Document of The World Bank FOR OFFICIAL USE ONLY REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPME TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$208.9 MILLION TO THE REPUBLIC OF INDONESIA FOR THE FIFTH BAPINDO PROJECT April 20, 'LE COPY _ Report No. P-3525-IND 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 (As of December 31, 1982) Currency Unit = Indonesian Rupiah (Rp) US$1.00 = Rupiah (Rp) 700 /1 Rp 100 = US$0.143 Rp 1,000 = US$1.43 Rp 1 million = US$1, GOVERNMENT OF INDONESIA FISCAL YEAR April 1 - March 31 BAPINDO's FISCAL YEAR January 1 - December 31 ABBREVIATIONS BAPINDO - Bank Pembangunan Indonesia (Development Bank of Indonesia) BI - Bank Indonesia GOI - Government of Indonesia IDFC - Indonesian Development Finance Company KIB - Kredit Investasi Besar (Large Investment Credit Program) KIK - Kredit Investasi Kecil (Small Investment Credit Program) KMKP - Kredit Modal Kerja Permanen (Small Permanent Working Capital Credit Program) PDFCI - Private Development Finance Company of Indonesia RDB - Regional Development Bank REPELITA - National Five-Year Development Plan (Repelita I, ; Repelita II, ; Repelita III, ) /1 The Board documents for this project are based on an exchange rate of Rp 700 to the US dollar. However, after project appraisal and loan negotiations the Government announced, on March 30, 1983, the devaluation of the Rupiah from 700 to 970 per US dollar. While it is too early at this stage to completely assess all of the effects of this decision, an initial evaluation of the impact of this decision on the project shows that its feasibility will not be adversely affected.

3 FOR OFFICIAL USE ONLY INDONESIA FIFTH BAPINDO PROJECT Loan and Project Summary Borrower: Beneficiary: Amount: Terms: Relending Terms: Republic of Indonesia The Government of Indonesia (GOI) and Bank Pembangunan Indonesia (BAPINDO) $208.9 million (including a capitalized frontend fee of $0.5 million) The proposed loan will bear standard variable interest rate, plus commitment fee. The portion of the loan proceeds that would finance BAPINDO's subloans would have a flexible amortization schedule conforming substantially to the aggregate repayment schedules of BAPINDO's subloans, the maximum term for which would be 15 years, including a grace period. For the repayment of technical assistance funds provided both for the GOI and BAPINDO, a term of 20 years, including five years grace period, would be applied. The GOI would onlend $203.3 million (including the corresponding front-end fee of $0.5 million) of the proposed loan to BAPINDO at a rate not exceeding 11.0% p.a., thus bearing the risk on any possible interest rate fluctuation on the Bank loan. The GOI would allocate the remaining $5.6 million to designated executing agencies as budgetary transfer for financing sectoral policy studies and project preparation. The foreign exchange risk will be borne by the GOI. Project Description: The project is to: (a) provide foreign exchange needed to finance viable medium- and large-scale industrial projects; (b) continue the Bank's ongoing technical assistance to improve BAPINDO-s operational capability; and (c) provide finance for sectoral studies leading to policy recommendations, preparation of industrial projects and other technical assistance in support of industrial development under the MI's next Five-Year Plan (Repelita IV). The proposed loan would be used to finance BAPINDO's subprojects over the two-year period from mid-1983 to mid-1985, and the sector studies, related training and project preparation. The major benefits of the project would be to further This document has a restricted distribution and rnay be used by recipients only in the performance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.

4 - ii - the institution building of BAPINDO, and to contribute to industrial development financing in Indonesia. The risks associated with the project are minimal. Bank FY US$ million Estimated Disbursements: Annual Cumulative Rate of Return: Not applicable Staff Appraisal Report: No IND, dated April 13, 1983.

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 THE FIFTH BAPINDO PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Indonesia for the equivalent of $208.9 million (including the capitalized front-end fee) to help finance the Fifth BAPINDO Project. The portion of the loan proceeds ($200 million plus the front-end fee) that would finance the credit component of the project would have a flexible amortization schedule conforming substantially to the aggregate repayment schedules of BAPINDO's subloans. The portion allocated for technical assistance would have a term of 20 years, including five years of grace, at the standard variable interest rate. The Government of Indonesia (GOT) would onlend $203.3 million of the proposed loan to BAPINDO at a rate not exceeding 11.0% p.a., thus bearing the risk of any possible interest rate fluctuation on the Bank loan. The GOI would allocate the remaining $5.6 million to designated executing agencies as budgetary transfers for financing sectoral policy studies and project preparation. The foreign exchange risk would be borne by the GOI. PART I - THE ECONOMY /1 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, titled "Indonesia: Financial Resources and Human Development in the Eighties" (No IND dated May 3, 1982) was distributed to the Executive Directors on May 6, 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 150 million, growing at about 2.3% p.a., and is the world's fifth most populous nation. The country has a highly 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 /1 Substantially unchanged from the President-s Report on the East Java Water Supply Project (No. P-3517-IND), circulated under cover of R83-100, dated April 13, 1983, and submitted for consideration by the Executive Directors on May 3, 1983.

6 -2- on Java which has areas with some of the highest rural population densities in the world. About 20% of the population live in urban areas in both Java and the Outer Islands, and the current rate of urban population growth is over 4% p.a. The 1981 estimate of GNP per capita is $520, which places Indonesia for the first time amongst middle income countries./l Macroeconomic Developments and Resource Management 4. Until 1981, the economy had been growing at almost 8% p.a. for over a decade. This 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-60s. The Government took effective action to restore macroeconomic stability, liberalize the economy, rehabilitate infrastructure, and provide incentives for domestic and foreign private investment. However for the last decade the dominant external influence has been the huge expansion, and significant variability, in foreign exchange earnings from oil. Net exports from the oil and gas sector rose from $0.6 billion in 1973/74 to $10.8 billion in 1980/81, when the current account enjoyed a surplus of $2.5 billion. Oil receipts also provide about 70% of Central Government receipts and have helped finance the sustained increase in demand via the budget. The pattern of expenditures has also helped foster diversified growth: of particular note has been the support for agriculture, through investment in infrastructure, support services and effective use of subsidies to maintain producer incentives. This bore fruit in two successive record rice harvests in 1980 and During 1971 to 1980 manufacturing has also enjoyed a high growth rate (of about 14% p.a.) from a very low base, but here sectoral growth has been in spite of a more restrictive policy environment and distorted incentives. 5. Since 1981 the macroeconomic resource position has changed dramatically. Depressed international markets and a weak oil price have led to a turnaround in the current account of about $9 billion in two years, with a deficit of the order of $7 billion likely for 1982/83. Following the reduction in the OPEC market price from $34 to $29 in early 1983, resource prospects worsened further. Faced with mounting pressure on the currency, on March 30, 1983, the GOI devalued the rupiah by 28% from Rp 703 to Rp 970 to the US dollar. This was an important step in the short run adjustment process, but barring a major recovery in oil prices, other adjustments will be necessary, in particular in the rephasing of import-intensive public expenditures. These measures will lead to a reduction in the growth rate. At a more fundamental level the change in external prospects have emphasized the need for substantial structural change in the eighties. The development of a strong and diversified nonoil production and export base is essential to the restoration of reasonable growth. /1 On the basis of the World Bank-s system of country classification and Atlas methodology for calculation of GNP.

7 - 3 - Incomes, Employment and Human Development 6. Despite the high concentration of the resource windfalls, the available evidence, from household expenditures surveys, indicates a fairly wide distribution of the benefits of growth and a reduction in poverty incidence over the past ten years. This is also borne out in the basic health indicators, with a 25% reduction in the infant mortality rate and an increase in life expectancy from 47 to 53./l These improvements should not, however, mask the continued existence of widespread poverty. Almost 50% of the population are estimated to have been in this condition in The core of the poverty problem continues to be in rural Java, where landless laborers form a large, and possibly rising, fraction of the population, and where, for most of the 1970s, there is little evidence of any rise in real agricultural wages. However, in the last two years of good rice harvests it is likely that significant improvements occurred on Java, while agricultural incomes on parts of the Other Islands dependent on export crops have declined in the face of the international recession. Following the devaluation this situation will likely reverse. Export incomes should rise, backed by the international recovery, but real incomes in Java could be adversely affected. 7. In the future the availability of productive employment will be a key determinant of the distribution of income. The labor force will grow at about 3% p.a., equivalent to around 2 million people p.a., in the next decade. In 1980 agriculture still accounted for 55% of employment, and industry only 13%; the growth of services employment, from 24% of the total in 1971 to 32% in 1980, was the main mechanism for providing incremental employment in the 1970s. The growth in service incomes was partly sustained by rising oil incomes in the 1970s; if services are to continue to be a major source of labor income there is again a strong case for diversifying the pattern of productive growth. The key issue is one of widespread underemployment in the traditional sectors. To tackle this a sustained rise in labor demand is crucial - through the maintenance of overall growth and the encouragement of labor-intensive processes in both the traditional and the industrial sectors. 8. In the s there was 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 junior secondary schools is now 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 well as a major effort to raise the quality of the whole system. The situation is similar in the health sector. There has been a large expansion in facilities, notably at the sub-district level, but continued expansion and an improvement in quality will be necessary to increase 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 in the s is to be maintained. Currently only 18% of the rural and 40% of the urban population have access to safe water /2 compared with Government targets of 60% and 75%, respectively, for /1 On the basis of the 1971 and 1980 population censuses. /2 Government estimates for 1981.

8 -4- Policy for Structural Change 9. Indonesia's past growth performance has been good, but the country is now faced with the need both to put the nonoil economy on to a viable long-run growth path and to effectively improve the basic needs situation of the poor. The re-emergence of a significant foreign exchange constraint has reduced the capacity of the economy to carry a high level of investment. Policies that promote appropriate investment choices in the public and private sector will be critical if the structural adjustment process is to be sustained. 10. In industry, the Government of Indonesia (GOI) is planning a program of large-scale natural resource-based investments, in refineries, LNG, petrochemicals, fertilizer, cement, pulp and paper, basic metals and mining. This would broaden the industrial base, but will have very limited employment implications and is very foreign-exchange intensive in the construction phase. Of greater importance for both employment and exports is the encouragement of agriculture and the small- and medium-scale private manufacturing through an improvement in the economic environment. The 28% devaluation of March 30, 1983, substantially improved incentives for production of tradeable goods. Furthermore, the GOI has initiated a general review of the trade regime, with a view to removing the distortions caused by the wide variations in rates of effective protection. It has also embarked on a program designed to promote the expansion of nonoil exports, including export financing arrangements, export insurance, improved ports procedures, export processing zones and a system of export certificates (duty rebates). However, the private sector suffers from significant domestic constraints to its expansion, including a heavy regulatory burden, especially in the area of investment licensing, and a distorted and poorly developed financial system. Further policy reforms to alleviate these constraints are needed to create an environment conducive to private investment. 11. The energy sector is at the. core of the structural adjustment problem. Oil and gas now account for 98% of domestic consumption of commercial energy and demand has been growing rapidly. If Indonesia is to avoid a serious reduction in foreign exchange earnings from the oil sector in the 1990s, it is essential to diversify energy usage and improve the efficiency of energy consumption. This will require both price and investment measures. In January 1983 domestic oil prices were increased by about 60%, and this followed a similar increase in January This was a decisive step that substantially reduced the differential between domestic prices and the average opportunity cost; however, relative prices between products diverge widely from those prevailing on the international market. In addition a major program of investment is planned, with public and private participation, in coal exploration and development, exploitation of hydro and geothermal resources, and a sixfold increase in electric power generation in the coming decade.

9 Agriculture will continue to be of great importance for export revenue (accounting for almost 75% of 1980 nonoil exports), food production and employment. Rice production has been steadily rising to an estimated total in 1982 of 23.2 million tons, compared with 13 million a decade earlier. This achievement is largely a result of the provision of new, and the rehabilitation of existing, irrigation systems, and the dissemination of new agricultural technology particularly with respect to the timely delivery of seeds and fertilizers. Future investment in physical infrastructure, especially in irrigation and rural roads, combined with a favorable market environment and good support services will be the main determinants of further expansion in food production. In the past tree crops have suffered from relative neglect, and the age structure of the trees is now very old, but GOI has a highly ambitious program of rehabilitation and replanting, necessitating substantial investment in manpower and improved organization of distribution and marketing. Transmigration remains a high priority program for promoting development in underpopulated regions, providing opportunities for landless families on Java, Bali, and Lombok, and relieving economic and environmental pressures on those densely populated islands. Financing Development - Domestic Resources and External Capital Flows 13. With a relative decline in oil incomes, alternative sources of domestic savings will have to be found. This will require a major increase in resource mobilization through the public sector over the medium term, through a combination of reduced subsidies on petroleum products and increased nonoil taxes. In 1981 it is estimated that taxes on the domestic economy were only 6% of GDP, if the domestic oil subsidy is netted out, compared with well over 10% for comparable countries. The 1982/83 and 1983/84 budgets represented a significant effort to improve the situation, with major reductions in the oil subsidy and increases in nonoil taxes, but this will have to be sustained in following years. In addition to public resource mobilization it is becoming increasingly important to encourage the growth and improve the efficiency of distribution of financialized savings, through an improved financial regime and the development of a domestic capital market. 14. Even with effective measures to mobilize domestic resources there will be a substantial need for foreign savings in the 1980s, especially in the short-run adjustment to loss in oil income. The most important component of this will be in the form of medium- and long-term debt flows. Total disbursed and outstanding external public debt was almost $20 billion at the end of 1982 and undisbursed debt amounted to an additional $12 billion. The Inter-Governmental Group on Indonesia remains a principal source of external capital, including Official Development Assistance, to the country. During the s, however, Indonesia experienced an unusually rapid transformation in its public debt structure from a situation of heavy reliance on official concessional loans to increasing use of private, nonconcessional and variable interest loans in the second half of the decade. In 1982 private

10 - 6 - source debt accounted for 52% of new commitments of public debt. The fact that Indonesia remains highly creditworthy at the beginning of the 1980s, and the efficiency with which GOI has managed debt, are clear indicators of how far the country has progressed. However, the debt servicing capacity depends on commodity production rather than a broad industrial base, and this makes Indonesia somewhat more vulnerable to developments in international markets. The implication is that debt utilization should remain very prudent, and that there will be a continued justification for official debt of long maturities in the 1980s. With the sharp decline in oil export receipts the debt service ratio will rise in the short term, but present projections indicate that the overall debt position will remain manageable. PART II - BANK GROUP OPERATIONS IN INDONESIA /1 15. As of March 31, 1983, Indonesia had received 48 IDA credits totalling $931.8 million, and 76 Bank loans amounting to $5,295.6 million. IFC investments totalled $136.8 million. The share of the Bank Group in Indonesia's total (disbursed) external debt outstanding at the end of 1980 was 10.7%, and the share of debt service, 7.1%. By the end of 1981, these ratios increased to 11.2% and 7.4%, respectively. Annex II contains a summary of IDA credits, Bank loans and IFC investments as of February 28, 1983, as well as notes on the execution of ongoing projects. Given the critical importance of agriculture (including transmigration) for employment, food security and exports, over one-third of Bank Group supported 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, nutrition, industrial development financing (including small-scale industry), power, telecommunications, population and technical assistance. 16. 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 /1 Substantially unchanged from the President-s Report on the East Java Water Supply Project (No. P-3517-IND), circulated under cover of R83-100, dated April 13, 1983 and submitted for consideration by the Executive Directors on May 3, 1983.

11 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. 17. Because the country has moved from a position of resource surplus to deficit, as discussed in Part I, the development momentum will in all likelihood decelerate in the short run. To minimize this adverse impact will require effective policy reform to improve the environment for private investment and to mobilize additional domestic resources so that investments in industry, infrastructure, tree crop development and human resources development can continue. The Bank-s program of lending and economic work is being geared to support the required measures. The primary emphasis of Bank involvement will be on policy and institutional development and technical assistance in the key sectors. This will involve a close integration between sector work and lending and the gradual broadening of lending to the subsector and sector level in order to assist with policy issues at this level. The only significant shift in the composition of lending involves a rapid expansion planned in the education sector, a direct response to the severe shortage of skilled manpower. In the industrial sector, in-depth sector work is focused on a policy to promote industrialization which will build on Indonesia's comparative advantage in labor and resource intensive industries. This analysis may lead to a series of industrial projects which would facilitate sectoral reform. In energy, sector work and continued lending is concentrating on policies to diversify Indonesia's energy base, rationalize pricing and improve sectoral planning. Irrigation and tree crops will continue to absorb a substantial portion of lending in view of the importance of these sectors, and continued support for transport is anticipated. Continued lending in the areas of provision of social services, in population, health and nutrition, urban development and water supply will increasingly emphasize institutional support and the development of innovative low-cost solutions. 18. The last two years have seen major improvements in the disbursement ratio /1 from a low of 13% in FY80, compared to a Bank-wide average of 21.31%, in Thailand of 21.2% and in Nigeria of 17.31% in that year, to 18% in FY82. 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 commitments to Indonesia increased by 122% compared to a Bank wide increase of 83%. However, it also reflected implementation difficulties arising out of GOI's budgetary, procurement and payment procedures, including issuance of tender documents and opening of letters of credit. The severe shortage of managerial and technical manpower of course compounds the problem. A /1 The ratio of actual disbursements during the fiscal year to the cumulative undisbursed amount at the beginning of the fiscal year.

