Star Report: Indonesia Compact | August 2019

Executive Summary

MCC’s Board of Directors selected Indonesia as eligible to develop a compact in December 2008. With a population greater than all other MCC compact countries combined and an island geography spanning the same distance as from Miami, Florida to Juneau, Alaska, Indonesia was not a typical MCC partner country. As such, there was broad recognition at MCC that developing a compact with this strategic U.S. partner would be unique and challenging. Given Indonesia’s large economy, sizeable population, and geographic expanse, the compact ultimately focused on innovation and opportunity for scale, allowing the Government of Indonesia (GOI) to tackle existing problems in innovative ways by using different standards and incorporating international best practices.

The compact included three projects. Through the Green Prosperity Project, the compact supported the GOI’s commitment to improving natural resource management and maximizing opportunities for investment in renewable energy and sustainable agricultural practices, including through engaging and leveraging the private sector and other external resources. The Nutrition Project aimed to prevent and reduce chronic malnutrition by improving the capacity of health service providers and strengthening community health, sanitation, and education efforts, ultimately helping to shape the national conversation on nutrition. The Procurement Modernization Project piloted new procurement institutional and staffing arrangements and introduced a new digital system to help the GOI more efficiently and transparently procure goods and services.

Compact development and implementation faced challenges. At the start, none of the project concept papers initially submitted by the GOI met MCC’s criteria for investment, and certain projects, such as Green Prosperity, were larger in funding and scope than MCC could realistically fund and indeed larger than many full MCC compacts. Additionally, the GOI was committed to leveraging the lessons from compact implementation to scale up interventions or change their own processes and policies. While this commitment was positive, it also led to additional bureaucratic obstacles that substantially delayed project implementation in some cases. As an example, it took over one year to develop a sufficiently accountable payment system to enable individual Ministry of Health (MOH) workers to attend trainings, in part because of a preference for using and improving MOH systems rather than outsourcing training and payments.

The overall commitment to improve existing systems did, however, lead to advances in the policy environment, particularly for the Nutrition Project and the Procurement Modernization Project. The progress at sub-national levels was even greater, with several local governments passing regulatory reforms and institutionalizing improved practices in public procurement through local parliament legislation.

MCC’s Board of Directors approved the MCC compact with Indonesia in September 2011 and the $600 million compact was signed on November 19, 2011. Approximately $474 million (79 percent) of the Indonesia Compact was disbursed, with $126 million unspent due to a slow start to implementation across the compact and with specific difficulties in launching the Green Prosperity Project.

The Green Prosperity (GP) Project

The objectives of the GP Project were to increase economic productivity through: 1) reduced reliance on fossil fuels by expanding renewable energy; and 2) reduced land-based greenhouse gas (GHG) emissions by improving land use practices and management of natural resources. The majority of the GP Project’s investment was intended to occur through an adaptable and market-responsive GP Facility (GPF), a vehicle to provide grant financing to mobilize greater private sector investment and community participation in renewable energy and sustainable land use practices. The GPF was designed to identifyand target projects that were ripe for implementation and/or scaling up in an evolving and dynamic market. The GPF also aimed to leverage private sector funds that would maximize the impact of compact funding and help improve sustainability beyond the life of the compact. To support the GPF and achieve project objectives, GP also strengthened the spatial planning and enforcement capacity of participating villages, districts, and provinces through the Participatory Land Use Planning (PLUP) Activity since understanding where land boundaries are and what land use is taking place within those boundaries helps communities to plan and make informed decisions about managing natural resources.

Sixty-six GPF grants were completed, leveraging roughly $28 million in private sector and other outside financing. The GPF achieved significant milestones, including:

  • Installation of 12.75 megawatts of new renewable energy generation capacity, MCC’s largest renewable energy investment to date. The project also piloted new models in community-developed partnerships for off-grid electricity;
  • Training of more than 127,000 farmers, MCC’s largest farmer training, certification, and technical assistance support program to date; and
  • The first MCC compact to sustainably certify independent small holder cocoa and palm oil producers with significant private sector co-financing. Certification schemes set out environmental and social standards and require farmers to meet improved farming practices and then monitor compliance through regular audits. Once farmers receive certification, they are able to sell beans at a higher price.

In addition, the GPF portfolio of investments supported peatland restoration to combat fires in degraded peatland, secured rights for community groups over communal forest lands, and encouraged community participation in land use planning. Special efforts were made to target training to reach poor and socially disadvantaged groups, including women and ethnic minorities, with over 43,000 women trained under the GP Project. Additional information on project results will be available from forthcoming independent evaluations.

The Community-Based Health and Nutrition to Reduce Stunting Project (Nutrition Project)

The objectives of the Nutrition Project were to reduce and prevent low birth weight and childhood stunting and malnourishment of children in project areas, resulting in increased household income through health cost savings, productivity growth, and higher lifetime earnings. In Indonesia, at the time of compact development, over one third of children under five were stunted. 1 This signals long-term malnutrition, which can have a major impact on children’s lives, putting them at higher risk of chronic disease, delayed cognitive development, delayed enrollment in school, and reductions in future earnings. The Nutrition Project was conceived as a way to build community knowledge of and demand for health services that could combat stunting and strengthen the health system infrastructure at the local level to deliver these services.

