e af1t% A5 f4f - A'f ^Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 12748-IND

STAFF APPRAISAL REPORT

INDONESIA

SKILLS DEVELOPMENT PROJECT

FEBRUARY 14, 1994

MICROGRAPHICS

Report No: 12748 INDType: SAR

East Asia and Pacific Regional OfficeCountry Department IIIPopulation and Human Resources Operations Division

This document has a restricted distrlbution and may be used by recipients onIy in the performance oftheir official duties. Its contents may not othenvise be disclosed without WeAd Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

(as of February 1994)Currency Unit = Indonesian Rupiah (Rp)

US$1.00 = Rp 2,105Rp I million US$475

FISCAL YEAR

April 1 - March 31

ACADEMIC YEAR

July J - June 30

PRINCIPAL ABBREVIATIONS AND ACRONiLMS USED

APINDO - Indonesian Employers' AssociationBAPPENAS National Development Planning BoardBLK - Vocational Training CeDner (under MOM)BPS - Central Bureau of StatisticsCGTU - Company Group Training UnitGOI - Government of IndonesiaKADIN - Indonesian Chamber of Commerce and IndustryKANDEP - Ministrial District OfficeKANWIL - Ministrial Provincial OfficeKLK - Regional Training Center (under MOM)LLMIS - Tocal Labor Market Information SystemMDTP - Manpower Development and Training Project (Loan 2705-IND)MOEC - Ministry of Education and CultureMOI - Ministry of IndustryMOM - Ministry of ManpowerPCR - Project Completion ReportPIU - Project Implementation UnitPMP - Young Professional Entrepreneur Development Program (Program

Mandiri Profesiona)PPAR - Project Performance Audit ReportPSMC - Private Sector Management CommitteePTF - Provincial Training FundREPELITA - Five-Year Development Plan (REPELITA V - 1989/90-1993/94 &

REPELITA VI - 1994/95-1998/99)SDP - Skills Development ProjectSi - Bachelor's Degree (B.A.)TA - Technical AssistanceTOR - Terms of Reference

INDONESIA FOR OFFICIAL USE ONLYSKILLS DEVELOPMET PROJECT

TABLE oF CoNTEsPage No.

LOAN AND PROJECT .SUMMARY ............................... . iii

1. LABOR MARKET AND TRAINING FOR SKILLS DEVELOPMENT ... .... 1

A. Economic Bac'-round ................................... 1B. Training Sector Background ................................ 2C. Major Issues in the Sector ................................. 2D. Government Policies for Skills Development ..................... 5

I. BANK INVOLVEMENT AND LESSONS LEARNED ................... 7

A. Background .......................................... 7B. Lessons of Experience ................................... 7C. Bank Strategy ........................................ 9

II. THE PROJECT .. 10

A. Project Objectives .10B. Project Components and Description .10

Provincial Coponent .11M.inistry of Manpower Component .13

C. Project Management and Implementation .16D. Project Monitoring and Evaluation ........ .................... 18

IV. PROJECT COSTS, FINANCING, PROCUREMENT, AND DISBURSEMNT .. 19

A. Costs ......................................... 19B. Financing ......................................... 21C. Procurement ......................................... 22D. Disbursement ......................................... 25E. Accounts, Audits, and RePorts .......... .................... 26

V. BENEFfIS AND RISKS . ..................................... 27

VI. AGREEMENTS REACHED AND RECOMMENDATION ..... ........... 28

This report is based on the findings of an appraisal mission which visited Indonesia in November 1993,comprising Messrs. M.H. You (Economist, Task Manager), Eamonn Darcy (Training Specialist), RobertMcGough (Industrial Training Specialist), and Naoshi Kira (Project Assistant, Consultant). Peer reviewerswere Messrs./Mme. Zafiris Tzannatos, Harry Patrinos, and Carolyn Winter. Mmes. Marianne Haug,Director, EA3DR, and Himelda Martinez, Chief, EA3PH, have endorsed the project.

This document has a restricted distribution and may be used by recipients only in the performance of their officialduties. Its contents may not otherwise be disclosed without World Bank authorization.

-11-

LISTS OF TABLES IN MAIN REPORT

Table 3.1 Consultant Services RequirementsTable 4.1 Summary of Project Costs by ComponentTable 4.2 Summary of Project Costs by Category of ExpenditureTable 4.3 Financing PlanTable 4.4 Procurement Arrangements

ANNEXES

1 - Basic Statistics on Manufacturing Companies and Employees in Indonesiaa) Number of Nv. dium and Large Manufacturing Companies by Type and Province, 1990b) Number of Employees of Medium and Large Manufacturing Companies by Type and

Province, 1990c) Number of Formal, Small Manufacturing CompaiJes by Type and Province, 1991d) Number of Employees of Formal, Small Manufacturing Companies by Type and

Province, 19912 - Bank Group-Financed Education and Training Projects3 - Provincial Training Fund (PTF) - Structure, Systems, and Procedures4 - Company Group Training Unit (CGTU)5 - Small Enterprise Training and Advisory Services6 - Young Professional Entrepreneur Development Program (PMP) and Information System for

Self-Employment7 - Consultant Services Requirements, & Consultants, Studies, and Training Requirements8 - Project Implementation Responsibilities by Agencies and Directorates9 - Project Activities and Implementation Schedule10 - Project Performance Monitoring Indicators - Qualitative and Process, and Quantitative

Indicators11- Planned Supervision Schedule12 - Major Program Evaluation13 - Detailed Project Cost Estimates - Summary Accounts by Year and Project Component14 - Estimated Schedule of Disbursements15 - Selected Documents and Data Available in the Project Files

CHARTS

Chart 1 Organizational Structure of Provincial GovernmentChart 2 Organizational Structure of Ministry of ManpowerChart 3 Organizational Structure of Provincial Training Fund Board and Project Implementation

UnitChart 4 Organizational Structure of Young Professional Entrepreneur Devek.pment Program

(PMP)

MAP

IBRD No. 25570

-iii-

INDONESIASKILLS DEVELOPM PROJECT

LoAN AND PROJECT SUMMARY

Borrower : Republic of Indonesia

Amount : US$27.7 million equivalent

Terms : Repayable in 20 years, including a grace period of 5 years, at the Bank's standardvariable interest rate.

Project Objectives &Description: The proposed demonstration project has three key objectives: (a) to develop and

implement innovative industrial skills training schemes within private enterprises inthree provinces (West Java, East Java and North Sumatra) for possible replication inother parts of the country in the future, as part of an overall training program topromote productivity and efficiency of the economy; (b) to support a special trainingprogram for unemployed university graduates in five provinces (the three mentionedabove plus South Sulawesi and Bali); and (c) to strengthen policy making, research,planning and management capabilities of the Ministry of Manpower (MOM). Theabove objectives will be achieved by providing technical assistance, equipment,instructional materials, staff development and funding support for industry-based anddemand-driven skills training for various activites which could be grouped in twomain components based on implementation responsibiLities: (a) provincial component;and (b) the Ministry of Manpower component. Under the provnucd component, thethree participating provinces would establish a Provincial Traing Fund (PM toimplement the following four sub-components: (a) establish 75 company grouptraning units (CGTUs) to assist private enterprises to set training priorities, prepar_-training plans, implement training in medium-sized firms with a special emphasis onproductivity enhancement; (b) develop individual company training services to start-up new training programs and activities in mainly large firms by encouraging themto employ new training managers and puttng a special emphasis on productivityimprovement through the training of managers, supervisors, technicians andmaintenance staff; (c) support the training ofjob-seekers for identified vacancies withspecified targets for placemnt of trainees in these jobs; and (d) establish pilotprograms to provide training and consultan services to small-scale maw facurngfirms. Under the MOM component, MOM would: (a) establish demonstrationprograms to develop young professional entrepreneurs for sef-employment (PMP),primarily unemployed university graduates, in the selected five provinces; (b) developthe local labor market information system in four selected provinces and improvetheir registration and placement services to employers and job-seekers; (c) supportstaff development of the MOM to upgrade its capacity for management, research andpolicy development through domestic and overseas training and fellowship programs;and (d) assist South Sulawesi Province to prepare a PTF scheme for a possiblefollow-up, province-based skills development project.

-iv-

Benefits The major benefit would be the demonstration to policy makers, employers, andtraining providers of a variety of approaches to industry-based and demand-drivenskill training through fnancial incentives provided under the PTFs. Direct andindirect benefits would include: (a) increased awareness of the importance of trainingby employers; (b) increased capacity for skill training in the participating fns; and(c) improved linkages among labor, fimns, and market conditions resulting from theincreasee participation of employers and quality improvements in industry-basedtraining. During the demonstration project period, approximately 77r000 existingworkers (53,000 through CGTUs, 19,000 through non-CGTUs, as well as 5,000employees of small enterprises) and about 800 job-seekers would be trained, whLeemployers of about 4,000 small enterprises would receive consultant advisoryservices. In addition, about 5,500 unemployed university graduates would beprepared for self-employment as young professional entrepreneurs. The PMP wouldcreate about 11,5G0 new jobs within the newly established small businesses. Theproposed project would also help strengthen thae planming, research and policy-makingcapacity of the MOM through the staff development program.

Risks : There may be a risk that some of the project activities may not be sustained followingthe completon of the provincial skills training components. In order to m-tigate thispotential risk, new and amended employer levy-grant schemes to partially pay for theprovincial skills training activities would La implemented in the three PTF provincesnot later than June 30, 1997 (para. 4.8). Since the project activities spin fivegeographical areas and inv.'ve the provincial governments, the MOM and theprivate sector, effective coordination and management are especially important. Toaddress these concerns, local and international consultants would be used tosupplement the implementation capacity of the PIUs. To ensure active participationof private sector employers, the Governors of the project provinces have agreed to:(a) appoint the Chairpersons of the PTF Boards and the PIU Directors from theprivate sector; (b) give the private s& -tor equal representation on the PTF Board withthe public sector; and (c) appoint the Chaipersons of the Private Sector ManagementCommittw e for the PMP from the private sector.

Esthmated Costs: Loca Forei TotalUS$ miion

Provincial ComponentCompany Group Trainmg Services 11.1 2.3 13.4Individual Company Training Services 4.3 0.7 5.0Targeted Job-seeker Tralig 0.7 0.1 0.8Smnl Enterprise Trainng & Advisory Services 1.9 0.4 2.3Project Administration 2.0 2.2 4.2

Sub-total L i

Ministry of MAanower CamponentYoung Professional Entrprenr

Development Program (PMP) 2.9 1.0 3.9Local Labor Market Information System 1.0 1.0 2.0Staff Training & Development 1.1 1.5 2.6Preparation of FPF in South Sulawesi 0.1 0.1 0.2Evaluation Studies and Technical Audits 0.3 0.1 0.4Proj xt Administration 0.2 0.0 0.2

SUbt_t_l : 2 u

Total Base Costs A 35.0

Physical Contingencies 1.3 0.5 1.8Price Contingencies 2.5 0.4 2.9

Total Costs/a VA 1

3GOI & Private Companies/b 10.9 1.1 12.0IBRD 18.5 9.2 27.7

Total Costs/a 22A 1 39.7

/a Inclusive of identifiable taxes and due estimted at US$0.3 million equvalen/b The private compaies participating in the PTP Scheme would s te aining cots based on the following forma:

20% in year one, 40% in yea two, amn 70% in year three (pam. 3.26).

Estfmated Dibursebntus:

Bank Fiscal Year 1995 1996 122 1998

Anmnal 6.5 9.5 9.0 2.7Cumulative 6.5 16.0 25.0 27.7

Economic Rate of Retum: Not appLicable.Poverty Category: Not applicable.

-1-

INDONESIAJKILIS DEVELOPMENT PROJECT

I. LABOR MARKET AND TRAINING FOR SKILLS DEVELOPMENNT

A. ECONOMIC BACKGROUND

1.1 Indonesia's economy expanded rapidly in the 1980s in respoioe to economic reforms,which opened the economy to trade through deregulation. Despite ensuing external shocks, theeconomy succeeded in maintaining strong growth, in implementing substantial structural reforms thatdiversified the economy and reduced the reliance on oil, in expanding the role of the private sector,and as a result, in considerably reducing poverny.

1.2 Evidence suggests that the Indonesi&n labor market is performing well, and respondedwell to the demand shocks and adJustments of the 1980s. It has exhibited wage flexibility andmobility, with the result that employment has shifted over the past decades from agriculture tomanufacturing and services, a trend which is likely to continue in the near future.

1.3 One of the engines of economic development and employment creation has been thegrowth of the export-oriented manufacturing sector which has mushroomed based on relatively low-skill, labor-intensive production. Exports more than doubled between 1987 and 1992, and the sectoris expected to sustain its growth of over ten percent per year during the coming years by takdngadvantage of Indonesia's abundant supply of low-wage labor, especially that of females recentlydrawn into the formal manufactung sector in large numbers.

1.4 However, Indonesia is faced with increasing competition in these export marketsegments, especially from India and China wih even more abundant supplies of low-wage la&'rers.Enhancement of the competitiveness and productivity of the manufactring work force will be a keyto sustaining future growth. The 1993 Country Economic Memorandum for Indonesial also stressesthe need to improve productivity, efficiency and quality throughout the economic sector.

1.5 Indonesia's newly industrializing neighbors, such as Thailand, Singapore, and Republicof Yorea expanded manufacturing output and employment, by concentrating initially on low-technology, unskilled-labor-intensive, export-oriented industries, and later progressively shiffingproduction into more skldl-intensive activities. This added higher value to commodity production andhelped them to maintaiu international competitiveness and deepen their inmustrial bases. Two keyfactors in this gradual change in te structure of their industries were good quality general educationand industry-lcd, job-related training. Indonesia is beginning to prepare the ground in each of theserespects.

I/ Indonesi: u i loment, The World Bank, May 1993.

-2-

B. TRAINING SECTOR BACKGROUND

1.6 Vocational Education and Training. In Indonesia, skills training is provided througha variety of mechanisms. Within the formal education system, the Ministry of Educadon and Culture(MOEC) provides vocational and technical education at the secondary level. The private sectormakes significant contribution, and of the 1.4 million totai students of these secondary schools in1991/92, about 63 % are ir the private sector. The mest important schools providing industrial skillsare technical senior secondary schools (STM) with an enrollment of about 510,000, of whom about97% are male, followed by commercial senior secondary schools (SMEA) with an enrollment ofabout 700,000, of whom about 67% are female. The Directorate of Community Education(DMKMAS) within the MOEC also provides vocational training at about 17,000 training centers forapproximately 500,000 trainees annually, most of whom are school dropouts or adult illiterates.

1.7 Skills Training. The Ministry of Manpower (MOM) also offers pre-employment skillstraining for unemployed out-of-school youth in its 153 public training centers (BLKs/KLKs) in thefields of mechanical engineering, automotive, electrical engineering, building and construction,business skills, agriculture, etc. The MOM skills training centers enroll about 60,000 peopleannually. Private training centers are an important source of skills training with a vastly largertraining capacity than the public programs. They offer mainly commercial rather than technicalcourses. The capacity of the sector is not acctrately known as only about 3,000 private trainingcenters are registered with the MOM. It is, however, estimated that there are about 25,000 privatecenters offering skills training with an annual enrollment of about 500,000 people.

1.8 Manufacturing Industries and Enterprise-based Training. Approximately 16,000large- and medium-sized manufacturing companies were in operation in 1990, employing about 2.5million people (see Annex 1). In addition, there were about 2 million small enterprises2 in 1991in the formal and non-formal sectors with about 7 million employees, of which about 140,000companies with about 1.4 million people were in the formal sector. Several studies in Indonesiashow that industry-based training is limited, and that there is low awareness among employers of thebenefits of training. There is also evidence, however, of a small but growing training response fromfirms, particularly from large state-owned firms and large private fms with capital from overseas.

C. MAJOR SUES IN TtiE SECTOR

1.9 The existing skills training system of Indonesia over, s not capable of meeting thechallenge to increase competitiveness via productivity. In order to meet the expansion and changingnature of industrial production, the technical training capacity needs to be substantially upgraded.Lack of early attention to the human resources requirements of industrial development could lead toskill bottlenecks and constrain growJh.

1.10 Training policies in Indonesia have been dominated by the central government,particularly by the MOM. In line with the general policies of deregulation, decentralization andreliance on the private sector, there is a need for greater devolution of training decision-making and

21 Small enterprises are defined as t}e ones having operating capital up to Rp. 600 million.The small enterprise fonnal sector consists of companies with capital of Rp. 50 up to600 million, while the informal sector is defined as companies with, capital below Rp. 50million.

-3-

management to local governments, as well as more active involvement bv employers. It vwould bemore appropriate therefore to develop provincially-based, demand-driven training systems, wherelocal skill needs can be more easily identified and relevant responses developed. The role ofgovermnent as a major provider of training should be reoriented to create an environment that woitldencourage, suppoit and moritor training by the private sector.

1.11 There are labor market characteristics which need to be considered as part of theeconomic challenges which lie ahead: low labor productivity; low wages of the work-force; risingnumber of women entering the labor force, many for the first time without adequate schooling;increasing unemployment among the educated and, in parallel with this, early evidence of identifiedskill shortages. The role of good basic education to create a successful broad-based developmentbased cannot be overemphasized. Additional benefits will arise from the development and expansionof demand-driven training. Recent Bank studies3 have provided evidence that only a few firms arein a position to provide training. Shortages are reported mainly for skilled artisans, supervisors, andtechnicians.

1.12 Specifically, the following is a list of major issues to be addressed in the humanresources sector: (a) inefficiency and low quality of public training institutions; (b) lack of trainingstandards and clear accreditation procedures that limit the effectiveness of private traininginstitutions; (c) lack of capacity of enterprise-based training; (d) lack of financial resources todevelop and sustain enterprise-based training; (e) inadequacy of the existing labor market informationsystem; and (f) lack of adequate institutional capacity at the MOM.

Ineiriciency and Low Quality of Public and Private Traiing Institutions

1.13 Public Training stitutions. The quality and efficiency of most of MOM's BLKs/KLKs are low, and they lack the characteristics required for effective skills development, such asbeing demand-driven, flexible, responsive to the needs of employers, efficient, and sustainable. Themajor problems of the govermnent training institutions are: (a) centrally determined curricula whichare not responsive to local skills needs; (b) weak links with employers; (c) outdated and under-maintained equipment; (d) an inadequate snpply of training materials; (e) underqualified instructorsand ineffectve training methods; and (f) inflexible financing through the development budget.Moreover, public training centers have been under-funded (see also para. 1.21), with the result thatthey are considerably under-utilized.

1.14 Therefore, there is an urgent need to -eview and evaluate these public training centers.At the same time, public sector roles in training delivery and decision making need to be reassessedand rationalized. A more decentralized system is needed, and public training decisions should bemade at the provincial level or below. Individual training institutions need greater autonomy todetermine their own programs in response to local skills needs, and also need to maintain a close linkwith industry. A comprehensive evaluation study of the skills training institutions and systems isbeing undertaken under the Manpower Developmeat and Training Project (MDTP, Loan 2705-IND).

1.15 Private Training Institutions. The quality of private technical training variesconsiderably, but is generally low. Many institutions lack the necessary specialized facilities,equipment and instructors. The large number of low quality private training institutions, some

3/ For example, Shafiq Dhanani, Manufacturing Entergrises Survey in East Java. West Javad Nor tra, January 1993.

-4-

heavily enrolled, may reflect imperfect information flows. There is no effective accreditationscheme; the requirements for registration by the MOEC and MOM are minimal. Without adequateinformation on the quality and effectiveness of particular institutions or programs, employers andpotential trainees are unable to assess the value of training options. Policies affecting private traininginstitudons need be reviewed and evaluated so that they can effectively meet the needs of employersand also provide alternatives to public training.

Lack of Capacity and Ineffectiveness of Enterprise-based Trainig

1.16 LArge and Medium Enterprises. Enterprise-based training, while considered to be oneof the most cost-effective and responsive ways of upgrading technical skills, may also suffer frommarket failure (the "poaching extenality"). The benefits trom training are to one degree or anothertransferable and can accrue to firms that poach workers from other firms that incurred the costs oftraining. Unless firms agree to some sharing arrangement of costs, individual firms will invest lessin training. This can lock the country to a vicious circle in wblch firms produce low quality products(because there are few trained workers) and workers acquire litde training (because few high qualityproducts are produced). In addition, the Indonesian labor market has high turnover of employees,and firms have little incentives to provide training for transferable skills. A Bank study4 showedthat, with the exception of a few large companies, only a minority of manufacturing companies trainemployees. Thus, training systems and facilities are wea1z.

1.17 A number of studies have shown that the majority of employers are not aware of thebenefits of training to improve their business performance and competitiveness. Many businesseshave been faced with the problems of low productivity and quality, but have not invested in trainingas a solution. The benefits of training need to be promnoted with case studies of successful trainingexamples as role models. In addition, at present, links between employers and training providersare weak, and there is a lack of labor market information available to employers, training providersand the general public. ITne present arrangements for involving employers in the public trainingsystem are dominated by government officials, and arrangements that wil increase privaterepresentation are needed in order to promote collaborative efforts.

1.18 In response to identified training needs, employers at mediun and large companies canprovide training in their own premises, or obtain it in a training facility jointly operated by severalenterprises or business associations, through contracts with public or private training institutions, orby a combination of these options. The establishment of a Company Group Training Unit (CGfU)for a group of enterprises to train employees is one of the most viable options. This kind of trainingis by definition demand-driven, responsive, relevant and efficient. As enterprise-based training isone of the most cost-effective means of upgrading the skills of the work-force, encouragement andsupport for CGTUs are justified.

1.19 Small Enterprises. In addition to the problems which large and medium enterprisesface, small enterprises in the formal sector have another set of problems. Studies conducted by theMinistry of Industry (MOI) report that a majority of small companies regard marketing as by far themost serious problem. These enterprises have difficulty finding markets for their products due toa lack of adequate market information and marketing skldls. Other major problems identified are,in order of importance: lack of capital and financial resources, inadequate managerial capacity, andinefficient production techniques.

4/ bd-onesia: Emploment ad Tain, The World Bank, June 1991.

-5-

1.20 To assist small enterprises, the Govermnent launched a Foster Parent Program (BapakAngkat) in 1990 in which large companies, mostly state-owned, directly provide a group of smallenterprises mostly in the non-foanal sectors (operating capital of Rp 50 million or below) with sometechnical and fmnancial o.ssistance. According to the MOI, during the tvo-year period between 1999and 1992, about 13,000 large companies provided various services to abJout 90,000 small companies.Consultant advisory services to solve the specific problems proved to be the most effective way oftackling their vroblems. Such services might be sustained through the Foster Parent Program orother schemes.

Lack of Financial Resources to Develop and Sustain Enterprise-based Traing

1.21 Employers have only small amounts allocated for training of their employees. Theestablishn;ent of external funds to support training system development during its initial stages isjustified on the condition that the sustainability of such training systems will be assured with somecost-sharing schemes. The levy-grant scheme which was introduced in East Java is one suchexample.

Inadequacy of the Existing Labor Market Information System

1.22 An important element in a flexible and responsive training system is the provision oflabor market information to guide the decision-making of government policy makers, traingproviders, and individual trainees or job-seekers. While impiovement has been made in thecollection of employment data at the national level, the development of provincial-level statistics onthe balance of skills demand and supply and the performance of taining providers are needed inorder to support better planming and allocation of resources for skldls trainmg by both the public andprivate sectors. In addition, ways of measuring training effectiveness and outcomes need to bedeveloped to allow informed training choices.

Lack of Adequate Intional Capacity of the Minist of Manpewer

1.23 The MOM lacks adequate capacity to conduct research related to labor market issues,to make sound policy decisions and to conduct effective human resources management. Improvingthe capacity of the Ministry for setting and implementing training priorities is particularly importantgiven the development of the new organization structure announced in November 1993 and the on-going evolution of the training activities of MOM. Threfore, MOM staff traming and developmentare needed so that the Ministry can provide quality s -r ices to the general public.

