the close of each fiscal year (Section 4.01 of the draft Loan Agreement).

26 Quarterly and annual progress reports as well as the Project Completion Report would be prepared by MOT and Bakosurtanal with the assistance of their respective technical support teams. Special attention would be given in the reports to the impact of settlement planning on local populations and environmental aspects. A consolidated Project Completion Report would be submitted to the Bank no later than six months after the closing date of the loan. Project Benefits 62. The project is expected to lead to the eventual settlement of about 300,000 transmigrant families through its physical planning component. These people, who are largely landless with little prospect of obtaining land in their overcrowded places of origin, qualify as "the poorest of the poor" in Indonesia. Given the worsening problems of erosion and other environmental hazards caused by intense pressure on rural land in Java and Bali, transmigration represents a major means of increasing the number of people directly employed in agricultural production. Rural irrigation works and other basic government agricultural programs primarily affect those with land who are underemployed during an off-season. Unlike transmigration, they create few new landholders. In the long term, even suitable land for re-settlement will run out and further employment gains wili have to come from the off-farm rural or urban sectors. In the short to medium term, however, job creation caused by industrialization and supporting services are expected to lag far behind the need for jobs. While the relative costs per job among the alternatives of "urban indus'trial,"urban service," "transmigration," etc. continue to be researched through the Bank's on-going economic and sector work, it is clear that the high and rapidly increasing demand for jobs in rural Java and Bali will exceed the supply from all of these potential sources, and at the margin the transmigration program has no lower-cost "competitors" for absorbing this surplus rural labor. Given this stark fact, GOI has little alternative but to proceed with a large-scale transmigration and land distribution program. Based on the experience gained over the past 20 years, land resource evaluation and planning are considered essential to ensure a sound basis for the transmigration program. 63. As it is difficult to quantify the many benefits of improved mapping and site selection and to relate tfiese to the costs of this specific project,- no meaningful economic rate of return can be calculated for this investment. However, it is important for GOI and the Bank to be assured that there is sufficient economic and social justification for the proposed project, especially since it will identify sites in more remote, and thus more costly, areas of the country than in the past. In addition to the job creation benefits described above and the containment of erosion and other damage to the environment of rural Java and Bali, an analysis has been made of the likely economic returns (based only on quantified costs and benefits) when the sites identified and planned under this project are actually settled. 64. The first stage development of the upland food crop model consisting of clearing 0.25 ha for the house lot and 1.0 ha for the first food crop lot is likely to result in subsistence levels of income. Economic rates of return (ERRs) would be low and, in remote areas such as Irian Jaya and parts of Kalimantan, might approach zero, due largely to higher investments in infrastruc-

