Indonesia Compact

  • Grant Total: $600,000,000
  • Grant Committed: $362,928,402
  • Grant Expended: $206,378,764
  • Signed: November 19, 2011
  • Entry Into Force: April 2, 2013

This compact with the Republic of Indonesia is designed to reduce poverty through economic growth. The compact’s three projects are expected to increase household income in project areas through better health and nutrition, sustainable land and energy management, and modernizing the system of government procurement of public goods and services.

Financials as of December 31, 2016

Community-Based Health and Nutrition to Reduce Stunting Project

The compact’s $134.2 million project seeks to reduce and prevent low birth weight, childhood stunting, and malnourishment of children in project areas. The project plans to assist infants and children up to two years old in approximately 5,400 villages across 11 (of 34) provinces where rates of stunting and low birth weight are higher than national averages, and aims to build both the demand for and supply of nutrition and healthcare services.

Currently, approximately 7 million Indonesian children and infants, or one-third of all children under five years old in Indonesia, experience stunted growth, as measured by international standards of height for age.  The causes of stunting and malnutrition include maternal malnutrition, poor infant and young child feeding practices, and inadequate sanitation & hygiene. 

Consequences of nutritional deprivation in a child’s early life include higher infant and child mortality, increased susceptibility to infection and illness, reduced adult physical stature, and impaired cognitive abilities. These consequences result in long-term economic losses to individuals and society.

The project employs methods to reduce  stunting and low birth weight that are drawn from a growing body of international evidence.. The project uses incentives to increase demand for tools and services to reduce stunting. This task builds on existing methods of community engagement that were tested under the Government of Indonesia’s incentivized block grants program known as PNPM-Generasi.  This program supports community efforts to improve targeted health, nutrition, and education indicators.

To meet the increased demand for health services generated by the block grants, the project increases the ability of the health system to supply quality services by training health workers in infant and young child feeding, growth monitoring, and sanitation.  This is complemented by a national mass media and behavior change communication campaign focused on improving sanitation and child feeding practices.

Green Prosperity Project

The compact’s $332.5 million Green Prosperity Project is designed to increase productivity and reduce reliance on fossil fuels by expanding renewable energy, and to increase productivity and reduce land-based greenhouse gas emissions by improving land use practices and management of natural resources.

The majority of Indonesia’s poor live in rural areas that are rich in natural resources, but the country’s ability to sustain high rates of economic growth and reduce poverty are threatened by over-extraction and inadequate management of these resources. One in seven villages in Indonesia lacks access to reliable and affordable electricity, and many more rely on expensive and dirty diesel generation. Unsustainable land use practices such as illegal logging, conversion of arid land for agriculture, and water pollution adversely affect the natural assets on which people rely for their livelihoods and well-being. Protecting Indonesia’s natural resources from demographic, social, and economic forces requires developing viable economic alternatives. 

These objectives support the medium- to long-term development plans of the Government of Indonesia and its commitment to reducing greenhouse gas emissions and developing corridors of economic growth. The Green Prosperity Project will provide technical and financial assistance for projects in renewable energy and natural resource management to raise rural household incomes. This is expected to reduce reliance on fossil fuels, improve land management practices, protect natural capital, and complement efforts to reduce greenhouse gas emissions.

Procurement Modernization Project

The $65 million Procurement Modernization Project is designed to assist the Government of Indonesia in achieving significant government expenditure savings with no loss—or an increase—in the quality of procured goods and services. 

Efficient and effective public procurement is a strategic public sector function and an important component of good governance. The vulnerability of Indonesia’s existing public procurement system to fraud, waste, and abuse results in a significant loss of funds and a reduction in the quality of goods, works, and public services. More than $15 billion could have been misused in 2011 due to corrupt and inept procurement practices, according to a recent study by the Corruption Eradication Commission.

The Government of Indonesia has taken significant steps to modernize its public procurement system. The National Public Procurement Policy Agency charged with implementing these efforts will use MCC assistance to promote improved practices in public procurement.

The project includes activities to build a career path for procurement civil servants, create the roles and structure that provide procurement professionals with the authority to implement good practice, and strengthen controls like procurement and financial audits to improve institutional performance.