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Do_umnt hOf
The World Bank
pOR oMcIL USE ONLY
Rkpd N&o P-4U11-IND
. REPORT AND RECOMMENDATION
OF THE
PRESIDENT OF THE
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TO THE
EXECUTIVE DIRECTORS
ON A PROPOSED LOAN
IN AN AMOUNT EQUIVALENT TO USt93 MILLION
To THE REPUBLIC OF INDONESIA
FOR A
SCIENCE AND TECHNOLOGY TRAINING PROJECT
June 13, 1985
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CURRENCY EQUIVALENTS
Currency Unit = Indonesian Rupiah (Rp)
Rp 1,100 = US$1.00Rp 1 million = US$909
GOVERNMENT OF INDONESIA FISCAL YEAR
April 1 - March 31
ACADEMIC YEAR
July 1 - June 30
ABBREVIATIONS AND ACRONYMSI
BAPPENAS - Badan Perencanaan Pembangunan Nasional
(NationalDevelopment Planning Agency)
DGHE - Directorate General of Higher EducationEEO - Educational
Exchange OrganizationGOI - Government of IndonesiaLPND - Lembaga
Pemerintah Non Departemen (Non-Ministerial
Government Institute)Menneg Ristek - Menteri Negara Riset dan
Teknologi (Ministry of State
for Research and Technology)OFPIU - Overseas Fellowship Project
Implementation UnitREPELITA - National Five-Year Development Plan
(Repelita 1, 1969-
74; Repelita II, 1974-79; Repelita III, 1979-84;Repelita IV,
1984-89; Repelita V, 1989-94;Repelita VI, 1994-99)
INDONESIAN RESEARCH INSTITUTES
BAKOSURTANAL - Badan Koordinasi Survei dan Pemetaan Nasional
(NationalCoordinating Agency for Surveying and Mapping)
BATAN - Badan Tenega Atom Nasional (National Atomic
EnergyAgency)
BPPT - Badan Pengkajian dan Penerapan Teknologi (Agency forthe
Assessment and Application of Technology)
BPS - Biro Pusat Statistik (Central Bureau of Statistics)LAPAN -
Lembaga Penerbangan dan Antariksa Nasional (National
Institute of Aeronautics and Space)LIPI - Lembaga Ilmu
Pengetahuan Indonesia (Indonesian
Institute of Sciences)
-
FOR OFFICIAL USE ONLY
INDONESIA
SCIENCE AND TECHNOLOGY TRAINING PROJECT
Loan and Project Summary
Borrower: Republic of Indonesia. t
Amount: US$93 million equivalent.
Terms: Repayable in 20 years, including 5 years of grace, at
thestandard variable interest rate.
ProjectDescription: The objectives of the project would be to:
(a) strengthen
Indonesia's research and development capacity by developinga
nucLeus of well-trained Indonesian scientific and techni-cal
manpower through programs of study in science and tech-nical
fields; (b) develop effective policies and proceduresfor the
implementation and monitoring of overseas fellowshipprograms; and
(c) develop and strengthen collaborative rela-tionships between
Indonesian and foreign universities andresearch institutions. The
project would focus on the sixkey government research institutes in
science and techno-logy, which would provide a pool of qualified
candidates foradvanced training. The project would provide overseas
andlocal training and technical assistance in establishing
amanagement system and graduate reintegration program.
The main benefit of the project would be the improved tech-nical
and managerial competence of the project institutes'staff and an
increase in the country's stock of well-trainedscientific and
technical manpower. The project would alsohave a long-term impact
on the university syste'm, which theBank is assisting under
separate university developmentprojects. The major risk arises from
the complexities ofmanaging such a sizable and diverse overseas
fellowshipprogram. The technical assistance to support the
establish-ment of a management system should reduce this risk.
TIhisdocumct has a restrited disuibution and may bcused by
recipients only in the peformance oftheir ofriwiduties. Its
contents may not otherwise be disAosed without World Bank
authorization.
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Estimated Cost: /a Local Foreign Total- - (US$ million) -
Overseas Fellowship ProgramPre-degree preparation 1.3 11.6
12.9Overseas study 18.2 49.6 67.8Research 0.3 0.8 1.1
Subtotal 19.8 62.0 81.8
Local Training Program 16.2 - 16.2
ManagementOFPIU operations 3.2 0.8 4.0Educational exchange
organizations - 4.0 4.0Consultant services 1.4 1.9 3.3Reintegration
program 1.0 0.2 1.2
Subtotal 5.6 6.9 12.5
Total Baseline Costs 41.6 68.9 110.5
Physical contingencies 4.1 6.9 11.0Price contingencies 15.0 17.2
32.2
Total Project Costs 60.7 93.0 153.7
Financing Plan: Local Foreign Total(US$ million)
IBRD - 93.0 93.0Covernment 60.7 - 60.7
Total 60.7 93.0 153.7
EstimatedDisbursements: IBRD FY86 FY87 FY88 FY89 FY90 FY91 FY92
FY93
(US$ million)
Annual 3.0 3.0 9.0 15.0 20.0 20.0 16.0 7.0Cumulative 3.0 6.0
15.0 30.0 50.0 70.0 86.0 93.0
Rate of Return: Not applicable.
Staff Appraisal Report: No. 5425-IND, dated June 6, 1985
Map' IBRD No. 17980R1
/a Project costs include a small amount of taxes and duties
(aboutUS$200,000).
-
REPORT AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL
BANK FOR RECONSTRUCTION AND DEVELOPMENTTO THE EXECUTIVE DIRECTORS
ON A PROPOSED LOAN TO THE REPUBLICOF INDONESIA FOR A SCIENCE AND
TECHNOLOGY TRAINING PROJECT
1. I submit the following report and recommendation on a
proposed loanto the Republic of Indonesia for the equivalent of
US$93 million to helpfinance a Science and Technology Training
Project. The Loan would have a termof 20 years, including five
years of grace, at the standard variable interestrate.
PART I - THE ECONOMY!'
2. A basic economic report, "Indonesia: Growth Patterns, Social
Pro-gress and Development Prospects" (No. 2093-IND dated February
20, 1979), wasdistributed to the Executive Directors on February
26, 1979, and a countryeconomic memorandum has been prepared in
each subsequent year. The latest ofthese, entitled "Indonesia:
Policies for Growth and Employment" (No. 5597-INDdated April 23,
1985), was distributed to the Executive Directors on April 30,1985.
Annex I gives selected social and economic indicators for the
country.
Background
3. The Republic of Indonesia is a highly diverse country spread
acrossan archipelago of more than 13,000 islands with a land area
of about two mil-lion sq km. It now has a population of over 155
million, growing at about2.1X p.a., and is the world's fifth most
populous nation. The country has adiversified resource base, with
plentiful primary energy resources, signifi-cant mineral deposits,
large timber potential and a developed system of agri-cultural
commodity production and export. A high proportion of these
primaryresources are located on the sparsely populated islands of
Sumatra andKalimantan, while two-thirds of the population live on
Java, which has areaswith some of the highest rural population
densities in the world. About aquarter of the population lives in
urban areas, and the current rate of urbanpopulation growth is
about 4% p.a. The 1983 estimate of GNP Yer capita isUS$560, which
places Indonesia among middle income countries.-
Macroeconomic Developments and Resource Management
4. Until 1981, the economy had been growing at almost 8% p.a.
for overa decade. This growth was associated with rapid increases
in public expendi-tures, total investment and savings. The initial
impetus for this occurred in
1/ Substantially unchanged from the President's Report on the
Fifth Transmi-gration Project (No. P-4087-IND), circulated under
cover of R85-167 datedMay 22, 1985, and approved by the Executive
Directors on June 11, 1985.
2/ On the basis of the World Bank's system of country
classification andAtlas methodology for caLculation of GNP.
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- 2 -
the period of recovery from the turbulence of the mid-1960s. The
Governmentof Indonesia (GOI) took effective action to restore
macroeconomic stability,liberalize the econDmy, rehabilitate
infrastructure, and provide incentivesfor domestic and foreign
private investment. However, the dominant externalinfluence over
the past decade has been the huge expansion, and
significantvariability, in foreign exchange earnings from oil. Net
exports from the oiland gas sector rose from US$0.6 billion in
1973/74 to US$10.6 biLlion in1980/81, when the current account
enjoyed a surplus of US$2.1 billion. Oilreceipts also provided
about 60X of Central Government receipts by 1980/81 andhelped
finance a sustained increase in demand. The pattern of
expenditureshas also helped foster diversified growth. Of
particular note has been thesupport for agriculture, through
investment in infrastructure and support ser-vices. This supported
an agricultural growth rate of almost 4% p.a. over thepast decade,
and led to the recent achievement of self-sufficiency in
rice.Manufacturing also enjoyed a high growth rate during the 1970s
(of about 14%p.a.), although this was from a very low base and
predominantly orientedtoward the protected domestic market.