The project design was based on the results of a 2011 rigorous impact evaluation, which found that an existing national project in Indonesia was delivering positive health and school enrollment impacts at the community level. 2 At the same time, qualitative data suggested that often communities that wanted services could not get them from their local health posts. The evaluation suggested that greater impacts might be possible if the “demand‐generating” community empowerment and education activities were coupled with a “supply‐side” set of interventions to meet this demand. Compact-funded interventions included community block grants and participatory technical assistance to communities, training for health service providers, sanitation and hygiene activities, provision of micronutrients to pregnant women, materials to measure children’s height, private sector interventions, and a behavior change communications campaign. Ultimately, the project trained over 17,500 service providers on proper feeding for infants and young children, distributed over 35 million iron folic acid tablets for pregnant women, and conducted over 4,200 community sanitation behavior change meetings in 64 districts.

While activity outcomes varied, the Nutrition Project formed a cornerstone for and supported a larger movement to increase awareness about stunting in Indonesia and to channel resources to address the problem. Similarly, the Ministry of Health has recognized the links between malnutrition and sanitation, and organized its offices accordingly. At the end of the compact, stunting had become a national priority for Indonesia, with national and local governments making public efforts to coordinate between sectoral agencies and leverage additional resources to tackle the issue.

The Procurement Modernization Project

At the time of compact development, the GOI did not recognize procurement as a specialized discipline. Instead, the purchase of goods and services was made by government personnel assigned to the task on an ad hoc basis. The GOI recognized that this public procurement system lacked consistency, governance, and expertise and was highly vulnerable to waste and abuse. The Procurement Modernization Project was designed to partner with the recently created National Office of Public Procurement (LKPP) to support implementation of newly enacted presidential decrees aimed at radically reforming the legal and institutional framework of procurement throughout the country.

The Procurement Modernization Project aimed to establish procurement as a professional function within the GOI and create a cadre of professional procurement officials with the appropriate skills, systems, processes, and operating standards to reduce costs and achieve efficiency in procurement, and provide procurement quality that met public needs and ensured timely delivery of services. Compact funds were used to establish dedicated procurement service units (PSUs) in a diverse set of government entities throughout Indonesia and to provide extensive training and support to nurture their organizational development. The organizational development program received strong support from LKPP and is expected to spread and be sustained to reach many more PSUs in Indonesia. By the end of the compact, high‐capacity pilot PSUs were already sharing their knowledge with other PSUs.

As a condition of the compact, the GOI agreed to establish procurement as a functional position within government agencies. In support of this action, the Project developed and delivered 43 procurement and organizational skills training modules mapped to professional competencies focusing on building skills rather than on regulatory compliance, in order to enable the GOI to conduct more strategic, complex, and high value procurements within ministries and at the regional and district levels. Over 1,000 individuals participated in the training program, which also established local training institutions and developed local trainers. By the end of the compact, 24 percent of trained procurement specialists and staff of PSUs were women from a baseline of 19 percent, with four becoming PSU heads. The procurement skills training modules have been adapted by LKPP for use in the GOI competency requirements for procurement professionals across Indonesia.

The Procurement Modernization Project also helped develop and pilot new procurement policies, procedures, and model bidding documents for procuring public-private partnerships (PPPs), an important strategy for Indonesia to improve the poor condition of national infrastructure. The Project also provided research for the GOI to use as it adopts practices promoting environmentally and socially sustainable public procurement.

This Star Report for Indonesia provides a summary of the outputs of the compact program, documents changes in compact activities and the reasons behind them, details information on performance against targets in the monitoring plan, and summarizes the results of independent evaluations that have been completed. It also details relevant partnerships and learning as a result of compact investments. This Report includes the results of interim evaluations and will be updated to include data from nine independent final evaluations that are not yet complete.

