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Cablegate: Success of Indonesia's Mcc Threshold Program

VZCZCXRO0507
PP RUEHLMC
DE RUEHJA #1728/01 2550835
ZNR UUUUU ZZH
P 110835Z SEP 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 0059
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORP 0075
RHEHOMB/WHITE HOUSE OMB WASHINGTON DC

UNCLAS SECTION 01 OF 03 JAKARTA 001728

SIPDIS

MCC FOR AMBASSADOR DANILOVICH AND MORFORD
MCC FOR MARIA LONGI
MCC FOR DEPUTY CEO RODNEY BENT
DEPT FOR E - U/S JEFFERY
DEPT FOR EAP DAS MARCIEL AND EB/IFD DAS DAVID NELSON
USAID FOR ADMINISTRATOR FORE
USAID FOR DEPUTY ADMINISTRATOR KUNDER AND ANE WARD
USAID/ODP FOR KAREN TURNER AND PETER DELP
USAID/ANE FOR STEPHAN SOLAT
TREASURY FOR A/S LOWERY
TREASURY/IA FOR RACHEL BAYLY
DEPT PASS USTR FOR SCHWAB
DEPT PASS USTR FOR ELENA BRYAN
DEPT PASS USTR FOR FRAN HEUGEL
DEPT PASS USTR FOR AUSTR BARBARA WEISEL
OMB FOR JACQUELINE STRASSER

E.O. 12958: N/A
TAGS: ID ECON PGOV MCC
SUBJECT: SUCCESS OF INDONESIA'S MCC THRESHOLD PROGRAM

1. Summary: Indonesia's Millennium Challenge Corporation (MCC)
Threshold Program is in full-stride, exceeding expectations in both
its areas of focus, Control of Corruption and Immunization Rates.
Since being awarded the largest MCC Threshold Program in November
2005, the Government of Indonesia (GOI) has embraced the extensive
judicial sector reforms at the Supreme Court; leveraged MCC
assistance at the Corruption Eradication Commission to expand
prosecutions; enhanced anti-money laundering capacity at the
Financial Intelligence Unit; and initiated on-line procurement
processes under the e-Government Procurement component.
Concurrently, the GOI Ministry of Health has actively partnered with
the MCC Threshold Program, World Health Organization (WHO) and
UNICEF to capture accurate immunization coverage data that reflect a
higher-than-expected coverage rate. Indonesia's strong performance
on its Threshold Program should be clearly articulated to the MCC
Board members in their consideration of Compact-eligible countries
in December 2008. End summary.

A POSITIVE TRACK RECORD
-----------------------

2. At its November 2005 Board meeting, MCC selected Indonesia to
participate in the Threshold Program based on the country's strong
track record on reform. The two-year, $55 million Threshold Program
focuses on "Control of Corruption" ($35 million) and "Immunization
Rates" ($20 million), two areas where Indonesia fell short on its FY
05 MCC indicator Scorecard. Indonesia's strong performance on its
Threshold Program to date bolsters the country's steadily improving
MCC indicator scores, particularly the upward trend under the
"Control of Corruption" indicator which has risen steadily over the
past five years. The Threshold Program projects, managed by USAID
Indonesia, run from approximately May 2007 through May 2009.

CONTROL OF CORRUPTION
---------------------

3. The Threshold Program's $35 million Control of Corruption
component builds capacity at the Corruption Eradication Commission
(KPK); the Financial Transaction Reports and Analysis Center (PPATK,
Indonesia's Financial Intelligence Unit); the Supreme Court; and the
National Development Planning Agency's (BAPPENAS) e-procurement
agency. A review of progress to-date by specific threshold goals is
as follows:

A. Reforming the Judiciary: Long regarded as a bastion of
corruption and poor governance, the Supreme Court has embraced the
MCC reform agenda, yielding impressive results:

--The implementation of an interactive Code of Conduct curriculum
and training program. Court judges have been trained as trainers
and over 1500 judges have received intensive Code of Conduct
training.

-- The Supreme Court issued a decree requiring all judges and
registrars to submit wealth reports as a condition for promotion or
transfer consideration.

--MCC has sponsored training to over 1200 Court budget and finance
personnel on the Ministry of Finance's new budget system and
software, the first major budget reform program since Dutch colonial
times. Budget transparency and publication protocols are being
developed across the Court.

