Indonesia's per capita income is the lowest in ASEAN, and there are still 26 million people living in poverty. At the same time, Indonesia's human capital and institutional base for dealing with economic policy and management issues is still very thin. Indonesia can benefit from continued access to U.S. know-how in economic management in order to succeed in the formidable task of achieving sustainedeconomic growth and to bring itself to the edge of newly industrialized country status in the twenty-first century. USAID's objective is to promote continued economic growth while moving to a relationship which emphasizes sustainable, mutually beneficial linkages between Indonesia and the United States. This objective will provide support in key areas of economic management and simultaneously will enhance the opportunities for U.S. business to participate in and contribute to Indonesian economic growth. This objective anticipates two specific outcomes:

Over the past year, USAID's support for policy and institutional development continued to yield significant results. Passage of the new Capital Markets Law in November 1995 was among the most impressive achievements. The law establishes basic accounting standards and disclosure requirements for listing shares on the Jakarta Stock Exchange (JSE) and enables greater oversight to prevent securities fraud. It also strengthens the position of securities companies and makes investment in the capital market as convenient as opening a bank account. In setting clear and transparent rules on public offerings, the law greatly strengthens the foundation for the sustainable development and growth of Indonesia's financial markets. U.S. technical advisors played a critical role in helping to draft this important law as well as in strengthening the Capital Markets Supervisory Board's regulatory and enforcement capacity. While this technical assistance activity has now ended, the positive returns on this investment will extend well into the future.

Impressive progress also was achieved in the area of trade policy reform. Indonesia fully met all of its Uruguay Round obligations, and in April, it became a founding member of the World Trade Organization (WTO). In May, 1995, the government demonstrated its commitment to the WTO and APEC by announcing its most significant trade liberalization package to date. These reforms reduced tariffs across the board on approximately two-thirds of all tariff line items. Further, the government committed itself to reducing most tariffs to 5% by the year 2003. U.S. trade policy advisors were instrumental in helping to advance these key reforms and in strengthening their counterparts' capacity to analyze, formulate, and implement sound, market-oriented trade policies.

U.S. technical advisors provided key support for the development of Indonesia's commercial laws. Transparent and enforceable commercial codes are essential to the sustainable expansion of equitable and efficient private sector trade and investment. USAID advisors, working closely with their counterparts, played a critical role in advancing some key legal reforms. One of these is the new Corporation Law which was recently signed into law. The law establishes simple and clear procedures for company formation and dissolution, and protects minority stockholders' interests by separating management and control and by defining minority shareholders' rights.

While Indonesia's past economic achievements are formidable, the challenges ahead 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. At the same time, Indonesia's human resource and institutional capacity to meet these challenges is still limited. 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 preparing to establish and strengthen linkages which promote two-way, mutually beneficialy cooperation between U.S. and Indonesian private and public sector actors and institutions.

Agency Goal: Stabilizing World Population Growth and Protecting Human Health

Despite impressive strides, Indonesia is still beset with major health and population challenges. As the fourth largest country in the world, Indonesia's ability to overcome its existing population and health challenges has global implications. HIV infections, currently estimated at 100,000 cases, are increasing rapidly. Indonesia's maternal mortality rate far exceeds other ASEAN nations and many lesser developed countries, even in Africa. Despite significant improvement, infant mortality is still the highest among ASEAN countries. Indonesia, which after India has the largest population of any country in which USAID provides family planning assistance, 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 two children per family by 2005. Reduction of the fertility rate will help Indonesia preserve its gains from economic growth. Of the FY 1997 assistance request, USAID will allocate $11.272 million for health activites and $17.371 million for population activities, as described below.