12 -8- number of steps have been taken by GOI 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 GOI 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 and November As a consequence of these joint initiatives, GOI has taken measures to streamline some of the complex budgetary and financial procedures affecting project implementation. In addition, the Bank is helping the GOI 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. Finally, 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. This was reflected in an increase in disbursements from $204.0 million in FY79 to $501.3 million in FY82, and $301.2 million for the first six months of FY83. It is nevertheless important that the Bank and GOI maintain their efforts. 19. 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 subsequent lending has been 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 of $625. Given Indonesia's much improved creditworthiness, IDA lending was discontinued in FY The proposed project constitutes the ninth lending operation presented to the Executive Directors this fiscal year. Projects under advanced stage of preparation and appraisal include the Third Agricultural Training, the Second Nonformal Education, the Second Polytechnic, and the Thirteenth Power Projects. PART III - THE INDUSTRIAL AND FINANCIAL SECTORS The Industrial Sector 21. Role in the Economy. In the aftermath of the first oil boom in 1973, the industrial sector, including mining and energy, has been the fastest growing sector of the economy. During , manufacturing grew at an average annual rate of 14% (12% in 1981) and the industrial sector as a whole by 11% p.a., compared with about 8% for the economy. Industry in

13 1980 accounted for about 33% of GDP, compared with 14% in 1960 and 20% in 1970, but manufacturing for only 9%, which is well below its percentage in most neighboring countries. Although manufactured exports have grown over the past five years, they still constitute only 14% of non-oil exports, or about 5% of total exports. Only about 12% of the labor force is employed in industry. 22. Structure and Performance. The latest census of manufacturing industries shows that larger, more capital-intensive enterprises, comprising less than 1% of the number of industrial establishments, accounted for over four-fifths of output, value added and wages, but only 10% of the work force. Due largely to the high level of protection which promotes import substitution, and a liberal incentive system for large capital investments, the industrial growth in the 1970s was concentrated in capital-intensive, import substituting industries in the public sector, such as cement, fertilizers, steel and paper. Public sector investment in industry and mining grew by 17.5% p.a. in , outpacing the 8.9% p.a. growth of gross domestic investment. While impressive in terms of its recent growth, the manufacturing sector has not yet demonstrated that it can generate sufficient jobs or exports. The Bank-s Industrial Sector Report (dated July 15, 1981) highlighted specific policy issues related to trade, regulation, finance and private foreign investment, and recommended a number of improvements in the policy and institutional environment to stimulate industrial activity. 23. Future Industrial Structure. Given Indonesia's broad resource base, a large labor force, low real wages compared to other countries in the region, and access to foreign investment, there is potential for high industrial growth rates, employment and exports. Improved performance should be based on (a) the rapid growth of labor-intensive, export-oriented industries and (b) the selective development of resource-based industries where Indonesia has a natural comparative advantage. These latter activities will be related, for example, to oil, fertilizer, cement and wood processing. 24. Moreover, the industrial sector must provide an increasingly significant contribution to GDP to sustain the high real rates of GDP growth in the 1980s. With the labor force expected to grow at about 3% per year in this decade, the industrial sector must also begin to absorb an increasing share of employment. In this context, the GOI's Third Five-Year Development Plan (Repelita III) places greater emphasis than previous plans on the manufacturing sector. It aims at 11% p.a. growth for the sector as a whole. Within this overall growth target, the GOI has been giving priority to four objectives: deepening the structure and pattern of industry; generation of employment opportunities; protection of the economically weak entrepreneurs; and the promotion of labor-intensive, manufactured exports. 25. Industrial Policy Issues. Achieving the above objectives will require substantial improvements in the overall policy environment for industry. Specifically, action is needed to reverse the existing bias

14 toward production for the protected domestic market and against exports, to attract more foreign investments, to strengthen industrial planning and project appraisal capability and to streamline Government licensing and other procedures. Some progress has recently been made in these areas; however, much remains to be done. 26. So far, the area where the GOI appears to be making the most concerted effort to improve policy is in the trade sector, especially in export promotion./l In January 1982, the GOI legislated a major policy initiative in the areas of export finance, guarantees, credit and insurance. In addition to this major policy reform, the GOI is also actively working toward improving its duty rebate scheme, strengthening delivery of technical and marketing services to exporters, establishing export zones, improving customs regulations, upgrading quality of major export commodities and improving port facilities. 27. In other areas, progress has been more limited. In the area of tariffs, the GOI has prepared, but not yet implemented, a first round overall reform and is actively recruiting a team of technical experts to advise on further detailed reforms. Substantial simplification of licensing and regulatory procedures remains to be undertaken. The GOI is concerned about the possible adverse impact broad reforms might have on existing industries and movement on these issues is likely to be gradual. In this context, a number of detailed subsector studies are being undertaken or proposed in such subsectors as engineering industries, pulp and paper, textiles, steel, cement and wood processing. These studies are being given high priority by the GOI and will explicitly address policy issues at the subsector level. The Bank has agreed to supervise and finance industrial policy studies and studies at the subsector level, and related training in export promotion and financing. An amount of $5.6 million is included in this project for this purpose (para. 63). 28. Although immediate across-the-board reforms are not likely in these broad policy areas, it is not unreasonable to expect the GOI, during the next three or four years, to implement the initial steps of a phased program of reform. Such steps could include: implementation of a first round of tariff cuts reducing some of the high and redundant nominal tariffs; based on the outcome of the subsector studies and work of the technical team on tariffs, further specific tariff cuts aimed at evening and reducing levels of effective protection across subsectors; measures to promote exports through the improvement of the duty drawback and export credit programs and construction of export processing zones; major simplification of Government procedures in specific subsectors; some improvement in the GOI-s project evaluation and promotion procedures; and implementation /1 The recent Rupiah devaluation of 27% should significantly reduce the bias against export industries.

15 of initial steps to streamline regulations for the whole industrial sector. The Bank will be working closely with the GOI in many of these areas and will carefully monitor performance. Financial Sector 29. Institutional Framework. The financial sector comprises Bank Indonesia (BI, the Central Bank), five large state-owned commercial banks with a network of more than 1,000 branches, 79 private banks, 10 branches of foreign banks, 3 development finance companies, one equity investment bank and 26 Provincial-level Regional Development Banks (RDBs). In addition to its usual central bank functions, BI provides direct credit to state enterprises for priority projects, and refinance facilities at relatively low interest rates for Government-sponsored credit programs. As of December 31, 1981, BI's direct credits accounted for 25% of the total credits outstanding. The five state commercial banks dominate the commercial banking system and, as of end-1981, held nearly 80% of all assets of banks accepting deposits. Lending and deposit rates of state banks, the overall level of their annual lending, and their lending priorities are determined by the GOI. BAPINDO, the dominant Development Finance Company (DFC) in Indonesia, was established in 1960 and reorganized in 1971 with Bank assistance and is now a major source of medium- and long-term finance for industry. The other three non-bank financial institutions (PDFCI, IDFC and PT BAIIANA) also grant medium- and long-term credit and take equity participations, but their level of operations is much lower than BAPINDO's. The RDBs are owned by regional governments. Although designated as development banks, they have largely provided commercial banking and treasury-type services to regional governments. In 1980, BI initiated a program to upgrade the operations of these banks, aimed at transforming them into more effective development banks. With the assistance of BAPINDO and IDFC, the upgrading program is making good progress but more efforts are needed in training of RDB staff. 30. Industrial Finance. The asset structure of the financial system is characterized by a dearth of long-term credits; short-term credits account for approximately 75% of all credits to the manufacturing sector. The paucity of long-term instruments has led to substantial rollover of short-term credits, particularly by state commercial banks. To help meet the need for long-term funds the GOI, through BI, directly finances certain large-scale priority investments in the public sector and provides refinance facilities for other industrial investments to state banks through various Government-sponsored credit programs, e.g., the medium-term investment credit program (KIB) for medium- and large-scale enterprises and the small-scale investment/working capital credit program (KIK/KMEP) for small enterprises. BI refinances 65-80% of loan amounts under KIB and up to 100% under KIK/KMKP and charges state banks interest rates of 3-4% p.a. on the refinanced portions (para. 32). The state commercial banks and BAPINDO are the major channels of these term credits. BAPINDO accounts for about a third of outstanding term loans to the industrial sector. The Jakarta Stock Exchange, reactivated in 1977, is still small; only 13 companies have gone public. While there is limited activity in bonds, a

16 number of public sector enterprises have recently floated or are planning bond issues. BAPINDO itself recently floated a Rp 25 billion ($36 million) bond issue. 31. Policy Environment. Current objectives of Indonesian financial policy are: (a) the maintenance of price stability; (b) allocation of credit to specific sectors in accordance with predetermined priorities; (c) support for the weaker economic groups; and (d) promotion of institutions to fill perceived gaps in the financial structure. The main monetary instruments used by the GOI to pursue these objectives have been mandated interest rates, credit ceilings and the discount window. 32. The current interest rate structure for state banks, which has been in effect since 1978, is characterized by an interlinked network of lending, deposit and rediscount rates regulated by the GOI and BI. Lending rates for short-term credits range from 9% to 21% p.a. with their weighted average equal to 15% p.a. Interest rates on term credits vary from 10.5% to 13.5% p.a. for maturities from one to ten years, depending on loan size. Deposit rates range from 3% to 15% p.a. depending on the type and maturity of deposit. Over the period , the level of lending rates consistently lagged behind domestic inflation rates, leading to negative or low positive real interest rates. Since 1981, however, when the annual inflation rate fell to 7.1%, both lending and deposit rates became positive and remained positive through With price adjustments in domestic oil products, power tariffs and passenger fares, the domestic price level is expected to increase. Domestic inflation is now projected to range from 11-13% p.a. in /1 As a consequence, the current lending and deposit rates could become marginally negative at least in the short run. 33. Such negative interest rates contribute to misallocation of resources, lead to increased subsidies from BI to support the operations of state banks, and discourage savings. With fixed and low interest rates, credit ceilings became necessary to control the expansion of credit. These ceilings have created biases in favor of large and official borrowers at the expense of new entrants to the credit market and, at times of increased liquidity, combined with fixed interest rates, have encouraged state banks to hold larger deposits abroad. To encourage the repatriation of state banks deposits, BI is now offering them deposit rates comparable with foreign deposit rates. 34. The third policy instrument to channel credit to different sectors, keep onlending rates low and to provide adequate margins for onlending institutions has been the discount window. Under the present provisions, credit is channeled to different activities by creating /1 Projections of domestic inflation will require adjustment following the March 30 devaluation.

17 differential incentives for financial intermediaries through the discount rate and discount proportions. Such a selective approach has become too cumbersome to administer and supervise, and, given the fungibility of money, desired objectives for use of funds have not always been achieved. 35. Financial Policy Reforms. The Bank has had discussions with the authorities on the need for reforming the current financial regime at the macroeconomic level both in the context of the overall policy environment and in relation to industrial finance. The country s tightening overall resource position (para. 5 above) has also contributed to an -ncreasing awareness on the part of the GOI of the importance of taking fundamental measures to mobilize savings and improve the allocation of increasingly scarce resources. Along with the raising of lending and deposit rates, other reforms required would include the replacement of the system of prescribed ceilings by a more demand-determined credit system, reduction in the credit subsidies given through the discount window and liberalizing of the credit allocation mechanism. 36. The GOI is likely to follow a gradual and phased approach to reform. In May 1982, it took steps to eliminate the rediscount facilities for loans that are extended at interest rates of 13.5% p.a. This has affected about a third of the credits extended by state banks and has created some pressure to raise the lending rates of the state banks, although no change has taken place as yet. In addition, the current balance of payments deficits and the GOI's efforts to start up a bond market will necessitate serious consideration of the current interest rate structure and the associated financial regime. The Bank is currently discussing these and other policy issues in the context of rapidly changing international and domestic circumstances described in Part I of this report. In connection with the proposed loan to BAPINDO, the appraisal mission discussed the effect of the present interest rate regime on BAPINDO and quantified the cost (Rp 64 billion in 1982, rising to Rp 334 billion by 1987) to the GOI of the subsidies being provided to BAPINDO. This issue was again discussed with the representatives of the GOI and BAPINDO during negotiations to illustrate some of the costs involved in the present interest rate regime and to provide support for the broader policy dialogue which is currently underway. Bank Group-s Role in the Industrial and Financial Sectors 37. The Bank Group's involvement in the Indonesian industrial sector has aimed at: (a) supporting the GOI s investment program in key industries, such as fertilizer; (b) strengthening DFCs that provide term finance for investments; (c) providing financial and technical assistance to small-scale enterprises (SSEs); and (d) developing local capability for establishing and operating industrial estates. To date, the Bank Group has provided a total of $557.5 million to the industrial sector, via four loans

18 to BAPINDO ($157 million), two to PDFCI ($18 million), three for fertilizer production ($220 million), two for small enterprise development ($146 million) and one for industrial estates ($16.5 million). 38. Since its first IDA credit in 1972, BAPITDO has made substantial progress in institutional development. The Project Performance Audit Report (No. 2563, dated June 29, 1979) on BAPINDO I (Credit 310-IND) stressed the need for continued strengthening of BAPINDO's institutional capability, project appraisal and supervision procedures and the need to maintain BAPINDO-s operational autonomy. These points were taken into account in BAPINDO IV (Loan 1703-IND) and are also fully reflected in the design of the proposed BAPINDO V project. The BAPINDO IV loan was fully committed in the first quarter of 1983 and disbursements are expected to be completed on schedule by September 30, Apart from the significant institutional improvements, BAPINDOTs lending under the Bank Group assistance has been supportive of sound, priority projects. As of December 31, 1982, proceeds of the BAPINDO IV loan have been extended to 54 subprojects with the average ERR of 23.1% and IFRR of 20.1%,.which compare favorably with average ERR of 20.1% and IFRR of 17.4% under BAPINDO III (Loan 1437-IND). Incremental jobs generated under BAPINDO IV numbered 7,551 at an investment cost per job of about $46,000. While this suggests a fairly high capital intensity in BAPINDO's operations, it is also indicative of the importance of largescale, resource-based industries (para. 23). At the same time, small and medium industry receive very substantial support from BAPINDO and other financial institutions under the GOI's KIK/KMKP program. The average cost per job under BAPINDO's small credit operation is $5,800. On the whole, BAPINDO's role in developing sound subprojects under Bank Group assistance has been satisfactory. 39. The Bank is developing a lending strategy that would address key industrial and financial sector issues, following the thrust of the 1981 Industrial Sector Report, with detailed technical assistance on specific policies and subsectors. That report addressed the need for policy reform on a broad range of issues, including the regulatory and licensing mechanism, investment incentives, interest rate and rediscount mechanisms. Under this strategy, the Bank would continue to be involved in policy issues where progress can be made, and the lending operations, to the extent possible, would be designed to support our policy objectives. Bank industrial-sector lending would be of three types: (a) loans related primarily to trade policy reforms - a first such project will focus on export promotion; (b) loans to financial institutions (such as the one now proposed for BAPINDO), that develop institutional capacity and provide a basis for continuing the dialogue on financial sector reforms; and (c) subsector loans that focus on policy issues at the subsector level. Technical assistance designed to build up the institutional capability of project agencies would continue to be stressed in all industrial development projects.

19 PART IV - THE PROJECT Background 40. The project was prepared by the GOI and BAPINDO, a wholly-owned Government bank. It was appraised in July/August 1982, and negotiations were held in Washington March 16-21, The Indonesian negotiating team was led by Mr. Marzuki Usman, Director of Financial Institutions, Ministry of Finance. A Staff Appraisal Report (No IND) is being distributed separately. Supplementary project data are provided in Annex III. Objectives and Scope 41. The principal objectives of the proposed project are: (a) to provide foreign exchange to finance industrial projects; (b) to continue the Bank-s ongoing technical assistance to upgrade BAPINDO's staff and improve its organization to meet the rapid expansion of its operations; and (c) to finance sector studies and technical assistance in support of industrial policy reform. During the past decade, the Bank Group has provided BAPINDO with advice and closely monitored its development impact and its progress in institution-building. BAPINDO has performed well, but as institutional development is a long-term process, much remains to be done to make BAPINDO more dynamic and efficient. Moreover, as it enters a new phase of expanded and more complex operations, the problems it faces in the medium-term differ from the ones of the 1970s. To meet these new challenges, BAPINDO needs to continue ongoing reforms and further strengthen its capability in a number of areas. 42. Organization and Management. BAPINDO is guided by a two-man Supervisory Board who represent the Minister of Finance and the Governor of BI. Directly below is the five-man Board of Mianaging Directors, headed by the President, who has held that position since This continuity at the top level has been an important factor in BAPINDO's growth over the past decade. Each of the four Managing Directors supervises four departments and a portion of the branches. Replacement of two Managing Directors who retired in 1980 and 1981 by experienced managers has further strengthened the Board. While BAPINDO-s top management is effective, some adjustments at the middle management level are now needed in response to the rapid growth of its operations and portfolio (from 123 loans in 1978 to 1,303 loans in 1982) and to prepare it for its increasingly important role in industrial development in the 1980s. 43. The BAPINDO Act and its Policy Statement adopted in 1972 set out BAPINDO's broad policies and operational guidelines. These policies are supplemented by implementing regulations issued by the Board of Managing Directors. Besides defining broad guidelines for BAPINDO's development