27 ture. In addition, some families (assuming a normal distribution of "poor", "average" and "good" farmers) may sometimes be unable to reach the target income of 2.4 tons of rice equivalent, particularly in years with below-average rainfall. GOI recognizes this possibility and therefore regards these basic facilities as an initial investment to be followed by second s_.ge development. The addition of second stage development, especially when cattle are supplied for draft power, can result in food surpluses in excess of the target income and satisfactory ERRs. A second stage development involving tree crops also points to a satisfactory ERR although it may be subject to the same potential year-to-year fluctuations in achieving food self-sufficiency in the early years of development. Because of the greater finan:ial and managerial requirements of establishing sites based on models with second stage development, GOI's Repelita IV settlement targets may prove to be ambitious. The pace of implementation of transmigration is a subject which will continue to be analyzed through the Bank's economic and sector work. 65. The likely ERRs for a series of possible models with second stage development in remote areas such as Irian Jaya and Kalimantan (7Z-12Z) are lower than in traditional transmigration areas such as Sumatra (lox-15z). These lower returns result from the lack of existing infrastructure and the higher transport costs involved. Some of the E'Rs, based on quantifiable costs and benefits only, would also be lower than the opportunity cost of capital in Indonesia which is currently estimated at loz. However, unquantifiable economic and social benefits which must be taken into account include the social value of providing land to the landless, increased 'rood security, and improved regional development. In more concrete terms, all of the Bank's economic and sector work to date, as well as the experience of previous and current projects, suggest that family incomes on well-planned transmigration sites can reach US$1,000 to US$2,000 per year or higher (3.5 to 7.0 tons of rice equivalent), which is several times the average level of incomes in the transmigrants' places of origin. These-are issues of prime social and political importance in Indonesia which the Government is addressing with the support of the Bank. Weighing the tradeoffs of competing claims on scarce development resources continues to form a major part of the Bank's economic and sector work and policy dialogue with GOI. When the quantified and nonquantified benefits of transmigration in these more remote areas are considered together, one may conclude that the transmigration program for these areas is consistent with the national development priorities held by Government and supported by the Bank. The proposed Fifth Transmigration project would support and seek to improve the overall transmigration program in the most economic and efficient way yet identified. Social and Environmental Impact 66. Local Populations. Although local attitudes toward transmigration have varied from province to province, local populations have been generally receptive to transmigration with its associated infrastructure, employment and social benefits, such as improved schools and health facilities and lower cost labor supply, from which they benefit. With some notable exceptions, such as Lampung Province in South Sumatra, transmigrants are a minority in the provinces where they have settled and they have not seriously compromised the interests of local groups in their own provinces.

28 As the scale of the program expands, however, and transmigrants are sent to new areas or remote sites, it is inevitable that they will be Located among people who are ethnically different or who are in sparsely settled areas and relatively unacculturated. Such people are found in project areas in both Kalimantan and Irian Jaya. The people in these areas are of concern for at least two reasons. First, those who are relatively unintegrated into the larger society may be unaware of their own rights and interests or be unable to articulate or defend them effectively. Second, those who are either unacculturated or ethnically distinct need particularly careful consideration to ensure that they benefit from development. 68. In order to overcome these concerns it is GOI's policy: (a) to develop transmigration settlements only when satisfied that they are technical- Ly, socially, economically and environmentally viable according to extensive studies carried out under the project; (b) to include, on a voluntary basis, the local people living in and around the proposed settlement areas with a view to raising their living standards to the same level as that of transmigrants; and (c) to give equal access to economic and social infrastructure and services to all sponsored and local transmigrants. 69. Perhaps one of the most sensitive issues in new settlement area centers on the release of customary land use rights and the estimates of equitable compensation for local users. A recent Presidential Decree (No. 59/1984) formally delegates the coordination of the transmigration program, through the 'Minister of Transmigration, to the Governorsvand their provincial staff. Under this new decree the Governors will, among other things, be responsible for ensuring that conflicting claims on the land are resolved in order to reduce the present high rate of settlement site rejection. 70. GOI will continue to reject sites for which agreements can not be reached with local users or when the number of local peodle is such that the creation of a transmigration settlemient would create serious conflicting land claims. For example, in Irian Jaya, the sites proposed under the project are located in the sparsely populated lowlands which are expected to have less land rights problems than in the highlands where the bulk of the indigenous population lives. 71. The Phase II and Phase III studies would also include an assessment of the need for other benefits including health services, roads, schools, ext<sion, and possible resettlement, and preliminary recommendations on the type of benefits to be provided to local people. As many traditional cultivators are poorly prepared to do labor-intensive agriculture on one or two hectares, arrangements would be proposed for protecting such cultivators and for ensuring that their settlement within transmigration sites is gradual and voluntary. It is expected that there would be more than enough local volunteers wishing to settle in transmigration sites in most provinces. However, particularly in Irian Jaya, where the majority of people have different farming practices and cultural traditions, site planning in the near future is expected to provide for parallel development activities for local residents. 72. The Role of Women. The project has no component specifically concerned with women. However, it is a resource evaluation and site planning

