After three years of meticulous preparation, primarily solving the complicated legal and regulatory differences between the US and Indonesia, the Millenium Challenge Corporation (MCC) is ready to begin to execute the $600 million MCC Compact Agreement between the two countries signed in November 2011. Beside raising high hopes for having a meaningful impact on Indonesia’s development objectives, the MCC Indonesia Account (MCA) management faces big challenges in implementing projects on the ground.
Lukita Tuwo, the Vice-Chairman of the National Development Planning Board (BAPPENAS), in his speech to over a hundred invitees at the US Ambassador’s Residence, on March 27, 2013, celebrating the coming Entry into Force (EIF) of the Compact Agreement, said that Indonesia was considered qualified to get the MCC fund for development back in 2009, but much effort was needed to get this qualification translated into real programs that fit Indonesia’s specific development needs which could be met with MCC funds. Lukita was also speaking as Chair of the eight-member Majelis Wali Amanah (MWA), a governing body for the MCA program implementation.
Lukita found that this program is unique in the sense that it is not an ordinary bi-lateral ‘grant’ from a rich to a poorer country. The fund involved in the Compact agreement is managed entirely by a special entity, the MCA Indonesia, under Indonesian leadership, and is to be spent on projects prioritized by the Indonesian people.
The MWA membership comprises four government nominees and three members representing the Private Sector, NGOs and Academics. Lukita said that there were many legal and regulatory differences between the US and Indonesia that need to be ‘matched’ to make the program viable. Both sides, he said, had to go the extra mile to get the agreement finally ready for signing on November 19, 2011 by Indonesian Minister of Finance Agus Martowardoyo and the US Secretary of State, Hillary Clinton in Bali.
Hillary Clinton, in her remarks made after the signing ceremony, which was also attended by MCC Chief Executive Officer Daniel Yohanes, said that this Compact is so far the largest ever developed to reduce poverty and promote economic growth hand-in-hand with the Indonesian government and people. It was designed to meet Indonesia’s priorities, and it reflects the shared values between the two nations.
US Ambassador Scott Marcels, who hosted the gathering, welcomed the implementation of the MCC program as one of the components of the Comprehensive Cooperation between Indonesia and the USA, agreed by both governments when President Obama visited Indonesia 2 years ago.
The $600 million account will be spent over exactly 5 years from the date of the EIF, on April 1st, 2013. J Saputro, MCA Chief Executive Officer, said that he and his management team will have to face big challenges to get the projects implemented not only according to the approved conditions, but also to the tight time schedule within the 5 years allowed time frame in which the Compact will operate.
Around 60% of the total funds will be spent on various projects under the heading of ‘Green Prosperity’, and the remaining 40% will be spent to improve the nutritional conditions in Indonesia’s rural areas, and to help the country improve clean governance practices. The Compact initially focuses on Jambi and West Sulawesi provinces, but will be extended to other provinces later during the 5 years term of the program.
Saputro said that under the Green Prosperity Programs, projects will be directed toward helping Indonesia to achieve the objectives of renewable energy development. This will include setting up a financing scheme to help finance renewable and other green projects in the selected areas. The Indonesian government has set an official target of 17% of the national energy mix to be provided by renewable energy sources by 2020, but currently less than 5% are actually in the mix, as Indonesia is compelled to use more coal to generate electricity to reduce the use of oil, of which the country has become a net importer over the last five years. The government and PLN plans to catch up with the renewable energy use for electricity by speeding up the use of the geothermal developments which the country has in abundance. The MCA program does not include geothermal but focuses more on biomass, small hydro and solar system development for rural areas.
Meanwhile, the MCC Indonesia Country Director, Troy Wray was pleased that his office has helped facilitate the complex process of developing the compact over the last two years. He will continue to devote his time and efforts to ensure that the program’s implementation phase will run smoothly. The MCC Indonesia Office is the liaison between MCA Indonesia and MCC based in Washington DC, USA.
Under the Green Prosperity program, there will be a relatively small but important project called ‘Green Knowledge’, the primary objectives of which are to help the country enhance green awareness among the people, conduct capacity building to manage its green energy resources more effectively, and to develop a comprehensive database of the country’s renewable energy potentials.
RESPECTS will follow the development of this program in its future editions.
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