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Seminannual Report on Project Administration and Technical Assistance Implementation for the Period Ending 30 June 1999 : Country Implementation Highlights
IndonesiaThe number of ongoing loans increased to 76 as a result of the approval of 6 loans and closing of 5 in the first half of 1999. Forty-six of the ongoing loans were rated satisfactory (excluding four rated as highly satisfactory) in implementation progress, while 61 (excluding four rated as highly satisfactory) were rated satisfactory in achieving development objectives. Twenty loans were rated partly satisfactory and six unsatisfactory in implementation progress. Ten loans were rated partly satisfactory and one unsatisfactory in achieving development objectives. All six loans approved during the period were declared effective and no loans were awaiting effectiveness. Two loans underwent minor changes in project scope while another two had minor changes in implementation arrangements. The Bank's project portfolio performance in Indonesia was adversely affected by the financial and economic crises in the last two years, and by the absence of good governance. Implementation progress for a number of projects has been very slow. In response, the Government and the Bank undertook a comprehensive portfolio review of projects in mid-1998. The review helped reprioritize and restructure the project activities in the wake of changing economic priorities in the country, and resulted in the cancellation of $952.7 million of surplus loan proceeds during the second half of 1998. Total cancellations during 1998 stood at $975.7 million. To follow up on the recommendations made by the 1998 comprehensive portfolio review, the Bank (through its RM) has been participating in government-organized working groups to address critical project implementation issues, including availability of the counterpart funds and decentralized project management. The Bank has also provided advice to the Government in revising the presidential decree on procurement. At the Government's request, the Bank initiated another round of portfolio restructuring that focused on downsizing and canceling slow-moving and poorly performing projects. The exercise is expected to be completed by September 1999. The Bank stepped up its efforts to promote good governance and anticorruption. A recently finalized anticorruption action plan for Indonesia includes a number of measures to address governance concerns in project implementation. The Bank sent a high-level delegation to Indonesia for a workshop to discuss the implementation of the action plan with senior Government officials, NGO representatives, and other stakeholders. As part of its anticorruption efforts, the Bank initiated an inquiry into an education project that revealed serious irregularities. The project is being investigated by the Government and a report is expected shortly. Another project is also the subject of an ongoing inquiry by the Bank. Severe constraints in the allocation and release of counterpart funds significantly delayed project implementation. To provide closer and more timely supervision and assistance to the Government and EAs, an increasing number of projects were delegated to the RM for administration. Four further loans were delegated to the RM while another loan, previously delegated to RM was brought back under administration of Headquarters to ensure better technical guidance. As of 30 June 1999, 20 delegated loans were under the administration of the RM. Contract awards reached $1,047.9 million, or 94 percent of the semiannual projection of $1,118.5 million and 58 percent of the annual projection of $1,791.4 million. Disbursements reached $999.2 million, or 82 percent of the semiannual projection of $1,218.4 million and 55 percent of the annual projection of $1,823.1 million. This performance was due mainly to large tranche releases under program loans totaling $820.0 million. Owing to these tranche releases, the disbursement ratio for the portfolio was high at 18.2 percent during the period, compared with the Bankwide average of 11.9 percent and 13.5 percent as of 30 June 1998. However, the disbursement ratio without program loans was only 4.6 percent, compared with the Bankwide average of 7.9 percent and 5.3 percent as of 30 June 1998. Net resource transfer increased from $545.9 million as of 30 June 1998 to $693.2 million as of 30 June 1999, again due to the large disbursements from program loans. Audited accounts and financial statements were due for 48 loans; compliance was met for 21 loans, while compliance for 16 was delayed by less than 6 months, compliance for 7 was delayed for 6-12 months, and compliance for 4 was delayed for more than 12 months. Noncompliance with submission of audited accounts and financial statements is a chronic problem in Indonesia, although some improvements were observed recently, reflecting continuous follow-up by the Bank, particularly by the RM. At the instigation of the RM, the Government established a working group to address the problem, and initiated a thorough review of the situation. Meanwhile, in the context of implementing the Bank's anticorruption action plan for Indonesia, the matter was again raised and discussed in detail by the Bank's Consultation Mission and measures to remedy the situation were agreed upon. These include the following: (i) the national audit agency to engage additional auditors (or auditing firms) and have the reports prepared in, or translated into, English; (ii) the Government to make necessary financial resources available to the national audit agency and consider the use of funds under the TA Loan for the Financial Governance Reforms Sector Development Project; and (iii) the Government to provide experts from its own staff, or engage a consultant to be located at the RM, to review audit reports in the local language (Bahasa) still pending at the Bank's headquarters and the RM. Of the 76 ongoing loans, environmental covenants were complied with in 21 loans, while compliance in 27 loans was in progress. The covenants did not apply to the remaining 28 loans. Compliance with the social covenants was met in 18 loans, while compliance in 35 loans was in progress. The covenants did not apply to 23 loans. The data on Indonesia are summarized in Tables 29 and 30.  
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