29 project in direct support of the transmigration program, which treats the family as the basic economic unit. The transmigration program is concerned with raising rural incomes, increasing local employment and improving nutritional and educational levels for all family members, and each family member is expected r^ benefit fairly. 73. Environmental Effects. One reason for the transmigration program in general is to reduce the overcultivation of environmentally vulnerable areas on overcrowded Java and Bali. This project, which supports the transmigration program, will therefore have indirect beneficial environmental effects on the areas supplying transmigrants. More important, the primary purpose of this project is to improve the selection and design of transmigration sites. Especially as the transmigration program expands to relatively unknown areas of Indonesia, careful site selection is essential to prevent inappropriate sites and farming systems being developed. As in the case of Transmigration III, the planning studies will use environmental suitability as a major criterion in deciding whether to proceed or reject a proposed site for further consideration. For example, food crop areas are restricted to slopes under 8% and tree crops to slopes under 25%. The methodical evaluation, screening and selection of sites under this project thus has the potential to provide enormous environmental benefits in both the short and long term. 74. In addition, the participation of the Ministries of Population and Environment and of Social Affairs in the decision-making process of the trans-,migration program would be strengthened under the project by incorporating them in (a) the HOT Technical Teams reviewing social and environmental aspects of the program; and (b) the Project Working Group in charge of reviewing and recommending the acceptance of the Phase II and III studies to the Minister of Transmigration. Project Risks 75. Managerial. The effectiveness of this type of project depends heavily upon the strength and timely mobilization of the Technical Advisory Groups (TAGs). In the past, the time requirea to mobilize such assistance caused delays in program administration. Under this project the contract with the current TAG (financed under Transmigration III) would be extended at least one year to provide an overlap of several months between the two projects. 76. Another managerial risk has to do with the implementation capacity of MOT to use the information provided under the project to carry out the transmigration program successfully. If, because of the pressures to accelerate the transmigration program in order to accommodate the large number or families who wish to transmigrate, MOT fails to implement the recommendations of the studies financed under the project, then some of the benefits of the project would be reduced. The risk of this happening is minimal given the experience of Transmigration III and the continuing monitoring and evaluation of the transmigration planning process provided by this project. 77. Social. If, contrary to GOI's stated policies, transmigration were to become identified with forced participation or result in major disadvantages to local people, then the program may be unable to go forward at the

30 planned rate and the benefits of this project would be reduced. However, the primary objective of this project is to improve the quality of site selection in order to promote the welfare, not only of the transmigrants, but also of the local people. The components built into the project to ensure this (paragraphs 66-71) would minimize the social risks considerably. PART V - LEGAL INSTRUMENTS AND AUTHORITY 78. The draft Loan Agreement between the Republic of Indonesia and the Bank and the report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. Conditions of loan effectiveness would be (a) the selection of about half of the potential settlement sites to be studied; (b) the completion of aerial survey data and base maps for about one-third of these sites by Bakosurtanal; and (c) signature of consultant contracts for PLP and Bakosurtanal. It would be a condition of disbursement for the second group of studies that the second third of aerial survey data and base maps had been completed and that the consultants' contract for the Central Advisory Group in Bina Program had been signed (paragraph 49). Other special codditions of the project are listed in Section III of Annex III. 79. I am satisfied that the proposed loan would comply with the Articles of Agreement of't-he Bank. PART VI - RECOMMENDATION 80. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments May 20, 1985 Washington, D. C.

