The World Bank First Indonesia Human Capital Development Policy Loan (P175742) Program Information Document (PID) Concept Stage | Date Prepared/Updated: 22-Jun-2021| Report No: PIDC31706 Page 1 of 5 The World Bank First Indonesia Human Capital Development Policy Loan (P175742) BASIC INFORMATION A. Basic Project Data OPS TABLE Country Project ID Project Name Parent Project ID (if any) Indonesia P175742 First Indonesia Human Capital Development Policy Loan (P175742) Region Estimated Board Date Practice Area (Lead) Financing Instrument EAST ASIA AND PACIFIC Mar 15, 2022 Social Protection & Jobs Development Policy Financing Borrower(s) Implementing Agency Republic of Indonesia Ministry of Finance Proposed Development Objective(s) The Program Development Objective is to enhance human capital development in Indonesia by (i) improving the effectiveness of public spending for human capital and (ii) protecting existing human capital investments. Financing (in US$, Millions) FIN_SUMM_PUB_TBL SUMMARY Total Financing 400.00 DETAILS -NewFin3 Total World Bank Group Financing 400.00 World Bank Lending 400.00 Decision The review did authorize the preparation to continue Page 2 of 5 The World Bank First Indonesia Human Capital Development Policy Loan (P175742) B. Introduction and Context Country Context 1. In recent years, Indonesia has significantly advanced the human capital agenda by reducing stunting, expanding social protection coverage, achieving good progress toward universal health coverage and expanding student enrollment in education. The period 2010 to 2019 saw robust economic growth averaging over 5 percent annually as well as robust job growth and sustained poverty reduction. In parallel, Indonesia’s performance in the World Bank’s Human Capital Index (HCI) steadily improved, with the overall value increasing from 0.50 to 0.54 from 2010 to 2020. The progress over the last decade was driven primarily from reductions in stunting, while the education component of the HCI also improved as a result of expanded enrollment especially in secondary education. 2. Despite this impressive progress, low absolute levels of human capital represent a key structural bottleneck to achieving Indonesia’s inclusive growth and poverty reduction agenda while COVID-19 has put recent human capital gains at risk. Driven by the low quality of education and a stunting rate that despite notable improvements remains high, the HCI score of 0.54 places Indonesia below the average of countries upper-middle income countries. Significant challenges also exist with regard to noncommunicable diseases, smoking, the National Health Insurance, unemployment and other social insurance. While the Government responded quickly and substantially to COVID-19, ’business as usual’ will not be sufficient for Indonesia to mitigate its impact on human capital. Instead, proactive policies are needed to ensure that previous achievements are sustained and Indonesians can seize the opportunities presented during the recovery. Relationship to CPF 3. The proposed Development Policy Loan (DPL) is fully aligned with the new World Bank Country Partnership Framework (CPF) for Indonesia for FY21–FY25.1 The proposed CPF is structured according to four engagement areas: (i) strengthening economic competitiveness and resilience, (ii) improving supply of and access to sustainable infrastructure services, (iii) nurturing human capital and (iv) strengthening management of natural assets, natural resource-based livelihoods and disaster resilience. The proposed DPL directly contributes to the CPF engagement area on nurturing human capital and its specific objectives to strengthen the quality and equity of education and skills, strengthen quality and equity in nutrition and health, and strengthen inclusiveness and responsiveness of social and worker protection. C. Proposed Development Objective(s) 4. The Program Development Objective is to enhance human capital development in Indonesia by (i) improving the effectiveness of public spending for human capital and (ii) protecting existing human capital investments. Key Results 5. Reforms to improve the quality of existing spending on human capital, coupled with the establishment of new policies that can help protect and utilize the human capital accumulated over the life cycle will help build a stronger and more resilient workforce. The proposed DPL will support improvements to the quality of spending on education services through an increased focus on measuring student outcomes more systematically, and improved quality of teachers and the curriculum. It will also support the expansion of early childhood education for building human capital. For health and nutrition, the DPL will further improve access and