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 over 55% of married women are now using contraceptives. One-third of these women rely on clinical methods which provide long-term effectiveness. USAID programs have renovated facilities and funded the medical training of thousands of physicians and midwives. 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. A particularly noteworthy accomplishment is that USAID has been the major donor to expand the capacity and use of family planning services delivered through the private sector. In just five years, the proportion of people obtaining services and contraceptives from private physicians and midwives has doubled, from 12% in 1991 to 28% in 1994. The government would like this proportion to increase to 50% in the next five years. Given the huge and growing numbers of clients who need services, the government 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 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 which are available for other urgent health problems. USAID is successfully coordinating with other donors to assist the Ministry of Health to formulate effective national HIV/AIDS policies and to develop and implement a national HIV/AIDS strategy. Assistance provided by USAID also is being used for data collection to monitor the prevalence of the disease in high-risk areas. Since Indonesians are largely unaware of how to prevent the spread of this disease, USAID also has initiated 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 government has issued two new national AIDS policies, one on condom promotion and one on care for AIDS patients. Nationalhealth resources allocated to HIV/AIDS have increased substantially. USAID has played a critical role in helping the government to develop an appropriate strategy. 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 also assists the Ministry of Health to reduce the unacceptably high levels of maternal mortality. An extensive national midwife training program has begun, to which USAID will provide essential training in life-saving skills. To strengthen the capability of the National Midwives Association, USAID provides management assistance. Two pilot activities are underway to test innovative service delivery interventions in Kalimantan province, and to provide small loans to private midwives to enable them to set up or expand their private practices.

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 serve the health needs of lower-income families. Other donors have expressed interest in helping to expand this model on a large scale throughout the country.


Agency Goal: Protecting the Environment

Indonesia's natural environment is the most diverse of any country 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 and urban centers. Indonesia's urban environmental crisis is unique among countries receiving USAID assistance, 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 environmental objectives are to strengthen natural resources and urban environmental management. Four natural resources-related achievements are expected:

Current government efforts to solve environmental problems have been through a centralized command-and-control approach. Popular preference for community-based, natural resource management conflicts with such centralized control. USAID's challenge is to successfully promote the government's working together with NGOs on environmental issues and to promote policies supporting a less centralized approach. USAID also will continue to strengthen and finance key NGO initiatives.

During the past year, USAID realized important gains in rallying NGOs, local governments and communities to change natural resource polity and policies throughout the archipelago. For example, concerned local governments recently approved precedent-setting agreements which restored historical forest-use rights to indigenous communities. This will allow some of Indonesia's poorest households to once again undertake legal and sustainable income-generating activities in the government forestlands surrounding their communities. USAID is promoting the use of eco-tourism as an incentive for community participation in protecting the environment.

Furthermore, 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 participative planning and management process in one of Indonesia's principal marine parks.

USAID was successful in establishing and endowing the Indonesia Biodiversity Foundation, an independent institution which 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 three key outcomes:

Over 11% of infant deaths in Indonesia are related to water-borne disease. Industrial polluters go largely unchallenged. 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, to reduce industrial pollution, and to 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.

Progress has been achieved in increasing access by urban populations to clean water. This 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. For example, the government has approved the establishment of a secondary mortgage facility and the promotion of municipal bonds to finance water supply investment. Through several pilot projects, USAID technical assistance was indispensable in the effort to privatize several urban environmental services. In one case, USAID assisted in the decision to use build-operate-transfer financing for a $60 million bulk water supply project. As a result, poor urban residents in Jakarta and several other cities are receiving more piped water and better urban environmental services (especially waste-water handling, water supply, and solid waste disposal and processing). In addition, USAID has persuaded the government to seek support from other donors to continue and extend the reform agenda in these areas. To date, the ADB and the Overseas Economic Cooperation Fund (OECF) of Japan have agreed to contribute substantial funding.

Industrial pollution emissions have registered reductions in 1995, as measured by the number of firms that meet pollution emission standards set by the government.s environmental protection agency. The 1995 data show that 93 firms have met the new pollution standard. The number of firms voluntarily participating in the evaluation program is rising (over 200 have registered), and the number of approved firms is likely to rise as well. USAID's training and assistance for firms in the domestic environmental consulting industry is expected to support future progress in this area.

Environmentally sound industrial processes are being adopted more widely, as measured by a substantial increase in installed electrical generating capacity that makes use of renewable energy resources. However, recent data indicate that energy consumption remains high, suggesting that substantial challenges still lie ahead for efforts to increase energy conservation and to extend efficiency improvements.