D. GoVRNmFNT PoLucE Foo SLLS DEVELOPmENT

1.24 Following substantial expansion of access to basic education at the primary level, theGovermnent of Indonesia plans to implement its obligatory nine-year basic education program, aswell as to improve the quality of basic education, with Repelita VI starting in 1994. TheGovernment recognizes the impormance of general basic education as the foundation for furtheracquisition of specific techical skills either through pre-service or on-the-job training (para. 1.11).

1.25 The 1993 Guidelines of State Policies (GBHN) emphasizes the importance of humranresources development and the reduction of unemployment. To address these issues, the MOM hasset up seven major priority areas to focus upon during the Repelita VI: (a) national manpowerplanning; (b) an integrated manpower information system; (c) development of self-employed youngprofessionals; (d) apprenticeship programs; (e) Pancasila industrial relations and protection of

-6-

laborers- (f) productivity enhancement of Indonesian workers abroad.; and (g) staff development. Inaddition, the MOM is concerned about the low in a and eternal efficiency of its BLKs/KLKsand has decided not to invest further in es centrs unil thorgh sudies are conducted, and a newdevelopment strategy is carehlly ibrmulated within the context of the above-mentioned sevenpriorities. The Bak supports this decision.

1.26 The Government supports the position ta more demand-driven, industry-based tranimgsystems need to b. developed, and that the Government should provide the private sector withincentives to develop skills training capacity at the inWtal stage on a cost-sharing basis. Followingthe experience of otier countries, the Govermnent innds to demonstrate demand-driven andindustry-led skills raing programs with Bank assiste trough the provision of financialincentves to private entprises which are willing and capable of establishig such training. Basedon the lessons learned from this proposed demonstraton project, the Government intends to replicateor suitably amend such a system throughout the country.

-7-

I. BANK INVOLVEMENT AND LESSONS LEARNED

A. BACKGROUND

2.1 Since the early 1970s, the Govenunent has underakcen an ambitious program to expandthe capacity of public institutions to provide technical manpower and industrial skills training at thesecondary, post-secondary and professional/technical levels. The Bank Group has financed 29education and training projects (US$1,828 million total) in the sector. Of these, 19 projects wereimplemented through the MOEC, totaling about US$1,251 million. The Bank also supported thedevelopment of specialist and professional training services through several other ministries includingone project with the MOM - 10 projects with a total value of US$578 million (See Annex 2 fordetails on the Bank Group-financed education and training projects).

2.2 Overview of Relevant Bank Investments. Since the Bank's first project in the sectorin 1970 (Credit 219-IND), the Bank has assisted the Govermnent through a variety of investments.Credit 219-IND supported the establishment of five centralized training workshops for practicaltraining of students from nearby secondary technical schools. Loan 1237-IND supported thedevelopment of additional centralized workshops as well as the establishment of 17 vocationaltrainig centers for the MOM. Credit 869-IND and Loan 2290-IND assisted in the establishmentof a polytechnic system to train egineerng technicians.

2.3 In higher education, technical and professional training capacity was upgraded thrughtwo University Development Projects (Loans 1904-IND and 2547-IND). Tbrough the Science andTechnology Training Project (Loan 2599-IND), additional emphasis was given to the developmentof higher level scientific and technological manpower. The Bank also assisted in more specializedprojects to upgrade accountants and financial management (Loan 2940-IND), hulman resoucesassociated with the tree crops subsector (Loan 2992-ND), and professional personnel in the Ministryof Public Works, BAPPENAS and the Agency for Assessment and Application of Technology(BPPT) (Loans 2258-IND, 3112-IND and 3134-IND, respectively).

2.4 Over this period, the Bank's strategy has gradually evolved from an initial emphasis onassistance to alleviate the critical shortage of technical personnel, to an increasing emphasis onquality issues, and then to a wider sectoral emphasis on investment programs and policy reforms.To a large extent, Bank lending to the sector has mirrored the evolution of Bank-wide policies. Thisis particularly evident since the development of the Barnk's policy paper on Vocational and TechnicalEducation and Training in 1991.5/

B. LESsoNS OF EXERIENCE

2.5 Project Completion Reports (PCRs), Project Performance Audit Reports (PPARs) andan Impact Evaluation Repori& have shown that many specific lessons of experience of projects inthe sector have been incorporated into succeeding project designs See Annex 2). For example,useful lessons have been learned about institutional development, such as to: (a) situae Project

5/ Vocational and Technical Education and Training. A World Bank Policy Paper, TheWorld Bank, May 1991.

6/ Impact Evaluation Report: Idonesia: Sustainabilitv of the First and Second EducationPts, Report No. 767, 1989.

-8-

Management Units within existing structures; (b) ensure the early appointment and continuity of keyproject staff; (c) ensure adequate coordination and communication among implementing agencies;and (d) provide pre-departure language training to overseas fellows. Some broader themes have alsoemerged from experience in both completed and current projects. In many instances, the ongoingexperience gained through supervision is more relevant, given the substantial changes in project focusand design that have occurred over the past two decades.

2.6 The studies mentioned above underpin the Bank's shift to policy-oriented projects anda sector-wide approach to education in general, and more specifically, to vocational and technicaleducation and training. The Bank has decided to finance only those projects that feature approachesthat are "demand-driven," flexible and relevant to the needs of employers. In principle, theGovernment has come to agree with the Bank's position on this matter.

2.7 Important lessons gained from tAie ongoing Manpower Development and Training Project(MDTP, Loan 2705-ND) for the private sector are: (a) supply-driven training systems producedmixed results in terms of quality, efficiency, and relevancy to changing needs for skldled industrialworkers; (b) private sector training expenditure and expertise are low, and system capacity needs tobe developed in order to react to increasing competitive pressures; (c) for the private sector to bewWiling to develop training, it needs to be permitted to play a significant role along with governmentm the management of training and transparent arrangements need to be established to achieve this;and (d) supporting the development of in-plant training is more successful when employers areinvolved in the ownership of the process and when private sector experts are involved, compared tosuch an initiative managed directly by go-vernment. Other principle lessons are that the role of MOMshotuld change in order to focus on creating the enabling environment for the private sector todevelop training through provision of fmancial incentives and to supervise rather than control thisdevelopment. Also MOM needs to: (a) promote the participation of all interests in the trainingsystem; (b) gradually decentralize authority to provincial level and develop management, coordinatonand technical skills at both national and provincial levels; (c) develop its training operations to bemore self-financing, efficient, flexible and relevant; and (d) develop practical and reliable labormarket information system for both employers and employees. In order to fulfil its role, the MOMneeds to strengthen its institutional capacity through technical assistance and staff development.

2.8 The proposed project has incorporated the lessons learned from the past and ongoingprojects in the concept and design of this project. Major elements include: (a) provision of financialincentives to the private enterprises in developing industry-led and demand-driven training programson a cost-sharing basis; (b) strengthening of the planning, research, and policy-making capacity ofthe MOM through relevant technical assistance and staff development, which would help the Ministryto develop and disseminate the labor market information and implement the Young ProfessionalEntrepreneur Development Program (PMP); and (c) decentralization and private sector involvementin the project implementation.

-9-

C. BANK STRATEGY

2.9 As highlighted in the Country Assistance Strategy presented to the Executive Directorsin December 1993, overall Bank strategy for Indonesia recognizes that investing in people willcontinue to be a critical ingredient for improving human health and welfare, slowing the rate ofpopulation growth and enhancing the skills, productivity and employment prospects of the laborforce. These investments will not only provide vital support for more rapid economic growth, butwill also contribute to the goal of more equitable participation, by women as well as men, in thedevelopment process. Rapid growth alone, however, will not be sufficient to ensure continuedprogress and the reduction of absolute poverty in Indonesia, especially in the eastern islands andamong the more disadvantaged groups in resource-poor areas in Java. In addition to the --pansionof basic social infrastructure and services, greater attention is given to policies and expenditures thatwill improve the access of the poor to key social services and to productive resources, throughbalanced regional growth and the development of programs aimed at pockets of poverty whereverthey may exist.

2.10 The expansion of employment opportunities and the improvement of the quality ofhuman resources are key elements to this strategy. Associated with these elements, the Banksupports the Government's subsector priorities to: (a) upgrade the capacity of public and privatetaining institutons and firms that provide skill training; (b) improve the quality of such training(improved internal and external efficiency); (c) decentralize much of the decision-making in thesubsector to the provincial and local levels; (d) introduce more employer awareness and participationin all forms of skill iraining; (e) reduce the public cost of slill training through the introduction ofcost recovery; and (f) upgrade the levels of technology currently available in public and private skilltraining programs. The proposed project is part of a long-term Bank effort to assist the Governmentto develop viable systems for vocational and technical education and training. These and futureefforts would be aligned with the Bank's documented policies on the subject.7/

2.11 Growth in manuacturing output and in the informal sector are expected to account formost of the new employment in the next decade. In addition to the need for training new entrantsto the labor market, there are critical needs to retrain and upgrade the skills of existing workersthroughout the country. The prvosed project would build upon previous projects in the subsectorand would seek to strengthen the base of knowledge and experience in the provision of trainingservices through employers and the private sector. As such it would be primarily a demonstrationproject and its results would be used to support more targeted future investments in the subsector.

2.12 A number of important measures to improve the effectiveness of the subsector wouldbe addressed through the project. The Bank proposes to continue to assist the Government in fndingappropriate solutions to these and other related issues through continued sector work (para. 1.14),policy dialogue and a series of lending operations as required.

7/ Vocational and Technical Education and Training: A World Bank Policy Paper, TheWorld Bank, May 1991.

-10-

m. THE PROJECT

A. PROJECT OBJECTIEs

3.1 The proposed demonstration project has three key objectives: (a) to develop andimplment innovative industrial skills training schemes withir private enterprises in three provinces(We&, Java, East Java and North Sumatra) for possible replication in other parts of the country inthe future, as part of an overall training program to promote productivity and efficiency of theeconomy; (b) to support a special training program for unemployed university graduates in fiveprovinces (the three mentioned above plus South Sulawesi and Bali); and (c) to strengthen policymaking, research, planiing and management capabilities of the Ministry of Manpower (MOM). Theabove objectives will be achieved by providing technical assistance, equipment, instructionalmaterials, staff development and funding support for industry based and demand-driven skills trainingfor various activities which could be grouped in two main components based on implementationresponsibilities: (a) provincial component; and (b) the Ministry of Manpower component.

B. PROJECT COMPONENTS AND DESCRiTION

3.2 The proposed project would comprise the folkwiing components:

The Proincid Componento would establish a Provincial Training Fund (PTF) to implement thefollowing four subcomponents in the three participating provinces (para. 3.1):

(a) start-up new training programs and activities in firms by establishing company grouptraining units (CGITUs);

(b) start-up new training programs and activities in individual companies by supportingthem to employ new training managers, and provide limited staff and expenses tosupport KADIN/APINDO9 to promote industry-based training;

(c) support targeted programs to train job-seekers for identified vacancies with specifiedplacement targets in jobs related to the training; and

(d) establish pilot programs to provide training and consulant services to small-scaleindustries.

The Ministry of Manpower Componento would implement the following four subcomponents:

(a) establish programs to train and develop young professional entrepreneurs for selfemployment (PMP), primarily unemployed university graduates, in the five provincesof Bali, East and West Java, South Sulawesi, and North Sumatra;

(b) improve the local labor market information system;(c) support a staffdevelopment program to upgrade the capacity for management, research,

planning and policy development; and(d) prepare a PTF scheme for South Sulawesi.

8/ See Chart 1 for the Organizational Structure of the Provincial Government.9/ KADIN (Indonesian Chamber of Commerce and Industry)/APINDO (Indonesian

Employers' Association).10/ See Chart 2 for the Organizational Structure of the Ministry of Manower.

-11-

Provincial Component (Total Estimated Cost US$29.3 million including contingencies)"

3.3 To enable a rapid and flexible response to changing labor market demands, the proposedprovincial component would establish, on a three-year demonstration basis, a Provincial TrainingFund (PTF), governed by a private sector-led Board, and implemented by a Project ImplementationUnit (PIU), one each in the three provinces. (See Annex 3 for more details on the PITF - structure,systems, and procedures). The PTF would finance training services to industry on a cost-sharingbasis and would be open to all eligible, public and private training providers. The proposed projectsubcomponents to be implemented through the PTF are described below (paras. 3.4 - 3. i2).

3.4 Company Group Training Services. The objectives of this subcomponent are toencourage companies to train their employees efficiently and effectively, and carry out high qualitytraining. This subcomponent would take a unique approach to encourage industry participation intraining through the establishment of CGTUs. The objectives would be to: (a) establish the trainingfunction to be an important business activity in companies; (b) improve the training skills of trainingmanagers and supervisors in industry; and (c) increase the capacity for training staff in industry.CGTUs would be formed generally by medium-scale companies on a business cluster or on ageographic basis. Each CGTU would typicaly serve about 40 member companies or a groupemployment of about 4,000 people. The units themselves would be kept small in order to minimizecosts and would typica1ly have between three and five staff. CGTUs would regularly identifycompany training needs, prepare training plans, implement training or arrange for training to beprovided on contract, and evaluate training programs. They would also assist companies to managetraining activities and to design and implement on-the-job training activities. Each Unit would befunded through a contract with the PTF on a scaled cost-sharing basis (para. 3.26). Over the lifeof the project, a total of 75 CGTUs would be established in the three participating provinces (15 inNorth Sumatra and 30 each in East and West Java), covering about 3,000 firms with approximately300,000 employees. (See Annex 4 for more details on the CGTU).

3.5 The subcomponent would support newly established, off-the-job, in-service trainingprograms impiemented inside or outside firms. In financing this subcomponent, the PTF wouldappraise CGTU training proposals. To assist CGTUs and firms to prepare these training proposals,technical advisory services would be available from the PTF. Upon receiving approval for PTFfinancing, the CGTU would arrange for the company(s) to either conduct the agreed upon trainingcourse or contract for the provision of the course to another organization (another firm, tertiary levelinstitution, BLK/KLK, private training institution, NGO, etc.). Using a contract approach wouldensure that all public and private training providers have an equal access to the market. It isenvisaged that the proposed training programs would place an emphasis on productivity improvementthrough the training of managers, supervisors, technicians and maintenance staff. About 53,000people, equivalent to 107,000 person-weeks, would be trained in three participating provinces.

3.6 Individual Company Training Services. To further encourage the development of thetraining function and consequential training activities in companies, the subcomponent would alsoimplement a program to assist 350 individual companies (expected to be large or technologicallyadvanced) to employ new, full and part-time training managers for two years, on a scaled cost-sharing basis in the three participating provinces. The objectives of employing training managersand their responsibilities would be similar to those described for CGTUs in para. 3.4. In addition,

I/ See Chart 3 for the Organizational Stmcr. -f the Provincial Training Fund Board andProject Inplemenmion Unit.

-12-

the individual company training managers and CGTUs would develop linkages between industry andpublic and private training providers. The formation of an association of training managers wouldbe encouraged through the project in the participating provinces. The objectives of thissubcomponent are also to encourage companies to train efficiently and effectively, and to carry outhigh quality training. The subcomponent would be implemented in the same way as that describedfor the CGTUs in para. 3.5 above. Training proposals would be prepared by individual companies,based on a short company business plan. Following appraisal and approval by the PTF, the trainingmanager would arrange for the training to be carried out. For reasons of efficiency, in some casessuch as specialized training or a widespread demand for a low volume of training from companies,the PTF would arrange for the provision of training at the request of companies. About 19,000people would be trained for an average of two weeks each in two provinces except for East Java,which already has its training levy-grant system to fund these types of training activities.

3.7 The KADIN/APINDO wvould actively promote participation in the project within theirindustrial memberships, assist industry subsectoral employer organizations to develop the capacityto serve their members, and specifically promote the establishment of CGTUs by groups ofcompanies and the employment of training managers by companies (paras. 3.4 and 3.6). In each ofthe three participating p--vinces, the project would support the KADIN/APINDO to employ two tothree staff, and would fiance operating expenses on a cost-sharing basis.

3.8 Targeted Training of Job-Seekers. The objectives of this subcomponent are to: (a)demonstrate the benefits of demand-led training of job-seekers; (b) encourage the training providersto learn how to reorganize the deli"ery of their training to meet private enterprise needs; and (c)foster closer linkages between training providers and industry. In this scheme, the PMF wouldreceive proposals from training services providers (both public and private) for performance-basedcontracts. Under this arrangement training service providers could request financing for traningcourses where employers have already agreed to employ the graduates. The PTF would only paythe individual unit training cost for course graduates who receive employment in a job related to thetraining received. However, as an incentive, if the service provider could fmd related employmentfor 85% of its graduates, the total cost of the course would be financed by the PTF. The volumeof this training would be limited to 800 job-seekers ( 13,000 person-weeks) in order to keep the focusof the project on the main objective of in-service training.

3.9 Small Enterprise TrIning and Advisory Services. The objective of thissubcomponent is to assist selected small companies to grow by: (a) supplying customized trainingand consultant services focused on owners as key persons; and (b) developing the managementcapacity of the officers of associations and groups of small companies to assist their members todevelop their businesses. The subcomponent will aim to generate financial support from largecompanies through the Foster Parent Program (para. 1.20), from banks, government, and smallenterprises themselves, that would increase the likelihood of sustainability after the projectcompletion. This subcomponent would provide training and advisory services for selected small-scale manufacturing industries, mostly in the modern, formal sector. On the average, four days ofexpert advisory services would be made available over a six month period to owners of smallbusinesses. In cases of similar need and where companies agree, consultant services would besupplied to groups. This customized advisory service would be funded by the project on a cost-sharing basis. About 4,000 small companies or groups would receive advisory services (see Annex 5for more details).

3.10 At the discretion of the PTF Board, industrial training services may also be providedto groups that have clearly identified needs on the normal 100% funding basis. Companies would

-13-

be accessed for training and advisory services through organized groups (SENTRA), cooperatives(KOPINKRA) or directdy with the assistance of the MOI and Ministry of Cooperatives and SmallEnterprises. About 10,000 person-weeks of training (about 5,000 employees) would be provided inthe three participating provinces.

3.11 The provincial component would also finance some domestic and overseas training forprivate and public officials to study: (a) the financing of training in other countries; (b) the respectiveroles of government and the private sector in the management of industrial training; (c) successfulmodels of management for training and levy-grant funds; and (d) successful schemes for industrialin-service training. To achieve these objectives, there would be overseas short-term training (twoweeks) for two groups of ten senior officials from each of the project provinces, and 45 person-months of overseas short-term training (three monthas) for the three provinces. These officialsinclude staff of employer's organizations, staff of associations of private training institutes, provincialpublic officials involved in industrial skills development, and provincial staff of the Ministry ofCooperatives and Small Enterprises, MOI and MOM. The project would also finance internationaland national consultants, equipment, and training costs on a cost-sharing basis. During negotiations,the Government agreed to carry out PTF activities in accordance with operating procedures andeligibility criteria acceptable to the Bank (para. 6.1 (a)).

3.12 The PTF Board would establish maximum levels of allowable cost for each type oftraining service and would only finance off-the-job training proposals up to that limit. (Due to tedifficulty of monitoring the costs, on-the-job training would not be supported by the fund). ThemonitoriDng and auditing procedures, and impact studies are described in paras. 3.32 and 3.34respectively.

Ministr of Manpower Component (Total Estimated Cost: US$10.4 million Indudingcontingencies)

3.13 Young Professionals Entrepreneurship Development Progr P2 During

the past several years, the Government has become particularly concerned about fte risingunemployment of university and college graduates. The objective of this proposed subcomponentwould be to test several approaches to address the above issue within two basic schemes of servicedelivery (see Annex 6 for more details).

3.14 The PMP for self-employment would be implemented in five provinces - Bali, East andWest Java, South Sulawesi, and North Sumatra. In each province, two schemes, a short-term anda medium-term traiing program, would be implemented. It is estimated that the various schemeswould train a total of about 5,500 university graduates (SI) to become smaU business owners andmanagers. The schemes feature a university-based selection of unemployed university graduates whowould participate either in 15 days of training (short-term option), under the first scheme, or 45 daysof training (medium-term option), under the second scheme. Both options would be coupled withthe same 12 months of field-based counseling and technical follow-up services. The short-term andmedium-term training schemes would train about 4,500 and 1,000 unemployed graduates,respectively.

12/ See Chart 4 for the Organiational Strucure of the Young Professional EntrepreneurshipDevelopment Program.

-14-

3.15 Based upon existing performance data, it is estimated that about 70% of the personscompleting the PMP would be actually successful in starting small businesses. The ILO project dataon small business development in Indonesia suggest that an average of about three jobs would begenerated with each smanl business established. Assuming a 70% establishment rate, thesubcomponent would be expected to generate about 11,500 new jobs over a three to five year period.During negotiations, the Government provided assurances that a guaranteed loan repayment schemewould be established not later than September 31, 1994, for graduates having completed the short-term and medium-term training programs, in accordance with criteria acceptable to the Bank,including loans for capital for the development of small businesses of up to Rp 2 miilion forgraduates of the short-term training model and Rp 5 million for graduates of the medium termtraining model (para. 6.1 (b)). The criteria for the loan repaymehit would be drawn up by theGovernment based on the normal commercial banking criteria for banks to make business loans inIndonesia. The Indonesian banks partcipating in the scheme would apply their normal standards inappraising the business plans submitted by the trained entrepreneurs. Each parficipant would haveto self-finance at least 20% of the total financing package.

3.16 Under the proposed subcomponent, the Informaton System for Self-Employment wouldalso be developed. The study would recommend the types of information and approaches requiredto serve the needs of entrepreneurs and support organizations interested in entrepreneur developmentand would make a recommendation about the target users for the information. The University ofUdayana in Bali would be the site for the demonstration of the system.

3.17 To support the development of the subcomponent, the proposed project would financea contractor (four person-years of international and six person-years of domestic consultanmts),selected to assist in the establishment of the province-based Private Sector Management Committees(PSMC) and Coordination Units, development of province-level policies and pi cedures, training ofabout 50 key persons (total of about 125 training weeks) and the implementation of planned trainingprograms in the five provinces. The TA team would be located at the University of Udayana whichserved as the project site and lead university for the UNDP/ILO pilot project that developed theshort-term training option described in Annex 6. As such, it already has trained personnel anddemonstrated a capacity to serve as the lead university in the planned effort. Early in the project,the MOM would appoint a full-time coordinator who would be trained to take full responsibility forimplementation in the third year of the project. In addition, the proposed project would financeequipment, instructional materials and project coordinators. During negotiations, the Govermnentprovided assurances that: by August 31, 1994, (a) PSMCs and Provincial Coordination Units wouldbe established; and (b) the detailed action plan for the implementation of PMP would be preparedand sent to the Bank for review and comments (para. 6.1 (c)).

3.18 Local Labor Market Information System (LLMI). The main objective is to supportthe development of a system that would allow for systematic analysis of the labor market and wouldhelp design, monitor and evaluate labor market policies and programs. The developed informationsystem would encompass: (a) the collection and integration of information from all available sourcesin other ministries, in the private sector, and MOM at central, regional and district levels; (b) thepromoton through agreement with the Central Bureau of Statistcs (BPS) of increased coverage oflabor market informaton, and improvements in data relevancy in all national surveys; (c) theextension of the current regional annual labor force surveys, implemented by the Provincial PlanningBoard (BAPPEDA) through BPS, to sample all districts of the project provinces; (d) thedevelopment of annual establishment surveys to be implemented by MOM through BPS at theregional level; (e) the analysis and production of semi-annual reports o' information relevant to thenational and provincial levels; and (f) a program to disseminate this infonnation at these levels. The

-15-

LLMIS would provide relevant information to BAPPEDAs to assist them with regional manpowerplanning. The project would implement four demonstrations of the LLMIS in the respectiveprovinces of West Java, East Java, North Sumatra, and Soutfi Sulawesi. It would also include a pilotprogram to develop the capacity of 13 MOM District Offices (KANDEP) to improve theirregistration and placement services to employers and job-seekers. Tbis system was developed ona pilot basis under the ongoing MDTP.

