Report and Recommendation of the President to the Board of Directors
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Report and Recommendation of the President to the Board of Directors Project Number: 52324-001 November 2018 Proposed Loan Republic of Indonesia: Emergency Assistance for Recovery and Rehabilitation from Recent Disasters Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB's Public Communications Policy 2011.
CURRENCY EQUIVALENTS
(as of 12 November 2018)
Currency unit – rupiah (Rp)
Rp1.00 = $0.000067
$1.00 = Rp14,731
ABBREVIATIONS
ADB – Asian Development Bank
BAPPENAS – Badan Perencanaan Pembangunan Nasional (National
Development Planning Agency)
BNPB – Badan Nasional Penanggulangan Bencana (National
Disaster Management Agency)
BPK – Badan Pemeriksa Keuangan Republik Indonesia
EAL – emergency assistance loan
MOF – Ministry of Finance
TA – technical assistance
NOTE
In this report, “$” refers to United States dollars.
Vice-President Stephen Groff, Operations 2
Director General Ramesh Subramaniam, Southeast Asia Department (SERD)
Directors Vijay Padmanabhan, Urban Development and Water Division, SERD
Sona Shrestha, Public Management, Financial Sector, and Trade
Division, SERD
Winfried Wicklein, Country Director, Indonesia Resident Mission, SERD
Team leaders Yurendra Basnett, Country Economist, SERD
Robert Boothe, Public Management Specialist, SERD
Arghya Sinha Roy, Senior Disaster Risk Management Specialist,
Sustainable Development and Climate Change Department
Team members Priasto Aji, Senior Economics Officer, SERD
Emma Allen, Country Economist, SERD
Cristina de Vera, Senior Operations Assistant, SERD
Siti Hasanah, Senior Project Officer (Urban Development), SERD
Mohd Sani Mohd Ismail, Senior Financial Sector Specialist, SEPF
Baurzhan Konysbayev, Principal Counsel, Office of the General Counsel
Laurence Levaque, Senior Social Development Specialist, SERD
Sevil Maharramova, Financial Management Specialist, Procurement,
Portfolio and Financial Management Department
Amr Qari, Principal Infrastructure Specialist, SERD
Eric Quincieu, Senior Water Resources Specialist, SERD
Deeny Simanjuntak, Senior Project Officer, SERD
Joris van Etten, Senior Urban Development Specialist, SERD
Sutarum Wiryono, Senior Project Officer, SERD
Peer reviewers Aaron Batten, Senior Planning and Policy Economist, Strategy, Policy
and Review Department
One ADB Team
In preparing any country program or strategy, financing any project, or by making any designation
of or reference to a particular territory or geographic area in this document, the Asian
Development Bank does not intend to make any judgments as to the legal or other status of any
territory or area.CONTENTS
Page
PROJECT AT A GLANCE
I. THE PROPOSAL 1
II. THE EMERGENCY ASSISTANCE LOAN 1
A. Rationale 1
B. Impact and Outcome 7
C. Outputs 7
D. Financing Plan 8
E. Implementation Arrangements 8
III. DUE DILIGENCE 9
A. Governance 9
B. Financial Reporting, Auditing, and Monitoring 9
C. Poverty, Social, and Gender 10
D. Safeguards 10
E. Summary of Risk Assessment and Risk Management Plan 11
IV. ASSURANCES 12
V. RECOMMENDATION 12
APPENDIXES
1. Design and Monitoring Framework 13
2. List of Linked Documents 15Project Classification Information Status: Complete
PROJECT AT A GLANCE
1. Basic Data Project Number: 52324-001
Project Name Emergency Assistance for Recovery Department SERD/SEPF
and Rehabilitation from Recent /Division
Disasters
Country Indonesia Executing Agency Ministry of Finance
Borrower Republic of Indonesia
2. Sector Subsector(s) ADB Financing ($ million)
Public sector management Public expenditure and fiscal management 500.00
Total 500.00
3. Strategic Agenda Subcomponents Climate Change Information
Inclusive economic growth Pillar 2: Access to economic Climate Change impact on the Low
(IEG) opportunities, including jobs, made Project
more inclusive
4. Drivers of Change Components Gender Equity and Mainstreaming
Governance and capacity Public financial governance Effective gender mainstreaming
development (GCD) (EGM)
5. Poverty and SDG Targeting Location Impact
Geographic Targeting Yes Nation-wide High
Household Targeting No
SDG Targeting Yes
SDG Goals SDG11
6. Risk Categorization: Complex
.
7. Safeguard Categorization Environment: C Involuntary Resettlement: C Indigenous Peoples: C
.
8. Financing
Modality and Sources Amount ($ million)
ADB 500.00
Sovereign Special assistance (Regular Loan): Ordinary capital resources 500.00
Cofinancing 0.00
None 0.00
Counterpart 0.00
None 0.00
Total 500.00
Currency of ADB Financing: USD
Source: Asian Development Bank
This document must only be generated in eOps. 05112018195601963327 Generated Date: 12-Nov-2018 15:48:55 PMI. THE PROPOSAL
1. I submit for your approval the following report and recommendation on a proposed loan to
the Republic of Indonesia for Emergency Assistance for Recovery and Rehabilitation from Recent
Disasters.
