DSF Annual Report 2010 by Decentralization Support Facility

ADB

DECENTRALIZATION SUPPORT FACILITY ANNUAL REPORT 2010

Decentralization Support Facility Indonesia Stock Exchange Building Tower I, 9th Fl., Suite 901 Jl. Jenderal Sudirman Kav. 52-53 Jakarta 12190 P: +62 21 5299 3199 F: +62 21 5299 3299 E: info@dsfindonesia.org W: www.dsfindonesia.org Printed in August 2010 Cover and layout: Harityas Wiyoga Photos: World Bank and stock.xchng The findings, interpretations, and conclusions expressed herein do not necessarily reflect the views of DSF members or the governments they represent. DSF does not guarantee the accuracy of the data included in this work.

ANNUAL REPORT 2010

Foreword Over the last year, the Decentralization Support Facility (DSF) has designed, approved, and begun to implement a comprehensive programme of support that addresses important aspects of public service delivery, fiscal decentralization, governance capacity building, and planning. DSF support to the development of local government borrowing (bond issuance); data provision to the regional financial information system; and monitoring and evaluation of the use of special allocation funds (DAK) to local governments is particularly noteworthy. And, among activities soon to commence implementation, its contributions to spatial planning and to the strengthening of the capacity of local government legislatures and local public service providers show great promise. The challenge now is to ensure these programmes deliver concrete outputs that improve the decentralization process in Indonesia and the quality of governance and service delivery that people experience in their local communities. However, perhaps the most important development to date has been the deepening of government ownership and leadership of the DSF. The DSF programme now clearly accords with the Jakarta Commitment’s emphasis on government-led capacity building: ‘government will articulate and development partners will support the achievement of capacity development objectives and targets’. Another striking feature of the DSF programme is that much of it is being - or will be - executed using government procurement and financial management systems (‘on budget’ and ‘on treasury’). This feature of the DSF, which has required close collaboration between the DSF Executive and different units of government, and sometimes between government agencies, sets it apart from other (particularly bilateral) development assistance to decentralization. It has been a time consuming and sometimes complex process, but one that has yielded considerable benefit, in terms both of government capability enhancement and ownership. This too is a cornerstone of international aid effectiveness declarations – which emphasise the need to ‘strengthen and use developing country systems to the maximum extent possible’ and for donors ‘to use country systems as the first option for aid programmes’. These are important and heartening developments. As the Jakarta Commitment asserts and the DSF demonstrates, multi-donor facilities that take seriously the aspects of government ownership referred to above are vital to aid effectiveness in strong middle income countries like Indonesia. Along the lines set out in this report, government is considering a number of scenarios for the future of the DSF and possible revisions to its governance structure and how best – with development partners - to build on the foundations that have begun here to be laid. We would also like to take this opportunity to express our gratitude for the hard work that has been done throughout the year by government and donor members of the DSF Management Committee and the important contributions made to the DSF by its Steering Committee founding co-chair, Dr. Max Pohan, and by its outgoing co-chair, Prof. Dr. Mardiasmo.

Prof. Dr. Heru Subiyantoro

Acting Co-chair DSF Steering Committee Secretary Directorate General of Fiscal Balance Ministry of Finance

Dr. Kenny Dick

Co-chair DSF Steering Committee Director DfID, Indonesia

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Preface This report again reflects solid progress by the DSF over the past year. Its program of activities continues to make useful contributions to fiscal decentralization; to service delivery; to aspects of governance reform; to planning and performance management; and to knowledge management. However, the execution and implementation of the DSF 2009-2011 programme has brought out the tension between, on the one hand, understandable donor imperatives to disburse funds as quickly as possible and, on the other, governmentâ&#x20AC;&#x2122;s ability to absorb development assistance and, associated with this, the quality of the work that is done. This is particularly so for activities whose execution entails the use of government financial management and procurement systems. Much of the year has been consumed by project design work and by preparations for different forms of execution. The report also draws attention to the evolution of the DSF towards genuine government ownership and leadership and the way in which this has come to be reflected in the management of the day-to-day operations of the DSF. The implications of this for the formal governance structure of the DSF are discussed in the report, and we strongly endorse the general direction of such discussion. With the help of the DSF Executive, government is now in the process of designing a major programme of support to decentralization that could become a rallying point for development assistance in this field. We feel that the DSF is well placed to continue to play a significant role in relation to this and in relation to governmentâ&#x20AC;&#x2122;s management of development assistance for decentralization more generally. Such progress has arisen from extensive collaboration and growing levels of trust (built on mutual perceptions of competence and integrity) between government entities and between government and other components of the DSF. These are necessary and sufficient conditions for aid effectiveness. The founding and incoming government co-chairs of the DSF Management Committee, Dr Himawan Hariyoga and Dr Nuryanto, have been instrumental to the development of these conditions, as has the government technical team that supports the DSF. We would like to thank them all for their invaluable contributions. A special vote of thanks goes to the founding co-chair of the DSF, Dr Himawan Hariyoga, whose equanimity and consummate interpersonal skills were crucial to DSFâ&#x20AC;&#x2122;s successful navigation of a particularly testing time in its history.