3.19 The subcomponent would provide two person-years of international and three person-years of local consultant services to assist MOM staff with the planning, related training andimplementation of the four demonstration activities. The subcomponant would include overseasshort-term 'raining for 40 participants (two weeks duration) and 1,200 person-weeks of local short-term training. The required international higher degree fellowships are included in the staffdevelopme.;x subcomponent (para. 3.20). In addition, the subcomponent would finance all trainingand the provision of communications equipment (province and district level) and computers(province, district, and central levels).

3.20 Staff Development. The objective is to strengthen the capacity of the MOM staff forpolicy development, managent, and research through overseas and domestic fellowship programs.The Ministry is being reorganized and there is a shortage of well-qualifed staff at upper and middlemanagement levels. It has also been determined that the current lack of staff development is alimiting factor in the organizational development of the Ministry. The project would fnance about60 person-years of international doctorate and master's fellowships. The project would also financeabout 140 person-years of domestic doctorate and master's programs and 600 person-months ofshort-term domestic trainig services for candidates of good ability but with inadequate capacity inthe foreign language. Fields of study would be chosen on the basis of identfied staff needs tocomplete the reorganization of dte MOM. The proposed project would finance technical assistancefor the management of fellowships in overseas countries. These long-term overseas fellowshipswould be managed in Indonesia by the Office of Overseas Training (OTO) in coordination withMOM, but the funds for these programs would be provided by the proposed project. Duringnegotiatons, the Government provided assurance that for long-term domestic training and overseasfellowships: (a) selection critenia would be acceptable to the Bank; (b) a post or cluster of postswould be identified for each candidate at the time of selection; and (c) upon their return, graduateswould be assigned to these posts (para. 6.1 (d)).

3.21 Preparation of a Provincal Traiig Fund Scheme for South Sulawesi. TheGovernment has selected South Sulawesi as the next province to implement a PIF scheme followingthe completion of the proposed project. As such, it is appropriate to lay the groundwork for theimplementation of this scheme within the proposed projecs A number of studies and surveys wouldbe conducted to assist in the preparation process. The terms of reference (TORs) for these studiesand surveys would be prepared during the first year of the proposed project and the studies wouldbe implemented during the second and third years. Concurrent with the planned studies, key stafffrom South Sulawesi would be trained in project activities through training programs beingimplemented in the other three PTF project provinces. This traming would include the operation ofCGTUs, traiing of industrial training managers and instructors, the operation of the PTF, and studyof the levy-grant scheme in East Java. About 30 persons from South Sulawesi would be trained foran average of two weeks each. The project would finance internaional and domestic consultants,studies and surveys, and training costs.

-16.

3.22 Consultant Services. The proposed project design calls for both international anddomestic consultant services in the two project components. The primary objectives are to assistinstitutional capacity building, policy development, and project ilnplemenQation. A sumunary of therequired consultant services in person-month for each project component is presented in Table 3.1(see Annex 7 for details).

Table 3.1: Consultant Services Requirenent,

Component/Subcomponent International Nationat(person-month) (person-month)

Provincial ComponentSmall Enterprise Training and Advisory Services --- 972Project Administration 108 ---Sub-total 108 972

Ministra of Manpower ComponentYoung Professional Entrepreneur Development Program (PMP) 48 252Local Labor Market Information System 24 36Preparation of PTF in South Sulawesi 6 24Project Administration -- 36Sub-total 78 348

TOTAL 186 1,320

C. PROJECT MANAGEMENT AND IMPLEMENTATION

3.23 At the national level, a Proect Steering Commitee would be established to facilitate theoverall implementation of the project and it would be responsible for policy coordination only.Secretariat services to the Committee would be provided by the MOM PIU. The Provincialcomponents would be implemented by the Governors through PTF Boards established in each of therespective provinces. The Board would be comprised of equal membership from both the privateand the government sectors and would have a Chairperson appointed from the private sector by theGovernor. In each Board, a PIU would also be established to support the administrativerequirements of the Board and to Implement and monitor the various component activities. The PIUDirector would also be selected from the private sector by the Board and appointed by the Governor.The PIU for the provincial project components would have a government employee as the treasurer.The Ministy of Manpower component would be implemented by a PIU established in the MOM'snewly-established Board of Planning and Development to implement and monitor the componentactivities through close cooperation with the sub-directorates responsible for the project activities.Within the five provinces, the PMP would be managed and implemented by Private SectorManagement Committees under the guidance of the MOM PIU. The committees would becomprised of equal membership from both the private and the government sectors and would havea Chairperson appointed from the private sector by the Governor. The Provincial Coordinators (onein each province) would support the administrative and technical requirements of the committees.They would be employed through the provisions of the technical assistance contract. Where there

-17-

is limited capacity to implement the various activities required, the PIF Board and MOM wouldcontract with consultants, both domestic and international, to provide research and advisory services.(Annex 8 shows responsible agencies and the departments involved in the provincial and MOMproject components).

3.24 Responsibility for overall coordination of activities and for liaison with the Bank wouldrest with the PIU Directors (MOM and three PTF provinces), who would: (a) monitor and coordinatedisbursement of the loan; (b) provide semi-annual progress reports to the Project Steering Committeeand then to the Bank; (c) raise issues requiring attention including provision of the governmentcounterpart funds; (d) submit withdrawal applications to the Bank; (e) arrange for timely audits ofproject accounts; (f) prepare the project completion report; and (g) participate directly in themanagement of local and overseas staff development programs and TA services, and projectevaluation studies and related project performance monitoring activities.

3.25 Cost Sharing. Cost sharing would be a key element in the provincial componentsfinanced through the PTF scheme under the proposed project. The objective of this effort is toensure that industry would finance in-service training after the project is completed. The proportionof costs financed by the project would be 80% in year one, 60% in year two, and 30% in year threefor the CGTUs (paras. 3.4 and 3.5), in-service training for large and medium fms (para. 3.6), andfor the training advisory services for small firms (para. 3.9). Employment of training managers infrms (para. 3.6) would be supported at 50% for two years to provide enough time to demonstratetheir benefit to the company which would then continue to bear their full costs. Training for job-seekers (para. 3.8) and small firms (para. 3.9) would be 100% funded, the former being subject toplacement performance.

3.26 The PMP, a MOM component, would be 100% funded, but participants wouldcontribute a specified amount of their own money to be used to help capitalize their business.

3.27 Status of Project Preparation. Original project proposals were subsequentlyreconsidered by the new Minister of Manpower who decided that certain subcomponents should bepostponc for future investment consideration pending a review of the BLKs/KLKs (para. 1.14).The postponed subcomponents were: (a) institutional development of the BLKs/KLKs and theNational Productivity Center of MOM; (b) strengthening the implementation of skills testing byMOM; and (c) assisting private proprietary institutions to provide technical training to industriaistandards. Steps have being taken to provide funding from the ongoing MDTP, for key pre-projectactivities to facilitate efficient implementation of the proposed project. Preparation activities for theprovincial components include: PTF operating criteria and procedures, TORs for consultants, andfirm plans for the first year of implementation including identified clients. Preparation activities forthe MOM components include: (a) detailed design and implementation of the preparation of PMPwith ILO assistance; (b) the first year implementation action plan for the local labor marketinformation system; and (c) pre-departure foreign language training for overseas higher degreefellows who are due to depart at the beginning of the project. TORs for international consultants,and FY1994/95 project budgets for the MOM and provincial components have been prepared andsent to the Bank for review and comments. The PTF Boards have been established, comprisingequal membership from the private and government sectors. The PTF Bo2rd Chairpersons and PIUDirectors have been appointed from the private sector, while the PIU Director for the MOMcomponent has been appointed. The operating guidelines for a special funding channellingmechaiiism (.SPABPIBLN) for PTF have been prepared, which would be implemented by the centralgovernment in cooperation with the three provincial governments. The project design benefitted

-18-

from experience with the ongoing MDTP and a report on the PTF scheme, prepared by internationalconsultants.

3.28 Implementation Schedule. The proposed project would be implemented over a periodof three years starting July 1, 1994 and ending June 30, 1997. A project activities andimplementation schedule (see Annex 9) and detailed project cost estimates (see para. 4.1) wouldserve as the basis for project implementation planning and would be updated annually by the PIUDirectors in cooperation with Bank Staff. The closing date of the project would beDecember 31, 1997.

3.29 Environment. The environmental impact of the proposed project is expected to beneutral (Class C). There are no civil works finced in the project. Where appropriate,environmental awareness and occupational safety would be included in new curricula and preparedinstructional materials used in training programs.

3.30 Impact on Women. The Goverment intends to make arrangements that the SDP willplace a high priority on the provision of services for women. The PTF boards and PIUs would beprovided with instructions and guideline for the provision of services for women. The PMP TAcontractor would also employ a full-time female program officer to support the implementation ofwomen-oriented programs within the five provinces. This is included in the TOR.

D. PRoJEcT MoNfTORfNG AND EVALUATION

3.31 Performance Indicators. Detailed performance indicators (See Annex 10), which wereagreed with the Government during the appraisal mission, would be used as a basis for reporting.Monitoring and auditing systems would be implemented by all PIUs. The PIUs would audit qualitythrough spot checks on training activities throughout the project duration. All training fund contractswould contain performance standards and specified documentation to be completed before fnalpayment is made. The PTF and Provincial PIUs would establish a data base of training informationto be shared with the labor market information system (para. 3.18). Given that the proposeddemonstration project is located in five provinces (involving fte MOM, provincial govermnents andthe private sector) and that the measures to be undertaken are innovative, the annual Banksupervision requirements are likely to exceed the norm by up to 100% (see Annex 11 for plannedsupervision schedule).

3.32 Progress Reports and Annual Review. Semi-annual progress reports would beprepared by each PIU. The reports would be submitted to the Bank no later than April 30 andOctober 31 of each project year (para. 6.1 (e)). Data from the performance indicators would beincorporated in the progress reports, as appropriate. The reports would contain a review of theprevious activities against the annual plan and make recommendations to improve service delivery.Each year, a seminar would be held to discuss these reports and the plan for the next year. TheBank would participate in the seminars.

3.33 Impact Studies. To measure project impact, evaluation/impact studies of the CGTUand individual company training services, small enterprise training and advisory services and thePMP would be contracted by the MOM PIU. During negotiations, the Government providedassurance that: (a) TORs for the project evaluation studies (see Annex 12) would be sent to the Bankby June 30, 1995 for review and comments; (b) such studies would be carried out not later thanDecember 31, 1995 and December 31, 1996; and (c) the findings and recommendations would befurnished to the Bank for review and comments (para. 6.1 (f)).

-19-

IV. PROJECT COSTS, FINANCING, PROCUREMENT, AND DISBURSEMENTS

A. Cosrs

Summary of Costs

4.1 The total cost of the project is estimated at US$39.7 million equivalent (Rp 83.6 billion),including contingencies and identifiable taxes and duties. Tables 4.1 and 4.2 summarize theestimated costs by project component and category of expenditure, respectively. Detailed projectcosts are given in Annex 13.

Table 4.1: Summary of Project Costs by Component

Rp Billion US$ Million % % TotalForeign Base

Component Local Foreign Total Local Foreign Total Exchange Costs

Provincial ComwonentCiompany Group Training Services 23.4 4.9 28.3 11.1 2.3 13.4 17 38

Individual Company Training Services 9.0 1.6 10.6 4.3 0.7 5.0 15 14

Targeted Job-seeker Training 1.5 0.3 1.8 0.7 0.1 0.8 15 2

Small Enterprise Training & Advisory Services 4.0 0.7 4.7 1.9 0.4 2.3 15 6

Project Administration 4.3 4.5 8.8 2.0 2.2 4.2 Sl 12

Sub-total 4.2 12.0 54.2 20.0 5.7 25 22 74

Ministry of ManIpower Com_onentYoung Professional Entrepreneur

Development Program (PMP) 6.0 2.0 8.0 2.9 1.0 3.9 25 11

Local Labor Market Information System 2.1 2.1 4.2 1.0 1.0 2.0 50 6

Staff Training & Development 2.2 3.2 5.4 1.1 1.5 2.6 59 7

Preparation of PTF in South Sulawesi 0.3 0.2 0.5 0.1 0.1 0.2 37 1

Evaluation Studies & Technical Assistance 0.8 0.1 0.9 0.3 0.1 0.4 15 1

Project Administration 0.4 0.1 0.5 0.2 0.0 0.2 15 1

Sub-total 11.8 7.7 19.5 5.6 3.7 9.3 40 26

Total Base Costs 54.0 19.7 73.7 25.6 9.4 35.0 27 100

Physical Contingencies 2.7 1.1 3.8 1.3 0.5 1.8 29 5Price Contingencies 5.3 0.8 6.1 2.5 0.4 2.9 13 8

Total Costs/a 62.0 216 8L 29.4 10.3 39 26 113

/a Inclusive of identifiable taxes and duties estimated at US$0.3 million equivalent.

-20-

Table 4.2: Summary of Project Costs by Category of Expenditure

Rp Billion US$ Million % % TotalForeign Base

Category of Expenditure Local Foreign Total Local Foreign Total Exchange Costs

Equipment 0.7 2.8 3.5 0.3 1.4 1.7 82 5

Furniture 0.2 0.1 0.3 0.1 0.0 0.1 27 0

Technical AssistanceInternational Consultants 0.5 4.6 5.1 0.2 2.2 2.4 90 7National Consultants 3.3 0.6 3.9 1.6 0.3 1.9 15 5Research and Survey 1.4 0.2 1.6 0.7 0.1 0.8 15 2

Fellowships 0.3 2.9 3.2 0.1 1.4 1.5 90 4

Training and WorkshopsOverseas Training 0.1 1.1 1.2 0.0 0.5 0.5 90 2In-Country Training 1.4 0.2 1.6 0.7 0.1 0.8 15 2In-Country Workshops 1.2 0.2 1.4 0.6 0.1 0.7 15 2

Entrepreneur Development ProgramsPMP Training Services 1.4 0.3 1.7 0.7 0.1 0.8 15 2PMP Guaranteed Loan Repayment Scheme 0.9 0.1 1.0 0.4 0.1 0.5 15 1

Provincial Training FundPTF Training Services 26.0 4.6 30.6 12.3 2.2 14.5 15 41PTF Technical Services 7.8 1.4 9.2 3.7 0.6 4.3 15 13

Project Management/a 8.8 0.6 9.4 4.2 0.3 4.5 7 13

Total Base Costs 54 0 19 7 73.7 25 6 94 35.0 27 100

Physical Contingencies 2.7 1.1 3.8 1.3 0.5 1.8 29 5Price uontingencies 5.3 0.8 6.1 2.5 0.4 2.9 13 8

Total Costs/b 62.0 21.6 83.6 29 4 10.3 39.7 26 113

/a Inclusive of expenditures for travel, consumable materials, honoraria, and operation and maintenance./b Inclusive of identifiable taxes and duties estimated at US$0.3 million equivalent.

Basis of Cost Estimates

4.2 Baseline Costs. Baseline costs are estimated at February 1994 prices. Equipment andfurniture costs are based on current prices for similar imported or locally available items. Costs forintemational and domestic consultants are in line with recent education and training projects forappropriately qualified experts. Overseas fellowships are estimated at about US$52,000 per traineefor M.A. programs and about US$77,000 per trainee for Ph.D. programs. Overseas short-termtraining is estimated at US$7,600 per person for a three-month courses and US$4,500 per participantfor two-week courses. Unit costs for in-country tramiing range from about US$900 per trainee forsihort-term programs (3 months) to about US$14,000 per trainee for Ph.D. programs. In-country

-21-

workshop costs vary widely depending on the type of training being given and its location, butaverage US$77 per training week. Costs for entrepre.;eur training services were estimated based onthe experiences of similar UNDP/ILO projects in Indonesia. Costs for PTF training services wereestimated at an average of US$152 per trainee for two-week courses, while costs for PTF technicalservices staff were estimated in line with private sector employment costs in Indonesia. Projectmanagement includes expenditures for honoraria, travel, consumable materials, and operation andmnaintenance, which are necessary for the implementation of the project.

4.3 Contingency Allowances. Physical contingencies (US$1.8 million) represent 5% andprice contingencies (US$2.9 million) 8% of baseline costs. Physical contin ,encies of 10% have beenallocated for overseas and local fellowships, 5 % for all other categories, including office and trainingequipment, TA, study tours and workshops, entrepreneur development programs, and training fundprograms. Price contingencies have been calculated at 5.5% per year for local costs and at 2.5%for foreign costs for all categories throughout.

4.4 Foreign Exchange Costs. Foreign exchange costs are estimated at US$10.3 million(representing 26% of total project costs) and are based on a detailed analysis of expenditures undersimilar projects in Indonesia. The foreign exchange percentages for the major expenditure categoriesare estimated as follows: (a) equipment, international consultants, overseas fellowships and training -90%; (b) furniture - 30 %; and (c) national consultants, research and survey, in-country training and

workshops, entrepreneur development programs, and PTF training and technical services - 15%.

4.5 Taxes and Duties. Taxes and duties are estimated at Rp 0.6 billion (US$0.3 million)based on the current 10% value added tax on all contracts for equipment and other goods andmaterials.

B. FINANCING

4.6 The total project cost of US$39.7 million equivalent would be financed by a proposedBank loan of US$27.7 million equivalent, covering about 70% of total project costs excluding taxesand reserved procurement of vehicles (89% of foreign and 64% of local expenditures). TheGovernment from its annual budget, along with participating private companies, would finance theremaining costs of US$12.0 million equivalent (30% of total project costs excluding taxes andreserved procurement of vehicles, and 30% of total project costs when taxes and reservedprocurement of vehicles are included) (Table 4.3).

Financial Sustainabilit

4.7 The project would significantly increase the training capacity and activities inmanufacturing industry in the participating provinces. To financially sustain this expected increasein training, the Government has recently granted the provinces the authority to implement anemployer levy-grant scheme to pay for the above mentioned training. The East Java ProvincialGovernment is already implementing such a scheme. The North Sumatra and West Java ProvincialGovernments have decided to wait until experience has been gained under this demonstration projectbefore establishing their schemes. Therefore, it is reasonable to expect that significant cost recoverywould be available through the levy-grant schemes. The flexibilty of the project design would alsoprovide the Government with opporunities, at the conclusion of the project, to select the moreeffective and sustainable approaches to be replicated. Less sustainable approaches would bediscarded and would not affect the issue of sustainability. The scale of future operations could thenbe adjusted for compatibility with the levy-grant schemes.

-22-

4.8 During negotiations, the Government agreed: (a) to furnish to the Bank for commentsa proposal for the establishment of a levy-grant scheme for the fiancing of training of staff ofmanufacturing enterprises in West Java and North Sumatra, and for the amendment of the schemein East Java, not later than December 31, 1996; and (b) to implement the new and amended levy-grant schemes in the project provinces not later than June 30, 1997, taking into account the Bank'scomments on the criteria for such schemes (para. 6.1 (g)).

Table 4.3: Flnancing Plan(US$ million)

GOI & IBRDPrivate IBRD Total Share

Companies/a (%)

EquipmentComputers and Traiing Equipment 0.1 1.4 1.5 90Vehicles 0.2 0.0 0.2 0

Furiture 0.2 0.0 0.2 0Technical Assistance 0.0 5.3 5.3 100Fellowships 0.0 1.6 1.6 100Training and Workshops 0.7 1.5 2.2 70Entrepreneur Development Programs

PMP Training Services 0.4 0.5 0.9 50PMP Guaranteed Loan Repayment Scheme 0.5 0.0 0.5 0

Provincial Training FundPTF Traii Services 4.7 11.1 15.8 70PTF Technical Services 0.0 4.8 4.8 100

Project Management 4.9 0.0 4.9 0Unallocated 0.3 1.5 1.8 -

Total 12.0 27.7 39.7 70

/a Private companies partcipatng in the provincial component witl share the training costs based on the formula describedin para. 3.26 and Annex 3.

C. PROCUREMENT

4.9 The loan proceeds would be used to finance procurement in the following expenditurecategories (Table 4.4):

(a) Equipment* compu-ters and trabing equipment (US$1.5 million equivalent).Computers and prirers would be combined into large packages and procured on thebasis of local competitive bidding procedures acceptable to the Bank. Due to the varietyof items to be procured in several different provices, training equipment would beprocured locally in each province, with the contracts, not exceeding US$50,000 for eachpackage, up to an aggregate limit of US$430,000, and would be purchased through local

-23-

shopping by obtaining at least three price quotations. GOI would finance the purchaseof vehicles for the three PTF PIUs (paras. 4.12 and 6.2);

(b) Technical Assistance (US$5.9 million equivalent). National and internationalconsultants would be selected in accordance with the Bank Guidelines for Use ofConsultants. To cultivate quality, research contracts would be awarded based on thecriteria of relevance of the topic and qualifications of the parties selected on acompetitive basis acceptable to the Bank. Leasing of cars required by consultants wouldbe covered in the applicable consultant contract;

(c) Fellowships (US$1.7 million equivalent). Placement of candidates in foreign institutionswould be made on the basis of relevance and quality of the programs offered, costs, andprior experience in the provision of the services required. The awards would be madein accordance with Government administrative procedures acceptable to the Bank;

(d) Taining and workshops (US$2.3 million equivalent). Overseas short-term training andin-country training and workshops would be conducted for government and privatesector personnel who would participate in the subcomponents of the project. Trainingcontracts would be awarded to local consultants, firms, and public training institutes,in accordance with Government administrative procedures acceptable to the Bank;

(e) Entrepreneur training services (US$0.9 million equivalent). Entrepreneur trainingservices will be conacd to key universities and other universities in the fiveparticipating provinces on the basis of an operational plan prepared by each institution.As this would be a sole source contract, prior review would be required; and

(f) PTF tahning and technical serices (US$21.6 million equivalent). PTF trainingservices would involve traiing contraus to public and private firms, employerassociations, CGTUs, and public and private training institutions based upon criteriaand procedures acceptable to the Bank. Such contracts would be awarded on the basisof local bidding procedures with training proposals from a minimum of three pre-qualified training providers, and the least cost proposal should be selected. Given thesmall amount of each contract, which would be awarded when possible to include anumber of training courses, (each training course would cost US$2,600 for two weekson average), and that sometmes special tailored training would be required, somecontracts may be awarded on the basis of sole sourcing. Such contracts would also beperformance-based with disbursement provided only for the criteria specified incontracts. PTF technical services would include contracts for domestic technicalservices including technical CGTU staff, awarded based on critena and proceduresacceptable to the Bank, which would include agreed-upon adverdzing, selection, andapproval procedures for the recruitment of contracted staff.

4.10 Procurement Review. The following are the guidelines regarding procurement review:

(a) All contracts for equipment estimated to cost US$200,000 or more would be subject toprior review by the Bank, whereas contracts under US$200,000 in value would besubject to random post-review;

-24-

Table 4.4: Procurement Arrangements(US$ million)

Procurement Total costprocedures including

Category of expenditure LCB Other /a N.B.F. /b contingencies

EquipmentComputers & Training Equipment 1.1 0.4 1.5

(1.0) (C4) (1.4)Vehicles 0.2 0.2

(0.0) (0-0)Furniture 0.2 0.2

(0.0) (0.0)Consultants, Studies and Training

Implemeation Support 0.9 0.9(0.9) (0.9)

Institutional Capacity Building 7.8 7.8(7.2) (7.2)

Policy Studies 1.2 1.2(1.2) (1.2)

Entrepreneur Development Programs 0.9 0.5 1.4(0.5) (0.0) (0.5)

Provincial Training Fund 21.6 21.6(16.6) (16.6)

Project Management 4.9 4.9(0.0) (0.0)

TIll 1.1 32.8 5.8 39.7(1.0) (26.7) (0.0) (27.7)

Note: Figures in patentiesis are the respective amounts financed by the Bank. N.B.F.: Not Bank-Financed.ba Includes local shopping, selection of constltants following Bank guidelines, and selection of fellows using

Govenmen administrative procedurs acceptable to the Bank, selection of timng and technical serviceproviders based on procedures acceptable to the Ban

/b Includes vehicles as reserved procement.