20 role, the Policy Statement limited BAPINDO's long-term debt/equity ratio to a maximum of 3:1, and its total exposure and equity investments in a single enterprise to 20% and 10% of its equity respectively; required that its total equity investments not exceed its own total equity; and prohibited BAPINDO from assuming the foreign exchange risk on foreign currency loans. With a few exceptions, which were approved by its Supervisory Board, BAPINDO has complied with its Policy Statement. In view of the growth of its operations and the growing complexity of its activities, BAPINDO's Supervisory board has now approved revisions in the Policy Statement in respect of the "Managed Fund" provision (para. 59), BAPINDO's current and debt/equity ratios (paras. 55 and 56), and its procurement policy (para. 69). 44. In 1977, the GOI, BAPINDO and the Bank agreed on a comprehensive Action Program designed to improve BAPINDO's organization, procedures, resource mobilization, financial structure and profitability. BAPINDO made considerable progress in implementing the Action Program. In early 1981, BAPINDO's Board, assisted by a management consulting firm, reviewed thoroughly what had been achieved and initiated a General Improvement Program to further strengthen its organizational structure and prepare BAPINDO for a larger role in industrial development. 45. Under the 1981 General Improvement Program, BAPINDO established the following new units: (a) a separate department to handle special credits for small firms; (b) a new Funds Department to mobilize resources and manage funds; (c) a Special Debtors Supervision Department to supervise projects in difficulties; (d) an Education and Training Unit; (e) an Electronic Data Processing Unit; and (f) a Planning and Budget Committee, to consolidate and screen annual work programs and budgets before presentation to the Board. This raised the number of Head Office Departments from 14 to 18. In. addition, the number of branches rose from 10 to 18 through the upgrading of representative offices. The process of reorganization, however, encountered a number of difficulties which now need to be addressed to enable the institution to benefit fully from the major structural and procedural changes required. Staffing the new departments and newly-elevated branches has been particularly difficult due to BAPINDO's general shortage of experienced staff and to inadequate staff recruitment and training. Overlapping of functions within the Head Office and with branches exists, particularly in project appraisal and supervision. BAPINDO will be implementing a number of measures to address these problems in 1983/84, which include acceleration of branch staff training, strengthening Head Office monitoring of branch performance and simplifying reporting requirements for branches. There is also a need to reinforce management's commitment to the corporate planning process and to delegate more decision-making power so that management could give more of its attention to BAPINDO's future directions and development strategies. 46. In 1982, BAPINDO conducted a comprehensive review of its progress under the 1981 General Improvement Program and identified the remaining

21 problems which should be tackled during the next phase. Based on this review, BAPINDO prepared a new Action Program for implementation during 1983/84, which, in addition to its specific operational activities in the next two years, would constitute an important component of BAPINDO's Development Strategy for (recently approved by BAPINTDOs Supervisory and Managing Boards). The Action Program aims at addressing remaining organizational problems related to the relationships between units in the Head Office and between the Head Office and the branches (para. 45), staff recruitment and training (paras. 47 and 48), project appraisal and supervision procedures (paras. 49 and 50) and planning and information systems (paras. 51 and 52). A management consulting firm with experience in upgrading development financial institutions would be hired and would provide a four-man team of experts in personnel, human resource development and training; corporate planning; management information systems; and consulting services for helping BAPINDO in providing technical support to the RDBs (para. 53). In addition, BAPINDO is planning to appoint an internationally recruited senior advisor specialized in development banking who would advise on corporate strategy and on the implementation of the Action Program, particularly those aspects relating to improvements in project appraisal and supervision. An amount of $2.8 million would be earmarked under the proposed Bank loan to finance 10 man-years of consultant services over two years ($1.5 million), the cost of overseas training for 100 BAPINDO staff ($1.0 million) and of specialized training devices ($0.3 million). During negotiations, BAPINDO agreed that the senior advisor and consultants would be engaged under terms and conditions satisfactory to the Bank by September 30, 1983 (Section 2.05 of the draft Project Agreement). 47. Staffing. As of December 31, 1982, BAPINDO's total staff numbered 964, of which 585 were professionals. To keep pace with the increased volume of operations, BAPINDO plans to increase the size of its staff at an annual rate of about 12% p.a. over the next five years. The quality of BAPINDO's staff has improved over time. However, there is a need in the short-run for more trained and experienced project officers, particularly at the branch level, and a need for longer-term career planning and staff development programs. Under the project, the management consulting firm mentioned above would include an advisor who would assist BAPINDO in implementing appropriate staff development policies and streamlining BAPINDO's personnel management. 48. The training unit has developed a comprehensive training program focusing on middle and advanced level courses on project appraisal, supervision and corporate planning. In preparing this program, the training unit has also assessed the feasibility of expanding and modernizing training facilities to accommodate staff from RDBs, and the need for additional trainers and training materials. To ensure coordination between personnel development and training policies, the advisor on personnel management would also help BAPINDO implement a detailed training plan for 1983/84, including in-house and overseas training, and develop appropriate course materials.

22 Financing for a limited amount of specialized training materials and devices (micro-computers, slide projectors, etc.) would also be provided. In addition, the proposed loan would finance the short visits and training of 100 selected staff outside the country. 49. Appraisal and Supervision Procedures. BAPINDO-s appraisal standards have improved with experience and are generally of acceptable quality. Financial and economic rates of return are routinely calculated on all loans of $1 million and above. The analysis could be further improved with more attention given to market analysis, the subsectoral policy environment and international context of project proposals. BAPINDO½s management is taking a number of steps to improve project appraisal, including the formulation and application of more rigid economic, financial and technical criteria and the reduction of loan processing time. The training program described in para. 48 is giving high priority to project appraisal, thus increasing the number of trained appraisal staff. Several of the consultants referred to in para. 46 will be providing assistance in improving appraisal standards. Duplication between the Head Office and the branches is being reduced, and the appraisal manual is being updated and improved. 50. In project supervision, BAPINDO is paying more attention to projects in difficulties. As the portfolio is growing rapidly, BAPINDO would put emphasis on anticipating problems by taking advance measures, including providing advice to clients on operational aspects of projects. Coordination between the Head Office and branches would be further strengthened to increase the efficiency of project supervision work. Within the next two years, BAPINDO will address these problems by: (a) recruiting and assigning more experienced staff to supervise projects; (b) consolidating and increasing the frequency of project monitoring reports; and (c) increasing the frequency of supervision visits by Head Office staff to the branches to improve coordination. The agreed timetable for implementing these steps is contained in the 1983/84 Action Program and is satisfactory to the Bank. 51. Planning and Information Systems. So far, BAPINDO's planning has concentrated on setting operational targets and budget on an annual basis. The current Five-Year Corporate Plan has yet to be linked effectively to manpower and organizational performance and has therefore not been used effectively as a management tool. The quality of the planning staff also needs to be upgraded. BAPINDO recognizes the weakness of its planning process and plans to strengthen it by training and recruiting new staff. Under the project, one of the four-man management consulting team would be a planning ad&-sor who would assist BAPINDO in formulating an integrated corporate pla i and advise on necessary institutional arrangements and guidelines t) implement and monitor the plan. 52. Over the years, BAPINDO had developed a comprehensive system of reporting. However, reports prepared by the Head Office units and branches are overly descriptive and long, making it difficult for various levels of

23 management to evaluate them properly. BAPINDO-s management information system (MIS) needs to be strengthened, and the process of computerization needs to be accelerated. Under the project, the management consulting firm would provide an MIS consultant with a strong computer background who would assist BAPINDO in streamlining and computerizing its management information procedures. A specific timetable for computerizing and simplifying reporting procedures at the Head Office and branches is set out in BAPINDO's detailed Program of Action for 1983/ Assistance to Regional Development Banks. BAPINDO is currently engaged in providing technical assistance to 18 RDBs to strengthen their management and organization, accounting and reporting systems and term lending capability. The two-year program,.which is sponsored by BI and funded under the Bank-assisted Second Small Enterprise Development Project (Loan 2011-IND), has been completed, but BI has proposed to extend it for another two to three years. BAPINDO's consultancy group would need to be assisted in order that they could carry out their assistance programs over the next two years more effectively. Under the project, the management consulting firm would also provide an advisor on the consultancy profession to assist this group plan its work program, coordinate training for RDB staff and organize subcontracting of tasks on which BAPINDO lacks the expertise, e.g., accounting systems. 54. Operations. Since 1978 when BAPINDO was last appraised, BAPINDO s operations have recorded an unprecedented expansion. Total loans and equity investments approved annually have increased from Rp 35 billion ($50 million) in 1978 to Rp 559 billion ($799 million) in 1982, an average annual growth rate of 103%. BAPINDO's loans and equity investments outstanding rose from Rp 120 billion ($171 million) at end-1978 to Rp 578 billion ($826 million) as of December 31, BAPINDO has financed a few very large projects, notably cement, plywood, paper, textile and oil-drilling rigs. Consequently, the average size of industrial investment loans increased from Rp 379 million ($541,000) in 1978 to Rp 605 million ($864,000) in 1980 and to Rp 3,935 million ($5.6 million) in BAPINDO's investment loans have been reasonably distributed to various sectors, with relatively higher exposure in textiles, plywood and cement in recent years, reflecting the high priority assigned by the GOI to such projects. During , about 65% of loan commitments continued to be concentrated in Java. However, the concentration changed dramatically in 1981 when Java only accounted for 32%, due to a large cement project in West Sumatra accounting for 34% and four wood processing projects in Kalimantan accounting for about 22%. With the emphasis on resource-based industries, this trend is likely to continue. The average maturity of investment loans has remained around eight years, compared with about six years for working capital loans. About 80% of the number and 52% of the amount of loans committed during have been for expansion/modernization purposes; during the same period, private sector industrial loans accounted for 90% of the number and 77% of the amount of total approvals.

24 Financial Position and Performance. BAPINDO's total assets grew at an average annual rate of 43% during , 64% in 1981 and rose further by 55% during The loan and equity portfolio increased from 79% of total assets in 1978 to 88% in There was some deterioration in BAPINDO's liquidity position as the current ratio decreased from 1.5 to 1 in 1978 to 1.3 to 1 in This decline reflects BAPINDO's inability to generate and obtain from BI, on a timely basis, sufficient resources to match the accelerated pace of its operations. To avoid delays in project implementation, BAPINDO has had to draw down its own liquidity, including term resources, to make initial disbursements. During negotiations, agreement was obtained from the GOI that adequate funding would be provided by GOI to BAPINDO to meet its projected program for (Section 4.04 (b) of the draft Loan Agreement). In addition, a minimum current ratio (1.15:1) is stipulated in BAPINDO's Policy Statement (para. 43). The pace of BAPINDO-s loan approvals and disbursements during would be synchronized with the flow of funds from its own operations and from the rediscount facilities from BI so as to maintain the agreed current ratio. 56. BAPINDO's equity has increased from Rp 63 billion ($90 million) at end-1978 to Rp 89 billion ($127 million) at end-1981, and was Rp 102 billion ($146 million) as of December 31, However, the growth of BAPINDOs long-term debt outpaced that of its equity. Consequently, the long-term debt to equity ratio, which, from 1972 to 1978 had remained below 1.0:1, rose to 2.8:1 at the end of 1981, and to 4.3:1 by December 31, Before the ratio rose above 3.0:1, BAPINDO requested the Bank's agreement to increase the 3:1 limit prescribed in the Project Agreements on the previous Bank operations, so that it could expand its operations further. BAPINDO-s request is justified, given the fact that its portfolio is basically sound, the bulk of its long-term debt obtained from BI is on favorable terms and its debt service cover will remain adequate. During negotiations, it was agreed that the debt/equity limit would be raised to 6:1 (Section 4.07 of the draft Project Agreement). This ratio is prudent and will not jeopardize BAPINDO's financial position (para. 68). 57. BAPINDO's net profit increased almost four times from Rp 1.1 billion ($1.6 million) in 1978 to Rp 4.1 billion ($5.9 million) in 1981 and increased further by 70% in Because of the rising weight of low cost loans from BI in BAPINDO's debt, the average cost of debt declined from 10.1% in 1978 to 7.3% in 1982, resulting in an increase in gross interest spread from 2.7% to 5.3%. Administrative expenses as a percentage of average total assets declined from 3.7% in 1978 to 2.7% in 1981 and further to 2.5% in However, annual provisions for losses remained high. As a result, the return on average total assets showed much slower growth, from 0.8% in 1978 to 1.2% in 1981 and 1.3% in Quality of Portfolio. Due to the depressed economic conditions in Indonesia and more difficult external market conditions arising from the world-wide recession, the quality of BAPINDO-s portfolio, after showing an

25 improving trend in , began to deteriorate in Loan amounts in arrears (over three months) rose from Rp 5.0 billion or 1.5% of outstanding portfolio in 1981 to Rp 11.3 billion or 2.1% in 1982, after rescheduling of Rp 26.8 billion. Loans affected by arrears, amounting to 5.3% of term loans outstanding at the end of 1981, increased to 9.7% by December 31, 1982 (4.4% in 1980). Despite these increases in arrears and reschedulings, which should be seen against the background of the presently depressed economic conditions, BAPINDO's portfolio can still be considered satisfactory. Moreover, provisions, amounting to 3.7% of outstanding portfolio at the end of 1982, are adequate to cover potential bad debt. However, to ensure that the arrears position does not deteriorate any further, BAPINDO has reviewed the loan portfolio and has prepared a report which analyzes factors behind the arrears. The report recommends remedial measures, including financial restructuring of affected companies, debt rescheduling in exceptional cases, changes in management personnel, and technical assistance efforts. In light of the recommendations of this portfolio review, BAPINDO has developed and would implement a specific set of monitorable actions, including the maintenance of a 75% collection rate, which are set out in the Action Program. 59. Managed Fund. In 1977, BAPINDO set up the "Managed Fund" mechanism for those projects which were considered by the GOI to be of national importance but were either too large or were for other reasons not covered under BAPINDO's normal investment policy. The funds for such projects are provided by the GOI, and BAPINDO does not assume any financial risk, simply charging a fee for handling. BAPINDO has, in recent years, used the "Managed Fund" to channel GOI loans from foreign sources into a few large public sector projects. As the GOI is shifting direct financing of a number of public sector industrial projects to financing by banking institutions, BAPINDO is likely to be entrusted with the responsibility of processing some of the projects. To safeguard BAPINDO's viability as a financial institution, BAPINDO has incorporated in its revised Policy Statement a provision that stipulates that: (a) BAPINDO will apply its normal appraisal procedures to all projects presented to it for financing and will accept only those projects that meet its established economic, financial and technical criteria; and (b) BAPINDO shall use the "Managed Fund" for all Government-sponsored projects, acting as an agent, without assuming any credit risk and for an adequate fee. During negotiations, an understanding was reached with the GOI and BAPINDO on the specific language and procedures for the "Managed Fund" (para. 43). 60. Investment Outlook. Due to uncertainties related to the world recession and the continued stagnancy in oil prices, the overall investment outlook in the medium-term is difficult to forecast. It is, however, certain that the rapid growth in gross investments in Indonesia of 12% p.a. in the 1970s is not likely to be repeated in the next five years; public investments will slow down due to budgetary constraints and private investments, which expanded by 10% p.a. in the 1970s, would also increase at a much slower pace of, say 4% p.a. in real and 14% p.a. in nominal terms for

26 the period Consequently, BAPINDO's financing operations in the industrial sector in the next five years are also going to grow at a slower pace than the previous five-year period. 61. Projected Operations and Resource Requirements. Given the uncertain investment outlook, BAPINDO plans to slow down the growth of its operations in the next two years. Slowing down its operations during this period would allow BAPINDO some time to undertake measures to further consolidate its operations and improve its institutional capability. Notwithstanding 1982 actual approvals, BAPINDO projects total loan and equity inve-stment approvals to grow by 12.5% p.a. in nominal, or 2.5% p.a. in real terms, during (compared with over 100% p.a. in ). No new equity investments are expected to be made in 1983 and only small amounts are projected for For , the period during which the proposed loan is to be committed, total commitments are estimated at Rp 687 billion ($981 million), of which Rp 149 billion ($213 million), or 22%, would correspond to the foreign exchange content of the program./l BAPINDO's pipeline includes projects in textiles, food, pharmaceuticals, lumber, glass, cement and maritime sectors. BAPINDO-s projections and underlying assumptions appear realistic and, given the support of BI and the GOI, should be not pose any problems in terms of funding and absorptive capacity. BAPINDO has incotporated its projected level of activities in the new Development Strategy Statement for Net profit is projected to increase from Rp 7.0 billion ($10 million) in 1982 to Rp 25.0 billion ($36 million) in 1987 at an average growth rate of 29% p.a. This is attributable to the expansion in portfolio and other income generating assets. 62. As in the past BAPINDO would continue to rely on GOI/BI resources and the Bank loan to meet its projected commitments during Of the projected lending program of Rp 687 billion, Rp 40 billion or 6% of total commitments would come from the Ministry of Finance, Rp 335 billion (49%) from BI and BAPINDO-s own funds will constitute 25%. The balance of 20% will come from the proceeds of the proposed Bank loan. With the above blending of funds, the weighted average cost of funds committed to BAPINDO would be 6.7%. Since the bulk of its term loans would be extended at 13.5% p.a., its overall spread will be about 6% which is sufficient to maintain its /1 These projections do not take into account the effects of the March 30, 1983 devaluation of the Rupiah. However, BAPINDO, in consultation with the GOI, has reviewed its projected lending program following the devaluation. The revised projections of commitments during amount to Rp 745 billion ($768 million). The increase of Rp 58 billion is due mainly to the increase in the foreign exchange component of the program as expressed in Rupiah, based on the new exchange rate. As a result of this devaluation, the ratio of Bank funds to total project costs rises from 20% (as reflected in para. 62) to 26%, and the foreign exchange component of project costs rises from 22% to 28%.