31 AIMN I 27- Page I of 5 pges IimouuEn - r001*2. UDAoCAL Ts 20A R INUOUSIA RzvRm mpn c au c-cu ur. NE) TOTAL ls ACRICULTURAL u(wziou AVUA&os HSrT (MM RECN RSTEATS) tb mmin i mintncs INON acm acmu uaotb 1970e jetdaad AIA A PASCIFrC [AT. A ICA A CAR URS urm (15$) mow coiwmnam a cansu (RILANS OF OIL uquivalur) Ms., eoat AMVL SZ M POPULATXOU*NID-TZA (TIOSAD) 9U URN POPULATION (Z OF TOTAL) POPULAOTION PROnCONS PoPMAusTX IN TR 2000 (HILL) STATONA POPULATION (HILL) 37D.I POPUATION 1.9 POPULATON DENSITY PER SQ. sm PM SQ. Dl. AGRI. LAND POPUYATrON AE STRUCTURE (2) 0-14 us irs T AND ABOVE POPULATES GRaloR RATE (Z) TOTAL Amm CRUDE BmIRTH RATE (PER TWiO) MC DEATH RATE (PER TIOIIS) GROSS REPRODUCTOU RATE FANLY TPLANNINC ACC* TORS, AUAL (CTUOS) Q51.0 USES (Z F HAUIWODUIIRC) /c INDEX OF E10D PROD. PER CAPITA ( ) PER CAPIrA SUPPLY OF CALORIES (Z OF REQUIREIRNTS) P30m11s (GRAS PER DAT) 3S OF WSIC! AMIAL AND PULSE /d CHID (AG5 1-4) DEATH WEl LI" EIPECr. AT BIRt (SA) INSLT IRT. RATE (PER I130n3) ACCESS TO SAFE MATER (SOP) TOAL URBAN _.. z RURL O ACCESS TO EREI A DISPOSAL (2 OF POPUIATIOfl TOTAL mB RURAL POPULATION PE PYSICIA /a POP. PER iultsing PISON /f W U5.8 POP. PER HOSPITL BED TOTAL I URBA jj RURL AIuISIO ESR OOSPITAL I /h AVERAGE SIZE OF WSEOD TOMTL F URBAN RURAL AVERAGE 10. OF PERSONS/ROW TOTAL UORAN RUAL ACeSs TO ELECr. (Z OF IICLUCS) TOTAL.... URBAN.... RURAL...

32 -28- ANNEX Page 2 I of 5 pages I IE7SRA - SOCiL IoxOSo D 1 u uonsi -MRIC uriic (920n1 4113) jg 865(SsM 3 RZ IA) AI A R 196A1 l1tot! gsi Si!! "zk & PmCS= LAT. MSU^C ADJUSTED INRLU T RATIOS PR2OUYI TOTAL MAIL YUAALS N conduyi TOTAL MALl VENLU VOCATUIA (C Of SZCON I) IIJPIL-TEACIRR RATIO PRDILMY SCONDArY 1* ADULT LIEA ATZ (2) PASBENER CARS/THOUEAND POp WU. RADIO RECEIVER/ITOOUmD POP TV RECEIVEUITNOUSAND POP ' NEUSPAPER ("AILT GENEA NTEUST-) CIRCU.ATIO.... PER TRWUBAID POPULALTION CINIA AMBUAL ATTENDANCE/CAPITA Ur JA 0.8 T TOTAL LABOR FORC (TSO) FELE (PRCENT) AGRICULTURE (PERCE) INDUSTRY (PERCENT) PARTICIPATION RATE (PZRCENT) TOTAL 36; MAIz , iemale ECOUMC DEPENDENCr RATIO UIWGMS D9RBTR PRE OF PRIVATE INME RECEIVED by ZIHZSTSZ OF HorUSEOLDS s 2.2. REI 20z OP EODS 49.4 U.0 IWET 20Z of IOUSEZOLDS SI 40t or IIWSDEDS i ~~~ ~~15.5. LOST 402 OF SOUSEOL1DS ESTIMATD ABSOLUTE POVERTY INCOM LEVEL (US$ PE CAPITA) U ft RMAL if O ESIMUATED ULATIVE POVET ICOME LEVEL (US$ PER CAPITA) URBAN /I RURAL r znwm PoP. BELM ABSOLUT POVERTY INm LEVEL (2) URBAN / 26.0 /5 ;3.4 RURAL o NOIIT ^AVALAL NOT APPLICABLE N OTE S /a The grop averaps for each indicator are populattor-eughted ar±tb_tic mane. Courage of countriem ang the Indicators depend. a availablity of data ad I. not unifors. Zb Unlear otherwise noted. Data for 1960" refer to any year betweo 195$ an 1961; 'ta for 1977r betwee 1969 end 1971; and data for "Meet Recent Eatiutet between 1980 and c 1953; Id 1977; re 1979; If 1962; /i 1976; /h 1975; i 1980 prima. JU.l* 1984

