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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$ MILLION TO THE REPUBLIC OF INDONESIA FOR THE Report No: SCHOLARSHIPS PROGRAM FOR STRENGTHENING REFORMING INSTITUTIONS (SPIRIT) PROJECT February 9, 2011 Poverty Reduction and Economic Management Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective September 15, 2010) Currency Unit: US$1.00 Rupiah (IDR) = Rp.8,973 FISCAL YEAR January 1 December 31 AusAID BKF BKN BKPM BPK BPN BPPK BR BRI CQS DA DG GDP GFMRAP HCDP HRM IBRD IDPL IFR IT IVP LAN LCS MenPAN MIS MoFA MoHA PA PCU PHRDP PINTAR PIU POM PPP QCBS RENSTRA RPJMN ABBREVIATIONS AND ACRONYMS Australian Agency for International Development Office of Fiscal Policy Civil Service Agency Investment Coordination Board Supreme Audit Institution Land Administration Agency Ministry of Finance Training Institute Bureaucracy Reform Bureaucracy Reform Initiative Consultants Qualifications Designated Account Directorate General Gross Domestic Product Government Financial Management and Revenue Administration Project Human Capital Development Plan Human Resource Management International Bank for Reconstruction and Development Infrastructure Development Policy Loan Interim Financial Report Information Technology Isolated and Vulnerable Peoples National Institute of Public Administration Least Cost Selection Ministry for Administrative Reforms Management Information System Ministry of Foreign Affairs Ministry of Home Affairs Participating agency Project Coordination Unit Professional Human Resource Development Project Project for Indonesian Tax Administration Reform Project Implementation Unit Project Operations Manual Public Private Partnerships Quality and Cost Based Selection Agency Medium Term Development Plan National Medium Term Development Plan

3 SC SIL SOP SPM TOEFL TOR TPA UKP4 ULP Steering Committee Specific Investment Loan Standard Operating Procedures Payment request Test of English as a Foreign Language Terms of Reference Test for Academic Potential President s Delivery Unit for Development Monitoring and Oversight Procurement service unit Regional Vice President: Country Director: Sector Director Sector Manager: Lead Economist: Task Team Leaders: James W. Adams Stefan Koeberle Vikram Nehru Ivailo Izvorski Shubham Chaudhuri Zahid Hasnain and Theo David Thomas

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5 REPUBLIC OF INDONESIA: SCHOLARSHIPS PROGRAM FOR STRENGTHENING REFORMING INSTITUTIONS (SPIRIT) PROJECT Table of Contents I. Strategic Context...1 A. Country Context...1 B. Sectoral and Institutional Context...2 C. Higher Level Objectives to which the Project Contributes...4 II. Project Development Objectives...5 A. PDO...5 B. Beneficiaries...6 C. PDO Level Results Indicators...6 III. Project Description...6 A. Project Components...6 B. Project Financing...8 C. Lessons Learned and Reflected in the Project Design...8 IV. Implementation A. Institutional and Implementation Arrangements B. Results Monitoring and Evaluation C. Sustainability V. Key Risks VI. Appraisal Summary A. Economic and Financial Analysis B. Technical C. Financial Management D. Procurement E. Social F. Environment Annex 1: Results Framework and Monitoring Annex 2: Detailed Project Description Annex 3: Implementation Arrangements Annex 4: Operational Risk Assessment Framework (ORAF) Annex 5: Implementation Support Plan Annex 6: Team Composition... 39

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7 PAD DATA SHEET Indonesia Scholarships Program for Strengthening Reforming Institutions PROJECT APPRAISAL DOCUMENT East Asia and Pacific EASPR Date: February 9, 2011 Country Director: Stefan Koeberle Sector Director: Vikram Nehru Sector Manager: Ivailo Izvorski Lead Economist: Shubham Chaudhuri Team Leader(s): Zahid Hasnain & Theo Thomas Project ID: P Lending Instrument: Specific Investment Loan Sector(s): General public administration sector (70%); General education sector (30%) Theme(s): Administrative and civil service reform (60%), other human development (40%) EA Category: C Proposed terms: Project Financing Data: US Dollar-demoninated, commitment-linked, variable-spread loan (VSL) based on six-month LIBOR, plus an additional variable spread. Repayment period is 24.5 years, including a 9-year grace period. [ X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Source Total Project Cost: Co-financing: Total Bank Financing: $ million 0 $ million Total Amount (US$M) Borrower: REPUBLIC OF INDONESIA Responsible Agency: The National Development Planning Agency Jl. Taman Suropati No. 2 Jakarta Indonesia Tel: /Fax: (62-21) dewobjp@bappenas.go.id Estimated Disbursements (Bank FY/US$ m) FY Annual Cumulative

8 Project Implementation Period: April 30, 2011 June 30, 2017 Expected effectiveness date: April 30, 2011 Expected closing date: December 31, 2017 Does the project depart from the CAS in content or other significant respects? Yes No If yes, please explain: Does the project require any exceptions from Bank policies? Have these been approved/endorsed (as appropriate by Bank management? Is approval for any policy exception sought from the Board? If yes, please explain: Yes Yes Yes No No No Does the project meet the Regional criteria for readiness for implementation? Yes No If no, please explain: Project Development Objective The Development Objective of the proposed project is to build participating agencies capacity by (a) strengthening their human resources in core functional areas; and (b) enhancing their ability to initiate and manage reforms.