27 financial viability./l During negotiations, assurances were obtained that GOI would provide the necessary funds to support BAPINDO's projected operations in on terms to enable BAPINDO to maintain an adequate level of profitability (Section 4.04 of the draft Loan Agreement). Proposed Bank Loan 63. Loan Components. The proposed Bank loan of $208.9 million (including the capitalized front-end fee of $0.5 million) would be made to the GOI. The GOI would onlend $203.3 million (including the corresponding front-end fee of $0.5 million) to BAPINDO under a Subsidiary Loan Agreement acceptable to the Bank, the signing of which would be a condition of loan effectiveness. BAPINDO would use $200 million for financing (a) industrial projects, and (b) ships, whose aggregate would not exceed $60 million, or 30% of the credit component. The balance of $2.8 million would be used by BAPINDO to finance technical assistance for two years including: (a) a top level advisor and a management consultant team of four experts on training and personnel development, management information systems, corporate planning and consulting techniques for 24 months at a cost of $12,500 per man-month, totalling $1.5 million; (b) overseas study tours for 100 staff at, a cost of $10,000 per person totalling $1.0 million; and (c) purchase of specialized training equipment at $300,000. The portion ($5.6 million including the corresponding front-end fee) which is not onlent to BAPINDO would be used for technical assistance by the GOI for export promotionrelated studies and for detailed sectoral studies on engineering industries, pulp and paper, textiles, steel, cement and wood processing, which the GOI is assigning priority for addressing policy issues at the subsector level. Retroactive financing in an amount not to exceed $400,000 would be provided for expenditures made after March 1, 1983, for technical assistance related to export promotion, in order to allow GOI to initiate the relevant studies as quickly as possible. A selected number of Government officials from designated agencies may avail themselves of a portion of the technical assistance funds for short-term overseas training/study tours. During negotiations, an assurance was obtained that the Ministry of Finance would allocate the technical assistance funds in the form of budgetary transfers to the respective executing agencies, e.g., Ministry of Industry, Ministry of Trade, etc. (Section 3.01(b) of the draft Loan Agreement). 64. Onlending Arrangements. The Government would onlend the proceeds of the Bank loan to BAPINDO at an interest rate not exceeding 11.0%, thus bearing the risk from the variable Bank interest rate. The front-end fee would be capitalized and passed on to BAPINDO. BAPINDO would onlend to /1 With the increase in the ratio of Bank funds to total project cost (see footnote, para. 61 above), the weighted average cost of funds to BAPINDO rises marginally from 6.7% to 7.1%. This does not jeopardize BAPINDO s overall spread or financial viability.

28 sub-borrowers at interest rates set by the GOI for term loans, currently ranging from 10.5% to 13.5% p.a. depending on loan size. Given the large average size of subloans, the bulk of the loan proceeds would be extended at the upper range, giving BAPINDO a spread of about 2.5% on Bank funds. This spread is adequate given the fact that BAPINDO has access to lower cost funds from the GOI and BI which would give BAPINDO an average spread of about 6% during The GOI would bear the foreign exchange risk on the entire loan. Assurances were obtained during negotiations that GOI would discuss with the Bank each fiscal year the level, timing and manner of the financial support to be provided by GOI, BI and other sources to BAPINDO for the following fiscal year, taking into account BAPINDO's profitability, development strategy and lending program (Section of the draft Loan Agreement). Assurances were also obtained that BAPINDO's Eblicy Statement and Development Strategy Statement, which set out, inter alia, operational policy guidelines and projected lending levels, would not be amended except in agreement with the Bank (Section 3.06 of the draft Project Agreement). 65. As usual with Bank loans to DFCs, the component ($200 million) for financing subprojects would have a flexible amortization schedule conforming substantially to the aggregate repayment schedules of subloans, the maximum term for which would be 15 years, including a grace period. For the repayment of the component ($8. 3 million) for technical assistance for the GOI and BAPINDO and the related front-end fee, the prevailing country terms of 20 years, including 5 years of grace, would apply. 66. Free Limit. BAPINDO's appraisal capability and procedures have continually improved. While further improvement is needed, an increase in the free limit appears justified under the proposed loan. It was, therefore, agreed that the free limit ($1.2 million under the previous Bank loan) would be increased to $2.0 million, with an aggregate free limit of $80 million, or 40% of the amount available for financing subprojects (Section 2.02(c) of the draft Loan Agreement). With this free limit, it is estimated that 40% of subprojects, accounting for about 60% of the proposed loan, would require Bank review prior to approval. This should be sufficient for the purpose of effective subproject monitoring by the Bank. 67. Subloan Ceilings. To ensure that the proceeds of the proposed loan would be spread out over a relatively large number of projects, a ceiling of $6 million (compared with $3 million under the previous Bank loan) would be set for the subloans financed by the Bank loan (Section of the draft Project Agreement). This increase is justified, given past and expected inflation, BAPINDO's increased capacity to appraise larger projects effectively and the changing composition of BAPINDO-s subloans. 68. Debt/Equity Ratio. For reasons mentioned in para. 56, the maximum long-term debt/equity ratio limit for BAPINDO would be raised to 6:1. The

29 GOI would need to provide additional share capital to sustain this ratio. During negotiations, the GOI agreed that it would make the required equity contribution to BAPINDO (estimated at Rp 30 billion during the period 1983/ /86) to maintain a debt/equity ratio of 6:1 or less (Section 4.07 of the draft Loan Agreement). A suitable amendment has been incorporated in BAPINDO's Policy Statement to reflect the new long-term debt/equity ratio limit. 69. Procurement. BAPINDO's procurement procedures are satisfactory. BAPINDO requires that all sub-borrowers of investment loans obtain three price quotations from suppliers/contractors, which are then analyzed by staff to ensure that goods and services obtained are procured at competitive prices. Given the increasing size of individual contracts to be financed under the proposed loan, sub-borrowers would be required to follow international competitive bidding procedures in tendering large contracts. During negotiations, agreement was reached that individual contracts (except those on used ships) of more than $5 million to be financed under the proposed loan would be awarded after international competitive bidding (Section 3.01(a) of the draft Project Agreement). This procurement policy has been incorporated in BAPINDO's Policy Statement (para. 43). BAPINDO would review bid documents and the borrower's evaluation thereof and submit them to the Bank, and the proposal to award would be subject to prior approval by the Bank. In the event that such procedures were not followed because of the need for equipment standardization or other reasons, a justification for not using international competitive bidding would be spelled out in the subproject appraisal report which would be subject to Bank approval before authorization of disbursement under the loan. For used ships, international competitive bidding would not be appropriate because of qualitative differences and therefore BAPINDO's normal procedures would be applied. Consultant services and other technical assistance provided under the project would be recruited following normal Bank guidelines. The selection of consultants and their terms of reference would be subiect to prior Bank approval. Procurement of training materials and devices, most of which would be obtained in small quantities through local suppliers or representatives of foreign suppliers, would be based on BAPINDO-s procedures, which provide for adequate competition and are acceptable to the Bank. 70. Disbursement. BAPINDO's existing disbursement procedures have been satisfactory. Disbursements will be made against full documentation for: (a) 100% of foreign expenditures for directly imported equipment, goods and materials; (b) 60% of the cost of domestically procured goods and equipment, which is equivalent to the estimated foreign exchange cost of those goods; (c) 50% of the cost of civil works; and (d) 100% of expenditures for consultants and overseas training. Disbursement is expected to be completed over five years. This disbursement pattern is conservative and based on BAPINDO's experience under previous Bank loans and the disbursement profile of industrial development and finance lending in the East Asia and Pacific Region.

30 Benefits and Risks 71. The proposed project would support the ongoing dialogue on specific policy reforms in the financial and industrial sectors. It will further improve the operational efficiency of BAPINDO to enable it to assume a larger role in accelerating Indonesia's industrialization. The project would also strengthen the support for RDBs and thus contribute to the development of financial institutions in the regions. Based on past experience, the industrial and maritime subprojects financed under the proposed loan are expected to have high financial and economic returns. It is estimated that 18,000- full-time jobs would be created by these subprojects, at an average cost per job of about $46,000. The average cost per job is still high because of BAPINDO's continued support for resource-based projects. Small and medium industries will continue to receive very substantial support from the Government special credit programs in which BAPINDO is actively participating. There are two possible risks associated with the project. First, BAPINDO may continue to expand at a fast pace before the staff and organization are sufficiently strengthened. Second,- public pressure on BAPINDO to undertake large public sector projects could mount and thus jeopardize the quality of its portfolio. The risks are minimized by specifying the reasonable rate of growth of BAPINDO's operations projected in its Development Strategy for , which was agreed upon by the GOI and the Bank. The use of the "Managed Fund" mechanism, combined with application of normal appraisal procedures for all large Government-sponsored projects, would protect BAPINDO's portfolio. Therefore, the risks associated with the project are minimal. PART V - LEGAL INSTRUMENTS AND AUTHORITY 72. The draft Loan Agreement between the Republic of Indonesia and the Bank, the draft Project Agreement between the Bank and BAPINDO 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. A special condition of effectiveness is the signing of a subsidiary loan agreement between the GOI and BAPINDO (para. 63). Other special conditions of the project are listed in Section III of Annex III. 73. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.

31 PART VI - RECOMMENDATION 74. I recommend that the Executive Directors approve the proposed loan. Attachments April 20, 1983 Washington, D.C. A. W. Clausen President By Ernest Stern

32 -28- ANNEX I Page 1 of 5 pages INDONESIA - SOCIAL INDICATORS DATA SHEET INDONESIA REFEENCE QWOUPS (WEXIGHTD AVERAAES AOEA (THOUSAND SQ. REM.)EN - DST RECENT ESTIMATE)' TOTAL D{OST RECENT LOW INCOME MIDDLE IN-OHE AGRICULTURAL /b 1970 /b ESTIMATE /b ASIA A PACIFIC ASIA A PACIFIC GNP PER CAPITA (US$) ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) URBAN POPULATION (PERCENT OF TOTAL) POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) STATIONARY POPULATION (MILLIONS) YEAR STATIONARY POPULATION IS REACHED 2110 POPULATION DENSITY PER SQ. KM PER SQ. KM. AGRICULTURA LAND POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS YRS YRS. AND ABOVE POPULATION GROWTH RATE (PERCENT) TOTAL URBAN CRUDE BIRTH RATE (PER THOUSAND) CRUDE DEATH RATE (PER THOUSAND) GROSS REPRODUCTION RATE FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN)., FOOD AND NUTRITION fndex OF PO0D PRODUCTION PER CAPITA ( ) PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) /c PROTEINS (GRAMS PER DAY) T OF WHICH ANIMAL AND PULSE ;E CHILD (AGES 1-4) MORTALITY RATE HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) INFANT MORTALITY RATE (PER THOUSAND) ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL /d URBAN c7a RURAL a ACCESS TO EXCRETA DISPOSAL (PERCENT OP POPULATION) TOTAL, /e URBAN O7; RURAL POPULATION PER PHYSICIAN POPULATION PER NURSING PERSON POPULATION PER HOSPITAL BED TOTAL /d URBAN a RURAL i87T ADMISSIONS PER HOSPITAL BED /e HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL URBAN RURAL AVERAGE NUMBER OF PERSONS PER ROOM TOTAL URBAN RURAL ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL URBAN.... RURAL......

33 ANNEX I Page 2 of 5 pages INDONESIA - SOCIAL INDICATORS DATA SHEET INDONESIA REFERENCE GROUPS (WEIGHTED AVERAGES - MOST RECENT ESTIMATE)-I1 MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL MALE FEMALE SECONDARY: TOTAL MALE FEMALE VOCATIONAL ENROL. (% OF SECONDARY) PUPIL-TEACHER RATIO PRIMARY SECONDARY ADULT LITERACY RATE (PERCENT) CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION /c RADIO RECEIVERS PER THOUSAND POPULATION TV RECEIVERS PER THOUSAND POPULATION NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION /d CINEMA ANNUAL ATTENDANCE PER CAPITA T LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) FEMALE (PERCENT) AGRICULTURE (PERCENT) INDUSTRY (PERCENT) PARTICIPATION RATE (PERCENT) TOTAL MALE FEMALE ECONOMIC DEPENDENCY RATIO INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS /d HIGHEST 20 PERCENT OF HOUSEHOLDS LOWEST 20 PERCENT OF bouseholds /.. LOWEST 40 PERCENT OF HOUSEHOLDS POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN RURAL ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN RURAL ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN RURAL Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /aa China included in total only. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and Jc 1977; /d 1976; /e May, 1982

