Document of The World Bank

Report No: ICR1454

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-47100 IBRD-77500 IBRD-47710 IBRD-77670 IDA-38060 IDA-40450

IDA-40451 TF-55051 TF-55900 TF-57097 TF-56890 TF-90488 TF-90850 TF-90912 TF-90976 TF-90977 TF-91171 TF-92115)

ON

LOANS IN THE AMOUNT OF US$124.6 MILLION

AND

CREDITS IN THE AMOUNT OF SDR 165.2 MILLION (US$257.8 MILLION EQUIVALENT)

TO

THE REPUBLIC OF INDONESIA

FOR

A THIRD KECAMATAN DEVELOPMENT PROJECT

June 30, 2011

Sustainable Development Department East Asia and Pacific Region

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CURRENCY EQUIVALENTS (Exchange Rate Effective June 7, 2011)

Currency Unit = Indonesian Rupiah

IDR 1,000 = US$0.12 US$1 = IDR 8,508

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS AusAID Australian Agency for International Development Bappenas National Development Planning Agency BPD Village Council (not elected) CDD Community Driven Development CIDA Canadian International Development Agency DFID Department for International Development FK(T) (Technical) Kecamatan Facilitator FM Financial Management FY Fiscal Year GoI Government of Indonesia ICR Implementation Completion Report JSDF Japan Social Development Fund KDP Kecamatan Development Program Kecamatan Sub-district (containing on average 20 to 25 villages) M&E Monitoring and Evaluation MAD Inter-village forum MIS Management Information System MOHA Ministry of Home Affairs MTR Mid-Term Review NMC National Management Consultant NGO Non-Government Organization O&M Operation and Maintenance PAD Project Appraisal Document PDO Project Development Objective PJOK Local Project Manager PMD Community Development Directorate-General MOHA PMU Project Management Unit PNPM National Community Empowerment Program SPP Women Savings and Loan Susenas National Expenditure Survey TKP Implementation Coordination Team UPK Activity & Financial Management Unit (at Kecamatan Level)

Vice President: James W. Adams

Country Director: Stefan Koeberle

Sector Manager: Franz Drees-Gross

Project Team Leader: SentotS. Satria

ICR Team Leader: SentotS. Satria

INDONESIA THIRD KECAMATAN DEVELOPMENT PROJECT

 

 

CONTENTS

Data Sheet A. Basic Information……………………………………………………………...…...i B. Key Dates……………………………………………………………………….…..i C. Ratings Summary……………………………………………………..………....….i D. Sector and Theme Codes……………………………………….……...…....…......ii E. Bank Staff…………………………………………………………………....…….ii F. Results Framework Analysis……………………………………………………....iii G. Ratings of Project Performance in ISRs………………………………….....….….v H. Restructuring………………………………………………..........………….……..v I. Disbursement Graph………………………………………………………………..v

1. Project Context, Development Objectives and Design ............................................. 22. Key Factors Affecting Implementation and Outcomes ............................................ 83. Assessment of Outcomes ........................................................................................ 124. Assessment of Risk to Development Outcome ....................................................... 175. Assessment of Bank and Borrower Performance ................................................... 186. Lessons Learned...................................................................................................... 207. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ......... 22Annex 1. Project Costs and Financing ........................................................................ 23Annex 2. Outputs by Component................................................................................ 24Annex 3. Economic and Financial Analysis ............................................................... 28Annex 4. Bank Lending and Implementation Support/Supervision Processes ........... 29Annex 5. Beneficiary Survey Results ......................................................................... 32Annex 6. Stakeholder Workshop Report and Results ................................................. 33Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ................... 35Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ..................... 45Annex 9. List of Supporting Documents .................................................................... 46Annex 10. Summary of Trust Funds Linked to KDP-3 .............................................. 48 MAP IBRD No. 38277

    

i

A. Basic Information

Country: Indonesia Project Name: Third Kecamatan Development Project

Project ID: P079156 L/C/TF Number(s):

IBRD-47100,IBRD-77500,IDA-38060,TF-55051,TF-55900,TF-57097

ICR Date: 06/30/2011 ICR Type: Core ICR

Lending Instrument: SIL Borrower: REPUBLIC OF INDONESIA

Original Total Commitment:

US$91.00M Disbursed Amount: US$90.89M

Revised Amount: US$89.58M

Environmental Category: B

Implementing Agencies: Ministry of Home Affairs Combine Resource Institution PusatPengembanganSumberdayaWanita (PPSW) Cofinanciers and Other External Partners: Japan Social Development Fund Australian Agency for International Development (AusAID)

B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 01/24/2003 Effectiveness: 01/20/2005 01/20/2005

Appraisal: 05/05/2003 Restructuring(s):

Approval: 06/26/2003 Mid-term Review: 12/05/2006 12/05/2007

Closing: 12/31/2008 12/31/2009

C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to Development Outcome: Moderate

Bank Performance: Moderately Satisfactory

Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)

Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory

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Quality of Supervision: Moderately SatisfactoryImplementing Agency/Agencies:

Moderately Satisfactory

Overall Bank Performance:

Moderately SatisfactoryOverall Borrower Performance:

Moderately Satisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance

Indicators QAG Assessments

(if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

Yes Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes Original Actual

Sector Code (as % of total Bank financing)

Irrigation and drainage 20 20

Primary education 15 15

Roads and highways 20 20

Sub-national government administration 25 25

Water supply 20 20

Theme Code (as % of total Bank financing)

Decentralization 23 23

Participation and civic engagement 22 22

Rural policies and institutions 22 22

Rural services and infrastructure 11 11

Social safety nets 22 22

E. Bank Staff Positions At ICR At Approval

Vice President: James W. Adams Jemal-ud-din Kassum

Country Director: Stefan G. Koeberle Andrew D. Steer

Sector Manager: Franz R. Drees-Gross Cyprian F. Fisiy

Project Team Leader: Kevin A Tomlinson Scott E. Guggenheim

ICR Team Leader: Sentot Surya Satria

ICR Primary Author: Heinrich K. Unger

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F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) KDP-3 has overall development objectives of reducing poverty and improving local-level governance in rural Indonesia. It is part of a long-term village governance program that began with the first Kecamatan project in 1998. Specific development objectives for KDP-3 include: (i) institutionalizing participatory processes in local government; (ii) the cost effective provision of basic social and economic infrastructure; (iii) strengthening the capacity of the micro-finance institutions developed under KDP-1 and KDP-2 to manage and monitor funds sustainably. Revised Project Development Objectives (as approved by original approvingauthority) Restructuring of Credit 38060 (part of KDP-3A) added another specific development objective: (iv) reconstruction of communities in areas affected by natural disasters. This additional specific DO was also included in KDP-3B and the associated AF. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values

(from approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Improved HH expenditures rates and improved access to economic and social services in 2,000 poor kecamatan

Value quantitative or Qualitative)

0 3% 5-10% (HH exp.)

Date achieved 06/02/2003 12/31/2008 12/31/2009

Comments (incl. % achievement)

A 2010 impact evaluation study found that real household consumption gains were 5-10% higher in KDP/PNPM areas when compared to control areas. The same study also showed that there is a 6-8% greater likelihood in KDP/PNPM (compared with control areas)

Indicator 2 : EIRR for major infrastructure types Value quantitative or Qualitative)

0 >30 % >30%

Date achieved 06/02/2003 12/31/2008 12/31/2009

Comments (incl. % achievement)

Although no recent evaluation has been done, a 2005 study showed that typical KDP-type infrastructure achieved EIRRs well over 30% (an average of 53%). Nothing significant has changed since 2005 in the way projects have been selected, prioritized, planned

Indicator 3 : > 80% satisfaction levels from beneficiaries regarding improved services Value quantitative or Qualitative)

0 >80% >90%

Date achieved 06/02/2003 12/31/2008 12/31/2009

iv

Comments (incl. % achievement)

A 2005/2006 evaluation of a sample of 234 villages showed an average satisfaction rate of 91% for the quality (function) and 92% satisfaction with the benefits derived from the newly built infrastructure. Nothing has changed since 2005 in the way projects

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values

(from approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Percent of poor and women involved in a planning, execution and maintenance Value (quantitative or Qualitative)

0 40 % women 28 to 44% average for poor 63%

Date achieved 01/13/2005 12/31/2008 12/31/2009

Comments (incl. % achievement)

The percentage of women participating in village meetings ranged from 28 to 44%. Attendance was above 40% in the early stages of the project but dropped off significantly during the later stages, such as for the O&M meeting. There was no separate record

Indicator 2 : Percent of agreed works completed Value (quantitative or Qualitative)

0% 85 % 100%

Date achieved 01/13/2005 12/31/2008 12/31/2009 Comments (incl. % achievement)

Also 100% of the block grants were disbursed

Indicator 3 : Percent infrastructure reviewed technically as "good" and "excellent" Value (quantitative or Qualitative)

0% 70 % 55%

Date achieved 01/13/2005 12/31/2008 12/31/2009 Comments (incl. % achievement)

The 2005 evaluation of infrastructure quality found a rate of 55% but when the percentage rated "sufficient" was added the rate becomes 70%.

Indicator 4 : Percent of villages with O & M committees formed Value (quantitative or Qualitative)

0 75 % 100%

Date achieved 01/13/2005 12/31/2008 12/31/2009 Comments (incl. % achievement)

v

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements(US$ millions)

1 12/30/2003 Satisfactory Satisfactory 0.00 2 06/24/2004 Satisfactory Satisfactory 0.00 3 12/22/2004 Satisfactory Satisfactory 0.00 4 06/29/2005 Moderately Satisfactory Moderately Unsatisfactory 9.46 5 12/27/2005 Moderately Satisfactory Satisfactory 17.46 6 09/29/2006 Satisfactory Satisfactory 78.83 7 03/22/2008 Satisfactory Satisfactory 90.038 06/30/2009 Satisfactory Satisfactory 90.03

H. Restructuring (if any) Not Applicable

I. Disbursement Profile

 

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Preamble In June 2003, the Board of the World Bank formally approved the disbursement of US$249.8 million through the KDP-3 loan and credit program. However, following the Board’s approval, the Indonesian parliament tabled major revisions to the country's decentralization laws. Had the tabled revisions come into effect, sub-national projects, including KDP-3, could not have been implemented by government agencies. Because of the uncertainty created by the tabled revisions, KDP-3 was divided into two separate loans/projects.

Initially, the project was scaled back and redefined as KDP-3A. A proposal for this new, scaled-back program was sent to the Bank’s Board, where it was passed on a no-objection basis in May 2004 as a loan and credit scheme involving the equivalent of US$91 million. This sum was sufficient to provide funding for one year, enough to continue field operations while the contentious laws were being debated in parliament. Following the election of a new president and a new parliament in August 2004, the risk of major revisions to the decentralization laws receded. Given these new circumstances, the government determined to proceed to scale up the project. Loan and credit funds totaling the equivalent of US$160 million were approved in March 2005. Despite this restructuring of KDP-3, there were no changes in the development objectives, project components, or implementation structure defined in the original KDP-3 project originally approved by the Bank’s Board in June 2003.

In April 2006, the Government announced its intention to establish a national anti-poverty program. One component of the proposed program was the “National Program for Community Empowerment” (PNPM–Mandiri) intended to benefit the poor in both rural and urban areas. At this point, the government needed funds to implement a transition phase of the rural program. In May 2007, the Bank approved additional financing (AF) to KDP-3B through the provision of credit equivalent to US$123 million. Again, the development objectives, project components and implementation arrangements of KDP-3B remained the same as those defined in the original KDP-3, apart from the addition of an emergency reconstruction subcomponent for communities in areas afflicted by natural disasters. Although KDP-3A and KDP-3B received funding as separate projects, they were implemented as a single program, with identical development objectives, project components and implementation arrangements. Therefore, this Implementation Completion Report (ICR) covers both stages of the original project proposal (KDP-3A and KDP-3B), as well as KDP-3B (AF). As far as the Indonesian government is concerned, the different KDP / PNPM projects are components of a single, ongoing program with annual government budgets and outputs.

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Table 1.1 Summary Status of KDP-3 Loans and Credits (after project closing)

Project Ln/Cr. No.

Approved in US$

Disbursed in US$

Effective Date

Closing Date

KDP-3A IBRD-7750

45,500,000.00 44,929,928.35 20/01/2005 31/12/2009

KDP-3A IDA-3806 50,188,547.40 45,964,864.59 20/01/2005 31/12/2009

Subtotal 95,688,574.40 90,894,792.94

KDP-3B IBRD-7767

80,000,000.00 79,600,000.00 13/12/2005 31/12/2009

KDP-3B IDA-40450

80,604,473.50 76,870,499.81 13/12/2005 31/12/2009

KDP-3B-AF

IDA-40451

127,890,350.50 131,489,448.88 21/08/2007 31/12/2009

Subtotal 288,494,824.00 287,959,948.69

GRAND TOTAL 384,183,398.40 378,854,741.63

Notes: 1. Conversion from SDR amount to US$ uses historical rates at the time disbursements were made.

2. The converted loan numbers are used.

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal Country and Sector Background: KDP-3A and KDP-3B are a continuation of a Community Driven Development (CDD) program for rural areas throughout Indonesia. The government first initiated this program in the mid 1980s with a series of labor-intensive public works programs to develop local infrastructure. For several decades, the New Order government achieved remarkable results in poverty reduction. It achieved these results largely by ensuring macro-stability for growth and by implementing large-scale targeted programs. However, by the early 1990’s, the rate of poverty reduction had declined considerably. To overcome the constraints to poverty reduction created by the highly centralized system of government, senior policy makers endorsed a new generation of transfer programs that were intended to provide local governments and communities with control over and responsibility for a portion of development resources. The most well-known of these was a program established by presidential decree known as the Left-Behind Villages (IDT) program. This program was intended to provide direct transfers of funds to village heads for programs to improve the material welfare of local residents. The Indonesian government sought the assistance of the World Bank to monitor IDT and to complement the livelihoods programs with a Village Infrastructure Project (VIP). This latter program was specifically intended to improve market linkages for poor communities throughout Java and, later, in Sumatra.