5. During 1982, the Indonesian economy was affected adversely by
theprotracted international recession and the accompanying decline
in exportearnings, especially from oil. These developments led to a
sharp turnaroundin Indonesia's external resource position and a
fall in real per capitaincomes. In response, the Government acted
promptly to ensure that thecountry's balance of payments situation
was manageable and to provide a basisfor longer-term structural
transformation. Particular attention was paid toreducing
Indonesia's dependence on oil for export earnings and
publicrevenues. Specific measures introduced over the past two
years include:
(a) a 28% devaluation of the rupiah against the US dollar in
March 1983,without any change in the policy of full
convertibility;
(b) a major rephasing (postponement/cancellation) of large-scale
andimport-intensive public investments, especially in the
industrialsector;
(c) successive price increases for petroleum products, which
havelargely eliminated domestic subsidies;
(d) a far-reaching financiaL reform, including the
liberalization ofinterest rates and the abandonment of credit
ceilings;
(e) introdaction of a comprehensive tax reform program, aimed
atincreasing government revenues by broadening the tax base,
simplify-ing the structure of rates and improving administration;
and
(f) an ongoing effort to reduce the unfavorable impact of the
regulatoryframework, including simplification of investment
approval proce-dures and a major reorganization of customs, ports
and shippingoperations.
6. These measures, aided by more favorable trends in the world
economy,are already having their desired impact. GDP, led by strong
performance inthe oil (including LNG and refining) and agriculture
sectors, rose by an
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estimated 4.7% in 1983 and 6.5% in 1984. The balance of payments
situation isalso improving. In particular, the current account
deficit was reduced fromUS$7.1 billion (8.5X of GNP) in 1982/83 to
an estimated US$1.9 billion (2.4Xof GNP) in 1984/85. The major
factors responsible for this improvement areimport cuts, resulting
from the Government's efforts to curb aggregate demand,and higher
export earnings from non-oil products, due to recovery in
theindustrial countries and the Government's policies to promote
non-oilexports. The Government's restraint is also evident in the
budget, where reaLexpenditures have probably fallen over the past
three years. This fiscaldiscipline, in turn, helped keep domestic
inflation down to about 12% in 1983and 9% in 1984, despite the
inevitable pressures associated with the 1983devaluation and the
petroleum price adjustments.
Policies for MediumrTerm Growth and Transformation
7. Sustained growth of the non-oil economy by at least 5% p.a.
isprobably necessary to have a significant impact on employment
creation andpoverty alleviation over the remainder of this decade.
To promote such agrowth rate, without generating unmanageable
balance of payments pressures, isone of the major challenges facing
the Government. Successful transformationof the economy will
require continued action in three key policy areas:management of
the public investment program (and improvements in the
regu-latory/policy environment for private investment),
rationalization of theexternal trade regime and development of the
financial sector.
8. The projected import constraint imposes serious limitations
on therate at which Indonesia can undertake new investments over
the next fewyears. At the same time, some reallocation of resources
towards agricultureand the social sectors might be justified, in
order to reduce the import con-tent of investment while stiLl
meeting the Government's employment objec-tives. It is therefore
important that mechanisms are established to facili-tate orderly
and rational adjustments to the public investment program.
Pos-sible options include preparation of multi-year expenditure
plans (at leastfor the larger projects), identification of a core
program of high priorityprojects and strengthening of project
appraisal/selection procedures. TheGovernmenc is also considering
ways to improve project implementation, so thatinvestment returns
can be realized more promptly. Given the budgetary con-straints, it
is expected that the private sector will be called upon to playan
increasingly important role in capital formation. To encourage this
pro-cess, the Government recently announced simplifications in
investment approvalprocedures and a major internal reorganization
of the Investment CoordinatingBoard.
9. The recent decline in the price of oil has clearly
demonstrated theimportance of reducing the economy's heavy
dependence on a single source offoreign exchange and, more
generally, the need to rationalize the externaltrade regime. -The
Government has set a target of doubling non-oil exports innominal
terms over the next five years. This target should be
attainableprovided that economic recovery in the industrial
economies is sustained,Indonesia's access to those markets is not
constrained by protectionistmeasures and, most importantly,
Indonesia follows appropriate trade andexchange rate policies. The
Government has already introduced a range ofexport promotion
measures intended to improve export incentives, ensure ready
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- 4 -
access to finance for exporters, raise product quality and
enhance markecingcapacity. However, over the Longer term, there is
no effective substitute forcomprehensive trade reform. On the
import side, Indonesia's trade regime hashistorically been
characterized by a predilection for high tariffs and quanti-tative
restrictions. in March 1985, the Government announced a major
reduc-tion in the range and level of nominal import tariffs.
However, other actions-- including increased use of import
quotas/bans and regulations requiringhigher local content in
production - have served to promote some potentiallycostly and
uneconomic investments which could prove counterproductive to
theexport drive.
10. The Government's decision to move towards a more liberal
financialenvironment raises a number of issues relating to resource
mobilization,financial intermediation and credit allocation. Over
the longer term, as thescope for subsidized credit is reduced, the
banking system will have to playan increasingly important role in
mobilizing domestic resources. However,during the transition
period, some potential conflicts between the resourcemobilization
and credit allocation objectives could arise. For example,
theincrease in deposit rates following the recent financial
reforms, whileencouraging resource mobilization, has also led to
high real lending rateswhich have tended to dampen investment and
credit demand. This in turn mayrestrain economic activity. It is
therefore important to find ways to reducethe high intermediation
costs of banks. Consideration should also be given toother ways of
mobilizing financial resources, including deveLopment of acapital
market, expansion of the banking network (especially in rural
areas)and selective relaxation of restrictions on private banks
(combined withincreased bank supervision).
Incomes, Employment and Human Development
11. Indonesia's physical, human and economic resources are very
unevenlydistributed between its main regions. Java, for example,
accounts for almost50% of Indonesia's GDP and 62% of its
population, but only 7% of its landarea. Although all five of the
country's main regions experienced rapid percapita growth in the
1970s, regional differences in output tended to widen.To a large
extent, difEerences in performance are associated with the
impor-tance of the mineral sector, particularly petroleum. However,
there are twoimportant processes at work in Indonesia which enable
the benefits of growthto be more evenly spread than indicated by
output trends. The first of theseis migration. Between 1971 and
1980, 4.3 million people (or 16% of thenatural increase in
population) resettled permanently in provinces outsidethose of
their birth. Approximately 1.7 million people moved from Java to
theOther Islands, of whom one million were resettled through the
official trans-migration program. There has also been substantial
rural-urban migration bothbetween and within provinces. The second
process is the redistribution ofincome through the government
budget. Regional variations in per capitaconsumption are much less
pronounced than differences in per capita output.This is largely
due to the impact of taxation on the oil sector.
12. An analysis of household expenditures indicates that
Indonesia'srapid economic development has been accompanied by
significant progress inreducing poverty. Between 1970 and 1980, the
proportion of the populationliving in poverty declined from 57% to
40%; the decline was particularly rapid
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in the Other Islands and in urban areas. The core of the poverty
problem con-tinues to be in rural Java, where landless laborers
form a large, and possiblyrising, proportion of the population and
where, for most of the 1970s, thereis little evidence of any rise
in real agricultural wages. However, there wasa significant rise in
real agricultural wages around 1980-81, associated withthe sharp
increase in rice output and booming overall economic
growth.Increases in rural non-agricultural and urban wages also
occurred at thebeginning of the 1980s. Despite the slowdown in
economic growth and stabili-zation measures since 1982, the limited
available evidence suggests that wagesand incomes have held up,
partly as a consequence of continued agriculturalgrowth.
13. In the future, the availability of productive employment
will be akey determinant of income distribution. The Labor force is
expected to growat about 2.3X p.a. over the next decade, while
economic growth will be lowerthan in the 1970s. The resultant
squeeze in the labor market is not expectedto lead to a dramatic
increase in unemployment but there is a serious risk ofstagnant or
declining labor income in both rural areas and the urban
informalsector. Given the balance of payments constraint facing the
country,Indonesia's employment outlook depends crucially on the
pattern of economicgrowth, and in particular the extent of labor
absorption in the commodity-pr-iducing sectors. Although over the
long term the structural shift inemployment away from agriculture
should continue, this sector will stillaccount for half or more of
total employment and the growth in agriculturaLincomes wiLl be an
important determinant of job opportunities elsewhere innon-farm
activities. This wilL require continued priority to agriculture
inthe form of supportive pricing and investment policy, with some
shift inemphasis toward the Other Islands. On Java, attention will
need to be paid toissues of agricultural diversification and the
pace of mechanization. Withrespect to the industrial sector, the
development of an efficient, relativelyexport-oriented pattern of
productior can also contribute to significant laborabsorption in
the medium to long term, especially in Java; this will involve
acontinuing major role for small-scale firms. If a favorable
evolution of theemployment situation is to occur, there will aLso
need to be an appropriatepattern of public expenditure and
supportive policies for the urban informalsector; finally, the
transmigration program can make a substantial contribu-tion,
provided it is closely coordinated with complementary
agriculturalinvestment programs, in tree crops, water resour^es and
livestock development.