Prof. Dr. Heru Subiyantoro

Co-chair DSF Management Committee Secretary Directorate General of Fiscal Balance Ministry of Finance

Peter Ellis, PhD

Co-chair DSF Management Committee Senior Economist Sustainable Development Department World Bank

ANNUAL REPORT 2010

Table of Contents SUMMARY.............................................................................................................................................................1 Governance and Development Context............................................................................................................1 Work Programming......................................................................................................................................2 Work Programme Implementation..................................................................................................................3 Donor Harmonisation and Knowledge Management..........................................................................................5 The Future of The DSF..................................................................................................................................5 Aid Effectiveness.........................................................................................................................................5 Governance, Local Government Engagement, and The DSF Executive....................................................................5 Risks and Challenges...................................................................................................................................6 Contracts and Agreements............................................................................................................................6 Financial Report..........................................................................................................................................6 Conclusion..................................................................................................................................................6 INTRODUCTION.......................................................................................................................................................7 Chronology of Significant Events....................................................................................................................7 GOVERNANCE AND DEVELOPMENT CONTEXT.................................................................................................................9 Political Stability Combined with Strong, Sustained Development........................................................................9 Benefits and Challenges of Decentralization................................................................................................... 10 Policy Choices in Relation to Service Delivery................................................................................................. 12 Strengthened Purpose and Roles of The DSF................................................................................................... 12 Governance Context and Decentralization....................................................................................................... 12 STRATEGIC FRAMEWORK AND WORK PROGRAMMING.................................................................................................. 17 Strategic Framework.................................................................................................................................... 17 Work Plan Activities.................................................................................................................................... 18 Public Service Delivery........................................................................................................................... 18 Fiscal Decentralization........................................................................................................................... 19 Governance Reform............................................................................................................................... 19 Planning and Performance Management................................................................................................... 19 Work Programming.....................................................................................................................................20 WORK PROGRAMME IMPLEMENTATION......................................................................................................................25 Key Milestones...........................................................................................................................................25 Milestone 1: Improved Regional Financial Information Systems (SIKD)..........................................................25 Milestone 2: Enhanced Fiscal Decentralization Policy..................................................................................26 Milestone 3: Strengthened Monitoring and Evaluation of Special Allocation Funds (DAK).................................26 Milestone 4: Improved Provincial Spatial Planning.....................................................................................27 Milestone 5: For Legislative Councils (DPRD), Improved Legislative Processes, Resource Allocations, and Oversight...................................................................................................................................... 27 Other Parts of the Work Programme..............................................................................................................27

Governance Reform...............................................................................................................................27 Public Service Delivery...........................................................................................................................30 Fiscal Decentralization........................................................................................................................... 31 Planning and Performance Management...................................................................................................32 Donor Harmonisation and Knowledge Management....................................................................................34 Delays and Remedies..................................................................................................................................35 THE FUTURE OF THE DSF..........................................................................................................................................37 Structural Components and Responsibilities...................................................................................................38 Achievements and Challenges......................................................................................................................38 Achievements.......................................................................................................................................38 Challenges...........................................................................................................................................39 The Future of the DSF: Complementary Strands of Development?......................................................................39 Strand 1: Extension of Existing Technical Assistance?................................................................................... 41 Strand 2: Technical Support to a Loan?.....................................................................................................42 Towards Nationalisation..........................................................................................................................42 The Future of the DSF: Governance Structure..................................................................................................43 Next Steps.................................................................................................................................................46 AID EFFECTIVENESS................................................................................................................................................47 GOVERNANCE, LOCAL GOVERNMENT ENGAGEMENT, AND THE DSF EXECUTIVE....................................................................49 Governance................................................................................................................................................49 Engagement with Local Government..............................................................................................................49 The DSF Executive.......................................................................................................................................50 RISKS AND CHALLENGES......................................................................................................................................... 51 Risks......................................................................................................................................................... 51 Challenges................................................................................................................................................52 CONTRACTS AND AGREEMENTS................................................................................................................................53 CONCLUSION.........................................................................................................................................................55 ANNEX A: SOURCES................................................................................................................................................57 ANNEX B: FINANCIAL REPORT...................................................................................................................................59 ANNEX C: MONITORING FRAMEWORK........................................................................................................................66 ANNEX D: LIST OF ACRONYMS, ABBREVIATIONS, AND TRANSLATIONS..............................................................................87