34 -30- ANNEX I Page 3 of 5 pages DEFINITIltiS OF SXOCIL I5SIrATSRS ors:alhough, the dote rs dre, froa out.. genraly judged the -at suthorteti-e 00d ulblbe. it should also be notd thr they soy rot be intteaiosly ospr ble aos of the tech of aisderdisad,dfi.itleuseod cocpts use.d by differeuttaoutries to co tcre he date. The dot. err,toe them_s, useful to describe orders ofsgotr.idicace treuda. uod cho tiot certain -1- diff-eorce brcaoocotnis TOre reeec gop r ()th sase coty group of the uuhjecr oucotry eud (2) a cou.ttey group etch eeehtc higher ererge iocase h.. cho coutry group of jeacaoouto the ob (eucey for "igh Ir... oil Eoporets" group obe- 'Middle I..o.- North Afr ica ed Ciddle test" is chua.s bt.res of etroger so-ocurelefiotis).lthe rf.lereoc group date ta -rrgee are popoletioo -Iehttoe eritlsecac secos tar eu dicato agd eho- oly char ojoloty of ahs cuugirs ira.groop hoe dart for th ldictror. tiro. the orerage of cooottisa a.og the ludicoto deped or cbs ere-iabliry of date sod ha ro tios ostior soo he eerts.d i.tolreisog -.eage. of 000 idiccor no asother. The. -eartgee ar ouly usful tocoparing the r... of car itdica-c ataite ason the coutry cud ref.eateo groups. IggA (rhausod aq.k.) tasanita1 Houaic Sad - coral, -ro.ad rural - yoyoloroon (rotal, Tora1 - Total -urfoce urea Ptowiuirg lod area cd toleodureo 1979 duto. crbao, sod rural) lirdd by rhair reepetire rushe of boepitel bds dorla-ltate1 - Eartrota ofogiltr area use d tesporetily or parseseely aoilbi in Public sod prirarr9 g..ro a1 ad ecocilotted hasyitoledr or crops, p-oroce eerke and kirahso Sardeso or to Ie. fello; 1979 data. hebilitarioocecure- Hospital- sore.- rblihaoeer perooetly staffed by ar leo..t cue phys1i.la. Efetblieh-utuc ycoidirg prlacipally costa- Gthy P. CAPITA fiul) - ISP per coyote etiae t u-ret soket yricee, ca1- dia l.cor are ro isdalded. Rtaro haspicels. hoso.ror Include health cloed bys te aoesa te thal as tiarld grb tas( bautuf; 1906, and teditoo rcrnoty1r ol oof hod by A pytyslcls (hut byi 1970, a-d t980 dteoid1. selot teiseoc nurse. sief. etc.)richof,1far l-aretaas dtto ted pro-ido a lielcud rot ate dclfclte. Ia Oatis 1E000Y lcnsusotion PtR CAPITA -,AoA.l tonsuspti-or atcti-ilcery(oo -di11 lo yuryoeeie. cra busyitla. toclole WO.O Princiy1/gecre1 hoapirole. -rd ligoire, ptrlos,oool goo aad hydra-, o-1-o end geothrso ria-: etd rucl. hasytols loca or euro1 h-pirals cad sedtal cad soterricy oriciry) ho kil.t-gu of coal equh-le_ yr..pt.:ta f, sod 1979 ceour- Speciolleod haupiltlo are included oaiy oder tota. daco. Adeiaio.. yt- H.syita1 Sad - Tor-I oebrr of adoiooa. to or diuchorgan tru hoayitolu dloldod by tie octet of brdo. POPUIATIONAdM ftitals TATIyTIC Total yopoleclo"a, Mid-Ye- (th-o...rduf - to oh July 1; 1960, 1970, aod 19Sf OUINGIIS dote. Ar-rs SiOta of KO..ohluld (cersot ynr hacorhald) total. cb, an- dcrl Icbor fioltla (percenr of roral) - Sati of ochac to total poyolauiar; A hase- I..nutt of A trop of lrdirldost. tft Abr liriag qoatroer dofferordohfirfiuos of rborau soy offect caporbility of doto oo tbhoir_sh tel.a boarder or lodger say ccsy oar be lo-laded it _asogocoo..trir; 1960, 1970, _d lhgy d_ro the hi..uebld for- atuiopycyus rorolariceporcoo Aoeroooa-becaf! rrrsooyo c a-iota 1, b.ta, od carl1 - ac-cage oarruultcot yret l'll - C-t-cyylotopo ecc-icc- ace booed on19ffhto eoooyrtc to~ oil ottort. and -co tot aciol... t.ouo. ttl yy- ercuby ago and sea otd thnic rorrolir.y.oud fothility coo.dellioge,repo Wreyif.llltfoAut1odr.o...-yccooetrc -- o-ttrru d projoctiar p-corocec for sor_lf y rcscorr tthree leolo otal- Puoye actf.' hog!if. ropcssoy at birth Occo irr0h touoy'o 7cr topiro Oco Ac-.sac fleofrtticc (pleroat of dur1idearo - coto, ocbac, aud rura - lutel,ard fsolo lgo coactuoy 'tobiloinig at 77.5 yoe Tb aa-lcreot ito... 1 edlliog Ich 1euc-icity ho 1ioiog quatruc or tafn.eeof r fciltry h-tao br three lere1o.asuouo d ir- Or or total, urboo. ad c-1o daelliog rsysctfi-ly. tochoonotry he thor ouriged coo ofclad tb aa oohonatiot fsraiy atit and fertility ucerda far yrajeorcot ayaet Adjoatod Etucal1- lotion _urcsyctltio- IAstIrior.. ~yayul hia tboriona gco-'hnir Prisory och-o - total, sole aol fesole -Iruot total, sole aad fraulo rhehll 11,irob oooaoltohedeo Iern -beto, -cdaoorcrog atltuc etralseoro... _sa.lootu atar. Tho oahorlol otter trtility -aro - core deoli-or to,yiuacy fealiageo ttthoypusotylia...u eohbool-age yayill..u; uccually ya.c.. t.g.. itctodeu child c oe f ae spe...lor 6-Il the coyloctert le-i of colt tet repredotito cage, eheu oahb gaeroraiar yroe hoc udjosrod fta differont legtu of ytriury acottaro; for PI' loestolt... taacty. ThestotoooaryycytttooirerA lootieaoith -cr-1cuold-taiottnrollnuecteey...adllf percoor -=tsoudoorh fh-biio f h po ecd ohoro-ceriotlo atth. -pulaio tcc ros coyila a briar or aba- the officto1 eabool ee itheynsri00.adthototu.ofdo-olo ft f-ftrrlicyretttcrtyho-etr-0- Oo drsth.ol tcta, ale -d fooo - C.ryorod otab_rr;uood -- sot eo "ere. -tocatory adu..otiau irod'or reqticealou... g.r.ro. raaiul,o four yraru eco of opyr-od rca",illt"otrt yriuary dr-tr-olot; t.. for toro...la-lc toobd - Tho year abet sootio..ary poyalatico.. yay,", o-oa-lcy ois roll be rea-bed.... Illyftfrolyytocacfato B;cotcyod_teoure r Per uo. it. -Msd-year ypoplati.pat ye q,aro kil-stec (100 herarra) of ycrolrra'ilsoar (retec 'ofr. neodor) - fo-otlac- iraltotoi-r total areo 1900, aol d1979 dec. irolodo tebicui. Madulol, oth_ ycgrns which oalaetr 197 or Oudopendret s. As. gioulturl loand - Couo-d toahoc- faragloltclalod etly oras I fyroo a a, oac-ndoryictatoo cl;1f,1977 aol 1979 d"aua ycyl-tach- ratio - oisry. aol.. neoddry - Tato1 toadeao scrolled to on, tsrucoco (yrc-ttf ptlsacyordooooodory Ioels diooded bycohr of -hotbe. i~ thr fot,a.ation - Childreo yeors(, eackig-age (Ifht yea-a(.adritlred (65 yeo-nodotla acetogco ofrod-y.racpoyo-... upaodioglor Oala;f10. iff, and 1900 data. Adult loceruar rae ycr.. - liteotadoot blao 10 c read aod trite) Porolaoor treth loe (ourech) -total - llro groeth ae.. of totol nod- os -uceocage ofrrlool outa ogod 15 yeaac aol aroc yeoryaoloocoo1 Ifar 19f-l 90-,oAd 197-0l rprloriani gyteth Iate fr5ecot) -arbor- -aio l gooh catet t urban 0.pc- CaOOtOtTtco ltoofor , ,I aol' 19ff-. Panre os(u hoadrylto)-pregcotol -asyise soty Crodo Borh tara (pur rtod)- MAcal. Ire- birth yoo thb...d of otd-oec00c t-arict let that eight y-arnor; e-tldra ahooor. hoaruou d yyatioo; 19O0,.1970, Iota. itoy ta aol 1980 tcl _ct Iuotoh gtrao (- Macal St doocho Per thaco...d of sl-rrllotoloo(c loadyclafrr l ye eerc a ol labetnuoa 01 boci al yaralotic trr ordtioloetrcf 1960, 1970, aol tylo doto. utra brand..cantoc lcuofeceoani tootral ynblfc ootcr per al thoonard yearn of ubr poplotlac; e ttocthanof.. clodroor blacoor aa= teycad act tyc...al `fhoooy htrocr -cscaoeaa ooftcfrr- i srcoa i-ofutlacoi ocrced yocooyhegasrt bl dirc litlttyrateo;u...lly floe-year -recoat.. diog Or aad tatcctitabo1iuhud 11-e-iog. Orily ylaaoiru-loo. t""to ata (th"aouodo) A-toa oucho of ocetoro t...' Ooo-io (pro PoPulatlco) choo...od - eorec 1110 farbrodo..utta at b hocr-oarc1 Irrica udtc auspices of rooo fas,iy yl.aruoo progras. fg-e-ol poblio per th-aood ypoplac_r; ecoldee _oldei d lt ecei_ea ofcadin uerla ag (15-4 yif I ru 10 ur lu-cootro dirtiedt Se poyuc... teouro lic da Oco (yetl rhe.oo rorcoacl - ihc ic-df oil sortlurateo I oasep agie goy. colothloc a) 'daily getcc1lninhepeoc certaper, def,t rd ooo tdira yabli-tri- drare.d pcioaily to --codirg geattal oes.. ft io c. yloy AoNl NUTRITION to h "duily" if Or uyypurs at It...t four tosroaso rodeo at yocd y_aduocaoye Ccr oolafoocbe lorrfa-ae Cupiu (lyfy-yl100( - todoo of yor capita aoul or. d thu ousha of yrodoctioy of all foal Mcyo tr. fr_d_inooaeolodrr seed at: drod aol ficker oid d-cig the year. ontcldirgodsinsior ta lrio-o aieo Os o coicnla yea aton. CodOticuot0rar protec glalo (e.g. s-g-c.n. and eb ile ocift. otrdotr_aarela ibarediblea -dooo-hoao-i-cr (egoo -fferod act.. of -ac ie bared colabor tua doldol. p-tyo rlooo da r-atry FRCEt aeag,ca ycodoc.c price so-h,-; 1941-hf aol- 191E data. Toto1 Labor Focce Itbo...oado) - icat...icolly acclo Pec...c-, cnltlig tardy of c-l-i-o fycr ad ceccicoeorts - Cosyoted fr.s oco ocraduaolyd -o olcliog h-oori-to, tccdeoto. Per oarfra.tic inoldcd Per day. roilablo op Irorrphe oooh cy-d-cio., lats ooco to-acbl 165, 1971 at dr eoaro l ho 0 oocc -.e,,ylouole oide ool ed orl. rrad cecoo - eooohcforc an rccetog of totalb larfre oorii uil g pycco-iog, and looe tlsolbutica. tquie goucoe(oto) or aofo fgarrcy,hotiag aol food acoo oro ttisocod.0c by PAO.. o -autl p isaoglcel ordo far oca ott- fiob.gahpi cra f t-a labor focco; 190, 19ff nod 19t1 data. 0 otty 001 healthcaoederagieaicetl beyc cdy r. soighto, age lootyfroo)-labor faceorelo, crrucictoa-factoroyg aod sec di-icotaro- of1pylta.oo lttto yprec- for otat ao l...ocoiriy;8.,dta cda or rcoco f coco1 labor force; hac-ohold lore 1 ; l aol 97 d,oa. 1960, 19ff ard19too yecoalcaooyylppyo ad oei (grass -ecboy adrceicc P-to yroploa Pactciyer.ion Rate (purcooct( - toral.clt, ord foclerati aytoro ohor- aotirroyoetcacuaoo.t..ctedu taa, oe.alf art pply. of load -e day. 0Ncc royply of food ho detbod. us lo- Islbr fort.u qoceoro a all -o-otir ootabliohed by USDA yr-ido fat. coo yerooo- f ttl,rl faolo "Poylc fall1ag reryciriy; ccl o... allce...tre "f t raso of ltors pcatsln per day aod 20 gceaof adoioal ccd 1900, aol 190f data. Thbeo c-o bared or lf' parltiatipar rates polar placte. i of ohioh 10 traso oboull be. riso pctro. ThrotTh r.od- reloio ado-ou alltl-oc of the y-uai,ad 10gtcite Itred.A ardaarlcoierotharrboo. fstaefsr. ttctulyc_toaci. tc3ns f forn 0 oraro fcc_r_tl..alic aa uuirol ypo-i ao 0, A-aroge fat the -1dl. proyp-od by 07A0 ic tbe Third Oco pitletdec.. ocrlt - lotio of ccoltloc order 15 aol 10 aolco Jaalr force. foid rood SO-r-ty; , 1970 ood 1977 data, to rho toa 1 r- r Acyt cr-trin url fccn ocinalod rlno- protoi.ayply of food coe rsoiooaol Polc to. gro pe day; , 1970 ord 1977 door. tcol fdistributifon 1-4) Icaob ORot (car thoo... dp oc- deaconp etoh-cood in recoae of Pr 0-00 Child (ares Ioco.- (bod It -. hl td kai) - 00e-0-d hy riches uteft pyli" yea-o,ootblldcua tholsotgo. frotdtlparo- 5 Prertot,ricbe-tffyorcetacroa- ty20p-rceot.oodyoc-e- 4f p-r-r cclo doto doci-d fror lift dora. of hoc.otahld.. tables; 1970 aol HEALTH7 P0VERT0 TARGET tgoacc Thuaol Io o rte Life loyoetaoc 00Olch (foam) - A-ocago cobur of y--c of life -uroorla r oyapycloa-to eact - at yao1ly leo-lo, oh bich; orlot data. adotodh ocrpttr cbh co_dreablrcoc-ao,fac M-tarrlily or (er cp- atuoul) folito d Por-ty - Auool doatho of ilot ac aodrc ore feo- Absaloto l oo lord11~2 (rl!nf pe calo) - -bhot ao torah1 local in flthorloct lo-o booco uloob o - I0 of oad rc tchotad Ioo birthe; ood 1000 bo adetlo Ior'lt toor.atctso-ot Sf..t-ocr(eco o aoal totol, -rhar. tlr1iooaol1. adeqato doar yl-,ouota2co-foadlerqilcutetnlo i.ct al -1oa - SN-- her of P.pecle ttl coab th.. bleac-otoccr-fe afftordbe.. cl o r toas _a_oc-uply (JolodeA lltrate turfoc soters --- rad b-t rscdtlcc or -coctautiotl.d oot oo.,lrl(0 e aia -abaacatdco-1 cteco.-h that fro protettod barehale.: syln,ad aoiatray aell) ua yaercy i-coo foelii oo-hird of arogo cur _opica or a. cl o 00 paooagso hrirofoio ayotre Ioaocr-booareootb locictr lcaeo 000 coroy. char 1-rel Oo dercoe frto the rorol or orardyosoboote,d occurs frar a Ioth Adjscot o higher _r of lirtg ia orb aeau. foortir ith 20 a bhca o e or coosodero aa beinguoohoc r asalorea tthtbce I.ororOareo Ort~i-otd Patclatito OeAr`._ocI Pocertc toc-s Lore (c-ret( -a eble aooe sto1d coply tha the f c of nt iaoahbt aol_royal -Fectaur of poclcot(cboon orl)ao r... hoor. soacec 'llt do rat hare to pood A diopcopactiaoa.. yocpt of ohe day it fotohoeg rho p-c". 0ttr faoy tords. taeoc E-cat Dita..oI (yt-e- of yayc-idoo - r.to...ra. a'nd tacol- P"Srofyoroo; urban cdrral) sorre byeooa dluoala citu-alletloon FPjaytaior per I'ylojoni - Poynlotlc diridad by..ober of proocioirg phyrile-foorobc od la-ai Sara Dtoioict ctiao qaolified fear tedidoo cohorlt o taorecity lerol. Elo.oorto Motyuio aol P-ajeccti- Doyptoyoauia u Norsoo parso.. porlatio aitrded.bl by Puch ccidto.. o gsoy -uoaad sooicdlfesolera-c-teoaen,asuor uct, pract-ooal o -c-itgeu-ooftaclrs

35 ANNEX I Page 4 of 5 pages Population million (mid-1980) GNP per Capita: US$520 (1981 estimate) INDONESIA - ECONOMIC INDICATORS Annual growth rate (%) Amount (at constant 1973 prices) (million US$ at current prices) Actual Estimate P. J_E_ Indicator NATIONAL ACCOUNTS Gross domestic product /a 70, Agriculture 18, Industry 29, Services 22, Consumption 48, Gross investment 15, Exports of GNFS 21, Imports of GNFS 15, Gross national savings 17, PRICES GDP deflator (1973 = 100) Fxchange rate Share of GDP at market prices (%) Average annual increase (%) (at current prices) (at constant 1973 prices) Gross domestic product Agriculture Industry Services Consumption Gross investment Exports of GNFS Imports of GNFS Gross national savings As % of GDP PUBLIC FINANCE /b Current revenues Current expenditures Surplus (+) or deficit (-) Capital expenditure n.a Foreign financing OTHER INDICATORS Annual GNP growth rate (Z) Annual GNP per capita growth rate (%) Annual energy consumption growth rate (x) ICOR Marginal savings rate Import elasticity /a At market prices. /b Central Government only, on an April-to-March fiscal year basis. East Asia and Pacific Programs March 31, 1983

36 Population million (mid-1980) ANNEX I GNP per Capita: US$520 (1981 estimate) Page 5 of 5 pages INDONESIA - BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT (Millions US$ at current prices) Actual Estimate Projected Indicator balance OF PAYMENTS /a 1. Exports 10,861 11,353 17,494 22,245 22,994 19,385 18,193 22,270 25,344 48,180 (a) Oil & LNG (gross) 7,354 7,374 11,323 16,661 18,824 15,631 13,893 16,979 19,004 31,759 (b) Nonoil 3,507 3,979 6,171 5,584 4,170 3,754 4,300 5,291 6,340 16, Imports (including net NFS) -10,686-11,493-14,035-18,649-22,096-22,900-21,472-22,558-23,740-39,850 (a) Oil sector -2,909-3,364-4,348-5,884-5,407-5,468-4,617-4,451-4,467-7,001 (b) Nonoil imports -7,241-7,543-9,028-11,790-14,022-14,803-14,388-15,584-17,029-30,155 (c) NFS (net) ,667-2,629-2,467-2,523-2,244-2, Resource balance ,459 3, ,516-3, ,604 8, Factor services ,015-1,261-1,205-3,267-3,772-4,151-5,004-5,910-10,245 (a) Interest public debt ,118-1,319-1,617-1,953-3,036 (b) Other (net) ,427-2,654-2,832-3,387-3,957-7, Capital grants Balance on current account ,109 2,250 2,467-2,302-7,188-7,530-5,395-4,605-1, Direct foreign investment , Public M & LT loans (a) Disbursement 1,956 2,205 1,865 2,536 3,203 5,180 5,920 6,684 6,673 7,091 (b) Amortization ,548-1, ,001-1,376-1,770-2,042-2,440-5,120 (c) Net disbursements 1, ,583 2,202 3,803 4,200 4,642 4,233 1, Other capital (net) ,261-1,454-1, , Change in reserves (- increase) ,690-2, , , Net official reserves 2,208 2,916 4,606 7,342 6,354 4,120 3,390 3,445 3,871 8,775 Reserves in months of nonoil imports + NFS Memorandum Item Net foreign assets of the banking system /b - - 6,906 10,787 11,154 7,420 5,390 5,445 5,871 10,775 Total reserves in months of nonoil imports + NFS EXTERNAL CAPITAL AND DEBT /c Gross Disbursements 1,956 2,205 1,865 2,536 2,356 Concessional Loans Bilateral M i *9 7 TT *72-V IDA Other Nonconcessional Loans 1,514 1,721 1,432 1,858 1,552 Official export credits IBRD Other multilateral Private - source 1,089 1,270 1,126 1,450 1,206 External Debt (fixed-term) Debt outstanding & disbursed. /d 11,658 13,107 13,233 14,882 15,529 Official - source 7,077 8,390 8,434 9,400 9,746 Private - source 4,583 4,717 4,799 5,482 5,783 Undisbursed debt 4,475 5,839 7,932 9,454 11,288 Debt Service Total service payments 1,262 2,062 2,101 1,772 1,974 Interest Payments as % exports /e Average Interest Rate on New Loans (Z) Official - source Private - source Average Maturity of New Loans (Years) Official - source Private - source As B of debt outstanding at end of 1981 Maturity structure of debt outstanding Maturities due within 5 years 30.9 Maturities due within 10 years 60.2 Interest structure of debt outstanding Interest due within first year 4.1 /a On an April-to-March fiscal year basis. lb Includes foreign assets of deposit money banks in addition to official reserves. 7T Excludes private nonguaranteed loans. East Asia and Pacific Programs 7d At end of period. March 31, 1983 /e Oil exports treated on gross basis.

37 ANNEX II Page 1 of 29 pages THE STATUS OF BANK GROUP OPERATIONS IN INDONESIA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of February 28, 1983) US$ million Loan/ Amount Credit Fiscal (less cancellations) Number Year Purpose Bank IDA Undisbursed Twelve Loans and thirty-five Credits fully disbursed Smallholder and Private Estate Tea Pulo Gadung Industrial Estate Bali Tourism Sixth Irrigation Agricultural Research & Extension National Resource Survey & Mapping Fourth Highway Fourth Education Second Shipping National Food Crops Extension Seventh Irrigation Transmigration and Rural Development Second Urban Development Tanjung Priok Port Sixth Pbwer Nutrition Development Teacher Training-Fifth Education Eighth Irrigation Ninth Irrigation Second Pbpulation NonrFormal Education Nucleus Estates and S&allholders I Seventh Power Small Enterprise Development Tenth Irrigation Eleventh Irrigation Rural Credit Nucleus Estates & Smallholders II Polytechnic Twelfth Irrigation Third Urban Development Fifth Technical Assistance Lower Cimanuk Basin Flood Control Second Agricultural Training Fifth Highway Fourth BAPINDO

38 ANNEX II Page 2 of 29 pages US$ million Lo an/ Amount Credit Fiscal (less cancellations) Number Year Purpose Bank IDA Undisbursed Transmigration II Transmigration II Eighth Power Second Water Supply Yogyakarta Rural Development Nucleus Estates & Snallholders III Smallholder Rubber Development Fifteenth Irrigation National Agriculture Extension II Fourteenth Irrigation Nucleus Estates & Snallholders IV National Agricultural Research National Agricultural Research Third Population Ninth Power Smallholder Coconut Development University Development Tenth Power Swamp Reclamation Fourth Urban Development Nucleus Estate and Smallholder V Second Snall Enterprise Development Jakarta-Cikampek Highway Eleventh Power Second Seeds Bukit Asam Coal Mining Development & Transport Rural Roads Development Second Teacher Training Second Textbook Sixteenth Irrigation Seventeenth Irrigation National Fertilizer Distribution Nucleus Est. & Snallholders VI Coal Exploration Engineering Central Java Pulp & Paper Twelfth Power / Nucleus Estates & gnallholders VII / Provincial Health / Jakarta Sewerage & Sanitation / /I Not yet effective.

