Introduction

This is the second Country Programme Evaluation (CPE) undertaken by the IFAD Independent Office of Evaluation (IOE) for Indonesia. The CPE covers nine years, of which five years (2004 to 2008) are prior to the Country Strategic Opportunities Programme (COSOP) approved in 2008, and four years (2009 to 2012) are part of the COSOP (which covers 2009-2013). The main CPE mission was undertaken in April/May, 2012. A CPE National Roundtable Learning Workshop was held in Indonesia on March 21, 2013 to discuss the findings and recommendations of the evaluation.

The main objectives of the CPE were to: (i) assess the performance and impact of IFAD-funded operations in Indonesia; and (ii) generate a series of findings and recommendations to serve as building blocks for the formulation of the forthcoming results-based COSOP to be prepared by IFAD and the Government of Indonesia.

The Agreement at Completion Point (ACP), reflects the understanding between the Government of Indonesia (represented by the Ministry of Finance) and IFAD Management (represented by the Programme Management Department). It comprises the summary of the main evaluation findings (Section B below), as well as the commitment by IFAD and the Government to adopt and implement the CPE recommendations within specific timeframes (Section C below). It is noted that IOE does not sign the ACP, although it facilitated the process leading up to its conclusion. The implementation of the recommendations agreed upon will be tracked through the President's Report on the Implementation Status of Evaluation Recommendations and Management Actions, which is presented to the IFAD Executive Board on an annual basis by the Fund's Management. In addition, this ACP will be submitted to the Executive Board of IFAD as an annex of the new COSOP for Indonesia.

Main evaluation findings

The partnership between IFAD and the Government of Indonesia is highly valued by both sides, reflecting mutual trust and cordial relations. IFAD's commitment to poverty reduction among the rural poor in Indonesia has been appreciated. The Government has reiterated its commitment to IFAD by doubling its replenishment contribution in the IFAD's 9th replenishment (2011), as compared to the IFAD's 8th replenishment (2008).

The importance of agriculture. Agriculture is and will continue to remain a very important sector in the Indonesian economy and for the Indonesian people, even after the country has transitioned into a middle income country, with important contributions from the mining, manufacturing, and service sectors.

IFAD performance has been mixed. IFAD in Indonesia has earned a reputation for being a small, friendly, non-intrusive, flexible UN agency with a genuine interest in reducing rural poverty. IFAD's commitment to poverty reduction among the rural poor in Indonesia has been appreciated but IFAD is not widely known.

Overall the portfolio has made encouraging achievements in social mobilization and gender with self-help groups and building institutions a key feature of all the seven IFAD-supported projects. Marked progress has also been made in terms of investments for the enhancement of social infrastructure. However, results related to on-farm and off-farm development and agriculture productivity enhancement are more limited. Although productivity enhancement and value addition were included in project design, they did not get adequate attention during implementation.

Project designs were often complex with diffused focus, and covering large geographical areas straining limited sub-national capacities. Limited achievements have been made in piloting and scaling up innovations with insufficient attention to learning and knowledge management. The shift to direct supervision and implementation support by IFAD is making a positive impact. Rapid improvements have been made in the past two years, and has the potential of being even more effective, with the required adjustments. Results related to non-lending activities (policy dialogue, knowledge management and partnership building) were limited, even though these are increasingly important given Indonesia's MIC status.

The COSOP process did not provide an adequate foundation for the country programme. The IFAD country programme was not driven by a COSOP during 2004-08 and when a COSOP framework was eventually established in 2008 for the country programme, the COSOP was strong on goals and expectations but deficient on implementation design and mitigation of programme and internal IFAD risks. COSOP management was weak. IFAD appears not to have devoted the required management attention to its cooperation in Indonesia since around 2004-2005 until more recently when a new CPM was assigned in 2011 and has been making good start to remedying the situation. The IFAD-Government cooperation has been adversely affected by lack of a country presence, with a Rome-based CPM, though there are firm plans to outpost the CPM to Jakarta in the near future.

Government role could have been more effective. The Government could have been more directional in requesting IFAD to limit its activities to small farmers and their groups and the improvements to their agricultural productivity through technology and value chain development and through empowerment of these groups.

IFAD could play a leading role in promoting productive, competitive and high value smallholder agriculture. This can be done by identifying, promoting, validating and scaling up viable agriculture innovations that are appropriate for smallholder agriculture but in active partnership with the Government, other strategic partners and stakeholders, including public private partnerships. Promoting efficient and productive smallholder agriculture will not only increase agricultural growth but will also reduce poverty, improve food security and empower women. Given rapid urbanization, a declining share of the farming population has to meet the rising demand for food, feed and agricultural raw materials over time. There is thus a great opportunity and a challenge for IFAD to develop a brand name as a key supporter of productive, competitive and high value smallholder agriculture in Indonesia through the instrument of a national programme for small farmers.