9 Project description: The Project consists of the following parts: Degree Scholarships for Ministry of Finance (a) (b) (a) Competitive selection of candidates, and provision of pre-departure language training to selected candidates. Award of scholarships for overseas and joint domestic and overseas (Link) degrees to successful candidates in fields relevant to the work of the Ministry of Finance. Degree and Non-Degree Scholarships for Other Participating Agencies (b) Competitive selection of candidates, and provision of pre-departure language training to selected candidates. Award of scholarships for domestic, overseas, and joint domestic and overseas (Link) degrees and overseas and domestic non-degree training to successful candidates in fields relevant to the work of the respective Participating Agency other than the Ministry of Finance. Program and Project Support (a) (i) Scholarship program management, including matching of scholars to institutions and courses, payment of tuition fees to institutions and living and supplies stipends to scholars, and monitoring of scholars. (ii) Provision of support to the Project Coordination Unit and the Project Implementation Units in relation to Project management, implementation, including administrative and financial management, disbursement, and procurement, and monitoring and evaluation. (b) (i) Carrying out of annual technical audits of scholarships program compliance with scholar eligibility, selection, and implementation procedures as set out in the Project Operations Manual. (ii) (iii) Carrying out of: (A) a scholarships program alumni survey in relation to satisfaction with the program; and (B) a broader Participating Agency staff assessment in relation to program impact on Agency capacity development. Development and implementation of a scholar re-entry and career development program for the Participating Agencies.

10 Safeguard policies triggered? Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waters (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No No No No No No No No Conditions and Legal Covenants: Financing Agreement Reference Article IV Section 4.01 (a) of the LA Section IV Description of Condition/Covenant The Additional Conditions of Effectiveness consist of the following: (a) The Project Operations Manual has been adopted by the Borrower in accordance with the provisions of Section I.D.1 (a) of Schedule 2 of the LA. (b) The National Development Planning Agency Project Implementation Unit has been established by the Borrower in accordance with the provisions of Section I.A.9 of Schedule 2 of the LA. (c) The Ministry of Finance Project Implementation Unit has been established by the Borrower in accordance with the provisions of Section I.A.11 of Schedule 2 of the LA. The Borrower shall, no later than one (1) year after the Effective Date, adopt, through each of the Participating Agencies, scholar re-entry policies, in form and substance satisfactory to the Borrower and the Bank, for purposes of the scholar re-entry and career development program to be developed and implemented under Part 3 (b) (iii) of the Project. Date Due Before effectiveness of the loan. No later than 1 year after the Effective date

11 I. Strategic Context A. Country Context 1. Indonesia has undergone an impressive economic and political transformation in the decade since the Asian financial crisis. Real GDP growth has averaged 5 to 6 percent since 2002, and prudent macroeconomic management has resulted in low budget deficits, a low debtto-gdp ratio, and manageable inflation. Indonesia s exports have grown strongly, while the external debt to GDP ratio has fallen. Investment has risen to over 27 percent of GDP, approaching pre-crisis highs. Indonesia was also less affected by the global economic downturn of than most economies, and by late 2009 the economy had recovered to grow faster than pre-crisis averages. This strong economic performance has been accompanied by a remarkably profound yet stable transition from a centralized authoritarian regime to a decentralized democratic polity. 2. Looking at the decade ahead, Indonesia has the potential to build on these gains and become a competitive, inclusive, and resilient middle income country. The key for achieving this goal will be a more effective government and stronger core public sector institutions and processes that govern the functioning of the state and shape state-society interactions. 3. The importance of institutional reform and capacity-building is recognized by the Government. The National Medium Term Development Plan (RPJMN) identifies bureaucracy and governance reform as one of eleven national priorities. The World Bank s Country Partnership Strategy ( ) is also centered on this agenda of institutional development, and the Bank has been supporting these measures through multiple channels, such as the Development Policy Loan (DPL) and Infrastructure DPL (IDPL) series, the GFMRAP and PINTAR Projects, economic and sector work, and trust funded technical assistance Impressive progress has indeed been made in recent years in increasing the capacity and accountability of a number of public sector agencies. At the central government level, these initiatives include measures to improve the investment climate through regulatory reform; measures to improve systems for public financial management, involving reforms in budget preparation, execution, auditing, and procurement; civil service remuneration and management changes in key line ministries; and reforms to improve the key infrastructure institutions. These reforms however, remain incomplete, and over the medium term the focus must remain on improving a number of core systemic processes and institutions for formulating and implementing policy, including the public financial management system, the capacity and accountability of the civil service, the decentralization framework, the control of corruption, and the judicial and legal system Improving the skills of government staff involved in formulating and implementing policies is an essential complement to regulatory and process improvements, and a fundamental 1 Key reports include World Bank (2009a), Support to Civil Service Reform in Indonesia. Mimeo; World Bank (2009b), Indonesia Development Policy Review: Enhancing Government Effectiveness in a Democratic and Decentralized Indonesia; and World Bank (2008), Investing in Indonesia s Institutions: Country Partnership Strategy FY09-12 for Republic of Indonesia 2 See World Bank (2009a) for details 1