2. The emergency assistance loan (EAL) aims to mitigate the adverse social and economic
impacts of the recent disasters in Lombok and Central Sulawesi. The emergency assistance is
structured to provided immediate and flexible financing for disaster-related recovery and
rehabilitation expenditures.
II. THE EMERGENCY ASSISTANCE LOAN
A. Rationale
3. Indonesia is in one of the world’s most disaster-prone regions. The country is exposed to
a range of natural hazards, including flooding, earthquakes, landslides, tsunamis, volcanic
eruptions, and recently liquefaction.1 Since 1990, Indonesia has experienced an average of 289
significant disasters per year and an average annual death toll of about 8,000.2 The direct
economic cost of disasters is about Rp22.9 trillion annually ($1.8 billion).3 The severity and
frequency of these disasters stretch national and local government capacity to respond.
4. On 28 September 2018, a magnitude 7.4 earthquake struck Central Sulawesi province,
triggering cascading catastrophic events. The earthquake led to a near-field tsunami that struck
the coast of Central Sulawesi.4 The earthquake and tsunami triggered landslides and caused
liquefaction of soil in several densely populated districts, reportedly burying entire villages and
complicating relief and recovery efforts. The disasters in Central Sulawesi were preceded by a
devastating magnitude 7.0 earthquake in Lombok, West Nusa Tenggara province in August 2018.
5. Damage reports from the National Disaster Management Agency (BNPB) on Central
Sulawesi and West Nusa Tenggara identify severe damage to property, infrastructure, and
livelihoods. Figure 1 summarizes key indicators for the two disasters. More than 2,600 people
have been confirmed dead, 680 people are still missing, and more than 650,000 people have
been displaced. Houses, schools, and health care centers have suffered extensive damage. The
movement of people and goods is hampered by damage to hundreds of kilometers of roads, and
livelihoods have been hit particularly hard. Field reports suggest that about 29 of the 36-kilometer
Gumbasa irrigation system in Central Sulawesi have been completely destroyed. The coastal
areas were battered by the tsunami, destroying fishing vessels, ports, and warehouse and cold
chain facilities. The risk of liquefaction has rendered much of Palu City unusable, forcing
government to explore significant relocation of the city to a new site. BNPB’s initial assessment
indicated damage and losses of Rp13.8 trillion ($950 million) for Central Sulawesi and Rp18.2
1 Liquefaction is a process in which sand and silt that is saturated with water loses strength and acts as a fluid when
shaken by an earthquake (United States Geological Survey. What is Liquefaction?).
2 Global Facility for Disaster Reduction and Recovery.
3 Government of Indonesia, Ministry of Finance. 2018. Indonesia Disaster Risk Financing and Insurance: National
Strategy to Build Fiscal Resilience. Jakarta.
4 Humanitarian Country Team in Indonesia. 2018. Central Sulawesi Earthquake and Tsunami: Humanitarian Country
Team Situation Report #5 (as of 23 October 2018). Jakarta. The Humanitarian Country Team comprises United
Nations agencies, international and national nongovernment organizations, and the International Federation of Red
Cross and Red Crescent Societies.2
trillion ($1.3 billion) for West Nusa Tenggara, totaling Rp32.0 trillion ($2.2 billion). Of this amount,
about Rp24.2 trillion is damage and Rp7.8 trillion is losses.5
6. The human cost of disasters is particularly acute for women and girls, who are especially
vulnerable. While the disasters have harmed large segments of the population, experience from
other disasters shows that women and girls are likely to be disproportionately affected given
preexisting gender inequality and discrimination. Women’s chances of survival in disasters are
reduced by trying to protect the children, elderly, and infirm in their care.6 With displacement and
the absence of adequate shelter, women and adolescent girls experience limited privacy and are
highly vulnerable to sexual harassment and other forms of gender-based violence.
Figure 1: Disasters, Damage, and Losses
Source: Asian Development Bank (ADB).
7. The economic cost to both provinces will rise when losses in output and household
incomes are included. Growth in Central Sulawesi had accelerated past the national average
since 2015 and was expected to reach about 7% in 2018 before the disaster. The consequences
of the disaster will be most acute for agriculture, fisheries, mining, and quarrying, which jointly
account for more than 50% of the province’s economy. While the full economic cost of the disaster
is difficult to project, initial estimates suggest gross regional domestic product growth will fall to
3.6% in 2018—cutting growth by half—with the economy recovering to pre-disaster levels only by
5 S.P. Nugroho. 2018. Disaster Losses and Impact Damage in Central Sulawesi Reached 13.82 Trillion Rupiah. Badan
Nasional Penanggulangan Bencana (National Disaster Management Agency). 22 October (article in Indonesian).
6 D. Mazurana et. al. 2011. Sex and Age Matter: Improving Humanitarian Response in Emergencies. Medford,
Massachusetts, United States: Feinstein International Center. p. 27.3
2021. Capital stock is further expected to contract by 7.0% over the same period.7 In West Nusa
Tenggara, weakening export performance slowed growth to 0.1% in 2017. The effects of the
August earthquake are estimated to cut the gross regional domestic product growth rate by 1.6
percentage points, with the local economy expected to contract and recover to pre-disaster levels
only after 2022. Capital stock is expected to contract by 3.1% in the province. Figure 2 presents
selected indicators on the impact of the disasters. Initial estimates suggest the potential impact
on the national growth rate to be as high as 0.1% of gross domestic product for 2019, representing
forgone output of Rp16.2 trillion ($1.1 billion).