(b) Except for those in para. (c) below, all consultant contracts valued at or overUS$100,000 would be subject to prior review by the Bank, whereas contracts underUS$100,000 in value would be subject to random post-review. However, this exceptionto prior Bank review would not apply to the TOR for such contracts or to theemployment of individuals, to single source selection of firms, to assignments of acritical nature as reasonably determined 1w the Bank, or to amendments of contractsraising the contract value to $100,000 equivalent or above;

(c) The first pre-qualification and the first contract in each of the three provinces for theTFF programs would be subject to prior review by the Bank;

-25-

(d) All contracts for overseas fellowships, research and survey, consultants, and technicalaudits would be subject to prior review by the Bank;

(e) In-country long-term and short-term training would be subject to random post-reviewby the Bank;

(f) Generic implementation documents, including operational systems and procedures,TOR, job descriptions, pay scales and fee schedules, and sample contract forms wouldbe prepared by the Government no later than June 30, 1994, and furnished to the Bankfor comments;

(g) A time table to complete the review of documents scheduled for prior review duringproject implementation would be prepared by the Government, no later than June 30,1994, and furnished to the Bank for approval; and

(h) Post reviews of SOEs would be conducted on the following basis: (i) 20% of contractsvalued between $25,000 and $100,000; (ii) 10% of contracts with firms, valued below$25,000; and (iii) contracts with individuals, valued below $5,000 would be reviewedon a discretionary basis. These post reviews would also be carried out by theGovernment through the technical audits.

D. DISBURSEMENT

4.11 The proposed loan of US$27.7 million equivalent would be disbursed over a period ofabout 3 years (Annex 14). Disbursements are expected to be completed by December 31, 1997, theLoan Closing Date. The disbursement schedule is based on the implementation schedule and thedisbursement profile for education and training projects in Indonesia. It is somewhat faster than thestandard profile for education projects in Indonesia because this is a three-year demonstration projectwith well-designed pre-project activities, which will facilitate the smooth implementation of theproject. Disbursements estimated for FY95 are based on the proposed initial deposit into the projectSpecial Account and replenishment. Disbursements would be made as follows:

Computers & Training Equipment: 100% of foreign and local (ex-factory) expenditures and65% local expenditures

Technical Assistance: 100% of total expendituresFellowships: 100% of total expendituresTraining and Workshops: 70% of total expendituresEntrepreneur Training Services: 50% of total expendituresPTF Training Services: 70% of total expendituresPTF Technical Services: 100% of total expenditures

4.12 The condition for disbursement against the category of exp'nditures for equipment wouldbe that GOI has procured vehicles for the three PTF PIUs (paras. 4.9 (a) and 6.2). Disbursementsfrom the loan for all contracts above US$200,000 in value and TA contracts (including research andstudies) above US$100,000 would be made against full documentation. All other disbursementsincluding overseas fellowships would be made against Statements of Expenditures for which relevantdocuments would be retained by responsible agencies and made available for review as requested byvisiting Bank missions. To facilitate disbursements, a Special Account would be established at BankIndonesia, or at a commercial bank acceptable to the Bank, to be used by the specified Governmentproject authorities under the direction of the Director General of the Budget, Ministry of Finance,

-26-

following established procedures. The Special Account would be used for all eligible foreign andlocal expenditures for all categories. Upon Loan Effectiveness and confirmation of the establishmentof the Special Account, the Bank, on receipt of an application from the Director General of theBudget would make an initial deposit of up to US$2.0 million, which is based on the need for fundsto cover these expenditures on average for a period of four months. Application for replenishmentof the Special Account would be submitted to the Bank on a monthly basis or when 20% of the initialdeposit has been used, whichever occurs first.

E. AccouNrs, AUIITS, AND REPORTS

4.13 Designated Government authorities would establish project accounts for all projectexpenditures, to be maintained in accordance with sound accounting practices. Accounts anddocumentation supporting the Statements of Expenditures and Special Account would be maintainedseparately. The PIU in MOM would consolidate and prepare the financial report. The financialstatements and fiancial report for each fiscal year would be audited by independent auditorsacceptable to the Bank (para. 6.1 (h)). The audit report would contain a separate opinion by theauditors as to whether the Statements of Expenditures, submitted during the year together with theprocedures and internal controls involved in their preparation, can be relied upon to support therelated withdrawals. Certified copies of the fmancial reports on the project for each fiscal year,together with the auditors' statement, would be furnished to the Bank as soon as available, but notlater than nine months after the end of each government fiscal year. Within six months after thecompletion of disbursements, the MOM would submit a project completion report to the Bank.

4.14 Technical Audits. The PTF and PMP operating procedures include detailed proceduresfor control and monitoring of the implementation process. The full responsibility for the control ofthe operations lies with the PTF Board and PIU, and the PMP Private Sector ManagementCommittees, respectively, which, however, wouid be supported by other measures such as theGovernment financial audits and Bank review procedures and supervision missions. Because of thevery large number of small contracts in this project (para. 4.9), during negotiations, the Governmentagreed to carry out technical audits of the training services provided through the PTF and theoperation of the PMP. The technical audit would focus on the whole or part of the contract approvaland execution process, from the generation and approval of a training proposal, to theimplementation and monitoring of the training. It would also include post-review of thedocumentation for completed contracts and it would cover technical and financial aspects. Anindependent, qualified firm, recruited from outside the project provinces, would be contracted byGOI to carry out these audits using a two-person team. The terms of reference for these auditswould be prepared by GOI, and these and the qualifications of the consulting firm must be acceptableto the Bank. The technical audits, acceptable to the Bank, would be carried out every six monthsduring the implementation of the project, commencing not later than February 1, 1995 and copiesof the audit reports would be f, nished to the Bank for information (para. 6.1 (i)).

-27-

V. BENEFITS AND RISKS

5.1 Benefits. The major benefit would be the demonstration of provincial skill developmentmechanisms to implement a variety of innovative approaches to industry-based and industry-led skilltraining. Two provinces (North Sumatra and West Java) would also utilize the lessons learned fromthe project's demonstration efforts to establish employer levy-grant schemes that would contributeto sustaining the above-mentioned skill development funds. During the project, approximately77,000 existing workers (53,000 through CGTUs, 19,000 through non-CGTUs, as well as 5,000employees of small enterprises) would be trained in a variety of short-term programs. It is alsoestimated that about 800 job-seekers would be trained. Other direct and indirect benefits include:(a) increased awareness of the importance of training by employers; (b) increased capacity for skilltraining in the participating firms; and (c) improved linkages between labor, firms and trainingproviders resulting from an increased participation of employers in quality improvements in industry-based training and dissemination of relevant labor market information. In addition to the above, theproject would also test two schemes that would provide training, counseling and capital support toabout 5,500 young professionals (university graduates) who want to establish small businesses.Existing studies suggests that this component would create about 11,500 new jobs within the newlyestablished businesses. The project would also enhance productivity of an esfimated 4,000 smallbusinesses through targeted advisory services. At the central level, the project would improveplanning and policy maling capacity and industrial training support capacity of the MOM throughthe provision of 200 short-term technical fellowships and about 100 long-term graduate fellowships.

5.2 Risks. The current shortage of available financing to support the activities in the projectsuggests that there may be a risk that some of the project activities may not be sustained followingthe completion of the project. In order to reduce this potential risk, the new and amended employerlevy-grant schemes to partially pay for the above mentioned activities would be implemented in thethree PTF provinces not later than June 30, 1997. The activities of this project span a widegeographical area and depend on action at various levels of government administration and betweenthe provincial governments, the MOM and the private sector. Therefore, effective coordination andmanagement are especially important to the attainment of project objectives. To address theseconcerns, an effort has been made to reduce the complexity of the implementation process. Localand foreign consultants would also be used to supplement the implementation capacity of the PIUs.Also important, the project must have the strong commitment of private sector employers. Toaddress this issue, the Governors of West Java, East Java and North Sumatra would appoint privatesector representatives to chair their respective PTF Boards. They would also appoint PIU directorsfrom the private sector. It is also agreed that the PTF Boards would be comprised of 50%representation from the private sector. The project would also establish industry promotion units inthe PlUs to inform firms about project services and to solicit their participation in the varioustraining programs.

-28-

VI. AGREEMENTS REACHED AND RECOMMENDATION

6.1 During negotiations, the Government provided assurance that:

(a) PTF activities would be carried out in accordance with operating procedures andeligibility criteria acceptable to the Bank (para. 3.11);

(b) A guaranteed loan repayment scheme would be established not later than September 31,1994, for graduates having completed the short-term and medium-term trainingprograms, in accordance with criteria acceptable to the Bank, including loans for capitalfor the development of small businesses of up to Rp 2 million for graduates of the short-term training model and Rp 5 million for graduates of the medium-term training model;(para. 3.15);

(c) (i) PMP Private Sector Management Committees (PSMC) and Provmcial CoordinationUnits would be established by August 31, 1994; and (ii) the detailed action plan forimplementation of the PMP would be prepared and sent to the Bank by August 31, 1994for review and comments (para. 3.17);

(d) For long-term domestic training and overseas fellowships: (i) selection criteria wouldbe acceptable to the Bank; (ii) a post or cluster of posts would be identified for eachcandidate at the time of selection; and (iii) upon their return, graduates would beassigned to these posts (para. 3.20);

(e) Progress reports would be sent to the Bank semi-annually by April 30 and October 31of each year (para. 3.32);

(f) (i) TORs for project evaluation studies would be sent to the Bank by June 30, 1995 forreview and comments; (ii) such studies would be carried out not later than December31, 1995 and December 31, 1996; and (iii) the findings and recommendations wouldbe furnished to the Bank for review and comments (para. 3.33);

(g) (i) The Bank would be furnished for comments a proposal for the establishment of alevy-grant scheme for the financing of staff training of manufacturing enterprises inWest Java and North Sumatra, and for the amendment of the scheme in East Java, notlater than December 31, 1996; and (b) to implement the new and amended levy-grantschemes in the project provinces not later than June 30, 1997, taking into account theBank's comments on the criteria for such schemes (para 4.8);

(h) Satisfactory arrangements for the establishment of the Special Account, and thenecessary organizational structure for its operation, including appropriate accounting andauditing procedures would be made (para. 4.13); and

(i) (i) Technical audits, acceptable to the Bank, of the training services provided throughthe PTF and the operation of the PMP would be carried out every six months duringthe implementation of the project, commencing not later than February 1995, conducted

-29-

by an independent, qualified firm, recruited from outside the project provinces; and (ii)copies of the audit reports would be furnished to the Bank for information (para. 4.14).

6.2 The condition for disbursement against the category of expenditures for equipment wouldbe that GOI has procured vehicles for the 3 PTF PIUs (paras. 4.9 (a) and 4.12).

Recommendation

6.3 Subject to the above agreements and conditions, the proposed project is suitable for aBank loan of US$27.7 million equivalent to the Republic of Indonesia for a term of 20 years,including a grace period of five years, at the Bank's standard variable interest rate.

INDONESIASKILLS DEVELOPMENT PROJECT

Number of Medium and Largt Manufactuing Companies by Type and Provwe, bn es", 1990

Food, TexUlb, Wood £ Paperh Ches Nonnetalelc Basic Mabzy OdterPwd"\Tlcp Bewages Aqxad Wood Pap ARuba ?&nl mot & Equip- Manufac. TOW %Share_ __________ & Tobawco &11:f Pdocts Producb Products Products Products meAt Indsts ofTobll

I D1 Acch 23 0 35 3 20 4 0 9 0 94 0.6%3 NW&S _uft 36 Ss 13S 43 200 43 9 19* 9 9S8 5.9%3 WetsmnsSr 31 IS 25 9 13 12 } 2 0 111 0.7%4 R 42 8 99 5 12 9 2 35 0 212 1.3%5 i 14 0 78 0 14 2 0 3 2 113 0.7%6 Souk Stuma 48 8 79 5 36 35 2 14 1 223 1.4%7 B 5 1 4 0 2 2 0 0 0 14 0.1%8 8 4 14 1 23 12 0 8 0 150 09%

smmatm 615 97 459 65 320 119 14 179 12 1880 11.6%

9 D X1 Muuft 247 1,088 171 215 428 46 27 407 39 2,6C8 16.5%19 W*J* 788 1,3* 306 136 634 47 27 456 69 4,J79 25.9%11 C=Ak km 950 702 169 93 193 236 5 134 48 2,530 15.7%12 D. Yovakmft 33 53 17 IS 12 17 0 IS 8 176 1.1%ft FAWASM& I'd" 442 2W 124 67 297 17 S4M 42 3,53 __.__

_ ms 3,67 3,571 927 S86 1634 103 76 13s6 206 13,056 80.8%

14 WadKantan 17 0 69 3 12 0 1 0 0 102 0.6%is CentIlKA3mon 0 0 63 0 3 0 0 0 0 66 0.4%16 SodhKdMa a 18 1 104 1 21 6 0 3 0 154 1.0%A21 EKdaunta 17 6 0 0 0 0 0 0 0 23 0.1%K. J _t. S2 7 26 4 36 6 1 3 0 345 2.1%

18 SNlawe_ l 0 0 0 0 0 3 1 7 0 11 0.1%19 Cu SUh 9 1 44 0 0 7 0 0 0 61 0.4%20 S_awes 70 43 30 10 11 11 2 9 1 187 1.2%2 SO Siaw 6 0 17 0 0 6 0 1 0 30 0.2%

SulawesI 85 44 91 10 11 27 3 17 1 289 1.8%

22 60 160 68 13 9 30 0 3 20 363 2.2%23 .TB. 57 12 6 0 0 30 0 2 107 0.7%24N.T.T. 3 3 10 1 2 3 0 2 24 0.1%25 RagT r 3 0 1 0 1 5 0 1 11 0.1%26 M 10 0 18 3 8 1 0 6 46 0.3%27 h a*a 12 3 15 5 1 3 0 3 42 0.3%

_ru[stsdS 145 178 its 22 21 72 0 17 20 S9 3.T%

INDONESIA 4.,24 3,897 1,831 687 2,022 1,297 94 1'2 239 16.1631% Shbame ofToa 28.0% 24.1% 11.3% 4.3% 115% 8.0% 0.6% 9.7% 1.5%

Socm: Dat Coflha and Anoabuis iMslityoflodutry, akta, ndosiaTos pous wie aste ws arc the Ear.ra hich would stabish Ptovicl TraiingFunds.

INDONESIASKILLS DEVELOPMENT PROJECT

Number of Employees of Medium amd Large Manulfauing Companies by Type and Pmtce, Idoneda, 1990

Food, Txti, Wood& apwr CheiAl Non.metai Baski Mahiy OdkNrPce\Type Beveage Apped Wood Pup & er Idlanat meta & Eqip. Maufact. TotW %Sha

____________ & Tobacco & Lether Px rod P Pducs Pouc Pduc melo ladtics Of Tol

I D. Aceh 4,429 0 5,403 1,391 2,93 830 0 263 0 15,296 0.6%2 NW* s.al 66,67 7,146 AM,6 S,SSz 4,916 S,OSJ 5,UJ 1AM 26 167,219 6.713 West Sm-_ba 3,307 ,239 4,249 494 2,022 3,284 136 79 0 14,;10 0.6%4 R5,463 1,82 25,658 2,494 2,010 428 48 6,810 0 44,783 1.8%S km% 611 0 16,178 0 2,035 83 0 89 900t9,8% 0.S%6 South Sw mat 6,940 1,702 22,104 162 14,951 3,451 234 648 211 50,403 2.0%7 R b 147 26 5S4 0 195 78 0 0 0 1,030 0.0%9 LMP 16,35S 367 2,165 38 10,507 1,842 0 491 0 31,768 1.3%

s_naIm 103,930 1t,352 99,997 10,118 77,609 Ma9 6241 1 8,62 137 345. 13.9%

9 DI. Jakl 22,181 137,422 15,930 21,642 59,2 12,023 5,449 78,254 7,391 359,954 14.5%19 Wd J?aMe 63,078 351,531 SAM 18,14 ) 1$1,64 41,210 11,728 77,793 11,711 70,933 3.9%11 0 Javla 120,I93 135,254 15,431 9,608 36,001 14,414 1,052 14,723 4,992 352,438 14-2%12 Dl Yogkta 4,339 11,00S 1,498 1,632 626 1,217 0 2,644 308 23,272 0.9%N Ew a'* 1f6,119 S446 446 A2,70 .A 22,6 SI,5M 457 1,531 473,7 19.1%

_sa '48,700 691979 128,015 73,790 9 91,47 24,09 222001 26, 195,7 786%

14 West K _m 1,40 0 32,154 72 2,24 0 55 0 0 36,405 1.5%isC KaUntat 0 0 17,334 0 398 0 0 0 0 17,732 0.7%16 SoaKalnn 1,674 32 33,051 102 2502 164 0 130 0 37,655 1.5%17 B mntn 1,9S6 253 0 0 0 0 0 0 2239 0.%

K_ailm 5,500 285 82,539 174 5,134 164 55 130 0 94,031 3.8%

It Noth Suolwe 0 0 0 0 0 79 85 315 0 479 0.0%19 Ca"raWlSa_ 458 34 5,938 0 0 282 0 0 0 6,712 0.3%20 Soau Sulaves 9,228 2,574 7,578 1,064 1,101 1,926 279 569 38 24,357 1.0%21 So_latSulawedi 331 0 830 0 0 139 0 165 0 1,472 0.1%

Su"di 10,24 2,608 14,346 1,064 1,la1 2,426 364 1,049 38 33,020 1.3%

22 BEu 5,211 S,72 5,428 6S4 721 912 0 105 992 29,595 1.2%23 N.T.B. 2,343 576 397 0 0 1,356 0 271 0 4,943 0.2%24 N.T.T. 81 349 420 94 76 347 0 44 0 1,411 0.1%25 Eat Thr 225 0 20 0 44 111 0 41 0 441 0.0%26 M4l 41 0 16,105 124 331 23 0 260 0 17,2U 0.7%27 kaan 2h372 215 2,069 163 23 *6 0 175 0 S,103 0.2%

E_ssuIlads t10,6w3 t6,712 24,439- I,035 I'19 2835 0 896 992 8,7m 2.4%

INDONESIA 387 723,936 349,336 8,18t 374,152 lt,90t 30,729 242,728 28640 2,486,430% Shae of Tot 21.7% 29.1% 14.0% 3.5% 15.0% 4.5% 1.2% 9.S% 1.2S

Soae: DatC Cdoiamn An*lynsits fI hbyefld akwta hzonTspuWincswid astulats edt e m wlbwolestabEiPa e TahugF.

INDONESIASKlllS DEVELOPMENT PROJECT

Number of Fornma, Smgl anuSfatur Companies by Prohne, Indonesa 1991 /a

Food, Teil wood& Paper& Chmcas Non-mntalic Basic Madiny Odr Pasonal TOal %SharePEvice BciU_e Appe Wood P8r & Rubber Mmoial MAl & Equ M ad. Sezi:cC& ofTo

&Tb &LTobco Leater Produt Prduct Prodwcts Prous Products meot dubste Houshdold

I D.L.A 54S 319 459 54 351 431 0 156 324 1.30S 3.947 2.%2 NW*o iO,A 3,41 I,15 1,644 349 747 119 0 2,5ss 941 5,454 17,445 123%

WestSumstra 978 nS1 343 49 65 420 0 257 76 485 3191 2.%4 Riau 1.144 S8 316 t2 209 391 0 232 Be 979 3529 2.5%5 iambi 283 91 247 66 26 472 0 68 20 707 1.980 1.4%6 South S9h 1,4t 490 733 72 40 4t6 0 977 135 1,060 5.354 3.8%7 Baduh 494 96 338 64 13 169 0 74 67 261 1.576 1.1%8 LPAmR ,25 49 255 147 26 252 0 175 133 231 Xsl' 1.8I

Sumata 95,50 2831 433 o3 1,477 3,7n 0 4,489 1,784 tO2 39,541 27.8%

9 DJCL karmu 1.091 2,139 467 422 175 58 0 829 441 825 6,437 45%1 Wmtitak 8,775 3,352 3,178 892 S32 3,248 0 1,S39 433 1,150 2ZM 1Z62%11 centrala 5,367 3,105 2029 553 489 2,070 0 1,320 486 1,5S0 16,989 11.9%12 D1 Y qgakat 755 566 2,333 104 29 353 0 236 120 26t 4,764 3.4%13 Eat JMAsa 6,629 3,184 1,938 822 876 1,743 1) 1,746 456 S87 16,981 11.9%

in 2s2,17 11A,3 46 938 2,793 2,101 7,472 0 5,670 196 4,40 68,170 47.9%

14Westealimnto 1,444 517 926 247 45 74 0 403 446 1.489 5.591 3.9%Is CesalKatlmni 370 35 377 57 25 105 0 46 36 275 1,326 0.9%16 SwtKaimntan 441 40 395 38 27 89 0 99 28 114 1.271 0.9%l7 ButaIin t.274 129 527 144 is 1.54 0 lot 70 4S7 4.94 IMA

K alma 2 721 222 486 t1s 422 0 729 580 2,NS 10,142 7.1%

Is NothSuiawe 636 402 568 56 35 435 0 335 92 608 3,167 2.2%19 CenmtrSulwai 365 125 743 138 21 187 0 105 64 432 2.180 1.5%20 Soutb Sulxwesi 2.246 879 999 239 73 855 0 718 391 572 6,97 4.9%21 Southeutlei 113 8 365 22 13 140 0 36 29 334 L,OS 0.7%

Sinlaweal 3,360 1,414 2,675 455 142 1,617 0 1,1g 576 1,946 13,379 9.4f

228a 659 563 453 91 20 276 0 446 140 201 2.4 20%23 N.T.B. 761 214 m 109 21 857 0 246 65 367 3,213 213%24 N.T.T. 347 265 309 90 25 146 0 80 6 273 1,541 1.1%25 BtTimor 27 19 71 11 12 0 3 4 29 176 0.1%26 Malul 279 119 315 25 52 85 0 136 60 259 1,33 0.9%27Iriana 395 273 360 39 ;0 168 0 47 46 516 1.t54 1.3%

lt nds 2,46 1,453 2,8 365 128 t,4A4 0 958 321 1,64S 10,96 77%

INDONESUA 40,524 17,765 21,151 4,982 3,96 14,765 0 13,040 5,197 20,808 142,196%SbareofTfa 28.5% 12.5% 14.9%A 3.5%/o 2.8% 10.4% 0.0% 9.2% 3.7% 146%

Source: Dhcorate Genea of Smal bdustY, M kUaY ofb&dUy, Jabrta WdeiaI S loc a te 1ed as ones wrth ope raing caIaw uip t o R p 6040 mIli Of whichb , wnaith c 8t gcp ofabove RP SO milio I Edefined as 'fomal' and

bedow Rp 50 million a defined as anonformal^ small enateqielb Tbese tkeprinem wouldestbhih Pvncal Ting Fxumda the pwposed wect X

BDONESIASKILLS DEVEI/PMENT PROJKCr

N_msr of NEOe of Foama Sna Manufctuing omns by Type and Pomve, h_one 1991

Food. Taik. Wood& Paper Ceiai Nometlic Basic Mamy Oher Pema T$dal %SbuePovim Beve Appad Wood PaWer Ruabb Mineral MeNl &Eqaip ma Seice& fTotal

& Toco & lTr Produnt Prodcts Prodcs Prdus Produs Umt Indetes Hoehold

I DI MA= 3.369 12S1 3.879 3S6 1.530 3.171 0 647 881 4,397 19.532 1.4%2 Nw*Awet o 1J,007 465W 10,299 1,46 43S* 7466 0 1O 2O,95 22t; 15.92 7S5 5.6%3 Wedstumar 5.0 5,519 2,432 380 199 2.729 0 1.234 153 1,586 20.040 1.4%4 Rio 6,719 461 X735 5.205 1.769 2598 0 1.408 372 3,067 24.334 1.7%A5 Iambi 1.413 313 2.234 355 279 3,511 0 313 37 1.835 10.290 0.7%6 Suh SU*a 10229 2.473 S,C67 597 197 3.017 0 5385 696 4.279 35.565 2.6%7 Bao1u 2.X301 462 Z194 333 105 1.089 0 353 201 818 7.156 0.6%8 La== 4.3G4 461 2.345 665 323 2,367 0 167 275 71t 12.326 09%

63,141 17,6 3406 9,339 8,672 2590 0 20,402 S,341 32,6S92 20,09 1.0%

9 DJC.L kuta 35,163 66.444 12.662 10.525 5.623 1.361 0 23.420 12,224 21.447 I38.89 13.6%10 WJa,e/a 49,797 6974 A,9M1 4O 34 3A* 0 14,4 2,3*9 5,73 291 1.XII CaJr ha 7.605 71,673 25.12 5,092 7.S66 30.114 0 12,707 7.818 .200 247.597 173%12 DI Y qwat 5,251 4,269 7.105 543 310 2996 0 1.778 1,656 1,22 75.130 1.|%is HetJ/rna 117,6901 4o 21,475 7,6o 13/,12 2*77 19 19,074 3,615 2,69 251,416 J6t

jaws, 2807 21,4 119,5 30,029 3S,145 94,376 0 67,437 27.705 39,A96 960,93 684%

14 W eAsKantn 5,377 1,69S 5,493 778 324 418 0 1.537 961 3.904 20.490 15%IS CaPiliwnln 1,448 137 4.703 321 267 639 0 309 124 9S1 S.9Q9 0.6%16 SothKalitm 2.993 339 9,331 176 275 1, -1 0 624 141 47i 15.402 1.1%17 East KalimatnW 1.6S2 1,066 5,730 712 93 1.925 0 1.287 191 1.S17 12503 0.9%

KaUmaitam 1t,6e0 3,40 13,27 t167 9S9 4,033 0 3.757 1,417 7,180 67,X1 4.1%

IS NolhSulsesl 22,927 2435 3.S22 260 237 2,451 0 1.527 228 2,560 26.447 1.9%l9 CA"iuS wesi 1555 391 6.020 337 142 1.366 0 474 182 1.157 11.624 0.8%20 Sou3hSulswi 10,918 6.404 S,189 821 480 6,323 0 3.991 1.513 1.907 37.S46 2.7%21 Southas Sulawei 813 323 3.473 136 100 1.132 0 280 13S 1.S63 7.951 0.6%

Sakwea 26,213 9,SS3 1,604 1,654 9S9 11,271 0 6,272 2,061 7.17 3,676 6%

22 Bdi 4,108 13.771 3.754 622 143 2,479 0 1.5S4 1,522 2.394 30.383 2.2%23 N.T.B. 10,630 1.925 9,911 614 146 8,973 0 1,637 234 1.997 36.067 Z6%24 N.T.T. 1.519 1,553 2289 342 102 1,276 0 464 19 78S S,349 0.6%25 Eastrm 175 124 360 62 188 0 37 8 117 1.071 0.1%26Malk 1.270 472 2607 107 447 626 0 91t 224 St8 7.489 O.S%27 IinJaas 1.459 817 Z074 161 104 Om302 0 244 107 2.750 8.018 0.60/6

Eata lan 19,161 1S,668 20,995 1,908 942 14,144 0 4,S14 2,114 7,S61 91,377 6.6%

INDONESIA 396M,22 300,351 216,617 44,S67 46,737 160,475 0 102,762 31,638 94,216 1,391,224% ShmOfTotal 2?.5% 21.6Yo 15.6% 3.2% 3.4% 10.8% 0.0% 7.4% 2Iwo 6.3%

Smte: Dieate Gae f Small tadOy, M sty offliqdry. akaia. inda/a Thsetree povneswdetablshPvncidTainagFbudnde propoedproect.

