Note: This document may not always reflect the actual appropriations determined by Congress. Final budget allocations for USAID's programs are not determined until after passage of an appropriations bill and preparation of the Operating Year Budget (OYB).

INDONESIA

FY 1998 Development Assistance
..........
 $46,000,000

Introduction

Indonesia's huge market, outstanding economic performance, and market-oriented policies make it an increasingly attractive trading and investment partner for the United States. At the same time, its deft leadership of regional and global issues gives the country increasing worldwide political prominence. Indonesia is a non-permanent member of the United Nations' Security Council for the 1995-1997 term, and is the current chair of the 52-nation Organization of Islamic Conference. Indonesia is a founder and leader of the Non-Aligned Movement and the Association of Southeast Asian Nations (ASEAN). Its rich but threatened natural resources have global impact on biodiversity and greenhouse gas emissions. Indonesia is the world's fourth most populous country, with 190 million people, and it has the world's largest Moslem population. The Indonesian archipelago, with a span of more than 3,000 miles, is of strategic importance for international trade and security.

For 25 years, Indonesia's economy has grown at an average annual rate of 7 to 8%; it has strong potential to assert itself as a major new economic and political force in the Asia-Pacific rim. This performance is primarily a result of sound macroeconomic and sectoral growth policies, areas where USAID has provided key assistance. With an annual per capita income of just over $1000 and a poverty rate of under 14%, Indonesia's economic performance ranks among the best in the developing world. Notable achievements include sustained job creation, reduced dependency on oil exports, banking liberalization, the development of sophisticated financial markets, and foreign investment and trade deregulation. Globally, Indonesia is playing an unprecedented leadership role in trade deregulation through the World Trade Organization (WTO) and the Asia Pacific Economic Cooperation (APEC). Although the debt burden is over $100 billion, and only Brazil and Mexico have larger external debts among developing nations, the Government of Indonesia (GOI) has an established record of prudent financial management.

Indonesia's economic achievements are matched by similar improvements in the quality of life, a dramatic increase in life expectancy from 44 years in 1965 to 62.7 years in 1993, a halving of the infant mortality rate from 138 per 1,000 births in 1965 to 56 per 1,000 in 1993, a halving of the fertility rate from 5.6 births per woman in the late 1960s to 2.8 in 1994, and nearly universal primary school enrollment. USAID's involvement in these social sector successes has included long-term assistance to Indonesia's family planning, health, and education and training efforts.

The Development Challenge

Many challenges still lie ahead for Indonesia. Among ASEAN members, only Vietnam has a lower annual per capita income, and Indonesia's goal of newly industrialized country (NIC) status is 25 years away at best. The 26 million Indonesian women and men living in poverty exceeds the entire population of most USAID recipient countries. The maternal mortality rate at 450 maternal deaths per 100,000 is still among the highest in ASEAN. To reach the goal of two children per family by 2005, contraceptive users will need to increase by a staggering five million per year. The HIV/AIDS epidemic has entered a phase where rapid, widespread transmission is expected by the end of the decade. In education, only 64% of Indonesian girls and boys aged 13-15 attend school. Only about 1% of Indonesia's population has bachelor degrees or higher. Only 40% of the population has access to safe drinking water compared to 81% in the Philippines.

Growing incomes, expanding international communications and increased economic and social welfare have given rise to demands for greater political freedom and broader participation, but these aspirations are yet to be matched by significantly more openness and transparency in GOI decision-making. TheGOI's responses to demands for a more open political system have been mixed. In mid-1996, as a result of government and military involvement in the leadership struggle of an officially sanctioned political party, the worst riots in ten years occurred in Jakarta. Ethnic, religious, and class tensions, often fueled by perceptions of social and economic inequality, have erupted into riots, demonstrations and attacks on churches and mosques during the past year. Due to those events and increasing concerns over presidential succession, political activities leading up to the May 29, 1997 general elections and early 1998 presidential and vice presidential selections are expected to be closely controlled. On the other hand, the GOI-maintained National Human Rights Commission, aided by NGOs, has aggressively exposed human rights violations by the police, the military and GOI officials with those found guilty being given prison sentences and dishonorably discharged. On balance, the human rights situation has seen some, albeit minor, improvements; while the political and judicial systems retain a democratic panoply but with little actual freedom and independence.

To protect its natural resources, the government has begun testing policies and providing guidance to accelerate the devolution of forest resources management to the local level over the next 5 years. Indonesia is also leading the effort to support marine resource management under the Biodiversity Treaty Conference of Parties by pledging to promote decentralized and strengthened marine resource management, by enacting laws to prohibit the export of endangered marine species and by limiting fishing practices that destroy coral reefs. However, as industrial growth brings jobs and prosperity to many, poorly enforced and outdated environmental regulations are raising costs to society and slowing expansion. Deforestation, which occurs at the rate of 800,000 hectares per year, is a problem that has global ramifications.

These formidable challenges, especially those related to the environment and democratization, do not, however, seriously impair Indonesia's rapidly improving general economic and social conditions. As improvements continue, USAID is in transition to a program more reliant on Indonesia's own institutions and ultimately less resource intensive. USAID's long-term goals in Indonesia are to consolidate its numerous program successes to date, to foster deeper independent relationships between Indonesian institutions and their U.S. counterparts, and to graduate Indonesia from USAID assistance in every development sector as soon as reasonable and possible.

Other Donors

The donor community pledged over $5 billion in 1996 for development activities in Indonesia. The United States is the fourth largest bilateral partner. Bilateral contributors with programs currently larger than that of the United States (based on 1996 pledges) are Japan, France, and Germany.

Indonesia is the second largest recipient of bilateral Japanese aid (after China); Indonesia is the World Bank's second largest program (second only to Mexico in total loans) and the Asian Development Bank's (ADB) program in Indonesia is that institution's largest.