Figure 2: Potential Impact on Regional Economic Growth and Poverty Rates
(annual change)
15% 18%
Percentage of poor people
16%
10% pre-disaster projected
GRDP growth
(Central Sulawesi)
14%
5%
pre-disaster projected 12%
(West Nusa Tenggara)
0%
-5%
2016 2017 2018s 2019s
Central Sulawesi West Nusa Tenggara Central Sulawesi West Nusa Tenggara
GRDP = gross regional domestic product. s = simulation.
Source: Statistics Indonesia; and ADB estimates based on IndoTERM (regional economic model).
8. The trend of falling poverty incidence in the affected provinces will be reversed. Compared
with the national average of 9.8%, the Asian Development Bank (ADB) estimates the share of
people below the poverty line is 14.0% in Central Sulawesi and 14.8% in West Nusa Tenggara.
Provincial averages mask significant disparities, with poverty incidence as high as 32% in North
Lombok. The pre-disaster poverty gap, which measures how far an individual falls below the
poverty line, is also substantially higher in both provinces than the national average, driven in part
by the large share of the population that resides in rural areas in Central Sulawesi and high urban
poverty in West Nusa Tenggara. This large gap suggests that the poor are likely to be pushed
deeper into poverty, are more vulnerable to ongoing risks, and will take longer to recover from the
events. Initial ADB estimates suggest that poverty incidence will increase to 16.4% in Central
Sulawesi and 16.8% in West Nusa Tenggara in 2018.8
9. Job prospects will be significantly reduced by the disasters. Most people in Central
Sulawesi and West Nusa Tenggara rely on agriculture or services in the informal sector to support
their livelihood.9 More than two-thirds of employment is informal, and limited social assistance is
available for the jobless adult population. Women’s participation in the labor force is higher than
the national average, but one in three is an unpaid worker. Growth in average wages has
stagnated since 2013, and a considerable gender wage gap exists. Given these conditions, the
7 Asian Development Bank (ADB) estimates.
8 Poverty Impact Assessment (accessible from the list of linked documents in Appendix 2).
9 Statistics Indonesia. 2018. Labor Force Situation in Indonesia: February 2018. Jakarta.4
effects of the disasters have been particularly damaging to livelihoods. In Central Sulawesi, jobs
in agriculture, fisheries, and mining have been immediately reduced, driving more workers into
the informal economy. Primary irrigation channels have been damaged, with immediate
consequences for farmers. Wide stretches of coastline have been rendered unusable for
aquaculture, and marine life will be slow to recover. Damage to maritime ports in Central Sulawesi
will constrain trade. In Lombok, the impact of the earthquakes on tourism has had major adverse
effects on both formally and informally employed people in the sector.
10. Fiscal adjustments will be required nationally and locally to meet the disaster recovery
needs. The economic and social costs of the recent disasters, estimated to exceed Rp40.0 trillion
($2.8 billion), place significant additional fiscal pressure on the Government of Indonesia. The
national government has mobilized immediate resources to aid in the relief and rescue efforts.
Initial cost estimates from Ministry of Finance suggest an additional Rp4.0 trillion of spending
beyond the initially budgeted resources of Rp4.0 trillion for 2018 and 2019. The National
Development Planning Agency (BAPPENAS) is coordinating the development of short- and
medium-term rehabilitation and reconstruction plans for Central Sulawesi and Lombok. Initial
estimates from BAPPENAS suggest a cost of Rp22.0 trillion for Central Sulawesi and Rp12.0
trillion for Lombok. Furthermore, key agencies, including the ministries of public works and
housing, education and culture, and transport have been instructed by the government to
reallocate existing allocations under the 2018 budget to provide priority support for affected areas,
with preliminary estimates of Rp1.7 trillion. Without additional financing resources, these
reallocations will reduce planned government investment and services in other parts of the
country as funds are diverted to meet emergency needs.
11. The additional financing needs have occurred as Indonesia faces significant economic
uncertainties and surging financing costs. Support from ADB and other development partners will
be critical to help the government meet the costs of the recovery and rehabilitation efforts and to
ensure that essential development spending on health, education, and social protection is
maintained. Table 1 provides a sample of indicative recovery and rehabilitation expenditures that
the government expects to undertake.