14. There has been substantial progress in extending the
provision ofsocial services throughout the population. Universal
enrollment in primaryeducation has been virtually achieved and the
enrollment rate in secondaryschools is now about 35%. However, the
weak educational base of the popula-tion continues to be a major
obstacle to rapid economic development and asubstantial further
expansion of secondary and tertiary education will benecessary as
well as a major effort to raise the quality of the whole system.In
the health sector, there has been a large expansion in facilities,
notablyat the sub-district level, but continued investment and an
improvement inquality will be necessary to increase effectiveness.
This will have to becomplemented by a major expansion in water
supply and sanitation if theimprovement in indices of mortality and
morbidity during the 1970s is to bemaintained. By 1981, only 18Z of
the rural and 40% of the urban populationhad access to safe water,
compared with government targets of 60Z and 75%,respectively, for
1990.
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External Capital Flows
15. The recent improvement in Indonesia's balance of payments
situationis evidence of the Government's commitment to manage
short-term economicshocks. The ongoing program of economic reforms
should also help to hold thecurrent account deficit to sustainable
levels over the medium term. Even so,continued resource transfers
from abroad will still be essential if theGovernment's modest
growth targets (5% p.a.) for the next five years are to beachieved.
Staff projections indicate that new public medium- and
long-term(MLT) bor?owing will have to average about US$5.2 billion
p.a. over the nextthree years, including about US$2.5 billion p.a.
-f official developa2ntassistance and the balance from
import-related cr dits and untied borrowing.Indonesia is well
placed to arrange the necessary financing on reasonableterms; the
profile of existing debts is good and a comfortable level of
exter-nal reserves has been rebuilt over the past two years.
16. Total public debt outstanding at the end of 1984 is
estimated atUS$22.9 billion, with an additional US$14.0 billion of
undisbursed commit-ments. Of the total debt disbursed and
outstanding, official assistance(including non-concessional
multilateral aid) accounts for 50% and obligationsat variable
interest rates for only 24X; there is no short-term public debt.The
average maturity of public MLT debt at the end of 1984 is estimated
at 16years. The Government continues to manage its external debt
quite prudently.Until 1982, Indonesia had succeeded in maintaining
its public debt serviceratio, based on net exports (i.e., net of
oil sector imports), at or below20%. However, because of the sharp
drop in oil export receipts over the pastthree years, the ratio
rose to 25% in 1984. With the projected levels andcomposition of
borrowings and export earnings, Indonesia's public debt
serviceratio, again based on net exports, would rise to about 30%
in 1989 and thengradually decline in later years. With private MLT
debt included, Zhe totaldebt service ratio, based on the
conventional concept of gross exports, wouldrise from 21% in 1984
to around 24% in 1989 and decline back to 22% by 1995.While debt
management will require careful attention in the coming years,
theprojected debt service ratios are not excessive by international
standards.
PART II - BANK GROUP OPERATIONS IN INDONESIA 3/
17. As of March 31, 1985, Indonesia had received 48 IDA credits
total-ling US$938.5 million (less cancellations) and 93 Bank loans
amounting toUS$7,021.0 million (less cancellations). IFC
commitments totalled US$163.2million. Annex II contains a suummary
of IDA credits, Bank loans and IFCinvestments as of March 31, 1985.
The share of the Bank Group in Indonesia'stotal (disbursed)
external debt outstanding at the end of 1983 was 13.1Z, andthe
share of debt service, 10.32 compared with 13.3% and 7.9Z,
respectively,in 1982. From 1968 until 1974, all lending to
Indonesia was made throughIDA. Due to the country's improved
creditworthiness following the commodityand oil price boom in
1973174, the bulk of the Bank Group's lending in the
3/ Substantially unchanged from the President's Report on the
Fifth Transmi-gration Project (No. P-4087-IND), circulated under
cover of R85-167 datedMay 22, 1985, and approved by the Executive
Directors on June 11, 1985.
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remainder of the 1970s was through IBRD loans, with a modest
amount of IDAlending being justified primarily on poverty grounds,
as the per capita GNPwas well below the IDA cutoff level. IDA
lending was discontinued in FY80.Given the critical importance of
agricuLture (including transmigration) forempLoyment, food security
and exports, over one-third of Bank Group-assistedprojects have
been in this sector. In addition, loans and credits have
beenextended to virtually all other sectors of the economy,
including transporta-tion, education, urban development, water
supply, rural development,industrial development financing
(including small-scale industry), power,telecommunications,
population and nutrition, and technical assistance.
18. During Repelitas I (1969-74) and II (1974-79), and in line
with theobjectives of these first two Five-Year Plans, a high
proportion of Bank Grouplending was directed initially toward the
rehabilitation and then the expan-sion of infrastructure and
production facilities. Special attention was alsogiven to meeting
the shortage of skilled manpower and technical assistanceneeded for
preinvestment studies and project execution. Repelita III
(1979-84), published in early 1979, stressed the need for continued
high growth andstability, but departed from previous pLans by
placing special emphasis onmore equitable income distribution and
poverty alleviation. This focus, whichwas fully in line with the
conclusions of the basic economic report, requiredgreater attention
to employment generation (particularly in the industrialsector) and
to improvements in basic public services. While Bank lending
wasalready consistent with these objectives, increased emphasis has
been given tothese priorities. However, the adverse economic
developments that occurred inthe latter half of the plan period and
the measures taken to address them, ledto a reshaping of
development objectives for Repelita IV (1984-89). Theseemphasize
restoring growth of incomes and employment while continuing
finan-cial prudence, promoting structural change toward a more
diversified economy,and maintaining efforts to improve income
distribution and alLeviate poverty.This shift in focus has
underscored the need to follow through on reforms thathave already
been initiated, seek increased efficiencies in the economy,
mobi-lize domestic resources to finance needed investments and
recurrent expendi-tures, and foster a policy environment conducive
to the achievement ofrequired changes.
19. The Bank has geared its lending and economic work program to
addressthese needs and to maintain a high level of resource
transfer. The approachis to continue to emphasize the ongoing
dialogue on economic policy that hasbeen a cornerstone of the
Bank's relationship with the Government for manyyears, and to
coordinate discussion of macroeconomic issues with advice
oninstitutional and policy reform in important sectors and
subsectors, coupledwith lending operations and technical assistance
that meet priority needs andsupport institutional improvements in
specific areas. Emphasis in economicwork is being given to trade
and industrial issues, development of the finan-cial system, and
public resource management. In the lending program, agricul-ture
continues to recei-ze the most attention. However, the program is
broadlybased, and includes increasing emphasis on education and
human resource deve-lopment. Continued attention is being given to
power and energy, where theBank is concentrating on policies to
diversify Indonesia's energy base,rationalize pricing and improve
sector planning. In transportation, the Bankis focuzsing on
efficiency improvements in the maritime sector and on improv-ing
the national network of highways and rural roads. In urban
development
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and water supply, lending is being directed more and more to
developing inno-vative low-cost solutions, providing for cost
recovery and strengthening localinstitutions, in order to minimize
demands on the Government budget and decen-tralize the
responsibility for addressing basic needs. In all, the
Bank'slending program is intended to contribute about 20% of
Indonesia's capitalrequirements during the next three years and is
expected to be an importantcatalyst in attracting other funds.
Where possible, we are seeking aLso towiden the impact of Bank
lending through technical assistance, as well ascomplementary
investments and coordinated policy dialogue with other donors.This
is especialLy true in our lending programs for power, urban
development,water supply and transportation.
20. There has47een a notable improvement in the last few years
in thedisbursement ratio - from a low of 13Z in FY80 to over 192 in
FY84. The poorFY80 ratio was in large part merely a result of the
rapid increase in commit-ments during the FY77-79 period, when
total Bank/IDA commitments to Indonesiaincreased by 122% compared
to a Bank-wide increase of 83%. However, it alsoreflected
implementation difficulties arising out of the Government's
budget-ary, procurement and payment procedures, as well as the
severe shortage ofLianagerial and technical manpower in Indonesia.
A number of steps have beentaken by the Government and the Bank to
address these issues. Several specialBank missions have visited
Indonesia to analyze the problems and make recom-mendations for
simplifying budgetary and financial procedures. The Governmentand
the Bank have also instituted formal and regular joint review
proceduresto identify general and project-specific problems and
work out correctivemeasures. Procurement seminars were held in
Jakarta in September 1979,November 1981 and May 1984. As a
consequence of these joint initiatives, theGovernment has taken
measures to streamline some of the complex budgetary andfinancial
procedures affecting project implementation. In addition, in
orderto reduce disbursement delays due to initial project
implementation difficul-ties, many operations are now being
presented for Board consideration at alater stage in the project
cycle. The combined effects of all of these acti-vities are
reflected in the increase in disbursements from US$206 million
inFY79 to US$764 million in FY84. It is nevertheless clear that
continuedefforts to improve project implementation and the pace of
disbursements arerequired, as Indonesia continues to show a
disbursement ratio below the Bank-wide average. A number of
initiatives are underway. The Bank is helping theGovernment in a
special effort to identify problems in the construction indus-try
with a view to developing appropriate remedial actions and
policies, asweaknesses in the domestic contracting industry have
been identified as one ofthe major causes of implementation
problems in Indonesia. Efforts are alsounderway to develop
standardized tender documents in order to speed theprocurement
process, and to improve project monitoring and land
acquisitionprocedures. It is the Bank's and the Government's
intention to devote conti-nued attention to these and other aspects
of project implementation in thecoming year, in order to ensure
that maximum benefit is realized from theGovernment's investm--nts,
Bank-assisted and other.
