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  • Star Report:  Indonesia Compact
  • August 2019

Executive Summary

MCC’s Board of Directors selected Indonesia as eligible to develop a compact in December 2008. With a population greater than all other MCC compact countries combined and an island geography spanning the same distance as from Miami, Florida to Juneau, Alaska, Indonesia was not a typical MCC partner country. As such, there was broad recognition at MCC that developing a compact with this strategic U.S. partner would be unique and challenging. Given Indonesia’s large economy, sizeable population, and geographic expanse, the compact ultimately focused on innovation and opportunity for scale, allowing the Government of Indonesia (GOI) to tackle existing problems in innovative ways by using different standards and incorporating international best practices.

The compact included three projects. Through the Green Prosperity Project, the compact supported the GOI’s commitment to improving natural resource management and maximizing opportunities for investment in renewable energy and sustainable agricultural practices, including through engaging and leveraging the private sector and other external resources. The Nutrition Project aimed to prevent and reduce chronic malnutrition by improving the capacity of health service providers and strengthening community health, sanitation, and education efforts, ultimately helping to shape the national conversation on nutrition. The Procurement Modernization Project piloted new procurement institutional and staffing arrangements and introduced a new digital system to help the GOI more efficiently and transparently procure goods and services.

Compact development and implementation faced challenges. At the start, none of the project concept papers initially submitted by the GOI met MCC’s criteria for investment, and certain projects, such as Green Prosperity, were larger in funding and scope than MCC could realistically fund and indeed larger than many full MCC compacts. Additionally, the GOI was committed to leveraging the lessons from compact implementation to scale up interventions or change their own processes and policies. While this commitment was positive, it also led to additional bureaucratic obstacles that substantially delayed project implementation in some cases. As an example, it took over one year to develop a sufficiently accountable payment system to enable individual Ministry of Health (MOH) workers to attend trainings, in part because of a preference for using and improving MOH systems rather than outsourcing training and payments.

The overall commitment to improve existing systems did, however, lead to advances in the policy environment, particularly for the Nutrition Project and the Procurement Modernization Project. The progress at sub-national levels was even greater, with several local governments passing regulatory reforms and institutionalizing improved practices in public procurement through local parliament legislation.

MCC’s Board of Directors approved the MCC compact with Indonesia in September 2011 and the $600 million compact was signed on November 19, 2011. Approximately $474 million (79 percent) of the Indonesia Compact was disbursed, with $126 million unspent due to a slow start to implementation across the compact and with specific difficulties in launching the Green Prosperity Project.

The Green Prosperity (GP) Project

The objectives of the GP Project were to increase economic productivity through: 1) reduced reliance on fossil fuels by expanding renewable energy; and 2) reduced land-based greenhouse gas (GHG) emissions by improving land use practices and management of natural resources. The majority of the GP Project’s investment was intended to occur through an adaptable and market-responsive GP Facility (GPF), a vehicle to provide grant financing to mobilize greater private sector investment and community participation in renewable energy and sustainable land use practices. The GPF was designed to identifyand target projects that were ripe for implementation and/or scaling up in an evolving and dynamic market. The GPF also aimed to leverage private sector funds that would maximize the impact of compact funding and help improve sustainability beyond the life of the compact. To support the GPF and achieve project objectives, GP also strengthened the spatial planning and enforcement capacity of participating villages, districts, and provinces through the Participatory Land Use Planning (PLUP) Activity since understanding where land boundaries are and what land use is taking place within those boundaries helps communities to plan and make informed decisions about managing natural resources.

Sixty-six GPF grants were completed, leveraging roughly $28 million in private sector and other outside financing. The GPF achieved significant milestones, including:

  • Installation of 12.75 megawatts of new renewable energy generation capacity, MCC’s largest renewable energy investment to date. The project also piloted new models in community-developed partnerships for off-grid electricity;
  • Training of more than 127,000 farmers, MCC’s largest farmer training, certification, and technical assistance support program to date; and
  • The first MCC compact to sustainably certify independent small holder cocoa and palm oil producers with significant private sector co-financing. Certification schemes set out environmental and social standards and require farmers to meet improved farming practices and then monitor compliance through regular audits. Once farmers receive certification, they are able to sell beans at a higher price.
In addition, the GPF portfolio of investments supported peatland restoration to combat fires in degraded peatland, secured rights for community groups over communal forest lands, and encouraged community participation in land use planning. Special efforts were made to target training to reach poor and socially disadvantaged groups, including women and ethnic minorities, with over 43,000 women trained under the GP Project. Additional information on project results will be available from forthcoming independent evaluations.