Table 1: Indicative Recovery and Rehabilitation Activities Planned by the Government
Recovery Estimated
Category Amount Indicative Activity or Item
Urban Rp19.1 trillion Provision of drinking water for the affected population
Development, ($1.3 billion) Provision of tents and temporary shelter for disaster victims
Housing and Assistance for housing repair
Settlement Relocation of victims
Economic Rp1.5 trillion Cash-for-work programs for the affected population
Recovery ($102 million) Cash assistance to restart small businesses
Credit schemes for local businesses
Training and skills improvement programs, including for women
Social Rp4.3 trillion Psychosocial treatment for affected population
Protection ($303 million) Compensation for death toll for heirs
and Social Benefits for injured victims
Services Provision of public kitchens
Provision of temporary health posts
Provision of emergency school tents
Provision of textbooks
Cash assistance to women (Family Hope Program)
Distribution of food assistance
Source: BAPPENAS. 2018. Presentation on Recovery Efforts, 23 October 2018. Jakarta.5 12. The government has responded strongly to the disasters. Following the earthquake in Central Sulawesi, the governor announced an initial 14-day state of emergency for the province on 29 September 2018, which was subsequently extended by another 14 days as a more serious picture of the damage emerged.10 Coordinated by BNPB, about 11,000 government personnel were deployed to the affected areas to provide immediate rescue, evacuation, and relief operations. BAPPENAS is leading the Central Sulawesi Action Plan for Rehabilitation and Reconstruction (Central Sulawesi Action Plan) in coordination with key agencies such as the ministries of public works and housing, agrarian affairs and spatial planning, social affairs, and energy and mineral resources. Because of the complexities caused by liquefaction, the government plans to prepare the Central Sulawesi Action Plan in phases—the plan for recovery and rehabilitation will be finalized by the end of 2018 and the reconstruction plan will be finalized by March 2019. The rehabilitation and reconstruction plan for West Nusa Tenggara Barat (Lombok Action Plan) has been finalized. Both action plans are based on robust understanding of the damage assessment and disaster risk, including gender-differentiated impacts of the disaster and recovery needs. The plans include sections on (i) urban development, housing, and settlement; (ii) infrastructure reconstruction; (iii) social protection; (iv) economic recovery; and (v) cross-sector programming. The Central Sulawesi Action Plan also covers financing partnerships and institutional and regulatory development. 13. The national and local governments are providing leadership to ensure the effective coordination of development partners. Humanitarian partners have been coordinating their response and recovery efforts. Effective coordination for emergency response is managed through the establishment of eight clusters, each led by a line agency and a member from the Humanitarian Country Team. An early recovery coordination cluster led by BNPB and the United Nations Development Programme is working together with local government to identify local recovery needs. Development partners, including ADB, the European Union, Japan International Cooperation Agency, the United Nations Development Programme, and the World Bank, have collectively offered support to the government in the assessment process. 14. In consultation with the government, ADB has put together a comprehensive support package for the disasters, including technical assistance (TA) grants and three channels of financing support. On 8 October 2018, ADB approved an emergency grant of $3 million from the Asia Pacific Disaster Response Fund.11 The grant will support BNPB with immediate relief works in Central Sulawesi in compliance with the implementation guidelines of the fund. TA grants of up to $3 million from various resources have also been identified and set aside to support the government’s post-disaster needs assessment and preparation of an action plan and sector- specific projects for reconstruction (para. 17). In addition to providing grant support, ADB has worked with the government to identify three potential channels for financial support. First, the Emergency Assistance for Recovery and Rehabilitation for Recent Disasters loan will help the national and local governments meet the near-term requirements in dealing with the aftermath of the disaster, while ensuring that other critical social and development priorities are met. Second, ADB is preparing an emergency assistance project loan to support reconstruction and relocation of critical infrastructure, including public facilities in affected areas. Third, ADB and the government are considering reprogramming of existing loans to support reconstruction efforts. 15. Several factors were considered when determining the appropriate modality for the emergency assistance (Figure 3). The EAL is a quick-disbursing loan to support the government’s 10 Governor of Central Sulawesi. 2018. Decree on State of Emergency for Earthquake and Tsunami Disaster Management in Central Sulawesi Province. No. 466/45/BPDB. 29 September. Palu. 11 ADB. 2018. ADB approves initial grant for Sulawesi earthquake and tsunami affected areas. Manila.
6
disaster response. Initial recovery and rehabilitation efforts are likely to be spread across many
activities requiring smaller amounts, rather than a small number of investments with large
amounts. As such, providing support that works through the government’s budget system, rather
than directly financing individual activities, will be a more efficient and effective response
mechanism. The loan is aligned with the six characteristics of an EAL as it (i) helps rebuild high-
priority physical assets and restore economic, social, and governance activities after
emergencies; (ii) is designed to mitigate immediate losses to priority assets, capacity, or
productivity rather than to provide relief or comprehensive reconstruction; (iii) provides immediate
short-term transitional assistance; (iv) is restricted to the transition phase and exclusively for
priority rehabilitation; (v) is linked with and complements humanitarian relief efforts by other
development partners to ease the transition from relief to normal development; and (vi) may
include quick-disbursing components, but is not a policy-based loan.12
Figure 3: Factors Supporting ADB Response Modality
Emergency (cause) Fiscal and financial pressure
(effect)
(i) earthquake, tsunami, EAR3D (recovery (i) economic shock
liquefaction and rehabilitation + (ii) fiscal pressure from
(ii) IDPs Emergency recovery and
(iii) unemployment Assistance Project reconstruction spending
(iv) social assistance (reconstruction) + (iii) spending and
eroded grant and/or TA investment diverted from
(v) damaged infrastructure other key areas
ADB = Asian Development Bank, EAR3D = Emergency Assistance for Recovery and Rehabilitation from Recent
Disasters, IDP = internally displaced person, TA = technical assistance.
Source: ADB.
