Public Disclosure Copy The World Bank Implementation Status & Results Report Program for Economic Resilience, Investment and Social Assistance in Indonesia (P130048) Program for Economic Resilience, Investment and Social Assistance in Indonesia (P130048) EAST ASIA AND PACIFIC | Indonesia | Macro Economics & Fiscal Management Global Practice | IBRD/IDA | Development Policy Lending | FY 2012 | Seq No: 5 | ARCHIVED on 18-Dec-2015 | ISR21701 | Implementing Agencies: Key Dates Key Project Dates Bank Approval Date:15-May-2012 Effectiveness Date:29-Jun-2012 Planned Mid Term Review Date:30-Apr-2015 Actual Mid-Term Review Date:17-Jun-2015 Original Closing Date:30-Jun-2014 Revised Closing Date:31-Dec-2015 Program Development Objectives Program Development Objective (from Program Document) The main objective of the proposed operation is to enhance the Government’s crisis preparedness to address the potential adverse impact of ongoing volatility in financial markets on Government’s ability to meet its gross fiscal financing needs from markets. Learning the lessons from the crisis of 1997/98 and more recently 2008/09, the Government would like to ensure that essential public expenditures are maintained and, if necessary, augmented to provide economic stimulus during this period of stress. Therefore, as part of its proactive response to the current global situation, the Government would like to put in place arrangements that would boost the confidence of international and domestic financial markets to enable the Government to raise necessary resources from them. Thesearrangements include a set of confidence-boosting policy measures as well as back-up financing arrangements—a part of which is the proposed loan—that would be available in the event that the worsening of global financial markets prevents Indonesia from accessing financing at reasonable rates. PHRPDODEL Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO  Moderately Satisfactory  Moderately Satisfactory Overall Implementation Progress (IP)  Satisfactory  Satisfactory Overall Risk Rating  Moderate  Moderate Implementation Status and Key Decisions The US$2billion DPL-DDO was drawn in full by the government of Indonesia on 22 September 2015. Earlier in the year, following a request from the Government of Indonesia, the closing date of the PERISAI DPL DDO was extended further to 31 December 2015, following a first extension from the original closing date of June 30, 2014 to June 29, 2015. The program is on track and progress towards the program objectives continues in the following areas: Maintaining financial system stability: Financial system stability has been maintained against the backdrop of an ongoing slowdown in domestic deposit and credit growth. The overall banking system remains relatively sound. After a continuous decline since mid-2013, credit growth increased slightly to 10.9 percent yoy in 12/18/2015 Page 1 of 7 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Program for Economic Resilience, Investment and Social Assistance in Indonesia (P130048) September, from 10.8 percent in August and 9.6 percent in July, driven by increases in both working capital and in investment loans. At the same time, deposit growth declined to 11.5 percent yoy, from 12.6 percent yoy in August, reducing excess interbank market liquidity. In August, the risk weighted capital adequacy ratio (CAR) was 20.6 percent (well above the statutory minimum of 8 percent) and non-performing loans were 2.8% of total loans, well below the 3.2% in the aftermath of the 2008/2009 Global Financial Crisis, but has been rising gradually from 1.8% nearly two years ago. Despite the overall soundness of the system, risks may come from stress or a failure of a smaller-sized bank that is initially non-systemic but could have systemic effects if not resolved quickly and effectively. The authorities have been working to address several important gaps in the crisis framework. The Financial Services Authority (OJK) has been active since its establishment in 2014. Most recently, in a regulatory response to the equity market pressures, OJK eased companies’ share buy-back regulations, allowing companies to purchase their own shares without a general shareholders meeting. Bank Indonesia kept its policy rate on hold at 7.5 percent on November 17, but cut the primary reserve requirement by 50bps, which will provide additional liquidity to banks. BI also maintained the deposit facility rate at 5.5 percent and the lending facility rate at 8.0 percent. BI noted the potential volatility stemming from the normalization of the Fed funds rate as the reason behind maintaining its