4/ The ratio of actual disbursements during the fiscal year to
the cumula-tive undisbursed amount at the beginning of the fiscal
year.
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PART III - THE SCIENCE AND TECHNOLOGY SUBSECTOR
Overview
21. To achieve industrial diversifi:ation and growth, Indonesia
requiresan increasing level of sophistication in its technology.
The Government beganto emphasize the development of applied
research, particularly in science andtechnoLogy fields, in the last
decade. However, the major bottleneck - short-age of trained
scientific and technical manpower - remains a severe problemwhich
has hampered the progress of research and development. The
Governmentis making efforts to narrow this gap by improving its
higher education systemwith the assistance of the Bank and other
donors. The Second UniversityDevelopment Project (Report No.
P-4047-IND dated May 1, 1985), approved by theExecutive Directors
on May 21, 1985, is specifically aimed at building thescientific
infrastructure at Indonesian universities, but this is a
long-termeffort. The Government is turning to overseas study in
subjects where localacademic capacity is low or non-existent to
help alleviate the immediateshortage.
Demand and Supply of Professional Manpower in Science and
Technology
22. The shortage of high level manpower is most acute in the
fields ofscience and engineering. Bank and UNESCO staff estimates
of manpower demandshow that 16,000 new graduates in science and
engineering are needed annuallyto meet economic growth targets
during the next decade. Total universityenrollment in 1983
represents only 4% of the age cohort, compared with 22Z inSouth
Korea and 21% in the Philippines. About 455,000 students were
enrolledin public universities and 355,000 in private universities.
Public undergrad-uate enrollment in science and engineering, was
only 50,000 in 1983. Privateundergraduate enrollment in these
subjects is estimated to be roughly at thesame level. Moreover, the
rate of student output is extremely low: therewere only 5,000
graduates in science and engineering in 1983, and only 160have
received post-graduate degrees since the mid-1970s, when graduate
prog-rams were first introduced. The low enrollment in science and
engineeringreflects difficulties in developing domestic teaching
capacities in thesefields. There has been an extreme shortage of
qualified teaching staff, andvery limited investment in essential
physical facilities such as laboratoriesand experimental
equipment.
23. Aside from limited physical capacity, Indonesian higher
educationfaces major qualitative problems. University instruction
and research inIndonesia are adversely affected by inadequate
staffing, paucity of inputs,and low salary levels for university
teaching, research and administrativestaff. Currently, only about
15% of academic staff in the natural sciencesand about 9Z of
academic staff in the social sciences hold advanced degrees.There
is a serious shortage of textbooks and other instructional
materials inthe Indonesian language. Library holdings are extremely
few in number andlimited in scope. Students often have little
access to laboratory and practi-cal facilities to balance
theoretical classroom learning. The internal effi-ciency is also
low, due to such reasons as the low level of educationalattainment
of the faculty and insufficient time devoted by staff to
teachingduties.
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24. Graduate programs were only introduced in 1975 and will
requireconsiderable time and effort to reach international
standards. Currently, theenvironment for scholarly activity in
Indonesian universities is poor, withless than one fourth of
faculty actively conducting research. Research prog-rams favor
feasibility or evaluation studies and not the type of
originalresearch required to nurture the development of a creative
and versatilescientific community. For the most part, university
research has been uncoor-dinated and determined primarily by the
requirements of funding sources. Italso lacks the means to
establish and maintain priorities and to disseminatefindings. The
two university projects being assisted by the Bank willinitiate
improvements in the rese-rch environment of major
Indonesianuniversities.
Government Strategy for Provision of Higher Level Manpower
25. The Government attaches high priority to expanding the
capacity andimproving the quality of Indonesian higher education
institutions. TheGovernment's education sector strategy is to
provide a broad-based educationalsystem, formal and nonformal, to
support national development goals such anincreasing agricultural
productivity, expanding industrial capacity andimproving the
country's basic infrastructure. In the short and medium
term,expatriate manpower, short-term training programs, and
on-the-job trainingwill help to bridge some of the gaps between
supply and demand for higherlevel manpower. In the long term,
substantial investment in education beyondthe primary level will be
required. The Government also recognizes the needfor continued
development of the private higher education system, and theMinistry
of Education and Culture provides subsidies, guidance and
encourage-ment through the Directorate of Private Universities. To
alleviate manpowershortages the Government has set ambitious
targets for the growth of theuniversity system during the Repelita
IV (1984/89).
26. However, given the low output and poor quality of
universityprograms, expanding and improving domestic institutions
is inevitably a long-term task. Furthermore, graduate programs in
many scientific and technicalfields do not yet exist in Indonesia.
Consequently, the Government hasdecided to embark on a greatly
expanded program of overseas training inconjunction with the
development of domestic graduate education. The benefi-ciaries of
the program would become the nucleus of the next generation
ofIndonesian scientists and engineers capable of developing
researchapplications relevant to Indonesia's economic and social
development and alsoof influencing teaching and research programs
in Indonesian universities.
Other Donor Assistance
27. Bilateral assistance programs already include overseas
fellowshipsin these fields, but their number is limited. Out of
about 1,500 fellowshipawards funded by the major bilateral donors,
only about 350 each year are forscientific and technical degree
programs. The Government has sought a largernumber of fellowships
from bilateral sources but has not succeeded in obtain-ing a
substantial increase. In general, bilateral donors have not
emphasizedscience and technology subjects, making it difficult for
them to re-programtheir training efforts quickly enough to meet the
Government's new emphasis onoverseas training in science and
technology. Many of the fellowships offered
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are Linked to specific projects or restricted to certain fields.
Overall, ithas been difficult for the Indonesian research
institutions to plan trainingeffectively on the basis of bilateral
fellowships, partly because so few areavailable, and partly because
it is difficult to match the conditions offeredby the aid agencies
with the particular needs of the institution.
Development in Science and Technology Research
28. The shortfalls in the higher education system have hampered
thecountry's scientific and technological research which is
essential to itsindustrialization and development efforts. In the
last decade, the Governmenthas invested in procuring equipment and
physical facilities for the majorresearch institutions both with
its own funds and foreign aid. This includesa Bank-assisted
project, the National Resource Survey and Mapping Project(Loan
1197-IND), which financed equipment and buildings for the
NationalCoordinating Agency for Surveying and Mapping
(Bakosurtanal). However,because of the lack of manpower to carry
through the research programsplanned, the facilities of research
institutes are under-utilized, and thebudget allowance for research
is consistently underspent. The shortage ofwell-trained manpower is
particularly severe among government researchinstitutions, which
face stiff competition from the private sector foruniversity
graduates.
29. Research Strategy. Indonesia's approach to the use of
science hasbeen to concentrate on its direct application to the
nation's development.Thus pure scientific research has been
discouraged in favor of appliedresearch directly relevant to
Indonesia's needs - for improving agriculturalmethods or output,
conserving non-renewabLe energy supplies, or increasingindustrial
self-reliance. Indonesia's science and technology researchprograms
also emphasize the basic human needs of food, clothing,
housing,nutrition, health and education and the social impact of
technologicaldevelopment.
30. Organization of Science and Technology Research. In
Indonesia, mostresponsibility for research in science and
technology lies with the Govern-ment. In the private sector, the
corporations which engage in research anddevelopment are
predominantly multinationals which conduct most research intheir
home countries where equipment and manpower are available. The
Govern-ment's development expenditure on science and technology
research was US$205million in 1984, estimated at 0.2Z of GDP
(compared with 0.9% in Korea and
' 2.8Z in Japan). There are five classes of organizations
carrying out scien-tific and technological research in Indonesia.
Research in the privateindustrial sector is of minor importance,
and directed mainly to the solutionof limited problems of immediate
interest to the manufacturer. Research anddevelopment activities in
state-owned industries are more significant, butthey are still
concerned with the immediate production and developmentproblems
within these industries, and so are relatively narrow in scope.
Thecapability of the universities to conduct research has been
limited by theshortage of qualified manpower, the demands on their
time of teaching andadministration, and other constraints such as
inadequate laboratories, equip-ment and libraries. These
limitations will be addressed under the SecondUniversity
Development Project (Report No. P-4047-IND, dated May 1, 1985).The
ministerial research and development centers address problems of
particu-
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Lar concern to their Ministry. In practice, neither their
staffing nor theirLaboratory facilities permit extensive or
demanding research projects, and itis common practice for these
centers to contract out substantive work to uni-versities or to the
non-ministerial research institutes. The key institutes inscience
and technology research are the six non-ministerial government
insti-tutes (Lembaga Pemerintah Non Departemen, LPND) which are
concerned withscience and technology and related research:
BAKOSURTANAL - NationalCoordinating Agency for Surveying and
Mapping; BATAN - National Atomic EnergyAgency; BPPT - Agency for
the Assessment and Application of Technology;BPS - Central Bureau
of Statistics; LAPAN - National Institute of Aeronauticsand Space;
and LIPI - Indonesian Institute of Sciences.