  • 1. Riskesdas 2007 (Riset Kesehatan Dasar – Basic Health Survey). Over one third of children under 5 in Indonesia remained stunted during the 2013 round of the Riskesdas survey, the year that the MCC compact with Indonesia entered into force.
  • 2. Olken, Benjamin A.; Onishi, Junko; Wong, Susan. 2011. Indonesia’s PNPM Generasi Program: final impact evaluation report (English). Washington, DC: World Bank.
  • 3. The Comprehensive Partnership established a formal framework for enhanced bilateral cooperation in several areas. Details at: . Viewed October 24, 2018.
  • 4. Asian Development Bank (2010), Country Diagnostic Studies, Indonesia: Critical Development Constraints. See page 86, Summary, for a statement of the three identified critical constraints to inclusive economic growth.
  • 5. Asian Development Bank (2010), Country Diagnostic Studies, Indonesia: Critical Development Constraints.
  • 6. . Viewed October 24, 2018.
  • 7. For further detail on the evolution of the GPF Activity, please see the Green Prosperity Facility Evaluation referenced and linked below in this report.
  • 8. The matchmaking process has been somewhat successful. Several letters of agreement were signed and other “process” milestones reached. But, the GOI unit tasked with monitoring these outcomes has not yet delivered any satisfactory reporting covering this information.
  • 9. MCC’s standard practice is to have compacts ratified or approved by the partner country’s legislature.
  • 10. See the MCC Learning section for details about what lessons MCC took from implementing the GPF and how the agency is actively applying them to current and future facilities.
  • 11. FAO’s Data Portrait of Smallholders.
  • 12. This refers to the CocoaTrace technology / app which is now being used for Palm Oil as well. Learn more here:
  • 13. MCC is waiting for information from the Government of Indonesia to verify this statement.
  • 14. FAO, “Small Family Farms Country Factsheet – Indonesia,”
  • 15. It is important to note that because the GP Project funded 66 grants under the GPF Activity, it was not possible to verify the data above in the same way that MCC normally does for a project. The data above were reported by grantees/implementers, which is standard; but the standard of evidence for accepting their reports was lower than for normal MCC projects because it was not possible to closely monitor activities of each grantee.
  • 16. MCC is waiting for information from the Government of Indonesia to verify this statement.
  • 17. POME investments also covered under the renewable energy portfolio section.
  • 18. Brief summaries of the grants can be found at: Viewed October 24, 2018.
  • 19. The Green Knowledge Management Information System can be accessed at: Viewed October 24, 2018.
  • 20. For further explanation on the administrative costs associated with the GPF Activity, please see the Green Prosperity Facility Evaluation referenced and linked below in this report.
  • 21. MCA-Indonesia (2018) Policy Study to Promote Economic Opportunities for Women and Vulnerable Groups in Indonesia Low Carbon Economy, Jakarta Indonesia.
  • 22. The Government of Indonesia’s One Map Policy was initiated in 2011 to establish a unified database of geospatial information, including land use and land tenure, to be used to inform government decisions on the allocation and use of land and natural resources.
  • 23. MCC is waiting for information from the Government of Indonesia to verify this statement.
  • 24. Details can be found at: Viewed October 24, 2018.
  • 25. MCC is waiting for information from the Government of Indonesia to verify this statement.
  • 26. Learning from the experience with the Green Prosperity Facility has been applied to MCC facilities underway in Morocco, Benin, and Niger compacts.
  • 27. As estimated in the cost-benefit analysis at time of signing.
  • 28. Olken, Benjamin A.; Onishi, Junko; Wong, Susan. 2011. Indonesia’s PNPM Generasi Program : final impact evaluation report (English). Washington, DC: World Bank.
  • 29. Asian Development Bank (2010), Country Diagnostic Studies, Indonesia: Critical Development Constraints. This quotation is from the Executive Summary on page 4 but the larger discussion can be found in section 4.2.1 Human Capabilities beginning on page 57.
  • 30. Olken, Benjamin A.; Onishi, Junko; Wong, Susan. 2011. Indonesia’s PNPM Generasi Program : final impact evaluation report (English). Washington, DC: World Bank.
  • 31. During the design stage, the independent evaluator proposed a 5 percent effect size as a reasonable effect size to expect based on the project cost. The power calculations were driven in large part by the number of sub-districts in the three treatment provinces.
  • 32.
  • 33. This indicator reports total Generasi block grant spending against the target for MCC’s contribution to Generasi’s block grant budget. The percent complete can be interpreted to mean that Generasi distributed block grants in excess of MCC’s contributions, by 28%. MCC’s targeted distribution toward Generasi block grants was met.
  • 34. During compact implementation, MCC approved increasing funding for the Procurement Modernization Project to $75 million.
  • 35. This represents the estimated population of project-affected local governments. Benefits associated with improved procurement within national ministries were not found to be significant.
  • 36. Officials from approximately 80 procurement service units were contacted, including all phase 1 and comparison PSUs.
  • 37. LKPP/Bappenas/MCA Indonesia (2013) Gender in Government Procurement in Indonesia: Survey Findings on Access to Procurement, Key Barriers and Trends, Jakrata Indonesia
  • 38. This new initiative was presented to MCC management for the purposes of transparency; however, the funding came from within the Supply-Side Activity, therefore no reallocation of funds between Activities was required. Funds were made available by MCA-Indonesia from savings projected in the purchase of multiple micronutrients, the use of district consultants, and total awards planned for the private sector response activity.
  • 39. MCC is waiting for information from the Government of Indonesia to verify this statement.
  • 40. As the compact entered the final year of implementation, MCA-Indonesia took seriously its charge to outline these “models” of application and “lessons learned” for its GOI stakeholders as reflected in the large number of studies produced. The best example is the Green Knowledge repository: