Star Report: Indonesia Compact | August 2019

Country Context

Country Context

The MCC Board of Directors selected Indonesia as eligible to develop a compact in December 2008. At that time, it was the recipient of the then-largest MCC Threshold Program ($55 million) with activities underway in e-procurement, child immunization, and judicial reform. Indonesia was also increasingly recognized as a key U.S. strategic partner. The administration of President Susilo Bambang Yudhoyono had proposed that Indonesia and the United States enter into a Comprehensive Partnership, which was established in November 2010. 3 With these windows of opportunity to improve relations, the U.S. government sought to bring significant resources to the new partnership. As Indonesia was developing its compact, another opportunity to reinforce the bilateral relationship emerged. When the U.S. made its pledges to the Copenhagen Accord in December 2009, Indonesia was recognized as a critical partner for climate action, and a potential MCC compact was viewed as a potential important contribution in this sector.

With a population greater than that of all other MCC compact countries combined, more than 17,000 islands spanning 3,181 miles from east to west and 1,094 miles from north to south, an independent, nationally-oriented government, and an expansive economy with large private and donor inflows, Indonesia was unlike any other MCC partner. In this context, MCC worked to ensure that its model and processes guided compact development and implementation. In order to satisfy MCC requirements and keep the compact development process moving forward, Indonesia tapped into an existing effort to analyze the critical constraints to inclusive economic growth by the Asian Development Bank, the Islamic Development Bank, and the International Labour Organization. The analysis identified three critical constraints to economic growth and poverty reduction: (1) inadequate and poor quality of infrastructure, (2) weaknesses in governance and institutions, and (3) unequal access to and poor quality of education. 4 At the time, MCC’s investment criteria did not require adherence to these binding constraints, and ideas that fell outside even these broad categories of constraints were raised by a variety of stakeholders.

The GOI consultative process socialized the preliminary results of the constraints analysis and solicited concept notes for projects at 11 regional meetings and one meeting with the private sector in Jakarta. The process resulted in 388 project proposals from individuals, NGOs, private companies, and local governments. A steering committee of notable Indonesians from government, NGOs, the private sector, and academia oversaw the winnowing and consolidation of these proposals into 13 concept papers. While none of the submissions initially met MCC’s criteria for investment, the GOI and MCC agreed to move forward with three themes for project development that had come through strongly in the consultative process and in the concept papers themselves: energy and the environment, access to basic services (education and health), and bureaucratic reform/governance. From these three themes arose the three projects that ultimately comprised the compact: Green Prosperity, Community-based Health and Nutrition to Reduce Stunting, and Procurement Modernization.

Since many promising project ideas emerged through the inclusive consultative process and the steering committee consolidated multiple small projects under thematic umbrellas, the GOI had strong expectations that a diverse set of projects could be funded. A desire to move such a varied set of projects forward greatly impacted the design and breadth of the compact. These expectations played a major role in the design of the Green Prosperity Project, which ultimately funded activities as diverse as female agricultural entrepreneurship, methane capture power generation, vocational education for renewable energy technicians, and participatory village boundary setting—a single project that had a greater breadth of activities than some of MCC’s other compacts in their entireties. Similarly, knowing that an MCC compact would be monetarily small in scale compared to Indonesia’s own public spending, compact development focused on identifying activities that could later be scaled up by GOI or other partners, should their success be demonstrated. Both the GOI and MCC understood that this complexity and innovation would lead to longer project timelines and identified early on the completion risks associated with this approach.

During compact development, the GOI and MCA-Indonesia (the accountable entity responsible for implementing the compact) conducted a wide array of additional consultations with relevant government agencies, donors, private sector, civil society and communities to inform compact-wide and project-specific Environmental and Social Management Systems (ESMS) and a Social and Gender Integration Plan (SGIP). Implementation of the ESMS and SGIP helped ensure adherence to MCC’s Environmental Guidelines and promote the access of women and disadvantaged groups to projects and benefits. MCC’s Board of Directors approved the MCC compact with Indonesia in September 2011 and the compact was signed on November 19, 2011.

At a Glance

  • Original Amount at Compact Signing:
    $600.0 million
  • Amount spent:
    $474 million
  • Signed: November 19, 2011
  • Entry Into Force:
    April 2, 2013
  • Closed:
    April 2, 2018