12 component of institutional capacity building. When effectively anchored in an environment conducive to institutional reforms, individual training can enable a virtuous circle to develop, whereby training advances institutional reform and capacity development, which in turn generates the necessary incentives for staff to apply their newly acquired skills for the benefit of the employing agency. The proposed Scholarships Program for Strengthening Reforming Institutions (SPIRIT) project aims to support this agenda through the provision of foreign and domestic degree and non-degree programs for key staff in eligible public sector agencies, thereby supplementing the Bank s engagement through the above-mentioned operations on regulatory and process improvements. Specifically, the Project attempts to achieve this goal by explicitly embedding this training in the capacity development plans of agencies, a key design feature that distinguishes it from other scholarship programs in Indonesia. B. Sectoral and Institutional Context 6. In Indonesia, the overall national civil service environment has been an impediment to the country s development ambitions. 3 The problems include weak coordination at the center of government for the management of the civil service, rigidities in staff establishments, and a compensation and personnel management system that renders attracting and retaining high quality staff a challenge. The on-going Bureaucracy Reform (BR) has been attempting to work around these national regulatory weaknesses through advancing reforms at the agency level. While the agency reforms have come at the expense of adding further layers to an already complex institutional framework, they have provided reform-minded leadership in agencies the flexibility to work around these constraints. The agency approach has been possible because although the Indonesian civil service is a career service in which individuals are not hired for a specific job but are recruited only at the entry level into a single national service, it is the agency, rather than the government as a whole, that is the de facto employer of the individual civil servant. Recruitment and career management is the responsibility of the agency, usually managed by the personnel bureau, and horizontal movement of staff between ministries and agencies is rare. 7. BR in participating agencies has focused on reforming organizational structures, streamlining and improving standard operating procedures, increasing public sector pay, and reforming human resource management policies and practices through more stringent recruitment and performance-based career progression. BR began in 2006 in the Ministry of Finance as the Bureaucracy Reform Initiative (BRI), followed by the Supreme Audit Institution (BPK) and the Supreme Court in 2007, and has now expanded to include all central agencies. The most prominent feature of BR has been the introduction of a parallel grading and pay scale in the Ministry of Finance and BPK that has resulted in a significant increase in remuneration for the agencies structural civil servants. 4 While this parallel structure has added to the complexity and non-transparency of civil service remuneration in Indonesia, it has improved the incentives of staff in the concerned agencies. This increase in remuneration is being complemented by on-going efforts within the agencies to improve performance evaluation, 3 See World Bank (2009b) for details 4 The Indonesian civil service consists of structural, functional, and non-echelon positions. Structural positions are key administrative and management positions; functional positions are non-managerial and involve a specialized activity, such as teaching; and non-echelon positions are usually for staff performing clerical duties. 2

13 recruitment and career progression, reorganization to improve the human resource management function, new job descriptions, and streamlining of standard operating procedures. 8. Similar reforms have been implemented in the Ministry of Foreign Affairs (MoFA). 5 MoFA s reforms have focused on more transparent and rigorous recruitment and personnel management, enhanced training focusing on MoFA s operational needs, and a realignment of the staff structure replacing non-diplomat positions with diplomats thereby increasing the ratio between professional diplomat and non-diplomat staff. 9. Looking ahead, and while recognizing the benefits they have brought to the particular agencies, there is now an increasing recognition in the Government that agency-specific measures that add new layers and structures to the existing regulatory framework are not sustainable. The Government s new draft Bureaucracy Reform Grand Design and Road Map, which is expected to be approved and issued as presidential regulations will underline the national approach. The Grand Design, which has been prepared by the State Ministry for Administrative and Bureaucracy Reforms (MenPAN), institutionalizes the management set-up for BR and improves the quality assurance and governance structures for managing the reform compared to the initial BRI in MoF, BPK, and the Supreme Court. The institutional responsibility for BR has now moved from the Ministry of Finance to the center of government, with a Steering Committee established in 2010 chaired by the Vice President, and including the State Minister for Administrative Reforms and BR (MenPAN), the Minister of Finance, the Minister of Home Affairs, the three coordinating ministers (economy, welfare and political affairs) and the Head of the President s Delivery Unit for Development Monitoring and Oversight (UKP4). 10. These are encouraging developments and are indicative of the high level commitment to national civil service reform. However, given that these reforms will be difficult and will take time, for the purpose of this project, and while not losing sight of these objectives as discussed in the next section, the broader civil service institutional context has to be considered as an exogenous external operating environment constraint. Given this constraint, the relative autonomy of agencies to initiate reforms and manage their civil servants as de facto employers provides the opportunity for this scholarships program to have an agency-specific approach to capacity development in an otherwise, to date, generally weakly reforming overall civil service environment. 11. The guiding framework for agency capacity development that this scholarship program is based on is depicted in Figure 1. The capacity of a government agency is a function of the resources of the agency the number and skills (both technical and managerial) of staff, infrastructure, technology, and finances; and the quality of the internal operating environment, as defined by the incentives and reward systems (to the extent that these are within the agency s control), the organizational climate or culture, organizational structure, business processes and operating procedures, and shared norms and values. From an agency production function perspective, the agency s resources can be considered to be referring to the factors of production (capital and labor) and the internal operating environment as determining the agency s 5 MoFA s reforms precede the BRI in the MoF 3