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KDP-1 was designed while the former President Suharto still held office. It was finally approved in June 1998, shortly after Suharto resigned, with KDP-1 being followed by KDP-2. Simultaneously, a parallel set of Bank-supported Urban Poverty Projects (UPPs) projects were implemented in urban areas. The KDP program was built on Indonesia’s long tradition of providing resources to support plans made by local governments and communities through various kinds of block grant transfers. The key innovation in these programs was the allocation of resources directly to local communities and the socialization of the program through a network of independent community and technical facilitators. Both innovations were intended to reduce the severe negative impact of poor civil service performance and the high levels of government corruption. Because of the Asian financial and economic crisis of 1997, the KDP program was scaled up much more rapidly than initially planned, with coverage rising from approximately 2,000 villages to approximately 12,000 villages in slightly more than a year. The scaling up of the program was facilitated by strong support from Bappenas and the Ministry of Home Affairs; intensive World Bank monitoring and assistance; and the project’s high level of popularity. The program’s coverage was expected to increase to approximately 30,000 villages by 2005, a number equal to slightly less than half the total number of rural villages in Indonesia. The project received substantial grant support from donors, with allocations of funds from national and local government budgets steadily increasing even after Indonesia's recovery from the East Asian financial crisis. Under the KDP’s scale-up strategy, it was intended to eventually return the program to the national planning and budgeting system. KDP’s first phase (KDP-1) was intended to facilitate the establishment of a bottom-up planning process, while the second phase (KDP-2) concentrated on improving the technical and managerial capacities of the participating sub-districts and villages. This increase in capacities was to be achieved through various forms of technical assistance, training, and practical exercises. KDP-3, the series of projects that are subject of this ICR, was designed to provide the legal and administrative framework for institutionalizing the KDP system within the national and local government planning procedures. Among the broad range of sector-specific issues, KDP-1 and KDP-2 had addressed sectoral issues with respect to community development, technical capacity and fiduciary concerns. In turn, KDP-3 was intended to specifically address two important institutional dimensions within the KDP program: (i) the establishment of a more solid legal and administrative foundation on which to base a system of village empowerment; and (ii) the provision of a rationalized management framework to facilitate the implementation of a system of community microfinance. The KDP program provides block grants to finance economically productive activities, which are identified through bottom-up and participatory development planning and using the Community Driven Development (CDD) approach. It has been the hallmark of Indonesia’s CDD interventions and is the largest Bank-financed CDD program in the world. Rationale for Bank Involvement: Firstly, the Bank was able to add value to the program through the provision of oversight in an extraordinarily poor fiduciary environment.

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Thus, the Bank’s involvement was expected to contribute greatly to the effective use of development resources. Bank supervision missions would provide additional oversight and support to improve financial and program management. Secondly, Indonesian government agencies do not normally carry out very rigorous monitoring and evaluation of programs. Constantly evolving projects, such as KDP, require much more intense monitoring and evaluation because of their wide geographical coverage, diverse sectoral scope and the need to have real-time information on the progress of implementation. Thirdly, a high value was attached to learning what worked and didn't work in the implementation of KDP in order to make procedural and policy improvements. The Bank provided assistance to the Indonesian government to use quantitative and qualitative measurements to improve the program’s design. While such studies were generally recognized as valuable, they would not have been conducted without Bank involvement.

1.2 Original Project Development Objectives (PDO) and Key Indicators KDP-3 has overall development objectives of reducing poverty and improving local-level governance in rural Indonesia. Specific development objectives for KDP-3 include:

(i) Institutionalizing participatory processes in local government; (ii) The cost effective provision of basic social and economic infrastructure; (iii) Strengthening the capacity of the micro-finance institutions developed under

KDP-1 and KDP-2 to manage and monitor funds sustainably. 1.3 Revised PDO and Key Indicators The PDO of the second project specifically included provisions for reconstruction in communities of Aceh and North Sumatra that were affected by the earthquake and tsunami in December 2004. Since these provisions were compatible with the community-driven development principles, design, and implementation arrangements of the original project, the inclusion of this objective in KDP-3B is not inconsistent with combining the assessment of both projects in one report. Although the PDO for KDP-3B was truncated in the original PAD data sheet, it was included in its entirety in the text of the PAD and in a slightly different form in the credit agreement. The full PDO was also stated in the project paper data sheet for KDP-3B-AF, as follows:

“KDP-3 has the overall development objectives of reducing poverty and improving local level governance in rural Indonesia through: (a) institutionalization of participatory processes in local government; (b) cost-effective provision of basic social and economic infrastructure; (c) strengthening of the capacity of micro-finance institutions to manage and monitor funds in a sustainable manner; (d) reconstruction of communities in areas affected by natural disasters.”

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There are minor differences between the PDO statements in the three appraisal documents (and in to their corresponding legal agreements). However, in the interests of transparency, clarity, and proper reporting, only the final version of the PDO statement is examined in the ICR, as attempting to report and evaluate slightly dissimilar PDOs would be unnecessarily confusing while providing little, if any, value to the assessment. Similarly, the key indicators are reported separately in the separate ICR Data Sheets for KDP-3A and KDP-3B (including the AF), but are discussed as a single project outcome in the body of the ICR.

1.4 Main Beneficiaries The main intended beneficiaries of the project were the rural poor. The project was intended to benefit the rural poor by reducing poverty through improved access to social and economic infrastructure. In addition, the project would assist local government institutions at the village, sub-district and district levels by (i) improving the responsiveness of these institutions; (ii) improving the quality of services provision; and (iii) reducing corruption. Additionally, the rural poor were to benefit through improved access to, and better financial management of, local microfinance institutions. Identified vulnerable groups, including women and the poorest community members, were to benefit through a greater level of participation in the planning and selection process. 1.5 Original Components The original project appraisal documents (PAD) for KDP-3A and KDP-3B showed six project components, although the sixth component was actually an incremental operation cost. Thus, the results indicators are organized for the five components only. The project paper (PP) for the KDP-3B additional financing to find five major components, shown below: Component 1: Block grants to kecamatan: Block grants were transferred directly from the special account to the sub-districts participating in KDP. This component included sub-components for investment grants and village planning grants, as described below. A third sub-component for reconstruction grants in communities devastated by natural disasters was added through the inclusion of an amendment to the credit agreement.

A. Block Investment Grants to Villages: These grants provided two years of continued program support in 592 sub-districts which had already received three years of support through KDP-1 and KDP-2. New sub-districts were only eligible for those which emerged from proliferation of KDP-1/ KDP-2 sub-districts. A limited number of additional eligibility criteria apply to new sub-districts:

Sub-districts in new high poverty districts that were previously ineligible for

KDP; Post-conflict areas where KDP provided the platform for other post conflict

services; Sub-districts proposed by districts for full funding from their own budgets but

where TA for design and supervision was requested.

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The value of block grants was equal to approximately US$55,000, US$75,000, or US$110,000 per sub-district, based on the sub-districts’ population and location. These sums also covered operating costs for facilitators and some incremental and government operational costs. B. Kecamatan planning grants: These grants supported the village and kecamatan participatory planning process by allowing villagers to develop a cadre of self-selected social and technical facilitators. Other activities funded through this component include village cross-audits; preparation of dissemination materials; and the costs of local travel.

Component 2: Developing community and local government: This component is intended to support activities to strengthen the local government councils formed under Laws 22 and 25, with a particular focus on the strengthening of Village Representative Forum (BPD), Inter-village Forums (MAD), and the district parliaments. The majority of resources allocated under this component were intended to finance the operations of community and technical facilitators and their training. These facilitators are recruited from the private sector. They receive project management training followed by periodic refresher courses. Other activities supported by this component include: technical assistance for BPD capacity development; training in administration and monitoring skills to reinforce village administration; and village-level civic information and education programs to raise awareness concerning decentralization. Local governments contribute to financing the local regulations development processes. Component 3: Support to village micro-finance institutions (UPK): This component provides support for the organizational and financial development of local financial institutions (UPK) that manage the revolving funds accumulated through participation in KDP projects. Support under this component was limited to training, technical assistance and supervision for existing UPK, focusing on the effective and efficient use of the currently existing funds to let loan funds grow. Component 4: Implementation support: This component provides support for the provision of technical assistance for project administration at the national, provincial, and district level governments. Consultants were engaged to support technical activities, including a national management consultant. Additional activities funded through this component include training courses in legislative drafting and support to PMD for the implementation of overall project evaluations. The Indonesian government’s contributions related to the overall management, coordination, monitoring and supervision at national, provincial, district and sub-district levels. Component 5: Studies, evaluation, and special programs: In addition to the Management Information System (MIS), this component funded a program of poverty impact assessments using quantitative and qualitative methods; continued support for the Justice for the Poor program initiated under KDP-2; pilot programs for community-based monitoring; and a long term maintenance study to examine village capacities. Studies

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related to village and sub-district revenue generation, trade, and infrastructure were proposed at appraisal but were not implemented. Component 6: Operational costs: This component funded the costs of incremental travel to visit KDP field sites and of consumables for MOHA’s National KDP Secretariat. It also included the costs of workshops with local government officials and cross-country study tours for policy-makers to visit innovative community projects. Figures for the allocations by component (i.e. Bank and government funds combined) are not available because a large amount of additional financing was not allocated specifically to the various components. The summary table below shows the allocations of Bank funds only by categories, which more or less correspond to the above components. Actual disbursements were close to the original allocations, except that expenditure on block grants was approximately US$30 million less than allocated, while expenditure on consultants was approximately US$30 million more than allocated, with these consultants consisting mainly of facilitators at all levels, especially at the sub-district level. The additional expenditure on facilitators is justified by the fact that KDP-3 provided facilitators not just for KDP-3 block grants but also for emergency reconstruction and for the various government programs (such as the establishment of PNPM) and the three provincial programs.

1.6 Revised Components As mentioned above, KDP-3B also included a small additional subcomponent (subcomponent C under component 1) to provide funds for emergency reconstruction. These initial reconstruction funds were subsequently complemented by a large grant from

KDP-3A KDP-3B KDP-3B - AFLoan & Credit Loan & Credit Credit

1A Investment Block Grants 61,091,023.59 95,656,392.32 106,947,350.80 263,694,766.71 1B Planning Grants 7,823,385.49 11,089,481.37 - 18,912,866.86 1C Emergency Reconst. Grants 235,550.55 - - 235,550.55 1D Emmergency Planning Grants - - - - 2 Training 18,100,445.06 33,751,490.00 15,573,478.20 67,425,413.26

3A Consultants for Microfinance Support 6,254,859.82 15,668,560.86 - 21,923,420.68 3B Consultants for Implementation Support & Studies - 2,325,566.37 6,784,798.00 9,110,364.37 4 Incremental Ops Cost 202,897.38 681,894.47 - 884,791.85

TOTAL 93,708,161.89 159,173,385.39 129,305,627.00 382,187,174.28

Note: 1. The Components/subcomponents are shown as listed in the loan and credit agreements2. The allocations for "Front and Fee" is not shown in the above summary3. Credit amounts originally in SDR are converted to US$ at the rate at the time of loan/credit approval

No Component TOTAL

Table : Summary of Bank Loan and Credit Allocations by components in US$

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the Multi-Donor Trust Fund (MDF) and from a number of bilateral grants, and a separate project specifically intended for emergency reconstruction and was established1. KDP-3B-AF added a small subcomponent to finance an evaluation to determine whether the poverty reduction facilitated by the KDP program would have an impact on MDG performance indicators. Under KDP-3B-AF,minor rearrangements of the components were instituted: while still funding the same set of activities, the maximum block grant per sub-district was increased by 20 percent to the equivalent of approximately US$132,000.

1.7 Other significant changes As stated in the preamble to this ICR, approximately a year after the original approval of the KDP program that prior to its implementation, the value of the original loan/credit was scaled back significantly due to the political and legal uncertainty created by proposed revisions to the decentralization law. Subsequently, however, when this uncertainty had been resolved, funding for KDP-3B was approved, with the total value of the two phases more or less equaling the original value of the loan/credit amounts. Subsequently, when the Indonesian government announced its intention to launch a national KDP program (the PNPM-Mandiri program), substantial additional financing (AF) for KDP-3B was approved by the Bank to facilitate the transition to the new program. Substantial bilateral donor support became available between 2005 and 2008, with the combined KDP-3 project attracting a total of eleven trust funds (TF) that were linked to the KDP-3 loans/credits. Four different donors provided a total of approximately US$24.5 million in grant funding. The TFs were intended to support KDP-3’s PDO and to finance a wide range of interventions. These interventions, some of them regional, included initiatives to improve communications and education for poor children; to facilitate smallholder agribusiness development; to foster environmental training and awareness; to reduce poverty; to encourage women’s participation in leadership; and to provide technical training for new facilitators (“barefoot engineers”) in Papua and West Papua. More details on these TFs are provided in Annex 10. In December 2008, the closing dates for both KDP-3A and 3B (including AF) were extended by 12 months to December 31, 2009.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry The KDP program is a series of projects that, and each new stage, introduces improvements based on the lessons learnt from earlier and ongoing operations. The KDP-

1 The disbursement records show that only a small portion of the re-allocated funds were spent on block grants because GOI preferred to use all available grant resources for reconstruction investments. However, all implementation support for reconstruction in communities in the devastated areas was funded by KDP-3 sources.

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3B PAD contains a comparative table that shows how the program has evolved, progressing from KDP-1 to KDP-3, and incorporating the lessons from earlier operations. Lessons learnt relate to the necessity for more technical training and oversight; reduced technical complexity; user-friendly formats for reporting and financial management; a better system of incentives and sanctions; better support for regulations and formal procedures to strengthen governance; increased sustainability of micro-finance institutions; more external monitoring; and an improved system of monitoring and evaluation. Some risks, such as inadequate regulations, the lack of matching grants by local governments, and the lack of local human resources, had been identified and addressed. However, the challenge of the massive scaling up of KDP-3 had not been fully appreciated and, therefore, caused some implementation problems and delays. Government commitment was very strong as evidenced by the adoption of KDP as a national program (PNPM-Mandiri) in August 2006 during the implementation of KDP-3.