31. The LPNDs support the ministeriaL research centers by
undertakingresearch conrracts from them, the universities by
providing facilities andstaff, and private industry by developing
industrial technoLogy and testingmaterials. The LPNDs usuaLly
disseminate their research findings through theappropriate line
Ministry. They also have close ties with universities, whichwere
recently formalized through cooperative agreements allowing
universitystaff and students to use the facilities of the research
institutes. Manyresearch institute staff also teach at the
universities. Consequently, stafftrained and employed through the
LPNDs have a broad impact on the developmentof science and
technology throughout Indonesia.
32. The LPNDs are equipped with the best research facilities in
thecountry as a result of considerable public investment in
buildings and equip-ment over the last decade. In addition to
existing facilities, a Center forScientific and Technological
Research, PUSPIPTEK, is being built to provideextra laboratory
facilities for all of the LPNDs. This center is receivingabout
US$300 million of aid for equipment from various donors,
includingFrance, the Federal Republic of Germany, Japan and the
United States. Theremaining constraint is the lack of manpower.
Although the head of each LPNDis answerable directly to the
President, and the ministerial research anddevelopment centers
report to their respective Ministers, the Minister ofState for
Research and Technology (Menneg Ristek) has an overall
coordinatingrole for all research carried out by these bodies. The
Minister is advised bya National Council for Research and
Technology. He approves the five-yearplans and individual research
programs proposed by the LPNDs and ensures thatthey will contribute
to national priorities.
Bank Group Role and Rationale for Further Involvement
33. Since 1977, the Bank has assisted five higher education
projects inIndonesia, involving total lending of about US$250
miLlion. These include twoteacher training projects, two
polytechnics projects, and a university deve-lopment project. In
December 1983, the Bank joined the Government in launch-ing a
Higher Education Sector Study. OED Project Performance Audit
Reports(PPARs) have been prepared for two education projects in
Indonesia and thelessons learned have been incorporated in the
design of the proposed project.The PPAR for the Technical Education
Project (Credit 219-IND) (No. 2998, datedJune 2, 1980, SecM80-440)
stressed the importance of including fellowships fordevelopment of
teachers and school administrators and appointing key staff
forproject implementation in a timeLy manner. The PPAR for the
first Agricul-tural Training Project (Credit 288-IND) (No. 3508,
dated June 30, 1980,
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SecH80-527) stressed the importance of advanced preparation and
the need forcarefully designed and suitable technical assistance
components.
34. The First University Development Project (Loan 1904-IND)
wasdesigned to strengthen university management and raise the
quality and numberof graduates in engineering, science, agriculture
and economics at three keyuniversities. Although the project
suffered from several implementationproblems, which have now been
overcome, most of the policy targets, such asteacher workload,
staff-student ratios and admission policies, are well on theway to
being reached. The recently-approved Second University
DevelopmentProject will follow up on previous efforts by developing
graduate education inscience and engineering fields, improving and
expanding undergraduate educa-tion through the introduction of new
programs, and strengthening universityplanning and management. The
proposed Science and Technology Training Projectwould complement
the university development projects by meeting criticalshortages of
professional manpower in science and engineering fields for
whichdomestic programs are not yet developed. The proposed project
would be anintegral part of the effort to develop graduate programs
and increase theoutput of high-level manpower in Indonesia. Because
of close linkages betweenthe research institutions and many of the
leading Indonesian universities, theproject is expected to have a
long-term impact, not only on the researchinstitutions themselves,
but also on the quality of teaching and research inthe university
system. It is also in direct support of the Government'sstrategy of
promoting overseas studies as a short-term measure to fill
themanpower gap. Recent Bank projects have supported this strategy
by includinglarge overseas fellowship components. In the short run,
overseas training isa cost-effective way of meeting part of the
country's manpower requirements,since the low efficiency, as well
as the limited quality and capacity of localinstitutions, do not
permit the production of the same number and caliber ofmanpower as
well-established institutions abroad.
35. The proposed project would play an important role in the
Govern-ment's efforts to accelerate industrialization. The
Government is aiming at aquantum jump in its stock of scientific
and technological manpower in order topermit major industrial
progress during Repelita VI (1994-99). The proposedproject would
also help establish ties bet-ween local and foreign institutionsto
enable Indonesian researchers to keep abreast of developments in
theirfields.
36. Another aspect of the rationale for Bank involvement is that
theproject would develop effective procedures and local capacity
for implementa-tion of fellowship programs. From the late 1950s to
the early 1980s, theGovernment did not strongly encourage
Indonesians to study abroad. Overseasfellowship programs started to
increase in recent years through Bank and otheraid projects.
However, because of limited experience and contact with
foreignuniversities, the country has had to rely on international
consulting firms tomanage its fellowship programs. The Government
recently embarked on an effortto promote self-management and a
national committee to coordinate overseasfellowships was formed
(see paragraph 52). One of the tasks of the committeeis to
formulate appropriate selection, preparation, placement
andadministrative procedures. This project would help shape the
nationalprocedures and benefit future education and training
projects.
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PART IV - THE PROJECT
Background
37. The proposed project was prepared by the Ministry of State
forResearch and Technology, with the assistance of consultants. A
Bank missionappraised it in September 1984. Negotiations were held
in Washington, D.C.from April 29 to May 1, 1985. The Indonesian
delegation was led byMr. Wardiman Djojonegoro, Assistant to the
Minister of State for Resarch andTechnology. The Staff Appraisal
Report (No. 5425-IND) is being circulatedseparately. Supplementary
project data are provided in Annex III.
Project Objectives and Scope
38. The principal objective of the proposed project would be to
streng-then the country's research and development capacity by
developing a nucleusof welL-trained Indonesian scientific and
technical manpower. Since the majorpart of this study program would
be provided in overseas universities, theproject would also seek to
develop effective policies and procedures for theimplementation and
monitoring of overseas fellowship programs. A third objec-tive
would be to develop and strengthen collaborative relationships
betweenIndonesian and foreign universities and research
institutions.
39. The proposed project would be centered on the six LPNDs
under theumbrella of the Minister of State for Research and
Technology. Most of thecandidates would be existing staff of the
LPNDs. Fellowships would also begiven to scientific and research
personnel employed in other agencies butengaged in research related
to the LPNDs, and to a number of undergraduates.
Overseas Fellowship Program (US$81.8 million excluding
contingencies)
40. The project would finance about 1,500 fellowships in areas
directlyrelated to the project institutes' research programs in the
next decade.Because of the wide range of activities of the research
institutes, the fieldsof study of the fellows would be diverse, but
mainly concentrated in variousbranches of engineering and the
physical sciences. A small number of fellow-ships would be in
related fields such as management and information science,contract
and patent law, and statistics. These subjects would support
thescientific research programs and the institutes' social science
research whichis concerned, among other things, with the impact of
technology on society.The Government would prepare each year,
beginning January 1, 1986, and furnishto the Bank for review and
comment, a detailed fellowship program for thefollowing fiscal year
(Section 3.04 of the draft Loan Agreement).
41. The 1,500 felLowships would include about 250 PhD programs,
650 MScprograms, 300 BSc programs and 300 non-degree training
programs. The firstand main source of candidates would be the 4,000
existing professional staffin the LPNDs, of whom approximately 202
(750) would undertake graduate pro-grams under the project. Another
300 would receive short-term non-degreetraining, mostly in
management, calibration, instrumentation and equipmentoperation and
maintenance. The current pool of staff eligible for training
isabout 3,000 people and is expected to increase by about 500 by
1988 as new
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staff are recruited. At the peak year of the program, about
500-600 staff (or15Z of the total professional staff) would be
studying overseas. This is notexpected to have detrimental effects
on the operations of the institutes.
42. A second source of graduate candidates would be an
"associatesprogram," which would broaden access to training under
the project to scien-tific and research personnel of other agencies
who are closely associated withthe LPNDs' work. Most would come
from government research institutions, but afew would come from
private institutions. About 75 graduate degree fellow-ships would
be awarded to associates. A third category of participants,
alsoexpected to account for about 75 graduate degree fellowships,
would be "mid-stream fellows," who are already abroad on the basis
of other funding, and whowould be recruited in this way as future
employees of the LPNDs.
43. To train middle-level technicians, about 300 fellowships
would begranted for undergraduate education, mainly in engineering
subjects. TheLPNDs face stiff competition from the private sector
for universitygraduates. The opportunity for education and career
advancement would offsetthe disadvantages of low government
salaries and serve to attract new staff.By sponsoring
undergraduates in this project, LPNDs would be able to selectfrom
among the best secondary school graduates, thus ensuring a minimal
supplyof young talented engineers to support their research
programs. Undergraduatecandidates would include recent secondary
school graduates, first-year univer-sity students, or existing
staff of the research institutes with secondaryschool diplomas and
several years of work experience.