14 technology to convert these factors into outputs measured in terms of agency performance, such as improved service delivery. 12. Capacity however, is only partly determined by these internal agency variables. It is also dependent, arguably even more importantly, on the external environment, which consists of the general civil service and other relevant regulatory framework, broader government policies and the political environment, economic conditions, and other factors that are beyond the agency s control. Improving agency capacity also does not necessarily translate into improved performance (such as improved service delivery) as performance is in turn a function of both agency capacity and the external environment. Figure 1: A Framework for Capacity Building Public Sector Agency Agency Capacity Staff Training Resources Human resources Infrastructure IT systems Finances Internal operating environment Culture Incentives Business processes Organ. structure Agency Performance (e.g. improved services) External environment Regulatory framework Political environment Economic environment 13. The objective of the Project is the training of staff for the purposes of impacting the internal determinants of agency capacity. It is expected that agency capacity will be built by: (a) improving the agency s human resources through the development of the technical, managerial, and leadership skills of civil servants working in the core functional areas of the agency; and (b) improving the internal operating environment through the enhanced ability of these civil servants to implement Bureaucracy Reform within the agency as well as the impact on organizational culture and processes of sufficient numbers (or a critical mass ) of skilled and reform-minded staff in the agency. Ideally these developments would be mutually reinforcing. It is expected that this increased capacity will result in improved performance; however, given the importance of the external environment, improving performance, per se, cannot be the development objective of this project. C. Higher Level Objectives to which the Project Contributes 14. The higher level objective of the Project, and the main rationale for Bank involvement, is to contribute to a new approach to scholarships in Indonesia, one whose objective is institutional capacity development and reform. This approach is a departure from the on-going training 4

15 programs that are financed by the Government and by bilateral development partners. The numerous bilateral programs discussed in more detail below, primarily focus on the capacity development of the individual scholar rather than the employing agency, and therefore focus less on explicitly linking individual training to institutional development. 15. The broader aim is for this scholarships program to become one key component of the Bureaucracy Reform Roadmap that all central government agencies are currently in the process of preparing. There are three concrete ways in which this can happen: 1. The concept of staff training anchored in an agency institutional development strategy, what in the Project is referred to as agency Human Capital Development Plans (HCDPs), becomes one component of each agency s Roadmap. This would not be limited to the participating agencies for this project but would extend eventually to all government agencies. 2. Suggested results indicators for the Project become a subset of the key performance indicators to monitor progress of Bureaucracy Reform. 3. The implementation modalities for the Project selection of scholars, re-entry, monitoring arrangements, quality assurance become part of the standard operating procedures (SOP) for reforming agencies. II. Project Development Objectives A. PDO 16. The Development Objective of the proposed project is to build participating agencies capacity by: (a) strengthening their human resources in core functional areas; and (b) enhancing their ability to initiate and manage reforms. 17. Achieving the PDO is conditional on several factors that are reflected in the Project s design. First, the program is located in strategically important central agencies, those that are most important for realization of the Government s national priority of improving soft infrastructure, as detailed in the RPJMN. Specifically, the agreed criteria for inclusion are: (a) key government agencies that are responsible for public sector financial, economic, and human resource management; (b) key agencies responsible for improving the investment climate in Indonesia; or (c) agencies that are responsible for managing and implementing Bureaucracy Reform. Second, the program is limited to a few agencies so as to not dilute the training and to enable the limited resources to develop a critical mass of skilled and reform-minded staff within an agency. Third, the criterion for agency participation in the program is the preparation and implementation of a good quality HCDP. These HCDPs provide the framework for agency capacity development and would: Specify the agency s medium term vision and goals, and its strategy for meeting those goals. Identify priorities to improve core business and capacity to reform. 5

