Indonesia - Fourth PNPM Rural Project

 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB6468 Project Name PNPM Rural IV Region EAST ASIA AND PACIFIC Sector Water supply (20%);Irrigation and drainage (20%);Roads and highways (20%);Primary education (20%);Sub-national government administration (20%) Project ID P122810 Borrower(s) REPUBLIC OF INDONESIA Implementing Agency Ministry Home Affair Directorate General of Village Community Empowerment Jalan Raya Pasar Minggu km.19 Indonesia Tel: 62-21-7942373 Fax: 62-21-79196118 Ministry of Home Affairs, Directorate General of Community & Village Empowerment Jl. Raya Pasar Minggu Km. 19, Jakarta Se Jakarta Selatan Indonesia Tel: (62-21) 799-5104 Fax: (62-21) 7914-1939 ppkpmd@yahoo.com Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared March 15, 2011 Estimated Date of May 23, 2011 Appraisal Authorization Estimated Date of Board September 22, 2011 Approval 1. Key development issues and rationale for Bank involvement Indonesia is the world’s fourth most populous state, its largest Muslim-majority nation, a country rich in natural resources and one recently transformed from a centralized authoritarian state into a relatively stable, democratic and decentralized one. With its recently demonstrated economic resilience, it is also emerging as a significant player in the region and globally, now chairing the G20 working group on development. Despite the most recent downturn, Indonesia’s economy has continued to strengthen throughout 2010, with growth ending the year above pre-crisis levels. Poverty rates have fallen from 17.4 percent of the population in 2004 to 13.3 percent in 2010. Economic growth is forecast at 6 percent in 2011 with scope to average 7 percent by mid-decade despite the weaker global outlook. The challenge, however, is how is to maintain this momentum into the medium term – as Indonesia’s demographic shifts and the population ages - and how to ensure that economic growth leads to improved living standards for all Indonesians. It is striking that, despite the achievements of the past decade, 31 million Indonesians still live below the national poverty line of US$22 per month and half of all households live clustered around the poverty line, remaining vulnerable to falling below it. Of the total population living in poverty, 65 % of these are in rural areas – where two thirds of the population reside and where income and employment opportunities and delivery of basic services, are seriously constrained, and additionally characterized by regional disparities. Non-income poverty – as reflected in health and education access and outcomes – remains a serious problem. While recent history has shown a positive trend in economic and political achievements, this still remains an incomplete transition. The challenge for policy makers now is to both make the investment effort and tackle the policy and institutional impediments that limit effectiveness of Indonesia’s institutions in delivering services and accountability to the populace and also those that constrain the poorest from benefiting more fully from growth and poverty reduction efforts. The WB Indonesia is providing financial and technical assistance to the Government of Indonesia (GoI) in implementing its flagship National Program for Community Empowerment in Rural Areas, or Program Nasional Pemberdayaan Masyarakat (PNPM-Rural). This is one of the world’s largest community-based poverty reduction programs, now implemented nationwide in over 60,000 villages1. As the government’s flagship community-based poverty alleviation program, PNPM uses a community-driven development (CDD) approach, providing direct block grant financing to local communities at the kecamatan (sub-district) level to finance an open menu of local development priorities – typically small scale social/economic infrastructure, education and health activities, and micro-loans to women’s savings groups – implemented with mechanisms to ensure broad-based participation and transparency. Embedded within Indonesia’s Medium Term Expenditure Plan, GoI’s poverty alleviation strategy comprises of three clusters, whose purpose is to stabilize incomes through targeted poverty and social protection programs at the household level; promote community level development and empowerment (e.g., PNPM); and stimulate micro-level growth through programs that target micro-finance and support to small and medium enterprises. PNPM, under “Cluster 2