16. The EAL builds on lessons from past emergency assistance, including the following:
(i) providing immediate financing is essential to ensure timely rehabilitation and recovery, thereby
reducing the overall social and economic impacts of a disaster; (ii) coursing the financial
assistance through the government’s budget helps build ownership of the rehabilitation and
recovery process; (iii) developing a comprehensive monitoring and evaluation framework is
crucial for the effective implementation of the post-disaster response; (iv) providing TA to develop
the rehabilitation and reconstruction plans helps ensure potential implementation challenges are
identified early on; and (v) providing TA that helps the government integrate building back better
and resilience principles ensures that the EAL contributes to the objectives and priorities of ADB’s
country partnership strategy, 2016–2019 for Indonesia.13 The EAL is consistent with ADB’s
Strategy 2030, particularly the operational priorities on poverty reduction, gender equality, and
disaster resilience.14
17. ADB has mobilized TA resources to support the government’s response planning.
Planning and preparation of the Central Sulawesi Action Plan will be supported under the
12 ADB. 2004. Disaster and Emergency Assistance Policy. Manila.
13 ADB. 2016. Country Partnership Strategy: Indonesia, 2016–2019—Towards a Higher, More Inclusive and
Sustainable Growth Path. Manila.
14 ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific.
Manila.7 Sustainable Infrastructure Assistance Program,15 the Southeast Asia Urban Services Facility,16 and the Urban Climate Change Resilience Trust Fund17 under the Urban Financing Partnership Facility. These inputs include gender expertise to identify and design recovery activities that are gender responsive and take into account the different post-disaster needs and challenges women and girls face. 18. ADB is also preparing new TA to support the implementation, monitoring, and evaluation of the action plans. The TA will help build capacity within the central and local governments, as well as provide additional dedicated resources to support the effective delivery and monitoring of recovery and rehabilitation activities. The new TA will focus on three key areas: (i) developing and implementing rigorous monitoring and evaluation, including coordination within and across government agencies; (ii) building capacity for effective financial management, and tracking and reporting on disaster recovery and rehabilitation expenditures in line with the action plans; and (iii) ensuring that rehabilitation activities are implemented considering the special needs of women, girls, the elderly, and other vulnerable groups, in line with government regulations. Where appropriate, the TA will use civil society organizations and nongovernment organizations to provide monitoring inputs.18 B. Impact and Outcome 19. The EAL is aligned with the following impact: socioeconomic impact of disaster reduced, in line with the national medium-term development plan, 2015–2019.19 The EAL will have the following outcome: adverse social impact of the recent disasters on the poor mitigated.20 C. Outputs 20. The EAL will provide $500 million in immediate support to the government to meet its additional financing requirements linked to new public expenditure under the action plans for Central Sulawesi and Lombok. 21. Output 1: Funding of the national government expenditure program for 2019 met. The EAL will provide immediate, flexible financing support for the government to efficiently and effectively respond to the disasters of 2018. The original projected net financing gap was Rp412.0 trillion for 2018 and Rp88.0 trillion for 2019. However, this gap is expected to increase significantly because of the Rp40.0 trillion needed for the disasters Indonesia faced in 2018. At the same time, the government is committed to protect the delivery of critical public services across the country. 22. Output 2: Government action plans for rehabilitation and reconstruction implemented. The government’s action plans for Central Sulawesi and Lombok will guide the recovery and rehabilitation efforts. Spanning a 2-year period after the disasters, the action plans cover short-, medium-, and long-term efforts in five key areas (para. 12). ADB’s emergency assistance will focus on immediate recovery and rehabilitation needs in three of these areas: (i) urban development, housing and shelter; (ii) social protection; and (iii) economic recovery. For the Central Sulawesi Action Plan, the immediate loss and damage assessment period is October– November 2018. The early transition and recovery period, which will include a more thorough 15 ADB. Indonesia: Sustainable Infrastructure Assistance Program. SIAP is supported by the Government of Australia. 16 ADB. Regional: Southeast Asia Urban Services Facility. 17 Financing partners: the Rockefeller Foundation and the governments of Switzerland and the United Kingdom. 18 Additional detail on the proposed TA is accessible in the list of supplementary documents. 19 BAPPENAS. 2015. National Medium Term Development Plan 2015-2019. Jakarta. 20 The design and monitoring framework is in Appendix 1.
8 needs assessment, will be November 2018–January 2019. From January to March 2019, the government will focus on early rehabilitation, emphasizing temporary housing, resumption of basic public services such as education, cash transfers for victims, livelihood assistance, and training and skills development. During March 2019–October 2020, the government will focus on reconstruction and relocation to the new Palu City site. The Lombok Action Plan will follow a similar schedule. This output will cover the recovery and rehabilitation phases of the action plans. A gender perspective will be applied during implementation. D. Financing Plan 23. The government has requested an EAL of $500 million from ADB’s ordinary capital resources to help fund the financing gap for 2019 arising from additional public spending for the 2018 disasters and the action plans.21 The EAL will have a 20-year term, including a grace period of 5 years; a straight-line repayment method; an annual interest rate determined in accordance with ADB’s London Interbank offered rate (LIBOR)-based lending facility; a commitment fee of 0.15% per year; and such other terms and conditions set forth in the draft loan agreement. Based on this, the average loan maturity is 12.75 years, and no maturity premium applies. E. Implementation Arrangements 24. The EAL will provide immediate mitigation assistance to the government. It will enable quick-disbursing support to help ensure that vital recovery and rehabilitation expenditures are met without compromising other economic and social development expenditures in the national budget. This reflects the urgent need to mitigate the immediate economic and social impacts of the disasters. 25. The support will flow through government systems to enable a timely response. The government faces a significant gap in its disaster financing plan (para. 21). The EAL will enable the government to generate counterpart funds in rupiah equivalent to the loan proceeds. These funds will be used to meet the essential public expenditures related to the disasters, in line with the action plans. The EAL will not directly finance recovery activities. The Board is requested to waive the requirement under the Disaster and Emergency Assistance Policy for such quick- disbursing components to finance only a list of identified imports necessary for effective recovery assistance.22 EAL disbursement and related arrangements will follow ADB’s policies and procedures applicable to policy-based lending,23 based on a list of ineligible items,24 following ADB’s Loan Disbursement Handbook (2017, as amended from time to time). 26. The Ministry of Finance (MOF) will be the executing agency. The proceeds of the EAL will be disbursed upon effectiveness25 and the loan will close by December 2019. Implementation of the emergency response outputs is expected to take 2 years and will be completed by December 2020. 21 Letter of the Minister of Finance of Indonesia to ADB dated 17 October 2018. 22 Footnote 12, para. 111. 23 ADB. 1998. Simplification of Disbursement Procedures and Related Requirements for Program Loans. Manila; and ADB. 2015. Enhancing Operational Efficiency of the Asian Development Bank. Manila. 24 List of Ineligible Items (accessible from the list of linked documents in Appendix 2). 25 The EAL may be withdrawn in one or more installments.