16 Analyze the key competencies and skills needed to achieve these goals of improving core business and of reforming internal processes, and the existing skills gaps (a needs analysis ). Define fields of study relevant for the required capacity building. Identify the specific degree and non-degree learning and development programs that would be required. Specify the procedures for reintegrating staff into the organization once they have completed their programs through effective implementation of re-entry policies and the development of a sound performance evaluation system so that their newly acquired knowledge can be most effectively utilized. B. Beneficiaries 18. The direct beneficiaries from the Project will be the 11 participating agencies, and the civil servants who are selected to receive scholarships for degree and non-degree programs. It is anticipated that approximately 2600 civil servants will participate in the program from 2011 to 2017 (details given in Annex 2), with approximately 1000 in degree training (500 overseas, 300 domestic, and 180 Linkage) and approximately 1600 in non-degree training. The inclusion of non-degree and domestic degree programs should in particular encourage more women to participate in the program, given the relatively greater constraints they face on going for longer duration overseas training. The indirect beneficiaries will be the citizens of Indonesia who benefit from the improved capacity of these key central government agencies. C. PDO Level Results Indicators 19. The achievements of the program will be measured by two outcome and several intermediate indicators that are specified in Annex 1. III. Project Description A. Project Components 20. The Project has three components described below (See Annex 2 for a detailed project description). 21. Component 1: Degree Scholarships Program for Ministry of Finance ($34.5 million). This has two sub-components: Sub-component 1.1: Competitive selection of candidates and provision of pre-departure language training to selected candidates. 6

17 Sub-component 1.2: Award of scholarships for overseas and joint domestic and overseas (link) 6 degrees to successful candidates in fields relevant to the work of the Ministry of Finance. 22. While the HCDPs of the Ministry of Finance identify several non-degree programs, MoF has not proposed any non-degree training to be funded from this loan as it has secured grant funds for this purpose. MoF has also not proposed any domestic degree programs. The twelve echelon 1 units comprising MoF were selected as they fulfilled the agreed criteria as a central reforming agency which acts as: (a) a key government agency responsible for either public sector financial, economic, or human resource management; and (b) a key agency responsible for improving the investment climate in Indonesia. 23. Component 2: Degree Scholarships and non-degree training, for the Bappenas cluster of Participating Agencies ($70.3 million). This has two sub-components: Sub-component 2.1: Competitive selection of candidates and provision of pre-departure language training to selected candidates. Sub-component 2.2: Award of scholarships for domestic, overseas, and joint domestic and overseas (link) degrees and overseas and domestic non-degree training to successful candidates in fields relevant to the work of the respective Participating Agency. 24. The 10 participating agencies coordinated by the Bappenas PIU are listed below: 1. Bappenas, 2. National Civil Service Agency (BKN) 3. Investment Coordination Board (BKPM) 4. Supreme Audit Board (BPK) 5. Financial and Development Supervisory Board (BPKP) 6. National Land Agency (BPN) 7. Ministry of Foreign Affairs (MoFA) 8. Ministry of Home Affairs (MoHA) 9. National Institute of Public Administration (LAN) 10. State Ministry for Administrative and Bureaucracy Reforms (MenPAN) 25. These particular agencies were selected for participation in the program as they are either: (a) key government agencies that are responsible for public sector financial, economic, and human resource management (Bappenas, MenPAN, LAN, BKN, BPK, BPKP); (b) key agencies responsible for improving the investment climate in Indonesia (MoFA, BKPM, BPN); or (c) agencies that are responsible for managing and implementing Bureaucracy Reform (MenPAN, and MoHA). 6 A link program is a joint or double Master degree awarded jointly by a domestic university in collaboration with a foreign university, with the first year of study in Indonesia and the second in the overseas university. 7

18 26. Component 3: Program support ($7.9 million). The third project component provides support to the Government to help implement, monitor, and evaluate the program. There are two sub-components: Sub-component 3.1: Program management o Support for scholar placement, including matching of scholars to institutions and courses, and the payment of living stipends to scholars and tuition fees to institutions. o Support for project management, including administrative and financial management, disbursement, and procurement, and routine monitoring of scholars. Sub-component 3.2: Quality assurance, and monitoring and evaluation o Carrying out of annual technical audits of the program s compliance with scholar eligibility, selection, and implementation procedures as set out in the Project Operations Manual. o Provision of support for the development and implementation of a scholar re-entry and career development program. o Carrying out of an alumni and Participating Agency staff survey in relation to alumni satisfaction with the program and of a broader Participating Agency staff assessment of program impact on agency capacity development. B. Project Financing 27. The lending instrument for the project is a Specific Investment Loan (SIL) of $ million for a period of seven years from 2011 to The costs, by expenditure category, are detailed in Table 1. While there is no requirement for local counterpart funding in the project, each of the participating agencies has allocated funds in the 2011 budget for program implementation, in particular to manage the selection of scholars. Table 1: Project costs by main expenditure categories (USD Millions) Category US$ Millions 1. Scholarships for degree and non-degree training Goods and non-consulting services Consultancies Training and operating costs 5.8 TOTAL C. Lessons Learned and Reflected in the Project Design 28. The design of the Project is based on lessons learned from previous Bank projects and from bilateral scholarship programs. Indonesia has a long history of donor supported learning and development. The Bank funded two scholarship programs through the Professional Human Resource Development Project (PHRDP) I & II in the 1990s, and there have been, and currently are, numerous bilateral programs, most notably those of AusAID, the Netherlands, and Japan. 8