33 M_= -lid ~~~Iad am M -131) , 1*4-4 * ~ - P Aid" (3343.1U-31 K 3-.a -K a.1*4.p p q- P.- p) a. 333 ;MMdg -.4 K- w"t_ ~ ~ ~ ~ ~ ~ ~ ) ~ 2)3*41- -)v- p va j )3 33 *33 IftWT1 a- -Vlelpa p ( 1143" 3341) lim. -p 334 P-3448 T-" p. -%al M p P3Dist l... q -- ( '3-MAKIUN p I33)33 ft Odf tun - at-m 43!1 wm3 13(F-R-1AM R I-w w323n M2 3 S U;-U l 31ft 3l33r330 *.1.P123-ot*3 :14 a,-z-23 3p M3-0) MA4 A '- 'P (-3 33-,) 311 * C153 C a-". - 13PKaNam-. 3*. p p p UK 1332j- A p ~~~~~~~~~~~a '33 new a. -4 ( G 31 t- 3*33 v 01 -P (P1.43 ) j5jK-j a:) (4 3- ~~~ p-03 0)1 i p. 5,- -" 31 4 Ift-SUMU m1 IT.S. 33)33343 a. 31t AM 43 3 A.-U )54 M4MK t)3. Al. 2333** p. J_ q" = ~.33 3aJ @33 p33-3' p., [ * * ) * A A23 P amad t $A (33433) A P- P -UNUB A. m.-m333 Usag imm M p.id J"3,-.1:w1- a V be "L233 * l T~) W AN33 33)0)44 P.O.0) 3tt j3,334 r UK All-MM 0 )1 - P3"1' 5)35311W, p qp P * -6 lw )341330) e ". P) I4 M eu -q Ad.2* W11 3A w31 I I ,335334NM ) p l.~ S. 132a4 P am II "P. 34 J Aq 53wo p ft go F t-m N ea A P3Am M3I I33 13 K C ME-1- J. " "v233 Mpied )5 -P" N i R I4pWi4334i * ) J(*33.*103 = s *10 3M n ) lp Ml (3333) l~ ml, ( LP323.( Small SI "3D * ~ 33 3p151 * J ~~ u3333 P-"43 Kam -1331= * d.3 AM Aw A.".3343-Id "33 K R SU-1, N * )P 333dvlied. A )434 -P333.W. "A. I.,.0.".A. _ v A.% " at l t el. " -MM3-1 -ft N US 3I3d-P "'44 333P2 Ms *344 m2p.-3p % SUS I n33 meas-e Al fe af- ) P $ "_A_332 0 K , l 3 13)3333d-f * g p ~ (33p *3~ -S A.1I,r AMI- K3(.35 -, ) ) _ P" SA33M * * )333 32) _ ~~~~~~~~~a -I_ t )23..-Iji m:w-km lw!!!m~~3343 " " `21333 'I 'I'd- 223( I'll m _ P K P- abdel"'u" "Ut- di-lit-m -dbs"_; ~ ~ *1-3i4 P11 =AI p An 3 3)15eU t1333 4) t P M"" A *33-3. v a Fl11PS13223 M *334J.33d p ) * PR =4 V- 333P 33t 33 S k 4324g~ 3~ P ) Apr4.4 34~343~ M 3334 F-0 = IN ) _33 M4333~ It )) d33 P Mp UIJ N 3. y tui. - a. Ua. I- -A M Mail 1M1;r~* Z "523-1)3 I pU *m-a Al so "13 44*13l ' ; ) j A _ o43n31; le4- P = S p53 V _ , dia 44-AP.3 M p P M P413 b33(43.131suri :- diu- M111% )3M AV 13( P 3-O A * d I424 I xzma