monetary policy stance Sustaining critical public expenditures: The Government has continued to have access to financial markets at reasonable, albeit rising cost, in particular on IDR government bonds. Gross securities issuance in 2014 of IDR 428 trillion reached 100 percent of the revised Budget target. The gross securities issuance target under the revised 2015 Budget is IDR 452 trillion (3.9 percent of GDP against a fiscal deficit target of 1.9 percent of GDP) with 77 percent targeted from domestic securities and 23 percent from global bonds. Net financing needs of 2.4 percent of GDP are above the fiscal deficit due to a non-debt financing need for SOE equity injections. Strong progress has been made in 2015 towards meeting the original financing target in the revised budget In November 2015, the government revised its forecast for revenue realisation down by US$200 trillion, and its fiscal deficit forecast up to 2.6 percent of GDP. As of 6 November 2015, gross securities issuance had reached IDR 456.3 trillion. This represents 101 percent of the full-year target in the 2015 revised budget with the original deficit of 1.9% of GDP. It represents 95 percent of the expanded deficit of 2.6 percent of GDP later announced by government. As part of the front-loading of the fiscal financing strategy, USD 4 billion (IDR 50.4 trillion) in US dollar global bonds were issued in Q1 2015. Indonesia’s domestic 10-year government bond yield declined by 105 basis points between September 30 and November 20, after increasing by 145 basis points in the previous quarter in line with the general emerging market volatility. The currency has also moved in line with the general emerging market trend. Following a roughly 14 percent depreciation in August-September, the IDR appreciated 8.1 percent between October 2 and 9, and stabilized at its early-August level. Under the revised 2015 Budget, the capital spending allocation is more than doubled relative to the realization in 2014. In addition, the revised Budget includes capital injections to a number of SOEs aimed at supporting infrastructure development. After a slower start than in 2014, budget execution picked up in the second half of 2015, especially for capital spending, as part of the fiscal stimulus to support growth. The overall budget execution rate reached 70% by end-October, with all expenditure items, except energy subsidies, higher than 2014 levels. In particular, cumulative capital expenditure was 39 percent higher in nominal terms in October 2015 than in October 2014. The 2016 Budget was approved on October 30 by Parliament and contains further improvements in the composition of spending in line with the government development priorities. Improvements include a higher budget allocation for health (for the first time meeting the 5 minimum target for health as a share of total spending), social assistance, and infrastructure, especially through transfers to subnational governments and capital injections to state own enterprises. The latter channel has been put on hold until a planned revision to the 2016 budget, likely in Q1 2016. Improving the effectiveness of social protection programs to support the poor and vulnerable: The government has pledged to further strengthen social protection. In the short- term, the improvements in coverage and benefits made under the previous administration to scholarships and the conditional cash transfer program have been kept intact and are set to develop further throughout 2016. The conditional cash transfer is set to expand to reach 6 million families in 2016, up from 3.2 million in 2015 along with an increase in benefits to improve program adequacy. Some other key programs, such as health insurance for the poor and scholarships for the poor, although renamed, are continuing, and further expansion is forthcoming. Scholarships for the poor has increased to reach 20 million school age children in 2015, up from 16.6 million in 2013 while health insurance for the poor increased to reach 86 million people in 2015, up from 76 over the same period. A temporary Unconditional Cash Transfer was deployed with the November 2014 fuel price increase, highlighting that the new administration is prepared to use social assistance in adverse times for the poor. The World Bank is continuing to provide support for the improvement and reform of existing social assistance programs, particularly in terms of a more integrated approach. Recent proposals to allow individuals to use old-age savings for unemployment insurance, and housing investments need to be carefully assessed in terms of the financial impact on the savings