SUMMARY

This report presents an account of progress achieved by the DSF over the period July 2009 – June 2010. It also considers a number of scenarios for the future of the DSF and the conditions that must be met in order for its life to be extended beyond the current closing date for the completion of activities, which under current funding arrangements is September 2011. In addition, the report contains short chapters that address a possible aid effectiveness role for the DSF; risks and challenges faced by the DSF; contracts and agreements signed and about to be signed; and DSF governance arrangements, interactions with local government, and the DSF Executive. The year began with the granting to the DSF by its principal financial donor (DfID) and its other financial donors (AusAID and CIDA) of a no-cost extension through to September 2011.1 The rest of the year was devoted to intensive activity design with government, preparations for activity execution by the Government of Indonesia or the Bank under the approved DSF Work Plan 2009-2011 and, for parts of the work plan, the early stages of implementation. Towards the end of reporting period, there were discussions concerning the future of the DSF and a possible aid effectiveness role for the DSF.

Governance and Development Context Indonesia’s status as a stable and strong democratic country with a healthy and robust economy consolidated over the last year and is increasingly widely recognized in the international community of nations. Despite the financial crisis, Gross Domestic Product (GDP) grew an estimated 4.5% in 2009, with a recovery in trade volumes and an increase in the current account surplus. In the last few years, considerable progress has also been made by government in relation to macroeconomic management, governance reform and development performance generally, and in relation to the political objectives of decentralization. Evidence of this is to be found in Indonesia’s steady climb up the national ‘world competitive’ rankings list (51 in 2008; 42 in 2009; and 35 in 2010). In 2010, Indonesia is ranked ahead of countries like Spain, Portugal, Italy and Russia. Local and foreign investor confidence remains relatively strong. In terms of sustainable development, according to some estimates, the poverty rate has fallen by about one percent per year since 2003. By 2006, the percentage of people living on less than $1 per day was below the Millennium Development Goal (MDG) target. Even so, progress on certain development 1

Under current funding arrangements, the formal closing date is March 2012. The six months between the cessation of activities (September 2011) and the formal closing date allows for the settlement of outstanding payments and the orderly winding down and closure of the facility.

SUMMARY

indicators - such as maternal mortality, chronic malnutrition, access to clean water, stable energy supply, levels of infrastructure investment (3.84% of 2008 GDP), education achievements, and poverty in general - still lags behind some poorer countries in the region. As we did last year, this report again emphasises the importance of striking a better balance between reform inspired by demand and reform based on a supply-side perspective. In this context, questions of local service delivery are crucial. Expected increases in general (DAU) and special purpose (DAK) fiscal allocations to the regions, together with transfer of responsibilities for program implementation and revenue collection (such as property tax) could help to improved service delivery, but will clearly need to be managed carefully. For financial year 2010, around 322 trillion rupiahs (30% of total) has been budgeted in the state budget (APBN) for transfer to the regions. A further 40 trillion Rupiah will be channelled through deconcentration (Dekonsentrasi) and â&#x20AC;&#x2DC;co-administrative taskâ&#x20AC;&#x2122; funds (Tugas Pembantuan). However, these significant transfers need to be accompanied by adequate accountability systems. In 2008, only 8 out of 500 regions received unqualified audit opinions. Low absorption of funds is another problem. By the end of 2009, around Rupiah 100 trillion that was undisbursed was returned in the form of Bank Indonesia Certificates kept at the Central Bank. The report also summarises governance changes that have a more direct impact on decentralization and on different aspects of the DSF work program, noting in particular changes in relevant legislation; institutions; key positions and associated authorities; and practices and processes. The purposes and roles of the DSF remain valid and important in this governance and development setting. Soundly based, equitable, and well directed and implemented development policy; strong governance institutions; capable people of high integrity; and effective development assistance are more important than ever.

Work Programming The chapter opens with a brief description of the DSF strategic framework, within which the activities outlined in the DSF Work Plan 2009-2011 are situated. It also contains brief descriptions of activities supported under the work plan, which are structured according to the four priority areas stipulated by the DSF SC and address one or more of the key issues highlighted in the strategic framework. New program development. The period July-December 2009 was devoted to intensive activity design with government (14 main activities and 9 related, subsidiary activities) and preparations for activity execution by the Government of Indonesia (GOI) or the Bank under the approved DSF Work Plan 2009. The first six months of 2010 saw the beginnings of implementation for parts of the work plan, further preparations for different forms of execution, and the commencement of discussions concerning the future of the DSF and a possible aid effectiveness role for the DSF. Work Programming process. Before execution and implementation of activities can take place, they must be developed in sufficient detail to provide a basis for procurement - into activity concept notes (ACNs). The (implementation) work to be undertaken must also be set against relevant comparative experience and, as far as possible, should be informed by the best thinking in the field. Important features of the ACNs developed to date include their genuine genesis in government; their strategic significance to decentralization and their inter-connectedness; their basis in healthy engagement and dialogue with government; and, where feasible, their attention to political economy issues. During the reporting period, progress in relation to the finalisation of execution arrangements for the majority of the fourteen activities has been satisfactory in the circumstances. Trust funds for eleven of the fourteen activities are now active and the activities are being implemented or are soon to begin implementation. Nevertheless, from a disbursement standpoint, progress has been slow.