2.2 Implementation Overall, implementation went well. This was mainly due to the prior experience of the various project actors with KDP: government officials were familiar with KDP and, with its participatory and transparent approach, it was popular with communities. In addition, several thousand trained and experienced facilitators were available. As happened in most GoI-funded projects in 2005 due the transition of administration and introduction of new budget regulation, issuance of government budget were delayed by four months or more. As a result, initial socialization activities associated with KDP-3 only began in April 2005, leaving less time to complete planning and implementation activities. Although not formally termed a mid-term review (MTR), the Bank supervision mission that concluded in September 2006 was an MTR in every way but in name. The mission took place soon after the President's announcement of the government's intention to launch PNPM-Mandiri. It focused on a number of issues, including the challenges of scaling up; on reconstruction components (for Aceh-Nias and the Java earthquake); KDP in Papua; M&E issues (see below); improving FM, and the speedy resolution of complaints related to corruption. KDP-3 was never accorded “Project at Risk” status. In addition to the events described in the preamble (i.e. the initial scaling back of the KDP-3A loan and the subsequent approval of KDP-3B and KDP-3B-AF), a formal restructuring of the KDP-3A credit was conducted in early 2005 in response to the series of natural disasters in Indonesia, especially the earthquake-tsunami that devastated Aceh in December 2004. With KDP already operational in almost 40 percent of the sub-districts in Aceh, with a large network of facilitators in place, two new sub-components for investment block grants and for planning grants were added to provide an emergency cycle of funds for disaster-affected villages in Aceh. Approximately US$9 million equivalent were re-allocated from general block grants to emergency reconstruction grants, and an additional PDO was introduced (see 1.3 above). The amended credit agreement became effective on April 29, 2005.

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The earlier KDP projects did not require local governments to share in the costs of the program. However, KDP-3 stipulated that, depending to their fiscal capacity, local governments were required to contribute between 20 to 70 percent of the total value of the investment block grants, with this requirement being institutionalized by government regulations. As a result, the total value of local government contributions from their own budget sources amounted to approximately US$65 million. Also, the sum of voluntary contributions from communities, called swadaya and consisting mainly of labor and locally sourced materials, reached approximately 4 percent2 of the total value of block grants disbursed to villages.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization KDP-3 used a multi-level and multi-activity, internal and external monitoring and evaluation (M&E) system that was developed on the basis of lessons learnt from earlier projects. The MIS is the core of the internal system, while external monitoring was provided through independent provincial NGOs and an independent media. However, the MIS was instituted without anticipating the rapid scaling up of the program. The MIS suffered from a number of systemic issues, including lack of clarity on key indicators to be monitored; staffing issues; issues with customization of software; and hardware problems. Although detailed project data were readily available at the local level, the information did not flow up smoothly, and there was also a lack of level-by-level consolidation checks on data quality. The MTR mission in September 2006 did a review of the entire M&E system and made a number of recommendations to be implemented by January 2007 in anticipation of the scaling up the operation. These recommendations related to raising the quality of MIS staff; improving MIS hardware; integrating data into a single database; and strengthening the FM unit.

2.4 Safeguard and Fiduciary Compliance Environment Due to the very small scale of the infrastructure projects involved, no formal environmental impact analyses were required for KDP sub-project investments. However, the environmental and social impact of such subprojects was nonetheless considered. The project used standard formats and procedures, such as a checklist of impacts that was completed initially, at project identification. Follow-up checks were routinely conducted later, during and following project implementation. There was no systematic monitoring and reporting related to the implementation of environmental safeguards, although an extensive sample review conducted between 2006 and 2008 showed that only a very small proportion of cases involved serious negative environmental impacts3.

2 The borrower’s report in Annex 7 reports a “swadaya” contribution of six percent; this difference may be due to the difficulty in capturing, valuing and reporting all voluntary community contributions that are mainly in-kind. 3The sample of 331 villages in 95 sub-districts in all provinces in Eastern Indonesia showed that only 2 percent of the subprojects had environmental impacts rated as “high” (lack of road drainage, surface water pollution); “medium” impacts were observed in 9 percent of the sample, and 45 percent showed “low”, i.e. only minor impacts.

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Social Safeguards There were no reports of cases of involuntary land acquisition or loss of assets. It is very likely that such cases would have been brought to light through KDP’seffective complaints mechanisms (see below under Anti-corruption Measures).At the subproject identification stage, a checklist of possible compensation, if any, is prepared for land and assets (fruit trees, crops, etc) utilised or affected by the sub-project. In most cases, such assets are donated voluntarily by the owners,who perceive the benefits for themselves and their community as outweighing any potential loss. Without such mutually satisfactory agreements, the subproject would not be permitted to proceed to further priority discussion in the inter-village meeting forum. In general, throughout KDP, a very limited amount of private land is sometimes utilised for subprojects (for road widening, public toilet, spring capture, etc). Nonetheless, a better system of records of social and environmental screening and monitoring of subprojects should have been implemented, with documentation to record voluntary land donations to allow proper inventory of the new assets developed through the program. Procurement Consulting firms were selected through a competitive process to provide administrative and logistical services to 140 oversight consultants at the national and provincial level and 2,650 facilitators at the district and sub-district level. These consultants and facilitators were individually contracted by the PMU. Successful firms received a management fee for their services. Consulting firms that performed well that had been selected competitively for an earlier KDP project were appointed single-source. For village infrastructure subprojects, the proven system of community procurement was implemented. Procurement was managed by village-level implementation committees, using forms and procedures as reviewed and agreed by the Bank and established in the KDP project management manual. Financial Management Fiduciary compliance was generally good, with external audit reports by the central government’s audit agency (BPKP) expressing unqualified approval of the financial statements except for FY 2005, when there was an under-statement of the Special Account and some payments had been debited to KDP-2 in error. For FY 2006, more than 75 percent had been followed up by the project4. However, findings related to financial reports from FY 2007 and 2008 drew attention to internal control weaknesses and some problems with community records and payment verification. Other problems related to several overpayments; non-compliance on a few block grant disbursements; and inadequate monitoring of consultants’ work. In addition to checks by responsible Indonesian government agencies, the Bank’s regular financial management (FM) supervision missions conducted checks on the resolution of all these issues.

4 Bank FM supervision rated FM as moderately satisfactory in 09/2005, moderately unsatisfactory in 06/2008, moderately satisfactory again in 12/2008, and satisfactory in 06/2010.

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Anti-Corruption Measures KDP-3 used a comprehensive complaints mechanism to deal with corruption-related issues. By 2007, specialists had been appointed to handle complaints and attached to each provincial management consultant office. While communities or individuals could submit complaints in various ways, including by text messages (SMS), there was still a reluctance to report problems. In addition, facilitators and other project actors lacked the skills required to handle complaints well. Out of approximately 1,900 cases reported, of which more than half related to the misuse of funds5 and 70 percent related to revolving loan funds, the NMC’s complaints handling unit was able to close 56 percent of them, recovering almost US$1.9 million. The outstanding cases are still being pursued, including a portion that are slowly making their way through the police and court system.

2.5 Post-completion Operation/Next Phase Subprojects were handed over to the villages immediately after completion as part of the normal project cycle. There was also an operations and maintenance (O&M) meeting organized with each community close to the completion of the works, with an O&M committee being formed. This committee often comprises the same members as the implementation committee. For revenue-generating facilities, such as water supply, markets, and irrigation, a village-level utility was set up to manage the funds and O&M activities. Despite these efforts to establish adequate O&M capacities, especially for roads (the most popular infrastructure investment and also the most difficult and costly to maintain with community resources alone), no formal institutional arrangements were made, nor were there any budget provisions for ongoing maintenance and repairs. In contrast, a 2009 review of KDP/PNPM community water supply systems showed that, generally, water project maintenance is good, and technical and financial capacities, paired with the communities’ willingness to perform O&M, are adequate to keep such systems going. The main problems found in the study related to poor design and construction. As mentioned above, KDP-3 was scheduled to terminate in 2008, after the Indonesian government launched the PNPM-Mandiri Rural national program as a follow-on program in 2007. There was some overlap during 2007, but the transition from KDP to PNPM was almost seamless.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation The KDP program was a key component of the Bank’s support to Indonesia’s poverty reduction and decentralization program. As such, it therefore had high relevance to the CAS. The project aimed to strengthen the ability of communities across Indonesia to plan and manage local development initiatives. The program was established on a recognition that local communities were capable of producing high-quality, economically useful

5 Most of the remainder of complaints was related to abuse of authority which did not involve money.

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social and economic infrastructure investments. Furthermore, it recognized that district level agencies concentrated their resources on technically more complex and higher-value programming. Equally important for a transitional country such as Indonesia was the fact that participatory development programs, such as KDP, provided local governments with concrete examples of alternative systems to manage decentralization.KDP-3 PDOs tied in well with two of the three main CAS goals in 2003: (i) improving governance and (ii) reducing poverty. But KDP also fitted in with the overall CAS strategy of maintaining a low profile while Indonesia sorted its way through the New Order legacy and the resulting institutional turmoil. Thus, KDP was a key part of the Bank’s support to Indonesia's massive decentralization program.

3.2 Achievement of Project Development Objectives (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 2) KDP was significantly successful in achieving its primary objective of reducing poverty and improving local governance. A quantitative impact evaluation study 6 conducted between August/October 2007 (baseline) and February/March 2010 (end line) showed real consumption gains in households in KDP/PNPM areas to be 5 to 10 percent higher than in non-KDP/PNPM areas7. Households that were poor in 2007 had about a 2.5 percent higher likelihood of graduating from poverty than control households8. Local governance has improved, as evidenced by thousands of cost-effective subprojects that were implemented in a participatory and transparent manner. The project also achieved an additional development objective that of reconstruction of communities in devastated areas. More than 2,500 activities (outputs) were recorded for “post-disaster” areas (see summary table Annex 2). Only a small portion of the re-allocated funds were used, because the Indonesian government preferred to use grant funds for reconstruction, such as the separate KDP project financed by Multilateral Donor Fund (MDF) for Aceh and Nias. However, the project was less successful in institutionalizing these participatory processes in the regular local government structures. Strengthening the capacities of micro-finance institutions was also less successful, although the repayment rates for women’s savings and loan groups were high.

6The PNPM Impact Evaluation covers the period 2007-2010. It utilizes a quasi-experimental matching design with household panel in which a control group was constructed using existing Indonesian census and social survey data. The same households were interviewed in 2007 and 2010 and a difference-in-difference matching estimation approach was used to determine impacts. The results represent average treatment effects for the treated across all households in 150 project sub-districts. These results are used as a proxy for all sub-districts that participated in KDP-3. 7 Since the KDP-3 and the PNPM projects were being implemented in parallel for a period of time, and were indeed overlapping, the outcomes cannot be meaningfully separated but are considered to fairly reflect outcomes from KDP-3. 8The study was unable to assess to what extent poor households in wealthy kecamatans are benefitting from the program. 

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3.3 Efficiency No economic return analysis had been conducted specifically for this project. However, a 2005 study, conducted for KDP-2, showed that typical KDP-type infrastructure achieved EIRRs well in excess of 30 percent, with an average of 53 percent. Nothing significant has changed since 2005 in the way projects have been selected, prioritized, planned and implemented. Therefore, the results of the 2005 economic evaluation are likely to remain valid. That 2005 study also showed that KDP-type village infrastructure had significant positive impacts on the economies of the villages analyzed, although theprogram is less effective in less poor area. In addition, significant savings were achieved through the use of village labor and construction management compared to similar, contractor-built infrastructure. Least cost prices were achieved by the KDP standard program requirement that for larger goods items, villages had to obtain competitive quotes from three suppliers. On average, community-implemented KDP infrastructure projects cost 30 to 56 percent less than those executed by contractors.

3.4 Justification of Overall Outcome Rating Rating: Satisfactory Although not all PDOs have been fully achieved, the key poverty reduction objective was met, as proven by a recently concluded impact evaluation study. The 2010 impact evaluation study showed that in KDP/PNPM areas, there were real per capita consumption gains and a significantly higher proportion of poor families graduating from poverty. The physical targets of providing cost-effective infrastructure were exceeded, as the following figures demonstrate: (i) more than 18,000 villages implemented a range of subprojects in accordance with their needs; (ii) the EIRR ranged above 30 percent; and (iii) there were more than 18 million beneficiaries. Also, the project was highly relevant, as shown by the Indonesian government's adoption of KDP during the implementation period of this project series as its national community empowerment program (PNPM). In fact, Bank loan and credit funds, as well as trained and experienced project staff and other resources, were used to launch GoI’s program in 2007.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The positive impact on poverty reduction has been impressive, as briefly mentioned above. The evaluation study conducted between 2007 and 2010 found real consumption gains in households in KDP/PNPM areas to be 5 to 10 percent higher than in non-PNPM areas. It also concluded that households that were poor in 2007 had about a 2.5 percent higher likelihood of graduating from poverty than the control households. In terms of access to services, the likelihood of a sick person utilizing outpatient care in 2010 is 6 to 8 percent higher in KDP/PNPM areas than in control areas. Finally, there is evidence from this 2010 impact evaluation study that labor force participants in KDP/PNPM areas were one to two percent more likely to gain employment in the period from 2007 to 2010. These findings are consistent with similar results from a study on KDP-2 conducted between 2002 and 2007. The level of participation of the poor in planning meetings reached an average of 63 percent, as an extra effort was being made in KDP-3 to identify the poor and ensure that their real needs were being met through the village proposals.