FY 1998 Program

USAID's strategy for helping Indonesia achieve broad-based and sustainable growth concentrates on economic management, health and family planning, environmental management, and strengthening of local institutions that support democracy. United States national interest is defined by Indonesia's trade and investment potential, its potential as a democratic and stabilizing influence in the region, and its key role in global issues such as natural resources management and population planning. Indonesia's strategic location and growing international influence are having an impact on security, trade and investment issues within the region and with the United States.

Nearly 40% of Development Assistance funding planned in FY 1998 is for activities in the health and population sector. About one-third of the FY 1998 funding is for rural and urban environmental activities, with the remainder to be used for promoting economic growth and strengthening institutions that promote rule of law and popular participation in decision-making.

Agency Goal: Encouraging Broad-based Economic Growth

Indonesia's economic challenges are daunting. Indonesia must continue to reform its economic policies and laws to strengthen the foundation for fair and efficient private sector activity. At the same time, it must improve its capacity to implement and enforce policies and laws which encourage open market competition in an increasingly competitive global economy. Indonesia's high foreign debt and burgeoning current account deficit must be managed cautiously to prevent a crisis similar to that which occurred in Mexico. To preserve and sustain the gains of increased trade liberalization, the nation's economic managers must achieve macroeconomic stability without resorting to protectionist policies. While Indonesia's fundamentals remain strong, a high degree of vigilance and technical competence is required. The high value which Indonesians place on U.S. technical expertise and linkages to U.S. institutions gives the United States a unique advantage in influencing policy formulation and implementation in Indonesia. USAID is continuing to establish and strengthen linkages which promote two-way, mutually beneficial cooperation between U.S. and Indonesian private and public sector actors and institutions on key economic issues.

USAID's specific outcomes in the economic growth sector are the following:

This is a narrowing of USAID's strategic priorities in economic growth in Indonesia to focus more closely on areas which link strong Indonesian economic growth to U.S. trade and investment interests. In anticipation of the completion of USAID's work in this field by FY 2001, USAID will emphasize linkages between partners in both countries with mutual interest in supporting strong, open international trade policies and an improved domestic competitive environment.

USAID's support for improvements in the international trade environment yielded significant results over the past year. Our technical experts advised their Indonesian counterparts on the steps necessary to meet their commitments within international fora such as APEC and the WTO. Understanding has improved the new international regulatory environment and its implications for such sensitive topics as protection of intellectual property and anti-dumping measures. USAID assistance has provided a strong economic foundation for deregulation of the soybean industry and certain aspects of the fisheries industry. The soybean action has played a role in the continued strengthening of soybean imports from the U.S. Indonesia has retained its strong proactive leadership role in APEC and other Asian trade fora.

Transparency in the legal and regulatory environment is important both to the strengthening of international trade and investment and in domestic competition. Until recently, most legislation has not been systematically collected nor made easily available to those who need access to it. With USAID assistance, the GOI is placing a large segment of its economic law and regulation on CD-ROM in word_ searchable format. While still in the demonstration stage, this work holds promise for making Indonesian law in general much more accessible to the public than it has been in the past. USAID is also continuing its work to assist the GOI in updating and in some case creating new legislation in the field of economic law. New Capital Markets and Companies laws have already been passed. Further work has been undertaken to move the review and legislative drafting process forward for other aspects of economic legislation, including: investment, arbitration, competition, secured transactions and certain aspects of intellectual property law.

U.S. technical advisors are helping overhaul governmental policy and practice to facilitate small business development. They are also strengthening the role of private agribusiness associations for promoting trade and acting as change advocates with government.

Agency Goal: Stabilizing World Population Growth and Protecting Human Health

Despite impressive strides, Indonesia still faces major health and population challenges. As the fourth most populous country in the world, Indonesia's ability to overcome its population and health challenges has global implications. HIV infections, currently estimated at over 100,000 cases, are increasing rapidly. Indonesia's maternal mortality rate far exceeds other ASEAN nations and many lesser developed countries, even in Africa. After India, Indonesia has the largest population of any country in which USAID provides assistance and needs to increase the total number of current family planning users from 15 million to over 25 million by 2005 in order to reach the national goal of an average of 2 children per family by 2005. Reduction of the fertility rate will help Indonesia preserve its gains from economic growth. Of the FY 1998 assistance request, USAID will allocate $9.55 million for health activities and $12.1 million for family planning activities.

USAID's objective of improving health and reducing fertility anticipates four specific outcomes:

USAID has had a major impact on improving the knowledge, utilization and quality of family planning services in Indonesia. Knowledge of modern family planning methods is almost universal, and more than 69% of married women are using contraceptives (National Family Planning Coordinating Board statistics). One-third of these women rely on clinical methods which provide long-term effectiveness. USAID programs have renovated facilities and funded the clinical skills training of master trainer physicians and midwives in the public and private sectors. Innovative interpersonal and media communications efforts have increased the knowledge of millions of Indonesian couples about the economic, social and health benefits of family planning and reproductive health. A particularly noteworthy accomplishment is that USAID has been the major donor to expand the use of family planning services delivered through the private sector. The proportion of people obtaining services and contraceptives from private physicians and midwives has increased from 12% in 1991 to an estimated 37% in 1996. The GOI would like this proportion to increase further to 50% in the next several years. Given the huge and growing numbers of clients who need services, the GOI recognizes that greater provision of private sector services will lessen the burden on its budget and, in the long term, will help the program to be more sustainable. In recognition of Indonesia's world-renowned success in the family planning sector, USAID will focus its efforts in the next four years on the areas of improving sustainability of service delivery, clinical training, communication and institutional development to achieve an orderly phaseout of direct USAID family planning assistance.