Agreement at completion point

The CPE makes five key recommendations:

Recommendation 1:

• Make small farmers the principal beneficiary of the IFAD programme. IFAD should place small farmers, their food and high value crops at the centre of its efforts. The focus on rice should not result in neglecting the needs of high value export crops such as coffee, cocoa, rubber, etc. Given relatively scarce resources, IFAD should limit its role to high value crops grown by smallholders with an appropriate and increasing role of value chains. To support these goals, IFAD should design and implement a new comprehensive national strategic programme for small farmer agricultural development, with four key objectives: (i) address national level issues that impact on the lending portfolio and supervision activities at the project level and coordinate the non-lending activities (policy dialogue, knowledge management, and partnership building) for all projects in the programme; (ii) monitor innovations in IFAD-financed projects and support scaling up involving other partners' projects and government national programmes; (iii) help IFAD to serve as the voice for small farmers in policy and knowledge exchange forums and establish a brand name for IFAD in this role; and (iv) support the Government's South-South initiatives relating to agriculture. This programme would be financed jointly by IFAD grant funds and grants from bilateral donors active in agriculture in Indonesia. IFAD should develop its lending portfolio and non-lending activities with the above objectives in mind, and align investment, technical assistance, policy dialogue, knowledge and analytical work to make a real impact on the lives of small farmers.
• Proposed follow-up: At the request of the Government of Indonesia, IFAD has developed an Interim Country Strategy for Indonesia for the period 2014-2015 which responds to this recommendation. The interim strategy outlines some of the key elements of the country strategy such as strategic objectives, targeting approach, geographic focus, identification of potential investment opportunities for the next two years, partnership potential with funding agencies and the private sector. The strategy also focuses on IFAD's non-lending activities such as enhancing the performance of its on-going portfolio, knowledge management and policy advocacy. A new five year Results Based Country Strategic Opportunities Programme (RB-COSOP) will be developed to cover the period from 2015 to 2019. The introduction of an interim country strategy for the next one and half to two years enables IFAD to respond to the conclusions and recommendation of the CPE, and importantly, enables IFAD to fully align its next RB-COSOP with the Government of Indonesia's (GOI) new five year planning cycle expected to be initiated from 2015 onwards. The RB-COSOP 2015-2019 will also be informed by this ACP.
• Deadline date for implementation: The Interim IFAD Country Strategy 2014-2015 will be finalized by 31st December 2013. A new five year Results Based Country Strategic Opportunities Programme (RB-COSOP) will be developed to cover the period from 2015 to 2019.
• Entities responsible for implementation: Government of Indonesia including Bappenas, Ministry of Finance and respective line agencies; and IFAD.

Recommendation 2:

• Channel funding and technical support on core agriculture. Core agriculture consists primarily of food and high value cash crops. IFAD, through its next COSOP, should draw the boundaries of its Indonesia programme around core agriculture activities. The strategic objectives and target groups should be in alignment with these boundaries. Core agriculture activities should be targeted on empowering small farmers and their groups, in geographical areas where there are a large number of small farmers and the preconditions for a successful donor intervention exist. IFAD operations should focus on improving the access of small farmers to agricultural technology and services, and help them to develop value chain links to input and output markets. This will help small farmers raise productivity and adapt to climate change.
• Proposed follow-up: This recommendation will be addressed in the Interim IFAD Country Strategy 2013-2015 and a new five year Results Based Country Strategic Opportunities Programme (RB-COSOP) covering the period from 2015 to 2019.
• Deadline date for implementation: From 31st December 2013.
• Entities responsible for implementation: Government of Indonesia including Bappenas, Ministry of Finance and respective line agencies; and IFAD.

Recommendation 3:

• Build strategic partnerships on core agriculture. IFAD should evaluate the strengths and weaknesses of potential partnerships in the core agriculture areas of IFAD's focus. Given the high transaction costs involved in building partnerships, selectivity is key. Partnerships with donors, civil society and the private sector should focus on activities relating to core agriculture and small farmers.
• Proposed follow-up: This recommendation will be addressed in the Interim IFAD Country Strategy 2013-2015 and a new five year Results Based Country Strategic Opportunities Programme (RB-COSOP) covering the period from 2015 to 2019.
• Deadline date for implementation: From 31st December 2013.
• Entities responsible for implementation: Government of Indonesia including Bappenas, Ministry of Finance and respective line agencies; and IFAD

Recommendation 4:

• Strengthen IFAD country programme management. IFAD should specify with greater clarity country programme management responsibilities and mechanisms within the context of decentralization to install the necessary capacity within IFAD to manage COSOP in Indonesia. Accountability for performance should be more sharply defined and necessary incentives should be put in place. COSOP should also make specific recommendations on how to establish within IFAD, core competencies to deliver results in the decentralized context of country engagement, balancing access to global expertise with tapping high quality local resources.
• Proposed follow-up: This recommendation will be addressed in the Interim IFAD Country Strategy 2013-2015 and a new five year Results Based Country Strategic Opportunities Programme (RB-COSOP) covering the period from 2015 to 2019.
• Deadline date for implementation: From 31st December 2013.
• Entities responsible for implementation: IFAD, together with Government of Indonesia including Bappenas, Ministry of Finance and respective line agencies

Recommendation 5:

• Enhance the Government's role in IFAD-supported activities. Shifting the focus to core agriculture will assist IFAD in developing focussed strategic relationships with the main technical counterparts of the Government. The success of IFAD in alleviating poor small farmer problems depends on its ability to build capacity at the village level so that small farmers interact with key players from government departments, private sector entities, and civil society. The establishment of capacity at the district level and its effectiveness at the village level will have to be the centrepiece of all sub-national IFAD projects. The next COSOP should come up with a more practical way of using outside capacity for M&E initially, and then gradually building up capacity within the projects.
• Proposed follow-up: This recommendation will be addressed in the Interim IFAD Country Strategy 2013-2015 and a new five year Results Based Country Strategic Opportunities Programme (RB-COSOP) covering the period from 2015 to 2019.
• Deadline date for implementation: From 31st December 2013.
• Entities responsible for implementation: IFAD, together with Government of Indonesia including Bappenas, Ministry of Finance and respective line agencies

Signed by:

Andin Hadiyanto, Chairman of Fiscal Policy Agency, Ministry of Finance, Government of Indonesia

and

Kevin Cleaver, Associate Vice President, Operations, Programme Management Department, IFAD

Date: 20 February 2014