-35- hun=2Page of 2

INDONESIASKILLS DEVELOPMENT PROJECT

Bank Group-fanced Educateon and Train g Project

Loan/ Yea of Year of Pojecs Agency AmountCredit Board Actua Oess cancellations) /a

Number Approval aClong IBRD IDA- (U$ ndmillion)-

Projects wth MOEC219 1970 1976 Fist Education MOEC /b 4.5387 1973 1981 Third Educaton MOEC 13.5

1237 1976 1981 Fourfh Education MOEC 24.11433 1977 1984 First Teher Training MOEC 17.81486 1977 1984 Nonfomal Education MOEC 8.3869 1978 1985 Polytebnic MOEC 49.0

1904 1980 1987 Firt University Delopment MOEC 43.12101 1982 1990 Second Teacher Training MOEC 79.12102 1982 1988 Second Texlbook MOEC 24.92290 1983 1990 Second Polytcbnc MOEC 106.02355 1983 1990 Second Nonfcxmal Educaton MOEC 43.02472 1984 1990 Secoday Education and M8mt Tanng MOEC 76.62547 1985 - Second Unhry Development MOEC 147.02944 1988 - Higher Education Developmednt MOEC 140.33158 1990 - Second SconWay Education and Mgmt MOEC 154.23311 1991 - Secnd HigherEduton Developmnat MOEC 150.03431 1991 - Third Nonfonmal Education MOEC 69.53448 1992 - Prinary Educalion Quality hnpvment MOEC 37.03496 1992 - Pramay Sclool Teacher Deomen MOC 366 -

S,ketalefPreJe* with MOEC 1,157.5 670.

Pecs with Odher Ministries288 1972 1978 Second Education (Agrictre Training) MOA /c 6.3

1692 1979 1985 Second Agricultural Taining MOA 34.72258 1983 1988 Public Wors Manpower Developmtent MOPW /d 29.82341 1983 1992 Thid Agiutuad Training MOA 6292599 1985 1993 Sciec and Tenolog Traiing MORT /c 93.02705 1986 - Manpower Development and Training MOM/f 58.12940 1988 - Accntncy Deveopment MOP /g 113.02992 1988 - Tree Crop Huma Resource Demelopment MOA 18.43112 1989 - Public Work Inshtiutin Dev. & 1Tra MOPW 36.13134 1989 - Professional Human Resoures Development BAPPENAS, BPPTih 117. -

SuMotaofPrels "ir OhM b Vuin 563.5 63

GRAND TOTAL 1,721.1 733

/a The amount less cancellatin" apples only to the proects wich wer closed (with "Year of Acual Closg").The amount for other ongomg prqects ws Wtken from the Staff Appraia Reports.

/b MOEC -Ministry of Education and Culte/c MOA - Ministry of Agricutre/d MOPW -Ministry of Public Works/e MORT - Ministry of Reearch and Technology/f MOM -Ministry of Manpower/g MOP - Ministry of Finance/h BPPT -Agency fbr Assessmntand AppliCatico of Tecdnology

-36-

Annex 2Page 2 of 2

INDONESIASKI LS DEVELOPMENT PROJECT

TRANNG SUBTOR-REATD, COMPLED AND ONGOING PROJECTS ANDPRoJECT COMPETiON AND PERFORMANCE AUDIT REPoRTs

Credit/ Dates Original PCR PPARLoan Effective Closing/a Project Credit/Loan Report ReportNumber (US$ m)/b Number Date Number Date

C0219 Jan 1971 Dec 1976 First Educadon 4.5 2998 1977 2998 1980C0869 May 1979 June 1985 Polytechnic 49.0 7847 1987 7847 1989L1486 May 1981 June 1984 Nonformial Edation 8.3 6304 1985 6304 1986L1692 May 1981 June 1985 Second Agriculual Trng. 34.7 7051 1986 7051 198712290 Sept 1983 Dec 1990 Second Polytechnic 106.0 10460 1992

12258 Jul 1983 Dec 1988 Public Works Manpower Dev. 29.8 9176 1990L2341 Oct 1983 Jun 1992 Third Agricultural Trainng 62.9 /c12355 Feb 1984 Sept 1990 Second Nonfornal Educ. 43.0 9856 199112599 Sept 1985 Mar 1993 Science and Tech. Trahing 93.0 12560 1993L2705 Sept 1986 Jun 1994 Manpower Dev. and Taining 58.1

12940 Jul 1988 Jun 1994 Accountancy Development 113.012992 Jan 1989 Dec 1994 Tree Crops Human Res. Dev. 18.413112 Nov 1989 Dec 1995 Public Wors Inst. Dev.Trng 36.1I3134 Feb 1990 Mar 1995 Professional Human Res. Dev. 117.512431 Apr 1992 Mar 1998 Third Nonforml Educ. 69.5

/a Actual closing dates for the completed projects and revised closing dates for the ongoing projects./b Tbe amou less cancellation for the completed projects and the amount as in Staff Appraisal Reports for the ongomg

projects./c The PCR for Loan 2341 is being prepared.

-37- Annftex 3Page 1 of 4

INDONESIASKILLS DEVELOPMENT PROJECT

PROVINCIAL TRAING FuND (PMFSTRUCTURES SYSTEMS, AND PROCEDURES

Strategic Overview

1. A trning fund would be used as the principal mechanism for providing inital supportand incentives to increase and improve trainmg within Indonesia's manufacturing industry for thedevelopment of its human resources at all levels and thus the strengthening of its competitiveness,quality and productivity. From a strategic perspective the Provincial Training Fund (PIT) Schememust have: (a) a clear swt of objectives at which to aim; (b) a vigorous and largely private sectoroperational structure; and (c) the fnncial and technical means.

2. The main aim of the PTF Scheme would be to encourage manufacturing firms todevelop a company-based training capability. Given the fact that there is little prior history offormalized or planned training in the three target provinces, early emphasis would be placed on theestblishment of the training function, either by an individual company or on a group basis.

Grants

3. Experiences in other countries have shown that external funds, such as the proposedPTF Scheme, for finmacing trainmg costs through a system of grants, appt. r to influencesignificantly a firm's propensity to train, particularly those firms at the margin. Under the proposedproject, grants would be directed initially to firms wifling to develop the capacity for identifyingtraining needs, to prepare and implement programs to meet these needs and to validate and evaluatethese programs on an on-going basis. In order that this might be more realistically achieved, acentral and fundamental criterion for grant eligibility would be the establishment of the trainingfunction as an integral part of the management system within a firm. Each partcipating firm wouldbe required to employ 10 or more people and be engaged in manufacturing and to establish and carryout the following activities:

(a) Appoint and train a Training Manager who would have overall responsibility forcoordinatng all training activities within the firm. In very large firms, the TrainingManager would work full-time at this job, in the medium to small firms or in anyfirm which is a member of a group training scheme, he would be the owner/manageror would work part-time as Trainig Manager;

(b) identify the training needs of the individuals in the fim at all job levels;

(c) orepare and implement training programs to meet the identified needs; and

(d) validate and evaluate the training carried out

-38- Annex 3Page 2 of 4

4. Ihe planning horizons for many small and medmm sized firms are usuatly so shortin Indonesia, often a year or less, that training plans are hard to form. It is therefore of paramountimportance for firns to draw up short-term business appraisals and articulate their training plans inline with these appraisals in order to ensure their relevancy. As an aid to this process a practicalformat has been developed as part of the standard scheme documentation which incorporates thenecessary performance-based criteria.

5. Accordingly, it is proposed that grants of the following ranges and scales beincorporated into the scheme and targeted towards: (a) Company Group Training Units (CGTUs);(b) individual firms; (c) public and private training providers; and (d) KADIN/APINDO/sectoralemployer organizatons. All grants would be provided on a contract basis and linked to performanceoutcomes rather than to inputs. This will further ensure that fuids spent on training provide a realbenefit to both employers and employees.

6. Company Group Training Units (CGU)). CGTUs are groups of companiesassociated either through employer organizations or by other means with the objective of organizingraining for their members. Such groups can be industry, technology or geographically-based andtheir establishment in the three target provinces should be given a high priority.

7. The aim is to involve 15 to 25 percent of man ri employment in medium an.;large-size companies in CGTUs over the life of the SDP. Medium-size firms in particular, and evensome small firms, would benefit from membership. CGTUs could provide a successful vehicle fororganizing and supportng training in member fms who would otherwise be too small to sponsortheir own training.

8. CGTUs must also become financially self-sustaing over the three year period of theproject, through generating revenues from traiing contracts to support their own overhead costs.Yearly training contracts would be awarded to public and private training organizations, andpayments would be on a phased basis and only in respect of incurred expenditures; however, amonthly advance for salary and operational costs would be allowable under the terms of the contract.

RECOMMDIED LEVEL OF FINANCIAL SUPPORT FROM THE TRAINNG FUND

L______-I__ Yearl Year2 Year3

Staff 80% 60% 30%

Operational 80% 60% 30%

Traiing Courses 80% 60% 30%(Formal Off-the-Job)

9. Individual Frs. Grants to individual firms would be provided for: (a) 50 percentof the salary of a new Training Manager for two years; and (b) the training programs at the CGTUrates. Public and private training organizations would be eligible to be contracted for CGTU andindividual firms' traning progams.

-39- Annx 3Page 3 of 4

10. Small-scale Industries. In addition, four days of consultant services would be madeavailable yearly to individual small-scale companies who agree to expand their business. Onlyformal sector industrial manufacg companies would be included, however. By agreement,consultant services could also be provided to groups of companies. The services would coverbusiness planning, markedng and finance, manageent/processes and industrial engineering. TheP1F Scheme would fnance 80 percent of such costs in year 1, 60 percent in year 2 and 30 percentin year 3 with the balance coming from the participating employers.

11. Technical training would be aided by grants under certain conditions (e.g., in areasrelevant to industry such as toolmaking, etc.) as would management trainng for officers of groupassociations and task-centered workshops for owners of small compamies. These companies wouldbe accessed individually and through small industrial groups including SENTRA and KOPINKRA.The Ministry of Industry Technical Support Centers (UPT) could also be used to deliver services tosmall industries. The grants would cover 100 percent of the traing costs.

12. Public and Private Traiing Providers-Technical Traing for Job-Seekers.Traiing for job-seekers would be supported from the PTF Scheme, based on the level of jobplacement obtied in relation to the training, and provided the trainee stayed in the related job forat least six months. Support would be at 100 percent of costs (minus any fees paid by the tainees)if 85 percent or more of the trainees in a course were placed in a job related to their training. Atplacement rates below 85 perent, support would be pro-rated. Courses would be at SkillsQualification Standards (SQS) levels 3, 2 and 1 and in sklfl areas where a clearly identified industry-related need exists.

13. KADIN/APINDO(Sectoral Employer Organizations. Grans would be providedfor the appointment of two or three operational and support staff per province, whose role wouldinclude promotion, coordination and planning of actvities, on the following basis:

|___ Year I Year2 Year 3

Training Fund Contnrbution 80% 60% 30%

Association Contrbution 20% 40% 70%

14. TraInn Contracts Implemented by the Trainng Fund Board. Grants would beprovided for sldlls upgrading for each company at a level of 80 percent of costs in year 1, 60 percentin year 2 and 30 percent in year 3, with the balance coming from the participating employers.

Structure

15. An operational structure (see Annex Chart 3) wil be established in each of the threeProvinces to oversee and manage the PTF. It will have its own legal staus and have a strictlymarket-led commcial focus. The private sector would be heavily involved as reflected in theproposed structural model in which the two pivotal components are the PTF Board and the ProjectImplementation Unit (PIU).

-40- Amnex 3Page 4 of 4

16. The government's existing Levy/Grant scheme in East Java and its plannedintroduction in the other two provinces have obvious implications for the PTF Scheme and itsoperational structure. The PTF will be implemented separately from the Levy/Grant scheme in EastJava. For West Java and North Sumatra it is proposed that the PTF structure would serve as themodel for a Levy/Grant scheme and that following the compledon of the proposed SkillsDevelopment Project, funding from collected levies would be used as the main source of funding toensure future funding sustainability.

17. Provincial TrainingFundBoard. The PTF Boards would include equal Governmentand employer representation and would have an independent private-sector Chairman. In all cases,appointments would be made by the Provincial Governor from a short list of candidates submittedby the nominating bodies, e.g., KADIN, APINDO, and Government, etc. Board members shouldhave a high profile and have the ability to represent their organizations effectively, thereby creatinga balanced Board dynamic. The Chairman should be appointed in an individual capacity. Potenialcandidates for this position might include senior executives from other sectors of employment as wellas industry. Appointment of the Chairman should be cleared with the Bank.

i8. The Board's broad role would be to provide overall direction for the Training Fund.The Board would: (a) agree and settreview scheme criteria; (b) agree and set/review grant levels;(c) oversee the direction of the Fund; (d) approve expenditure within an agreed budget; (e) directthe PIU; (f) promote and promulgate the economic rationale for training; (g) ensure that trainingseminars and other public relations activities are organized; (h) disseminate information; (i) providefor an industry sector focus; and (j) approve reports, etc.

19. Project Implementation Unit. It is imperative that professionally trainedadministrative staff of the highest available caliber be appointed to the PIU. The Director will benominated from the private sector by the Board and appointed by the Governor following Bankclearance of the contract for this appointment. The Treasurer, who would be a governmentemployee, and all other staff from the private sector, would be appointed by the Board.

20. Secondment of appropriate personnel from industry would appear to be the best optionfor recruiting PIU staff. Secondment could be for a limited period-say 12 to 24 months-and wouldafford a development opportmity for the individuals nominated. Their role would be primarilydirected toward "managing" and "applying" the PIF Scheme. The PIU would: (a) evaluatesubmissions; (b) prepare training contracts; (c) ensure that training seminars are run; (d) develop anapproved register of training providers; (e) evaluate trainer capability; (f) develop a training coursedirectory; (g) undertake training audits and other inspection; (h) develop and update an informationdatabase; (i) develop a management information system; (j) provide general training advice andassistance; (k) develop and promulgate linked case studies; (I) maintain sound financial control; and(m) approve payments within specified limit.

21. External Consultants. The services of national and international consultants familiarwith the various components of the SDP would be retained for the training fund in each province.The role of these consultants should be purely strategic and designed to oversee the entire operation.These consultants will be appointed in accordance with the implementation plan (See Annexes 7 and9).

-41- Annex 4Page 1 of 3

INDONESIASKILIS DEVELOPMENT PROJECT

COMPANY GROUP TRAING UNIT (CGT[)

Background

1. A company group training unit (CGTU) is a training organization established by agroup of companies to promote training and assist member companies in all aspects of the trainingprocess. CGTUs would generally be formed by medium-sized companies grouped by industrialsector, geographic orientation or technology.

2. In the previous World Bank-funded Manpower Development and Training Project(Loan 2705-IND), CGTUs, or what were known then as Industrial Training Development Units(ITDUs), were pilot tested in several provinces, including East Java, West Java and North Sumatra.Two different approaches were used. In East Java the assistance provided included promotion oftraining, assistance in the establishment of the ITDUs, training needs assessments, design of prioritytraining programs, and implementation of training. The cost of training implementation was sharedbetween the project and the ITDU, with the cost share of the participating companies varying from30% to more than 50% in some training courses. Two of the ITDUs established in East Java weresectoral (fiurniture and textiles), while the third one was geographic and located in an industrial area50 km. from the capital. These ITDUs were quite active from 1990-1991 until the termination ofthe project. While the ITDUs had their own organizational set-ups, they could not afford to hirefull-time staff to handle their operations. The ITDU Executive Directors were personnel or humanresource development managers from the member companies devoting a portion of their time to theITDU. Consequently, ITDU activities slackened considerably after the project support stopped. Atpresent, the three ITDUs stiU exist, but the latest field reports indicate that their activities aresporadic and minimnl.

3. In both West Java and North Slumatra, the project identified several industrial groupsand provided free technical assistance to cooperating companies. The assistance included trainingneeds assessments, and design and implementation of some courses in individual companies.

4. An evaluation of the ITDU experience commissioned by the World Bank in 1991(Crofton & Kemp, ITDU Evaluation, World Bank, 1991) recommended the replication of the EastJava model in view of the stronger possibilities for sustainability and the wider reach brought aboutby the ownership and commitment of the companies to the ITDUs. In West Java and North Sumatra,there were no traces of sustainability of the training activities in the companies assisted, after the endof the project.

5. The ITDU evaluation also indicated very positive reactions from the participatingcompanies during the project intervention. Concrete results were documented in all provinces. Theownership and responsibility of the companies for the ITDUs in East Java appears to be a majoradvantage. Also the cost-sharing experience in the three ITDUs there provides a good basis for self-sustainability. However, more support would be required by ITDUs if they are to become fully self-

-42- Annex 4Page 2 of 3

sufficient, including assistance in hiring and maintaining qualified full-time staff and provision ofpromotional and technical support, particularly at the onset. The industry associations, e.g., KADINand APINDO, should assist in promoting the concept of training in general and in the establishmentof ITDUs in particular. More activities would need to be undertaken by the ITDUs in order toattract more member companies and to strengthen their support by the companies.

6. The development of an industry-led and demand-driven training system dependsheavily upon the willingness of the industrial sector to invest in training. Previous studiest haveindicated that such interest is still very weak even in many large manufacturing companies. The EastJava ITDU experience showed that group training activities can be viable, but that sufficientresources were not made available for long enough to fully sustain the three ITDUs there. Thelessons learned have been taken into account in the design of the CGTUs.

Subcomponent Objectives and Description

7. This project would develop the in-service trair.ng function in groups of companiesthrough the setting up of CGTUs. The project aims to achieve the following:

(a) to establish CGTUs to: (i) ensure that the training function becomes an importantbusiness activity in the companies; (ii) improve the training skills of their trainingmanagers and supervisors; and (iii) increase their capacity for staff training;

(b) to make the CGTUs self-sustaining and self-expanding to include more and moremanufactuing establishments, and subsequently ot'tier sectors; and

(c) to develop a model that could be replicated in otV zr provinces in the long term.

8. CGTUs would identify company training needs, prepare training plans, implementtraining or arrange for training to be supplied on contract, evaluate training programs and measuretraining costs. They would also assist companies to manage their own training activities and todesign and implement on-the-job training. The C.iTUs would be supported and advised by staff ofthe training fund PIU. CGTU and company training managers and in-plant instructors would receivetraining themselves under the project and linkages between industry and public and private trainingproviders would be promoted. The project would encourage the formation of an association oftraining managers in the project provinces. CGTUs would typically have about 40 membercompanies or a group employment of about 4,000 people. They would be kept small in size in orderto minimize total costs.

Subcomponent Implementation

9. The project would address the issue of sustainability through the following measures:

(a) Promotion and Technical Support. The project, through the Training PromotionSub-unit of the PIU would provide promotional support to groups of companiesintending to set up CGTUs. Foreign and local specialists would be available to

I/ Indonesia: Emplovment and Training, The World Bank, June, 1991. Shafiq Dhanani,Manufacturin Enterprises Survey in East Java. West Java and North Sumatra,January 1993.

-43- Annex 4Page 3 of 3

participate in management forums, seminars and conferences to promote trainingawareness and to provide guidelines on the steps required to establish a CGTU. Inaddition, the KADIN/APINDO would be provided with logistical support by theproject to encourage them to take an active role in the promotion of CGTUs andother enterprise training activities. The project, through the Training Advisory Sub-unit, would also train or orient the Training Officers hired by the CGTU membercompanies. To conduct training needs assessments, prepare training plans andproposals, and undertake other training related aspects as necessary.

(b) Competent Regular Staffing. The CGTUs would be provided with funds to hirecompetent training officers and administrative staff to promote the training functionin member companies and extend sufficient training assistance. Each CGTU wouldemploy a training manager, an assistant training manager, and two support staff. Theproject would contribute to personnel costs and to the cost of office equipment andoperating expenses under a cost-sharing formula. Under this formula, the projectwould pay 80% of the total agreed under expenses in the L.st year, 60% in thesecond year and 30% in the third year. It is expected that by the end of the thirdyear, the member companies would have experienced substantial benefits from theactivities of the CGTU and therefore be sufficiently motivated to stustain fully itsoperations.

(c) Tralig Services Subsidy. The training programs identified by the CGTUs wouldalso receive fiancial support from the project under the same cost-sharing formula.The company traiing proposals would have to conform to the guidelines formulatedby the PTF Board. The Board would ensure the proper implementation and qualityof the training activities.

(d) Employer Support. The KADIN/APINDO would establish a full-time trammgpromotion unit under their joint responsibility. This unit shall be supported by theproject for three years, again under the same cost-sharing formula. The majorfunctions of this unit would be to coordinate the activities of the CGTUs, assist themin promoting and expanding their membership, and provide access to trainingiformation and training providers. Through this mechanism the CGTU networkwould be constantly supported.