Indonesia is challenged by an accelerating HIV/AIDS epidemic which threatens to erode the resources that are available for other urgent health problems. USAID is successfully coordinating with other donors to assist the Ministry of Health (MOH) to formulate effective national HIV/AIDS policies and to implement activities in support of national HIV/AIDS strategy. Since Indonesians are largely unaware of how to prevent the spread of this disease, USAID is implementing activities on prevention policies, patient counseling and information and communication. While USAID bilateral efforts in this sector are relatively new, significant progress has already been made. The GOI has already issued four national AIDS policies, to establish the National AIDS Control Commission, to promote information and education campaigns, to ensure care for AIDS patients and to promote and set standards for STD diagnosis and treatment. National health resources allocated to HIV/AIDS have increased from $2.5 million in 1994 to a projected $6.5 million in 1997. A national discourse on HIV/AIDS has begun, and a range of prevention and care issues is now being openly discussed almost daily in national fora and the media. USAID has played a critical role in assisting the GOI to better coordinate donor efforts through technical working groups. The STD working group has developed standards for improving STD diagnosis and treatment.

USAID also assists the Ministry of Health to reduce the unacceptably high levels of maternal mortality. The MOH has begun an extensive national maternal health training program, to which USAID will provide assistance in competency-based training and essential training in life-saving skills for midwives. To strengthen the capability of the National Midwives Association, USAID provides organizational development and management assistance. Several pilot activities are underway to test innovative service delivery interventions in Kalimantan province, to provide loans to private midwives to enable them to set up or expand their private practices, and to develop innovative approaches to distance learning.

USAID funding of a promising health sector financing trial activity will enable the Indonesian government to learn from an innovative managed health care scheme targeted to provide comprehensive, quality health care to middle- and lower-income families. Other donors have expressed interest in helping the GOI to expand this model on a large scale throughout the country. Based on several assessments, activities are currently underway to strengthen regulatory and management capability under the trial. In 1996, the GOI established this trial as a national priority.

Agency Goal: Protecting the Environment

Indonesia's natural environment is the most diverse of any country's in which USAID works. It is also among the most threatened. Rapid industrialization and urbanization are placing great pressure on the country's natural resources, resulting in depletion of the resource base by the extractive sectors and degradation of the quality of water and air resources by the industrial sector, power generation plants and urban centers. Indonesia's urban environment is degrading rapidly, because of the size of the Indonesian population, the speed with which it is concentrating in cities, and the adverse impacts of rapid industrialization. It is estimated that by the year 2004, 60% of the entire population (155 million people) will reside in urban areas.

USAID's first environmental strategic objective is to decentralize and strengthen natural resources management (NRM). Current government efforts to solve environmental problems are made through a centralized command-and-control approach, but the popular preference for community-based natural resource management conflicts with such centralized control. USAID's challenge is to promote the government's working together with NGOs on environmental issues and to promote policies supporting a less centralized approach. USAID will work with GOI and NGO counterparts to promote greater community involvement in NRM. Field demonstrations located throughout Indonesia will be linked to national level analysis and dissemination in key ministries of information on lessons learned to improve the formulation of national policy options. The impact of this program will be measured by the area in which natural resource management best practices are replicated. Achievements are targeted under four program outcomes:

Last year, USAID realized important gains in rallying NGOs, local governments and communities to change natural resource polity and policies throughout the archipelago. The Ministry of Forestry is now establishing a program to further test and extend natural resource management agreements with indigenous communities. USAID provides national-level policy assistance to this program as well as support to local NGOs for training and local institution-building in key demonstration sites. This will allow some of Indonesia's poorest households to once again undertake legal and sustainable income-generating activities in the government forest lands and coastal areas surrounding their communities.

NGOs strengthened with USAID assistance are now playing a more effective role in engaging local communities in the planning and execution of effective conservation activities across the archipelago. One such case involved the development of a participatory planning and management process in one of Indonesia's principal marine parks. Community management of eco-tourism in this park is a good incentive for community participation in protecting the environment.

USAID established and endowed the Indonesia Biodiversity Foundation, an independent institution which is providing $1 million annually in small biodiversity conservation grants to Indonesian organizations, and will assume increasing importance in biodiversity conservation efforts in the years ahead. USAID-financed experts and policy studies are being used by the government in developing the policy framework which will guide natural resource investment in the next five-year government plan.

USAID's objective to strengthen urban environmental management anticipates the following three specific outcomes:

Over 11% of infant deaths in Indonesia are related to water-borne disease. Rapid increases in energy demand are straining the resources of the government and have placed severe pressure on the environment. While most donors will continue to finance much-needed infrastructure projects, USAID will focus on the financial policies and organizational frameworks necessary for Indonesia to expand its urban infrastructure investments and generate more energy in a cleaner fashion. USAID's approach will rely both on national policy formulation and on networks of local decision-makers and community groups that will remain in place after USAID activities cease.

The proportion of the urban population served by piped water has increased by 5% since last year. This continuing increase reflects the degree to which the government accepts USAID recommendations regarding policies and practices necessary for increasing the flow of resources to local governments for urban infrastructure purposes. The GOI is now completing a series of major innovations and reforms designed with USAID assistance, including the establishment of a secondary mortgage facility, the reform of the principal intergovernmental lending program, re-targeting of the GOI's massive intergovernmental grant program, the preparation of municipal bonds sales to finance water supply investment, and the privatization of several urban environmental services. As a result, poor urban residents in Indonesian cities are receiving more piped water and better urban environmental services, especially waste-water management, water supply, and solid waste disposal and processing. USAID has persuaded the GOI to seek support from other donors to continue and extend the reform agenda in these areas and the Asian Development Bank has agreed to provide substantial new funding to continue and expand USAID-designed work in two key areas of local government finance.

The objective of USAID's energy program is to reduce the level of pollution emitted in power generation while meeting demands for increased power. Recent USAID training of public and private sector managers has helped to institutionalize measures that allow small energy producers to sell power without lengthy negotiations. USAID studies of "Demand Side Management" for electricity use have leveraged loans from multilateral donors for the purposes of implementing an extensive demand-side management program. These recent successes have allowed USAID to begin a new program, involving special assistance in the restructuring of the state electricity utility, which will focus on promoting energy efficiency and renewable energy in the utility's operations.