34 ANND I Populatlon * million (mid-1913) GNP per Capitat 1U8560 (1983 mutmate) _ 30 - age * of 5 Poges IDDONXSIA - ICONSIIC TNDICATORS Amount (million US$ at Annual sroith rate CZ) /b current prices) rctuel F Wrojiect ly983 IV5 19Y 1 L 1Y i 1VlU lndicator 1982 inw ivui 19UZ 1903 IYoM/& NATIONAL ACCOUNTS grosws uoammtlc product /c 78, Agriculture 20, Industry 29, Services 27, Conreuptlon 62, Grom. investmnt ld 18, Zxports of CNFS 19.50W Importe of GNFS 22, Gross national mavings 12, PRICES =COdeflator ( ) kxehanga rate (Rp per USS) , Sare of CDP at mrket prices (t) (at current ;ric2 u)_ Ar annual increase t b ls TYY o O :S 1 1YJ5 19/ I85-90 Gross doueatic product lt0 J Agriculture A. 2! Industry ? Services ' Con oattlon G-ros lvestment /d Exports of GCNS *.0 Iuports of GNPS *.J Gross national avinga Am Z of CDP 19bU 19/0 11lS 19 8 PUBLIC InTACe =urrent re Carrent expenditures Surplus (+) or deficit t-) Capital expenditure n.a Foreign financing L OTHE MNDICA!ORS annuai CNP grwth rate (Z) Annual GNP per capita growth rate (2) Annual energr consumption growth rate (2) ICOR Marginal savinga rate Irport elamticlty /a ZEti_ates. 7W At constant 1973 prices for and 1981 price. fox Ec At _ rket prices. 7T Fixed invetment; stock changee are included in consumption. 7e Central Government only, on an April-to-larch fiscal year basim. Cait Asia and Pacific Region May

35 Population s million (mld-1983) ANNEX I CUP per Cmitat 'JS$560 (1983 estimte) age 8 5of 5 pages INDONCSIA - BALANCE OF PAThENTS AND MXTERNAL CAPITAL AND DEET (fllions US at current prices) Actual Prolected lsou lyol 195Z lyo3 198aIa 1b5- iiyh lyo7 lsyo BALANCE OF PA2NEETS/b r.--w-or-en 22,885 22,994 18,672 19,817 20,243 20,769 22,868 26,170 36,235 (a) Oil and LNC (groas) 17,297 18,824 14,744 14,449 14,341 14,253 15,512 17,821 23,848 (b) Nonoil 5,588 4,170 3,928 5,368 5, ,356 8,349 12, Imports (including net NFS) -17,589-22,570-22,339-19,655-17,611-19,066-20,783-23,026-31,586 (a) Oil sector -4,050-5, , ,619-6,540 (b) Nonoil Imports -11,837-14, , ,616-14,899-16,462-22,438 (c) NFS (net) -1,702-2, ,570-1, ,771-1,945-2, Resource balance 5, , ,632 1,701 2,085 3,144 2, Factor services -3,165-3,210-3,573-4,476-4,596-4,528-4,994-5,708-7,287 * (a) Interest public debt ,145-1,256-1,620-1,598-1,851-2,132-4,487 (b) Other (net) -2,342-2, ,220-2,976-2,930-3,143-3,576-4, Capital grants Balance on current Account 2,207-2,719-7,135-4,219-1,864-2,715-2,790-2,439-2, Direct foreign inveutment Public N & LT loans (a) Disbarsement 2,551 2,673 4,192 4,965 3,828 4,988 5,428 6,068 6,892 (b) Amortization ,053-1,102-1, ,980-2,137-2,545-4,603 (c) Met disbursements 1,615 1,620 3,090 3,670 2,220 3,008 3,291 3, other capital (net) -1, , Change in reserves (- Increase) -2, ,350-1, Net officlal reserves 7,342 6, , ,896 6,588 7,534 9,384 Reservw in months of nonoll import. + MrS Memorandum Item Met toreign assets of the banking system/c 10,787 10,622 6,322 8,395 9,930 10,331 11,003 11,969 13,819 Total reserves in months of nonoil imports + NFS EXrERNAL CAPITAL AND DEBT/d - Gross Dlsbursements ,965 3,828 TGonceesiOnsi Loans 658W 'O9 5 3 Bllateral To17 10 'ST w 7 IDA Other Nonconcessional Loans 892 1, , Bilateral IBiD Other multilateral Private-source 1,421 1,310 2,356 3,219 1,938 External Debt Debt outstanding and disbursed /c Official-source T-3O5 IUG7-R m j1t7 12>U37 TT12T Private-source 5, ,403 9,649 10,042 Undisbursed debt 9,481 11,387 12,870 13,778 13,973 Debt Service Total serr-ce payments 1,759 2,047 2,247 2,551 3,248 Interest ,145 1,256 1,620 Payments as Z of exports/f Average Interest Rate On New Loans (Z) Wtit ai-_ource Private-source Average Maturity of Mme Loans (Years) LtticiaL-source Private-source As Z of debt outstanding at end of 1984 Maturity struccure of debt outstanding Maturities due within 5 years 34 Maturities dae within 10 years 65 Interest structure of debt outstanding Interest due withli first year 7.0 /a Estimates. 71 On an April-to-March fiscal year basis. 759 Includes foreign assets of deposit money banks in addition to official reserves. 7f Excludes private nonguaranteed loans. 7e Ar end of pericd. East Asia and Pacific Region 7F Oil exports treated on gross basis. May 3, 1985