44. All candidates, including those who are not yet in
government ser-vice (e.g., private researchers and new secondary
school graduates) would berequired to work in an LPND for two years
for every year of study abroad.
45. Procedures for Selection of Candidates. Degree candidates
wouldneed to: (a) hold a bachelor's degree for graduate studies and
a high schooldiploma for undergraduate studies; (b) preferably have
three years' workingexperience; (c) be younger than 40; (d) have
good health; and (e) have demon-strated strong ability in their
work. Equal opportunity would be given tofemale staff. The
Government has designed selection procedures for thisproject, based
on lessons from previous fellowship programs, which are inten-ded
to measure the ability of candidates as objectively and
consistently aspossible. Each research institute would prepare a
list of its personnel who
t meet the eligibility criteria and conduct a first screening of
the academicand work records of the potential fellows. The list of
candidates would besubmitted to the Overseas Fellowship Project
Implementation Unit (OFPIU)(paragraph 54 below) for the next stage
of screening, which would consist of awritten examination and an
individual interview by a panel. Language testswould be given to
each candidate to assess the candidate's ability and train-ing
requirements. Candidates who had passed the screening up to this
stagewould receive pre-departure language training. (On the basis
of their per-formance in the preparatory courses, some candidates
would be eliminated,while others would be invited back for another
try during the next year'spreparatory course cycle.) Successful
candidates would apply for universityadmission. Assurances were
obtained at negotiations that candidates would beselected in
accordance with these or similar criteria and
proceduressatisfactory to the Bank (Section 3.03 of the draft Loan
Agreement).
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- 16 -
46. The selection procedure would be different for the
undergraduateprograms in the case of candidates still in school.
They would be selectedfrom first-year university students or recent
secondary schooL graduates usingthe Ministry of Education and
Culture's normal selection procedures foruniversity admissions as a
preLiminary screening. From this pool, the OFPIUwould screen the
potentiaL candidates for overseas study through aptitude
andachievement tests. Successful candidates would have to pass the
in-countrylanguage training course before applying to universities
abroad.
47. Procedures for Program Identification. To assist in
identifyingappropriate and cost-effective study programs overseas,
the following stepswould be taken. An Educational Exchange
Organization (EEO) in each country ofstudy would submit about five
possible programs for each academic field. TheOFPIU would review
the submissions and seLect a limited number of institu-tions. A
team from the OFPIU including a representative from each LPND
wouldvisit the shortlisted institutions to assess their
capabilities, followingwhich the OFPIU would establish. a list of
favored institutions for each fieldof study. This procedure would
be repeated on a smaller scale in subsequentyears in order to
update information and identify new courses as needed. TheBank
would review this list each year as part of its annual discussion
of thefellowship program for the following year (paragraph 40
above). It is expec-ted that most fellows would study in Australia,
Canada, the Federal Republicof Germany, France, Japan, the
Netherlands, the United Kingdom and the UnitedStates.
48. Pre-degree Training. To ensure adequate knowledge of
language,foreign study skills and quantitative skills, the project
would provide up toone year of pre-degree preparation for each
participant, in three stages.First, prior to leaving Indonesia,
candidates would be placed in specialcourses for 6-12 months to
bring their foreign language proficiency andquantitative skills to
the level required for admission to an overseas univer-sity. This
training would also further screen the candidates on the basis
oftheir performance. Second, once a candidate's language
proficiency reached acertain level, the student would proceed to a
further three months of languagetraining overseas. Third, on
admission to a university and completion of thelanguage course,
candidates would move to the university and enter a three-month
preparatory course in their particular subject of study.
49. Research. The project would include funds to support
research in tthe course of the fellow's study. An average of
US$1,000 would be provided toeach PhD fellow for this purpose. A
number of the PhD students would conducttheir practical research
projects in Indonesia with the help of visitingprofessors. Such
domestic research would probably be tailored more closely tothe
needs of Indonesia, or the particular programs of the sponsoring
LPND, andthe fellow would be working with equipment that he could
expect to continue touse on his return. The project budget would
include international travel forthese participants ard a research
grant for local research and travel. Toreinforce collaboration
between the research institutes and foreign academicinstitutions,
the project would finance a limited number of visits toIndonesia by
foreign faculty members.
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- 17 -
Local Training Program (US$16.2 million excluding
contingencies)
50. The project wouLd also incLude training in local
universitiea andinstitutions in degree and non-degree programs. The
institutes would trainabout 50 staff in PhD programs and 750 in MSc
programs. They would alsofinance about 75 selected undergraduates
in their last year of study as ameans of recruiting new graduates.
In addition, short courses would beoffered in areas such as
computer operation and administration. Like theoverseas fellowship
program, the local training program is based on themanpower
requirements of the institutes' research programs. The criteria
forselection of candidates would be similar to those for the
overseas program.
Project Management (US$12.5 million excluding contingencies)
51. The project would develop a system for implementing and
monitoringoverseas fellowship programs, thereby reducing the
Government's dependence onforeign agencies for project management.
Responsibility for the project wouldbe shared by: (a) a National
Steering Committee; (b) a Project SteeringCommittee; (c) an OFPIU;
td) local and foreign consultants; and (e) overseaseducational
exchange organizations. The reliance on foreign agencies
woulddecrease as the OFPIU and local consultants gained experience
in implerentingthe fellowship program.
52. National Steering Committee. The Ministry State for
AdministrativeReform has recently formed a National Steering
Committee for the Utilizationof Foreign Aid for Training Civil
Servants. It coordinates all government-sponsored overseas training
and is concerned with developing effectivenational procedures for
the planning and implementation of overseas fellow-ships program.
The national committee also oversees implementation of
twofellowship programs for the core agencies - General Participant
Training IIfunded by USAID and the training component under the
Bank-assisted PublicWorks Manpower Development Project (Ln.
2258-IND). This national committeewould provide appropriate advice
to the Project Steering Committee.
53. Project Steering Committee. The Ministry of State for
Research andTechnology would have overall responsibility for the
project and would consultwith the National Council for Research and
Technology on matters of nationalpolicy. Project activities would
be supervised by a Project SteeringCommittee chaired by the
Assistant for General Planning at the Ministry andincluding
representatives of the LPNDs and the National Development
PlanningAgency (BP2PENAS). The Project Steering Committee would:
(a) approve allcandidate selections; (b) review budgeting
procedures and quarterly finAncialreports; (c) review consultant
contracts; and Cd) ensure coordination withother Government
fellowship programs (Section 3.06(a) of the draft
LoanAgreement).
54. OFPIU. Responsibility for the day-to-day functioning of the
projectwould rest with the OFPIU which has been established under
the Ministry. Itwould make the final selection of candidates and
overseas institutionsproposed by the LPNDs and consultants,
coordinate the implementation units ofthe research institutes, and
be responsible for disbursement of funds andsigning of contracts
with language schools and consultants. The Bank's finan-cial
assistance to the OFPIU would include funds for equipment and
inter-
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- 18 -
national travel. The office is adequately staffed for the
initial period ofproject implementation with a director and seven
officers from the Educationand Training Division of each LPND.
However, it may need to be expandedduring the peak years. The
Government would maintain the OFPIU throughout theproject and
furnish to the Bank for review and comment any proposals forchanges
in OFPIU management and staffing patterns (Section 3.06(b) and (c)
ofthe draft Loan Agreement).
55. Consultant Services. The project would finance about 170
man-monthsof foreign consultant services and 360 man-months of
local consultant ser-vices. The consultants would help the OFPIU to
identify educational institu-tions and programs overseas, establish
a data base for the program, operatethe monitoring and evaluation
system, and development of detailed arrangementsfo- the
reintegration of returning fellows.
56. Educational-Exchange Organizations (EEOs). These would be
agencieswithin each country of itudy, experienced in placing,
caring for, and monitor-ing overseas students, and familiar with
their country's higher educationsystem. An EEO could be a
government body, a commercial firm, a university orgroup of
universities, or an individual, provided that it can fulfill
itsobligations efficiently in terms of speed, accuracy and human
care.
57. Reintegration Program. A critical aspect of project
managementwould be arrangements for successful reintegration of
fellows following thecompletion of their studies. The project would
ensure that the LPNDs plannedtheir programs in such a way as to
ensure that returnees' newly developedskills would be put to good
use. Psychological problems of reintegration andpotential conflicts
with co-workers and management would also be addressed.The details
of a reintegration program would be developed and furnished to
theBank for review and comment by July 1, 1987 (Section 3.05 of the
draft LoanAgreement).
58. Monitoring and Evaluation. The OFPrU would establish
monitoring andevaluation procedures to govera the program and
ensure achievement of targetsfor academic performance, cost
effectiveness and administrative efficiency. Amonitoring and
evaluation system for the entire program, satisfactory to theBank,
would be established by December 31, 1985 and a mid-term evaluation
ofthe project would be furnished to the Bank, for review and
comment, byDecember 31, 1987 (Sections 3.06(d) and (e) of the draft
Loan Agreement).