Agency Goal: Building Democracy

The pace of democratization and improved governance in Indonesia has not paralleled its rapid progress in economic growth and social welfare. A well-informed, fully participatory citizenry is an essential element for Indonesia's future sustainable development. Internal and international pressure for significant political and judicial reform -- a less centralized and more open, participatory and transparent government, and an independent judiciary -- is increasing and is not expected to retreat. Indonesian civil society is becoming more politically active and assertive in expressing its diverse interests. Demands are growing for more freedom in political competition, for greater adherence to Indonesia's laws and international human rights standards, for a more accountable government and for increased equality of opportunity and equity in development. Notwithstanding GOI and military actions against Megawati Sukarnoputri as leader of the Indonesian Democratic Party and its reactions to the July 27th Jakarta riots, political space and, perhaps more importantly, political expectations continue to grow.

USAID's strategic objective of increasing the effectiveness of institutions which promote democracy has three specific outcomes:

USAID remains the largest and most influential donor in this controversial sector. The 20 Indonesian and U.S. NGOs supported by USAID are among the leaders in building a stronger civil society, pressing the GOI for systematic, non-partisan democratic reform, and assisting the GOI to devise new laws, policies and practices.

Almost all landmark legal cases are pursued by the Indonesian Legal Aid Society, USAID's largest local grantee, and/or allied NGOs, many also supported by USAID. Over the past year, cases of national importance have focused on land tenure and compensation relative to GOI infrastructure projects, forestry and mining concessions, and private developer acquisitions; freedom of expression as restricted by GOI licensing and censorship regulations, and mandatory accreditation of journalists; freedom of association limits curtailing labor union formation and activity; and civil, criminal and subversion cases surrounding the ouster of Megawati Sukarnoputri as head of the Indonesian Democratic Party and the subsequent July 27 Jakarta riots.

NGOs supported by USAID have worked with the GOI to influence and improve policy formation. A revised labor law, legislation for an alternative new dispute resolution mechanism and better conservation practices are all direct results of NGO involvement. In addition, NGOs have advocated interconnected issues such as the review of and controls over nuclear power production to a reduction in electricity rates. The effectiveness of the National Human Rights Commission on most issues is strengthened by the activism of legal and advocacy NGOs. The Ministry of Justice, with USAID support, has standardized, indexed, and distributed over 6,500 laws and regulations by CD-ROM disks to facilitate the administration of justice and increase the availability of legal information.

USAID supports NGOs in Indonesia's politically sensitive geographic areas: East Timor, Irian Jaya and Aceh. In East Timor, Georgetown University is helping the province's single university to improve its capacity to educate East Timorese for their legitimate roles in their own development. The National Cooperative Business Association, a U.S. NGO, had a central role in ending a coffee-buying monopoly and is now paying world market prices to over 5,000 East Timorese coffee farmers.

Indonesia has far to go before it reaches the levels of democracy and good governance existing in other Asian countries assisted by USAID. Through modest investments, USAID is significantly contributing to a more pluralistic, independent and self_confident civil society, a necessary precondition for a future Indonesia with a free political process and an independent judiciary.

INDONESIA

FY 1998 PROGRAM SUMMARY

($000)

Encouraging Economic Growth
Stabilizing Population Growth and Protecting Human Health Protecting the Environment Building Democracy Providing Humanitar-ian Assist.

Total

USAID Strategic Objectives
1. Sustained Economic Growth in the Transition from Economic Development Assistance to Development Cooperation

4,000

4,000

2. Improved Health and Reduced Fertility

18,500

18,500

3. Decentralized and Strengthened Natural Resources Management

8,500

8,500

4. Strengthened Urban Environmental Management

8,500

8,500

5. Increased Effectiveness of Selected Institutions which Support Democracy

7,000

7,000

Total

Development Assistance

4,000

18,500

17,000

7,000

0

46,500

USAID Mission Director: Vivikka M. Molldrem

ACTIVITY DATA SHEET

PROGRAM: INDONESIA

TITLE AND NUMBER: Liberalization of International Trade and Domestic Competition for the Mutual Benefit of Indonesia and the United States, 497-SO01

STATUS: Continuing

PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $4,000,000 DA

INITIAL OBLIGATION: FY 1996; ESTIMATED COMPLETION DATE: FY 2001

Purpose: To strengthen open markets by fostering continued economic policy reform and by expanding Indonesian access to counterpart organizations in the United States.

Background: Indonesia presents a major commercial opportunity for U.S. investment thanks to the increased openness of its economy and favorable economic conditions. The size of the Indonesian economy, already larger than Canada, South Korea or Thailand, creates enormous complexities and difficulties for its management. Remarkable economic progress has been made over the last 30 years. However, the human capital and institutional framework on which this progress is based remains thin, particularly as problems and their solutions become ever more complex as the economy continues to expand. U.S. technical support can still make significant contributions to Indonesian economic management as the country moves toward consolidating and expanding upon its gains of the last 30 years. However, such assistance must be carefully targeted and the means for delivery must now be altered to account for the changing development status of the country. Two principal threats to continued economic growth and progress in Indonesia are: 1) the potential for a rise in protectionist sentiment which, if realized, could undermine the efficiency and competitiveness of the economy and also threaten export and investment opportunities for the United States and other countries; and 2) continued barriers to domestic economic competition that limit the broadening of participation in the benefits of economic growth. Activities encompassed by this strategic objective, including those under the Economic Law and Improved Procurement Systems Project, and the Mission's microenterprise program, will target these primary threats to the prevailing economic paradigm. The primary activity, known as the Partnership for Economic Growth, is being established to assist in strengthening and developing linkages between institutions and constituencies in the United States and Indonesia with mutual interests in key economic problems. The objective is to so promote and support such linkages and alliances that there is sufficient interest by both parties to pursue their agendas in support of the current economic paradigm even after U.S. government assistance has ended. A limited amount of new technical assistance to government entities, complementary to the work of the partnership concept, will be targeted on trade and domestic competition policy issues.

