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 15 Project 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 PM I. 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