Document of The World Bank ReportNo: 18359-IND Public Disclosure Authorized PROJECT APPRAISAL DOCUMENT Public Disclosure Authorized ONA PROPOSED CREDIT IN THE AMOUNT OF SDR73.5 MILLION (US$100 MILLION EQUIVALENT) TO THE REPUBLIC OF INDONESIA Public Disclosure Authorized FOR AN URBAN POVERTY PROJECT April 19, 1999 Public Disclosure Authorized Urban Development Sector Unit Indonesia Country Department East Asia and Pacific Region i CURRENCY EQUIVALENTS Exchange Rate Designated for Negotiations, October 22, 1998 Currency Unit = Indonesian Rupiah (Rp) Indonesian Rupiah = US$0.0001 US$1 = 7,500 Indonesian Rupiah SDRI = 1.3546 US$ (end March 1999) FISCAL YEAR OF BORROWER APRIL 1-MARCH 31 ACRONYMS ADB Asian Development Bank AMDAL Environmental Impact Assessment ANDAL Environmental Impact Statement APBD Annual district development budget APEF Annual Project Expenditures and Financing APBN Annual central government development budget Bappenas National Development Planning Agency Bappeda I/II Provincial/district Planning Agency BANGDA Directorate General for Regional Development, MoHA BKKBN National Family Planning Board BPKP Central Audit Bureau BPS National Statistics Bureau BRI Bank Rakyat Indonesia Bupati/Walikota District/city head CPEF Cumulative Project Expenditures and Financing DPUK Kabupaten Department of Public Works CAS Country Assistance Strategy GOI Govemment of Indonesia INPRES Presidential Instruction (a central block grant) IMF International Monetary Fund Kabupaten/kotamadya District/municipality KDP Kecamatan Development Project Kecamatan Subdistrict Kelurahan/lurah Urban section comprising on average 10 RWs/ head of kelurahan LKMD Village/kelurahan management group KPKN Local Office of National Treasury LIL Learning and Innovation Loan MoF Ministry of Finance MoHA Ministry of Home Affairs MPW Ministry of Public Works NGO Non-governmental organization (same as LSM) OC Oversight consultant PDM-DKE Crisis related social safety program PHRD Japanese Grant PMD Directorate General of Community Development, MoHA PMU Project Management Unit Pimpro/PjOK Project Administrative Manager (pimpinan proyek) RKL/RPL Environmental Management/ Monitoring Plan RW Neighborhood with some 500 Families (rukun warga) SAL Structural Adjustment Loan SPAPB Grants from central to local governments SUSENAS National Household Expenditure Survey UKL/UPL Environmental Management / Monitoring Procedures VIP Village Infrastructure Project Vice President: Jean-Michel Severino Country Director: Mark Baird Sector Manager: Keshav Varna Task Manager: Frida Johansen Indonesia:Urban Poverty Project PAD Page ii INDONESIA URBAN POVERTY PROJECT CONTENTS A. Project Development Objective 1. Project development objectives and key performance indicators ..............................................2 B. Strategic Context 1. Sector-relatedCAS goal supported by the project ................................................................. 2 2. Main sector issues and Government strategy ................................................................. 2 3. Sector issues to be addressed by the project and strategic choices............................................. 4 C. Project Description Summary 1. Project component............................................................................ S5 2. Key policy and institutionalreforms supported by the project.................................................. 6 3. Institutional and implementationarrangements ................................................................ 6 4. Benefits and target population................................................................ 7 D. Project Rationale 1. Project alternatives considered and reasons for rejection........................................................... 8 2. Major related projects financed by the Bank and/or other development agencies..................... 8 3. Lessons learned and reflected in proposed project design......................................................... 9 4. Indications of Borrower commitment and ownership................................................................ 9 5. Value added of Bank support in this project................................................................ 9 E. Summary Project Analyses 1. Economic................................................................ 9 2 Financial............................................................... 10 3. Technical............................................................... 10 4. Institutional............................................................... 11 5. Social............................................................... 11 6. Environmentalassessment ............................................................... 