Footnotes
  • 1. Riskesdas 2007 (Riset Kesehatan Dasar – Basic Health Survey). Over one third of children under 5 in Indonesia remained stunted during the 2013 round of the Riskesdas survey, the year that the MCC compact with Indonesia entered into force.
  • 2. Olken, Benjamin A.; Onishi, Junko; Wong, Susan. 2011. Indonesia’s PNPM Generasi Program: final impact evaluation report (English). Washington, DC: World Bank.
  • 3. The Comprehensive Partnership established a formal framework for enhanced bilateral cooperation in several areas. Details at: https://obamawhitehouse.archives.gov/the-press-office/2010/11/09/joint-declaration-comprehensive-partnership-between-united-states-americ . Viewed October 24, 2018.
  • 4. Asian Development Bank (2010), Country Diagnostic Studies, Indonesia: Critical Development Constraints. See page 86, Summary, for a statement of the three identified critical constraints to inclusive economic growth.
  • 5. Asian Development Bank (2010), Country Diagnostic Studies, Indonesia: Critical Development Constraints.
  • 6. http://www.mca-indonesia.go.id/assets/uploads/pubs/PanduanTeknis%20PPB%20Des%20MCA-Indonesia%20Final.pdf . Viewed October 24, 2018.
  • 7. For further detail on the evolution of the GPF Activity, please see the Green Prosperity Facility Evaluation referenced and linked below in this report.
  • 8. The matchmaking process has been somewhat successful. Several letters of agreement were signed and other “process” milestones reached. But, the GOI unit tasked with monitoring these outcomes has not yet delivered any satisfactory reporting covering this information.
  • 9. MCC’s standard practice is to have compacts ratified or approved by the partner country’s legislature.
  • 10. See the MCC Learning section for details about what lessons MCC took from implementing the GPF and how the agency is actively applying them to current and future facilities.
  • 11. FAO’s Data Portrait of Smallholders. http://www.fao.org/family-farming/data-sources/dataportrait/farm-size/en/
  • 12. This refers to the CocoaTrace technology / app which is now being used for Palm Oil as well. Learn more here: https://koltiva.com/#aboutus
  • 13. MCC is waiting for information from the Government of Indonesia to verify this statement.
  • 14. FAO, “Small Family Farms Country Factsheet – Indonesia,” http://www.fao.org/3/i8881en/I8881EN.pdf.
  • 15. It is important to note that because the GP Project funded 66 grants under the GPF Activity, it was not possible to verify the data above in the same way that MCC normally does for a project. The data above were reported by grantees/implementers, which is standard; but the standard of evidence for accepting their reports was lower than for normal MCC projects because it was not possible to closely monitor activities of each grantee.
  • 16. MCC is waiting for information from the Government of Indonesia to verify this statement.
  • 17. POME investments also covered under the renewable energy portfolio section.
  • 18. Brief summaries of the grants can be found at: http://www.mca-indonesia.go.id/en/project/green-prosperity/grant/green-knowledge-grant. Viewed October 24, 2018.
  • 19. The Green Knowledge Management Information System can be accessed at: https://forum-greenknowledge.ipb.ac.id/. Viewed October 24, 2018.
  • 20. For further explanation on the administrative costs associated with the GPF Activity, please see the Green Prosperity Facility Evaluation referenced and linked below in this report.
  • 21. MCA-Indonesia (2018) Policy Study to Promote Economic Opportunities for Women and Vulnerable Groups in Indonesia Low Carbon Economy, Jakarta Indonesia.
  • 22. The Government of Indonesia’s One Map Policy was initiated in 2011 to establish a unified database of geospatial information, including land use and land tenure, to be used to inform government decisions on the allocation and use of land and natural resources.
  • 23. MCC is waiting for information from the Government of Indonesia to verify this statement.
  • 24. Details can be found at: https://www.rspo.org/palmtrace. Viewed October 24, 2018.
  • 25. MCC is waiting for information from the Government of Indonesia to verify this statement.
  • 26. Learning from the experience with the Green Prosperity Facility has been applied to MCC facilities underway in Morocco, Benin, and Niger compacts.
  • 27. As estimated in the cost-benefit analysis at time of signing.
  • 28. Olken, Benjamin A.; Onishi, Junko; Wong, Susan. 2011. Indonesia’s PNPM Generasi Program : final impact evaluation report (English). Washington, DC: World Bank.
  • 29. Asian Development Bank (2010), Country Diagnostic Studies, Indonesia: Critical Development Constraints. This quotation is from the Executive Summary on page 4 but the larger discussion can be found in section 4.2.1 Human Capabilities beginning on page 57.
  • 30. Olken, Benjamin A.; Onishi, Junko; Wong, Susan. 2011. Indonesia’s PNPM Generasi Program : final impact evaluation report (English). Washington, DC: World Bank.
  • 31. During the design stage, the independent evaluator proposed a 5 percent effect size as a reasonable effect size to expect based on the project cost. The power calculations were driven in large part by the number of sub-districts in the three treatment provinces.
  • 32. http://scalingupnutrition.org/
  • 33. This indicator reports total Generasi block grant spending against the target for MCC’s contribution to Generasi’s block grant budget. The percent complete can be interpreted to mean that Generasi distributed block grants in excess of MCC’s contributions, by 28%. MCC’s targeted distribution toward Generasi block grants was met.
  • 34. During compact implementation, MCC approved increasing funding for the Procurement Modernization Project to $75 million.
  • 35. This represents the estimated population of project-affected local governments. Benefits associated with improved procurement within national ministries were not found to be significant.
  • 36. Officials from approximately 80 procurement service units were contacted, including all phase 1 and comparison PSUs.
  • 37. LKPP/Bappenas/MCA Indonesia (2013) Gender in Government Procurement in Indonesia: Survey Findings on Access to Procurement, Key Barriers and Trends, Jakrata Indonesia
  • 38. This new initiative was presented to MCC management for the purposes of transparency; however, the funding came from within the Supply-Side Activity, therefore no reallocation of funds between Activities was required. Funds were made available by MCA-Indonesia from savings projected in the purchase of multiple micronutrients, the use of district consultants, and total awards planned for the private sector response activity.
  • 39. MCC is waiting for information from the Government of Indonesia to verify this statement.
  • 40. As the compact entered the final year of implementation, MCA-Indonesia took seriously its charge to outline these “models” of application and “lessons learned” for its GOI stakeholders as reflected in the large number of studies produced. The best example is the Green Knowledge repository: https://pengetahuanhijau.batukarinfo.com.