USAID's Role and Achievements to Date: USAID's technical assistance for improved economic management has continued to be utilized effectively by the GOI. Among donors, the United States stands foremost in its ability to promote policy changes that positively impact on Indonesia's overall economic performance as well as U.S._Indonesia trade and investment potential. Recent progress includes further general trade liberalization with weighted average import tariffs declining below 14 percent; liberalization of restrictive practices on the importation of soybeans, fishing equipment and other products significant to U.S. trade; the first floating of shares of a major Indonesian banking institution; and the expansion of the numbers of economic laws and regulations now available on computerized word-searchable data bases for use by both the public and private sectors. Reduced funding levels and changing priorities have led USAID to phase out specific technical advisors in line agencies. These advisors had been of specific and direct benefit to U.S. business.

Description: Over the next two years, USAID will continue to use a blend of technical assistance contracts and grants to support continued improvements in openness and competition in the Indonesian economy, issues which directly affect growing U.S. Indonesian business and economic relationships. The Mission will seek to (1) improve the policy environment for continued economic growth; (2) codify key policy changes in updated laws and regulations and work to assure that these new laws are widely available to the public; and 3) work with a limited number of institutions to assure that such policies, laws and regulations are actually used to promote openness and competition. A new five-year program is being developed which emphasizes the forging of new partnerships between Indonesian organizations and U.S. counterpart groups in sectors of mutual interest regarding economic reform. Activities will be co-funded with strong private sector participation. This approach will ensure private sector involvement and sustainability of such partnerships once USAID support is completed. Well-placed support for selected Indonesian associations to access U.S. know-how and expertise will buoy sustained economic growth and help accelerate Indonesia's entry into the ranks of the "newly industrialized countries" during the first quarter of the 21st century.

Host Country and Other Donors: Host country involvement covers many GOI ministries and agencies, most prominently the Ministry of Industry and Trade and the Coordinating Ministry for Economics and Finance. However, future assistance will also encompass new linkages with private sector and non-governmental organizations. USAID has long been the preeminent donor in the economic reform sector. However, other major donors in the economic growth field are the multilaterals: the World Bank and the Asian Development Bank. USAID collaborates closely with both of these institutions and other bilateral donors in the development of its economic growth programs for Indonesia. Estimated Host Country Contribution for this activity is $10 million. While USAID has phased out technical advisors, other countries, notably Germany and Japan, have increased the number of such advisors.

Beneficiaries: Partners in the economic policy reform field have included a wide range of public institutions. The range of partners will now be expanded to include private institutions which either wish to affect or are affected by the process of economic reform. The potential customer base for such reforms is country-wide, encompassing not only members of the public bureaucracy, but also private employers and employees and a wide range of consumers of both domestic and foreign goods and services. Much of the thrust of the continuous process of reform to which USAID is contributing is to assure that benefits which are produced by economic efficiency are as widely shared as possible. By use of survey and interview techniques, the opinions and views of customers and partners have contributed substantially to the design of USAID's current economic growth activities.

Principal Contractors, Grantees, or Agencies: Several institutional contractors now at work including those working with the Ministry of Trade and Industry and those working on economic law reform, will complete their work in FY 1998. However, a new limited technical assistance contract will be needed to continue to supply needed support in the fields of international trade and domestic competition. The U.S./Indonesian Partnership for Economic Growth activity will require one new institutional contractor to assist in management of the program over a five-year period. USAID expects to make a series of grants to support U.S./Indonesian institutional linkages under the new partnership concept. 

Major Results Indicators:  		     Baseline      Target


Lower weighted average import tariff rate  15% (1995)       12% (1998)


Adoption of major new economic laws which 
strengthen openness, transparency, and 
competition  					2 (1995)         8 (1998)

ACTIVITY DATA SHEET

PROGRAM: INDONESIA

TITLE AND NUMBER: Improved Health and Reduced Fertility, 497-SO02

STATUS: Continuing

PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $18,500,000 DA

INITIAL OBLIGATION: FY 1996; ESTIMATED COMPLETION DATE: FY 2000

Purpose: To improve reproductive health by reducing the fertility rate, lowering the maternal mortality ratio, reducing the transmission of HIV/AIDS and other sexually transmitted diseases and improving the quality of health services among key population groups in Indonesia.

Background: Although Indonesia has a highly successful family planning program, use of long-term contraceptive methods is still low in many areas and the family planning program does not reach some population groups. The maternal mortality ratio remains the highest among southeast Asian countries. The spread of HIV/AIDS is potentially Indonesia's biggest health problem. Yet, few Indonesian men or women have adequate knowledge to prevent this disease. Shrinking public resources will require a shift in the burden of providing basic health care from the government to the private sector. This activity includes the balance of programs under three prior projects: Health Sector Financing, HIV/AIDS Prevention project, and Service Delivery and Expansion Support - Pathfinder International. Three external constraints must be overcome: (1) the leadership of the Government of Indonesia (GOI) and social groupings have been reluctant to accept behavioral research findings on sexuality that are not flattering to the Indonesian public's self-image; (2) GOI politicians may be averse to allocating scarce public funds to mount a massive public HIV/AIDS public awareness campaign when so few citizens are confirmed to have HIV/AIDS; and (3) the GOI commitment to implement national health policies that rely increasingly on private sector providers may initially be weak in view of the GOI's 50-year role as primary health care provider to the nation.

USAID Role and Achievements to Date: USAID's unique contribution in the health and population sector is its ability to provide high quality, short- and long-term technical assistance in a number of key program areas: policy development, family planning and health care service delivery, and operations research. No other donor in Indonesia provides health and population technical assistance on a sustained basis. Recent progress has been noteworthy. The percentage of married women of child-bearing age now using contraception is estimated to be 69%, or approximately 22 million women according to the National Family Planning Coordinating Board. Total fertility also declined from 3.1 in 1991 to 2.8 children per woman in 1994. An estimated 37% of current family planning users received family planning services from private sector sources. A national HIV/AIDS strategy launched in 1995 is being implemented through GOI and donor alliances; national health resources allocated to HIV/AIDS increased by 250% to $6.5 million; and since 1994 the GOI has announced the managed health care trial project in Klaten will become the model for a national priority program.