9
III. DUE DILIGENCE
A. Governance
27. Governance, transparency, and anticorruption efforts are core government priorities. The
2017 Public Expenditure and Financial Accountability Assessment for Indonesia showed that 17
of the 31 indicators scored A or B, which are both considered above the basic alignment with
international good practice.26 Indicators with particularly good assessment results included
transparency of public finance, and accounting and reporting—all key for the successful
implementation of the action plans. The assessment also identified some areas for improvement,
including the strategic allocation of resources and the efficiency of public spending by linking
performance information more effectively to planning and budgeting. The established legal and
regulatory framework for public financial management was strengthened in 2017 through the
government regulations mandating coordination between the National Planning Agency and the
MOF to improve the policy orientation of budgeting. Recent reforms to public procurement
systems have improved the efficiency, competitiveness, and transparency of government
procurement. ADB supports the government’s governance reform agenda through its Fiscal and
Public Expenditure Management Program and Stepping Up Investments for Growth Acceleration
Program.27 ADB’s Anticorruption Policy (1998, as amended to date) was explained to and
discussed with the government.
B. Financial Reporting, Auditing, and Monitoring
28. The EAL is anchored on the government’s action plans for Central Sulawesi and Lombok.
The government has allocated an additional Rp2.5 trillion for BNPB beyond the Rp4.0 trillion
initially planned in the 2018 budget. In the 2019 budget, the government has allocated Rp15.0
trillion for disaster response. Disbursements of funds from the state treasury will be based on the
action plans. Depending on the activity, funds will be made available for withdrawal to BNPB and
relevant line ministries and agencies. Local treasury offices will undertake necessary internal
controls in coordination with BNPB. The MOF will submit an annual consolidated statement of
expenditures under the action plans based on actual disbursements.28
29. The government has strengthened its financial management and reporting arrangements
relating to disasters. The Audit Board of the Republic of Indonesia conducts annual audits of
BNPB and concerned line ministries. The government will provide BNPB’s annual audited
statement to ADB. Following the 2004 tsunami in Aceh, Indonesia was closely involved in
developing the international audit standards for disaster-related aid.29 The government intends to
conduct a special audit of the expenditures for the recent disasters. The Corruption Eradication
Commission will have oversight on all implementation activities.
26 World Bank. 2018. Indonesia Public Expenditure and Financial Accountability (PEFA) Assessment Report 2017.
Jakarta.
27 ADB. Indonesia: Fiscal and Public Expenditure Management Program (Subprogram 1); and ADB. Indonesia:
Stepping Up Investments for Growth Acceleration Program (Subprogram 3).
28 Financial management arrangements agreed between Government of Indonesia and ADB are identified in the
Summary Public Financial Management Assessment and Loan Agreement, accessible from the list of linked
documents in Appendix 2.
29 International Organization of Supreme Audit Institutions. ISSAI 5520—The Audit of Disaster-Related Aid.10
C. Poverty, Social, and Gender
30. The EAL will help mitigate the adverse social effects of the disaster. Poverty incidence is
expected to surge as a result of the economic and social costs of the disasters—from 14.0% to
16.4% in Central Sulawesi and from 14.8% to 16.8% in Lombok in 2018 (para. 8). The growth of
regional economies is also expected to slow by 3.6 percentage points in Central Sulawesi and
1.6% percentage points in Lombok in 2018 (para. 7). The EAL supports priority interventions to
help mitigate these adverse impacts on affected communities.
31. The EAL is classified effective gender mainstreaming at entry. It aims to ensure that a
gender perspective is integrated in the government’s Central Sulawesi Action Plan for
Rehabilitation and Reconstruction30 in line with the 2014 BNPB regulation on Gender
Mainstreaming in Disaster Management, which mandates gender-responsive planning and
budgeting during the emergency phase and the rehabilitation and reconstruction phase. The EAL
also seeks to ensure sufficient resources are allocated to implement gender-specific recovery
interventions. The following measures will be implemented to achieve these objectives:
(i) Consultations to prepare the Central Sulawesi Action Plan will include gender
stakeholders such as women’s organizations.
