1) The document proposes support for a new Directorate of Logistics at the Indonesian Ministry of Trade to help implement the national logistics blueprint and improve Indonesia's poor logistics performance. 2) Four activities are proposed: monthly focus group discussions, analyzing regulations impacting logistics, monitoring goods flows to identify bottlenecks, and capacity building workshops. 3) The goals are to strengthen the directorate's capacity on logistics issues, provide hands-on experience, and improve overall expertise at the Ministry of Trade on logistics. The outcomes would include policy recommendations from discussions, insights into supply chain constraints, and increased awareness of logistics issues.

1. Page 1 of 6
PROPOSAL FORM-(GovernmentExecutedFunding)
Program Area: Trade
Title of Proposal: Support to the new Directorate Logistics at the Ministry of
Trade
Proposal preparedby: DG DomesticTrade, team under supervisionofJimmy Bella
Consultationwith Henry Sandee
Team Task Manager: P. S. Srinivas and Enrique Aldaz-Carroll
Time schedule: November2010-November2011
1. Background
In accordance with one of the missions of the Ministry of Trade, that is maintaining the
availability of staple food and strengthening the national distribution network, logistics plays an
increasingly important role. Efficient logistics also increase the competitiveness of Indonesia’s
exports. If domestic logistics cost is low, then the cost of producing the products will also be low
and this will impact on the prices of the goods which should be efficient and competitive. Next,
the efficient national logistics can accelerate economic growth, especially in remote areas
throughout Indonesia. Furthermore, it can bring a fair distribution of wealth, so it can also
create national unity among Indonesia’s people. Lastly, logistics activities can also preserve
environmental sustainability and energy. In this case, inland transportation becomes more
efficient, so it can reduce petrol usage that development will become environmentally
sustainable.
However, Indonesia’s logistics performance has not been optimal yet. This condition is
characterized by high domestic logistics cost and low quality of service. Based on Logistics
Performance Index (LPI), Indonesia ranked in the 75 among 183 countries in the world (World
Bank, 2009) which is lower than the performance of other ASEAN countries. The low
performance of logistics in Indonesia is characterized by: (1) high scarcity and price fluctuation
of staple food, especially during the national religious holidays; (2) high disparity of prices
particularly in the border and remote areas; (3) inefficient service time of export-import
activities, i.e problems in port operation; (4) lack of infrastructure in relation to both quantity
and quality; (5) unofficial charges causing high economic cost (bribery); (6) limited capacity and
networkof Logistics Service Provider(LSP).
Based on those potentials and drawbacks of logistics sector, the government of Indonesia has
drafted a blueprint for strengthening the national logistics system. The implementation of the
logistics blueprint requires coordination of inter-department logistics team. For that reason,
monitoring and controlling of the implementation of the national logistics system should be
managed byCoordinatingMinistryof EconomicAffairs.