Description: USAID will continue to provide advice and analysis in the family planning and reproductive health sectors which will rely increasingly on private sector delivery of goods and services. Small grants to local non_governmental organizations (NGOs) will catalyze Indonesia's implementation of appropriate family planning and HIV/AIDS prevention strategies. Technical assistance is helping the GOI Ministry of Health assess how well the pilot managed-health-care plan is performing and how the system can be strengthened in order to support expansion nationwide. Activities will focus on reproductive health issues and intend to: (1) increase the use, quality, and sustainability of family planning and reproductive health services, (2) increase the use and quality of sexually transmitted disease/HIV/AIDS prevention programs, and (3) develop sustainable financing of health services through the development of a managed health care model. The private sector will have a larger role as supplier and financier of family planning and reproductive health services. The development of coherent and appropriate HIV/AIDS policies will help increase public knowledge of prevention practices and encourage a more effective allocation of public funds to combat HIV/AIDS.

Host Country and Other Donors: The Ministry of Population and the Ministry of Health are collaborating with USAID to pursue these activities by formulating new national policies and by coordinating activities. Local government offices and NGOs are already cooperating in carrying out several USAID-funded programs: an HIV/AIDS prevention program, an improved maternal health service delivery activity, and family planning activities in hard-to-reach areas. Multilateral banks have expressed interest in replicating the health care pilot effort, if successful. The Japan International Cooperation Agency in coordination with USAID is launching an integrated health program which will emphasize improved maternal mortality and HIV/AIDS prevention. USAID, which has always been the lead donor and advisor in the family planning sector, is the leader of the donor committee coordinating HIV/AIDS, and is the only donor piloting managed health care systems. The estimated host country contribution for this activity is $16,300,000.

Beneficiaries: End-users include over 22 million family planning service beneficiaries, expectant mothers, lower-income people who use government-owned health facilities, and persons who practice high-risk sexual behavior. Privatization of family planning activities will provide better service to end-users and will make the service more customer-oriented.

The pilot activity on managed health care has been designed to provide some cross subsidy to lower income families to ensure their equitable access to quality health care. By 1998, at least 51% of the Klaten district population will benefit directly from participation in the managed-health-care program; 55% of births in the Mothercare demonstration area will be attended by trained health personnel; and 60% of those persons in HIV/AIDS prevention demonstration areas will know at least two ways of protecting themselves against HIV transmission. Approximately 6 million eligible couples will receive contraceptive services in 1998.

Principal Contractors, Grantees, or Agencies: Contractors and grantees, such as Pathfinder International, John Snow International, Futures Group, Johns Hopkins University, Centers for Disease Control and Family Health International, will continue their work on family planning, reproductive health, HIV/AIDS prevention, and health sector financing. As the activity progresses, a growing reliance on centrally funded, short-term advisors is expected. Grants to NGOs and private sector entities are used increasingly as a natural adjunct to enhancing the sustainability of an expanding reproductive health program. 

Major Results Indicators:                 Baseline            Target

Total fertility rate                      2.86 (1994)      2.65 (1998)

Syphilis prevalence rate among high-risk 
   populations in demonstration
   areas: male and female                  TBD (1996)      TBD (1998)


Maternal mortality ratio (maternal deaths per 
   100,000 live births)                    450 (1992)      350 (1998)

ACTIVITY DATA SHEET

PROGRAM: INDONESIA

TITLE AND NUMBER: Decentralized and Strengthened Natural Resources Management, 497-SO03

STATUS: Continuing

PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $8,500,000 DA

INITIAL OBLIGATION: FY 1996; ESTIMATED COMPLETION DATE: FY 2005

Purpose: To enhance the sustainable use of Indonesia's natural resources by encouraging local communities and non-governmental organizations (NGOs) to participate in natural resource policy implementation, planning, and management and by establishing a national system to monitor, analyze, and disseminate the results of these activities.

Background: Indonesia has the most diverse natural resource base of any USAID recipient. Blessed with the widest range of biodiversity and the world's richest marine resources, it has the longest list of endangered species. Its tropical forests (second only to the Amazon) are disappearing at a rate of nearly 800,000 hectares per year. In response, the Government of Indonesia (GOI) has passed key laws and decentralized the operations of its environmental management agencies. Its development plans give high priority to environmental issues. USAID's activity includes Natural Resources Management and Indonesian Biodiversity Foundation. Three external constraints could adversely affect achievements under this activity: (1) certain quarters of the GOI may be slow to admit that government intervention cannot solve all environmental problems through a centralized, command-and-control approach; (2) strong, influential business interests support the status quo; and (3) GOI officials may be reluctant to cooperate with NGO leaders.

USAID Role and Achievements to Date: USAID has two comparative advantages over other donors that enable it to support strategic, complex programs at a level sufficient to influence decisions about strategy and priorities. These advantages are: (1) top-level technical expertise, and (2) the ability to use grant resources flexibly. The ability of USAID to collaborate directly with NGOs_ difficult or impossible for most donors _ greatly enhances USAID's role in natural resource management (NRM) in Indonesia. Recent progress includes start-up of two large, potentially influential, independent NGOs: the Eco-labelling Institute and the Indonesia Biodiversity Foundation. The GOI began testing the policies and providing the guidance to accelerate the devolution of natural resource management to the local level over the next five years; Indonesia led the effort to support marine resource management in the Biodiversity Treaty Conference of Parties II held in Jakarta, pledging to promote decentralized and strengthened marine resource management; and the GOI enacted laws to prohibit the export of endangered marine species and to reduce fishing practices that destroy coral reefs.