equity of health and nutrition services, but also quality 1 World Bank Group Report No. 157221-ID. Page 3 of 5 The World Bank First Indonesia Human Capital Development Policy Loan (P175742) of care. Across sectors, better sharing of data on spending and performance will increase the government’s ability to focus on results. Finally, the DPL will support mechanisms to protect more effectively from unexpected shocks, particularly employment loss, as well as ensuring fiscal sustainability of the social insurance system. D. Concept Description 6. Pillar A of this DPL is to invest better by improving the effectiveness of existing spending for human capital: Reform Area 1 will improve equity and quality of health services through reforms in health insurance and measures to augment professional human resources for health. Clarifying institutional roles and strengthening monitoring will increase accountability. Recognition of international medical qualifications will help alleviate the shortage of specialists. Rebalancing expenditure in favor of preventive and primary care will improve quality and equity of care. Reform Area 2 will transform teacher hiring and student assessment for improved learning outcomes. Establishing minimum criteria and standardized process for teacher hiring will build student human capital. Systematically measuring and publishing student achievement results makes it possible to identify where students are falling behind. A reformed curriculum will improve classroom instruction, and include messages about female labor force participation, climate change, and an inclusive perspective of specially-abled people. Reform Area 3 will provide more nutritious food and expand early childhood education for building human capital. Intersectoral policies will leverage social protection programs for improving nutrition interventions, and expanded early childhood education will improve learning outcomes. 7. Pillar B is to protect better by supporting existing human capital investments and deploying human capital more effectively: Reform Area 4 will support reigning in smoking and consumption of sugar-sweetened beverages to protect human capital. Taxation measures can incentivize behavior change and support improvements in long term health outcomes related to tobacco-related illnesses, obesity, diabetes, cardiovascular and other non-communicable diseases. Bans on advertisements and on smoking in public places have also been shown to be effective. Reform area 5 will strengthening unemployment and other social insurance for utilizing human capital. Well-designed unemployment insurance, worker protection and pensions can provide income support as economic and natural disaster shocks become more frequent, reducing human-capital-eroding coping strategies and also deploying human capital more productively. E. Poverty and Social Impacts, and Environmental, Forests, and Other Natural Resource Aspects Poverty and Social Impacts 8. The overall poverty and social impact of the reform program supported by the proposed DPL is likely to be positive. Reforms supported under Pillar A have the potential to benefit all Indonesians through improved health and education outcomes in the medium term, and through economic returns through productivity gains in the long run. While the reforms are likely to benefit everyone, the extent to which the poor, vulnerable and marginalized benefit relative to the better off will depend crucially on how well the reforms translate into programs that are tailored to the needs of these groups. Reforms supported under Pillar B also have the potential of significant positive poverty and social effects. Environmental, Forests, and Other Natural Resource Aspects 9. The policies supported by the proposed DPL are not likely to result in significant effects on the environment, forests, and other natural resources. The expected policy-induced changes in human behavior are not expected to lead to significant changes in the quantity or quality of environmental resources of a magnitude, duration or intensity to have non-negligible effects on human welfare. Any effects are expected to be negligible, and if anything, positive. . Page 4 of 5 The World Bank First Indonesia Human Capital Development Policy Loan (P175742) CONTACT POINT World Bank Achim Daniel Schmillen, Noah Bunce Yarrow Practice Leader Borrower/Client/Recipient Republic of Indonesia Implementing Agencies Ministry of Finance Febrio Nathan Kacaribu Head of Fiscal Policy Agency febrio.kacaribu@kemenkeu.go.id FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects APPROVAL Task Team Leader(s): Achim Daniel Schmillen, Noah Bunce Yarrow Approved By APPROVALTBL Country Director: Bolormaa Amgaabazar 22-Jun-2021 Page 5 of 5