Countries and Regions

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p. 4 of 4 BACK | NEXT I. Development Situation II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Lending Levels

Country Strategy and Program Update 2002-2004: Indonesia

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IV. Country Performance and Lending Level

A. Performance Indicators

34. Indonesia’s access to ADF will be in keeping with ADB’s recent policy on performance-based allocation. Key performance indicators will be monitored as triggers for ADF availability. Two lending cases have been adopted:

1. Base case. Annual lending of $150 million from ADF resources predicated on



1. satisfactory progress in poverty reduction, to be assessed through monitoring arrangements jointly agreed upon with Government under Section IV of the Poverty Partnership Agreement;
2. reduction in number of delayed program loan tranches as compared to 30 June 2001;
3. improvement in portfolio performance in terms of the proportion of satisfactory projects (based on current criteria) over 30 June 2001 situation; and
4. improvement in percentage of projects submitting audited financial statements as compared to 30 June 2001.


2. Low case. If the Government fails to achieve progress in the above four areas, ADF lending would be lowered to $100 million annually.

B. Lending Level Proposed

35. The 2002–2004 lending program targets roughly $1.2 billion in assistance annually in keeping with the upper end of the range ($0.6 billion–$1.2 billion) decided in the COS. However, two major risks may affect actual lending. First, projects under Central Government responsibility occupy only 30 percent of the programmed investment in 2002–2004; the rest are under local governments. The Government clarified during the CPM that in 2001 and until a policy and mechanism for on-lending are developed, all projects (whether in devolved sectors or not) will be temporarily carried out by the Central Government. However, very soon and perhaps beginning in 2002, projects in devolved areas could be handed over to local governments. This would introduce several difficulties such as local governments’ (i) inadequate project implementation experience, (ii) insufficient capacity to share in project costs or repay, (iii) low absorptive capacities, (iv) administrative difficulties of coordinating with large numbers of local governments, among others. Second, the first two years of the program contain three program loans and several sector loans, some of which could slip if policy reforms are delayed.

C. Loan Program

36. The main objectives of the 2002–2004 lending program are poverty reduction and good governance. The program strongly emphasizes poverty reduction (see para. 7). Governance interventions are important in every sector supported. The list of loans is in Appendix 4, providing poverty and thematic priority classifications.

D. Technical Assistance and Economic and Sector Work Program

37. The TA and ESW programs emphasize poverty reduction, and fiscal and institutional decentralization. Firmed-up TA programs comprise 25 TAs (13 project preparatory TAs [PPTAs]) for $14.2 million in 2002; 17 TAs (8 PPTAs) for $10.1 million in 2003; and 14 TAs (7 PPTAs) for $9.1 million in 2004. PPTAs will emphasize inclusion of pro-poor interventions and good governance measures in loan designs. Advisory TAs will support all COS focus areas. Substantial assistance will be provided for good governance reforms directly through support for corporate governance, fiscal decentralization and anticorruption efforts, and through ADB’s support to the Governance Partnership. Finally, activities have been planned to implement and follow up the PPA (see para. 6), such as (i) management of regional disparity under decentralization, (ii) development of poverty indicators, (iii) gender mainstreaming, and (iv) support to gender issues.

38. An important feature of the program is its emphasis on ESW through staff studies in critical areas to improve operational planning and project design. ESW will focus on reducing poverty and regional inequality. Sector work will include analysis of social protection, education (including information technology) policies, and private sector provision of social services. Sector studies for tree crops development, drought reduction, increasing and sustaining fishermen income, and developing an SME strategy will help ADB focus on pro-poor growth initiatives. Energy, interisland, and local roads development staff studies will help upgrade remote and underdeveloped regions, while the analysis of the geographical focus in country operations and several staff studies on separate issues connected with decentralization will help make overall ADB regional support initiatives more effective.

E. Summary of Changes

39. The major changes in the program compared to the 2001-2003 Country Assistance Plan are (a) higher lending levels consistent with the upper end of the annual lending range indicated in the COS; (b) a change in the composition of the lending program consistent with the reorientation of priorities given by the new COS; (c) particular emphasis on support for decentralization in view of the major decentralization process underway; and (d) emphasis on ESW to guide operations.

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