By 1997, USAID's assistance to factory-level, pollution prevention will have demonstrated its advantages to manufacturing companies and its marketability to the private consulting, engineering sector. In the second phase of its clean industrial strategy, to be started in FY 1997, USAID will assist the GOI to strengthen its industrial pollution policies and their enforcement. Specifically, USAID will assist the GOI to establish positive policy incentives for clean industrial production in existing factories and new investments, and to improve regulatory enforcement through assistance to government agencies responsible for industrial pollution abatement.

Agency Goal: Building Democracy

The pace of democratization in Indonesia has not paralleled its rapid progress in economic growth. A well-informed, fully participatory citizenry is a critical element for Indonesia's future 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. Indonesian civil society has become 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.

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

USAID is the largest and most influential donor in this controversial sector. Indonesian and U.S. NGOs supported by USAID are among the leading institutions in helping to build a stronger civil society, pressing the GOI for systematic democratic reform and assisting the GOI to devise new laws and policies.

Almost all landmark legal cases are pursued by the Indonesian Legal Aid Society, USAID's largest local grantee, or its allied NGOs. Over the past year, cases of national importance have focused on farmer land titles and compensation relative to GOI infrastructure projects and forestry and mining concessions; freedom of expression as restricted by GOI newspaper licensing regulations and mandatory accreditation of journalists; and freedom of association limits curtailing labor union formation and meetings of five persons or more.

NGOs, supported by USAID, have worked with the GOI to improve policy formation. Improved labor law and legislation for a new dispute resolution mechanism and conservation practices are direct results of NGO involvement. In addition, NGOs have advocated for issues as diverse as the removal of the ex-political detainee symbol on national identification cards to a reduction in telephone rates. The awareness and involvement of the National Human Rights Commission on various issues have been heightened by the activism of the NGOs. The Ministry of Justice, with USAID support, hasstandardized, 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 also operates in politically sensitive geographic areas, including East Timor, Irian Jaya and Aceh. In East Timor, one NGO grantee organized the first GOI-NGO consultation; this resulted in a provincial government policy on NGOs in the development of the province. The National Cooperative Business Association, a U.S. private voluntary organization played an influential role in helping to end a coffee-buying cartel in East Timor.

Indonesia has far to go before it reaches the levels of democracy existing in other Asian countries assisted by USAID. Through modest investments, USAID is significantly contributing to a more pluralistic society and a freer political system in Indonesia.

	Encouraging Economic Growth	Stabilizing Population Growth	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	6,880					6,880
2. Improved Health and Reduced Fertility		26,713				26,713
3. Decentralized and Strengthened Natural Resources Management			8,582			8,582
4. Strengthened Urban Environmental Management			8,582			8,582
5. Increased Effectiveness of Selected Institutions which Support Democracy				5,900		5,900
Total Development Assistance	6,880	26,217	17,164	5,900	0	56,657

USAID Mission Director: Vivikka M. Molldrem

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 thirty 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 assistance can still make significant contributions to Indonesian economic management as the country moves toward consolidating and expanding upon its gains of the last thirty 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 Agriculture and Rural Sector Support Program (ARSSP), the Agribusiness Development Project, the Economic Law and Improved Procurement Systems Project, and the Mission's microenterprise program will be targeted on these primary threats to the prevailing economic paradigm. Additionally, one final activity will be established to assist in strengthening and developing new 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.

USAID 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 change that positively impacts on Indonesia's overall economic performance as well as U.S.-Indonesia trade and investment potential. Recent progress includes an upward revision in macroenconomic growth targets from 6.25 percent to 7.1 percent per annum, passage of a new Capital Markets Law, passage of a new Corporation Law, establishment of a new bond rating company, creation of a secondary mortgage facility, and implementation of a major trade liberalization program. Weighted average import tariff rates have declined from 22 percent in 1990 to 15 percent at the end of 1995. Also, with USAID involvement, shares of a major state-owned enterprise (Indosat, a telecommunications company) were floated simultaneously on the New York and Jakarta stock exchanges.