36 ~~~ANNEX II 32 -Page Iof4 pages THE STATUS OF BANK GROUP OPERATIONS IN INDONESIA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1985) /a Loan/ Amount (US$ million) Credit Fiscal (less cancellations) number year P' pose Bank!DA Undisbursed Thirty-five Loans and forty-one Credits fully disbursed 1, Tenth Irrigation Nucleus Estate and Smallholders II Polytechnic Twelfth Irrigation Third Urban Development Second Agricultural Training Fifth Highway Transmigration II Transmigration II Eighth Power Second Water Supply Yogyakarta Rural Development Nucleus Estate and Smallholders III Smallholder Rubber Development Fifteenth Irrigation National Agriculture Extension II Fourteenth Irrigation Nucleus Estate and Smallholders IV National Agricultural Research National Agricultural Research Ninth Power Smallholder Coconut Development University Development Tenth Power Swamp ReclAmation Fourth Urban Development /a The status of the projects listed in Part A is described in a separate report on all Bank/IDA financial projects iy execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and October 31.

37 ANNEX II Page 2 of 4 pages Loan/ Amount (US$ million) Credit Fiscal (less cancellations) number year Purpose Bank IDA Undisbursed Nucleus Estate an-d Smallholders V Second Small Enterprise Development Jakarta-Cikampek Highway Eleventh Power Second Seeds Bukit Asam Coal Mining Development and Transport Rural Roads Development Second Teacher Training Second Textbook Sixteenth Irrigation Seventeenth Irrigation (East Java Province) National Fertilizer Distribution Nucleus Estate and SmalLholders VI Coal Exploration Engineering Central Java Pulp and Paper Engineering Twelfth Power Nucleus Estate and Smallholders VII Provincial Health Jakarta Sewerage and Sanitation Transmigration III Public Works Manpower Development East Java Water Supply Fifth BAPINDO Transmigration IV Second Polytechnic Thirteenth Power Third Agricultural Training Nucleus Estate and Smallholder Sugar Second Non-Formal Education Second Provincial Irrigation Dev Highway Betterment Fifth Urban Development Third Small Enterprise Development Second Swamp Reclamation Fourteenth Power Supplemental Loan for Tenth Power (1950-IND) /a Secondary Education and Management Training /a Not yet effective.