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The microfinance component was also intended to address poverty, especially among women, through women’s savings and loan groups (SPP). However, it appears that it was difficult to target the poor with small loans. KDP-3 provided microfinance funds for women’s groups (SPP) only. Women took full advantage of this opportunity, and there were almost 13,000 such groups active at the end of 2007. SPPs consistently achieved an average repayment rate of approximately 94 percent. The rate of participation of women at KDP meetings ranged from 28 to 44 percent, rising to 90 percent for the “women’s special forum”. Two of the three proposals from each village were prepared by the women's forum, with one of them being for capital for women’s savings and loan groups SPP. Women’s proposals were discussed and decided upon in a special women-only village meeting. These were then forwarded to the full village assembly meeting, at which they were described and discussed. However, the women’s proposals were automatically forwarded to the sub-district for processing. Whether women’s proposals were funded or not depended on the decision of the inter-village forums (MAD). In any case, the program was clearly successful at identifying women’s priorities, creating a greater responsiveness to women’s needs. Project procedures and annual cycles of block grants also helped to increase the number of women selected as TPK or UPK members, or for other public positions. Reports from the field also showed that community-based monitoring by women groups was more effective. (b) Institutional Change/Strengthening KDP’s major contributions to institutional strengthening are difficult to quantify but nevertheless important. Prior to the VIP/KDP series of programs, Indonesia had little experience with or interest in community development. Over the life of the program, this view changed dramatically. Sectoral programs in education and health, for example, built up their own sector-specific approaches to community engagement. These drew on the lessons learned from KDP, and were even based on the procedures and formats that had been developed for this program. By the close of the bulk of the KDP-3 projects in 2008, community development had become an organizing principle for the government’s overall medium term expenditure plan as well as its national strategy for poverty reduction. While not all of these changes can be attributed to KDP, this program’s high profile and measured results made an important contribution to this overall change in government thinking. However, while participation, access to information, transparency and general governance are used to good purpose within project processes, these do not usually spill over to other areas of village development and governance. While women and the poor are included in the process, the quality of participation in decision-making and implementation is still limited. Thus, much of the decision-making is still conducted within the elite power structure of the village. Facilitators probably did not focus on the empowerment of non-elite groups to a sufficient degree. Capacity has been built widely through training and on-the-job experience in three separate sectors: (i) village communities, mainly village facilitators and the

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implementation committee members; (ii) local government level, at the village, sub-district, district and provincial levels; and (iii) private sector consultants who were engaged mainly as technical facilitators. At the end of KDP-3 implementation, at least 5,000 rural facilitators had been trained, about half of whom were engineers. They are available for this or other CDD-type programs or alternatively they may use the skills and experience they have acquired through KDP-3 and earlier KDP projects to work in other sectors, such as with government, with NGOs, or in the private sector. When people from local communities take on roles as village facilitators (FD), village planning and implementation committee (TPK) members, village monitoring team members, or as elected UPK officers, their capacities were developed through a learning-by-doing process. The training they received from the facilitators would have been meaningless if these villagers had not had hands-on experience in village planning, carrying out field surveys, facilitating village meetings, managing their own projects, discussing implementation problems, and other related processes. The institutionalization of participatory processes in local government has not made much progress because the adoption of local regulations/bylaws (Perda) to (i) strengthen the non-elected village councils and (ii) to underpin the local development process, especially for CDD-type projects, has not happened as planned. Although part of the original outcome indicators, monitoring of these actions has been abandoned. (c) Other Unintended Outcomes and Impacts (positive or negative) The decision by the Indonesian government in 2006 to rebrand KDP as PNPM and to transform it into a major, country-wide program using the same principles and arrangements was an important, unintended outcome. In fact, IEG had rated the likelihood of project sustainability as “low” just a few months before the Indonesian president's announcement of the national scale-up. The impact of this decision has been lasting: in 2010, PNPM III was approved and Indonesia’s parliament has recently confirmed sustained national coverage by PNPM until 2014. At the provincial level, a KDP-type approach was adopted by three autonomous provinces (Aceh, Papua and West Papua). These provinces allocated significant budget resources (US$100 million over 18 months in the case of Aceh) to such projects which they linked directly to KDP/PNPM, utilizing the same facilitators and planning processes. In addition, many local governments instituted locally-funded, community-based development efforts based directly on KDP principles and processes. There is also increasing use of the KDP approach for meeting specific, non-infrastructure, community goals, including educational and health goals (KDP Generasi for achieving MDGs) and agricultural goals. In addition, KDP/PNPM has become a vehicle to address other community needs, such as post-disaster and post-conflict reintegration (mainly in Aceh), and tapping renewable energy sources and improving environmental management (“Green KDP”).

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3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops A multi-stakeholder workshop was held in October 2010 in Jakarta to elicit feedback related to the project. More than 30 individuals attended, representing a wide range of project actors, including the national audit agency; management consultants; sub-district FM units (UPK); facilitators; village implementation team members; women’s micro finance group members; and a number of Indonesian NGOs. The workshop was very productive: in addition to lively discussions on project issues, outcomes and impacts, a number of important conclusions and recommendations were generated. The points most frequently raised were: (i) the inherent difficulty of specifically targeting the poor; (ii) overloading and insufficient training of facilitators led to some quality problems during implementation; (iii) high transparency helped to minimize corruption; (iv) MIS should have been improved; and (v) KDP was superior to PNPM. The perceived superiority of KDP may seem odd, but it is mainly related to the preference of central government project actors to manage a project with a centralized structure. By contrast, provincial and district officials are satisfied with the decentralized project structure (For more details see Annex 6). A separate meeting was held with key staff from PMD, the executing agency, and NMC, their consultants. The key point raised by PMD was that KDP was relatively simple but the rapid scale-up caused some quality problems. A suggestion from the PMD staff for the preparation of PNPM IV was for facilitators to train and develop “technical cadres” at the village level to increase sustainability through better O&M. The NMC team leader suggested that PNPM Rural should “work smarter” in the now decentralized environment and attempt to retain some of KDP’s good features, i.e. clarity of management, supervision and reporting line of consultants/ facilitators

4. Assessment of Risk to Development Outcome Rating: Moderate The risk to the development outcome is rated moderate. Despite some shortcomings of this project, the KDP/PNPM program is well established and has been continued through PNPM Rural, which is already being implemented. The project has facilitated an ongoing learning process, with lessons being captured and, more or less promptly, incorporated into the next cycle of PNPM. However, the slow progress in institutionalizing participatory processes throughout the operations of local government and the continuing constraints to good O&M performance by village committees pose a moderate risk to the development outcome. Overall, the lower risk factors (the high economic impacts of community projects, the vigorous community engagement and ownership, the government commitment, good governance, and institutional support) considerably outweigh the higher risk factors (the technical quality and the limited technical and financial capacity for good O&M). Therefore, the risk to development outcome has been rated as moderate.

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5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory The Bank performance is rated as satisfactory because the majority of the criteria for ensuring quality at entry have been met as follows:

The project was highly relevant to the Indonesian government, as demonstrated by its subsequent adoption as a national program for community empowerment and poverty alleviation;

Technical, financial and economic aspects were appropriate because they were based on the experience of earlier KDP projects, modified and improved as needed;

Poverty, gender and social development aspects were at the core of KDP-3 since poverty alleviation and improved local governance were the overall development objective of this project and because participation is a key principle of KDP;

Environmental aspects were properly addressed during preparation and appraisal, Although KDP projects have minor environmental impacts;

Fiduciary aspects were fully dealt with through strengthened financial management capacity and through a comprehensive anti-corruption plan;

Implementation arrangements were workable as they were an improved version of the tested and proven arrangements of earlier KDP projects;

M&E arrangements mainly focused on improving those of the earlier KDP projects. (b) Quality of Supervision Rating: Moderately Satisfactory The quality of Bank supervision is rated as Moderately Satisfactory based on a review of the key supervision quality criteria as follows:

There was a consistent and strong focus on the development impacts of poverty alleviation and improving local-level governance;

Fiduciary aspects, in particular financial management, local procurement and anti-corruption measures were given much attention during supervision. The latter were supported by an effective complaints mechanism;

Supervision inputs and processes were more than adequate, albeit not as much through conventional semi-annual missions but rather an ongoing supervision effort by a dedicated KDP/PNPM office and staff based in Indonesia;

The quality and candor of performance reporting was adequate although there were few formal supervision reports;

Fully adequate transition arrangements were assured by the nature of the rolling, overlapping KDP/PNPM program, and also by training of communities in O&M and assistance with setting up community organizations for O&M;

Documentation was often late, which reduced its utility to management; Follow-up often took a strategy of intense engagement with the executing agency

almost to the point of micro-management rather than escalation to higher level

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Indonesian authorities for resolution. However, that approach also had allowed smooth annual processing of additional loan in parallel with continued implementation.

While CDD made up a big share of overall Bank lending to Indonesia over this time period, projects were supervised as individual investments rather than as a portfolio. As a result, messages to government were not always consistent or reflective of overall trends.

(c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory Based on the above ratings for quality at entry and for supervision, the overall Bank performance is rated Moderately Satisfactory.

5.2 Borrower Performance (a) Government Performance Rating: Satisfactory Government performance is rated as Satisfactory because:

Ownership and commitment to achieving the development objectives was very high since KDP was adopted by government (as PNPM) As their main vehicle for nation-wide community empowerment and poverty alleviation;

Institutional policies were adequate but there were initially delays with the decentralization law, and the institutionalization of participatory processes at the local level did not progress as well as anticipated;

Implementation arrangements were good as government had decided to use an improved version adapted from earlier KDP operations. However, there were delays with staff appointments. Although apparently ready for implementation, KDP-3A was delayed by a year because of uncertainty caused by a proposed decentralization law;

Concerning fiduciary aspects, adequate counterpart funding was provided, covenants were fully complied with, and government audits (that also reviewed procurement) were performed;

M&E was adequate but the MIS was initially overwhelmed by the major scaling up of the project;

Relationships and coordination with donors was good, as evidenced by the number of eleven linked trust funds (totaling US$24.5 million) from four bilateral donors;

Fully adequate transition arrangements were assured by the nature of the rolling, overlapping KDP/PNPM program, and also by training of communities in O&M and assistance with setting up community organizations for O&M;

Weaknesses in the government’s performance include: - Lack of clarity over who is responsible for project oversight; - Delays in budget releases; and - Over-reliance on Bank supervision.

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(b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory The performance of the implementing agency (PMD) is rated Moderately Satisfactory because while all criteria were met, some weaknesses were identified, as follows:

PMD and the regional offices were fully committed to achieve the development objectives;

The consultations with, and participation of, the benefiting communities was very good since this is an integral part of the project preparation and implementation process of KDP projects;

There were some problems and delays with the appointment of staff at all levels; There were delays in resolving implementation issues, such as improving the MIS; The M&E system did not always provide timely and complete information although

the data were available at the local levels; Coordination with donors was very good, and adequate transition arrangements

were in place (same as above for government); Inadequate budget planning, which led to a very high level of time-consuming

budget revisions that adversely affected field implementation; Slow or inadequate action on poor staff performance and corruption complaints; Poor quality training programs, particularly for the social facilitators; Inconclusive performance reviews in joint WB-GoI discussions, with vow level

participation from the executing agency itself. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory Based on the above ratings, the rating for overall borrower performance is Moderately Satisfactory.

6. Lessons Learned Adoption by government: A popular and politically robust series of projects with demonstrated success in rural poverty reduction and improved governance has not only survived major political change but has also led to its adoption by government as a massive national program. Increases in local government contributions: A project that has been shown to be responsive to local needs can lead to a substantial increase in local government contributions from their own budgetary sources. The KDP’s early success helped to convince the central and the district governments to very significantly increase their counterpart contributions for KDP-3, with contributions in excess of 25 percent from local governments. The increase of local cost sharing was helped by the implementation of the Indonesian government regulation on mandatory contributions by local governments. Success attracts bilateral donors: A successful series of projects can attract bilateral donors through linked trust funds. Australia, Canada, Japan, and the UK supported the

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project’s achievement of its PDO with eleven separate trust funds totaling US$24.5 million (equivalent) in grant funding. Bank’s responsiveness in the face of legal and political uncertainty: The Bank’s responsiveness and flexibility can be crucial to “save a project” during a period of legal and political uncertainty (in this case, over the passage by the national parliament of the decentralization law). The KDP-3A loan/credit was modified (after Board approval) to allow the implementation of a scaled back first phase, followed by a much larger second phase, including very substantial additional financing, after the eventual approval of the comprehensive decentralization law. Advantages of project’s flexibility: A project’s flexibility can be a major advantage if damages from large natural disasters require a quick response to fund emergency reconstruction. This project readily addressed the huge needs through a re-allocation and an additional development objective. Existing implementation arrangements and staff were used to channel the reconstruction funds. The Bank’s flexibility also helped to attract bilateral and multilateral donors to participate in the emergency reconstruction efforts. Participation and transparency to safeguard against financial mismanagement: the project demonstrates that participation and transparency definitely help to safeguard against financial mis-management. The project was implemented without major financial management problems, with all project audits being clean and only minor issues being raised. This was due mainly to the highly participatory and transparent approach, including ample independent public oversight by the media and NGOs. Rapid and large scaling up of a programmatic operation can exceed institutional capacity: In KDP-3, the major expansion of the scope and scale of the project led to problems with data collection and the capacity of the MIS system. Such challenges should be anticipated and addressed in project design. Effective complaints mechanism to prevent corruption and abuse of power: An effective complaints mechanism can help not only to prevent corruption and abuse of power, but also to ensure that social safeguard problems (related to land and assets), if any, can be reported and dealt with. Necessity for increased attention to training and socialization: In a project that had focused on economic infrastructure, increased attention to training and socialization of communities can bring about a very substantial increase in investments in education and health infrastructure – sectors that had been neglected in earlier phases of the KDP program. In-depth evaluation studies to improve project design and implementation: It is invaluable to learn from in-depth evaluation studies carried out as part of the project to be able to improve project design and implementation. For example, KDP carried out a randomized experimental intervention to assess whether popular participation or

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increased sanctions would be more effective in reducing corruption. The findings were that for public goods, formal audits using a specially adapted audit manual could reduce corruption rates significantly. Results from this study have been adopted across the national program. Also, a qualitative impact evaluation study completed in 2007 – when the bulk of the KDP-3 investments were completed – found that KDP had significant impacts on local-level governance practices and community empowerment which was a key development objective of KDP-3. Specific lessons from this study are:

Village heads are the strongest factor influencing the quality of KDP implementation. Support for, and engagement with, village heads, especially for greater transparency and accountability, is of prime importance for the success of the KDP projects and for village development and governance;

If mechanisms for monitoring and accountability are still weak or unknown, villagers will rather attend planning meetings than accountability meetings;

KDP’s ability to involve women fully in the development process is still limited, although there is a high regional variation in women’s involvement;

When comparing KDP projects to other village-implemented projects, the KDP projects are consistently more likely to (i) meet village priority needs; (ii) ensure transparency and accountability; and (iii) achieve better quality at lower cost.

Lastly, KDP was shown to better support existing or nascent practices of good governance through helping reformist village heads and training KDP actors, although it has limited ability to dramatically change village governance in the short term.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The findings of the Borrower/Implementing Agency completion report are in line with those of the Bank’s ICR, and require no comment or response from the Bank. The borrower also reviewed and commented on the Bank’s final draft ICR. These comments helped improve the final ICR, but did not express differing views that require response by the Bank. (b) Co financiers N/A (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) N/A

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in US$ Million equivalent)

Components Appraisal Estimate (US$ millions)

Actual/Latest Estimate

(US$ millions)

Percentage of Appraisal

1. Block Grants to Kecamatan a. Infrastructure 426.0 536.0 125.8 b. Planning 42.5 45.8 107.8 c. Emergency reconstruction

5.0 0.5 10.0

2. Community Development 68.6 70.0 102.0 3. Support Microfinance 14.2 15.0 105.7 4. Implementation Support 64.5 66.0 102.3 5. M & E and studies 5.1 8.0 156.9 6. Incremental operating costs 3.9 6.4 164.0

Total Baseline Cost 629.8 Physical Contingencies 0.0 0.0 0.0 Price Contingencies 0.0 0.0 0.0

Total Project Costs 629.8 747.7 118.7 Front-end fee IBRD 0.4 0.0 N/A

Total Financing Required 630.3 747.7 118.6

a. The names and numbering of the components listed above are adapted to integrate variations in the PADs and Project Paper for KDP-3, KDP-3B, and KDP-3B-AF (see Section 1.5 of the ICR).

b. Appraisal estimates include the additional financing of US$123 million for KDP-3B. Based on the appraisal estimate for both KDP-3 and KDP-3B without the additional financing, actual costs would be about 147.4 percent of appraisal.