-44- Annex 5Page I of 4

INDONESIASKILLS DEVELOPMENT PROJECT

SMALL ENTERPRSE TRAING AND ADVSORY SERVICES

Background

1. Small industries in Indonesia (i.e., companies with capitalization of less than Rp 600million) generate substantial employment and make a significant contribution to the national output.In 1991, there were about 1.92 million small manufacturing companies which provided about 6.7million jobs. This was more than 2.5 times the number employed in the medium and largecompanies. However, as in other developing countries, mortality rates for these small enterprisescan be higher than 50% in their first year of operation and can even reach as high as 80% after threeyears of operation. Those that survive still face difficulties in expanding due to deficiencies inmanagerial capabilities, technological know-how, marketing ability, and access to financing.

2. Recognizing the critical need to assist small enterprises, the Government of Indonesiaand some private sector organizations have embarked on various s: aall enterprise assistance programswhich include training, financial access, subcontracting development and marketing assistance. TheMinstry of Industry (MOI) provides some training and technical support to small industries,particularly for the informal and traditional industries. The Ministry operates Technical SupportCenters (UPTs) which provide group production facilities for the use of small comp- nies withoutsuch equipment. The Ministry of Manpower (MOM) conducts management and entrepreneurialtraining courses for small companies through its network of productivity centers. In addition, thenationwide "Bapak Angkat" program encourages medium and large companies to "adopt" smallindustrial units and to support them in various ways such as: improving their access to bank credit,assisting them with marketing and technology, and providing subcontracting possibilities.Occasionally, government banks (e.g., Bank Indonesia, Bank Dagang Negara, etc.) or private banks(e.g., Exim Bank) implement joint assisance projects for small industries in collaboration either withgovernment agencies or universities. Most of the aforementioned programs for small scale industriesfor equity reasons were directed at the mformal or traditional small industry groups. These programsare heavily, if not fully, subsidized and continue to rely on regular government budgets or othersources of subsidy.

Issues

3. Issues related to assisting small scale industries include the following:

(a) Sustainabiity. Cost recovery possibilities for training services to small scaleindustries, particularly for those in the informal/traditional groups, are very limiteddue to the reluctance or inability of the beneficiaries to pay. Consequently, mostprograms are heavily subsidized, and inevitably stop once the subsidies are fullyconsumed. Those programs that are sustained by government nornally suffer froma lack of funds and limited internal technical capabilities.

-45- AMx 5Page 2 of 4

(b) Absorptive Capacity. Owner/managers of small industries belonging to the informaland traditional groups (less than Rp 50 millio-a capitalization) normally require verybasic busiress know-how and technology. They are more preoccupied with survivaldhan expansion. Those in the formal and modern sector are in a better position tolearn and to use modern management techniques and production processes.

(c) Availability and Accessibility. Small scale industry owner/managers areunderstandably preoccupied with the operation of their businesses. They do not havemuch time to spare for formal classroom training, are normally hard to access, andare usually geographically dispersed. The traditional small industries may beclustered into SENTRAs (small industry cluster) or KOPINKRAs (handicraftcooperatives). However, the more modem small industrial sector is less organized.

Rationale and Objectives

4. The members of the modern small imduatrial sector have the potential to expand intomedium, and eventually, large companies. The development of this sector can provide a strongeconomic impact in terms of employment and linkages with the larger companies. This sector is alsomore prepared than the informal or traditional sectors to absorb more advanced management andtechnical support, and it presents greater possibilites for program sustainability. However, thesector is stll not fully sensitized to the economic rationale of improving business through trainingand consultant services. The package of assistance to be pilot-tested by the project therefore isdesigned to stimulate the interest and commitment of the target owner/managers towards contnuingimprovement in their companies. Specifically, the project sub-component objective is to assistselected small companies to expand and generate more employment by: (a) supplying customuedtraining and consultant services focused on owners as key persons; and (b) developing themanagement capacity of the officers of associations and groups of small companies to assist theirmembers to develop their businesses.

Dscription of Sub-component

5. Coverage. The project would emphasize the modem small industrial sector. Thecompanies in this group would have capitalization of between Rp 50 to 600 million each and wouldbe located in the three selected provinces of West Java, East Java, and North Sumatra. Companiesin the dominant small industrial sector and those with high growth and export potential in eachprovince would be given priority. In addition, selected small industrial clusters (SENTRAS andKOPINKRAS) with good prospects for growth would also receive training and consultant assistance.According to the 1991 records of the Ministry of Industry, there are around 330,000 companieslicensed in this.

6. Project Services. Consultants. Individual companies would receive an average offour man-days of expert advisory services per year for a period of two years. Based on a WorldBank study (Mel Crofton & Leslie Kemp, November, 1992) of small industries in the projectprovinces and numerous discussions with national and provincial entities involved in the sector, smallindustries need management and technical consultant advice in areas such as business planning, salesand marketing, product design, production management, quality control, etc. The consultant approachwould also be a suitable training opporunity for the extremely busy owner/manager. Instead of

-46- Annex 5Page 3 of 4

lengthy formal classiuum training, the intervention would consist of periodic tutorial and problemsolving visits. TrInng. In cases where specific training needs are widespread among the smallcompanies in the modern sector, group training activities would be undertakmen, preferably on a cost-sharing basis. The more common training needs initially identified are in marketing, businessfinance, production systems, etc. More specific training needs would be determined during the initialphase of the project. Training support can also be provided by the project wo SENTRAS orKOPINKRAS, particularly to improve the capabilities of the officers of these groups to better servethe needs of their members.

Implementation

7. lmplementation Strategy. The Project Training Fund small enterprise sub-unitwould identify key small enterprise groups in coordination with the MOI regional offices (KanwilPerindustrian) based on prepared guidelines. Each group would be given a one-day businessplanning orientation during which the owner/managers would be guided on how to undertake abusiness planning exercise in their enterprises. Simplified manuals for business plan preparationwould be introduced and provided. After the group orientation, the owner/managers would start thepreparation of their respective business plans with the assistance of the small enterprise advisers. Anadviser would spend an average of four days in each beneficiary company.

8. Based on past experence, the business plan resulting from the orientation andconsultations can lead to immediate improvements in company operations. In addition, the businessplan would identify other areas for improvement which may require further training or consultantassistance. In such cases, the company may avail of the services of training providers or consultantsand pay for the services themselves; alternatively, a group of companies may avail of subsidizedtraining or by combining their entitlement, of consultant services from the Training Funds on thebasis of approved proposals. The training needs that are established in the course of the businessplanning exercise can also be the subject of a proposal to the Board. Group training activities withinthe same sector would be encouraged, with the possibility of organizing CGTUs for the small scaleindustries.

9. In the case of SENTRAS and KOPINKRAS, training needs analysis and planpreparation would be underutaen in coordination with the MOI or the Ministry of Cooperatives.Emphasis would be placed on developing the capabilities of the industry group leaders to assist theirmember companies. These training activities would be subsidized from the Training Fund, andimplemented either by goverment or private traing providers as approved by the Board.

10. Implementatdon Strcture. A sub-unit for small enterprise development would beset up under the provincial PIU. This sub-unit would be staffed by two full-time training advisers,to handle the planning and coordination of the consultant and training services, respectively. In bothWc3t Java and East Java, there would be three fill time senior field consultants to be supported bynine associate consultants (either on full time or part-time contracts). Due to the smaller number ofsmall scale industres in North Sumatra, there would be only one full time senior field consultant andthree associate consultants. The senior field consultants would assess, plan and supervise theimplementation of consultamt services in designated areas or groups of industries. The consultantsmay also be assisted by graduate volunteers (similar to the PMP support staft as required. The teamswould work in close coordinaton with the regional and district offices of the MOI, MOM, and

47- Annex Page 4 of 4

Ministry of Cooperatives tO gain access to small entrpris and to secure relevant information. Eachteam would identify the poteial clie ficiaries based on dissions with the relevantgovernment agency.

Expected Output

PROVINCE NUMBER OF FIMS RECEIVING NUMBER OFCONSULTANT SERVICES TRAINEES

West Java 1,440 1,800

East Java 1,200 1,200

North Sumatra 480 600

Total 3,120 3,600

-48- AWeA 6Page I of 6

INDONESIASKILLS DEVELOPMENT PROJECT

YOUNG PRoFESSIoNAL ENTREPRENEU DEVELOPMENT PROGRAM (PMP) ANDINFORMATION SYSrEM FOR SELF-EMPLOYMENr

1. Although general unemployment and underemployment is a major issue in Indonesia,the Government is particularly concerned about the rising unemployment of university graduates.To partially address this issue, the Government is considering substantial investments in varioustargeted self-employment schemes for this population. This Annex describes in details two projectsub-component that would assist the Government to pilot and assess two training schemes and aninformation system that are being considered prior to national implementation through the MOM.

YOUNG PROFESsONALS ENTREPRENEUR DEVELOPMENT PROGRAM (PMP)

2. Overview. The proposed sub-components would test two entrepreneurshipdevelopment schemes.'/ The first would be a short-term training option that has already beenpiloted on a small scale by the ILO. This scheme features university-based selection and a minimumamount of training (about 95 hours) coupled with monitoring, counseling and up to Rp 2.0 million(less than US$950) of capitalization support for each participant through a guaranteed loan programthat would be established under the proposed project. The second scheme, a medium-term trawningoption, would also be a university-based program, but would be targeted to growth areas inmanufacturing (a study would be conducted to identify small business opportuir, r~s in the sector).The participants would be provided with about 45 days of targeted business-reLt . taining. Theywould each also receive more intensive field-based counseling, access to a small ail. .--,- of specialistadvisory services, and a guaranteed loan of up to Rp 5.0 million (US$2,375) *n capitaizaonsupport.

3. The sub-component would be implemented in five provinces - South Sulawesi, Bali,North Sumatra, West Java, and East Java. In each province, both schemes would be implemented.In each province, there would be 20 short-term training and 10 medium-term training programsdemonstrated (Table A. 1). During the three years of the project, it is estiumated that the short-termtraining scheme would train about 4,500 persons. The medium-term training scheme woul I trainabout 1,000 persons. In total, the two schemres would train about 5,500 university graduates (SI)to become small business owners (Table A. 1).

4. Based upon existing performance data, it is assumed that about 70% of these p -rsonswould actually be successful in starig small businesses. ILO studies of small business developmentin Indonesia suggest that an average of about 3 jobs would be generated with each small businessestablished. With the assumption of the 70% establishment rate, the component could be expectedto generate about 11,550 new jobs over a dtree to five year period.

'I/ See Chart 4 for the organization chart of the proposed sub-component.

-49- Annex 6Page 2 of 6

Table A.1: Overview of PMP Programs and Expected Outputs

Short-termn Medium-termTraining Model (A) Training Model fB)

Province Yr I Yr 2 Yr 3 Yr I Yr2 Yr 3 Total

North Sumatra 2 8 10 1 4 5 30West Java 2 8 10 1 4 5 30East Java 2 8 10 1 4 5 30Bali 2 8 10 1 4 5 30South Sulawesi 2 8 10 1 4 5 30Total Number of Programs 10 40 50 5 20 25 15I

Number of trainees per program ------ 45 - - 20--Total trainees per model ---- 4,500 ---- ------- 1,000

Estimated % graduate output _ A_--- 70% _ 70% -50

Estimated number of graduates ----- 3,150 -- _ 700 - 3.850

Estimated number of jobscreated per model /a - 9,450 --- 2,100 - 11.550

/a This assumes at dhee jobs are created per successful graduate.

Background

5. The Government has had considerable experience in the field of youngentrepreneurship development programs for self-employment prior to the preparation of the proposedSkills Development Project. In particular, the ILO/UNDP has been active in the field. FourILO/UNDP projects have been implemented since 1985. The first was a project to study the Roleof Women in Small Scale Industries in Rural Areas (INS/85/20). The second was the East JavaRegional Manpower Development and Training Project (INS/861016). Both of these projectspioneered a number of strategies including the use of educational institutions and NGOs as servicesproviders. The projects also introduced the use of joint business groups and "motivators" into theirproject designs.

6. In 1989, the ILO/UNDP sponsored study, -Review of Entrepreneurship, Self-employment and Informal Strategies", identified a number of issues that needed to be addressed inthe MOM's efforts to develop entrepreneurs. The study found that: (a) integrated and multi-facetedprograms are lacking; (b) too much emphasis was placed on narrowly focused skill training; (c)trained entrepreneurs have difficulty accessing credit/capital; (d) the experience required to train andestablish new entrepreneurs has been underestimated; (e) the level of participation from private firmsis too low; and (f) more involvement is needed from private sector networks (e.g., NGOs, privatecompanies, state corporations, industry groups, and service clubs).

-50- Annex 6Page 3 of 6

7. The third ILO/UNDP project, Self-employment Program for Training Institutions(INS/90/003), piloted short-term training programs through training institutions for students of thoseinstitutions. The fourth project, the Local Enterprise Development Agency Program (INS/90/004),piloted short-term training programs through community and private sector groups in an effort todemonstrate the potential of these suppliers of entrepreneurship development services. Theseprojects, both small and experimental, attempted to address the concerns mentioned above (para. 6).They were implemented in three provinces and were considered successful in piloting a short-termtraining scheme with potential for natonal implementation. Over a two-year period, the ILO/UNDPpilot programs experienced unit costs of about US$160 per participant enrolled; US$288 per businessestablished; and US$86 per ul-time job created.

8. Other related projects included the Manpower Development and Trainmg Project(World Bank: Loan 2705), the Central Java Enterprise Development Project (USAID) and the LinkingBanks Project (GTZ with the Bank of Indonesia). All of these projects generaly focused on thedevelopment of low cost training programs that featured a minimm of training inputs (typicaly oneor two weeks), strong motivational development and limited follow-up counseling.

9. In reviewing the available research and documentation on the above mentionedprojects, it is apparent that, for the most part, the projects aimed at developing smaUl businesses inthe informal sector. Although this is an important objective in the development of Indonesia, thereremains a need to gain more experience with approaches that would assist entrepreneurs to establishsmall industry-based firms in the formal sector. The proposed sub-component would focus on thisaspect of entrepreneur development.

Objectives and Sub-component Design

10. As briefly described above, the primary objective of the sub-component would beto demonstrate clearly the viability of two different models to assist young professional entrepreneursto establish smal businesses. A second objective would be to identify the program factors that affectthe successful training of young entrepreneurs to establish industry-based firms in the formal sector.A third objective would be to determine the scheme(s) of program delivery that would be mostappropriate for national replication as resources become available.

11. The sub-component would implement a varying mix of programs and approacheswithmin the five participating provinces. The choice of program mix would be determined from areview of: (a) differences in provincial and local management capacity; (b) availability of suitableuniversity and consultant support; and (c) socio-geographic factors. Each model program wouldoperate from its inception through the remaining duration of the project (one to three years).

Description of Models

12. Short-term Training Model. The short-term training model was piloted on a limitedbasis by ILO/UNDP in two of its projects (INS/90/003 and INS/90/004). The model would beimplemented in universities where young university graduates are readily available.2/ Eachparticipant would receive services for up to one year. The model features:

2/ The model was also successfully piloted with a few NGOs.

-51- Annex 6Page 4 of 6

(a) a structured selection of the participants (application and interview);

(b) about 95 hours of targeted group training in the basic concepts of entrepreneurship,management, marketing, production, and finance. Also included would be a casestudy, and the preparation of a business plan by the trainees;

(c) pre-business start-up support, including feedback on prepared business plans andcounseling to support the participants' applications for bank financing;

(c) participant acquisition of credit/financing for capital costs associated with businessstart-up of up to Rp 2.0 million. Each participant would have to self-finance at least20% of the tota' financing package; and

(d) post-business scart-up support, including participation in project established businessclubs, monitoring visits to the businesses by MOM Graduate Volunteers assigned tothe project, and follow-up counseling by project staff and consultants as required.

13. Medium-term Training Model. The medium-term training model would offer asimilar, university-based approach except that the programs would be more focused on highpotential, small business areas in privawe industry. The program would also provide more depth andconcentration in its service delivery. To determine the small businesses with the highest potential,a survey would be carried out in each province. The maximum level of credit/financing would alsobe substantially higher than in the short-term training model. The following briefly describes theservices that would be offered to each trainee over a penod of about one year.

(a) a structured selection of the participants (application and interview). The participantswould be screened to include only those who want to start new businesses in thetargeted areas determined in the study;

(b) about 45 days of targeted group training in the basic concepts of entrepreneurship,management, marketing, production, and fmance. Also included would be a casestudy, and the preparation of a business plan by the trainees;

(c) pre-business start-up support, including feedback on prepared business plans andcounseling to support the participants applications for bank financing;

(c) participant acquisition of credit/financing for capital costs associated with businessstart-up of up to Rp 5.0 million. Each participant would have to self-finance at least20% of the total fmancing package; and

(d) post-business start-up support, including participation in project established businessclubs, monitoring visits to the businesses by MOM Graduate Volunteers assigned tothe project, and follow-up counseling by project staff and consultants as required.A modest number of technical, legal, and professional consultants would be availableon a daily contract basis to provide technical advisory services to the participants asproblems arise.

-52- Annex 6Page 5 of 6

Management and Implementation

14. Guaranteed Loan Repayment Scheme. In the five provinces, the MOM/PIU wouldestablish a system whereby PMP participants could gain access to financing and credit to capitalizetheir businesses following their completion of the program. As a guarantee against default, theGovernment would deposit entirely from its own resources (i.e., without using the proposed loanfunds) US$0.5 million equivalent in the Bank of Indonesia./ These funds would be used to coverlosses incurred by Regional Development Banks due to default on participant loans. Theadministration of the loans and disbursement of funds would be through Regional Development Bankswith agreed upon guidelines that would be acceptable to the Bank. In general, the guidelines wouldallow for the short-term training risk associated with capital loans for new business start-ups.Typically, the loans would be approved through the Regional Development Banks' loan committeeaccording to the guidelines. In this process, each PMP participant would present a business plan andwould be eligible, based upon that plan, to receive a predetermined level of financing, dependingupon the type of program in which he or she participated.

15. Technical Assistance Contractor. To support the implementation of the sub-component in the five provinces, a TA contractor would be selected to provide about four years ofinternational and 36 years of domestic consulting services. The contractor would be located at auniversity in Bali and would provide technical advice, training and research services to the project.

16. Administrative Structures. The MOM would be responsible for implementation ofthe PMPs through appointed Private Sector Management Committees (PSMC). The MOM incooperation with the Governor's Office would establish PSMCs to provide oversight and privatesector input into the programs. The chairperson of the Committee would be chosen by the Governorfrom the private sector. At least 50% of the Conmittee would represent the private sector. Theremamiing members would represent public sector industry and government. Each PSMC would besupported by a Provincial Coordinator who would administer the day-to-day activities associated withthe implementation of the programs. The provincial coordinators would be employed as a part ofthe TA contract (para. 15).

17. The PSMC, in consultation with the MOM PIU, would select a key university, toimplement the first-year cycle of university-based programs (short-term and mediun-term training),where the Provincial Coordinator would be located. During each of the two subsequent projectyears, the PSMC would select additional institutions to participate in the program by implementingshort-term and medium-term training programs. Universities (with S 1 programs) would be selected,according to guidelines agreeable to the Bank. During these years, the original key university wouldserve as the hub institution, continuing to offer its programs, but also providing technical advice andstaff training to the other institutions. Priority would be given to targeted programs for youngfemale entrepreneurs.

3/ The ILO/UNDP projects documented about 20% default in similar financingarrangements.

-53- Annex 6Page 6 of 6

INFORMATION SYMM FOR SELF-EMPLOYMENT

18. As a subcomponent of the Young Professional Entrepreneur DevelopmentComponent, the project would finance the development and demonstration of a system to provideresource information relating to self-employment. The intended recipients of these services wouldbe persons who are interested in self-employment and organizations that focus upon the developmentof entrepreneurs. T he contract for the development and demonstration center would be awarded tothe PMP technical assistance contractor as a part of the PMP contract. The contractor and the MOMfull-time PMP Coordinator would conduct a three phase activity over a period of three years.

19. During the first phase, lasting six months, the contractor would employ one full timecoordinator and two full-time information officers. A resource center would be established and thecontractor would conduct a study in the province of Bali to determine additional resource andmethodology requirements. Relevant materials on self-employment would also be prepared andprinted. A computerized, management information system/data base would also be developed, testedand implemented by the contractor. This MIS/data base would be used in the management of thesystem and would be a vehicle for data collection to support the study.

20. During the second phase, lasting from month seven through month 18 of the project,the center would become fully operational and data collection would be completed for the study.During this period, participants would have full access to all available services.

21. During the third phase, before month 24 of the project, the contractor and the full-time PMP Coordinator would first host a mid-term review and evaluation of the subcomponent. TheMOM and Bank would participate in this activity. During this review, decisions would be made onactivities that would enhance the productivity of the information scheme. These may include theimplementation of a publishing program, short-term training teaching/workshop program,establishment of a computerized information service, etc. During the last year of the third phasethese enhancements would be implemented and demonstrated. The Bank would review theeffectiveness of this investment through the Project Completion Report that would be required at thecompletion of the project.

22. It is anticipated that the center would provide information services to about 10,000persons (estimated as one contact per person) over the duration of the project.

Impact Study

23. In the above two project subcomponents, an impact study would be conductedfollowing the completion of project. Where appropriate, control groups would be selected early inthe project to provide comparative data to support the study.

-54-

EMDONESI c7SKILLS DEVELOPMENT PROJECT Page I of 3

(Inu..Iuu ad Naiuu.d hafsamnd

Componad an Field of C _ants LOiO= latrmstional Nafional

L Provinal Comnonmn

A. Comnv a rou,p Tnunha Semnbs - -

B. Individual Comamn Traini Seivos - -

C. Tarsetd Taini for Jobekers

D. Small Enteus Tramm and Advisor SeicSmall Enertisw Speaist Ub d 3 PFT Poi - 252Small Fteruwi Specialist (Fld4aed) 3 T Ptrois - 720Sub4AIta - 972

E. ProiectAdministrationPTF Board Adviso 3 PI Pmvines 108 -

&*-TdtgfPrWxgA m 972

IL MhliabzotMnuuSmmw

A. YoungProfesional IaE _inz Dvv& W Pao= M M)PMP Coordinat Udayms WUv. 24 -

FAkeq_arrabip Tminiug Sp , Udq'aUntv. 24 -

Tniiung Oflier tUdan Uiv. - 36Business De" opmet OM= tmr)nUda iv. - 36Coordina of Sef-emplymed nomation Systeui UdayWn Univ. - 36Provincial Co _rdito in 5 Prvincs 5 PMP Pmvices - 144SUOab 48 252

B. 1c La Maket SfmaXo SylAbor Mtkl_W Sped"Et MOM 24 -Syslems AndysioTgrarnma MOM - 24Module Design Sped" MoM - 12Smb4ot 24 36

C. Sblff Traini at _ - -

D. Prenaration of PTF in SouA SulaweniTrainig Fund Specilist 8. Suahwed 6 24

E. Imnc Evaluation Study h - -

F. Pmoect AdmuinrstdonPrqect Coordimkwr MOM - 36

S4-Thal for MOM cAmeal 3

GRNAD S OTAl IS6 pge3

/a See Artrm 7, page 3.