ANNUAL REPORT 2010

Of the remainder, ACN 11 (Formulation of Norms, Standards, Procedures and Criteria - MoHA) is close to finalising the conditions for execution; but progress for ACNs 4 (Management Strengthening and Institution Building for Local Public Service Providers - MoHA), 8 (Institution Building for Accelerated Development of Border Areas - MoHA), and 14 (Capacity Building for Minimum Service Standards Costing and Implementation - MoHA) has been slow and puts these activities at risk of not being able to complete by the closing date of September 2011, at least without significant reduction to the scope of work. In relation to the second round of programming, six of the nine addenda have now been completed or are covered in an existing ACN or in other documents. However, there has been little progress in relation to proposals 3 (Local Government Evaluation - MoHA), 5 (Regional Finance - MoF), and 9 (Grand Design on the Implementation of Regional Autonomy - MoHA). For all three of these activities, time is running out and it seems improbable that they would be able to complete by September 2011 without, at least, a significant reduction in scope. On the basis of a fiscal agency agreement signed between the World Bank and the UNDP on 26 May 2010, the $2 million Provincial Governance Strengthening Programme will commence implementation in July 2010. Delays. From a disbursement standpoint, progress has been slow: at the end of the reporting period, disbursements totalled USD 17.33 million (39.3% of total pledged or 41.38% of allocations). However, this needs to be viewed partly against inherited ‘disbursement lag’ from 2007, when the DSF had only disbursed 10% of its funds (US$ 4 million). It should also be seen in the light of the recency of its new work program (2009-2011) , which was approved in late 2009. Further explanations for the pace of progress, particularly in relation to recipient-execution, are provided in the body of the report.

Work Programme Implementation Key milestones. Progress is satisfactory in relation to the attainment of five key milestones, although for some there has been a certain amount of drift in relation to target completion dates: a. ‘Improved Regional Financial Information Systems’: electronic data are available for 8 local governments and the goal of having 25 districts complete electronic data submission is within reach. b. ‘Enhanced Fiscal Decentralization Policy Framework’: data gathering workshops have been held in three provinces and a revised draft of the grand design is expected in the third quarter of 2010, but delays are probable with work on the grand design of regional autonomy (by MoHA), which will influence speed of progress with this milestone. c. ‘Strengthened Monitoring and Evaluation of Special Allocation Funds’ (DAK): preparation for data collection is well advanced and field work in Yogyakarta and five other provinces will commence in the third quarter of 2010. d. ‘Improved Provincial Spatial Planning’: support with the drafting of integrated plans is being provided to local governments in three provinces. The milestone should be achieved by June 2011. e. ‘For Local Parliaments, Improved Legislative Processes, Resource Allocations, and Oversight’: Recipient execution is underway and procurement has begun. Training preparation is due to commence in the third quarter of 2010 and is on target to complete initial training targets by December 2010. Governance reform. The DSF finances four activities in this field: (a) local legislature (DPRD) capacity strengthening (ACN 1 and addendum; and Milestone 5); (b) institution building of government education and training centres - on competency-based standards for improved public service delivery (ACN 7); (c) decentralization education and training (ACN 9); and (d) sub-national investment climate reform. Procurement for the DPRD strengthening activity has begun and it is on track to be completed by September 2011, with initial training targets met by December 2010 (as above). Likewise, procurement