39 ANNEX II Page 3 of 29 pages US$ million Lo an/ Amnount Credit Fiscal (less cancellations) Number Year Purpose Bank IDA Undisbursed Total Bank loans and IDA credits 5, Of which has been repaid Total now outstanding 4, Amount sold to third party Amount repaid by third party Total now held by Bank and IDA /a 4, Total undisbursed 3, , /a Prior to exchange adjustment.

40 ANNEX II Page 4 of 29 pages B. STATEMENT OF IFC INVESTMENTS (as of February 28, 1983) Fiscal Type of Loan Equity Total year Obligor business ---- million) i(us$ 1971 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. Hotel 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 P.T. Saseka Celora Leasing Capital Market Total gross commitments Less: sold or repaid and cancelled Total held by IFC Undisbursed (including participant's portion)

41 ANNEX II Page 5 of 29 pages C. STATUS OF PROJECTS IN EXECUTION /1 As of March 31, 1983 These notes are arranged by sectors in the following order: Page No. Agriculture Irrigation (1100, 1268, 1434, 1435, 1578, , 1645, 1691, 1811, 995, 1958, 2118 and 2119) Other Agricultural Projects (1707/919, 1499, 1604, 1751, 1835, , 2126, 2232, 984, and 1898) Agriculture Support Services (996, 1840/1014 and 2066) 14 Rural Development (946) 15 Agro-Business and Credit (785, 827 and 2011) Education (869, 1237, 1433, 1486, 1692, 1904, 2101 and 2102) Energy (1365, 1513, 1708, 1872, 1950, 2056, 2079, 2153, and 2214) Industrial Development and Finance Industry (2199) 22 Development Finance Companies (1703) 22 Population and Health Population (1472 and 1869) 23 Health (2235) 23 Technical Assistance (898 and 1197) 24 Transportation Fertilizer Distribution (2120) 24 Highways (1696, 2049 and 2083) Marine Transport (1250) 26 Ports (1337) 26 Tourism (479) 27 Urban Development (1336, 1653 and 1972) Water Supply and Sanitation (1709 and 2236) /1 These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.

42 ANNEX II Page 6 of 29 pages C. PROJECTS IN EXECUTION AGRICULTURE Irrigation Loan No Sixth Irrigation: $65 Million Loan of April 10, 1975; Effective Date: June 20, 1975; Closing Date: June 30, 1984 The project is currently expected to be completed by March 1984, about two years behind the original completion date. This is mainly due to delays in the completion of bidding documents and land acquisition, delayed payments to contractors and the effects of the 1978 Rupiah devaluation. Another year-s delay has been added lately by the postponement of drainage works in both Rentang and Cirebon subprojects due to budget constraints. Disbursements at the end of February 1983 were about 89% of the appraisal estimate. Because of the continuing delays the Closing Date has been postponed by two years. Loan No Seventh Irrigation: $33 Million Loan of June 4, 1976; Effective Date: September 21, 1976; Closing Date: December 31, 1983 The main components of the project are tertiary development on an area of 100,000 ha served by irrigation systems rehabilitated under previous projects and the construction of 6,000 ha of a new irrigation system in the Sadang area of South Sulawesi. The construction of tertiaries has progressed well and gained such a momentum that the scope of work was increased to 115,000 ha. About 111,000 ha have been completed and the balance was expected to be completed by early The construction of North Sadang has suffered a delay of about four years due to design revisions and late award of contracts. Completion of the project is expected by March Disbursements at the end of February 1983 were about 80% of appraisal estimate. Loan No Eighth Irrigation: $63 Million Loan of June 6, 1977; Effective Date: July 7, 1977; Closing Date: March 31, 1984 The main components of the project are rehabilitation of the Madiun Irrigation System (Stage I) serving an area of about 75,000 ha, including 30,000 ha of tertiary development, a pilot ground water scheme for 2,800 ha in the Madiun-Solo area and the improvement of flood control, drainage and road networks on 5,700 ha of coastal land in Ciujung. All of the stage I area (75,000 ha) has been completed. Only the drainage works and road improvement in both the Ciujung and Madiun subprojects are expected to be delayed due to budget constraints and lack of experienced staffing. GOI has mobilized additional engineers and foreign consultants for construction supervision

43 ANNEX II Page 7 of 29 pages at Ciujung and has tapped additional sources of funds to keep the Madiun works on schedule. Disbursements at the end of February 1983 were 51% of the appraisal estimate. Loan No Ninth Irrigation: $35 Million Loan of June 6, 1977; Effective Date: July 7, 1977; Closing Date: December 31, The project includes (a) rehabilitation of 8,000 ha of irrigation system, drainage rehabilitation on 19,000 ha of the Sedeku area in Central Java; (b) new irrigation pumping system on 3,280 ha at Sungai Dareh-Sitiung (Stage I) in West Sumatra for transmigrants; and (c) feasibility studies of ten small to medium irrigation projects and of the Sungai Darel-Sitiung (Stage II), with detailed designs. Delay in completion of the Sedeku irrigation drainage rehabilitation by about three years continues, compared to appraisal estimate. The Sungai Dareh-Sitiung (Stage I) construction has progressed well. Pumps were commissioned and trial runs made. The main and secondary canals are completed, the tertiary network is 95% completed. Land clearing and levelling is progressing satisfactorily and is about 60% accomplished. Feasibility studies of ten small to medium irrigation systems have been completed. One of these schemes is now under execution with cofinancing from the Federal Republic of Germany (KfW) assistance while detailed design of another (about 29,000 ha) is being financed under Irrigation XVII (Loan 2119-IND). Detailed design of Sungai Dareh Sitiung Stage II (about 8,800 ha) has been completed and its construction is being financed under Irrigation XVI (Loan 2118-IND). Disbursements at the end of February 1983 were about 87% of appraisal estimate. Loan No Tenth Irrigation: $140 Million Loan of June 6, 1978; Effective Date: August 16, 1978; Closing Date: December 31, The project includes: (a) rehabilitation and improvement of about 34,700 ha of Kali Progo irrigation system; (b) improvement of about 19,900 ha of Way Seputih; (c) improvement and expansion of about 63,100 ha of Way Sekampung irrigation projects; (d) studies and detailed designs of two dams associated with (b) and (c) above; (e) studies of Dumoga and Gumbasa irrigation projects; and (f) consulting services for the above and also studies of two dams in the Kali Progo project area and extension of irrigation to Bekri, West Rumbia, Way Kandis and Way Ketibung in Lampung Province. Due to initial delays in survey and mapping of the Way Seputih/ Way Sekampung irrigation service areas, delay in deciding canal capacities till completion of the dam studies and staff shortage during the years 1979 and 1980, implementation is behind schedule by about two years. However, the field surveys and the dam studies have now been completed and the staffing situation has improved. Consultants have made substantial progress on the preparation of designs and tender documents for the project. Due to the GOI decision to defer construction of the Batutegi dam for 3 to 4 years, the scope of the project has been revised. Disbursements are currently

44 ANNEX II Page 8 of 29 pages about 35% of appraisal estimate. Studies of Dumoga irrigation project were completed and implementation of its works included in Irrigation XV (Cr. 995-IND). Loan No Eleventh Irrigation: $31 Million Loan of June 6, 1978; Effective Date: August 16, 1978; Closing Date: December 31, The main part of this project, the Cipamingkis irrigation subproject is progressing well. This will serve an area of about 7,600 ha. Its headworks with intake structure are completed while contracts for main and secondary canals will be completed only a little behind schedule. Tertiary design and construction are behind schedule but the project is currently estimated to be completed by June 1984, a delay of 7.8 months as compared to appraisal estimate. Feasibility studies including detailed designs of a new Glapan barrage and mid-lusi river diversion irrigation system are underway. These replace the preconstruction work previously planned for the Jragung dam, which is now being deferred. The Hydrological measurement program is expected to be completed with a delay of about 18 months and will be completed in early Disbursements -were about 58% of the appraisal estimate at the end of February Loan No Twelfth Irrigation: $77 Million Loan of December 29, Effective Date: May 10, 1979; Closing Date: March 31, The project includes: tertiary development on about 186,000 ha of the Jatiluhur Irrigation System, W. Java; drainage improvement in the Cisedane irrigation area including upgrading of roads in W. Java; and studies of drainage and flood control in Pemali-Comal and Sadang irrigation areas; tidal and swamp lands development for about 350,000 ha in the Lalang and Mesuji areas of S. Sumatra, and the Sebangau area in Kalimantan; and detailed designs for reclamation of about 110,000 ha of swamp land in Karang Agung of S. Sumatra. The area of tertiary development has been increased to 205,800 ha. All the civil works contracts of Cisedane drainage and roads improvement are awarded, currently estimated to be completed by March 1985, a delay of a year over appraisal estimate. All studies are completed. Disbursements at the end of February 1983 were about 42% of the appraisal estimate. Loan No Lower Cimanuk Basin Flood Control: $50 Million Loan of May 7, 1979; Effective Date: October 16, 1979; Closing Date: March 31, The main components of the project are flood protection levees, bank stabilization and river training works on the lower Cimanuk river, widening of the Rambatan Channel and construction of a hydraulic control structure at Bangkir, the Cimanuk river estuary study and the flood control operating and flood forecasting study. Good progress has been made on the

45 ANNEX II Page 9 of 29 pages civil works and various studies. Civil works are expected to be completed by mid Disbursements at the end of February 1983 were about 43% of the appraisal estimate. Loan No Fourteenth Irrigation: $116 Million Loan of April 3s 1980; Effective Date: July 3, 1980; Closing Date: January 31, 1986 The main components of the project are construction and rehabilitation of drainage and flood protection works on the Serang River to reduce flooding of some 61,000 ha of farm land, rehabilitation of the Madiun Irrigation System (Stage II) serving about a 65,000 ha area; and tertiary development serving a 120,000 ha area in the Pemali-Comal and Pekalen Sampean subprojects. Contracts for flood mitigation works for the Serang River have been awarded after one and a half year's delay because of weak management and slow land acquisition. Works in the Madiun area and the tertiary development are progressing well ahead of schedule. Disbursements at the end of February 1983 were about 52% of appraisal estimate. Credit No. 995 Fifteenth Irrigation: $45 Million Credit of April 3, 1980 Effective Date: July 3, 1980; Closing Date: January 31, 1985 The project includes: completion of the Kosinggolan Irrigation System on about 5,000 ha and construction of the new Toraut Irrigation system for 6,600 ha; catchment protection and establishing a nature reserve on an area of about 100,000 ha; institutional support through consultancy services and training; and studies and investigations of four irrigation systems. Construction of the Toraut headworks and the first 2 km of the main canal which commenced in January 1981 is progressing satisfactorily. Offices, staff houses, and a rest house at Menado have been completed. The award of two ICB contracts is behind schedule and project completion may be delayed to June 1985 (compared to mid-1984 in the appraisal estimate). With Bank agreement, GOI has expanded the nature reserve into a "Dumoga-Bone National Park" master plan covering an area of about 270,000 ha. Construction of the park headquarters building has commenced and is expected to be completed by June Four studies included in the project have been substantially concluded and some additional work was recently added. Institutional support programs will continue up to June Disbursements at the end of February 1983 were about 55% of appraisal estimate. Loan Nio Swamp Reclamation: $22 Million Loan of March 31, 1981; Effective Date: July 9, 1981; Closing Date: December 31, 1986 The project includes reclamation of 9,000 ha of Karang Agung swamp area in South Sumatra province, construction of canals, land clearance, construction of 3,200 settlers houses with community facilities for transmigrants from Java and Bali and studies for future swamp development, upgrading of existing swamp development area and ecological studies of swamp development. A civil works contract (ICB) for construction of canals, for

46 ANNEX II Page 10 of 29 pages about $4.5 million, was awarded on January 22, Consultants for construction supervision were assigned in April Efforts are being made to improve both the progress for the work as well as coordination between the implementing agencies. Loan No Sixteenth Irrigation: $37 Million Loan of April 5, 1982; Effective Date: August 9, 1982; Closing Date: December 31, The project will complete construction of the Sitiung Irrigation System (Stage II) in Sumatra to serve about 7,600 ha of transmigrant and local farmer lands; improvement of management information systems of the Directorate General of Water Resources Development (DGWRD); training and support for water users and their associations; expansion of DGWRD-s basic hydrological data network; and studies for development of the Cisanggarung River Basin and detailed design of the Jatigede. Dam. Loan No Seventeenth Irrigation (East Java Province): $70 Million Loan of April 5, 1982; Effective Date: December 14, 1982; Closing Date: December 31, This is the first irrigation project supported by the Bank to be concentrated in a single province and implemented through a provincial irrigation service. It will rehabilitate existing surface irrigation systems serving about 50,000 ha; develop groundwater irrigation systems to serve about 13,000 ha; upgrade operation and maintenance for about 140,000 ha of irrigation systems already rehabilitated; and strengthen the East Java Provincial Irrigation Service. Other Agricultural Projects Loan No Transmigration II: $90 Million Loan and $67 Million Credit (Cr. No. 919) June 1, 1979; Effective Date: October 4, 1979; Closing Date: December 31, 1985 Given shortages in available land, in June 1982, the settlement component was reduced from 30,000 families to 20,000 families and funds were reallocated for site selection and evaluation for the GOI transmigration program as a whole. Land has now been identified for about 16,000 families under this project. About 1,100 families have been settled and 2,400 additional families should be settled by mid Improved extension and support are required to ensure adequate food crop yields and a plan for the introduction of tree crops has been requested from the GOI. Disbursements as of February 1983 were 57% of appraisal estimates. Loan No Nucleus Estate and Smallholders I: $65 Million Loan of November 18, 1977; Effective Date: January 12, 1978; Closing Date: June 30, 1984 This is the first of a series now consisting of seven projects developing treecrops for smallholders, supported by Government Nucleus Estate

47 ANNEX II Page 11 of 29 pages Companies. Planting programs for 7,600 ha of rubber at Tebenan and for rehabilitation of 18,000 ha of estate rubber have been completed but development for smallholders at Alue Ie Merah (only 4,700 ha out of a 7,000 ha program completed) is well behind schedule. Three rubber factories and one palm oil mill have been constructed. Difficulties have occured in quality of rubber plantings, and currently with some trees now at maturity, attention needs to be given to improving tapping practice and rubber processing. Disbursements at December 31, 1982 were 62% of appraisal estimates and 92% of the latest revised estimate. Loan No Nucleus Estate and Smallholders II: $65 Million Loan of July 12, 1978; Effective Date: September 13, 197-8; Closing Date: December 31, 1983 After a slow start, this project has substantially speeded up its pace of implementation. New rubber planting for smallholders is now expected to be completed in March 1983 in Jambi (3,800 ha), one year ahead of schedule, and in 1983/84 in Riau (11,400 ha) on schedule. Following earlier problems, quality of plantings has improved. Rubber replanting at Riau (3,000 ha) should also be completed during 1983/84 but the replanting component at Jambi (4,500 ha) has not been successful. The 3,500 ha Nucleus Rubber Estate at Riau although currently behind schedule is expected to be completed in time. More attention needs to be given to development of smallholders food crops. An extension of closing date to December 31, 1985, will probably be needed to accommodate an alternative program to the replanting at Jambi. Disbursements at end of December 1982 were 33% of the appraisal estimate but are expected to improve in coming months. Loan No Nucleus Estate and Smallholders III: $99 Million Loan of August 13, 1979; Effective Date: November 12, 1979; Closing Date: December 31, 1986 All implementing agencies have made good progress. Although some components are slightly behind schedule, the overall project is on or slightly ahead of schedule. About 7,500 ha of rubber have been planted, half of which is for smallholders. About 420 settler houses are occupied and garden lots established. In 1982, one of the estates, PTP I, was upgraded to take over responsibility for completing the Alue Iemerah smallholder component under NES I (1499-IND). Disbursements at the end of December 1982 were about 53% of appraisal estimate, and 90% of the latest revised estimates. Loan No Nucleus Estate and Smallholders IV: $42 Million Loan of May 16, 1980: Effective Date: August 11, 1980; Closing Date: December 31, 1986 Smallholder oil palm planting is on schedule and of excellent quality. Village layout, settler house construction, and road development are a little behind schedule due to problems of land availability. However, these problems are being actively addressed by the implementing estate (PTP X) and the Project Coordinating Committee, and project completion is likely by target date. Disbursements at the end of December 1982 were about 53% of appraisal estimate, and 64% of latest revised estimates.

48 ANNEX II Page 12 of 29 pages Loan No Nucleus Estate and Smallholder V: $161 Million Loan of June 26, 1981; Effective Date: October 21, 1981; Closing date: June 30, 1988 The project would develop about 53,000 ha of tree crops (rubber, oil palm, coconuts), food crops and house gardens in West Java, West Kalimantan and Bengkulu provinces with public sector estates as implementing agents. The project has made a good start except that smallholder coconut development at Cimerak, West Java (3,000 ha) is behind schedule due to land use agreements needing to be finalized. The component to expand the Estates Training Institute at Yogyakarta and to add another campus at Medan is proceeding satisfactorily. Disbursements are ahead of appraisal estimates. Loan No Nucleus Estate and Smallholder VI: $68.1 Million Loan of April 23, 1982; Effective Date: July 23, 1982; Closing Date: June 30, 1988 The project will assist the GOI's nucleus estates and smallholders development program by establishing 28,200 ha of tree crops (rubber and coconuts), food crops and house gardens in West Java, Bengkulu and Maluku provinces with public sector estates as implementing agents. The project implementing agencies PNP XXVIII and PTP XII face problems regarding local cost financing of smallholder development, management problems and severe labor shortage problems in Seram. PTP XII has however completed a difficult 26 km main access road over a short period. PNP XXVIII's project implementation is seriously delayed by lack of experienced senior and middle management, technical and administrative staff, labor cooperation and coordination with local government. GOI has been requested to urgently review this situation with a view to strengthening management, relieve the labor constraint and improve local government's commitment to the project. PTP XXIII has made an excellent effort to overcome the land acquisition problems. Cooperation with local government and the local population is good. Rubber planting commenced in 1982 and standards attained are satisfactory. Planning and training programs for technical and administrative staff are well in hand and no serious problems are foreseen. Loan No Nucleus Estate and Smallholders VII: $154.6 Million Loan of February 18, 1983, Effective Date: February 18, 1983; Closing Date: June 30, 1989 The project would assist the GOI's nucleus estates and smallholders (NES) development program by establishing about 59,000 ha of tree crops (rubber and oil palm), food crops and house gardens in East and West Kalimantan and South Sulawesi provinces. It would also support the institutional strengthening of the Directorate General of Estates and other agencies associated with tree crop development, marketing programs for smallholders, and provide funds for start-up activities of future NES projects.