(b) Financing

Source of Funds Type of Co-financing

Appraisal Estimate

(US$ millions)

Actual/Latest Estimate

(US$ millions)

Percentage of

Appraisal

Borrower Joint 256.30 368.9 143.9% International Bank for Reconstruction and Development

125.50 124.5 99.2 %

International Development Association (IDA)

248.50 254.3 99.7 %

Total 630.3 747.7 118.6

a. The US$ equivalent of the appraisal credit amounts was calculated using the SDR conversion rate at the times of credit approval.

b. The US$ equivalent of the actual/latest credit amount in SDR is the sum of the “Historical Disbursed” from the World Bank Client Connection using conversion rates at the time funds were disbursed.

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Annex 2. Outputs by Component

Component 1: Block Grants

Objective: Villagers participate in a process to plan, select and manage basic social and economic infrastructure provided through block grants. The physical outputs of Component 1 are shown in the summary table below under Infrastructure9. The table shows that road projects continue to be the highest priority choices of villages, but the proportion of projects involving water supply and irrigation systems has been increasing over the years. Although part of the KDP-3 activities, the infrastructure outputs for emergency reconstruction are shown in a separate “post-disaster” column to give an indication of the portion of such activities in Aceh, Nias, Yogyakarta, and other smaller devastated areas. Also, KDP-3-AF had added a focus on health and education investments under Component 1. Infrastructure outputs for these sectors are shown further below in the summary table under the respective headings. The number of people employed and number of days worked were 2,398,400 and 16,175,525 respectively. The average number of days worked per person was approximately six, because the aim was to employ as many villagers as possible to give everybody who wanted an opportunity to work and to earn additional income. Other indicators for Component 1 that were measured and where targets were achieved are shown in the “Results Indicators” table below: the number of women participating in village meetings ranged from 28 to 44 percent (target was 40 percent)10; the percentage of grants disbursed reached 100 percent; and the infrastructure rated as high quality was 65 percent (target was 70 percent). There was no actual recording of the “percentage of devastated areas (in Aceh and Nias) benefiting from KDP technical and economic assistance.” However, with a target of 80 percent, indications are that 100 percent of villages in devastated areas received KDP assistance as a matter of priority (they did not necessarily receive assistance only through KDP-3, because there were other, specifically targeted projects for community reconstruction, with bilateral and multilateral grant funding, such as the Multi-Donor Trust Fund (MDF).

9 Since government records are by implementation/budget year, the numbers in the above table may include outputs from other KDP/PNPM projects that were implemented concurrently with KDP-3. 10 Although the participation rate was to be measured for “women and poorest community members in planning and decision-making meetings”, only the percentage of “women participating in village meetings” was actually measured.

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Outputs KDP-3 Post-Disaster* TOTAL

Infrastructure (Component 1)

Road Projects 5,583 497 6,080 Bridges 1,429 175 1,604 Clean Water Supply Systems 2,469 133 2,632 Public Washing Facilities 1,078 82 1,160 Irrigation Systems 2,589 244 2,833 New Markets 215 6 221 Market Rehabilitation 42 35 77 Village Electrification System 273 1 274 Other Infrastructure (unit) 5,685 957 6,642 People Employed 2,387,124 11,276 2,398,400 Work Days Generated 16,050,622 124,903 16,175,525 MicroFinance

Women’s Loan Group (SPP) 25,013 359 25,372 Beneficiaries 587,599 47,022 634,621 Health

New Village Health Clinics 1,607 150 1,757 Rehabilitation of Health Posts 36 6 42 Other Health Activities 971 66 1,037 Education

New Schools 2,673 131 2,804 Rehabilitation of Schools 789 332 1,121 Scholarships (Packages) 179 3 182 Scholarships Recipients 24,024 962 24,986 Other Education Activities 1,539 49 1,588 Total Days Worked 16,050,622 124.903 16,175,525 People Employed 2,387,124 11,276 2,398,400 Recipients of Microfinance 587,599 47,022 634,621

* These outputs were also part of KDP-3 but were for emergency reconstruction. Source: Final draft (November 2010) Borrower’s ICR Component 2: Developing Community and Local Government Objective: Local governments use their new skills to fulfill their local governance functions. Although there was little progress with villages formulating implementation regulations (Perda), the district governments greatly increased the level of their contributions to the program. Depending on fiscal capacity, the local government contributions ranged from 20 percent (low capacity), to 40 percent (medium) and all the way to 70 percent (high fiscal capacity). In total, local budget sources contributed US$65 million.

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Component 3: Support to Micro-finance institutions (UPKs) Objective: Sub-district micro-finance institutions (UPKs) have the skills to carry out their credit activities successfully and sustainably. The outputs that were measured for this component were as follows (also see tables):

Number of active women’s loan groups (SPP) 25,372

Number of beneficiaries 634,621

Percentage of UPKs that received training 100% (target was 75%)

SPP repayment rates between 2005 and 2008 92% to 94%

A risk analysis of UPKs performed at the end of 2006 (halfway through project implementation) showed that 76 percent of all 1,564 active UPKs were rated “sustainable” based on their financial reserves, repayment rates, income potential and their general management. Component 4: Monitoring and Evaluation. Objective: Project stakeholders use results of M&E activities and studies to improve project performance. KDP-3 started out using M&E results from KDP-1 and KDP-2 to improve its design. The Indonesian government’s decision to launch a nation-wide KDP-type program, PNPM, was at least in part based on the implementation data of KDP-2 and the ongoing data coming in from KDP-3’s MIS. Although not all proposed studies were actually conducted11, there was a qualitative impact evaluation in 2007 and an assessment of village infrastructure and social conditions, also in 2007. A study on village capacity in maintaining infrastructure was completed late, in 2010. The baseline and the subsequent impact evaluation of the KDP-3 and the early phases of PNPM were completed in 2007 and 2010 respectively. For all studies, the findings are used to improve project design and implementation of new and ongoing KDP operations.

11 The proposed studies on matching grants and on options for sustainable financing were not done.

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Component 5: Operational Expenses (including incremental costs) Objective: Local governments and communities use planning and facilitation skills. RESULTS INDICATORS TARGETS ACTUAL

A. INPUTS No. of Kecamatan (sub-districts) in the project 750 1,144 No. of villages with subprojects 12,000 18,007 % of women participating in village meetings 40 28 to 44 % of grants disbursed 80 100 % of villages with 5 bylaws (Perda) issued 85 N/A* % of UPKs that received training 75 100 B. OUTPUTS % of sub-districts visited by project staff 50 100 % of complaints in national database resolved 50 57 % of villages with council (BPD) formed by decree 30 N/A* % of villages with village-level by laws (Perda) 65 N/A* % inter-village forums by laws (Perda) 65 N/A* C. IMPACTS 1. Poverty No. of beneficiaries 12,000,000 about 18,000,000 % beneficiaries who are women 40 50 % beneficiaries who are poor 65 61 No. of primary schools rehabilitated 700 1,247 2. Sustainability % Infrastructure reviewed technically as “good” to “excellent”

70 65

No. UPK retaining >Rp.100 million 200 1,189 Studies on matching grants 1 None Studies on long-term maintenance 1 1 Studies of options for sustainable financing 1 None

* N/A indicates that due to poor progress and achievement with these indicators on formalizing local governance, there was no review of the indicators. Source: Final draft (November 2010) of Borrower’s ICR.

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Annex 3: Economic and Financial Analysis No specific economic analysis was conducted at project appraisal or after completion, but in 2005 an independent team evaluated KDP infrastructure projects by sampling three of the most common types of infrastructure works in four provinces: East Java, North Sumatra, South Sulawesi and East Nusa Tenggara. The results indicated by the following table:

Infrastructure Type

Cost-Saving Construction Compared to Equivalent Work

Built by Government (by contractors)

Quality Rated “Fair to Very

Good”

Average Value of EIRR

Roads and Bridges

36% 100% 52%

Clean Water Supply

39% 93% 39%

Irrigation 27% 78% 68%

Average

34%

90%

53%

The EIRR values are well in excess of the 30 percent lower threshold set for this project. No significant changes have occurred since the 2005 evaluation in the way the KDP-3 has selected, prioritized, planned and implemented infrastructure subprojects. Therefore, the results of the 2005 study are considered to remain valid. However, the EIRR values may be lower than the 53 percent average shown above because the first cycles (KDP-1 and KDP-2) would have funded the subprojects meeting the highest needs and therefore yielding the highest returns.

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty Lending Scott E. Guggenheim Task Team Leader/Co-Team Leader EASIS Team Leader John Victor Bottini Sr. Social Development Specialist EASIS Co-Team Leader

Unggul Suprayitno Sr. Financial Management Specialist

EAPFM FM

Rizal H. Rivai Sr. Procurement Specialist EAPPR Procurement Susan Wong Sr. Social Development Specialist EASSO M&E Thomas Walton Environmental Specialist EASSO Safeguards Jacqueline Pomeroy Consultant EASSO Economist Vivi Alatas Economist EASSO Economist Anju Sachdeva Office Manager EASIS Operations SupportArie Endah Purwanti Program Assistant EACIF Operations SupportRetno Widuri ACS EASSO Operations SupportSri Kuntari Technical EASSO Engineering Mgt. Karen Nordlander Senior Counsel LEGEA Legal Chitrawati Buchori Gender Specialist EASFP Gender Issues YoganaPrasta Operations Advisor EACIF Disbursement Heinrich K. Unger Consultant EASIS Safeguards Soroso Josostromo Consultant EASIS Engineer Enurlaela Hasanah Consultant EASIS Historian

Bolormaa Amgaabazar Country Officer EACIQ Social Development

Firman Dharmawan Contracts Officer GSDPR Procurement

Ben Fisher Institutional Specialist OPCS Institutions & Policy

Sajjad Ali Shah Technical Specialist EAPCO Quality Assurance Raj Soopramanian Senior Counsel LEGEA Legal Naseer Ahmad Rana Lead Procurement Specialist EACIQ Procurement Francisus Prahastanto Operations Officer EASSO Operations SupportOctaviera Herawati Technical Specialist EASSO Engineer Gustav Papanek Consultant EASSO Economist Inge Surtadi Tan ACS EASSO Client Support Benedicta Sembodo ACS EASSO Client Support Menno Pradhan Senior Economist EASIN Economist Supervision/ICR

Bolormaa Amgaabazar Country Officer EACIQ Social Development

Firman Dharmawan Contracts Officer GSDPR Procurement Scott E. Guggenheim Lead Social Development EASIS Anthropologist

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Specialist Emiliana Gunawan Program Assistant HDNHE Operations SupportEnurlaela Hasanah Consultant EASIS Historian, Gender Bisma Husen Sr. Procurement Specialist EAPPR Procurement Sri Kuntari Social Development Specialist EASIS Community Dev’t Yogana Prasta Operations Adviser EACIF Disbursement Arie Endah Purwanti Program Assistant EACIF Operations SupportRizal H. Rivai Sr. Procurement Specialist EAPPR Procurement Imad Saleh Lead Procurement Specialist EAPPR Procurement Sentot Surya Satria Social Development Specialist EASIS Team Leader John Victor Bottini Sr. Social Development Specialist EASIS Co-Teamleader Threesia Mariana Siregar Operations Analyst EASIS FM

Unggul Suprayitno Sr. Financial Management Specialist

EAPFM FM

Heinrich K. Unger Consultant EASIS ICR Author Retno Widuri Operations Assistant EACIF Operations SupportSusan Wong Sr. Social Development Specialist EASER M&E

(b) Staff Time and Cost: KDP-3A

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks US$ Thousands (including travel and consultant costs)

Lending

FY03 30 244.37 FY04 30.34 FY05 1.37 FY06 0.00 FY07 0.00 FY08 0.00 Total: 30 276.08 Supervision/ICR

FY03 0.00 FY04 9 78.17 FY05 11 68.03 FY06 8 91.49 FY07 38 146.67 FY08 20 78.92 FY09 3 0.00 Total: 89 463.28

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(b) Staff Time and Cost: KDP-3B & AF

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks US$ Thousands (including travel and consultant costs)

Lending

FY05 20 109.13 FY06 0.00 FY07 0.00 FY08 0.00 Total: 20 109.13 Supervision/ICR

FY05 0.00 FY06 14 43.14 FY07 30 146.66 FY08 15 58.73 FY09 4 0.00 Total: 63 248.53

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Annex 5: Beneficiary Survey Results The 2008 Impact Evaluation of the Second Phase of the KDP in Indonesia concluded that locally conceived and executed infrastructure projects consistently have produced high levels of community satisfaction and little negative environmental impact. Although not specifically prepared for this particular project, a 2005 survey and evaluation of KDP infrastructure projects across Indonesia found that:

97 percent of infrastructure projects benefited the community as or more than expected;

92 percent of these projects are still fully functioning; 96 percent of villagers responding were satisfied with infrastructure quality that

has been built; 94 percent of infrastructure projects had no negative impact on the environment;

and 6 percent had a light environmental impact.

Similarly, villagers have stated a high level of satisfaction with the KDP program as a whole:

97 percent are receptive to other projects with the same regulation as KDP; and 95 percent feel KDP is running smoothly without any serious problems.

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Annex 6: Stakeholder Workshop Report and Results 1. A multi-stakeholder workshop was held on October 20, 2010 in Jakarta to receive

feedback on the project. Over 30 persons attended, representing a wide range of project actors:

National Audit Agency; National Management Consultants (former staff); Regional (Provincial) Management Consultants; Sub-district Financial Management Units (UPK) & their supervision agency; Inter-village Cooperation Board; District-level monitors; Sub-district-level PMD project manager; District and sub-district-level facilitators (technical & financial); Village implementation teams; Women’s savings and loan groups; Not-for-profit, NGO research & monitoring organizations.