The Community-Based Health and Nutrition to Reduce Stunting Project (Nutrition Project)

The objectives of the Nutrition Project were to reduce and prevent low birth weight and childhood stunting and malnourishment of children in project areas, resulting in increased household income through health cost savings, productivity growth, and higher lifetime earnings. In Indonesia, at the time of compact development, over one third of children under five were stunted.[[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.]] This signals long-term malnutrition, which can have a major impact on children’s lives, putting them at higher risk of chronic disease, delayed cognitive development, delayed enrollment in school, and reductions in future earnings. The Nutrition Project was conceived as a way to build community knowledge of and demand for health services that could combat stunting and strengthen the health system infrastructure at the local level to deliver these services.

The project design was based on the results of a 2011 rigorous impact evaluation, which found that an existing national project in Indonesia was delivering positive health and school enrollment impacts at the community level.[[Olken, Benjamin A.; Onishi, Junko; Wong, Susan. 2011. Indonesia's PNPM Generasi Program: final impact evaluation report (English). Washington, DC: World Bank.]] At the same time, qualitative data suggested that often communities that wanted services could not get them from their local health posts. The evaluation suggested that greater impacts might be possible if the “demand‐generating” community empowerment and education activities were coupled with a “supply‐side” set of interventions to meet this demand. Compact-funded interventions included community block grants and participatory technical assistance to communities, training for health service providers, sanitation and hygiene activities, provision of micronutrients to pregnant women, materials to measure children’s height, private sector interventions, and a behavior change communications campaign. Ultimately, the project trained over 17,500 service providers on proper feeding for infants and young children, distributed over 35 million iron folic acid tablets for pregnant women, and conducted over 4,200 community sanitation behavior change meetings in 64 districts.

While activity outcomes varied, the Nutrition Project formed a cornerstone for and supported a larger movement to increase awareness about stunting in Indonesia and to channel resources to address the problem. Similarly, the Ministry of Health has recognized the links between malnutrition and sanitation, and organized its offices accordingly. At the end of the compact, stunting had become a national priority for Indonesia, with national and local governments making public efforts to coordinate between sectoral agencies and leverage additional resources to tackle the issue.

The Procurement Modernization Project

At the time of compact development, the GOI did not recognize procurement as a specialized discipline. Instead, the purchase of goods and services was made by government personnel assigned to the task on an ad hoc basis. The GOI recognized that this public procurement system lacked consistency, governance, and expertise and was highly vulnerable to waste and abuse. The Procurement Modernization Project was designed to partner with the recently created National Office of Public Procurement (LKPP) to support implementation of newly enacted presidential decrees aimed at radically reforming the legal and institutional framework of procurement throughout the country.

The Procurement Modernization Project aimed to establish procurement as a professional function within the GOI and create a cadre of professional procurement officials with the appropriate skills, systems, processes, and operating standards to reduce costs and achieve efficiency in procurement, and provide procurement quality that met public needs and ensured timely delivery of services. Compact funds were used to establish dedicated procurement service units (PSUs) in a diverse set of government entities throughout Indonesia and to provide extensive training and support to nurture their organizational development. The organizational development program received strong support from LKPP and is expected to spread and be sustained to reach many more PSUs in Indonesia. By the end of the compact, high‐capacity pilot PSUs were already sharing their knowledge with other PSUs.

As a condition of the compact, the GOI agreed to establish procurement as a functional position within government agencies. In support of this action, the Project developed and delivered 43 procurement and organizational skills training modules mapped to professional competencies focusing on building skills rather than on regulatory compliance, in order to enable the GOI to conduct more strategic, complex, and high value procurements within ministries and at the regional and district levels. Over 1,000 individuals participated in the training program, which also established local training institutions and developed local trainers. By the end of the compact, 24 percent of trained procurement specialists and staff of PSUs were women from a baseline of 19 percent, with four becoming PSU heads. The procurement skills training modules have been adapted by LKPP for use in the GOI competency requirements for procurement professionals across Indonesia.

The Procurement Modernization Project also helped develop and pilot new procurement policies, procedures, and model bidding documents for procuring public-private partnerships (PPPs), an important strategy for Indonesia to improve the poor condition of national infrastructure. The Project also provided research for the GOI to use as it adopts practices promoting environmentally and socially sustainable public procurement.

This Star Report for Indonesia provides a summary of the outputs of the compact program, documents changes in compact activities and the reasons behind them, details information on performance against targets in the monitoring plan, and summarizes the results of independent evaluations that have been completed. It also details relevant partnerships and learning as a result of compact investments. This Report includes the results of interim evaluations and will be updated to include data from nine independent final evaluations that are not yet complete.