(ii) The most appropriate disbursement modality of cash grants and benefits for
households will be done in close consultation and agreement with women and men
in affected communities.
(iii) The action plan will take into account findings of rapid gender assessment(s)
conducted after the disaster and will integrate specific interventions to address
major gender issues.31
(iv) The action plan will address the needs of women and girls in terms of sanitation
and hygiene, sexual and reproductive health, gender-based violence, and
restoration and improvement of livelihoods.
(v) The action plan will include adequate measures and strategies to strengthen the
preparedness and resilience of communities to climate change and disasters, and
will ensure an active role and voice for women in disaster risk reduction initiatives.
(vi) Gender focal points will be established in local offices of the Disaster Management
Agency in both disaster areas, as mandated by the Gender Mainstreaming in
Disaster Management regulation.
32. Gender expertise will be mobilized with TA resources to support this process and build the
capacity of the local gender focal point system (paras. 17 and 18). The TA will also support
inclusive monitoring of the action plan implementation involving civil society organizations,
including women’s groups and other vulnerable groups.
D. Safeguards
33. The EAL supports the government’s fiscal response by providing quick-disbursing funds
through the government’s budget system. Because the loan proceeds are not earmarked for
specific spending or investments, the EAL does not trigger the safeguard policies and is classified
category C for the environment, involuntary resettlement, and indigenous peoples. However, the
30 Emphasis is placed on the Central Sulawesi Action Plan, which is still being developed with ADB support. The
completed Action Plan for Lombok emphasizes ensuring gender perspectives are applied during implementation,
monitoring, and evaluation.
31 The CARE Rapid Gender Analysis is an example of such an assessment (CARE Indonesia. 2018. CARE Rapid
Gender Analysis: Sulawesi Earthquake and Tsunami Indonesia—Version 2. Jakarta).11
EAL will apply a monitoring and evaluation framework to track government-funded recovery
activities, with indicators tracked in the design and monitoring framework (paras. 28 and 29).
E. Summary of Risk Assessment and Risk Management Plan
34. Significant risks and mitigating measures are summarized in Table 2 and described in
detail in the risk assessment and risk management plan.32
Table 2: Summary of Risks and Mitigating Measures
Risks Mitigation Measures
Worsening conditions in Bank Indonesia has raised the policy rate five times in 2018, totaling 150
international financial basis points, signaling strong commitment to macroeconomic stability.
markets put further Fiscal policy further reinforces the government’s commitment to stability.
pressures on the economy, Prior to the disasters, the budget deficit was projected to decline from
drawing spending away from 2018 to 2019. Appropriate policy responses combined with strong
recovery efforts. macroeconomic fundamentals and a sound financial system help reduce
risks from external shocks.
Additional disasters and their The government has introduced a new disaster risk financing strategy to
impact on other regional improve financial preparedness for disaster response. Near-term priorities
economies may undermine include implementation of a pilot scheme for state asset insurance;
implementation of the action strengthening the current schemes for agriculture and fisheries insurance;
plans. and building awareness of key line agencies, subnational governments,
and Parliament.
Coordination across The government has taken the lead in coordinating across concerned
government agencies and agencies and with development partners. BNPB is taking the lead in
development partners is coordinating all humanitarian and relief efforts and coordinating damage
weak. and loss assessments. BAPPENAS is leading the formulation of the
recovery and reconstruction plans in close coordination with all key
agencies and development partners. BNPB will coordinate the
implementation of the action plans. ADB is coordinating closely with
development partners, including JICA, UNDP, and the World Bank.
The early stage of The MOF’s SPAN manages all financial transaction data of the central
preparation for the action government in a full cycle from budget appropriations, allotment, and/or
plans poses challenges for execution to the production of financial statements. Budget allotment and
strong financial management execution for rehabilitation and recovery will be based on the approved
measures, including disaster response action plans. The MOF will produce a consolidated
identification of eligible annual financial report on expenditure related to recovery and
expenditures, monitoring, rehabilitation in Central Sulawesi and West Nusa Tenggara. Indonesia’s
and external audit provision. BPK will conduct annual audits of BNPB and concerned line ministries
involved in the implementation of the action plan for recovery. BPK can
perform an audit of the disaster-related fund following ISSAI 5520.a
ADB = Asian Development Bank, BAPPENAS = Badan Perencanaan Pembangunan Nasional (National Development
Planning Agency), BNPB = Badan Nasional Penanggulangan Bencana (National Disaster Management Agency), BPK
= Badan Pemeriksa Keuangan Republik Indonesia (The Audit Board of the Republic of Indonesia), JICA = Japan
International Cooperation Agency, MOF = Ministry of Finance, SPAN = Sistem Perbendaharaan dan Anggaran Negara
(State Treasury and Budget System), UNDP = United Nations Development Programme.
a International Organization of Supreme Audit Institutions. ISSAI 5520—The Audit of Disaster-Related Aid.
Source: ADB.
32 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).12
IV. ASSURANCES
35. The government has assured ADB that implementation of the emergency assistance shall
conform to all applicable ADB policies, including those concerning anticorruption measures,
safeguards, gender, procurement, consulting services, and disbursement as described in detail
in the loan agreement. The government has agreed with ADB on certain covenants for the
assistance, which are set forth in the loan agreement.