38 - - ANNEX II 34 Page 3 of 4 pages Loan/ Amount (US$ million) Credit Fiscal (less cancellations) number year Purpose Bank IDA Undisbursed Upland Agriculture and Conservation /a Smallholder Rubber Development II /a Total Bank loans and IDA credits 7, Of which has been repaid Total now outstanding 6, Amount sold to third party Amount repaid by third party Total now held by Bank and IDA lb 6, Total undisbursed 3, , /2 Not yet effective. /b Prior to exchange adjustment.

39 ANNEX II -35- Page 4 of 4 pages B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1985) Fiscal Type oi Loan Equity Total year Obligor business ---- (US$ million) P.T. Semen Cibinong Cement P.T. Unitex Textiles P.T. Primatexco Indonesia Textiles P.T. Kabel Indonesia Cable P.T. DaraLon Textile Manuf. Corp. Textiles P.T. Jakarta Int. Hctel Tourism P.T. Semen Cibinong Cement P.T. Primatexco Indonesia Textiles P.T. Monsanto Pan Electronics P.T. PDFCI Devel. Fin. Co P.T. Kamaltex Textiles P.T. Semen Cibinong Cement P.T. Semen Cibinong Cement P.T. Daralon Textile Manuf. Corp. Textiles ' P.T. Kamaltex Textiles P.T. Daralon Textiles P.T. Papan Sejahtera Capital Market P.T. Indo American Industries Glass Dinnerware P.T. Semen Andalas Cement and Indonesia Construction Material /5 P.T. Saseka Gelora Leasing Capital Market P.T. Semen Cibinong Cement Total gross commitments Less: sold or repaid and cancelled Total held by IFC Undisbursed (including participant's portion)

40 ANNEX III -36- Page lof 2 rndonsi;a FIFTH TRANSMIGLATION PROJECT (National Happing and 11ettLarAnt Planning) Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken to prepare project: (b) Agencies which prepared project: 1 year Ministry of Tr!usmigration and Bakosurtanal. (c) First presentation to Bank: July 1983 (d) First mission to consider project: October 1983 {e) Departure of appraisal missicn: November 1984 Cf) Completion of negotiations: May (g) Planned date of effectiveness: November Section II: Special Bank Implementation Actions None. Section III: Special Conditions The Government would: (a) maintain a Project Working Group in MOT to make recommendations for settlement planning and construction; implementativ of regional and special-studies; and study proposals, including estimates of the economic and agricultural viability of proposed settlements (paragraph 46); (b) effectively utilize (i) the multisectoral Technical Teams to make recommendations on the planning of transmigration, including its social and environmental aspects and proposals affecting local people, and (ii) provincial and district land allocation committees to propose appropriate compensation for local people and ensure that such proposals are discussed with the people affected (paragraph 47); (c) take all necessary measures to ensure that settlement occurs only in areas where the technical, economic, social and environmental suitability for development has been established in accordance with satisfactory criteria (paragraph 50); and

41 ANNEX III 37 - Page 2 of 2 (d) carrj out a detailed review of the transmigration program by September 30, 1987 and discuss the outcome with the Bank by November 30, 1987 (para. 59).

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43 IBRD A io THAILAND 10t 109' - 6 Banda Aceh,e,,/%,<~Mdan MALAYSIA j- Kuala Lumpur South China SeW APORE~~~~~~~~SNAPR -0 INDIAIV OCkAN \i_ TRANSMIGRATION V PROJECT -(NATIONAL MAPPING AND SETTLEMENT PLANNING) '} /? Existing Maps at Scala 1 :50000 Bengkulu" ' / Project Aerial Photography at Scale 1:50000 /o '7z" 0 P Photogramrnrtric Manuscript Only at Scale 1:50,000 /,f//' w Project Precision Leveling Project Phase 11 and III Studv Sites tung _ S 6 94e 970 loov 103 6JI MARCH 1985

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