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Implementation Completion Report (ICR) Review - Sulawesi Agri Area

1. Project Data:   
ES Date Posted:
Project Name:
Sulawesi Agri Area
Project Costs(US $M)
 42.57  27.52
Loan/Credit (US $M)
 26.8  23.08
Sector, Major Sect.:
Agricultural extension and research, General agriculture fishing and forestry sector, General public administration sector, Other social services, Roads & highways,
Agriculture fishing and forestry; Agriculture fishing and forestry; Law and justice and public administration; Health and other social services; Transportation
Cofinancing (US $M)
L/C Number:
Board Approval (FY)
Partners involved
Closing Date
06/30/2003 12/31/2003
Prepared by: Reviewed by: Group Manager: Group:  
John English
Roy Gilbert Alain A. Barbu OEDSG

2. Project Objectives and Components:

a. Objectives
The objectives of the project, as stated in the SAR, were to assist the Government of Indonesia (GOI) to reduce the incidence of poverty in the provinces of Central and Southeast Sulawesi through (i) the increase of rural incomes, (ii) the promotion of equitable regional development, (iii) the promotion of environmentally sustainable farming practices, and (iv) the strengthening of local level institutions. Its specific objectives were to:

  • increase farmer productivity and incomes;
  • promote environmentally sustainable farming practices; and
  • improve the capacity of local institutions to identify, prepare, appraise and manage agricultural development programs.

b. Components
The project had three major components: Agriculture based development (Appraisal estimate of cost - US$33.3 million: actual cost, US$17.3 million). This aimed to: intensify agricultural production systems in village irrigation schemes; promote improved dryland and conservation farming systems and technology; distribute livestock on credit; vaccinate poultry; intensify cropping of house plots; develop forage crops; and develop farm access roads and support other local community initiatives;
Project management and strengthening the capacity of local agricultural support services (Appraisal estimate of cost, US$7.3 million: actual cost US$8.7 million). This was to strengthen local capacities at the provincial, district and sub-district levels through rehabilitation of agricultural support service facilities, staff training, workshops and seminars, and technical assistance; and
Farming systems and fisheries research (Appraisal estimate of cost, US$2.0 million: actual cost, US$1.6 million) The component supported the programs of the two regional Assessment Institutes of Agricultural Technology (AIAT) to be established by the Agency for Agricultural Research and Development (AARD) in the region. The program was to carry out resource-based, farmer-participatory, location specific, farming systems oriented, adaptive research and technology transfer with emphasis on decentralized planning, management and decision making.

Although the objectives were not changed, significant changes in the components were made during implementation. The project became effective in 1996. In 1998, following the Asian financial crisis and the collapse in the value of the rupiah and the related crisis in the Indonesian economy, the loan was amended to provide for a significant expansion of local public works under the Labor Intensive Village Works Program (PKD), as a means of generating emergency employment in low income areas. This was a one time effort. At the Mid-Term Review (MTR) in 1999 it was decided to change the approach to agriculture-based development, focussing on micro-credit rather than the provision of packages of improved inputs.

c. Comments on Project Cost, Financing and Dates
At the time of loan approval, the exchange rate of the rupiah was 2,300 per US dollar. After the Asian financial crisis in 1997/8 the rupiah's value fell to about 9,500 per US dollar. That is, the rupiah had only about one-fourth of its earlier external value. This had a significant impact on project expenditure in dollar terms. At appraisal, cost was estimated at US$42.6 million, with the Bank loan covering US$26.8 million, and GOI covering the equivalent of US$12.1 million. Under the 1998 agreement to finance the PKD program, US$6.0 million was reallocated, US$2.3 million coming from the "unallocated" category and US$3.7 to be switched from various other categories as a result of savings resulting from the devaluation. The loan was further restructured after the MTR in 1999 when US$3.7 million was cancelled as a part of GOI's restructuring of its general portfolio, and funds were also reallocated to allow for the community-managed credit program (including revolving funds for micro-loans). US$7.65 million of final expenditure was for this purpose. At completion, despite the expanded public works program, the cost is estimated at US$27.52 million, of which the Bank loan had contributed US$23.08 million and GOI US$4.44 million. The GOI expenditure, at about one-third of the original estimate, was in line with the devalued level of the rupiah. The closing date was extended once by six months.