SUMMARY

is underway for government education and training centre development and this activity is on schedule to complete by September 2011. Both activities are recipient-executed (MoHA), which necessitated extensive preparation and capacity building. In relation to sub-national investment climate reform, further institution building of local governments is to be provided for the establishment of effective, efficient and accountable regulations and processes for business licensing. Implementation arrangements are being finalised and the activity should commence in the third quarter of 2010. The decentralization education and training activity comprises scholarships for coursework postgraduate degrees (abroad) and short courses of training for central, local government, and civil society organization (CSO) officials. The scholarships programme is being administered by the British Council and scholars will commence study in September 2010. English language training for IELTS was conducted in June 2010. Execution arrangements for the short course and study tour components of the activity will be finalised in the third quarter of 2010. Public service delivery. In the domain of public service delivery, the DSF continues to contribute to the development and dissemination of legislation and procedures governing functional assignments; minimum service standards (MSS) (and costing thereof); service delivery in border areas; and institution and capacity building of service providers (referred to as ‘alternative mechanisms for service delivery’). Activities in these fields under the DSF Work Plan 2009-2011 have been slow to get off the ground however: the recipient-executed parts of the work on MSS (ACN 14) are not expected to commence until the third quarter of 2010; support to the formulation of norms, standards, procedures, and criteria (ACN 11) will commence in July 2010; and management strengthening and institution building for local public service providers (ACN 4) is also due to commence in the third quarter of 2010. Fiscal decentralization. DSF supports four areas of fiscal decentralization: (a) sub-national borrowing (ACN 6); (b) data provision to the regional financial information system (ACN 12 – and Milestone 1); (c) the policy framework for fiscal decentralization (Addendum to ACN 13 – and Milestone 2); and (d) monitoring and evaluation of special purpose grants to local governments (ACN 3 – and Milestone 3). Under the general heading of sub-national borrowing, the DSF has supported activities in debt restructuring; preparatory work for the issuance of a Jakarta bond and a Bandung bond; helped to draft relevant legislation; conducted pre-feasibility studies of projects to be financed; and has helped to estimate local government pay-back capability. Scoping work for a Surabaya bond is planned for August 2010. Planning and performance management. Six important domains of planning and performance management are currently receiving DSF support: (a) spatial planning (ACN 5 and Milestone 4); (b) institution building for the development of border areas (ACN 8); (c) the strengthening of local government natural resource management capability (ACN 10); (d) capacity building for regional policy formulation; (e) local government evaluation; and (f) strategic planning for the establishment of a regional economic development facility. In relation to institution building for the development of border areas, recommendations for the organisational design of the National Agency for Border Management (BNPP) have been put to a crossministerial group comprising representatives from Bappenas, the Ministry of Home Affairs (MoHA), the Ministry of Disadvantaged Areas, and the Ministry of Finance (MoF). In the third quarter of 2010, among other things, the DSF will support the production by Bappenas and MoHA of national and regional action plans to improve public service delivery in border areas. The pilot stage of support to spatial planning began in May 2010. By the third quarter of 2010, this should have resulted in the production by local governments in three provinces (West Sumatra, East Java, and Gorontalo) of spatial plans that are integrated with national spatial plans.

ANNUAL REPORT 2010

The DSF is providing technical assistance to a team comprising representatives of government, commerce and industry, CSOs, and academia whose job it is to assist government with the evaluation of newlycreated regions and to make recommendations concerning policy. Implementation of the support to the strengthening of local government natural resource management capability; capacity building for regional policy formulation; and strategic planning for the establishment of a regional economic development facility will commence in the third quarter of 2010.

Donor Harmonisation and Knowledge Management Donor harmonisation. A donor mapping data base (DMD) has been developed and is now in the process of being upgraded and up-dated; supported technically by the DSF; and institutionalised in government. The purpose of the DMD is to monitor and analyze aid rendered to Indonesia by the international donor community, and thereby to serve as a valuable planning and monitoring tool for government and for members of the donor community. Knowledge management. This consists of four main elements: first, the production of occasional policy briefs arising from DSF-supported activities or other work relevant to decentralization done by others; second, the maintenance of an electronic repository of relevant documents on decentralization produced by development partners in Indonesia; third, the maintenance of a DSF web site; and fourth, knowledge sharing and knowledge building activities concerning critical aspects of the DSF strategic framework for the benefit of central and local GOI officials and CSOs.

The Future of the DSF The report discusses a number of scenarios for the future of the DSF. Included among them is a scenario – in the very early stages of discussion - that involves the DSF in the design and implementation of a programme of technical assistance and capacity building associated with a Development Policy Loan (DPL) from the World Bank to the Government of Indonesia, possibly building on the Asian Development Bank’s USD 350 million Local Government Finance and Governance Reform Policy loan. This new programme possibility will be developed by government in consultation with stakeholders, including AusAid, CIDA, GTZ, USAID, UKAID, the Netherlands, and UNDP. This section also considers how all or parts of the DSF might be assimilated by government over the medium term and it makes proposals for a revised and more effective and efficient governance structure for the DSF that reinforces government leadership of the facility (‘nationalization’) and involves local government and other stakeholders.

Aid Effectiveness With a view to establishing a more clearly defined capacity building role for the DSF in relation to aid effectiveness, in the third quarter of 2010, further discussions will be held with government concerning a broad range of aid effectiveness issues – extending beyond ‘donor coordination’ or ‘harmonisation’ to data concerning ‘market’ composition, modalities of assistance, quality of design and implementation; alignment; accountability and reporting; and government ownership.

Governance, Local Government Engagement, and the DSF Executive Towards the end of the second quarter of 2010, the process of formal reassignment of co-chair responsibilities for the DSF Management Committee (MC) and Steering Committee (SC) began. During the transition period, the (predominantly work plan execution and implementation) business of the DSF has been managed effectively and efficiently through breakfast meetings held periodically with the founding government co-chair of the MC, and the outgoing and (possible) incoming government co-chairs.