11 7. Participatory approach............................................................... 11 F. Sustainabilityand Risks 1. Sustainability............................................................... 12 2. Critical risks............................................................... 12 3. Possible controversial aspects............................................................... 12 G. Main Credit Conditions 1. Effectiveness conditions............................................................... 13 2. Other............................................................... 13 H. Readinessfor Implementation............................................................... 13 I. Compliancewith Bank Policies............................................................... 13 Annexes iii Annex 1 Project Design Summary.......................................... 15 Key PerformanceIndicators .......................................... 16 Annex 2 Project Description.17 Annex 3 Estimated Project Costs.......................................... 34 Annex 4 Economic Analysis (n.a.).......................................... 34 Annex 5 Financial Summary .......................................... 34 Annex 6 Procurement, Disbursementand Auditing Arrangements.......................................... 35 Al Project Costs by ProcurementArrangements .......................................... 40 A2 Consultant Selection Arrangements........................................... 40 B Thresholds for Procurement Methods and Prior Review......................................... 41 C Allocation of Credit Proceeds.......................................... 41 Annex 7 Project Processing Budget and Schedule.......................................... 42 Annex 8 Documents in the Project File.......................................... 43 Annex 9 Status of Bank Group Operations in Indonesia........................................... 44 Annex 10 Country at a Glance.......................................... 46 Annex 11 Project ImplementationPlan .......................................... 47 Annex 12 UPP Implementation Agreement Formats.......................................... 51 Annex 13 Land Acquisitionand Resettlement Guidelines.......................................... 61 Annex 14 Environmental Guidelines.......................................... 62 Map No. 29868 INDONESIA URBAN POVERTYPROJECT Project Appraisal Document East Asia and Pacific Region Indonesia CountryDepartment Date: April 19,1999 Task Manager: Frida Johansen Country Director: Mark Baird SectorManager: Keshav Varma Project ID: ID-PE-55821 Sector: Urban Program Objective Category: Poverty Reduction Lending Instrument: SIC Program of Targeted Intervention: [X] Yes [1 No Project FinancingData [] Loan [x] Credit [] Guarantee [] Other [Specify] For Credit: Amount (SDRm): 73.5 Proposed terms: [] Multicurrency [] Single currency Grace period (years): 10 [] Standard Variable [ ] Fixed [] LIBOR-based Years to maturity: 35 Commitmentcharge: 0.5% Financing plan (US$m equivalent): Source Local Foreign Total Government 14.2 14.2 IDA 76.2 23.8 100.0 IBRD 13.5 2.0 15.5 Total 103.9 25.8 129.7 Borrower: Republic of Indonesia Guarantor:n.a. Responsible agency(ies): Bappenas Estimated disbursements (IDA FY/US$M): 2000 2001 2002 2003 1/ Annual 36.5 36.5 21.5 5.5 Cumulative 36.5 73.0 94.5 100 1/ for final disbursementsafter official closing date For Guarantees: [] Partial credit [] Partial risk n.a. Project implementationperiod: FY99-FY03 Expected effectivenessdate: 07/08/99 Expected closing date: 6/30/02 OSD PAD Form: July 30, 1997 Indonesia:Urban Poverty Project PAD Page 2 A: Project Development Objective 1. Project development objective and key performance indicators (see Annex 1): Through a bottom up and transparent approach, the project seeks to improve basic infrastructure in poor urban neighborhoods and to promote sustainable income generation for its poor urban residents who are mostly long term poor, have incomes eroded by high inflation, or lost sources of income in the economic downturn. Also, the project seeks to strengthen the capability of local agencies to assist poor communities. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1): CAS document number: 18963-IND Date of latest CAS (progress report) discussion: March 9, 1999 The latest CAS, dated July 1997, did not foresee a crisis. The July 1998 "Indonesia in Crisis: A Macroeconomic Update", summarizes the Bank recommendations to GOI, and was the basis for a Consultative Group Meeting, for a $1 billion Policy Reform SAL approved July 1998, and for a project portfolio review in August 1998 that identified Bank loan partial cancellations totaling $1 billion. The Bank supported the creation of an NGO structure to channel funds