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. Using existing activities of the ARSSP, Agribusiness, Economic Law and microenterprise programs, the Mission will seek to (1) improve the policy environment for continued economic growth; (2) codify keypolicy changes in updated law and regulation 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. Concurrently, a five-year program will be 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 a strong private sector participation. This approach will ensure private sector involvement in the transition from development assistance to development cooperation. 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 now includes more than eight GOI ministries and agencies. 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, often piloting reforms that were later expanded by the World Bank or the Asian Development Bank. An example is USAID's work in the financial market sector which is now being followed up under a major IBRD loan. The size of USAID's total assistance pledge ranks seventh among the donors in Indonesia after Japan, the Asian Development Bank, the World Bank, the United Kingdom, France, and Germany. The estimated host country contribution for this activity is $30,700,000.

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. USAID is now conducting structured interviews with a sample of its customers and partners. Their opinions will contribute to the current redesign of USAID's economic growth activity which will focus on the transition from economic development assistance to development cooperation by the year 2000.

Principal Contractors, Grantees, or Agencies: Several institutional contractors now at work on parts of the economic growth objective, including those working with the Ministry of Trade and Industry and those working on economic law reform, will complete their work within a year and a half from the beginning of FY 97. The U.S./Indonesian linkages for economic growth activity will require one new institutional contractor to assist in management of the program over a five-year period. Short-term technical assistance from a variety of sources (universities, research centers, and professional associations) will also be required to support the new linkage program.

Major Results Indicators:

Baseline Target
Lower weighted average import tariff rate 15% (1995) ^1/ 10% (2000)
Adoption of major new economic laws which
strengthen openness, transparency, and
competition 2 (1995) ^2/ 10 (2000)

Background: Although Indonesia has a highly successful family planning program, use of long-term contraceptive methods is still low, and its current 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 Indonesians 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 must avoid a pattern of denial in response to behavioral research findings that may not be flattering to the Indonesian public 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 now using contraception is 55%, or approximately 20 million women. This represents a five percentage point increase from just three years ago and indicates that Indonesia is overcoming its plateau in contraceptive use. Total fertility also declined from 3.1 in 1991 to 2.8 children per woman in 1994. Commercial sales from the Blue Circle campaign grew steadily in prime urban markets, and nearly 30 percent of current family planning users received family planning services from private sector sources. In FY 1995, a national HIV/AIDS strategy was launched; national health resources allocated to HIV/AIDS increased by 40% to $3.5 million; and nearly 14% of the population in the Klaten District are participating in an integrated managed health care program.

Description: USAID will continue to provide advice and analysis in the family planning and health and nutrition 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 HIV/AIDS prevention strategies. Technical assistance will help the GOI Ministry of Health assess how well pilot managed-health-care plans are performing and how they can be expanded nationwide. This activity focuses on reproductive health issues and intends to: (1) increase the use and quality of family planning services, (2) increase the use and quality of sexually transmitted disease/HIV/AIDS, and reproductive health services, (3) develop and implement national AIDS and reproductive health policies, and (4) improve the balance of public and private sector provision of health and family planning services through the provision of targetted technical assistance. The private sector will have a larger role as supplier and financier of family planning services. The developmentof coherent and appropriate 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 now collaborating with USAID to pursue this activity by formulating new national policies and by coordinating activities. Local government offices and NGOs are already cooperating in carrying out three 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 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 are millions of 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 six million eligible couples will receive contraceptive services by 1997.

Principal Contractors, Grantees, or Agencies: Contractors and grantees, such as John Snow International, Futures Group, Project Concern International, Johns Hoplkins University, Centers for Disease Control and AIDSCAP, will continue their work on family planning, 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) ^3/ 2.70 (1997)
Syphilis prevalence rate among high-risk
populations in demonstration areas: male and
female TBD (1996) ^4/ TBD (1997)^5/
Maternal mortality ratio (maternal deaths per
100,000 live births) 450 (1992) ^6/ 400 (1996)

Purpose: To enhance the sustainable use of Indonesia's natural resources by encouraging local communities and non governmental organizations (NGOs) to participate actively 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 1 million 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. This 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) the GOI may deny USAID direct access to NGOs out of sovereignty concerns; 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 significant enough to influence decisions about strategy and priorities. These two comparative 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 - is an invaluable contribution that 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 natural resource management. Pilot activities located throughout Indonesia, such as the already successful Park Management Plan at Bunaken National Park in Sulawesi, will provide information valuable in formulating national policy options in the natural resource management sector. This activity intends to promote: (1) greater stakeholder participation in decisions about planning, management, use, and monitoring of natural resources; (2) increased conservation and pollution reduction by natural resource-based industries; (3) improved policy development and implementation; and (4) strengthened institutional capacity for biodiversity conservation. Improved policies, practices, and enforcement will help regulate industries that currently practice unsustainable harvesting, farming, and fishing techniques. By strengthening the capacity of NGOs, Indonesian professionals will be able to train community groups to become effective in managing their own local natural resources.