DWONESISKELLS DEVELOPMENT PROJECT

9Std_. and Trainng Requrenfa

SW R-OUttinplazwntr 4Estimated Cost St9ts of TOR (Dae) Shost Lot (aDe) Cot for 9

Tp of TA/Aciviy Pose ective An Total/a Pxon- Pre Bxpeted Prepad Epcted Prqeped RSI HQS"Wo) Month& (Y)N)

A. &

1. PsCQonjs. PlwanqndCoAhmofPMP Udaec tUn. 288 24 F 2i94 6iS4 N x

2. Thiang Officer P and fitpanataiof PM? tating daumniv. 43 36 L 5194 6J94 N x

3. BusimDeelopmwtOffie P ad iwlat fP wusag UW" t v. 43 36 L 5/94 6194 N x

4. CoGdistmof S.z4poymut DtiOetfSi U niv. 43 36 L /994 6194 N x

S. PiePPoviadscoordinats C4omdtmtioi of PW &AdvW% ofE MPpt4pua SP P ptov 173 144 L 5/94 6J94 N x dh

6 Sy pe- A_ ysimPrpm DevWlopntofotc rput rs S rLLMB MOm 57 24 L 3,94 6/94 N x *

7. modeDesp Spece DenopubntofmcdleforLLMLS MOM 17 12 L 3/94 6/94 N x

8. Prjet cotdim O,eralcodion ofthepect Mom 94 36 L 3/94 6S4 N x

hubate 759 324 L24 F

ILft*iadoni mdvBWlPohdd C _xom

1. PrFBowdAdviscnr 3PlFBDow* 1,512 10S F 2/94 6194 N x

3. &"1 tEH-sinS peci1is Jd tsimfcanucityceve1opmntw 3 PTFPtovine 1,300 972 L 6194 894 N x

Sxb-ted 2,12 072 LZOE F

b F azet of omwnilb F - Foremw ns L - Lceal ofpfiiaL

The ipes =drpolicy Sb repran the nerofi asnd uvey to be eoducte&

>1

INDONESSKlI~A DKVUAPMNT PPRWWFC

C*onMuItat Stalks, ad Trabdn Rephqutunts

StandEd ResponsibilitybpmmtizW t Cost. 9tau ofTOR mate) bzt Lit (Date) Contact fr^ 9ast

Type of TA/Activity PnpoAe ive Agncies Totl /a, Perc o- red Expcted Ptepared Eected Pr d RSI HQ(USSVOO) MoUh /b (Y/N)

1. EuBpnbTr gSpecmi Phkm*gnd n _Uxmtatkoo(aiuing Udayuniv. 288 24 P 2194 6/94 N x

2. LaborbMedestfaiunmtiwSpecialist OveaU wordiration andde ofLl Mom 288 24 F 2t94 6t94 N x

3. TAndagFundSpecialist Dldopnetnmdppation of PTF c e S Sulwedsi 72 6 F 2/94 6S4 N x

4. Trainn Fund Specist Develtopeas mndpaV.stionofPTF S. i 40 24 L 5/94 6(94 N x

&lb,oadat &do 24 LS4 F

FeU.wA4,a Dvfliag ed W,*ahora1. Ov _mFellosbips Staff traini and deelpment ofthe MOM tUiveritin aboad t,505 59 N.A NA NA x

2. Ovee Taling Omseaaot-m ntraming farM om and PlF saff swrd releant 577 9S N.A NA N.A x

3. hoctyTraW Stafin md detopment of thMOM mominsinc in 781 139 NA N.A N.A x Qidwonesia

4. IntbyW orlmhops Tra nd des d lopme wMOM nd PTF staff Sed uince in 679 925 NA N.A. NA xIndonesia

Sab4stl 3,S52 1,218

1. Induty lduentiatio Study Supot for PMn madim-oat optimn 119 25 6/94 8/94 N x

2. Extablislment Survey Loedl Abor Macet omon System Imrvement 76 4 10/94 12/94 N x

3. Labor Foe Survey Loca Labor Madot Infornation Systemproven 19 2 4/95 6/95 N x

4. Reserh on Labor Maket hinotion Loca Labor Maiost lnoforation Syte mrovmnt 86 3 4/95 6195 N x

S. Eitabli9nnet Smvey Prq,tion of PTF in South Sulawesi 71 2 4195 6/95 N x

6. P jecdu ctlivaluatbon Study and mpactenationfthe poposed project nd 430 14 6/95 Sl9S N x

Tchnical Audits audng ofpject perihm 10/94 12/94

Sub4otl 801 SO

/a Bdte are not of ontitVenlieslb P P-ipofiessionk L - Locd Profsionals.

The fgures tder Policy S r nt therUber of sudies d survep to be conducted.'.4

-57- Annex 8

INDONESIASKILLS DEVELOPMENT PROJECT

PROJECT IPLEMENTATION RESPONSIBITlESBY AGENCIES AND DIRECTORATES

Responsible AgencyComponent & Subcomponet and Persons SAR Reference

1. Provincial Component/a

a. Company Group Training Services PTF Board, KADIN/APINDO & paras. 3.4-3.5Participating Pirms

b. Individual Company Training Services PTF Board, Participating paras. 3.6-3.7Firms, & Private and PublicTraining Providers

c. Targeted Training of Job-seekers PTP Board, & Public and para. 3.8Private TWaining Providers

d. Small Enterprise Training PTF Board, Participating paras. 3.9-3.10& Advisory Services Firms & Consultants

2. Mostry f Mannower Comnoentlb

a. Young Professional Entrepreneur MOM, Board of Planning & paras. 3.13-3.17Development Progmm (PMP) Development, Participating Universities,

Consulting Firm(s), & NGOs

b. Local Labor Market Information System MOM, Board of Planning & paras. 3.18-3.19Development

c. Staff Training & Development MOM, Board of Planning & pam. 3.20Development, Participating Universities(domestic and internadonal)

d. Prepartion of PTF in MOM, Board of Planning & para. 3.21South Sulawesi Development, Provincial Government

of South Sulawesi, & Consultants

/a Consultants would be contracted through PTF Boards./b Consultants would be contracted through MOM, Board of Planning and Development.

-58-

INDONESIA Annex 9SKILLS DEVELOPMENT PROJECT Page 1 of 5

PROJECT AcTImvEs AND MPLEmETATION SCEDULEsPitoVINcIL COMPONENT: WESr JAVA PROVINCE

1994 1995 1996 1997ID Name Apr Jul Oct Jan ApT Jul Ou Oct Jan Apr Jul1 Appointment of Chairperson

2 Appointment of Board members

3 Appointment of CTA (intl consultant)

4 Appointment of executive director

5 Board approval of training fund criteria

6 Board meesing

7 Appointment of the rest of PIU staff

8 Acquisition of Board and PIU facilies

9 Coninuaton of staff training

10 Procurement of equipment for CGTUs and others

11 Production & ditribution of promotional materials

12 Intaion of industry advisory services

13 Submission & review of traininh proposals

14 Board approval of training contracts

15 Board meeting

16 initiation of small enterprise dev. services

17 Inition of contract monitoring & evaluation

18 Board approval of CGTU proposals

19 Establishment of 7 CGTUs 1Ist yr)

20 Board neeting

21 Review & approval of job-seeker training contracts

22 Review & approval of contract for KADIN/APINO1

23 Review & approval of new traning managers

24 oard meeting (every month during the prolect)

26 Preparation/Establishment of 15 COTUs (2nd yr)

26 Bank/Govt first annual review

27 Preparation/Establishment of 8 CGTUs (3rd yr)

28 Bank/Govt second annual review 929 8anklGovt final review

Cti0cal _ MilPstoage 1

Norcrtirmeal Summarv _F

Prrogress _ _ RoDrjd UpO

Pagej I

-59-

INDONESIA Annex 9SKILLS DEVELOPMENT PROJECT Page 2 of 5

PROJECT ACTVrTS AND IMPLEMENTATION SCHEDULESPROVICNuL COMPONENT: EAST JAVA PROVINCE

_1I94 1 1995 Isr 19971I Name Apr |Jul |ct Jan Apr Jul LOct I Jan _Apr Jul Oct Jan Apr Ju1 Appointment of Chairperson

2 Appointment of Board members

3 Appointment of CTA (int'1 consultant)

4 Appointment of executive director

5 Board approval of training fund criteria

6 Board meeting

7 Appointment of the rest of PIU staff

8 Acquisition of Board and PIU facilities U |

9 Continuation of staff training

10 Procurement Of equipment for COTUs and others

11 Production & distribution of promotional materials

1 2 Initiation of Industry advisory services

13 Submission & review of training proposals

14 Board approval of training contracts ___

16 Board meeting

16 Initiation of small enterprise dev. services _ l

17 InWation of contract monitoring & evaluation _

1 8 Board approval of CGTU proposals

19 Establishment of 7 CGTUs (lst yr)

20 Board meeting

21 Review & approval of job-seeker training contracts _

22 Review & approval of contract for KADIN/APINDO

23 Review & approval of new training managers /

24 Board meeting (every month during the proJect)

25 Preparation/Establshment of 15 CGTUs (2nd yr)

26 Bank/Govt first annual review 1

27 Preparation/Establishment of 8 CGTUs (3rd yrl I i

28 Eank/Govt second annual review !

2 BankiGovt final review I

Critical Milestone -

Noncritical Summary _

Progress Rolled Up C

Page 1

-60-

INDONESIA Annex 9SKILLS DEVELOPMENT PROJECT Page 3 of 5

PROJECT AClTvrTES AND IMPLEMENTATION SCHEDULESPROVINCIAL coMpoNENT: NORTH SUMATRA

1994 j 1996 1996 1997ID Name Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul1 Appointmetnt of Chairperson

2 Appointment of Board members

3 Appointment of CTA (int'I consultant)

4 Appointment of executive director

5 Board epproval of training fund criteria

6 Board meeting

7 Appointment of the rest of PIU staff

8 Acquisition of Board and PIU facilWes U9 Continuation of staff training

10 Procurement of equipmnent for CGTUs & others

I11 Production & distributon of promotional materials

|12 IniWation otfindustrV advisory servees

1 3 Submission & review of training proposals 7_-_ __ _ - I=.

14 Board approval of training contracts

15 Board meeting

16 Initiaion of small enterprise dev. services

17 initiation of contract moritoring & evaluation

18 Board approva. of CGTU proposals

19 Establshmnem of 5 CGTUs l7st yr*

20 Board meeting

21 Review & approval of job-seeker training ommracts _

22 Review & approval of contract for KADIN/APINDO

23 Review & approval of new training managers

24 Board meeting (every month during the project)

25 Preperaton/Establishment of 6 CG%TUs (2nd yr)

26 BanklGovt ffrat annual review

27 Preparation/Establishment of 5 CGTUs (3rd yr)

28 BanklGovt second annual review I 0

29 BankiGovt final review

Critical Milestone +

Noncritical Summary _

Progress Rolled Up O

Page 1

-61-

INDONESIA Annex 9SKILLS DEVELOPMENT PROJECT Page 4 of 5

PROJECT ACTIVTIES AND ImPLEMENTATioN SCHEDULESM4SYRY OF MANPOWER COMPONENF

1994 j 1995 1990 1997

ID Name Apr Jul Oct Jan Apr Jul Oct I Jan Apr Jul Oct Jan Apr Jul1 Appointment of MOM PIU Director

2 Appointment of staff & PIU consultants

3 Acquisition of MOM PIU faciles ls

4 Procurement of MOM PIU equipment

5 Review and modification of study TORs

6 Preparation of tenders for study consulutnts

7 iniation of tendering for study consultants

8 Awarding of contracts to study consultants

9 Initiation of studies

10 identifiaton of future MOM staffing needs

I I Identification of staff development recipients

12 identifieation of training needs and sites

13 Initaton of Ph.D fellowship programs

14 itiation of MA fellowship programs

15 InWoitiatn of pre-departure language training (2nd groupl

16 Matchhg of recipients to requirements f

17 initation of MA fellowship programs (2nd group)

18 Itiation of short term training aeivites

19 Metngs regarding LLMIS

20 Inter-mlnisterial agreements on LLMIS

21 Procurement of LLMIS equipment

22 Appointment of LLMIS staff and consultants

23 Acquisition of ULMIS facilities

24 InWation of LLMS demonstraion activifes /

25 Meetings re: S. Sulawesi activies

26 Appointment of staff for S. Sulawesi activities

27 Appointment of S. Sulawesi consultants

28 Initiation of S. Sulawesi activities.

29 Meeting regarding PMP

30 Govemors appointment of PSMC Chairpersons

31 Govemors appointment of PSMC members

Critical _ _ Milesrone -

Noncritical Summary _

Progress Rolled Up O

Page 1

-62-

INDONESIA Annex 9SKILLS DEVELOPMEN PROJECT Page 5 of 5

PROJECT ACTVTIE AND IMPLEmeNTATION SCHEDuLEsMINISRY OF MANPOWER COMPONENT - CONTINUD

1994 1995 1996 1997ID Name Apr Jul Oct Jan Apr Jul. Oct Jan Apr Jul Oct Jan Apr Jul32 Meeting of Private Sector Mgt. Committees

33 Appointment of PMP province coordinators

34 Preparation of tender docs, for all contracts

35 Initiation of tender for TA contractor

36 Initiaton of tenders for PMP contractors

37 MOM/PIU selection of TA contractor

38 MOM/PIU/PSMC selection of key universities

39 Establishment of TA contractor In Bali

40 Private Sector Mgt. Committee meeting t41 Approval of PMP university contracts

42 Approval of PMP consultant contracts

43 Initiation of PMP programs

44 Bank/Govt first annual review

45 Bank/Govt second annual review

46 fank/Govt final review j

Critical - Milestone *Noncritical Summary _

Progress Rolled Up O

PFle 2

-63-Ae 10Page I of 3

INDONESIASKILLS DEVELOPMENT PROJECT

Qualtative and Process lIdicators

Unit of lxpected ImprovementsIndicator Measurement through Duration of Project

PII/PTF Beard MNNWnt

1. Cyoletimne for training proposals from % ofredAction in Th PWUPTF boards will reduce the cycle-tim for procingindustry. timefrom submission of contrats by 10% each yew of the project.

to award ofconrcts

2. Cost-reovry with projet raining % of reduction in The PUIPTF boards will reduce the Govenment imancingac tiviti oven financing share from 80% the firt year, to 60% the secend yea, to 30%

sharefor ndustiy izg. the third yea of the project

3. Board effcienoy. Frequey of PT?F Ie PrF boards wil meet as presrbed by agreed qwdlinesboard metins and and there will be at least 80M tdance at all meetn .

vwl of attendance atboard meetings

4. Program promotion/awareness ativities. % of inreae in level of The PIUT F boards will systematicaly ir the numberactivites over duralion of pronotion/awareness activitis by 15% per yea overofprofect durtion of projecL

S. Employer satisfation with trainin and high scores on anmad The PTF boards will candut an annal survey of clieatavisory services. employer companioe and wil recive a high scre tht inicates a bigh

level of employer satisctiCon

6. Capacity to maindain internal Gosts for avaiility ofcors Ding Bank review missi, the PIUs:PT! boards wilacoeptable for emvo delivery showing actual unit provide records showg atual osb of all service previdcd

costs forallserices

Compsm GIUn T]alna Seavie7. Incr in leve of CGTU oompany % of Increase in number Exting CGTUs wil mincase thi company membeship by

membership. of new companies 15% per yearwtrough durtion of projectjoining CTUs

S. Increase in availability of tining services %6 of Increase In number TIe CGTUs wil ince mmbr of sted taing atviticsoffbed thsough COTUs. oftraining activites within companics by 25% each 7 'v of the project

offered in membercompanies

Job PeTc9. Parioipation of private sic sector % ofparticfpation of The peetge of Job Seeker Training servioes pravided

providers. prfvate sector serice toug priat organizats wiU ince by 15% each year.providers

yeqm ProtaJin EntmwwuDevelcnent Pom MPs10. Acc of paticipants to cdit % of PA? grad&ates Tne PMP will provide 1000A ofall gradua who apply for

who actuaily receive credit to fimane new entise statup.access to credit

Local labor Market nforsnlon System (LLMIS)11. Information diemination and quaity. Dissemination of A rang of dissemination methods to bc used, such as

information every 6 reports, newletes, and flien. The quality of infomationmontls will improve.

12. Satisfion of users with LLMIS High user satisfaction MOM will conduct two surveys of usen durgin the projecLwith tke rnformation User satifiction will increase.

8gtff Dewlonrnent13. Return on iNetment in staff aining. % ofplacement in key Following oompletion of tramm& 90% of all feDowship

management and grduates wiUl reeive key positions within t MOM.techntealpositionsfollowing completfonof training

INDONESIASIULLS DEVELOPMENT PROJECI

Quanitativ Indiators for the Provbca Comnp ent

Unit of 1994 1995 1996 1997hIndcr Memansrt Q3 Q4 Ql Q2 Q3 Q4 Ql Q2 Q3 Q4 Ql Q7 Total

North Swmnt Prevbm

1 .Establishmtof CGTUs ofCGTUs 5 - - - 5 - - - - Is2 Appo fnewtai gma pesn-monl 45 45 45 45 150 150 150 150 105 105 105 105 1.2003. Tra dedtxpr uade CGTUs person-week 900 900 900 900 I.S00 1,800 1.800 1,800 2.700 2,700 2.700 2 700 21,6004 TrgpdtrwouvinonCGTSU person-weec 1,150 1.150 1.150 1.150 1.150 1,150 1.150 1,150 1.150 1.150 1.150 1.15G 13.S00S. Tang povided forjob kers pewe 256 256 256 256 256 256 256 256 256 256 256 256 3.0726. Traini-related placement percentag 85% S5% 85% 85% 85% 85% 85% 85% 85% S5% 85/ 85% 85%7 Advismy smic'forsmaU oenterpfise COfms 36 36 36 36 36 36 36 36 36 36 36 36 432S. Trainngforemployeesofsmalleeruis perso-eek 120 120 120 120 120 120 120 120 120 120 120 120 1.4409. Ovassh ost-tem trainirg(3rmnls) pe-week - - - - 60 - - - - - - 60

10 Oversesshsort-remmtaining(2weeks) pe-week - 20 - - - 20 - - - - - - 40

Wedt JiVs Province

1. Eatlisl=o ntofCOTUs VofCGTUs 7 - - - Is - - S - - -- 302 Appontnentofnew ainingmanage person.mnntb 135 135 135 135 450 450 450 450 315 315 315 315 3.6o003 Trainnprovided Cuough CGTUs p-wek 1.770 1.770 1.770 1.770 3,540 3,540 3.540 3.540 5,310 5,310 5,310 5,10 42,4S0 44 Train n provided tbroh non-COTUs peson-week 2.000 2,000 2.000 Z00 200 200 2,000 2.000 2.000 2.000 2.000 2,000 24,0005. Traming povrded forjob-ws person-week 420 420 420 420 420 420 420 420 420 420 420 420 5,0406 Triing-related paemet percentage 85% 85% S5% 85% 85% 85% S5% 85% 85% 85% 85% 85% 85%7. Advisy evices for small entrisea # of fins 144 144 144 144 144 144 144 144 144 144 144 144 1.7288 Trainingforanployees of snl entepises p-week 360 360 360 360 360 360 360 360 360 360 360 360 4,3209. Over seasx-term tramnin (3 montls) pe-wek - - - - 60 - - - - - - - 60

10 Orsea shorterm taining (2 weeks) pem wkwe - 20 - - - 20 - - - - - - 40

7gZJaraPnc1 3Establishmen ofCOTUs #ofCGTUs 7 - - - 15 - - - S - - - 302. Appoinbnertofnrwtrsinnmannager persnonth 135 135 135 135 450 450 450 450 315 315 315 315 3.6003. Traning proided ?-ugh COTUs pe-wk 1.770 1,770 1,770 7,770 3,540 3,540 3,540 3,540 5,310 5,310 5,310 5.310 424804 Trainig prvded forjo-ks peron-we 420 420 4tI 420 420 420 420 420 420 420 420 420 5.0405. Trainretatedplaceent percentage 85°h 85% 85% 85% 85% 85% 85% 85% 85%h 85% 85% 85% 85%6 Advisozysemvicesformasllnnterpe # offrms 144 144 144 144 144 144 144 144 144 144 144 144 1,7287 Trainig for employees of small ernerprises pers-week 360 360 360 360 360 360 360 36CG 360 360 360 360 4,3208 Ovem asmshort-t7mbaining(3mmnt) pe-wk - - - - 60 - - - - _ _ - 609 Ovsserashsorttermtr..mmng(2weeks) perso-week - 20 - - - 20 - - 40

o X

INDONESiASKILLS DEVELOPMENT PROJECr

Quantittve Indicators for the M stry of Manpower Coimponent

Unit of 1994 1995 1996 1997Indicato Measurement Q3 Q4 Q1 Q2 Q3 Q4 Ql Q2 Q3 Q4 Q1 Q2 Total

Youe Profesiond Eutrepnneur Dewvlomrnat Premg PMPi(Each of the S Partidcatin, Prov4nus

1. Gradusta fim nsho*nn mode (STM) # ofaduates 45 - 45 - 180 - 10 - 225 - 225 - 9002. Busin strted mnong STMaduxtes # of budsne - 32 - 32 - 126 - 126 - 158 - 15B 6303. Jobsc atced dfough&wbuiesestdazted la #ofjobs - - - 95 - 95 - 373 - 378 - 473 1,4184. Graduateureem mediumrtenmodcls (MTM) # ofWaduat" 20 - - - t0 - - - 100 - - - 2005. Buosineses,tedamongMTMgaduates t#ofbusiese - 14 - - - 56 - - - 70 - - 1406. Jobs artdthroughthebusin a saitd la #ofjobs - - - 42 - - - 168 - - - 210 420

StafrTrainin and Develonmen

1. Pers std aovasT Ph.D. feowsh pei 3 - - - - - - - - - - - 32. Pasons, s doovasem.LA. ftbowsbips prmon 10 - - - 15 - - - - - - - 25 3. Pas sotned domes PhhD. program Peson 3 - - - - - - - - - - - 34. Per sdstud doentic LA. progrms peon 30 - 35 - - - - - - - - - 65S. Doesetic td-tum baining person-montl - 60 60 - 120 120 - 120 120 - - - 600

Load Labor MNiret InforlUon System

1. Amud a _sbshuts gmgr - - 4 - - - - - - - - - 42. Am1rbfmomsuwv(Sakad) aUrwY - - - - 2 - - - - - - - 23. Saninsmllabora tintrmaldone s ropt - - - - 4 - 4 - 4 - 4 - 164. Inceatry 1-week wcdawps perso-week - - - - - 190 140 - - - - - 3305. hnoomwry 3 weekIikg pson-ek - - - - 510 90 90 10 - - - 8706. Owsem siort4orm twmg (2 wees) psek - - 40 - 40 - - - _ _ _ _ 80

at Total umber ofjobs creatd wil not become appat for a fow yom dter tob en of dhe projt

olIVO;Q

-66- Annex 11

INDONESIASKILLS DEVELOPMENT PROJECT

PLANNED SUPERVISION SCHEDULE

LengthTimning (in Week) Nature of Mission Team Composition

1. April 1994 2 Start-up Economist2 Training Specialist1 Financial Specialist (RSI)

2. September 1994 2 Full Supervision Econon'iri2 Traininf -cialistI FinanciaW ecialist (RSI)

3. February 1995 2 Full Supervision Economist2 Training SpecialistI Financial Specialist (RSI)

4. June 1995 2 Annual Review Economist2 Training Specialist2 Training Fund Specialist (Consultant)

5. October 1995 2 Full Supervision Economist2 Training SpecialistI Financial Specialist (RSI)

6. February 1996 2 Full Supervision Economist2 Training Specialist1 Financial Specialist (RSI)

7. June 1996 2 Annual Review Economist2 Training Specialist2 Training Fund Specialist (Consultant)

8. November 1996 2 Full Supervision Economist2 Training Specialist2 Financial Specialist (RSI)

9. May 1997 2 Final Supervision Economist2 PCR Preparation Training Specialist2 Financial Specialist (RSI)2 Training Fund Specialist (Consultant)

-67- Annex 12Page I of 5

INDONESIASKILLS DEVELOPMENT PROJECT

MAJOR PROGRAM EVALUATION

Objectives

1. A first objective of the monitoring and evaluation activities is to monitor theimplementatioil of SDP interventions or a continuous system-wide basis, so as to assure the project'squality, timeliness and effectiveness. A second objective is to measure the impact of SDP's majorprograms (PMP, CGTU, employment of new training managers in firms, and the training andadvisory services for small firms) on the performance and productivity of enterprises and to assessthe efficacy and overall cost-effectiveness of these major programs and their different supportmodalities. To this end, the evaluation framework for the proposed project comprises a range ofmonitoring and evaluation instruments, namely: (a) program-wide annual operational reviews;(b) semi-annual progress reports from the PIUs; (c) detailed case studies compiled by the trainingfund PIUs; and (d) rigorous program impact-evaluation analyses of SDP's major programs, includinga cost-benefit study of major program interventions. The Bank would review each of theseevaluations at the appropriate annual reviews, and agree with the Government on any action plansor project modifications to be undertaken as a result.