SUMMARY

Also in the second quarter of 2010, there was discussion within government concerning its representation on the DSF SC and of the governance structure of the DSF as a whole (see Chapter 5). In accordance with MC direction, in May 2010 concrete steps were taken towards the establishment of a local government consultative group for the DSF. During the first six months of 2010, a number of professional national and international staff appointments were made, thereby bringing the DSF Executive to its full complement of professional staff.

Risks and Challenges Aid effectiveness issues constitute the main risks to the DSF, particularly those arising from the extent to which obligations under international aid effectiveness declarations are fulfilled by signatories to those agreements. Challenges facing the DSF are discussed in terms of preparations for recipient execution; speed of implementation and disbursement; expectations for improvement (that are likely to be incremental rather than ‘breakthrough’ and to take a long time); and developing a more widely shared understanding of ‘government led’.

Contracts and Agreements This chapter sets out contracts and agreements signed during the first six months of 2010; and those that are expected to be signed by September 2010.

Financial Report On the basis of exchange rates prevailing at 30 June 2010, the total amount pledged to DSF stands at USD 44.06 million. Of this amount, a total of USD 41.88 million (95% of total pledged) has been formally allocated to approved activities and DSF operations. At the end of the reporting period, disbursements totalled USD 17.34 million (39.3% of total pledged or 41.38% of allocations). A full financial report is set out in Annex B.

Conclusion The report concludes by observing that the DSF remains the only genuinely government-led multi-donor facility in the field of decentralization. It is unusual also in that many of the activities it supports are executed using government systems of financial management and procurement. It is making important contributions to aspects of fiscal decentralization, service delivery, governance reform, and planning and performance management. For all of these reasons, it is highly valued by government, which is the strongest endorsement that it could receive. This makes it a viable means for donors to fulfil many of the aid effectiveness obligations set out in the Paris Declaration (2005), the Accra Agenda for Action (2008), and the Jakarta Commitment (2008). With help from the DSF Executive, in June 2010 government began the process of designing a programme of support to decentralization that will address significant aspects of fiscal decentralization, service delivery, and upward and downward accountability. It is envisaged that this programme (whose design should be completed by around September 2010) will provide the foundation for DSF support beyond March 2012 and the means by which closer links with other programmes of assistance to decentralization soon to commence implementation (such as those of AusAID, CIDA, GTZ, and USAID) can be forged and maintained.

INTRODUCTION

In accordance with the DSF Operations Manual, this report is submitted within 30 days following the end of the second quarter of 2010. The report begins with a chronology of significant events that have taken place over the past twelve months. Next, progress and plans are set against a general discussion of development in Indonesia that â&#x20AC;&#x201C; with up-dates - draws partly on discussions of context presented in quarterly reports submitted during the year. Two chapters are devoted to programming and implementation of DSF-financed activities. The report also contains a chapter that discusses possible future scenarios for the DSF and the evolution of its governance structure towards greater government ownership; as well as chapters that discuss a possible aid effectiveness role for the DSF; risks and challenges facing the DSF; contracts and agreements signed and due to be signed by the end of the third quarter of 2010; and current DSF governance arrangements, interactions with local government, and the DSF Executive. Progress of the DSF work programme made against milestones is incorporated in a monitoring framework set out in Annex C. A financial report for the year is presented as Annex B.

Chronology of Significant Events July-October 2009. Following the granting (on 12 May 2009) by the DSFâ&#x20AC;&#x2122;s principal financial donor, DfID, and soon thereafter by its other financial donors (AusAID and CIDA) of a no-cost extension of their support to the Facility through to September 2011,2 intensive design work was carried out on 14 activities under the DSF Work Plan 2009-2011. Detailed ACNs were circulated to MC members for comment and to independent reviewers. Following incorporation of feedback, the ACNs were approved by the DSF MC by circulation. 28 October 2009. At a meeting held on 28 October 2009, it was agreed that a further 9 activities that were closely linked to the first batch of 14 activities under the DSF 2009-2011 Work Plan could be described and argued briefly in short concept papers (1-2 pages), reviewed by MC members, and approved by

2 This is the date for the cessation of activities. The formal closing date of the facility is currently 31 March 2012. The six months between the cessation of activities and the formal closing date allows for the settlement of outstanding payments and the orderly winding down and closure of the facility under current funding arrangements. The Contribution Agreement has been revised accordingly. The Government of Indonesia and the World Bank have extended the period of the memorandum of understanding governing the DSF to December 2011.

INTRODUCTION

circulation. These 9 additional activities were then to be designed in greater detail, reviewed internally, and incorporated as addenda to relevant activities in the first batch of 14 activities.3 November - December 2009. The 9 additional activities were designed, written-up, and approved as above and work continued on preparations for recipient and Bank execution of the first batch of activities. The approval of the 9 additional activities and their associated budgets meant that by December 2009 all pledged monies under the DSF had either been disbursed or committed or allocated to approved activities. January-June 2010. This period was given over to further design work and the writing of addenda and preparations for recipient and Bank execution of activities, and implementation. It also saw the beginning of discussions within government and the Bank and between government and development partners of future scenarios for the DSF. Steps were also taken towards the establishment of a local government consultative group for the DSF; towards identifying an aid effectiveness role for the DSF; and towards institutionalization within government of a donor-mapping database.