49 ANNEX II Page 13 of 29 pages Credit No. 984 Smallholder Rubber Development: $45 Million Credit of April 3, 1980; Effective Date: May 23, 1980; Closing Date: March 31, 1986 Project implementation continues in a generally satisfactory manner with 17,300 ha of rubber planting (9% of appraisal target to that date) undertaken by the end of December At that time, disbursements had reached $9.8 million (85%) against an estimated $11.5 million. Although the project currently faces no major problems, continuing tardy GOI budget releases could soon become a critical factor. In order to ensure effective continuing operations, project management is to strengthen Project Management Units in some areas, undertake timely recruitment and training of staff at all levels and produce appropriate training and extension manuals. Bank Rakyat Indonesia and Agraria have been requested to play a more active role in the land titling and loan conversion process. Revised versions of four studies under the project are now available and preparation of the proposed Second Smallholder Rubber Development Project is nearing completion. Loan No Smallholder Coconut Development: $46 Million Loan of August 25, 1980; Effective Date: November 25, 1980; Closing Date: June 30, 1986 Although the planting programs of tall and hybrid coconuts under the project seem reasonably on target, the results being achieved are generally not satisfactory. Problems relate to shortcoming in project management at Head Office, Provincial Offices (POs) and Coconut Working Centers (CWCs) regarding the selection of suitable planting areas and participating smallholders, technical control and supervision of planting and maintenance standards, timely supply of seednuts and of essential inputs, and slow release of project funds, and thus a slow rate of withdrawal application and disbursements. At end-december 1982, 8,102 ha of hybrid coconuts (89% of appraisal target to that date) and 7,770 ha of tall coconuts (155% of appraisal target) had been planted while rehabilitation of 5,050 ha of tall coconuts (74% of appraisal target) had been undertaken. An in-depth review is being undertaken by the Resident Mission to ascertain progress already made by GOI in overcoming management and technical shortcomings at Head Office, Provincial Offices and Coconut Working Centers, and to pinpoint any necessary additional measures. To improve control of field operations, some restructuring of management is required as well as reduction and rationalization of the project area. GOI agrees in principle with these recommendations. Disbursements had reached $4.2 million (47%) against an estimated $9.0 million.

50 ANNEX II Page 14 of 29 pages Agriculture Support Services Credit No. 996 Second National Agricultural Extension: $42 Million Credit of April 3, 1980; Effective Date: July 3, 1980; Closing Date: March 31, 1986 Good progress continues to be made with the construction program and the bulk of the Rural Extension Centers programmed under the project are expected to be completed in Staff recruitment has improved overall but there are still shortages in some Provinces and the problem of shortage of motor cycles for field staff continues. Active steps are being taken to improve extension in non-rice crops. Interest in working towards a unified extension service continues to be promoted. The project is making satisfactory progress. Loan No National Agricultural Research: $35 Million Ioan and $30 (Cr. No. 1014) Million Credit of May 16, 1980; Effective Date: July 16, 1980; Closing Date: June 30, 1990 The project is the second phase in the strengthening of the overall institutional framework of the Agency for Agricultural Research and Development (AARD) for agricultural research in fruits, lowland vegetables, livestock, fisheries, forestry and estate crops other than rubber and industrial crops. The Project Implementation Unit (PIU) is functioning efficiently. Steady progress being made in civil works program although there are indications that this may slow down due to budgetary constraints. The fellowship program has fallen behind schedule but is likely to gain momentum following the production of a Manpower Development Plan which is nearing finalization. The project is progressing satisfactorily. Loan No Second Seeds : $15 Million Loan of January 15, 1982; Effective Date: March 11, 1982; Closing Date: June 30, 1989 This project provides for: establishment of 18 medium Seed Processing Centers (SPCs) for the National Seed Corporation, P. T. Pertani and Cooperatives; six small SPCs for Cooperatives; additional equipment and facilities for five Food Crops Research Institutes (FCRIs), Provincial Seed Farms and Seed Control and Certification Services; establishment of a diploma course on seed technology at the Bogor Agricultural Institute; and in-service training, technical assistance and studies for strengthening the institutions operating in the seed subsector. Project implementation has started slowly because the project implementing agencies are still reviewing administrative and working procedures. Preparation of tender documents for the procurement of equipment for seed is in hand. Participating agencies show willingness to cooperate and project implementation is expected to pick-up shortly.

51 ANNEX II Page 15 of 29 pages Rural Development Credit No. 946 Yogyakarta Rural Development: $12 Million Credit of August 13, 1979; Effective Date: December 5, 1979; Closing Date: March 31, 1987 The improving trend in overall project performance has continued. Activity targets are now being substantially met with the exception of the Small Scale Industries (SSI) and Village Health Components. The SSI is being vigorously monitored by the new Provincial Inspector for Industries especially with respect to technical assistance which is designed to complement the SSI credit program. The School Health Program is progressing well and is now being complemented by the Village Yader Health program. Severe drought has delayed the Water Supplies construction due to shortage of water. The rigidity of GOI procurement regulations which do not permit forward purchase of cement also contribute to the delay in construction of tanks. The Roads Program is close to target achievement although high costs are still a cause for concern. AGRO-BUSINESS AND CREDIT Credit No. 785 Small Enterprise Development: $40 Million Credit of April 7, 1978; Effective Date: August 17, 1978; Closing Date: December 31, 1984 This project provides technical assistance to strengthen GOI's small credit programs, KIK/KMKP, and credit assistance to small-scale enterprises (SSEs) in West Sumatra and East and Central Java which account for about a third of countrywide KIK/kMKP loan approvals. Satisfactory experience with this first Bank-assisted pilot project has led to a nationwide SSE development project which is supported by the Second Small Enterprise Development Project (Loan 2011-IND). The credit component is fully disbursed, and the remaining balance of the technical assistance component amounting to $9.0 million is financing ongoing technical assistance under Loan 2011-IND (SEDP II). Credit No. 827 Rural Credit: $30 Million Credit of June 23, 1978; Effective Date: November 3, 1978; Closing Date: March 31, 1985 This project provides long-term credit to about 40,000 smallholders, primarily for fisheries, perennial crops and livestock, and technical assistance to Bank Rakyat Indonesia for program development, training in term lending, credit procedures and accounting and management information systems. Due primarily to delays in obtaining consultancy services, the project is about nine months behind schedule. Following extension of the project to cover additional provinces and commodities, it is rapidly catching up. The project has been very successful in achieving objectives.

52 ANNEX II Page 16 of 29 pages Loan Nb Second 9nall Enterprise Development: $106 Million Loan of June 26, 1981; Effective Date: October 16, 1981; Closing Date: December 31, 1984 From the three regions covered under SEDP I the project has expanded to cover all 27 regions in Indonesia where the Small Investment (KIK)/Snall Bermanent Working Capital Credit (KMKP) program is being implemented. The Bank-financed portion of the credit component of SEDP II was fully committed as of December 31, 1982, rapid expansion of lending under the project, however, seems to have been accompanied by a slight increase in arrears from 21% to 22% of outstanding loans. Bank Indonesia (BI) and handling banks are aware of this problem and have recently introduced a new reporting system to facilitate better collection and more up-to-date information. BI's progress in implementing the technical assistance components is also generally good, with the exception of the Regional Development Bank upgrading. This latter component is still beset with problems (lack of Regional Development Bank (RDB) counterpart staff, delays in obtaining operational data, weak consultant teams from BAPINDO). BI is evaluating consultant performance in the upgrading of RDBs. The Ministry of Industry has finally started implementing the Technical Services component with the recruitment of two consultants. As the entry of consultants was delayed, disbursement of loan proceeds is also delayed. EDUCATION Credit No. 869 Polytechnic: $49 Million Credit of December 29, 1978; Effective Date: May 11, 1979; Closing Date: June 30, 1985 The project objectives are to establish a new system for training engineering technicians, improve the quality of accountancy training and practices, and assist in strengthening education planning and management. The project would establish a Technician Education Development Center (TEDC), six polytechnics and four accountancy development centers and include technical assistance and associated studies. The project is making good progress and implementation is on schedule without a cost overrun. The TEDC building and four of the six polytechnics have been completed and construction of the remaining two is near completion. Equipment contracts for the TEDC and the six polytechnics have been awarded and over 70% of equipment ordered has been delivered. The expert services and fellowship programs are progressing satisfactorily. The accountancy component is also making good progress. Two of the five study contracts are still to be awarded. Operation has commenced in all six polytechnics since September 1982 but at 60% of full capacity. Disbursements at the end of February 1983 were over 100% of appraisal estimates. Loan No Fourth Education: $37 Million loan of April 15, 1976; Effective Date: June 17, 1976; Closing Date: June 30, 1984 The loan is helping to finance physical facilities and related technical assistance for: (a) two faculties of technology at existing

53 ANNEX II Page 17 of 29 pages teacher training colleges and four new centralized workshops for technical training for the Ministry of Education and Culture (MEC); (b) 17 new vocational training centers, an existing instructor training center and 25 mobile training units for the Ministry of Manpower (MOM); and (c) new premises for the National Institute of Administration (LAN), the country s principal civil service training institution. The completed MEC subproject is problemrfree and facilities are operating satisfactorily. The MOM subproject has made some progress but is about two and a half years behind schedule with a 16% cost overrun. Problems faced include poor equipment procurement management, shortage of funds, low utilization of completed facilities, poor quality of training (less than 50% of trainees placed in employment), and partial compliance on covenants. The LAN component has made no progress for three years and is now about three and a half years behind schedule, mainly due to the default of the civil works contractor for price escalation disputes with GOI. After retendering, a new contract has been approved recently and construction of the remaining unfinished portion of the building is expected to be completed by mid A second extension of the Closing Date to June 30, 1984 has been approved. Disbursements at the end of February 1983 were about 88% of appraisal estimate. Loan Nb Teacher Training: $19 Million Loan of June 6, 1977; Effective Date: July 7, 1977; Closing Date: June 30, 1983 The project is progressing satisfactorily. Approximately 88% of the civil works program has been completed. Phase I is complete and 90% of the construction in Phase II is finished. All furniture has been procured and installed; all equipment has either been procured and delivered, or contracts awarded and deliveries would be completed before closing date. Training courses for teachers and staff of SPGs and IKIPs have been completed. A total of 6,100 persons have been trained. Project costs at completion are expected to result in $2 million savings. Book procurement has been delayed due to ministerial procurement review procedures. This delay is expected to result in a need to extend the closing date by one year. Loan No Nonr-Formal Education: $15 Million loan of September 14, 1977; Effective Date: November 4, 1977; Closing Date: June 30, 1983 The project aims at strengthening the Department of Education's nonformal education programs in seven provinces. Financing would cover: civil works to renovate two existing and establish four new provincial centers, instructional equipment and vehicles, inr-service training, materials development, a basic learning fund, and related technical assistance. Construction of the six Balai PENMAS (directorates for out-of- school education) centers, has been completed. All furniture and equipment are already on site. About 90% of the staff training program is meeting appraisal targets and production and distribution of pretested learning materials is

54 ANNEX II Page 18 of 29 pages accelerating. The technical assistance program is on schedule; local staff have replaced foreign consultants. As of October 1982 estimated cumulative disbursements had reached a total of $10.1 million or 67% of appraisal estimates. Of the remaining loan funds it is estimated that US$5.45 million will be disbursed by June 30, 1983, the project closing date. Approximately $254,000 from unallocated category remains uncommitted. Loan ND Second Agricultural Training: $42 Million Loan of May 7, 1979; Effective Date: July 31, 1979; Closing Date: June 30, 1985 The project constitutes the second phase of GOI-s long-term strategy to improve the quality and supply of middle-level agricultural manpower. Good progress continues to be made. Disbursements at the end of February 1983 were 68% of the loan amount. The overall progress of the fellowships program has been good. The regular program and the short course program would be completed in December 1983 and the Ph.D. program at the University of Sam Hbuston, Texas, is expected to be completed in June Progress in achieving educational objectives is generally satisfactory. In December 1982 the Bank agreed to the GOI-s request to reallocate $4.2 million for preparatory studies and design work for the proposed Third Agricultural Training Project, and $2.8 million for improvement of Ketindam Inr-service Teacher Training Center (ISTC), additional boarding facilities at 17 existing ISTCs and upgrading the Ciawi ISTC. Loan No University Development: $45 Million Ioan of November 13, 1980; Effective Date: January 22, 1981; Closing Date- December 31, 1986 The project is the first phase of a long-term university development program. Its main objectives are to increase the output of high level manpower and improve the quality of university education in the fields of engineering, science, agriculture, and economics (including business administration and accountancy), as well as strengthen the management of the overall university system. The additional land required for the University of Gadjah Mada and the new site for the University of Andalas have been acquired. The campus master plan for the University of Indonesia (UI) has been completed and the Universities of Gadjah Mada and Andalas are expected to complete theirs by early The implementation of technical assistance provisions is about 22 months behind appraisal schedule. Pending the appointment of MUCIA to handle the fellowship program, the Directorate General of Higher Education has administered overseas fellowships, which as of December 31, 1982, totalled about 90 staff in. the UK, USA, Australia, Belgium, Thailand and the Philippines. Training of master trainers in University Management and textbook editors is in progress in the UK; domestic training in University Management is scheduled to start in April 1983 after the return of master trainers. Work is in progress for establishing a Management Information System in the DGHE and in each project university. Plans are being finalized for the policy study on student admissions. Disbursements as of December 1982 were 40% of the appraisal estimates.

55 ANNEX II Page 19 of 31 pages Loan Nb Second Teacher Training: $80 Million Loan of April 5, 1982; Effective Date: May 24, 1982; Closing Date: June 30, 1988 The project would (a) construct and equip 60 preservice primary primary teacher training schools (SPG) and 10 primary sports teacher training schools (SGO); (b) construct and equip 11 secondary teacher training colleges (IKIP); (c) improve and expand teacher training colleges for special education (SGPLB); (d) improve and expand inservice teacher training facilities (PPPG and BPG); and (e) establish a Center for Educational Administration (CEA). Loan ND Second Textbook: $25 Million Loan of April 5, 1982; Effective Date: June 14, 1982; Closing Date: June 30, 1987 The project will support the establishment of the Integrated Textbook Project (ITP), a permanent organization to plan and manage textbook development activities; a Center for Curriculun Development (CCD), which would develop improved curricula for primary and secondary schools, and an improved national distribution system for all textbooks for primary and secondary schools. The implementation of the project is progressing satisfactorily. The site of ITP/CCD office building has been acquired. Selection and acquisition of sites for regional warehouses and depots is in progress. Consulting architects and engineers have been appointed. Staff appointments at ITP are slightly behind schedule. Efforts are underway to implement a program of overseas training of staff contract managerial services for providing consultants and arranging foreign and local training programs. ENERGY Loan No Sixth Pbwer: $116 Million Loan of February 4, 1977; Effective Date: June 6, 1977; Closing Date: June 30, 1983 Construction work on the project has reached its final stage. The 200 MW Unit No. 4 was synchronized on November 26, 1981 and has been in commercial operation since March Unit No. 5 went into commercial operation in August The associated studies have been completed. Loan No Seventh Pbwer: $109 Million Loan of February 3, 1978 ($15 million cancelled NDvember 30, 1980); Effective Date: June 30, 1978; Closing Date: December 31, 1983 All contracts were awarded at highly competitive costs with a substantial reduction in foreign costs and, therefore, $15 million of the original loan of $109 million has been cancelled. The Bank also agreed to the inclusion of the following additional studies in the scope of the

56 ANNEX II Page 20 of 29 pages project: (a) Sunda Strait submarine cable feasibility; (b) optimization of location of future thermal plants: (c) power sector management information system design. Construction work at the site has been delayed by about 21 months. Commercial operation of the 200 MW generating unit is expected early in Construction of the associated transmission lines is progressing satisfactorily. The feasibility study of the East Java coal-fired thermal power station site has been completed and a site has been selected. Contracts for the studies (a), (b) and (c) mentioned above have been signed, and work is progressing satisfactorily. Loan No Eighth Power: $175 Million Loan of June 1, 1979; Effective Date: November 5, 1979; Closing Date: December 31, 1984 The project encountered a number of problems and slipped nearly eleven months behind schedule by September However, progress since then has been satisfactory and the commissioning date for Unit No. 1 continues to be October Disbursements, though much lower than the appraisal estimates, are in line with the revised projections prepared in July The project cost is expected to remain within the appraisal estimate. Loan No Ninth Power: $253 Million Loan of June 13, 1980; Effective Date: October 24, 1980; Closing Date: September 30, 1985 This project is experiencing delays. However, the commissioning date of the second unit of Suralaya is now expected to be June 1985, i.e. six months behind schedule. The EHV project is delayed by almost one year due to delay in finalizing contract awards. All major contracts about months behind SAR schedule, have been awarded and construction work has commenced. The commissioning of the lines is currently scheduled in December Loan No Tenth Power: $250 Million Loan of March 6, 1981; Effective Date: April 23, 1981; Closing Date: June 30, 1987 All major contracts for construction and installation of generating equipment required for the Saguling hydroelectric project have been placed with an estimated saving in total project costs of about $99 million. Construction work started at the main dam site in August 1981, and encounr tered problems in regard to timely completion of diversion tunnels. However, the river diversion was accomplished in January The contruction program has been modified to ensure that original dam construction targets are met. Other project subcomponents are progressing with about 6 months delays.