Description: USAID will work with GOI and NGO counterparts to promote greater community involvement in NRM. The field site demonstrations, located throughout Indonesia, will be linked to national level analysis, and information from lessons learned will be disseminated in key ministries to improve the formulation of national policy options in the NRM sector. The impact of this program will be measured at the strategic objective level by the number of villages and total area of USAID-assisted sites where the condition of natural resources is stable or improving; and by the area in which natural resource management best practices are replicated (outside USAID-assisted areas). Achievement will also be measured at the intermediate results level under four program outcomes: (1) development and documentation of successful field sites; (2) improved policies and enabling conditions; (3) strengthened local institutions and community organizations; and (4) dissemination of lessons learned.

Host Country and Other Donors: The GOI's Ministries of Environment, Forestry, and Home Affairs, and the National Planning Agency are key host-country partners. USAID is providing community-based management models for other donors. Multilateral banks, bilateral donors, and international research centers work with USAID to support Indonesia's forestry and marine conservation. The Government of Japan, the United Nations' Global Environmental Fund, and multilateral banks work with USAID on biodiversity conservation efforts. Selected private sector entities and NGOs will also pool resources to pursue this activity. USAID provides leadership to the donor community in the formulation of forestry policy with the active support of Canada, Finland, and Japan. The estimated total host country contribution to this activity is $19.3 million and other donors provide an estimated $300 million (mainly loan financing from the World Bank, ADB, and Japan).

Beneficiaries: Direct end-users are (1) the rural citizens of Indonesia's tropical forests who receive NRM training that will increase their incomes; (2) Indonesia's network of environmental NGOs; (3) universities that provide professional assistance and training for NRM; and (4) owners of natural resource companies that will become more efficient. Indirect beneficiaries are (1) the future generations of citizens whose use of natural resources will be more sustainable and (2) the global climate which will benefit from forest preservation. It is estimated that one-third of Indonesia's population (i.e, 65 million people) is dependent upon forest resources. Their long-term welfare will be substantially improved by the success of this activity. Similarly, there are approximately 16 million people employed in fishing and related activities whose livelihood is directly dependent on the health of coastal and marine ecosystems. They, too, will benefit from the success of this activity.

Principal Contractors, Grantees, or Agencies: The activity will be implemented through a variety of complementary instruments: (1) a partnership of key GOI ministries (Environment, Forestry, and Home Affairs), local NGOs, Indonesian universities, and local governments with U.S. environmental NGOs (World Wildlife Fund, the Nature Conservancy, World Resources Institute, Conservation International); (2) the ongoing Biodiversity Support Program, (3) a cooperative agreement with the University of Rhode Island; and (4) technical assistance from a U.S. consulting firm through the USAID Center for Environment. 

Major Results Indicators:               Baseline            Target


GOI-approved national park management 
plans that include procedures for
integrating provincial, regional
and local governments and local
communities into park planning 
and management                          0 (1993/94)     10 (1997/98)

Decree issued or legal instrument
approved ensuring local a community's
active participation in natural
resources planning and management       0 (1994/95)      6 (1997/98)

Number of hectares covered by 
stewardship agreements                  0(1994/95)     15,000 (1997/98)

Number of NGOs strengthened           22 (1995/96)      31 (1997/98)

Natural resource-based industries using "best 
practices" for land-use management and 
production processes (cubic meters
of wood certified each year)           0 (1993/94)     125,000 (1997/98)

ACTIVITY DATA SHEET

PROGRAM: INDONESIA

TITLE AND NUMBER: Strengthened Urban Environmental Management, 497-SO04

STATUS: Continuing

PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $8,500,000 DA/ENV

INITIAL OBLIGATION: FY 1996; ESTIMATED COMPLETION DATE: FY 2003

Purpose: To strengthen the management of Indonesia's urban environment by increasing access to clean water, and increasing the environmentally sound production and use of energy.

Background: The speed and scale of urban growth in Indonesia are causing severe environmental damage and are overwhelming the ability of local officials to provide a healthy, productive living and business environment. To meet this challenge, three external constraints must be addressed: (1) the Government of Indonesia (GOI) must strengthen the ability of local governments to access public and private sector capital to finance urban environmental infrastructure projects designed and managed at the local level; (2) local governments must be encouraged and allowed to make use of broader community participation in the design and management of such projects; and (3) the Indonesian private sector must have proper incentives for investments in cleaner production and more efficient use of energy.

USAID Role and Achievements to Date: USAID remains the leader among foreign donors in advising the GOI on the reform of its policies and procedures dealing with urban environmental finance and management. Recent progress includes (1) a 5% increase in the proportion of urban residents with access to piped water; (2) increases in the provision of other urban environmental services; (3) substantial increases, once again, in all essential financial components of the resource flow to urban environmental services: loans, grants, and private investments; and (4) continued dramatic growth in the number of megawatts of installed generating capacity that use renewable energy resources.

Description: USAID will continue to blend technical assistance and grants to foster: (1) the adoption of new policies and practices to facilitate decentralized financing of urban environmental infrastructure; (2) the wider adoption of improved practices in urban environmental infrastructure service provision; (3) the adoption by government and industry of policies and procedures to promote cost-effective use of clean, renewable energy. Decentralized financing of infrastructure will result in better investment decisions by local utilities, while more community participation in such decisions will insure projects that can pay for themselves. The promotion of renewable energy production and energy efficiency will help reduce the level of pollution emitted in power in generation while meeting demands for increased power.

Host Country and Other Donors: The GOI's Ministries of Public Works, Planning, Home Affairs, and Finance play key roles in the success of this activity. Private investors, the semi-public power sector, and local community groups also will contribute their resources and time to this activity. Likewise, the Asian Development Bank (ADB) has agreed to contribute substantial funding to the USAID-designated Secondary Mortgage Facility, and the Regional Development Account (RDA), the GOI's environmental infrastructure loan fund capitalized with USAID-guaranteed loan assistance and supported by USAID-funded technical assistance. The ADB and World Bank's urban sector loans also support USAID-backed policy initiatives to privatize electric power services and to establish self-financing schemes for urban infrastructure expansion. USAID has consistently been the lead advisor in the urban environment sector, with the ADB and World Bank typically providing the greatest funding once USAID-sponsored pilots have proven successful. The estimated host country contribution for this activity is $15,600,000.