59. As part of the monitoring and evaluation process,
mid-program con-sultations would be held with fellowship holders.
At the end of their firstyear of studies, all fellows would be
consulted to evaluate their respectiveEEO's performance, assess the
quality of the academic and preparation programsand provide general
feedback. Within six months of the return of a particulargroup of
fellows to Indonesia, a post-return seminar would be held.
Thiswould provide an opportunity for comment on the relevance of
the fellowshipprograms to their jobs and the quality of the
reintegration program.
Implementation Schedule
60. The project would be implemented over an eight-year period.
Thelong project period is necessary for the following reasons.
Because of the
-
- 19 -
large number to be trained, the departure of the participants
would be phasedover five years. Some of those leaving during the
fourth and fifth yearswould not return until the eighth year. Given
the importance of reintegra-tion, full Bank participation in this
process is desirable. The project comrpletion date would be June
30, 1992 and the loan closing date would beDecember 31, 1992.
Project Cost and Financing Plan
61. The total cost of the proposed project including
contingencies wouldbe US$153.7 million equivalent, of which US$93
million would be in foreignexchange. Taxes and duties (about
US$200,000) would be negligible. Costestimates are based on April
1985 prices. Costs for overseas fellowshiptraining were estimated
at about US$18,000 per man-year (including tuition,living and
academic allowances, travel and management). This is an
averagebased on a recent survey conducted by the Bank on fellowship
costs in variouscountries. The contingency allowance of US$43.2
million includes: (a) phy-sical contingencies (US$11.0 million)
estimated at 10% of base costs; and(b) price contingencies (US$32.2
million) calculated on the basis of thefollowing percentages: local
- 8% for 1985-90 and 5% for 1991 and subsequentyears; foreign - 5%
for 1985, 7.5Z for 1986, 8% for 1987-90, and 5% forsubsequent
years.
62. The proposed Bank loan of US$93 million would meet the full
foreignexchange costs of the project, or about 60% of total project
costs. TheGovernment would finance the remaining US$60.7 million of
project costs fromits own resources. Retroactive financing of up to
US$2 million would beincluded to cover project expenditures
incurred after appraisal, i.e.,August 31, 1984. These include
start-up costs for the project managementsystem and the costs of
preparing the first group of students for overseasstudy in the
academic year beginning September 1985. Annual
recurrentexpenditures generated by the project are estimated at
about US$1.0 miLlion(at 1984 prices) in 1992. This represents an
increase of about 4% in theresearch institutes' recurrent budget
and would not pose a significant burdenon the Government. Moreover,
in addition to government allocation, theinstitutes have other
means of cost recovery, such as carrying out researchcontracts for
other agencies, to meet some of their operating expenditures.
Procurement
63. Equipment to oe procured under the project is estimated at
aboutUS$300,000, including contingencies, and would mainly consist
of microcomrputers and typewriters. They would be off-the-shelf
items not exceedingUS$50,000 for each package and would be procured
on the basis of a comparisonof quotations received from at least
three suppliers. Books and journals inforeign languages would be
purchased directly from publishers or distributorsafter negotiating
for the best discount-. Consultants would be selected inaccordance
with the "Guidelines for the Use of Consultants by World
BankBorrowers". Foreign academic and scientific institutions to
which studentsare sent would be selected mainly on the basis of
academic quality and costsand their selection would be reviewed
with the Bank.
-
- 20 -
Disbursement
64. The proposed loan of US$93 million equivalent would be
disbursed onthe basis of: (a) 100% of total expenditures for
overseas fellowships, studyvisits and pre-degree training; (b) 100%
of foreign expenditures forequipment, 100Z of local expenditures
(ex-factory) and 70% of local expendi-tures for other items
procured localLy; (c) 100% of total expenditures forconsultants'
services; and (d) 100% of foreign expenditures for books,journals
and research allowances. No disbursements would be made for
localtraining and local research and operating costs.
Accounts, Audits and Reports
65. All project agencies would prepare and maintain separate
projectaccounts in accordance with sound accounting practices.
Accounts and documen-tation supporting statements of expenditure
would be maintained separately andwould be readily available for
review by visiting Bank missions. During nego-tiations, the
Government provided assurances that: (a) accounts, statementsof
expenditure, and financial statements for each fiscal year would
beprepared and audited by independent auditors acceptable to the
Bank; and(b) certified copies of the audited accounts and financial
statements, foreach fiscal year, together with the auditor's
report, would be furnished tothe Bank as soon as available, but not
later than nine months after the end ofeach fiscal year (Section
4.01 of the draft Loan Agreement).
Benefits and Risks
66. As a result of the proposed project, a nucleus of about
1,500 scien-tists, engineers and other professional-level manpower
would be trained abroadand another 1,200 would be trained within
Indonesia. On their return, theywould directly strengthen the
research and development functions of the LPNDs,with the objective
of accelerating the country's industrialization. Theywould also add
considerably to the small stock of Indonesian scientific
andtechnological manpower conducting research in the public sector
and wouldinfluence teaching and research in their fields of study
in Indonesianuniversities. The links between local and foreign
institutions that would beestablished during the project would
enable Indonesian researchers to keepabreast of developments in
their field. Furthermore, a mechanism forassessing degree courses
overseas, placing, administering and monitoringstudents would be
developed and the reliance on overseas implementing
agenciesreduced. This experience would assist the National Steering
Committee ontraining to develop national policies for the
management of overseas trainingwhich can be used by other
ministries and projects.
67. Through the establishment of the management system proposed
underthe project, the risks inherent in such a large fellowship
program would bereduced. The selection procedures involve a series
of specially designedtests and interviews that would ensure the
objective selection of the bestpeople. While not infallible, they
should ensure that candidates are selectedprimarily on the basis of
merit. The selected candidates would go through apreparation
program for training in language and basic skills, which is
expec-ted to keep failures to a minimum. Another risk of the
project is that of apossible "brain drain". From past experience,
the return rate of Indonesian
-
- 21 -
students is extremely high. The monitoring system to be set up
under theproject, the continued contacts between the research
institutes, and partici-pants during their studies overseas, and
the reintegration program shouldserve to minimize this risk
further.
PART V - LEGAL INSTRUMENTS AND AUTHORITY
68. The draft Loan Agreement between the Republic of Indonesia
and theBank and the report of the Committee provided for in Article
III, Section4(iii) of the Articles of Agreement are being
distributed to the ExecutiveDirectors separately. Special
conditions of the project are listed in SectionIII of Annex
III.
69. I am satisfied that the proposed loan would comply with the
Articlesof Agreement of the Bank.
PART VI - RECOMMENDATION
70. 1 recommend that the Executive Directors approve the
proposed loan.
A.W. ClausenPresident
AttachmentsJune 13, 1985Washington, D.C.
-
ANs I-22- Page of 5 pages
zminun - mkOAL IMIcAom 0aINDO=IIA RPNIN aOps (URZCRf AVRCS)
f
maT (NMT NTIAT) Aja C s w 1 mW -I Diemou
i,eotk 196070 Suma AA & vAIInC AT. ANICA A Caama 0In1m A..
E)
TOTAL 1919.3 1919.3 1919.3ACKIWLIUUAL 296.5 307.1 317.3
r--a an Can) 90.0 150.0 560.0 1091.2 210B.6
m mIce n CNn(CILOWIAS aF OIL MEUIVALE) 88.0 91.0 191.0 567.3
9,5.5
1 - VITAL 57AU31POPULAXIIXOU.HID-EA (CuoSAn) 94680.0 116201.0
152596.0OUR VOPLATION CZ OF0 TOTAL) 14.6 17.1 22.3 34.7 66.5
vOrUIIJfOu 1aWECTONsPOPULATION IN EAR 2000 (KILL) 12.0STATONATW
POPULTIN CHILL) 370.1POPULATION IOM 1.9
POPULSflON CERSITIvER SQ. gm. 49.3 60.5 77.9 261.9 35.7Pa SQ. n.
ACt!. LAND 319.3 376.4 471.0 1735.1 92.4
POPmATn AE STRUCTURE CZ)0-14 nRs 40.7 ".0 39.5 39.0 39.9
15-4 IRs 56.2 53.4 57.3 57.6 56.065 AND Aovz3.1 2.5 3.1 3.3
4.1
POvUMnION COM RATE (1)TOrAL 2.1 2.0 2.3 2.3 2.4UNBAR 3.7 3.6 4.5
4.3 3.6
CRUDE UInTH RATE (PER IOUS) 44.2 41.0 33.6 30.1 31.3CRUDE DElAT
RAIl CPR TNOUS) 22.9 17.6 13.0 9.5 6.1GtOSS RER0DOUCTICS BATE 2.7
2.7 2.2 2.0 2.0
FAMILY PLNKICACCETOIS. ANIUAL (IROUS) .. 161.1 3051.0USES (Z OF
"mAD lrsE) .. .. 53.0 Ic 52.7 40.3
WOOD A oni
IN OF MMOPOD- EUII PECPXTA(1969-71-100) 93-0 102.0 L17 -0 123.0
114.3
.El CAPIO SUPPY oFCAWm CZ OF l:QlllRtE1U) 86.0 96.0 tlO.O 114.4
110.6PROrEIl (GRAMlS PER DAY) 38.0 ".0 49.O 57.0 67.3
OF W ANIIUL AND FL 6.0 6.0 7.0 Id 14.1 34.1
Q=D (AGES I 4) OE STZ 22.9 16.9 23.0 7.2 5.7
LIt EXPECI. Ar Ulllll YAR) 41.2 47.0 53.3 60.4 647DlAUr -RI.