57 ANNEX II Page 21 of 29 pages Loan No Eleventh Power: $170 Million Loan of November 16, 1981; Effective Date: April 15, 1982; Closing Date: June 30, 1986 Implementation of the project is proceeding on schedule. Conrtracts worth about $119 million have already been evaluated and approved by the Bank. PLN has already issued another invitation to bid for the balance of the distribution equipment estimated at $44 million. Loan No Bukit Asam Coal Mining Development and Transportation: $185 Million Loan of January 22, 1982; Effective Date: May 25, 1982; Closing Date: September 30, 1987 Project implementation has commenced. There are some delays in signing of main nine contracts. Out of a total of eight such contracts, five have already been signed and the remaining three are in final stages. The consultants' performance is satisfactory. Soil investigation and geological work is ongoing at the mine site. Although the turnkey contract for the Tarahan terminal was signed it is still not effective. The Tarahan Terminal remains on the project critical path and the best estimate is that the first coal can be shipped to Suralaya by April 1985 which implies an 8-month delay. During the initial start-up there were moderate problems in respect to project management and concerns arose with respect to the procedure for procurement of packages not financed by the Bank. These matters received close attention from the Bank missions and the issue has now been resolved. Indonesia's constrained budget situation is likely to result in a substantial shortfall of funds for this project in FY83/84 and discussions with GOI are underway to determine how project construction can be rephased without a substantial loss of anticipated benefits. Loan No Coal Exploration Engineering: $25 Million Loan of June 14, 1982; Effective Date: March 1, 1983; Closing Date: June 30, 1987 The project will evaluate coal reserves and assess the viability of specific coal deposits in South and West Sumatra and other promising areas in Indonesia. The project will be aimed at providing GOI and its agencies with a coal reserve inventory of its major coal bearing areas and feasibility/prefeasibility studies of attractive deposits, thus enabling it to establish investment priorities and define policies for its short, medium- and long-term strategy for coal production and coal use. Loan No Twelfth Power Project: $300 Million Loan of December 27, 1982; Effective Date: March 29, 1983; Closing Date: December 31, Implementation of the project is proceeding on schedule. Contracts valued at $36 million have already been approved by the Bank. PLN has already issued bid invitation for Kamojang 2 x 55 MW units and bids

58 ANNEX II Page 22 of 29 pages are due to open on May 2, PLN is planning to issue another bid invitation in May 1983 for the mini-hydro equipments. PLN has also issued bid invitations for Suralaya Unit 3 boiler and turbine generator and bids are due to open in June INDUSTRIAL DEVELOPMENT AND FINANCE Industry Loan No Central Java Pulp and Paper Engineering: $5.5 Million Loan of November 18, 1982; Effective Date: Not yet effective; Closing Date: September 30, 1984 The project would help finance the cost of: (i) basic engineering, procurement assistance including the preparation of tender documents, prequalification, and bid evaluation for the Central Java pulp and paper project; (ii) technical assistance in finalizing the wood supply arrangements for the Central Java project; (iii) training of the project staff; and (iv) a pulp and paper subsector study which would provide the basis for the restructuring of the industry. Development Finance Companies Loan No Fourth BAPINDO: $50 Million Loan of June 1, 1979; Effective Date: September 25, 1979; Closing Date: September 30, 1983 BAPINDO has made good progress in committing proceeds of the Bank loan and in implementing its General Improvement Program launched in Judged on the basis of annual growth in lending operations (147% in 1981 compared with 89% in 1980) it appears the effect of major changes in organizational structure has been positive, but there is still some scope for improvements in term lending procedures and staff capbility to appraise and supervise larger, more complex projects. Term lending in local and foreign currency reached Rp 559 billion ($800 million) in 1982 or 43% over Strong investment demand from the industrial sector in 1982 underlies this sharp expansion. Full disbursement by the closing date of September 1983 is expected.

59 ANNEX II Page 23 of 29 pages POPULATION AND HEALTH Population Loan No Second Population: $24.5 Million Loan of July 6, 1977; ($3.8 Million cancelled February 25, 1983); Effective Date: August 4, 1977; Closing Date: April 30, 1984 Progress on this project is generally satisfactory. About 90% of original project activities have been completed. The mobile service units provided under the project are making a significant contribution to the recruitment of contraceptive acceptors. Training and population education are substantially completed. The research components -the contraceptive raw materials study is about 90% complete, and the community incentive scheme is about 50% complete and both components should be satisfactorily completed before the revised closing date of April 30, As of February 1983, disbursements totalled $13.3 million, or 54%. Loan No Third Population: $35 Million Loan of June 13, 1980; Effective Date: September 10, 1980; Closing Date: March 31, 1985 Progress on this project improved significantly during the second half of 1982, largely due to increased attention to project implementation, particularly civil works components, by project management and the additional staff assigned especially to help expedite this work. Population education has made some encouraging progress, as funds have been released to the provinces for expenditure on teacher training activities and detailed guidelines for implementation of population education activities have been issued by NFPCB. Contracts for procurement of audio-visual equipment have been awarded. The training of nurses, midwives, traditional birth attendants and health center staff has proceeded on the agreed-upon schedule. Disbursements, however, do not yet reflect the noted upswing in project activities. Health Loan No Provincial Health; $27 Million Loan of February 18, 1983; Effective Date: Not yet effective; Closing Date: June 30, 1988 Substantial progress has been made in the initial implementation of the project. The FY83/84 project budget of US$10.5 million and work plan have been completed and approved by BAPPENAS. The sites for the first-year construction program are available and the architectural consultants have completed the preliminary drawings for two hospitals. Consultants (financed

60 ANNEX II Page 24 of 29 pages by USAID) are now assisting in curriculum development and the training of trainers in support of the project. Arrangements for the procurement of DDT have been initiated and malaria consultants have already been identified and their availability ascertained. TECHNICAL ASSISTANCE Credit No. 898 Fifth Technical Assistance: $10 Million Credit of May 7, 1979; Effective Date: September 5, 1979; Closing Date: March 31, 1984 There still remains an uncommitted balance of about $5.0 million under this credit. Potential studies to utilize the remaining balance have been identified and it is likely that the closing date for the credit will be postponed. Loan No National Resource Survey and Mapping: $13 Million Loan of February 5, 1976; Effective Date: April 2, 1976; Closing Date: December 31, 1983 The National Coordinating Agency for Surveys and Mapping (BAKOSURTANAL) complex at Cibinong is completed, and most of the cartographic photographic processing, including color photo processing equipment and printing equipment required to produce maps, are installed. Computer equipment for resource analysis including a topographic data bank and flatbed plotter has been installed. Various resource evaluation activities have been undertaken using these facilities. Recruitment and training of new staff, particularly at junior and middle level has recently been accelerated. The new photography operation financed under the parallel Canadian Project was delayed as a result of which the Bank agreed to extend the Closing Date until December 31, The photography operation started in July 1981 is expected to be completed by the new Closing Date. Fertilizer Distribution TRANSPORTATION Loan No National Fertilizer Distribution: $66 Million Loan of April 5, 1982; Effective Date: September 27, 1982; Closing Date: June 30, 1986 This project will increase agricultural production in Indonesia by substantially expanding the capacity to distribute fertilizer to farmers. Funds are also provided for preparation of future maritime transport projects, including master plans and detailed engineering for several ports. The project experienced delays in its start up phase. In particular, one of

61 ANNEX II Page 25 of 29 pages the conditions for loan effectiveness was fulfilled with considerable delay, thus delaying project implementation by six months. However, PUSRI has taken steps to expedite project implementation although an extension of project completion by six months is likely. Total project costs are estimated to increase by about 10%-15%. Highways Loan No Fifth Highway: $130 Million Loan of June 1, 1979 ($6.8 Million cancelled June 30, 1981); Effective Date: August 28, 1979; Closing Date: December 31, 1984 Project implementation, which started nearly three years ago, is still behind schedule. The project is about 40% completed compared to 75% scheduled. The causes for delay are: (a) the ambitious project objectives, which translate into programrtype components and numerous consultancies; (b) organization and management problems in the provincial highway agencies; and (c) new development guidelines of the GOI under Repelita III emphasizing the spread of investments over a larger number of projects with reduced standards. However, work is now underway on nearly all project components, and there is still a reasonable chance of completing the project with a total delay of about one year. The Provincial Departments of Public Works programs of support works were started in January 1982 with mobilization of consultants, and after road maintenance equipment had been ordered. $6.8 million of the loan has been cancelled due to misprocurement of road maintenance equipment. Loan No Jakarta-Cikampek Highway: $85 million Loan of October 9, 1981; Effective Date: February 9, 1982; Closing Date: December 31, 1987 The project will increase road capacity between Jakarta and Cikampek (about 70 km to the east) by construction of a new toll road and by improvements to the existing highway. Consultants have been selected for construction supervision, and contract negotiations have been concluded. Bid opening for the four sections of road works took place in late May 1982, somewhat behind schedule. The project is about 3 months behind schedule. Consequently, disbursements are likely to fall behind estimated disbursement schedule, at least during the first one or two years.

62 ANNEX II Page 26 of 29 pages Loan No Rural Roads Development: $100 Million Loan of January 22, 1982; Effective Date: August 11, Closing Date: December 31, 1986 The project will improve rural road infrastructure in selected provinces by strengthening the capacity of the district public works agencies, implementing an expanded program of rural roads works, and supporting a rural road development program for a three-year period in five Indonesian provinces. The project also contains components for training and technical assistance. Construction of some workshops has begun. Contracts for all works equipment have been awarded. Progress under the project is hampered by inadequate organizational arrangements and shortages of qualified staff. Consequently disbursements have fallen behind appraisal estimates. The next supervision mission will review with GOI actions required to improve the rate of progress. Marine Transport Loan No Second Shipping: $54 Million Loan of May 20, 1976; Effective Date: October 8, 1976; Closing Date: June 30, 1983 The project is part of the first phase of the Government-s Inter- Island Fleet Development Program and is designed to modernize, expand and improve the efficiency of the inter-island fleet. All funds for ship procurement ($48.0 million) have been disbursed and the balance of funds for technical assistance ($6.0 million) have been disbursed or allocated. It is expected that all funds will be disbursed by loan closing date. The project is essentially completed. Ports Loan No Tanjung Priok Port: $32 Million Loan of November 4, 1976; Effective Date: March 3, 1977; Closing Date: June 30, 1983 All civil works under the project have been successfully completed. All of the equipment has been procured and installed and is fully operational. As a result of the investments under the project, Tanjung Priok Port's performance has improved dramatically. Technical assistance, amounting to $4.7 million is being used to finance consultant services for preparation of the proposed Maritime Sector Development Program. The loan is expected to close by June 30, 1983.

63 ANNEX II Page 27 of 29 pages TOURISM Credit No. 479 Bali Tourism: $16 Million Credit of June 14, 1974; ($1.4 million cancelled October 31, 1982); Effective Date: December 4, 1974; Closing Date: December 31, 1983 Infrastructure work at Nusa Dua has been substantially completed. The access road to Nusa Dtia from the airport and the Denpassar bypass road were completed and opened for traffic in December The hotel training school was completed in July 1979 and has been in operation since then. The construction of a first hotel (450 rooms) by Garuda at Nusa Dua is progressing well with first phase completed in December Negotiations have been concluded with Club Med for a hotel investment with the Bali Tourism Development Corporation (BTDC) equity participation of $0.4 million. Out of the total credit of $16.0 million, $1.4 million has been cancelled but disbursements will continue up to December 31, 1983 against BTDC commitment of $0.4 million for Club Med. URBAN DEVELOPMENT Loan No Second Urban Development: $52.5 Million Loan of November 4, 1976; Effective Date: March 28, 1977; Closing Date: June 30, 1983 The project aims at providing basic infrastructural facilities including footpaths, drainage, water supply and human waste disposal to about 3,000 ha of densely populated slum areas (kampungs) in Jakarta and 374 ha in Surabaya. The physical program has been completed with a coverage of about 3,434 ha kampungs in Jakarta and 441 ha in Surabaya. Supplementary technical assistance studies related to future project preparation are currently in progress. Loan No Third Urban Development: $54 Million loan of January 31, 1979; Effective Date: September 26, 1979; Closing Date: December 31, 1984 The project extends the slum (kampung) improvement programs (KIP) under the Second Urban Development Project (Loan 1336-IND) in the cities of Jakarta (750 ha) and Surabaya (580 ha), and also provides for similar basic infrastructural facilities in three additional cities -- Ujung Pandang (375 ha), Semarang (310 ha) and Surakarta (170 ha) -- with the KIP coverage in each city ranging between 15 to 37% of total kampung areas to be upgraded. Also included in the project is a comprehenpive solid waste management program (SWIP) in Jakarta, and Surabaya and macro-drainage improvements in Surabaya. The KIP component is nearing completion in all cities with its actual coverage exceeding the target levels in Jakarta and Surabaya. SWIP

64 ANNEX II Page 28 of 29 pages implementation is progressing well in Surabaya but has just started in Jakarta due to earlier start-up delays in pilot testing. The Surabaya drainage component which was beset with land acquisition problems (for canal dredging schemes) is now progressing satisfactorily. The overall project is expected to be implemented within the appraisal projected date of December 31, Disbursements at the end of March 1983 were about 65% of appraisal estimate. Loan No Fourth Urban Development: $43 Million Loan of May 8, 1981; Effective Date: September 9, 1981; Closing Date: September 30, The project further expands Bank's assistance to GOI's slum improvement programs (KIP) under the earlier urban projects to six nationwide provincial capital cities with a total target KIP area of 2,000 ha and with a coverage in each city representing about 15% to 33% of total KIP area to be upgraded. Sites and sevices schemes, aimed at providing affordable core housing units to the low-income population, will be developed for a total of about 11,000 plots in some six to seven cities. Sectoral programs comprising solid waste improvement and improved water supply, are also included in one of the project cities. A national urban mapping program covering 125 cities will be undertaken providing base data for future city planning, land registration and valuation programs. The development of the housing and mortgage financing institutions is a prominent feature of the project. Technical assistance for project management, training and feasibility studies to various urban authorities and agencies will be provided. The sites and services program is proceeding satifactorily. The start-up delays in the implementation of the KIP programs have been overcome and the progress of these programs has significantly improved with the consultants appointments. All technical assistance programs are proceeding satisfactorily. Disbursements at the end of March 1983 were about 33% of appraisal estimate. WATER SUPPLY AND SANITATION Loan No Second Water Supply: $36 Million Loan of June 1, 1979; Effective Date: February 29, 1980; Closing Date: December 31, 1984 The project expands and improves existing water supply and distribution systems in the cities of Tangerang and Surabaya (both in Java), Jember (Sumatra), Pare-Pare (Sulawesi) and Ambon (Moluku), and provides for the construction of new systems in Klaten and Purwakarta (both in Java). The total increase in raw water yield in the cities as a result of the project is projected at 1,770 lit/sec and the total installation of transmission and distribution mains will amount to about 375 kms with house

65 ANNEX II Page 29 of 29 pages connections targetted at a total of 40,000 in the project cities. The project is also aimed at establishing water enterprises (WEs) in the project cities and strengthening the skills of WE's staff, as well as the Cipta Karya (Housing and Urban Development) staff, in the areas of administration, financial and operational performance of the enterprises. After considerable delays (up to 18 months) the award of most of the International Competitive Bidding procurement contracts for the supply of pipes and materials is now complete and deliveries are in progress. The construction of the civil works in the project cities is also underway. The organizational and management training for the WEs has been underway since September 1981 and is proceeding satisfactorily. Disbursements at the end of March 1983 were about 28% of appraisal estimate. Loan No Jakarta Sewerage and Sanitation; $22.4 Million Loan of February 18, 1983; Effective Date: Not yet effective: Closing Date: March 31, The project is the first step in developing a sewerage system in Jakarta and complements the public health measures carried out under previous Bank-assisted urban development projects. Its principal objectives are to (a) improve environmental conditions and public health, (b) establish an institution and sound financial policies for the operation and management of the Jakarta sewerage system and (c) demonstrate the feasibility of appropriate low-cost technologies. The project covers sewerage and sanitation improvements including (a) a basic water-borne sewerage system; (b) drainage improvements; (c) sanitation improvements; (d) staff training and fellowships; and (e) consulting services for project implementation and for technical institutional and financial studies and the preparation of future projects. Steps have been taken to establish the appropriate institutional arrangements for project implementation, terms of reference for the engagement of consultants have been agreed, and steps have been taken for procurement by ICB of pipes.

66 ANNEX III INDONESIA FIFTH BAPINDO PROJECT Supplementary Data Sheet Section I: Timetable of Key Events (a) Time taken to prepare the project: 8 months (b) Project prepared by : BAPINDO and GOI (c) First presented to the Bank : June 1982 (d) Departure of Appraisal Mission : July 1982 (e) Completion of negotiations : March 1983 (f) Planned date of effectiveness : July 1983 Section II: Special Bank Implementation Actions None. Section III: Special Conditions (a) GOI to provide necessary funds to support BAPINDO's projected operations for on terms and conditions which would enable BAPINDO to maintain an adequate level of profitability (para. 62). (b) BAPINDO to amend its Policy Statement and Development Strategy Statement only in agreement with the Bank (para. 64). (c) GOI to make the required equity contribution to BAPINDO to maintain a debt/equity ratio within 6:1 (para. 68). (d) GOI to ensure individual contracts (except those on used ships) of more than $5 million to be financed under the proposed loan be awarded after international competitive bidding (para. 69).

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