Beneficiaries: End-users are the 55% of urban residents without access to piped water. Beneficiaries also include all electricity consumers whose power is unreliable and inefficiently produced. Intermediate customers include municipal staff, and representatives of the financial and power sectors. Forty-seven million women and men have treated water piped into their homes; USAID's urban environmental activity will promote the extension of water utility networks to serve an additional five million beneficiaries.

Principal Contractors, Grantees, or Agencies: Long-term technical assistance contractors, such as Chemonics International and Research Triangle Institute, will continue their work in the areas of municipal finance and private sector funding of public utilities. A new element in the mix of advisory services under this activity will be the inclusion of local environmental action networks made up of representatives of local government, NGOs, community and business groups, and technically trained local consultants. An innovative new assistance program involving a combination of contracts and grants has been designed to support the activities of these networks. 

Major Results Indicators:                          Baseline     Target

Percent of total urban population served by 
local water treatment and piped distribution     40% (1994/95)     45%  (1997/98)

Megawatts (MW) of installed generating 
capacity using renewable energy 
resources                                      3,399 (1993/94)    3,660 (1997/98)

ACTIVITY DATA SHEET

PROGRAM: INDONESIA

TITLE AND NUMBER: Increased Effectiveness of Selected Institutions Which Promote Democracy, 497-SO05

STATUS: Continuing

PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $7,000,000 DA

INITIAL OBLIGATION: FY 1995; ESTIMATED COMPLETION DATE: FY 2000

Purpose: To enhance respect for the principles of the rule of law and internationally accepted human rights, to encourage the development of politically active civil society, and to foster more transparent and accountable governance.

Background: The pace of democratization in Indonesia continues to lag behind the rapid progress in raising incomes and economic and social welfare. Indonesians' demands are growing for more freedom in political competition, for greater adherence to Indonesia's own laws and international human rights standards, for a more accountable government, and for increased equality of opportunity and equity in development. Special problems also exist in the troubled East Timor, Irian Jaya and Aceh regions of Indonesia. Indonesian civil society remains relatively weak and disorganized relative to government, military, and state institutions; however, non-governmental organizations (NGOs) are active in expressing their diverse interests and the Government of Indonesia (GOI) permits some, but still limited, independent political activity. The Soeharto government will seek to control political expression and activity in the lead up to the 1997/98 elections; nonetheless, NGOs are taking advantage of every available opening for more influence and freedom. The possibility of the GOI imposing severe restrictions on NGOs has reemerged since the July 27 Jakarta riots and remains a threat to their independence and autonomy.

USAID's Role and Achievements to Date: USAID assistance helps both the GOI and Indonesian civil society introduce reforms which are responsive to the democratic changes Indonesians themselves desire. Among donors assisting Indonesia, USAID enjoys a special role in helping build democracy: USAID is the largest, most active and leading donor in this controversial sector. Recent progress attributable to the actions of USAID-sponsored NGOs includes: (1) improved regulations regarding the right for labor to organize, (2) the removal of extra tax stickers on consumer goods, (3) legislation for new alternative dispute resolution mechanisms and conservation practices, (4) the breaking of the East Timor coffee monopoly, (5) heightened activism by the National Human Rights Commission, and (6) a review of electricity rates and nuclear power plans. Additionally, working directly with the GOI, over 6,500 laws and regulations have been standardized, indexed and distributed on CD-ROM disks to enhance the administration of justice and the availability of legal information, and Parliament's research and documentation unit has been strengthened.

Description: Based on its recently updated democracy assessment of Indonesia, USAID will continue with a strategy to promote democratic ideals largely through grants to local NGOs focussing on advocacy, human rights, and rule of law, while always seeking new avenues to work with the GOI. USAID activities promote three results: (1) increased NGO advocacy for democratic participation; (2) greater respect for the rule of law; and (3) enhanced capacity, reliability, and responsiveness of selected NGOs. Through greater participation, Indonesian men and women will channel their views more effectively to GOI and political decision-makers. A heightened respect for due process also will encourage a more inclusive, consistent and reliable process as male and female citizens demand that court rulings be more transparent and less arbitrary. As NGOs become technically, administratively and financially sound, they will also become more capable and respected in representing public issues in an independent, balanced, and non-partisan manner. USAID will also continue to program resources in the three politically sensitive geographic areas of Indonesia.

Host Country and Other Donors: USAID is by far the leading donor in Indonesia's democracy sector. Local NGOs dealing with citizens' rights, freedom of the press, legal aid, labor relations, land disputes and consumer protection are USAID's primary development partners. International donors and foundations look to the U.S. and USAID for leadership and direction in this sensitive program area. A few bilateral donors, Canada, Australia and Sweden, have very small programs in the democracy and governance sector. The estimated host country contribution for this activity is $3,600,000 derived in the main from NGOs.

Beneficiaries: End-users are those Indonesian women and men who benefit from the wide range of NGO programs in the areas of legal, consumer, and environmental advocacy, labor rights, land tenure, and freedom of the press. The immediate clients, executive boards and employees of local NGOs are direct beneficiaries, while the indirect benefits of a more participatory form of public policy formulation have a salutary effect throughout Indonesian society.

Principal Contractors, Grantees, or Agencies: USAID continues to pursue this activity primarily through selected Indonesian and U.S. NGOs, such as the Indonesian Legal Aid Society, the National Cooperative Business Association, the Asian American Free Labor Institute, the Asia Foundation, the Indonesian Consumers Foundation, and the Indonesian Environmental Law Center which focus on democratic participation, advocacy and rule of law activities. When appropriate, U.S. advocacy and research institutions are also engaged. Occasional short-term consultancies add analytical depth to USAID's democracy-building activities in Indonesia. 

Major Results Indicators:         Baseline     Target

Number of times that  grantee 
NGOs have a measurable impact
on the formulation and
implementation of government
policy                            20 (1994)  40 (1997/98)
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