2. Page 2 of 6
The Ministry of Trade in relation to bureaucratic reform and in line with national logistics
system, has formed a new directorate, i.e Directorate of Logistics and Distribution Facilities. This
new directorate is in charge of improving distribution facilities. In relation to the mission of the
Ministry of Trade, the new directorate is responsible for ensuring the availability of products and
services,particularlystaple foods,andstrengtheningthe national logisticssystem.
In compliance with the blueprint of national logistics system, Directorate Logistics and
Distribution Facilities must fulfill action plans which are already set up in the blueprint. Such
action plans are in the scope of the responsibility of the Ministry of Trade and they should be
takeninto action immediately,for instance:(1) development of concept of distribution centre to
support logistics activities in the Indonesia’s Eastern region; (2) study of supply chain and
roadmap of agribusiness-based commodities, fisheries, manufacture, coal, and other export
commodities, up to the year of 2025; (3) development of distribution centre for export leading
commodity equipped with online information system; (4) synchronization and harmonization of
regulations to the inter department logistics team; (5) capacity building for human resources
bothin central and local government.
The DG Domestic Trade is aware that the World Bank has provided support to the drafting of
Indonesia’s logistics blueprint and the connectivity action plan. It requests support from the
World Bank for both the implementation of specific activities and for overall capacity building of
the new directorate. Three activities have been selected for possible World Bank support
because it concerns activities for which the World Bank has necessary expertise. In addition, the
DG Domestic Trade requests World Bank support strengthening the capacity of the staff
membersof the newDirectorate.
Four activitiesare envisagedto be carried out starting in the beginningof2011:
a. Focus Group Discussions. It is envisaged that staff members of the new Directorate
Logistics, and other relevant staff of the Ministry of Trade, will have the opportunity to
discuss logistics issues with either experts or representatives of the business sector. These
meetings will be organized on a monthly basis. Support from the World Bank concerns
inputs regarding topics and speakers and advice on how the focus group discussions may
contribute optimally to strengthening the capacity of staff at the Ministry of Trade. The
planned focus group discussions will be synchronized with the logistics round tables
organizedbythe WorldBank.
b. Harmonization and synchronization of regulations. This activity identifies regulations that
are enforced by other ministries that are related to the logistics issues. In addition, the
activity will also look at regulatory reform that is a constraint to better logistics at the
Ministry of Trade. It is envisaged that for 2011 a few regulations will be selected and

3. Page 3 of 6
regulatory impact analysis carried out. World Bank support is requested regarding
appropriate methodologiesforregulatoryanalysis.
c. Monitoring of flow of goods. This activity identifies problems that might happen during
delivery of goods from the point of origin to the point of destination. The new Directorate
Logistics would like to obtain detailed insights into the (formal and informal) logistics costs
of bringing selected goods from the production sites to the final destinations. It is the
intention to include one or two export products and one or two products that are
distributed inside Indonesia. It is expected that staff of the Directorate will be assigned to
follow the full trip and prepare a report on the costs of moving goods. World Bank support is
requested to support the methodology of the monitoring case studies. The Directorate is
aware of the studydone by the AsiaFoundationsome yearsagoonthe costs of trucking.
d. Capacity building. The Directorate started its activities in October 2010. It is a new unit and
the director will be appointedin the near future. Most of its staff members come from other
units within the DG Domestic Trade but do not yet have specific expertise in logistics.
Therefore, the DG request World Bank support in strengthening the capacity of the new
team. This will take place partly through the implementation of the three above-mentioned
activities. In addition, the DG requests the World Bank to support the organization of a
limitednumberof presentationsandtwosmall workshops.
2. Objectives(designatedgoal)
The goal of all four proposed activities is to contribute to the implementation of the action plans
mentioned in the blueprint of national logistics system. Since the blueprint brings a large
number of actions that should be taken by inter-department logistics team, the four proposed
activities will support the execution of those action plans. It also contributes to improve capacity
of the DG DomesticTrade on logisticsissues.
The goals can be furtherspecifiedasfollows:
 Strengthening the capacity of the new Directorate and the DG Domestic Trade in
general regarding logistics issues. It is a new and important Directorate starting from
scratch.
 Provision of hands-on experience. The overall DIPA proposals of the new Directorate
include the execution of a number of studies by domestic consultants. However, itis also
very important that the new staff will be involved in policy relevant exercises itself such
as regulatoryreformandthe monitoringof the flow of goods.
 Overall insight into logistics issues, measurement of logistics performance, identification
of reform priorities, etc. is lacking within the DG Domestic Trade. It is expected that the
projectwill contribute toimproved expertise within the Ministryof Trade.