Monitoring

2. Program-Wide Annual Operational Reviews. The annual operational reviews wouldanalyze for each project activity, the previous year's performance, budget allocation andexpenditures, and would complete the detailed set of monitoring indicators and progress reviewcriteria agreed with the Bank. An operational plan for the next year would be prepared using thesame format.

3. Semi-Annual Progress Reports at the PIU Level. Each PIU would prepare semi-annual progress reports summarizing the key monitoring indicators and contrasting the actionsprogrammed with the actions actually undertaken over the previous six-month period.

4. Detailed Case Studies. Each training fund PIU would also document a limitednumber of case studies, aimed at illustrating both the quantitative and qualitative effects of the SDPinterventions. The case studies would focus on one or more areas of impact, documenting the effectsof SDP actions on individual firms, on groups of firns, and on the creation of new businessesthrough PMP. The case studies would provide important insights into the more qualitative effectsof SDP interventions, and contribute to SDP's dissemination/demonstration strategy.

Program Impact Evaluation Study

5. The Program Impact Evaluation Study will design a data collection strategy anddevelop a methodology to evaluate the effects of SDP's major programs. The objectives of theimpact evaluation study are: (a) measure the impact of interventions on improving the performanceand productivity of enterprises and their workers and on the creation and sustainability of newenterprises created through PMP; (b) to assess the overall cost-effectiveness of SDP's major

-68- Annex 12Page 2 of 5

programs; and (c) to develop improved productivity measures by relating the qualitativeimprovements to quantitative outcomes such as outputs or inputs.

6. Data Requirements. The first part of the study is intended to develop the data basesneeded to evaluate SDP's major programs and to improve the effectiveness of SDP support forexisting enterprises and for the PMP. This effort should be designed to institutionalize evaluationcapabilities in MOM. It will require: (a) routine and ongoing collection of key economic data foreach diagnosis; (b) use of a common format for recording data across provincial and MOM PIUs;(c) familiarizing all promoters with evaluation concepts and methodologies; (d) surveys of selectedenterprises to measure post-intervention outcomes; and (e) use of a control group of enterprises'individuals in assessing the impact of the CGTU, employment of new training managers in firms,training and advisory services for small fms and PMP. Development of the data base would beundertaken as follows:

(a) Background data on a time-series of key economic variables would be collected fromall enterprises during the diagnosis that precedes the actual intervention. Thispractice of collecting a common set of variables should be institutionalized for allinterventions. The kinds of data collected may vary by major program type, and belimited for small firms and more comprehensive for medium and large firms. Thiswould not apply for PMP.

(b) Diagnoses should include information on key variables for a minimum of the twomost recent years. The data should include year-end levels of production and themnmber of workers (from which labor productivity is calculated). Contemporaneousdata on the enterprise-average wage rates, product quality indicators and otherqualitative information-should also be collected where relevant.

(c) In each province two representative groups offirms should be selected, one a groupof firms that will experience an SDP intervention and one to serve as a control group.Similarly, a group of individuals who will meet the selection criteria, but will notexperience the PMP intervention, will be selected as a control group for thatprogram. The first group of firms and new PMP enterprises should be given afollow-up survey one year after the intervention to elicit information on interventionoutcomes. The control group firms should be selected from diagnoses conducted inthe same year as the follow-up survey. The impact of SDP on the first group offirms may be inferred from comparing outcomes with pre-intervention data providedby the control group. The impact of PMP would be inferred by measuring theoutcomes of the new PMP small companies and the control group one year after theintervention started, followed by a survey of these same groups, one year later.

(d) Follow-up surveys should provide information on the levels and changes in keyeconomic outcomes one year after the intervention, as well as information on thequalitative changes and improvements that are directly attributable to the intervention.The latter may include questions from the original survey, as well as new questionson other outcomes. The design of this survey instrument should begin when theoriginal evaluation is completed, and its methodology, limitations, and findingsthoroughly discussed. A small pilot survey should be undertaken to test and refinethis instrument.

-69- Annex 12Page 3 of 5

(e) The first follow-up survey should be undertaken in 1995 of samples of existingenterprises that experienced an intervention in 1994 and of the control group and newcompanies that started under PMP in 1994, and elicit retrospective data for the year1994-95. By 1994, the training fund PIUs would have adopted a common format forthe diagnoses that would be used as a control group for the follow-up survey ofexisting enterprises.

(f) A second survey should be undertaken in 1997 of a similar sized sample ofinterventions in 1996. Diagnoses already exist for these enterprises, so the follow-upsurvey need focus only on collecting outcome data for 1996-97. For existingenterprise-related programs, the outcomes should be compared to the outcome froma control group of enterprises given a diagnosis in 1997. The objective of thissecond survey should be to evaluate SDP major program interventions and to improveexisting services.

7. Evaluation Analyses. The objective of the second part of the study is to evaluatethe impact of SDP's major program interventions on the performance of enterprises and PMP, usingthe data described in para. 6. Amalysis should focus on evaluating the cost-effectiveness of SDP'smajor programs, measuring the relative effectiveness of different kinds of SDP interventions, anddeveloping better measures of productivity by relating changes in physical output measures toimprovements in various qualitative outcomes. The analyses should be designed to yield concreterecommendations for improving the quality of SDP support for enterprises and PMP.

8. The evaluation should include the following tasks:

(a) Degning a program impact measurement methodology. This methodologyshould take into account the following considerations:

(i) The impact of an intervention can be measured by comparing outcomes againstthe pre-intervention measures of the same enterprise or that of a control groupof firms/individuals. The analyst should make an assessment of whether thealternative measures yield different conclusions. A control group will not benecessary for PM?.

(ii) For existing finms, a control group should be selected from the data basesobtained through the initial diagnoses. To the extent possible, the control groupselected should resemble the enterprises to receive an intervention, particularlywith respect to industry and fim size. The selection of the control group forPMP is described in para. 6(c).

(iii) In measuring impacts, checks for accuracy, consistency of responses acrossquestions, and avoidance of double-counting should be ensured. Theseconcerns should be reflected in the methodology for quantifying each outcomeand summing across outcomes to get a total program impact.

(iv) Both quantitative and qualitative outcomes should be analyzed. The quantitativeimpacts may include increased production/sales, and labor productivity, andreduced inventories, materials use, and job turnover. For PMP, the quantitativeaspects may include production/sales, number of employees and type ofbusiness. The qualitative impacts may include better product quality, improved

-70- Annex 12Page 4 of 5

systems for cost accounting, identification of new products and markets, newforms of work organization, improved worker incentives, morale and attitudestowards work, and work conditions.

(b) Evaluation of the cost-effectiveness of SDP. The evaluation should relatequantifiable benefits of the intervention to the total direct and indirect costs associatedwith that support. The total cost of each SDP intervention has to be measured, takinginto account the cost of all elements (the PIU, intervention mechanisms, etc.) thatmay be justifiably allocated to it (e.g., on the basis of promoter's time or cost of theintervention). Private costs should also be measured, including all direct costs borneby the enterprise (tuition, wages and salaries of workers involved, and materials use)and the opportunity costs incurred by workers when participation occurs outsideregular working hours (imputed using average hourly wage rates).

(c) Sensitivity-analysis should also be conducted. Cost-benefit estimates can besensitive to assumptions about both benefits and costs. The sensitivity of estimatedcost-benefit ratios or internal rates of return calculations should be assessed for avariety of alternative assumptions. These may include assumptions about the periodover which benefits are accumulated, the time path of such benefits, and the inclusionof increasingly more comprehensive categories of direct and indirect costs.

(d) Different kiLds of SDP services. The collected data should be analyzed for insightsinto the effectiveness of different interventions. These analyses should be possiblethrough a judicious selection of firms provided with different kInds of SDP support.

(e) An effort should be made to develop improved measures of productivity. Theempirical relationships between quantitative and more qualitative outcome measuresshould be studied (e.g., What impact does introducing a just-in-time inventory systemhave on changes in inventory levels? How effective is it to train workers withoutparallel improvements in work organization or supervisory control? Doimprovements in product quality and timeliness of supply translate into increasedsales for the enterprise?) The separate, and joint, effects of qualitative improvementson quantitative outcomes should be investigated using regression models. The resultsmay be used to infer the likely productivity or cost-saving effects of changes inqualitative outcomes that are the target of SDP services.

9. Consultant Proposals. Technical assistance should be provided by outsideconsultants. Consultants should have demonstrated expertise in evaluation studies, familiarity withcurrent developments in evaluation methods, and experience using the econometric methodologiesdescribed in paras. 7-8.

10. Schedule. Enterprise performance data would be collected by training fund PIUs ona systematic and continuous basis beginning in 1994. Prior to the commencement of the survey, adraft questionnaire would be submitted to the Bank for review and comment. The first follow-upsurvey would be fielded in 1995 to a sample of enterprises and those PMP participants whoexperienced an intervention in 1994. The first evaluation study would be completed by December31, 1995.

-71- Annex 12Page 5 of 5

11. The second follow-up survey would be fielded in 1997 to a sample of 1996interventions for existing enterprises and to a sample of 1994, 1995 and 1996 interventions for PMP.The evaluation study based on this survey would be completed by October 31, 1997, and the resultswould be used for overall project evaluation in the project completion report.

INDONESIASKILLS DEVELOPMENT PROJECT

Summary Accounts by Years - Totals Including Contingencies

Totals Including ContingenciesTotals ncluding Contingencies (Rp Million) (US$ Million)

1994/95 1995/96 1996/97 Total 1994/95 1995196 1996197 Total

A. Eqcipment 2,356.7 855.4 555.2 3,767.3 1.1 0.4 0.3 1.8

B. Fumnite 124.0 129.8 81.5 335.3 0.1 0.1 0.0 0.2

C. Temhnical Assistancelntemationa Consultant 2,066.9 2,233.8 1,232.3 5,533.0 1.0 1.0 0.6 2.6National Consultant 1,374.6 1,491.6 1,567.2 4,433.4 0.7 0.7 0.7 2.1Research and Survey 335.5 881.2 625.2 1.841.9 0.2 0.4 0.3 0.9Sub-total 3,777.0 4,606.6 3,424.7 11,808.3 1.9 2.1 1.6 5.6

D. Fellowships 831.9 1,723.5 1,084.9 3,640.3 0.4 0.8 0.5 1.7

E. Training and WorkshopsOverseas Training 518.9 682.7 116.7 1,318.3 0.2 0.3 0.1 0.6In-CountryTraining 516.7 788.0 555.8 1,860.5 0.3 0.4 0.3 1.0hi-Country Workshops 591.5 517.4 501.4 1,610.4 0.3 0.2 0.2 0.7Sub-total 1,627.1 1,988.1 1,173.9 4,789.2 0.8 0.9 0.6 2.3

F. Enteneur Training ProgramsPMP Training Services 319.1 658.1 921.3 1,898.5 0.2 0.3 OA 0.9PMP Guaranteed Fund 1,116.3 0.0 0.0 1.116.3 0.5 0.0 0.0 0.5Sub-total 1,435.5 658.1 921.3 3,014.9 0.7 0.3 0.4 1.4

G. Provincial Training FundPTF Training Services 6,374.1 12,918.7 15,699.3 34,992.1 3.0 6.1 7.5 16.6PTF Technical Services 1936A. 3.696.8 4,932.1 10,565.3 0.9 1.8 2.3 5.0Sub-total 8,310.5 16,615.5 20,631.4 45,557.4 3.9 7.9 9.8 21.6

H. Project ManagementHonorariaandSalary 642.7 1,137.9 1,521.0 3,301.6 0.3 0.6 0.7 1.6Travel Expenses 642.1 1,054.9 1,149.0 2,846.0 0.3 0.5 0.6 1.4Consumable Materials 421.8 676.0 885.9 1,983.7 0.2 0.3 0.4 0.9Office Operation & Miscellareous Costs 493.4 915.6 1,213.8 2,622.8 0.2 0.4 0.6 1.2Subb4otal 2,200.0 3,784A 4,769.7 10,754.1 1.0 1.8 2.3 5.1

Total Project Cosb 20,662.7 30,361.4 32,642.6 83,666.8 9.8 14.2 15.5 39.7

Figures may not add up due to rounding.

INDONESIASKILLS DEVELOPMENT PROJECT

Swwmary Acceuts by Components - Totab ncuding Contlngendes(Rp MDlion)

Pwv,ncal Component Ministy of Manpower CowpontSmall Lloca Preparation

Cmpany Indivdual Enteapi-s Youm labor ofTrainnGroup Compny Job-se Tra8ng & PTfessoIa Market Staff Fund in

Trii Trag Trainig Advisory Projet Enreprnur inforation Trui&gA South Evaluation ProjectServies Services Svics Sevies Admins Developet SYstem Development Sulawesi Studies Admiron TotW

A Equipment 1,581.8 0.0 0.0 0.0 629.5 363.4 1,1721 0.0 20.5 00 0.0 3.7673B. Fritre 278.6 0.0 0.0 0.0 53.2 3.5 0.0 0.0 0.0 0.0 00 335.3C. Technical Assistance

Iternationl Consant 0.0 0.0 0.0 0.0 3,433.4 1,289.7 644.9 0.0 165.0 0.0 0.0 5,533.0Nainald Constnt 0.0 0.0 0.0 3,096.9 0.0 811.3 203.7 0.0 97.4 0.0 224.1 4.433.4Reseach and SAvy 0.0 0.0 0.0 0.0 0.0 290.0 417.8 0.0 169.6 9646 0.0 1,842.0Sub-totlW 0.0 0.0 0.0 3,096.9 3,433.4 2,391.0 i.2664 0.0 432.0 964.6 224.1 11,808.4D. Felowdips 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3,640.2 0.0 0.0 0.0 3,640.2

E. Traigand WokhopsOverseasTrainng 0.0 0.0 0.0 0.0 67.3 0.0 451.0 0.0 0.0 0.0 00 1,318.3In utryTramirng 0.0 0.0 0.0 0.0 0.0 0.0 00 1,860.5 0.0 0.0 0.0 1.8605 _In-Comunnyorkshops 0.0 0.0 0.0 0.0 91.7 0.0 1368.0 118.4 32.2 0.0 0.0 1,6104 (Sub-tot 0.0 0.0 0.0 0.0 959.0 0.0 1,819.0 1,978.9 32.2 0.0 0.0 4,789.2

F. Enaarme TrngftProgmsPre Training&nrices 0.0 0.0 0.0 0.0 0.0 1,89S.6 0Q0 0.0 0.0 0.0 0.0 1898.6PMPGua=cteedFund 0.0 0.0 0.0 0.0 0.0 1,116.3 0.0 0.0 0.0 0.0 0.0 1.116.3Subtol 0.0 0.0 0.0 0.0 0.0 3.0149 00 0.0 0.0 0.0 0.0 3,014.9

G. Prvinci Traning FundP7FTTraigSrSvices 19,657.9 11,645.6 1,977.1 1,71.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 34,992.0PTF Tecmical Servic 7167.0 220.0 0.0 0.0 3.178A 0.0 0.0 0.0 0.0 0.0 0.0 10.565.426,824.9 11,865.6 1,977.1 1.7114 3,178.4 0.0 0.0 0.0 0.0 0.0 0.0 45,5574

IL Project MagmetHonoraia 1,032.1 86.1 0.0 0.0 863.4 1,213.0 41.0 0.0 66.0 0.0 0.0 3,301.7TrmelExpenses 819.1 0.0 0.0 5S0.1 127.6 419.3 114.0 521.5 29.9 0.0 264.5 2,846.0Cosaule Materials 563.1 0.0 0.0 0.0 385.7 802.3 224,1 0.0 8.4 0.0 0.0 1,983.6Office Operatin and MIscellanecous Coats 1,4. 36.9 0.0 0.0 - 162.4 879.9 0.0 0.0 0.0 0.0 0.0 UnSubtoWsl 3,957.9 123.0 0.0 550.1 1,539.1 3,314.5 379.1 521.5 104.3 0.0 264.5 10.754.1

TOW ProjecteCo 32,6Ca.2 11,986 9.1 S35A 9.792.6 9017A 4,636 6140.6 M8O. 964.6 4886 S3/66Figus nmy not add up due to roundig.

W X

-74- Annex 14

INDONESIASKILLS DEVELOPMENT PROJECT

ESIiMATED SCHEDULE OF DIsBuRSEMENTS

DisbursementsIBRD Fiscal Year Amount per Cumulative Disbursement Profile /a

semester Amount % %

1994/951 2.0 2.0 7 02 4.5 6.5 23 1

1995/961 4.5 11.0 40 32 5.0 16.0 58 6

1996/971 4.5 20.5 74 142 4.5 25.0 90 22

1997/981 2.7 27.7 100 34

/a Latest standard disbursement profile for education projects in Indonesia (July 27, 1993).

-75- Annex 15

INDONESIASKILLS DEVELOPMENT PROJECT

SELECTED DocumENs AND DATA AVAILAsLE IN TH PROJECT FILE

A. Selected Report and Studies Related to the Sector and Project

A.1 "Report on Training Fund Scheme - Structure, Systems, Procedures, Sample Contracts,"John Moore, January, 1993.

A.2 'Private Training Center Study," Richard W. Moore, January 8, 1993.A.3 "Survey of Manufacturing Enterprises in East Java, West Java and North Sumatra,"

Shafiq Dhanani, January, 1993.A.4 "Enterprise-based Training," Leslie Kemp and Mel Crofton, November, 1992.A.5 World Bank Policy Paper, "Vocational and Technical Education and Training," May

1991.A.6 World Bank Report No. 9350-IN, "Indonesia:Employment and Training - Foundation

for Industrialization in the 1990s," June 13, 1991.A.7 "Albania: Training, Enterprise and Employment Fund (TEEF) Preparation Report,"

Arvil Van Adams, Dilek Barlas, David Fretwell, and Teresa Ho.A.8 "Poland: Employment Promotion and Services Project, Project Operational Manual,"

Country Department IV, EMENA Region, May 3, 1991.A.9 Provincial Government of East Java Decree, "Manpower Training Obligation for

Companies and Mampower Training Obligation Contribution for Companies in Level 1Region," No.4, 1991.

A. 10 "The Career Aspiration of Terdary Educated YounD People and the Impact onEntrepreneurship Development Programmes," ILO, 1993.

A. 11 "Findings from Survey of Entrepreneurs Assisted During the First Year of PilotTesting," ILO, 1993.

A. 12 "The Self-employment Programe for Training Institutions (INS/90/003), Descriptionsof Programmes, Costs, Outputs and Recommendations for the Future," ILO, 1993.

A. 13 "The Local Enterprise Development Unit Project (INS/90/004), Descriptions ofProgrammes, Costs, Outputs and Recommendations for the Future, ILO, 1993.

B. Draft Working Papers

B.1 "Provincial Training Fund Boards and Project Implementation Units, and Pre-projectActivities," November, 1993.

C. Background Papers Related to Project Preparation

C. 1 Ministry of Manpower, "Skills Development Project Proposal (Final Draft), 1993.C.2 Detailed Project Cost Tables, Naoshi Kira

INDONES&ASKILLS DEVELOPMENT PROJECT

Organaftional Structure of Provincal Government

Governor C AG innOs

Prownvcl Padiaament . .............. .s Govenorfor EconomicD.ev.ie Governorfor Weyare

_-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-IProvntaal Secretary|

Assistant Secrety Assistant Seretry Assist Sear Aitaat Seretoq Fn Mist*dfor PUblic Admbi for Den AJvmi. for SodialAffairs foAwnbrto Group Offices P'owndia Officea

(A SDA I) (ASDA 1I) (A SDA III)&Bkt(IA) (KANWIL)

Administration Development Developnmet unit Manpower MOM Off,ice

Rumralrwp m a rw| Officefor ProvincialAdministruton Deelopmet Managemet MO! Office

Other Offi ces Other Offli csOther OfficsOmrOfles Othes rvL1Z°D1H 1+3 Lq {3 st,,- J~~~~~~~~~~~~~~~~~~~~~~~~~~~~Ofie

I0

INDONESIASKILLS DEVELOPMENT PROJECT

Organizational Structure of Ministry of Manpower

| M efJpOf MMPg

Iw I

Dhaor Gnral of Diedr Generat of Train Dirdo Genra Of Chains ofDe,dopmweof Maynw A Na dePreth.dW D elepnaWf Beerd efMmpo

I Di" eqI DOf I I of I* of Cr< ofSPlcema,d o Joeel&.pn " _ ndw#ieweflo J&alRdatild Jb Dr opmUhg A

Dimtore eireiref D ira off Catr ofCreationF Wr1 Cedto Iknd ________ D___ ___

Directorate of D Deoraef . .. | Ceter of_ Aac*femWfD -- D-vD p-Wt*of 1,it- wt O SorigCnWdiatw Researe,&fhry D |mm

W orert .1 raiT n ers I__ __ _I_ _ _ .____. _ __I_

Direoeqf Dfioeof Diret ofSerwcff of Woerks App-Ui-WhpDr#eopm& i Sarfdy A Occaational

Iverseas I_____________ _I H edalt

DetvpmWe of Mancpwer Dietorae of

Dbistd QOfice

Chart 3

-78-

INDONESIASKILLS DEVELOPMENT PROJECT

Organizationdal Structure ofProvincial Training Fund Board and Project Implementation Unit

Provincial Governor 1Provincial Training Fund Board

Chairperson (private sector)3 Members (public sector)3 Members (pnvate sector)

ProjectImplementation UnitPIU Director (private sector)

Treasurer (public sector)Training Officers (private sector)

Administrative Staff (private sector)

Training Promotion Sub-Unit TrainingAdvisory Sub-Unit SmallEnterpriseSub-UnitTraining Promotion Specialist(s) Training Advisors Small Entezprise Advisor(s) |

AdminiAdministtive Staff isativeSta

Promnams under tie Provincial Trainine Fund

* Establishment of CGTUs & Company Group Training Services* Individual Company Training Services, Training Manager Capacity Development, &

Support for KADIN/APINDO* Targeted Training of Job-seecers* Small Erteaprise Training and Advisory Services

Chat 4-79-

_~~~. II I

iiL H

MAP SECTION

I

SRO 25570

8.100 AD "' INDONESIA

Southa C3hCemain v 5 .PHIUPPINES SKILLS DEVELOPMENT PROJECT

BRUNECet

< < MALAVSL8k ) Nouo> rFDMt4tN

s > 12 /%C?>s \ (,> MNUAY M ,} A ° /S

S \\C-tINGAPORE 10WP CE S/OUNDAN; ~~~~~~~~~~~~~~~~~51N ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ -INTW44TIONM BOUNOANES

AT 14 9

~~sl1onak 14KALIP N?A tD To 4 e~~~~~~~~~~~~~ ( ~NORTH PACIFIC OCEAN

~~~~~~~10 Wh151;27NDnu~\I

I DYLUAWA.ATA k.2 JJAWA9T ' ULAWE c- C2 JAWA TE 1GA5 JAWATLMUR6 LAMFtUNG7 RRNGKUW JAYA

8SUMJRAW$ELA.AN6

,Ii 4IJMMAThRA 8AAT 1-d12 SUMATER UTARA JAKARrA13 al. ACE

14 6KAUMANTAN SLATA 2 £ewcr15 KAUMAN'TAN TENA216 S J AW A . * soG

20 JURAWESI SEWATAI ote namlo421 StLWEITENGGARA o hsmod

23 NUSA TENGGARA8A Th (lndBakGru INDIAN OCEAN 224 NUSATBNGGARATIMUR n ugeto h sa25 MAVLUKU anytu of ay tenito,A26 html JAYA 2rayedremn7ho ~

27 ilOR TIMUR or sccepance f suclowndaries MJTAII