--Breaking new ground for a court system not historically
comfortable with public scrutiny, the Court adopted a "Transparency
Decree" establishing guidelines for access to court information.
The Court has now published over 4900 decisions online with MCC
assistance. (see http://www.putusan.net/app-mari/putusan/).

--The Supreme Court has achieved specific bureaucracy reform
milestones as conditions for increased allowances for Court
personnel. Completed initiatives include job descriptions and
performance standards for all positions within the court system, as
well as a court remuneration plan.

JAKARTA 00001728 002 OF 003

--The Court is completing inventory of physical assets in over 700
courts, along with training of personnel in asset management and
implementation of an asset tracking system.

B. Improve the Capability of the Financial Transaction Reports and
Analysis Center (PPATK): MCC support is primarily focused on
promoting Anti-Money Laundering capacity by increasing the level of
suspicious transaction reports reported to the PPATK by Non-Bank
Financial Institutions , which include insurance companies, capital
markets, pension funds, leasing/finance companies, and money
changing operations. PPATK has already exceeded its MCC Threshold
Program target for the level of Non-Bank Financial Institutions
reporting on suspicious transaction reports. This initiative works
in close collaboration with Bank Indonesia and the KPK, and includes
the following accomplishments:

--Training of almost 200 authorized money changer businesses on
monitoring techniques.

--A nationwide "Know Your Customer" media campaign (television,
print) promoting use of only authorized money changers.

C. Improve the Capability of the Corruption Eradication Commission
(KPK): At the end of 2007, Parliament selected entirely new KPK
senior leadership. The KPK has built on the success of the previous
leaders and become even more aggressive in fighting corruption:

--The KPK has surpassed its MCC performance indicator for the
prosecution of high-ranking government officials:

2007 Prosecution Target: 4 Actual: 10
2008 Prosecution Target: 6 Actual (as of 31 Jul 08):8

--The KPK and MCC are co-funding an Integrity Survey in 40 national
government institutions to identify factors leading to corrupt
practices.

D. Implement Electronic Government Procurement (e-GP). The GOI is
implementing electronic government procurement systems both at the
national level and, as supported by this MCC program, with pilot
projects in five provincial governments. All five centers are now
fully equipped with necessary hardware, software, and internet
connectivity. Two provinces (West Java and Gorontalo) have made
their first electronic tenders.

PROMOTING INCREASED IMMUNIZATION COVERAGE RATES
- - - - - - - - - - - - - - - - - - - - - - - -

4. The MCC Immunization project is integrating and strengthening
the GOI's existing Expanded Program on Immunization (EPI) to ensure
continued GOI ownership and post-project sustainability. EPI
developed mass media and print packages to convince parents to fully
immunize their children and to encourage key decision-makers to
support local routine immunization programs with adequate funding.
Diminishing vaccine stocks that had been a concern for several
months have now been replenished. The Project support mechanism for
Local Area Monitoring and supportive supervision is in place.

THRESHOLD PROGRAM IMMUNIZATION COMPONENT YIELDING RESULTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -

5. The GOI deserves credit for undertaking serious, effective
reform initiatives. And MCC has supported these efforts to produce
key results:

--6,847 District Health Officers personnel trained in immunization
program management during the first year, representing 69 percent of
the two-year overall target.

--The immunization coverage baseline rate was established at 78
percent as a result of the national joint cluster survey conducted
this year, providing the first reliable routine immunization
coverage data by province since 2003.

JAKARTA 00001728 003 OF 003

--Seventy-nine percent of health centers now use Local Area
Monitoring tools, up from 49 percent.

--In the first year of the Project, 2.9 million children were
immunized in priority provinces, representing 56 percent of the
project's two-year target of 5.1 million.

--One hundred percent of Project priority districts (68) have
implemented EPI action plans.

CONCLUSION
----------

6. Indonesia's MCC Threshold Program is an ambitious component in
President Yudhoyono's overall reform agenda to support a democratic,
well-governed Indonesia that is a responsible and active member of
the international community. The GOI's demonstrated commitment to
reform and Indonesia's Threshold Program impressive results bode
well for Indonesia's development and its consideration by the MCC
Board in December.


HUME

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