fund, and the impact on long term financial security of individuals. Risks 12/18/2015 Page 2 of 7 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Program for Economic Resilience, Investment and Social Assistance in Indonesia (P130048) Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance  --  Moderate  Moderate Macroeconomic  --  Moderate  Moderate Sector Strategies and Policies  --  Moderate  Moderate Technical Design of Project or Program  --  Low  Low Institutional Capacity for Implementation and Sustainability  --  Low  Low Fiduciary  --  Moderate  Moderate Environment and Social  --  Low  Low Stakeholders  --  Low  Low Other  --  --  -- Overall  --  Moderate  Moderate Results Results Indicators PHINDIRITBL  OJK Preparation Team (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Value -- OJK now functioning OJK now functioning OJK functioning Date -- 13-Mar-2015 13-Mar-2015 31-Dec-2015 PHINDIRITBL  Stability of the Financial System (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value Y Y Y Y Date 16-Apr-2012 13-Mar-2015 27-Nov-2015 31-Dec-2015 12/18/2015 Page 3 of 7 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Program for Economic Resilience, Investment and Social Assistance in Indonesia (P130048) PHINDIRITBL  Intervention by the Financial Sector Stability Coordination Forum (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value N N N Y Date 16-Apr-2012 13-Mar-2015 13-Mar-2015 31-Dec-2015 PHINDIRITBL  Functioning of the Financial Sector Stability Coordination Forum (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target FKSSK taking leading FKSSK taking leading role in coordination and Improved role in coordination and decision making and common decision making and leading medium-term understanding leading medium-term work on on important of the policy work on on important policy issues. options and policy issues. Value -- measures that FKSSK has taken can be used in FKSSK has taken efforts efforts to strengthen the event of a to strengthen inter- inter-agency financial agency coordination and coordination and institution financial crisis financial crisis failure management skills. management skills. Date -- 13-Mar-2015 13-Mar-2015 31-Dec-2015 PHINDIRITBL  Government access to financial markets (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 26.00 100.00 100.00 100.00 Date 15-Mar-2012 31-Dec-2014 05-Dec-2015 31-Dec-2015 PHINDIRITBL  Duration Budget Revision Process (Days, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 30.00 1.00 1.00 1.00 Date 30-Mar-2012 31-Jan-2015 31-Jan-2015 31-Dec-2015 12/18/2015 Page 4 of 7 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Program for Economic Resilience, Investment and Social Assistance in Indonesia (P130048) PHINDIRITBL  Capital Expenditures Disbursement (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 16.00 15.00 70.00 80.00 Date 30-Jun-2011 30-Jun-2014 30-Oct-2015 31-Dec-2015 PHINDIRITBL  Access to Household and Labor force survey data (Days, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 60.00 7.50 7.50 10.00 Date 16-Apr-2012 28-Feb-2015 28-Feb-2015 31-Dec-2015 PHINDIRITBL  Improved performance social assistance programs in a crisis (Text, Custom) Baseline Actual (Previous) Actual (Current) End Target Value -- -- -- -- Date -- 31-Dec-2013 31-Dec-2013 -- PHINDIRITBL  Better Targeting (exclusion error for the poorest 30% of HH) (Percentage, Custom Supplement) Baseline Actual (Previous) Actual (Current) End Target Value 48.00 59.00 59.00 35.00 12/18/2015 Page 5 of 7 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Program for Economic Resilience, Investment and Social Assistance in Indonesia (P130048) PHINDIRITBL  Time to disburse in a crisis (Months, Custom Supplement) Baseline Actual (Previous) Actual (Current) End Target Value 5.00 1.00 1.00 3.00 Overall Comments Data on Financial Performance Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed Disbursed P130048 IBRD-81640 Effective USD 2,000.00 2,000.00 0.00 2,000.00 0.00 100% Key Dates (by loan) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P130048 IBRD-81640 Effective 15-May-2012 31-May-2012 29-Jun-2012 30-Jun-2014 31-Dec-2015 Tranches PHTRANCHESEC Tranche 05 Description Amount (USD) Expected Release Date Actual Release Date Status 0 Tranche Condition Description Status If Not Met If Delayed Restructuring History There has been no restructuring to date. Related Operations 12/18/2015 Page 6 of 7 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Program for Economic Resilience, Investment and Social Assistance in Indonesia (P130048) There are no related projects. 12/18/2015 Page 7 of 7 Public Disclosure Copy