V. RECOMMENDATION
36. I am satisfied that the proposed loan would comply with the Articles of Agreement of the
Asian Development Bank (ADB) and, acting in the absence of the President, under the provisions
of Article 35.1 of the Articles of Agreement of ADB, recommend that the Board approve
(i) the loan of $500,000,000 to the Republic of Indonesia for Emergency Assistance
for Recovery and Rehabilitation from Recent Disasters, from ADB’s ordinary
capital resources, in regular terms, with interest to be determined in accordance
with ADB's London interbank offered rate (LIBOR)-based lending facility; for a term
of 20 years, including a grace period of 5 years; and such other terms and
conditions as are substantially in accordance with those set forth in the draft loan
agreement presented to the Board; and
(ii) the waiver of the requirement that quick-disbursement components finance a list
of identified imports under the Disaster and Emergency Assistance Policy (2004)
and the application of disbursement arrangements, as discussed in para. 25 of this
report.
Stephen Groff
Vice-President
12 November 2018Appendix 1 13
DESIGN AND MONITORING FRAMEWORK
Impact the Project is Aligned with
Socioeconomic impact of disasters reduced (RPJMN, 2015–2019)a
Indicative Performance
Indicators with Targets and Data Sources and
Results Chain Baselines Reporting Mechanisms Risks
Outcome By end of 2022:
Adverse social Per capita consumption BAPPENAS poverty Exogenous external
impact of the recent (adjusted for inflation) of the data economic shocks
disasters on the poor poorest 50% of households in
mitigated disaster-affected areas Additional disasters
recovered to pre-disaster resulting in adverse
levels (2018 baseline: average social and economic
per-capita consumption 2014– impacts and higher
2017) poverty rates
Outputs By 2020:
1. Funding of the 1a. Financing for the recovery 1a. MOF, BAPPENAS Additional disasters
national government and rehabilitation plan in 2018 and/or 2019
expenditure program finalized and initiatives and their impact on
for 2019 met launched to mobilize other regional
resources from domestic and economies that may
international sources (2018 undermine
baseline: not applicable) implementation of the
action plans
1b. Government maintains 1b. MOF, APBN 2019
spending allocations for
essential services, such as
health, education, and social
protection, at pre-disaster
planned levels (2018 baseline
based on 2018 APBN
allocations: Rp110.0 trillion for
health; Rp444.1 trillion for
education; Rp81.0 trillion for
social protection
2. Government 2a. 70% of affected 2a. Government’s
action plans for households suffering damage, recovery and
rehabilitation and including 90% affected rehabilitation plan,
reconstruction households led by women, quarterly monitoring
implemented received housing assistance in reports
cash (2018 baseline: 0 of
145,000 affected households)
2b. 70,000 affected people in 2b. Ministry of Public
Sulawesi and 77,000 affected Works and Housing,
people in Lombok provided local governments
shelter by the government,
with adequate consideration
for the safety and privacy of
girls and womenb (2018
baseline: 0)14 Appendix 1
Indicative Performance
Indicators with Targets and Data Sources and
Results Chain Baselines Reporting Mechanisms Risks
2c. Temporary schooling for at 2c. BNPB, Ministry of
least 50% of affected students Education and Culture
provided by the government
(2018 baseline: 0 of 400,000
students affected)
2d. 70% of eligible affected 2d. BNPB
people received casualty
and/or fatality cash transfers
(2018 baseline: 0 of 21,353
eligible affected people)
2e. At least 30% of 2e. MOSA, quarterly
households in affected areas monitoring reports
received livelihood assistance,
training, and skills
improvement, including at
least 50% of households led
by women (2018 baseline: to
be confirmed)
Key Activity with Milestone
BAPPENAS produces draft Action Plan for Rehabilitation and Reconstruction integrating a gender
perspective (December 2018)
Inputs
ADB: $500,000,000 (loan)
Assumptions for Partner Financing
Not Applicable
ADB = Asian Development Bank, APBN = Anggaran Pendapatan dan Belanja Negara (state budget), BAPPENAS =
Badan Perencanaan Pembangunan Nasional (National Development Planning Agency), BNPB = Badan Nasional
Penanggulangan Bencana (National Disaster Management Agency), MOF = Ministry of Finance, MOSA = Ministry of
Social Affairs, RPJMN = Rencana Pembangunan Jangka Menengah Nasional (National Medium-Term Development
Plan).
a BAPPENAS. 2015. National Medium Term Development Plan: 2015-2019. Jakarta.
b Including, for example, safe location and segregation of latrines and bathing facilities; safe location of water points;
doors and internal locks; and lighting near and in all water, sanitation, and hygiene facilities.
Source: Asian Development Bank.Appendix 2 15
LIST OF LINKED DOCUMENTS
http://www.adb.org/Documents/RRPs/?id=52324-001-3
1. Loan Agreement
2. Summary Assessment of Damage and Needs
3. Contribution to the ADB Results Framework
4. Emergency Assistance Coordination
5. Country Economic Indicators
6. Summary Poverty Reduction and Social Strategy
7. Risk Assessment and Risk Management Plan
8. List of Ineligible Items
9. Summary of Public Financial Management Assessment
Supplementary Documents
10. Poverty Impact Assessment
11. Summary of Proposed Technical AssistanceYou can also read