Host Country and Other Donors: The GOI's Ministry of Forestry is a key host country partner. USAID is providing community-based management models for other donors. Multilateral banks, bilateral donors, and international research centers support Indonesia's forestry conservation. The Government of Japan, the United Nations' Global Environmental Fund, and multilateral banks contribute to biodiversity conservation efforts. Selected private sector entities and NGOs also will 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 host country contribution for this activity is $24,500,000.

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

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 through a competitively awarded contract with a U.S. consulting firm.

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)^7/ 7 (1996/97)
Decree issued or legal instrument approved
ensuring local community's active
participation in natural resources planning
and management 0 (1994/95) ^8/ 4 (1996/97)
Number of hectares covered by
stewardship agreements 0(1994/95) 10,000(1996/97)
Number of NGOs strengthened 22 (1995/96) ^9/ 27 (1996/97)
Natural resource-based industries using "best
practices" for land-use management and
production processes (cubic meters of wood
certified each year) 0 (1993/94)^10/ 100,000 (1996/97)

PROGRAM: INDONESIA
TITLE AND NUMBER: Strengthened Urban Environmental Management, 497-SO04
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1997: $8,582,000 DA
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, reducing industrial pollution emissions, 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 the central government is devolving significant authority to municipal leadership that also needs to be empowered to increase local revenues and to issue revenue bonds. This activity includes the Municipal Finance project and the Private Sector Participation in Urban Services project. Three external constraints must be addressed: (1) Government of Indonesia (GOI) commitment to give greater discretion to local governments in their use of central government finance for local projects must be strengthened; (2) GOI commitment to open investment decision-making for greater community participation must be forthcoming; and (3) there must be interest on the part of Indonesian private company managers to implement industrial pollution rules and regulations and to make necessary investments in cleaner production and more efficient use of energy.

USAID Role and Achievements to Date: USAID is the demonstrated leader in advising the GOI on the reform of its policies dealing with urban environmental management, municipal finance, and private participation in environmental services. Recent progress includes: (1) the number of megawatts of installed generating capacity that use renewable energy resources exceeded expectations; (2) the use of renewable energy resources for electricity generation is increasing, for grid connected applications and for isolated systems; (3) low-income urban residents are receiving piped water and other urban environmental services at an increasing rate; and (4) Indonesia has registered increases in all essential financial components of the resource flow to urban environmental services: loans, grants, and private investments. The GOI has implemented an environmental rating system that provides incentives to environmentally friendly industries and disincentives to polluting industries. In 1995, the first year of the program, 93 firms met government standards.

Description: In recognition that central budgets and staff are stretched to their limits, this activity intends to promote a constructive dialogue between local community leaders and their government, at both the municipal and national levels. The activity will rely on a blend of technical assistance and grants to bring greater balance into the community-government relationship. Through the provision of technical assistance for regulatory and incentive programs and community development grants, the activity will 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 reduce industrial pollution; and (4) the adoption by government and industry of policies and procedures to promote cost-effective use of clean, renewable energy. Decentralized financing will result in greater community participation in reviewing investment decisions of local utilities and improved service response capacity of city managers. Cost-effective pollution prevention will reduce the public burden such as poor health, lost work productivity, higher-cost products, and industrial clean-up charges.