Activity concept notes - and addenda to them - set out in sufficient detail to provide a basis for procurement the purposes and rationales of activities contained in the DSF Work Plan 2009-2011. They also indicate the agreed mode of execution to be employed for activities and contain a budget estimate and procurement and implementation schedule.

GOVERNANCE AND DEVELOPMENT CONTEXT

Over the course of the reporting period, Indonesia’s status as a stable democracy that plays a constructive role in the regional and international communities of nations continued to grow and to be increasingly widely recognised4 .

Political Stability Combined with Strong, Sustained Development Political governance. The bases of such development, which were discussed in the DSF Annual Report 2009, remain solid, namely: first, the strength of the electoral system, which has become one of the more competitive in the region. Governments at all levels are elected in free, fair, and peaceful elections that result in a significant turnover of representatives. Second is the Indonesian presidential form of government, which is designed to provide checks and balances between the legislative, judicial and executive branches of government. Third, the Constitutional Court exercises critical oversight of parliament and of other institutions. Economic governance. Fourth, as a consequence of good economic management over several years, public debt has been reduced, foreign reserves have grown, the financial sector has been strengthened, and a more robust domestic economy has been established. In short, Indonesia’s macroeconomic condition is stable and not in crisis. Fifth, all of this has helped to increase local and foreign investor confidence, and civil society organisations are better able than before to pursue their interests and to be heard. Sixth, recognizing its low standing in international comparisons of the extent of systemic corruption, the government has maintained its vigorous and well-publicised anticorruption drive. As a result of such developments, Indonesia weathered the global financial turmoil and economic slowdown of recent years better than most other economies in the region and better than many others outside of the region. After macroeconomic stability was restored in 2004-08, economic growth has been strong and sustained. Despite the financial crisis the GDP grew an estimated 4.5% in 2009, with a recovery in trade volumes and an increase in the current account surplus. Domestic demand has been the main driver of recent growth rates. Public debt has been reduced from more than 80 percent of GDP in 2000 to 32 percent in 2008. And while Indonesia is a net importer of oil it is a net exporter of energy. Booming exports have resulted in balance of payments surpluses, helping to produce foreign exchange reserves that provide a cushion against external shocks. During the last few months, the country’s financial condition has also remained relatively unaffected by instability in several European sovereign debt markets. Moody’s ratings in June 2010 were positive and on an upward trajectory, noting ‘the country’s capacity for sustained strong growth, the overall stability 4

All secondary sources used as a basis for statements in this report are listed in Annex A.

GOVERNANCE AND DEVELOPMENT CONTEXT

and effectiveness of its fiscal and monetary policies, and expectations of further improvements in the government’s financial and debt position’. The World Bank’s (June, 2010) assessment is also positive – it expects ‘the (Indonesian) economy to accelerate through 2011, largely due to domestic demand’. Inflation has been moderate and is likely to remain so. Further evidence of the extent of Indonesia’s achievements is to be found in the IMD World Competitiveness Yearbook 2010, where Indonesia’s competitiveness ranking has continued its steady improvement of recent years - from 42nd place in 2009 (up from 51st in 2008) to 35th in 2010. This ranking places Indonesia ahead of countries like Spain (36), Portugal (37), Italy (40), and Russia (51) and not that far behind Japan (27). IMD competitiveness rankings are based on careful and impartial assessments of changes to 329 criteria, two thirds of which are quantitative and ‘objective’. Cautionary notes include the fact that government spending in the first five months of 2010 deteriorated relative to 2009, particularly for capital expenditure. A projected recovery in global commodity prices is one of a number of factors that could cause inflationary pressure in 2011. GDP growth is projected to be 6.2% in 2011, but this is heavily dependent on unreliable forecasts of increased global commodity prices. The next phase of reform in Indonesia is likely to be less straight forward than the last one however. More, and more sophisticated, infrastructure will be needed. Special attention will need to be given to secondary and tertiary education, and to the development of sustainable health care and health insurance systems. Crucial also will be employment generation in the formal sector - by, for example, providing better access to finance for smaller firms (constrained at present by an oligopolistic banking sector). Much will continue to depend on maintaining the commitment to governance improvement – to all legal institutions (and corruption); to public sector efficiency and effectiveness; and to sustainable growth with equity. Without such commitment, it will be difficult to avoid the ‘middle-income trap’ – or of falling between two stools: on the one hand, the speed and range of technical innovation of high-income countries and, on the other, the cheapness of labour in low-income countries. This can lead to stagnant poverty levels, the unsustainable depletion of natural resources, and disruptions to social cohesion.

