Presentation at the Coordination Forum for Aceh and Nias Conference

Presentation by Pieter Smidt, Head of ADB's Extended Mission to Sumatera (EMS), at the Coordination Forum for Aceh and Nias Conference, Jakarta, Indonesia

As requested by Pak Eddy Purwanto and Pak William Sabandar, I have been asked to share the experience under the ADB-financed Earthquake and Tsunami Emergency Support Project (ETESP).

Implementation of the ADB emergency support project - ETESP; a $294.5 million multi-sector project with 12 components - has been a challenge but its achievements are remarkable: 85 percent complete by end December 2008 and full completion by the end of this year. And equally important, significant impacts are visible. This could not have realized without the joint efforts of the BRR and ADB teams, the support of the local government agencies and the resilience of the people in Aceh and on Nias.

There are several factors that contributed to these achievements:

  • The GOI realized that a business-like-usual approach would not work for a reconstruction program as large as that for Aceh and Nias; so the Government established BRR with a dedicated management team, and a flexible and streamlined organization with greatly reduced bureaucracy
  • ADB also recognized the need for special and flexible arrangements. A field office - the EMS - was established in mid 2005 and implementation decisions on ADB site were delegated to this office
  • Furthermore, an effective working relationship between BRR and EMS was established allowing on-the-spot decision-making

ETESP has shown that it possible to implement a large post-disaster reconstruction program through the government's on-budget system provided the right and flexible delivery arrangements are put in place - both on government and the donor side.

I like to take this opportunity to highlight the experience of ETESP's livelihoods program - one of the most significant donor funded programs in this sector: more than $100 million has been invested.

Some of the significant livelihoods outcomes are:

  • Some 29,000 ha of damaged farm land was cleared and farming restored
  • Over 3,000 ha of fish ponds rehabilitated and support to some 750 fisheries-dependent communities delivered; seaweed and grouper production reestablished on Nias and Simeulue
  • More than 500 water users associations engaged in the rehabilitation of canals serving thousands hectares of farm land
  • Aceh's formal financial institutions strengthened and market-based funds are now being delivered to micro and small enterprises; also, a market-based grameen-type microfinance program introduced benefiting thousand of women

What has made the ETESP livelihoods components - agric, fisheries, irrigation - so unique?

  • The fast-track sector approach that allowed the implementation of a series of discrete investments - no need to wait for the design of the entire component; this also provided flexibility during implementation to fill the gaps
  • A staged implementation approach: first restoration of lands and replacement of lost productive assets, then rehabilitation of local support infrastructure such as seed centers, hatcheries, extension capacity, etc and the last stage: starting the process of building back livelihoods networks for longer-term economic development
  • Decentralized project planning allowing ETESP support targeting specific local-level needs
  • A common strategy for community facilitation and participation; significant resources were dedicated for this: some 700 community facilitators were deployed
  • The adoption of community contracting where possible; some $24 million was directly channeled to communities to take the reconstruction in their own hands
  • Close consultation with the Dinas so that investments were in line with local plans and strategies; this was facilitated by the fact that the majority of BRR's Satker staff were from the Dinas
  • Technical assistance that provided immediate capacity to under-resourced government organizations
  • A functional complaints handling mechanism that allowed quick resolution of complaints
  • The on-budget process - it built stronger synergies with BRR's on-budget Debt Moratorium program

The fourth ETESP livelihood component - the MSE component - is also unique but in a different way: it is more long-term oriented

This component focuses on strengthening the local banking sector to enhance their capacity to deliver market-based funds through the $8 million Micro Innovation Fund for expanding lending to micro and small enterprises.

  • The component included technical support to BPRs - Bank Perkreditan Rakyat in Aceh - private and provincially owned; BPD Aceh; and BPD SUMUT for Nias.
  • Thanks to the technical support, BPRs are now providing Grameen-type micro-finance loans - not grants! - to over 4,000 women formed into some 800 groups, with a total loan portfolio of RP 3.5 billion. The overall repayment rate is remarkably high: over 95 % average.
  • The component also assisted the Aceh Government to reform 12 weak and independently-operating BPRs. These Government-owned BPRs have been merged into one BPR with 12 branches. Placed on sound financial footing through writing off debts, infusion of equity funds, and technical assistance - a new and stronger BPR has been created
  • The MIF is disbursing funds - again: not grants ! - to banks at a slightly lower than normal SBI rate or in the form of time deposits. Funds are disbursed in tranches subject to meeting prior agreed performance criteria. The MIF will continue to provide dedicated funds for a number of years, beyond the closure of ETESP.
  • Having received technical assistance, BPD Aceh will soon embark on a lending program for the agriculture and fisheries sectors. It plans to increase its lending by Rp 50 billion for this year or a 250% increase from last year. This will be an important step towards meeting the sectors' financing requirements.
  • Also with ETESP training on the Grameen technology, BPD SUMUT now serves 230 groups in Nias, composed of some 1,000 women, with 100% repayment. It plans to expand the Grameen-type lending not only in Nias, but also to all other districts in SUMUT.
  • Through another ETESP related project funded by the the JFPR, BPD Aceh, has made a tie-up with a local NGO-Coop - YAMIDA - serving some 1,000 women micro-entrepreneurs with repayment rate above 98%.

With the assistance of ETESP and other donor programs, Aceh-based banks that had long been risk-averse to lending to MSEs, are now gaining more confidence to expand into this very important market, with positive signs that they are allocating more resources for this.

Finally - According to the October 2008 Aceh Economic Update, the agriculture and fisheries sectors have recovered from the Tsunami damage. In 2007, the growth of the agriculture sector surpassed the pre-Tsunami growth. The reconstruction efforts combined with the end of the conflict are behind this growth. ETESP investments in the livelihoods sector have contributed to this.

Thank you.