2. The workshop was very productive, and in addition to lively discussions of project

issues, outcomes and impacts, a number of important conclusions and recommendations were generated, as summarized below:

Objectives of (i) empowerment; (ii) economic development; and(iii) poverty reduction were the right ones;

The optimal balance between these three objectives is less certain, with some participants suggesting that the 25 percent ceiling for revolving loans was too low, while others thought it should be set at 10 percent. Moreover, it was suggested that many recipients of the revolving micro loan funds are not really poor;

Targeting of the poor was found to be very difficult; Another viewpoint was that the sub-district block grants were not adequate

areas with a large number of villages as poor; Many discussants (including some facilitators present) agreed that facilitators

were overloaded with work, did not have enough training before and during project implementation, and therefore there were weaknesses that affected the quality of project implementation, such as some road subprojects. Facilitators should be better supported and better supervised to achieve higher quality results;

However, quite a few participants thought that KDP-3 was still better than the current PNPM, which they perceive to be much too decentralized, burdening the facilitators with even more villages and providing them less training;

It was thought that more TA support is needed for communities to ensure they can achieve sustainability.Additional TA was specifically suggested for quality enhancement, better O&M, and financial management of revolving funds;

A better MIS for good M&E would have helped;

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On a positive note, KDP-3 was lauded for high transparency that helped to minimize corruption (misuse of funds), and the strong focus on poverty alleviation;

Many participants thought that the program should continue until communities become self-sustaining.

3. A representative of the executing agency (MOHA - PMD) and one from the NMC were interviewed separately from the stakeholder workshop. They were more concerned with strategic and policy aspects of the KDP/PNPM.

Main points from PMD:

KDP-3 was implemented well because it had a straight forward, centralized management structure for decision-making and problem solving;

As the program was scaled up from KDP-3A to 3B + AF, many additional facilitators had to be hired which resulted in lower standards for employment and affected the quality of implementation;

PMD needs continued support from the Bank for PNPM now, especially for difficult areas that need special attention, such as Papua and West Papua;

Lessons for the proposed PNPM IV: Knowledge for the sound implementation of O&M should be transferred by the facilitators to the communities. A “technical cadre” is needed in each community to help make investments sustainable.

Main points from the team leader of the NMC:

KDP-3 had a simple structure, and all consultants (facilitators) were employed by the central government, under NMC’s direction. There were clear mechanisms and rules for the effective management of the facilitators;

Coordination worked well in this unified project, and everybody was happy except the district and provincial governments, who were unhappy at being by-passed;

The quality of the facilitators was generally good, and they received more training. They also had higher commitment toward the project and the communities that they served;

Lesson for the proposed PNPM IV: The challenge will be to (i) work smarter within the decentralized environment, and (ii) try to use the good elements and features of the KDP era, adapted as needed.

Note: Many project actors who spoke could not resist comparing KDP-3 (“the good old days”) with the PNPM III that is currently being implemented. Most were positive that the old KDP model had worked very well. The lessons above reflect this sentiment.

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Annex 7: Summary of Borrower's ICR and/or Comments on Draft ICR A. Borrower comments on draft ICR The borrower reviewed the Bank’s final draft ICR and provided comments, but they are not reproduced here because they were given in the form of embedded comments within the ICR itself. The comments were largely technical and collaborative in nature, and did not involve significant differences with the Bank’s findings or assessments. They led to some final corrections and revisions of the ICR itself, and did not raise issues or competing viewpoints that required the borrower’s comments to be extracted and detailed separately in the ICR. B. Borrower completion report In November 2010, the executing agency PMD provided the Bank with the Borrower’s ICR in final draft form, as prepared by the NMC. It is a comprehensive report on the implementation of KDP-3. Much of the data and findings in this ICR have been gleaned from this PMD report. Below is a somewhat shortened version (prepared by the primary author of the Bank ICR) of the Borrower’s Executive Summary12: Message from the Director General of Community and Village Empowerment (PMD): Phase 3 of KDP was the last phase of the most successful rural community empowerment program ever implemented in this country. The end of Phase 3 marked nine years of the poorest rural communities in Indonesia actively participating in the development of their own villages through KDP’s very effective bottom-up participatory development method. The success of the KDP approach has been recognized by the Indonesian Government and is continuing on a much larger scale as its primary poverty alleviation program for rural areas. The new follow-on program is called The National Rural Community Empowerment Program (Program Nasional Pemberdayaan Masyarakat Mandiri Perdesaan) or PNPM Rural. KDP-3 provided over Rp 2.52 trillion or US$267.4113 million in development assistance, both from loans and the central government’s budget for 18,425 infrastructure and socioeconomic activities in 18,007 villages and 1,144 sub-districts across Indonesia. Additional effort was focused on strengthening local institutions at the sub-district and village levels during KDP-3 to reinforce the groundwork for sustainability of the KDP participatory approach.

12 Due to the length (14 pages) of the executive summary of PMD’s final report, this shortened version has been prepared by the primary author of the Bank ICR. The entire borrower’s ICR comprises 128 pages, plus a 50-page annex. 13 The amounts given by GOI differ significantly from the Bank’s records of funds disbursement for KDP-3.

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A special pilot program called P2SPP was also implemented during KDP-3 with the specific objective of integrating the KDP approach within the regular local government development planning mechanism. Thus far, KDP has operated outside of, but parallel to, this system. Long-term sustainability and acceptance of the KDP approach at the local government level depends on integrating the two systems to ensure that community proposals developed through genuine bottom-up planning can be accepted by local officials and be included in the final district level government programs. The Program also supported and closely monitored the progress of three other pilot program initatives. These programs piloted new methods and techniques for providing more intensive and focused assistance in education and community health at the village level. They also provided intensive capacity building support to village monitoring teams so that they could play a more proactive role in monitoring project construction quality and financial management. Local governments continued to provide strong support during KDP-3 by committing approximately US$65 million from their own budgets to direct community block grants under the Program’s cost sharing mechanism. This support demonstrates a strengthening of regional autonomy and increased local government commitment to the KDP approach. Foreword from the Director of Community Institutions and Training: The end of KDP-3 marked the end of nine years of successful implementation of KDP’s bottom-up, participatory approach to rural development. High levels of community participation continued throughout KDP-3. The majority of the workers (more than 70 percent) employed in the labor-intensive infrastructure investments were from the poorest segments of the community, as identified by household surveys conducted by local residents and KDP facilitators. The expansion of the Program into its next stage as rural PNPM is an indication of the central government’s confidence in KDP’s proven record to function as a cost-effective vehicle for poverty alleviation. This confidence is the result of the program’s support for participatory development; the principles underlying regional autonomy and decentralization; its pro-poor and pro-women approach; local democratic decision making; transparency and accountability; and prioritizing real community needs to ensure program sustainability. We look forward to further support from our donors and our central and local government partners as the Program expands and moves into the next stage of its development as the new rural PNPMprogram. Introduction: KDP-3 was split into two loans, KDP-3A and KDP-3B. The program was implemented via three programs annual cycles: 7, 8 and 9. Management of the program during the three years of KDP-3 was considerably more complex than in previous phases due to the special assistance to post-disaster reconstruction needs and three new pilot programs.

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The GoI chose to channel large amounts of emergency assistance for post-disaster areas through KDP-3 because of the program's long established, nation-wide networks at the sub-district and village levels and its highly efficient mechanisms for channeling funds directly to village communities. KDP’s system was ideal for responding rapidly to post-disaster areas like Aceh, Nias, Yogyakarta and Klaten (Central Java). All these areas all suffered extensive damage from earthquakes and/or tsunami. The program created new streamlined operational procedures to speed up the delivery of assistance to post-disaster areas. While KDP-3 provided quick initial support, some of these post-disaster locations mentioned above were funded from special donor grants (MDF for Aceh and Nias). Three new pilot programs were launched during KDP-3 by funding field trials of more focused approaches to other aspects of the Program that had not received the attention needed during earlier stages of KDP; this was mainly due to limited resources and the heavy workload of facilitators in the main Program. The three pilot programs were:

1. Education Pilot, covering early childhood education; 2. Health and Community Sanitation Pilot; 3. P2SPP Pilot which attempted to integrate the regular local government

development planning mechanism with the KDP approach. The new pilot programs were conducted on a small to medium scale, provided with special technical guidelines and operational procedures, and used specially trained facilitators. Main Differences between KDP-3 and earlier KDP Programs: The decision to extend KDP for another phase was based, among other factors, on a realization that tangible benefits had accrued to communities that participated in the program. The program had succeeded in improving the livelihood of communities wherever it had been implemented. There was also a desire to ensure the sustainability of the CDD concept post-KDP at the local level. KDP-3 was implemented in sites that had finished three previous activity cycles, either during KDP-1 or KDP-2. The main difference between previous versions of KDP, and KDP-3 was the desire of the central government to use KDP-3 as an exit strategy for the ten year program by making participating locations more self-sufficient post KDP. Through KDP-3, the government hoped to handover the main responsibility for management of the program to local communities and their local governments. It was hoped that existing local investments would be maintained, and hopefully developed further, through improved cooperation between ex-KDP communities and their local governments. KDP-3 officially started in the third quarter of 2005. Implementation was preceded by a socialization program to brief district officials and technical teams through a series of national seminars that were run at the end of 2004. The next step was site selection and negotiation of funding contributions (cost sharing) from all the participating local governments (Pemda). The cost sharing details were decided at hearings with each local

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legislature (DPRD). The final step was the signing of the Grant Agreements or Naskah Perjanjian Hibah (NPH) between the central government and the local governments. Cost sharing was negotiated based on each kabupaten government’s fiscal capacity. KDP-3 sought a strong commitment both from local governments (Pemda) and their legislatures to ensure that KDP’s principals and procedures were institutionalized as part of a sustainable rural development system. Ideally that commitment was to take the form of: 1. The willingness of local governments to allocate funds for block grants (BLM)

according to local fiscal capacity as outlined in the guidance issued by the Ministry of Finance (see arrangements described below);

2. Provision of administration funds and operational budgets (PAP) for each district coordination team. These funds were also to cover kecamatan/sub-districts.

3. Willingness of local governments to work with KDP to undertake reviews of local regulations and/or by-laws (Perda) covering village governance to ensure existing regulations were consistent with KDP principles and policies and supported the autonomous village concept.

Additional criteria for selecting KDP-3 locations included: Kecamatan which had finished three full activity cycles during KDP I or KDP II; Kecamatan which were not classified as problematic due to unresolved corruption

cases. The Program’s funding arrangements between central and local governments (Pemda) changed in KDP-3. Pemda contributions (referred to as cost sharing) were required as a precondition for receiving BLM funds and were calculated based on the following guidelines. Cost Sharing Guidelines between Central and Local Government

Fiscal Capacity Cost Sharing (%) Central Government Local Government

High 30 70 Medium 60 40

Low 80 20 In most aspects, KDP-3 at the kecamatan level was quite similar to KDP-2. KDP-3 BLM funds could also be invested in any activities proposed by the community, except for those included on the Program’s negative list. One notable difference in policy however was the approach to microfinance activities. Productive economic units, or Usaha Ekonomi Produktif (UEP), comprising of male and female members, could only be funded via existing revolving funds managed by UPKs that were originally sourced from previous KDP phases. KDP-3 funds could only be used to fund women’s microfinance groups (SPP). This change in policy was the result of generally low repayment rates and

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significant numbers of non-performing loans and embezzlement cases among UEP groups during KDP-1 and KDP-2. Consultants and Facilitators Employed: A large team of consultants and facilitators manages and executes the program at the different administrative levels, i.e. national, provincial, kabupaten and kecamatan (see table below). The average turnover of consultants because of resignations, dismals and normal demobilizations during KDP-3 was about 10 percent annually. All consultants during KDP-3 were employed directly by the Program’s national secretariat through direct contracts. All consultants and facilitators employed by the program are Indonesian nationals with the exception of two full-time international advisors and some short-term specialists contracted for specific tasks and special studies.

Consultants and Facilitators 2005 2006 National Management Consultants 29 37 Provincial Management Consultants 98 125 UPK Support Facilitators 79 78 District Management Consultants 445 417 Sub district Facilitators 3,278 2,870 Total Consultants 3,929 3,428 Total Village Facilitators About 36,000 About 36,000

Costs related to employment of consultants and facilitators accounted for 18 percent of KDP-3’s overall budget: 19 percent was used for training, planning grants for communities and operating costs, the remaining 63 percent of funds were channeled directly to participating rural communities in the form of direct community block grants (BLM). Below is a summary of the types of consultants and facilitators employed during KDP-3. Village-Level Activities and Subprojects: The poverty alleviation benefits from KDP-3’s investments in village infrastructure and facilities during the Program were significant. During KDP-3 more than 1.7 million people received over 6.8 million paid work days in KDP labor-intensive infrastructure projects. The majority of the workers (over 70 percent) were also from the poorest segments of the community as identified by household surveys conducted by local residents and KDP facilitators. Post project benefits claimed by villages and verified by a number of special studies included improved access to main service and population centers, markets, schools and health facilities; reductions in traveling time and overall transport costs; increases in small business and economic opportunities; improved water quality and better access to reliable clean water supply; and improved sanitation. KDP infrastructure has been proven to be more cost effective than similar infrastructure built by local governments, while still maintaining high quality. Independent studies

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conducted during 2004 and 2005 confirmed that KDP infrastructure is on average 56 percent cheaper than comparable infrastructure built by local government contractors. These savings are the result of lower costs for labor, materials, equipment (using labor-intensive construction methods instead of heavy equipment) and technical assistance from facilitators. Microfinance Activities: About twelve percent of KDP-3 community block grant funds (approximately US$17 million) were invested in microfinance activities to fund small-scale businesses such as agriculture, animal husbandry, fishing, trading and home-based enterprises. More than 13,030 groups representing more than 248,470 villagers received loans. Economic activities were a high priority for women and were the activities most frequently proposed by the special women’s meetings. Women’s credit (savings and loan) groups (SPP) consistently out-performed the mixed credit groups (UEP) throughout KDP-3. By December 2006, the average repayment rate for SPP women’s groups across 30 provinces was about 94 percent; with 20 provinces scoring above 90 percent, and 9 provinces even managed to achieve average repayment rates of over 97 percent. By contrast, the average repayment rate for all UEP mixed groups across 30 provinces, as of December 2006, was only 85 percent; with only 8 provinces scoring above 90 percent. Recipients of KDP-3 microfinance loans have reported modest increases in household incomes due to the additional income provided by their new or upgraded small businesses. Most loans were for capital investments to improve existing businesses through purchasing new equipment and additional inventories or to start new enterprises. Health and Education Activities: As a result of intensive socialization and facilitation during KDP-2, there were significant increases in education and health proposals from villages compared to KDP-1, especially in 2005. This increased emphasis on health and education was maintained during KDP-3 and was also the impetus for the Education and Health and Sanitation Pilot Programs. During KDP-3, 1,371 new schools were constructed. By comparison, at the end of KDP-2, 926 new schools had been built. Virtually all the funds spent on health activities during KDP-3 were invested in infrastructure in the form of small clinics and village health posts. During KDP-3, 764 health clinics were built and 58 renovated. These structures were built after verification that personnel such as doctors, nurses and health workers would be provided after the facilities were completed. Community Participation and Empowerment: Community participation and empowerment are the foundation of the KDP approach to community-based rural development. Participation levels during the two years of KDP-3 showed consistently high participation levels. Village (desa) and hamet (dusun) meetings