3. Achievement of Relevant Objectives:

The broad objectives of the project as stated in the SAR were diffuse (e.g., to promote equitable regional development). which made the task of the ICR difficult. While the project made significant contribution to village development, and to increasing beneficiary incomes through micro-credit, it is not clear that it will lead to a permanent improvement in the economic prospects of the targeted region, or lead to environmentally sustainable farming practices.
Increase farmer productivity and incomes. Partially achieved. A beneficiary impact survey carried out at completion indicates that most of the respondents who used the credit program reported that their household incomes had risen by between 17 and 69 percent. However, since half the loans were made for 'diversified non-farm activities' (such as petty trading, weaving and motor cycle repair equipment, pottery, and brick and tile making) it is not clear to what extent the objective of increasing agricultural productivity was achieved (the region commented that a benficiary impact survey carried out after project completion showed some productivity improvements in certain crops such as rice, corn, peanuts and cacao). As designed, this aspect of the project was based on the use of recommended packages of inputs supplied as grants by the project, including pregnant heifers. The uptake of these packages was disappointing, (there were problems with the process of package choice and delivery, and the quality of the inputs and cattle provided) and they were superseded after the MTR by the revolving credit program. In consequence it is likely that the income boost from improved agricultural productivity was modest at best.
Promote environmentally sustainable farming practices. Not achieved. The ICR does not address this issue. The only data given is that approximately 35,000 farmers became 'sedentary', implying that they gave up the traditional 'slash and burn' system of cultivation. The SAR reported that there were about 200,000 households in the target areas, but does not indicate how many were involved in slash and burn agriculture. The outcome could be significant from an environmental point of view, but was not investigated.
Improve the capacity of local institutions to identify appraise, prepare and manage agricultural development programs. Partially achieved. At the MTR the emphasis was turned away from purely agricultural programs towards the development of revolving credit based on funds managed at the village level. This helped foster transparency in local financial management, the use and distribution of funds and accountability to the community. In addition the project brought together local government agencies and NGOs in a mutually respectful working relationship, which is considered to be a contributor in developing local institutional capacity, both private and public sector. However, the ICR judges that the sustainability of project achievements is uncertain at best. The project did little to strengthen local level public institutions (which the region commented are at the district and sub-district levels). Village infrastructure, and other facilities are suffering from lack of maintenance, responsibilities that lie with these institutions. As a result the long-term contribution of the project to enhancing the capacity of local institutions to tackle local problems is uncertain.

4. Significant Outcomes/Impacts:

About 94,000 families in almost 600 villages received loans from the revolving credit funds, which enabled them to increase their incomes. The average loan size was about US$125 and about half were used for non-farm activities. This may have helped to both increase the economic base of the rural communities and expand the range of goods and services readily available to the communities, thus increasing living standards.
The village works program, expanded under the PKD emergency public works program, was successful in generating local employment following the 1998 economic crisis. The component undertook a wide range of activities in 862 villages and constructed or rehabilitated 1,300 km of village roads and tracks, 136 footbridges, 306 km of irrigation canals, 14 village markets, 8 clinics, 151 village water systems, and 14 village mini-electification schemes. However, there have been problems in ensuring adequate maintenance for all these facilities, including a lack of clarity over responsibility.

5. Significant Shortcomings (include non-compliance with safeguard features):

The project was poorly designed with ill-defined objectives and with components that did not line up well with the objectives. The restructuring that was undertaken to expand the emergency public works program and after the MTR both mitigated and exacerbated this problem. On the one hand the MTR restructuring narrowed the range of activities, but, taken together the changes exacerbated the problem resulting from the lack of clarity in the organizational arrangements in relation to local infrastructure and credit, and the lack of provision of support to the relevant institutions.
This led to the second major shortcoming, the lack of maintenance of the local infrastructure constructed by the project and the uncertain future of many of the credit groups established. These threaten the sustainability of the project's achievements and potential capacity of local government to support the continued development of the target areas.
An analysis of the Community-managed Microfinance Units (UPKDs) showed that, at completion, 32 percent are rated good, 15 percent satisfactory, and 53 percent unsatisfactory. Those having both less than the equivalent of about US$10,000 in assets and arrears greater than 20 percent were rated unsatisfactory. This suggests that, without adequate support to reduce arrears about half of the units may collapse. This would clearly deal a severe blow to attempts to diversify the economies of the target villages.

6. Ratings:ICROED ReviewReason for Disagreement/Comments
UnsatisfactoryModerately Unsatisfactory OED rates the outcome moderately unsatisfactory in that, while the project only achieved some of its major relevant objectives, it did provide significant developmental benefits.
Institutional Dev.:
Bank Performance:
Borrower Perf.:
Quality of ICR:

7. Lessons of Broad Applicablity:

The ICR draws a wide range of conclusions. The main recommendations of general interest are:
1. Effective management of projects involving multiple agencies on the critical path for implementation requires a mechanism able to ensure effective cooperation. A coordinating committee of individuals, each protecting an agency budget is unlikely to be effective.
2. For such projects, operational manuals setting out details of how a project is to be implemented at all levels should be prepared prior to effectiveness to ensure that all involved partners have a clear and common understanding of the project, their role, and its resource implications.
3. Restructuring projects with serious implementation problems may not be the best course of action where the same institutions are to be used in the new design. Cancelling the loan may be a better alternative.

8. Audit Recommended?  Yes

          Why?  To assess the achievement of objectives, so as to reassess the outcome ratings. In particular to focus on the achievement of the environmental objective and its possible links to the credit program.

9. Comments on Quality of ICR:

The ICR is marginally satisfactory. The decision not to re-estimate the ERR robbed it of a significant measure of success. Preparation of the ICR was hampered by the poorly defined objectives stated in the project appraisal documents and the poor alignment of the diffuse components of the project with the objectives, which the ICR points out. It chose to focus on the performance of the components rather than achievement of objectives. But this made it difficult to assess the performance of the project as a whole.
The ICR also did not address the environmental element of the project, i.e. the objective of promoting environmentally sustainable farming practices (see section 3) As a result it did not investigate factors that might have resulted in the reported, and potentially significant, decline in slash and burn agriculture. Possible links might exist between the use of loans for 'diversified non-farm activities' and the abandonment of slash and burn. It may be that this may be the best way to tackle problems such as slash and burn is to look to non-agricultural alternatives, rather than propagate different cultivation practices.
The impact of the ICR would have been improved by preceding the "Lessons Learned" section, with a section of General Conclusions. Much of what is now the "lessons" section could, with a little rewriting, become part of General Conclusions. The few, clear lessons of broad applicability, noted above, are now lost in over two pages of material..

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