19 29. The main conclusions from the implementation completion reports of the PHRDP I & II, and the evaluations of the bilateral programs 7, can be summarized as follows: In general, retention has not been a problem in Indonesia most scholars returned home after completing their training and re-joined their employing agency. The effective re-integration of the scholars in the agency after their return was less than fully satisfactory. Programs should have paid more attention to: the re-entry modalities to ensure that the newly acquired skills were used for the maximum benefit of the agency s corporate goals; and to the civil service rules and procedures that needed to be amended for both the career development of the individual and the performance improvement of the agency. The programs did not pay enough attention to the specific fields of study, with the result that many degree courses undertaken were not aligned to the agency s requirements. Training in leadership and human resource development was also underemphasized. The programs had multiple objectives good governance, improvements in service delivery, poverty alleviation, regional equity, to name but a few with the result that the scholarships were spread across a large number of agencies and regions as well as fields of study, rendering significant organizational impact difficult to achieve 30. This Indonesian experience is broadly reflective of the main lesson from the numerous civil service capacity development programs that the Bank has been involved in several countries. 8 Training on its own is necessary but not sufficient for capacity building. To be effective, training has to be integrated with changes in systems, organizations, and processes. 31. Drawing on these lessons, the proposed Project is anchored in agency HCDPs which link the individual training to agency capacity development and reform, and is limited to a few key central agencies so as to not dilute the training and to enable the limited resources to develop a critical mass of skilled and reform-minded staff. The lessons also underline the emphasis on reentry and career development, which will be supported in the Project through the considerable attention paid to degree and in particular non-degree training in human resource management, and technical assistance to support an effective re-entry program. 32. An important caveat is that the proposed Project has a focused objective of agency capacity development, which is narrower than the objectives of many of the bilateral donor programs. These other goals of ensuring regional equity and professional development are equally important and therefore the Project should be viewed as complementary to the bilateral programs. 7 There are a number of evaluations of these programs. See Netherlands Education Support Office (2008) External Evaluation of StuNed Program ; Ministry of Trade Indonesia & World Bank (2009) Improving Graduate Management at the Ministry of Trade Indonesia and Mapping of Overseas Scholarship Programs in Indonesia: Survey Results, commissioned by GOI and supported by AusAID and the Netherlands. 8 See Mike Stevens (2005), Effective States and Engaged Societies: Capacity Development for Growth, Service Delivery, Empowerment, and Security in Africa. Mimeo: World Bank for an assessment of civil service capacity building programs in Africa 9

20 IV. Implementation A. Institutional and Implementation Arrangements 33. The institutional and implementation arrangements for the Project are provided in Annex 3, and detailed in the Project Operations Manual (POM), available in project files. The administrative arrangements for project implementation will consist of a Steering Committee, a Project Coordination Unit (PCU), two Project Implementation Units (PIUs), and the 11 participating agencies. 9 The Steering Committee will establish the overall policy and regulatory framework for the program, review progress and performance, and decide on any reallocations. The PCU would serve as the secretariat to the Steering Committee and perform the operational coordination, overall monitoring and evaluation, and reporting of the project. The two PIUs and the participating agencies would be responsible for program implementation, including selection, pre-departure training, placement, and re-entry of scholars, with the precise division of responsibilities detailed in Annex Ensuring transparency in the selection process is essential to achieving program outcomes and to ensure credibility. Building on many of the procedures already in place in several of the participating agencies, the selection procedures for the program will consist of following stages: eligibility, testing, interviews, pre-departure training, and application to university. 35. The results of the selection process will be publicly available in the agencies, and an annual independent technical audit will evaluate compliance with the procedures. As per the agreed Transparency and Accountability Action Plan, the scholarship program will be advertised broadly, for example in the agency and Bappenas websites, and the Bappenas website will also have the facility for lodging complaints. B. Results Monitoring and Evaluation 36. Results monitoring will consist of three sets of activities: routine monitoring of program implementation to ensure that information pertaining to the scholar selection modalities is maintained, scholars are monitored during the course of their degree and non-degree programs, and returning alumni are tracked with the aid of HR databases; two staff surveys (one midway through the project and the other at project completion) to assess alumni and agency staff satisfaction with the program, and the impact of the degree and non-degree training on agency capacity building; and an independent technical audit, conducted annually, to ensure compliance with the procedures for selection of candidates, and more broadly, compliance with the operating procedures detailed in the POM. The project includes consulting support for each of these three activities. 9 To be precise, given the decentralized arrangements within the Ministry of Finance, each of the 12 Directorate Generals will de facto be a participating agency. Therefore, the total number of participating agencies is 22, and as a result 22 HCDPs have been prepared. 10

21 C. Sustainability 37. The sustainability of the Project will ultimately be linked to the sustainability of Bureaucracy Reform. The high-level prioritization of Bureaucracy Reform in Indonesia, the considerable ownership of the project design by the main counterparts, and the agency-level reforms that have taken place suggest that the key ingredients for capacity building are in place, although several risks remain. However, the challenge of institutional reform, particularly in areas related to human resource management, is well recognized, and is detailed in the Operational Risk Assessment Framework (see Annex III). V. Key Risks 38. The potential risks are summarized in the Operational Risk Assessment Framework (Annex III) and are primarily related to the lack of effective re-entry (placement and career development) of scholars upon their return, potential governance problems around candidate selection, and lack of capacity to successfully implement the technical and fiduciary aspects of the project. There is strong agency ownership of this new approach to scholarships and the project will provide continuous support on re-entry modalities, and appropriate mitigation measures are in place in place to ensure transparency and merit-based scholar selection, as well as to address fiduciary concerns. VI. Appraisal Summary A. Economic and Financial Analysis 39. The Project is not amenable to a cost-benefit analysis, or financial analysis, as the principal benefits from the Project are either intangible or qualitative. The design of the Project however, has been based on the principle of cost-effectiveness through: (a) the emphasis on nondegree training, which is a low-cost solution for providing focused, technical training to a large number of civil servants (over 60% of Project beneficiaries); (b) discouragement of new link programs that would entail significant development costs (primarily existing link programs of high quality will be supported); and (c) a mix between lower cost domestic degree programs (of certified quality) and overseas degree programs. B. Technical 40. The Bank, through trust funded resources, contracted a consulting firm to provide assistance to the agencies in developing their HCDPs. At appraisal, all 22 HCDPs (one for each of the twelve Directorates General of MoF, and one for each of the other ten participating agencies) were assessed for quality based on the following weighted criteria, with each criteria scored on a scale of 1 to 5: 1. Basic information on the agency 10 5% weight 2. Established job groupings 15% 3. Defined technical competencies 20% 10 Such as vision, mission, the five year institutional development plan (Renstra), etc. 11

22 4. Skills gap analysis 20% 5. Recommended development program 30% 6. Number and kinds of scholarships per year 10% 41. All agencies were assessed to be above the threshold of 3.0 set by the Government and therefore ready to participate in the program. There is considerable ownership of the HCDPs among agencies, and these are being viewed as the main strategy documents to guide human resource development that would be annually updated, and to form a sub-component of future agency medium term plans (RENSTRA). Re-entry policies, while prepared as part of the HCDPs, require further work. Degree and non-degree training in human resource management, which is part of several agency HCDPs and will be supported by the project, will help to this end. In addition more technical assistance will be required, and will also be financed by the project in the form of consultancy support. C. Financial Management 42. A financial management (FM) assessment has been conducted by the Bank and details of the flow of funds, budgeting, disbursement, and auditing mechanisms agreed. The project financial management arrangements follow the government system, especially on budgeting, flow of funds, and the auditing mechanism. The project has two major FM risks: limited experience of PCU/PIU staff to manage the Bank financed project; and weaknesses in internal controls, especially on soft expenditures, e.g., consultants and expenditures related to the scholarships. These risks will be mitigated by: (a) providing financial management training to project financial management staff; (b) providing technical assistance to PCU/PIUs on financial management; (c) putting in place additional financial control procedures (e.g., additional supporting documentation, so that all activities are supported by relevant documents, reports and third-party invoices); and (d) involving the Inspectorate General to ensure that the project internal control system works satisfactorily. D. Procurement 43. A procurement assessment has been conducted, procurement risks identified and mitigation measures agreed to. Procurement will consist primarily of: individual consultants to assist the PIUs on initial start up of the project; firm consultants for program management, audit, and surveys; and non-consulting services for the payment of tuition and living allowances, and for pre-departure training. These are relatively simple and Bappenas, which will conduct the major procurements, is familiar with Bank procurement procedures through its experience in implementing past Bank projects. The main risk is the selection of the consulting firms, which will be mitigated through the initial hiring of individual consultants to assist the PIUs. The procurement plan is acceptable to the Bank. It will be updated at least annually (or as required) to reflect project implementation needs. E. Social 44. The beneficiaries of the scholarships program will be staff of the agencies of the central government; the project does not have any specific regional component and therefore will not be 12

23 directed towards any particular community. The inclusion of shorter non-degree programs and domestic degree programs should in particular benefit women given the relatively greater constraints they face on going for longer duration overseas training. No social safeguards are triggered by the project as it does not involve land acquisition, involuntary resettlement, or target communities of Isolated and Vulnerable Peoples (IVPs). F. Environment 45. The Project will support degree and non-degree training in environmental sciences and natural resource management for relevant participating agencies, such as Bappenas and BPN, which should contribute to strengthening the Government s capacity in this area. The project will not finance any civil works and is not expected to have any adverse environmental impacts; therefore it has been categorized as an Environmental Category 'C' program. 13

24 Annex 1: Results Framework and Monitoring INDONESIA: SCHOLARSHIPS PROGRAM FOR STRENGTHENING REFORMING INSTITUTIONS Results Framework Project Development Objective (PDO): The Development Objective of the proposed project is to build participating agencies capacity by: (a) strengthening their human resources in core functional areas; and (b) enhancing their ability to initiate and manage reforms. PDO Level Results Indicators* Increase in percentage of staff with the relevant competencies in the core priority areas of the participating agency, as based on needs and gap analysis Core Unit of Measure %; gap analysis score Baseline N/A Cumulative Target Values** YR 1 YR 2 YR3 YR 4 YR5 5% increase 10% increase 15% increase Frequency Annual Data Source/ Methodology HCDPs; HR database; tracer studies Responsibility for Data Collection PA Description (indicator definition etc.) Percentage of respondents in the agency expressing satisfaction with the impact of the program on building agency capacity % N/A 75% expressing satisfaction Periodic Staff Survey PCU INTERMEDIATE RESULTS Intermediate Result Technical competencies and gap analysis conducted Human Capital Development Plans (HCDPs) prepared that identify key competencies required, and staff skill gaps in core priority areas Report 22 HCDPs prepared All 22 HCDPs updated All 22 HCDPs updated All 22 HCDPs updated All 22 HCDPs updated All 22 HCDPs updated Annual HCDPs PA Scholarships in priority areas % N/A >90% >90% >90% >90% >90% Annual HCDPs; project PA, PCU 14

25 Percentage of scholars participating in degree and non-degree programs that were identified through the gap analysis in HCDPs Scholar selection transparent and meritbased monitoring reports; HR database Percentage of scholars selected (in each year) as per procedures specified in Project Operational Manual, as verified by independent technical audit Successful completion of studies Percentage of scholars completing their programs of study with GPA s >3.0 (annual targets) % N/A >95% >95% >95% >95% >95% Annual % N/A 80% 80% 80% 80% 80% Annual Independent Technical Audit Project monitoring reports, HR databases PCU PCU, PA Effective scholar reintegration Re-entry, placement, and career development policies in place Decree None Re-entry and placement policies in place Re-entry placement, and career dev. policies in place Re-entry placement, and career dev. policies in place Re-entry placement, and career dev. policies in place Re-entry placement, and career dev. policies in place Annual Project monitoring reports PA Database and tracer studies used for tracking placement and career progression of returned scholars Program evaluation Percentage of staff expressing satisfaction with the program based on staff survey Limited % N/A Database used for tracking alumni Database used for tracking alumni 75% expressing satisfaction Database used for tracking alumni *Please indicate whether the indicator is a Core Sector Indicator (see further **Target values should be entered for the years data will be available, not necessarily annually. Periodic Staff Survey PCU 15

26 Annex 2: Detailed Project Description 1. The development objective of the proposed project is to build participating agencies capacity by: (a) strengthening their human resources in core functional areas; and (b) enhancing their ability to initiate and manage reforms. The Project has three components with a total investment cost estimated at $ million, all of which will be financed by IBRD. Each component is described below. Component 1: Degree Scholarships Program for Ministry of Finance ($34.5 million) 2. This component has two sub-components: Sub-component 1.1: Selection and Pre-departure training. Sub-component 1.2: Scholarships, which will provide overseas and link degree scholarships for each of the twelve echelon I units within the Ministry of Finance. 3. Each echelon I unit s scholarship program has been derived from its HCDPs, with the specific degree and non-degree programs detailed in Table 2. Each of the echelon I units in MoF has the flexibility to determine annual targets for degree programs for PhD and Masters, either foreign, or link programs. MoF chose not to avail itself of project support for non-degree training which is specified in its HCDP, and listed in Table 2 as it has already secured grant funding for this. There is considerable ownership of the HCDPs, and these are being viewed as the main human resource strategy documents that will be a sub-component of the future agency medium-term plans (RENSTRA), and will also provide the basis for funding training from other financing sources, such as the government budget and other donor programs. 4. In contrast to the ten participating agencies coordinated by the Bappenas PIU, the aggregate budget provision for MoF has not been allocated across individual echelon I units. For each year of project implementation (from 2011 to 2014) the twelve units will compete for scholarships with all echelon I units and a list of the highest ranking applicants will be prepared. Candidates who fulfil the selection requirements will undertake pre-departure language training. Those candidates who successfully complete the language training will be offered a scholarship, starting with the highest ranked candidate until either: (a) the number of qualified candidates is exhausted; or (b) the budget prepared for the particular round of competition (cohort) is exhausted, whichever occurs first. The fluid nature of appointments in MoF makes this a more practical approach as candidates are likely to be deployed and redeployed across any of the twelve MoF units. 16