41

to socialize and plan KDP activities were characterized by relatively high levels of attendance. In accordance with the Program’s objectives, the majority of those participating (63 percent) in the planning meetings were also among the poorest members of each village. Participation of women in the eleven main meetings of the KDP cycle ranged from 28 to 44 percent during KDP-3, not including the special women’s meeting (MKP). Another indication of strong community participation and ownership was the high levels of voluntary contributions (swadaya) from villages in the form of labor, materials, food and even cash. Despite the relative poverty of the participating villages, community voluntary contributions in cash, materials and labor have been significant since the beginning of KDP, averaging about 6 percent of total project costs during KDP-314.This figure varies considerably between regions across Indonesia and is often far greater than 6 percent, especially if a village is fortunate enough to possess large quantities of building materials such as stone, sand or wood.When available, these materials are commonly donated by villages, resulting in considerable project savings. Interestingly swadaya contributions were often quite high in the poorest regions of Eastern Indonesia like East Nusa Tenggara and West Nusa Tenggara. Characteristically, local cooperation in the form of voluntary community action (gotong royong) is generally higher in the more traditional areas of Indonesia where community spirit and social cohesiveness are still quite strong. When this community spirit was successfully invoked through the KDP community-based process, impressive and often surprising levels of participation (usually in the form of labor contributions, since labor was often all these villages had to give) were donated to the project. KDP-3 and Local Government: KDP-3 saw a continuation of the increase in acceptance of KDP principles and procedures by local government officials that became evident by the end of KDP-2. By the end of KDP-3, the animosity that had existed between consultants and many local officials during KDP-1 (mainly sub-district (kecamatan) and village heads) who resented the fact that they were forbidden from directly interfering with KDP projects or asking for operational funds from those projects, had all but disappeared. Once these officials became aware of the benefits for local development inherent in the KDP approach, they quickly began to support the program enthusiastically. A heightened sense of political survival among district heads (Bupati) who had to face their constituents in direct local elections also encouraged the enforcement of KDP’s principles and procedures among kecamatan and village level officials. The rapid adoption of other copycat programs completely funded and managed by local governments, called PPK Mandiri, also showed that many Bupati and governors were

14 Bank data show a swadaya contribution averaging at least four percent.

42

clearly aware of the vote winning potential of the KDP approach among their rural constituents. At last count, PPK Mandiri programs were underway in 23 provinces across the country. Program consultants at all levels have also reported evidence of improved local governance as more and more local government officials have bought into the participatory community-based approach to rural development and the change in mindset that goes with it. This incremental change in local government thinking has been due, in no small part, to the spread of community empowerment practices and an increase in general awareness among villagers about the benefits of transparency and participatory planning practices. Many reports were received during KDP-2 and KDP-3 about villagers demanding higher levels of accountability from local government officials in the management of other (non-KDP) government funded projects. Villagers have also been transferring KDP procedures and financial management skills to other local development projects. Further proof of the widespread acceptance of the KDP approach among local governments during KDP-3 has been the acceptance of the cost sharing arrangements that replaced the matching grant financing mechanism which was introduced during KDP-2. The matching grant system was created to help extend the program by asking local governments to contribute to BLM from their own budgets so central government funds could be stretched to include more locations. The cost sharing arrangement requires participating local governments to fund a portion of the direct community block grants from their own budgets; while the cost of technical assistance, like consultants and costs for community planning activities (DOK), are still borne by the central government. The portion paid by local governments is determined by their fiscal capacity. Those with “high” capacity pay 70 percent, those with “medium” capacity pay 40 percent, and those with “low” capacity pay 20 percent of the total cost of BLM. One of the key differences with the cost sharing arrangements is that local government budget funds must be disbursed before central government funds can be used. KDP in Post disaster Locations: KDP responded rapidly to the tsunami that devastated much of Aceh in December 2004, the large earthquake that leveled most of the buildings in the Nias islands in March 2005 and the earthquake that hit Yogyakarta and Bantul, in Central Java, in 2006. KDP quickly put in place special arrangements to accelerate the delivery of assistance to these areas. These included expansion of KDP sites to include all kecamatan in the affected areas; increasing the amounts allocated for BLM in all kecamatan; expanding the scope of activities that could be funded; simplifying the BLM disbursement process; providing extra consultant support; modifying the standard operational technical guidelines; and modifying guidance for cooperation with other parties (NGOs) involved in post disaster relief work and development. Separate reports for post disaster locations will be prepared.

43

Preventing Corruption and Responding to Complaints: KDP continues to operate in a high risk environment where instances of corruption, embezzlement, negative intervention by officials, creative bookkeeping by kecamatan activity management units (UPK) and village implementation teams (TPK) require constant vigilance. However, given the actual losses that the Program has suffered compared to the amount of funds disbursed to communities, KDP has been very successful in preventing and combating corruption in all its forms. The reason for this success has been a systematic approach to corruption mitigation involving three main elements. Firstly, bookkeeping and administration procedures have been made as simple as possible to facilitate monitoring by consultants and other stakeholders. Secondly, transparency in all matters pertaining to project decision making and funds management is a basic principle of the program and is insisted upon by consultants at all levels. Thirdly, prompt action is always taken in response to complaints of any type. During KDP-2, full-time complaints handling specialists (SP2M) were added to the staff of the provincial management offices. These specialists quickly reduced the caseload of problems that had built up during KDP-1 and also provided a demonstrable deterrent effect within the program, especially after a number of high profile cases where successfully prosecuted through legal channels. Besides contact numbers for consultants on project information boards, community members have also been able to send letters to a well publicized PO Box at the National Management Consultant (NMC) office in Jakarta. Throughout KDP-2, the complaints handling specialists in the field were also supported by a seven-person internal audit team based at the NMC that continually traveled to project locations conducting spot audits and conducting on-the-job-training for consultants and community members in financial management. At the start of KDP-3, the province-based complaints handling specialists were replaced by a monitoring and evaluation specialist who was effectively responsible for three main tasks (microfinance, financial supervision and complaints). Within the first year ofKDP-3, it was evident that the report writing workload of the monitoring and evaluation specialists had made handling complaints and resolving corruption cases rather low on their list of priorities. As a result, the SP2M specialist position was reinstated within the provincial management offices at the beginning of 2007, the first year after the end of KDP-3. In accordance with the World Bank loan and credit agreements, the program was audited each year by the State Development Finance Inspection Agency (BPKP).This agency conducts annual spot audits on a 10 percent sample of project locations across the country. The findings of these audits remain active until BPKP is satisfied that KDP field consultants and local government coordination teams (TK-PPK) have completely resolved each problem mentioned in the audit report.

44

In addition to the formal audit teams, KDP-3 contracted provincially based local NGOs to conduct external monitoring of key program principles and procedures in selected areas as part of a pilot program called Provincial Based Monitoring (PBM). However, after disappointing results in the first year, the approach used by the NGOs in the second year of KDP-3 (2006) was changed from an external monitoring approach to a more hands-on and inclusive method where members of village communities were selected, trained and mentored by the NGOs to become internal program monitors instead of the NGOs acting as an external “KDP watch” group. The method used is known as community participatory monitoring (CPM). Significant improvements in uncovering corruption and breaches of project procedures were noted after the NGOs adopted the CPM approach. Although KDP has expended significant energy and resources on preventing, uncovering and combating corruption, it is important to keep the total corruption picture in perspective. Total losses due to corruption in the KDP Program up to and including KDP-3 (a period of over nine years) were US$1,983,488. However, when compared to the total funding disbursed during that period from all sources; this represented a loss to corruption of approximately 0.18 percent of total disbursements. A significant number of the outstanding cases still on the books will be resolved in time. On average, the NMC’s complaints handling unit facilitates the resolution of, or directly resolves, more than 40 percent of new corruption cases each year. The remainder is pursued until they are resolved. By any standards, this is an impressive corruption management record for a program as large as KDP in a country where development projects struggle with the problem of corruption on a daily basis.

45

Annex 8: Comments of Co financiers and Other Partners/Stakeholders No comments were received.

46

Annex 9: List of Supporting Documents Loan, Credit and Grant Agreements.

Project Appraisal Documents and Project Paper.

Aide Memoires, Back-to-Office Reports, and Implementation Status Reports.

Supervision Reports.

Project Progress Reports.

Country Assistance Strategy for Indonesia (Report No. 27108-IND). EAP, World Bank. October 2003.

Project Restructuring Paper: Indonesia Tsunami Emergency Recovery Support Package: Proposed Restructuring of three ongoing Projects in Response to the Late-2004 Natural Disasters. World Bank Response to the Tsunami Disaster (secM2005-0035). January 28, 2005. John Voss. Impact Evaluation of the Second Phase of the Kecamatan Development Program in Indonesia.The World Bank. June 2008.

John Voss. PNPM-Rural Baseline Report.The World Bank Indonesia. June 2008. Anthony Torrens. Economic Impact Analysis of Kecamatan Development Program Infrastructure Projects – Final Report. The World Bank. January 2005. Karrie McLaughlin, Adam Satu, Michael Hoppe. Kecamatan Development Program: Qualitative Impact Evaluation.The World Bank. April 2007. Directorate General of Community and Village Development, MOHA.2006 Annual Report: Kecamatan Development Program. 2007. Directorate General of Community and Village Development, MOHA.Kecamatan Development Program:Annual Report 2007. 2008.

Directorate General of Community and Village Empowerment, MOHA.Annual Report 2008: PNPM MandiriPerdesaan. 2009.

Ted E. Kulongoski. 10 Recurring Omissions of KDP Micro-Infrastructure Projects. November 2007.

Ted E. Kulongoski. Environmental Monitoring for Program PengembanganKecamatan (PPK) and Program NasionalPemberdayaanMasyarakat (PNPM). November 2008.

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Ted E. Kulongoski. Operation and Maintenance Overview for Program PengembanganKecamatan (PPK) and Program NasionalPemberdayaanMasyarakat. June 2009. The Kecamatan Development Program.An Assessment of Village Infrastructure and Social Conditions. March 2007. Village Resources and Rural Infrastructure (VRRI) in Indonesia: Village Capacity in Maintaining – Infrastructure Evidence from Rural Indonesia”.May 2010. NMC and Kecamatan Development Program Secretariat.Final Report – Evaluation of Infrastructure Quality: KDP Cycle IV. September 2005. NMC danSekretariatPengembanganKecamatan.EvaluasiKwalitasPrasarana PPK Siklus IV HasilPenilaianPer Item Pemeriksaan. March 2006. The World Bank.KDP-3 – ICR: Stakeholder Workshop, Meeting Notes. October 2010. The World Bank.Safeguard Policy Issues: Indonesia, Third PNPM – Rural. July 2010. MOHA – PMD. Final Report: KDP-3 –Final Draft. November 2010. John Voss. Impact Evaluation of PNPM Phases 1 – 3, Final Draft. The World Bank. November 2010.

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Annex 10: Summary of Trust Funds Linked to KDP-3 Summary of Trust Funds Attached to KDP-3A

Trust Fund # (Donor)

Disbursed in

US$ equiv.

Name Effective Date

Closing Date

TF-55051 (JSDF)

945,000 Improving Aids Effectiveness Through

Radio

09/09/2005 25/03/2009

The Project consists of following activities: (a) Provincial and District Radio Information and Monitoring Support: Facilitated the two-way exchange of information between tsunami affected communities and aid coordination teams in Banda Aceh and Nias, North Sumatra, covering international, national and NGO aid programs, disseminated information on available relief and rehabilitation programs, and provided a channel for local feedback on problems encountered during reconstruction; (b) Promoting Community Radio: Developed a network of community radios based in Aceh's sub-districts and villages to provide training in broadcast management and programming, support for reconstruction of local tele-centers, and developed a local level communications system using radio and sms via mobile phone; (c) Provision of Radio Set Grants: Provided radio sets to existing community groups to be distributed to tsunami-affected communities and placed in publicly accessible locations. Outcomes: There were 46 community radios produced and broadcasted many well documented news and information, Public Service Announcements (PSA), and talk-shows programs. These radios are still operating to date. The network was called ARRNet (Aceh Nias Reconstruction Radio Network) and focused on providing information about the process of reconstruction and rehabilitation. People in affected areas were provided with 4600 radio sets (radio receivers), considering that each community radio which would cover minimum 2.5 km square. When many commercial radio stations were destroyed by tsunami, SeHa FM community radio in Jantho (Aceh Besar) was the only source for people. It was used as a medium for dialog between the affected communities, aid agencies, local government and other stakeholders during the recovery phase. People also used the radioto communicate among themselves in order to heal their trauma, entertain and educate community members in recovery and reconstruction situation. A good example for this purpose was the frequent use of nazam (traditional poems of Aceh) to strengthen affected people to recover from their sadness. Nazam was also used to express people’sfeeling, for example their hope about peace situation in Aceh. Samudera FM, a community radio operated by refugees from the tsunami-affected areas in North Aceh, broadcasts religious programs to heal the trauma of Acehnese who had been affected by conflict and tsunami. Since those radios were staffed by local volunteers, it was easier to interact directlywith community members. For example, Radio SeHa was managed by young people who wereliving in refugee camps. SeHA aired field reports from camps giving information on situations, problems and opinions of affected people living there. Radio Suara Meulaboh (West Aceh), conducted voxpopuli interviews with local inhabitants. Samudera FM in North Aceh reported and discussed conditions and problems faced by people living in camps and barracks (infoaceh.net). The reports built close relations between community and their

49

radio since the radio helped them to voice their aspirations. This activity brought volunteers from Jaringan Radio Komunitas Indonesia/JRKI (Community Radio Network of Indonesia) who played an important role in initiating community radio in Aceh. TF-55900

(JSDF) 1,330,000 Education for Very Poor

Children 20/03/2006 31/12/2010

This grant builds on the PEKKA network of female-headed households. The grant finances life-skills training for the very poorest members of their communities, with a special focus on basic literacy, vocational training, and youth. It is still taking place in 9 PEKKA provinces. The grant supports hamlet meetings to promote enrollment of poor children by providing basic scholarship package, funding for monthly meetings of teachers and parents, and funding for parents training. Outcomes: 10,183 students received scholarships, of whom 60 percent were elementary school students, 25 percent junior high school students and 15 percent students engaged in special courses. The selection of beneficiary students was conducted by existing village Pekka groups. An additional outcome was that the program became an incentive for other women from ‘poor, male-headed households’ to join many Pekka trainings, and learn from and develop their own groups. Another outcome was that many parents, especially women, joined parental care training or became kindergarten teachers after they received some teaching skill trainings. TF-57097 (AusAID)

4,400,000 Smallholder Agribusiness Development Initiative

(SADI) Pilot Project

25/04/2007 31/12/2009

SADI aimed to combine the resources, skills and experience of three different development agencies to address complex issues of rural poverty in the agricultural communities of four of Indonesia’s poorest provinces. Working with three agencies, it was designed to address long-standing issues and constraints related to agricultural production and rural poverty in Eastern Indonesia. Outcomes: More than 300 farmers’ groups formed, and trained and actively improved their livelihood through an increase in household income. Meetings to identify problems and priorities were held at all levels, and decisions were made by inter-village groups. In light of the mixed results of SADI, the decision was made to discontinue this pilot project.