Host Country and Other Donors: The GOI's Ministries of Public Works, Home Affairs, and Finance play key roles in the success of this activity. Private investors, the semi-public power sector, selected industrial firms, and local community groups also will contribute their resources and time to this activity. Likewise, the AsianDevelopment Bank (ADB) and the Overseas Economic Cooperation Fund of Japan (OECF) have agreed to contribute substantial funding to the Regional Development Account (RDA), the GOI's environmental infrastructure loan fund capitalized with USAID-guaranteed loan assistance. The ADB and World Bank's urban sector loans also encourage GOI 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 neighborhoods contending with industrial waste and all electricity consumers whose power is unreliable and inefficiently produced. Intermediate customers include municipal staff, industrial associations, and representatives of the financial and power sectors. Forty-seven million Indonesians 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, NGO community groups, business, and technically trained local consultants. A combination of contracts and grants will be designed to meet the needs of these new teams.

Major Results Indicators:
Baseline Target
Percent of total urban population served by
local water treatment and piped distribution 40% (1993/94) ^11/ 43% (1996/97)
Number of factories in targeted sectors
whose environmental performance meets
or exceeds government requirements for
the discharge of pollutants 0 (1994) ^12/ 220 (1997)
Megawatts (MW) of installed generating
capacity using renewable energy
resources 3,399 (1993/94) ^13/ 3,560 (1996/97)

Purpose: To enhance respect for the rule of law and 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 has not paralleled the rapid progress in raising incomes and economic 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. Civil society in Indonesia remains relatively weak and disorganized relative to the government; however, non-governmental organizations (NGOs) are becoming more active in expressing their diverse interests and the Government of Indonesia (GOI) is permitting more, but still limited, independent political activity. Clearly the GOI's tolerance for contrary views is increasing, while NGOs are taking advantage of every opening for more freedom. Regarding external constraints, the possibility of the GOI imposing severe restrictions on NGOs still exists but has receded over the past year. This activity includes Strengthening Institutional Development, Economic Law and Improved Procurement Systems, and Strengthening Democratic Initiatives.

USAID Role and Achievements to Date: USAID assistance is helping both the GOI and 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 sometimes controversial sector. Recent progress in this sector attributable to the actions of USAID-sponsored NGOs includes: (1) improved regulations regarding the right for labor to organize, (2) the removal of the ex-political detainee symbol on national identification cards, (3) legislation for new alternative dispute resolution mechanisms and conservation practices, (4) the breaking of the East Timor coffee cartel, (5) heightened activism by the National Human Rights Commission, and (6) a reduction in telephone rates. Additionally, working directly with the GOI, over 6,500 laws and regulations have been standardized, indexed and distributed by CD-ROM disks to enhance the administration of justice and the availability of information and Parliament's research and documentation unit has been strengthened.

Description: Based on its democracy assessment of Indonesia, USAID will continue to support this activity, largely through grants to local NGOs focused in the areas of advocacy, human rights, and labor law, while seeking new activity with the GOI. This activity intends to 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. By encouraging greater participation, average citizens will be able to channel their views more effectively to government and political decision-makers. A heightened respect for due process also will encourage a more inclusive political process as citizens demand that judicial rulings be applied more transparently and less arbitrarily. As NGOs become administratively and financially sound, they will have more professional staff capable of representing public issues in an independent manner. USAID will continue to program resources in the politically sensitive geographic areas.

Host Country and Other Donors: USAID is by far the lead 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, such as the World Bank, the Konrad Adenauer Stiftung and the Asia Foundation, look to USAID for leadership and direction inthis sensitive program area. A few other bilateral donors, for example Canada and Germany, have very small programs in the democracy/governance sector. The estimated host country contribution for this activity is $3,600,000 derived almost exclusively from private, voluntary organizations.

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

Principal Contractors, Grantees, or Agencies: USAID will continue to pursue this activity primarily through selected NGOs, such as the U.S. National Cooperative Business Association, the Asian American Free Labor Institute and the Asia Foundation, and the Indonesian Legal Aid Society (LBH), who are focused on democracy advocacy and rule of law. When appropriate, U.S. advocacy and research institutions are also engaged. Occasional short-term consultancies will add analytical depth to USAID's assessment of democracy in Indonesia. A long-term contract grant is contemplated to provide training and managerial advice to selected local NGOs.

Major Results Indicators:
Baseline Target
Number of times that the activities of grantee
NGOs have a measurable impact on the
formulation of government policy 20 (1994) ^14/ 35 (1996/97)