UAIE tCpz T7WII) 149.9 120.9 102.0 66.3 60.6
v5w5a oe 0
TOTL 3. 3.0 23.0 37.0 65.4PROENS 10.0 41.0 57.8 76.3RCFAL C. 1.0
I7.0 26I4 46.2
OINAL . 15.0 23.0 41.3 5609ORUI .. 19.0 20.0 37.0 67.0
RRAL ,, 1.0 24.0 33.3 74.5
PORUALAT1 STCIAX 4780.0 165.0 110.0 26 779.4 97.7POP. Me llUISxC
PERSOO 4510.0 if 7680_0 m3om T7- 2460.4 815.8POP. PEI CT DSPITAL
SSD
ALN 1360. 1.0 120.0 7 104.2 367.2UU^li 250.0 . . JO.O 77; 651.2
*1t.5RURAL .. .. 260.0 32.6 2636.3
Ara.IvsP N ROSP-L 4510.0 _ 2234 . 27-0 27.3
AVRG STZE OF BlXXElILDT0AL 4vs oS ,. ....
A 4.0 5.3 .. .2 .2RTOAL 4.3 4.7
AVERAZ No. OF PERSoNS/NOSTOTAL .. 1.5URBAN 1.6RIURL .. 1.5 .
..
ACCSS TO ELECT. C( O DOULLINS)
TOTAL.. .. . ..
RURAL.. .. . ..
:.: ~~~~~~~Tmk
-
ANNEX I-23 - Page 2 of 5 pages
INDONESA - SOCIAL INDMCATORS DATA SIllXIDONUI.A RIWERENC O
(WIZZTED AV1RAURS) a
MOST (MMS RECET IThUT8) /bRECENT HIDDLR 1NCC MIDOL zucar
196ot 197iLb ESUMTEL ASIA & mPCIFC LA1. AS 6ICA aR
ADJUSTED ENROLIXM RATIOSPRIMARY: TOTAL 71.0 77.0 100.0 102.0
105.4
MALE 86.0 83.0 106.0 105.9 106.3FEULE 58.0 71.0 94.0 98.2
104.5
SECONDARY: TOTAL 6.0 15.0 30.0 46.0 43.2HALE 10.0 20.0 36.0 48.7
42.3FEULE 3.0 10.0 24.0 43.1 44.5
VOCATIONAL CZ OF SECODNDAR) 20.4 22.1 13.4 17.5 33.6
PUIL-TEACES3 RATIOPRDImaf 39.0 29.0 32.0 31.8 30.1SECONDRY 14.0
13.0 16.0 23.5 16.8
ADULT LITERACT A122 (Z) 39.0 56.6 62.0 72.9 79.5
PASSENGER CARS/TROtSAND POP 1.1 2.1 4.4 10.1 46.0RADIO
RECEXVERS/IHOUSAND POP 7.2 21.9 42.4 113.6 225.6TV
RECEIVERS/7BOUSAND POP 0.1 0.8 9.6 50.1 107.2NEWSPAPER (ULY
GENERAL
INTZEREST) CIRCI.TIOSPER THOUSAND POPULIAION 11.0 .. 17.7 5 S3.9
63.5
CIMNA ANNUAL ATTENDANCE/CAPITA 2.8 .. 0.8 di 3.4 2.8
TOM 1ABOR FORCE (Ta0) 34791.0 £1090.0 54689.0FPAUE (PERCENT)
27.8 30.9 29.1 33.5 23.2ACRICULTURE (FERUENT) 75.0 66.0 56.0 52.2
31.5INDUS (PERCENT) 8.0 10.0 12.0 17.9 23.9
PARTICIPATION RLTE (PERCENT)TOTAL 36.7 35.4 35.8 38.7 32.2MALE
54.2 49.5 51.1 50.9 49.3FEALE 2O.0 21.6 20.7 26.6 15.2
ECONOaC DEPENDENCT RATIO 1.2 1.3 1.2 1.1 1.4
IN DrsnmPERCENT OF P9I1AIE INCUSRECEIVED BY
RISEEST 5 OUSEOLDS .. .. 23.5 I 22.2REST 20: OF HUSEBIOWS .. ..
49.4 7 48.0
LOWEST 20X OF HOUBEHOLDS .. .. 6.6 7 6.4LOWEST 40Z R BOUSUOLDS
.. .. 14.4 L 15.5
s TARG IOUS-SINM A UZ POSRY INCS
LEVEL COUS PER CAPITA)URAN .. 124.0 /t 124.0 /i UIS.6 288.2RURAL
.. 106.0 71 106.0 71 152.0 184.0
ESTIMATED WE T POERI ICUSLE CUSS PERM CAPITA)
URBAN .. .. 119.0 /i 177.9 522.8RURAL .. .. 98.0 7 L64.6
372.4
* ESTIDAfl POP. BElW ABSOLUTEPOVERTY INCOM LEVEL (S)
URBAN .. 51.0 /i 26.0 /i 23.4RURAL .. 59.0 7T ".0 7' 37.7
NOT AVAILAZ-BOY APPLICABLE
N O T E S
/a Tbe group averags for eclh indlator are population-weigtod
arithmetic sean. Coverage of contrie. aong theIndicatora depends on
avalLab..ity of data and i. not uniform.
/b Unlea otherwie mated, lDatdt for 1960' refer to any year
between 1959 and 1l1; 7 ata for 1970 betwe 1969 ad1971; ad data for
"Not leat EatiatoC between 1980 ad 1982.
/c 1983; /d 1977; 1a 1979; /f 1962; 4L 1976; / 1975; /i 1980
price.
JUNE, 1984
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-
- 25 -ANNEX Irags * of 5 Pages
Populatlon 155.8 *lllion (mid-1983)CGP per Capita: USSS60 (L983
estimate)
INDONESIA - ZCNONOIC INDICATORS
Amun(million US$ at Annual growth rate (Z) /bcurrent prices)
Actual Prolected
Indicator 1983 1950 1981 1695 195L3 1541 Is L95. U56 1987 188
lS8Y 199D
NATIONAL ACCOUNTSGross domestic product Ic 78,344 9.9 7.9 -0.2
4.7 6.5 2.9 4.6 5.1 4.7 4.1 4.3
Agriculture 20,651 5.2 4.9 2.1 4.8 5.0 3.7 3.7 3.7 3.7 3.7
3.7Industry 29,896 12.5 8.5 -6.4 5.0 9.8 0.9 4.5 5.5 4.6 3.0
3.5Services 27,797 11.8 9.8 5.5 4.3 4.0 4.5 5.5 5.5 5.5 5.5 5.5
ConSumption 62,731 12.4 15.8 3.0 0.7 7.2 3.1 3.1 4.2 4.2 4.2
4.2Gross invesement /d 18,908 18.9 11.1 8.5 -7.0 -9.0 5.1 5.1 5.3
5.5 5.7 5.5Exports of CMPS 19.508 -5.6 -2.4 -12.6 14.2 3.5 1.4 6.4
5.2 3.9 1.4 3.0Imports of CGNS 22,803 15.1 27.1 3.2 -8.6 -7.5 3.6
1.5 2.4 2.6 2.6 3.4
Gross untlonal savings 12,273 33.2 -20.0 -11.3 3.7 1B.4 -3.3 8.9
8.0 6.9 5.3 5.2
PRICESCDr-defLator (1981 - 100) 91 100 113 131 142 154 168 183
199 217 237Exchange rate (Rp per USS) 627 632 661 909 1.026
Share of GDP at market prices (Z)(at current urices) _ _ er 1
annual increase (Z) /b
1960 1970 197S 1980 19B5 1990 1960-70 1970-5 1975-8D 1980-83
1Y55-90
Gross domestic product 100 100 100 100 100 100 3.9 8.4 7.4 4.3
4.6Agriculture 54 47 32 25 26 25 2.7 4.1 3.3 4.1 3.7Industry 14 18
34 43 38 38 5.2 12.0 9.8 3.4 4.2Services 32 35 35 32 36 37 4.8 9.7
9.5 5.6 5.5
Consumption 91 89 79 71 78 76 4.1 8.4 9.2 6.0 4.0Gross
investment /d 8 14 20 21 18 19 4.8 18.3 12.2 2.6 5.4Exports of GNFS
13 13 23 31 25 24 3.6 9.2 2.9 -1.1 4.0Imports of CNFS -13 -16 -22
-22 -21 -19 3.2 22.1 14.0 2