Summary of Trust Funds Attached to KDP-3B including AF

TF-56890 (CIDA)

9,800,000 KDP in Sulawesi and Environmental Training and

Awareness Project

05/03/2007 31/12/2010

Also called “Green KDP/PNPM” was an environmental pilot program to finance 3 annual cycles of block grants for investments in “green” subprojects focused on national resource management (NRM), environmental conservation, renewable energy, and environmentally sound income generating activities. The training of facilitators specifically for this pilot program was also funded. Outcomes: Communities have selected over 700 “green” subprojects and they were implemented, funded by this TF. The process also facilitated community engagement with local governments to include environmental issues in their planning process. Communities

50

were empowered to improve local natural resource management practices and thereby secure better collective livelihoods. TF-90488 1,535,450 Creative Community Fund 04/12/2007 04/12/2011

This is a pilot project funded by JSDF to test out new approaches to complement KDP approach, to introduce a cultural perspective to community-driven development. The underlying concept of this pilot is that culture, in its many and diverse manifestation, includes and supports economic and social values that can empower communities and provides essential support for sustainable community-driven development. The production of handicrafts and cultural shows generate income and provide employment through tourism. The goal of the pilot is to revitalize and empower communities through supporting creative activities and building awareness and capacity of local facilitators in tapping into cultural resources to reach out to the community. Through the existing local network of KDP/ PNPM actors, the pilot provided grants to local communities to support creative and cultural activities, as well as to regional-based artists, artisans, cultural-groups and NGOs. Outcomes: Across three pilot provinces, every sub-district conducted some form of a cultural festival with slight variations, showcasing local performing arts, cultural traditions, cuisine, handicrafts and other local produce to support local artists, promote PNPM, and stimulate sales of local products. It was a big hit everywhere. People from remote villages, were transported to the sub-district to participate in the events. PNPM local actors were very inspired and encouraged by the general public who turned up in hundreds and thousands a day, and received positive responses from the participating cultural groups and the local government agencies. Many people said that it was the first time they saw some of their own traditional art forms, which they have only previously heard about from the older generations. There is a growing interest in traditional art forms following these festivals, some dormant arts groups are revived in the process and aspire to perform at the district, provincial or national levels. Local artists, who are often poor, benefited from participating in the festivals. Significant increase in participation: The sub-districts that have introduced Creative Communities funded cultural activities at PNPM regular meetings all claimed that attendance and participation has increased by two or three folds, from typically 50-80 people per village meeting in the past to 200-300 people. Although this does not necessarily imply more varied voices at village meetings, with a bigger turnout, more people would have witnessed the PNPM process, and been informed of how the funds were used and by whom, thereby adding to the transparency and accountability of PNPM. Developing local capacities and ownership: Creative Communities works largely through existing local community personnel, with the PL (or Local Facilitator; not the ones hired by the project) taking a lead, supported by BKAD and UPK. In addition, three new people are selected to form a “Creative Team” to provide technical support at the sub-district level and one “cultural assistant” at each village. One positive outcome of this arrangement is local community personnel such as the PL and BKAD are improving their capacities in facilitating village meetings and organizing cultural activities, otherwise often untapped in PNPM. The success of the cultural festivals, for example, boosts the confidence of many local teams. In some areas, their government counterparts were surprised that they were able to organize such large-scale events, and even approached them for support in staging cultural activities. Some of the more far-sighted local teams have taken initiatives to seek support from governmental departments and alternative

51

sources of funding to continue their community cultural projects should Creative Communities be discontinued.

TF-90850 (PHRD-Japan)

998,000 Third Kecamatan Development Program 3 -

Phase II

02/11/2007 31/12/2009

This Grant was to assist the Recipient in the implementation of KDP-3 phase II, by providing access funds to address capacity implementation issues which were not foreseen at the time of preparation. Activities include:

(i) designing a training program for regional audit agencies and financial oversight teams with the national KDP;

(ii) developing a Management Information System and complementary system of evaluation, and a cadre of trained Indonesian professionals who will take over program management, and assisting the Ministry for Social Welfare and Poverty Reduction build its capacity in monitoring and evaluation;

(iii) coordinating health and education services delivery with the KDP program. The grant only disbursed less than 10 percent due to lapses in budget planning and administration by the PMU; despite frequent reminders and assistance from the task team.

TF-90912 (CIDA)

754,230 KDP in Sulawesi and Environmental Training and

Awareness Project, North Sulawesi (CSO-executed)

04/10/2007 31/08/2010

This grant was used by the Wildlife Conservation Society (WCS), a civil society organization to finance environmental awareness and related training activities for “Green KDP” stakeholders. Outcomes: WCS has developed a range of environmental information, education & communication materials that is used to promote the mid/long term livelihood benefits of incorporating environmental planning in local development efforts. TF-90976 (CIDA)

758,800 KDP in Sulawesi and Environmental Training and

Awareness Project, South Sulawesi (CSO-executed)

12/11/2007 30/10/2010

This grant was used by CARE International, an international civil society organization (CSO) to finance environmental awareness and related training activities for “Green KDP” stakeholders. Outcomes: CARE has developed a range of environmental information, education & communication materials that is used to promote the mid/long term livelihood benefits of incorporating environmental planning in local development efforts. CARE also facilitated a number of public information campaigns that led to commitments by local governments to increase public funding for environment projects. The CSO was effective in encouraging communities to invest in a broader range of natural resource management activities.

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TF-90977 (CIDA)

764,650 KDP in Sulawesi and Environmental Training and Awareness Project, Southeast

Sulawesi (CSO-executed)

09/11/2007 31/10/2010

This grant was used by the Operation Wallacea Trust (OWT), another international CSO to finance environmental awareness and related training activities for “Green KDP” stakeholders. Outcomes: OWT has developed a range of environmental information, education & communication materials that is used to promote the mid/long term livelihood benefits of incorporating environmental planning in local development efforts. TF-91171

(JSDF) 1,702,000 Poverty Reduction and

Women Leadership: The “Prime” Project

05/06/2008 05/06/2012

The PRIME (Indonesian Women Leaders) project aims to develop mechanisms to promote sustainable grassroots capacity development for vulnerable women in poor villages. Outcomes: PRIME has delivered local level leadership training in 4 areas:

(i) forming & managing micro finance institutions, (ii) micro finance enterprise development (iii) vocational education & adult literacy, and (iv) women's legal empowerment. The total number of beneficiaries is about 12,500.

TF-92115 (AusAID)

1,257,554 Cendrawasih University: The RESPEK Program in

Papua and West Papua

28/05/2008 30/06/2010

When GoI and the Bank agreed with the Papua provincial governments to merge the local RESPEK program with PNPM, a shortage of competent technical facilitators was a major constraint for project implementation. This grant financed a special program to give local senior high school graduates basic training in civil engineering, mechanics, micro hydro power generation, construction/building analysis, budget planning and implementation and social facilitation and empowerment training. The University of Cenderawasih in Jayapura designed and delivered a six-month intensive training course, combining classroom teaching with the practical application of new knowledge in the field on the most common small-scale infrastructure projects in Papua and West Papua. Outcomes: More than 100 mostly Papuan participants (30 percent were women) graduated and were deployed as technical facilitators in their home districts. “Barefoot Engineers”, as they are called, now make up almost half of the field engineers for PNPM-RESPEK, thereby supporting KDP in very remote areas of Papua & West Papua.

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98

135

96

6650

10

100

105

120

133

41

124

131

113

73

137

74

57

99

107

111

130

59

128

4982

12

94

83

89

55

112

8558

6961

6548

95

78

110

60

70 67

18

53

84

8

68

86

109

72

31

143106

62

134

086. SUMBA BARAT

087. SUMBA TIMUR088. KUPANG089. ROTE NDAO

090. TIMOR TENGAH SELATAN091. TIMOR TENGAH UTARA

092. BELU093. ALOR

094. LEMBATA095. FLORES TIMUR

096. SIKKA097. ENDE

098. NGADA

099. MANGGARAI100. MANGGARAI BARAT

NTB & NTT

039. PANDEGLANG

040. LEBAK041. SERANG

042. SUKABUMI043. CIANJUR

044. BANDUNG045. GARUT

046. TASIKMALAYA047. CIAMIS

048. CIREBON

049. MAJALENGKA050. SUMEDANG

051. INDRAMAYU052. SUBANG053. PURWAKARTA

054. KARAWANG

055. KUNINGAN

056. CILACAP057. BANYUMAS

058. BANJARNEGARA059. KEBUMEN

060. WONOSOBO

061. BOYOLALI

062. SUKOHARJO

063. WONOGIRI064. GROBOGAN

065. REMBANG066. PATI

067. DEMAK068. BATANG

069. PEMALANG070. TEGAL

071. BREBES072. KULON PROGO

073. GUNUNG KIDUL074. PONOROGO075. MALANG

076. LUMAJANG077. PROBOLINGGO078. MOJOKERTO

079. BOJONEGORO080. TUBAN

081. LAMONGAN082. BANGKALAN

083. SAMPANG084. PAMEKASAN

085. SUMENEP

JAVA

001. ACEH SELATAN002. ACEH BARAT DAYA

003. ACEH TIMUR004. ACEH TAMIANG

005. ACEH BESAR006. PIDIE

007. ACEH UTARA008. KOTA LHOKSEUMAWE009. BIREUEN

010. ACEH SINGKIL011. NIAS

012. NIAS SELATAN013. MANDAILING NATAL

014. TAPANULI SELATAN015. TAPANULI UTARA

016. HUMBANG HASUNDUTAN017. TOBA SAMOSIR

018. SAMOSIR019. PESISIR SELATAN

020. SOLOK

021. SOLOK SELATAN022. PASAMAN

023. PASAMAN BARAT024. INDRAGIRI HULU025. KUANTAN SINGINGI

026. ROKAN HULU027. PELALAWAN028. OGAN KOMERING ILIR

029. OGAN ILIR030. LAHAT

031. KOTA PAGAR ALAM032. MUSI BANYUASIN

033. BANYU ASIN034. LAMPUNG TENGAH

035. LAMPUNG TIMUR036. LAMPUNG UTARA

037. WAY KANAN038. TULANGBAWANG

SUMATERA

139. MERAUKE

140. MAPPI141. ASMAT

142. KEEROM143. KOTA JAYAPURA

144. SORONG145. SORONG SELATAN

146. MANOKWARI

PAPUA

108. BOLAANG MONGONDOW109. MINAHASA UTARA

110. MINAHASA SELATAN111. GORONTALO

112. BONE BOLANGO113. BOALEMO114. POHUWATO

115. BANGGAI116. TOJO UNA-UNA

117. DONGGALA118. PARIGI MOUTONG

119. TOLI-TOLI120. BANGGAI KEPULAUAN

121. BUOL122. MOROWALI

123. WAJO

124. LUWU125. TANA TORAJA

126. LUWU UTARA127. LUWU TIMUR128. POLEWALI MANDAR

129. MAMASA130. BUTON

131. MUNA132. KOLAKA

133. KOLAKA UTARA134. MALUKU TENGGARA

135. KEPULAUAN ARU136. HALMAHERA SELATAN

137. HALMAHERA BARAT138. HALMAHERA UTARA

MALUKU

101. KOTAWARINGIN TIMUR102. SERUYAN103. KATINGAN

104. KOTA BARU105. BARITO KUALA

106. HULU SUNGAI UTARA107. BALANGAN

KALIMANTAN

INDONESIA

NANGGROE ACEH DARUSSALAMSUMATERA UTARARIAUSUMATERA BARATJAMBIBENGKULUSUMATERA SELATANLAMPUNGBANGKA-BELITUNGBANTEND.K.I. JAKARTA

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1011

PROVINCES:

1213141516171819202122

JAWA BARATJAWA TENGAHD.I. YOGYAKARTAJAWA TIMURBALINUSA TENGGARA BARATNUSA TENGGARA TIMURRIAU KEPULAUANKALIMANTAN BARATKALIMANTAN TENGAHKALIMANTAN SELATAN

KALIMANTAN TIMURSULAWESI UTARAGORONTALOSULAWESI TENGAHSULAWESI BARATSULAWESI SELATANSULAWESI TENGGARAMALUKU UTARAMALUKUPAPUA BARATPAPUA

2324252627282930313233

0 100

0 100 200 Miles

200 Kilometers

IBRD 38277

DECEMBER 2010

INDONESIATHIRD KECAMATAN

DEVELOPMENT PROJECT

PROJECT KABUPATENSPROVINCE CAPITALSNATIONAL CAPITALKABUPATEN BOUNDARIESPROVINCE BOUNDARIESINTERNATIONAL BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.