4. Page 4 of 6
3. AnticipatedOutcomes
The outputs and outcomes of the proposedproject are as follows:
 A series of Focus Group Discussion reports that each will point out specific policy actions
that might be taken by the Ministry of Trade or other ministries. The discussions will be
aimingat policyissues.
 Concrete insight into the logistics costs and bottlenecks of the transport of selected
goods from production sites to their final destinations. Thisexercise helps to identify the
main constraints in various supply chains and will also offer insights into what might be
done to tackle logisticsbottlenecks.
 Improved knowledge within the DG Domestic Trade on logistics issues. Presently, there
are only few staff members that are aware of main discussions in logistics, international
benchmarks,effective strategies to bring down logistics costs, etc. It is expected that the
projectwill be improve togreaterawareness.
4. Linkageswith MDFTIC Objectives
Indonesia’s poor logistics performance is increasingly recognized as constraining its economy. It
increases the costs of exports and imports and also leads to higher costs for the domestic
distribution of goods and services. A better logistics performance will serve domestic and
foreigntrade.
There is well defined government counterpart for the proposed activities – the new Directorate
for Logistics of the Ministry of Trade. Several of its members have participated in drafting the
logistics blueprint but do not yet have much experience with drafting concrete actions. The
proposal fist very well into the overall aim of the MDFTIC: namely strengthening the capacity of
the Ministryof Trade.
5. Timing ofActivities/Workplan
The project will be implemented in the period November 2010-November 2011. The timing of
the four proposedactivitiesisasfollows:
 The Focus Group Discussions will be scheduled once a month depending on the
availabilityof qualifiedspeakers.
 Monitoring of the flow of goods (logistics costs) of selected commodities will be carried
out starting in January 2011. It is envisaged that there will be four staff members that
will each follow the supply chain flow of a specific commodity. Their monitoring will last

5. Page 5 of 6
1-2 weeks only. Prior to the monitoring we will prepare a checklist to make sure that
theywill all recordthe same data.Report/findingstobe presentedinMarch2011.
 The activity on regulatory reform requires a different approach. In this project proposal,
we aim mainly at making a start and familiarize the new Directorate with a methodology
and carry out impactand reformanalysisforone or tworegulationsonly.
 In principle, capacity building covers a wide range of activities. In the proposed project,
we want to concentrate on a specific upgrading activity only namely selected
presentationsbylogisticsexpertsandtwolow keyandsmall workshops.
6. Governance arrangements
The project will be managed and supervised by the PIU and the DG Domestic Trade in
collaboration with the World Bank. The chief responsibility will be with the newly appointed
Directorfor Logisticsatthe Ministryof Trade.
8. Monitoringarrangements for outputs and outcomes
The DG Domestic Trade is aware that the start up of a new Directorate is time consuming and
that it will take some time before it operates efficiently and effectively. Therefore, proposed
activities are mainly small-scale (monitoring of logistics costs, analyzing a specific regulation) or
do not require substantial preparations (focus group discussions, presentations, low key
workshops).
Monitoring will be done by the DG Domestic Trade and the World Bank. The proposed activities
have been included in the full list of activities that will be undertaken by this new Directorate.
Consequently, monitoring its progress will not only be of interest to the project participants
themselvesbutalsoitisrelevantforbenchmarkingthe performance of the new Directorate.
9. Capacity Building
Capacity building is the main aim of the project proposal. It is a new Directorate with new staff
and a newmandate.A distinctioncanbe made betweencapacitybuildingby
 Participation in workshops, presentations and focus group discussions. These will
increase the knowledge of the Directorate inlogisticsissues.
 Learning by doing. Two activities, regulatory analysis and monitoring supply chains,
contribute to capacity building in a different way. It is expected that both activities will
help the staff of the new Directorate to obtain practical experience by actually carrying
out policyrelevantappliedresearch.

6. Page 6 of 6
10. Estimated Costs(assuming1 USD = Rp. 9,000)
Activity Unit Number of
Units
Estimated Cost
USD
Focus Group Discussion
- Monthlymeetingswith stakeholders
9,855.56
Harmonization and synchronization of
regulations
11,195.56
Monitoringof flowof goods 60,055,56
Capacity building 16,666.67
Total 97,773.35