Benefits and Challenges of Decentralization In many countries that have embarked on major programmes of decentralization, the primary purposes have been political, either those of consolidating the position of a ruling party and of ruling elites or those of preventing the fragmentation of the state and ensuring political stability, or both. Our brief discussion above would suggest that in Indonesia in large measure the latter political purposes have been – and continue to be - well served by government policy on decentralization, and are well on the way to being achieved. But as with any complex governance system, there is still room for improvement. As noted above, crucial institutions - such as the civil service, the legal system, the security sector, and provincial and district levels of government - are still weak. Poverty. According to some estimates, the poverty rate has fallen by about one percent per year since 2003. By 2006, the percentage of people living on less than $1 per day was below the MDG target. Even so, poverty remains a problem. While considerable progress has been made on some indicators (for example, life expectancy) and there is some debate about measurement and indices, it is generally accepted that the number of people living in poverty is high for a middle income country, and (as a percentage of population) comparable to or worse than that of some low-income countries such as Vietnam. On some measures, nearly half of Indonesia’s population can be classified as poor, or as ‘near poor’ and therefore vulnerable to external shocks that can drive them into poverty. Recent increases in food, oil, and other commodity prices are likely to have a disproportionate impact on poor and near-poor households.

ANNUAL REPORT 2010

Maternal mortality rates remain high - as much as three times those of Vietnam and six times those of China. Less than 1% of Indonesians have access to piped sewerage systems. And there are problems with chronic malnutrition, access to clean water, stable energy supply, levels of infrastructure investment (3.84% of 2008 GDP), and education achievements. As in many other countries, there is significant geographical variation in these indices and in poverty levels. Cross-cutting issues. The magnitude, complexity, and speed of Indonesia’s decentralization give rise to inevitable problems: of weak capacity at all levels; of lack of clarity in the attribution and definition of roles and functions between institutions and between levels of government; and weak upward and downward accountability. Rapid urbanization is going to require heavy investment in physical infrastructure and in social services and will exacerbate the other challenges mentioned. The DSF is making important contributions in many of these areas. Regional autonomy. There are immense challenges surrounding regional autonomy – in June 2010, proposals for up to 181 new regions were being considered by the Ministry of Home Affairs. And opinion is divided as to the benefits - some arguing that local elites benefit disproportionally and that regional proliferation has simply served to multiply the opportunities for local-level corruption. A final decision on the creation of further new regions is likely to be postponed until a ‘grand design’ for the restructuring of regions has been produced. A Grand Design for Regional Autonomy (to 2030) is also being developed. The DSF is assisting with this under its 2009-2011 work plan. Local government. The new decentralization has changed local government throughout the nation significantly. For example, new funding mechanisms delegate significant discretionary spending authority to local governments; local legislative assemblies are empowered to oversee local allocations and approve local budgets; and the authority and responsibility of district heads (bupati) and mayors (walikota) have been expanded significantly to cover a range of new functions. The more than 500 provincial, district, and city governments now undertake almost 40 percent of public spending. And a number of sub-national governments have undertaken major reforms of their public sector systems, introducing performance-based budgeting and one-stop public services. In this context, the questions of local service delivery are crucial. Expected increases in general (DAU) and special purpose (DAK) fiscal allocations to the regions, together with transfer of responsibilities for program implementation and revenue collection (such as property tax) could help to improved service delivery, but will clearly need to be managed carefully. For financial year 2010, around 322 trillion rupiahs (30% of total) has been budgeted in the state budget (APBN) for transfer to the regions. A further 40 trillion Rupiah will be channelled through deconcentration (Dekonsentrasi) and ‘co-administrative task‘ funds (Tugas Pembantuan). However, these significant transfers need to be accompanied by adequate accountability systems. In 2008, only 8 out of 500 regions received unqualified audit opinions. Low absorption of funds is another problem. By the end of 2009, around Rupiah 100 trillion that was undisbursed was returned in the form of Bank Indonesia Certificates kept at the Central Bank. Government is aware, however, that the realization of national state sovereignty and development goals and the sustainability of the advances made will depend a great deal on the impartial or equitable delivery of local-level benefits or services to ordinary citizens, and the reduction of disparities between levels of society and between geographical regions. Ensuring adequate mechanisms for providing incentives and holding local government accountable to its citizens will be crucial to this. A number of the activities approved in the DSF Work Plan 2009-2011 demonstrate government’s commitment to addressing such issues. Getting the balance right: To the extent that local governments have grown accustomed to the greater autonomy afforded to them by decentralization (particularly since 2001), a major task facing government will be to strike a balance between national concerns such as the recurring (though seemingly diminishing)

GOVERNANCE AND DEVELOPMENT CONTEXT

threat of secession, on the one hand, and legitimate demands from the periphery for the maintenance of gains in local government autonomy on the other. Policies are clearly needed that promote the common interests to be found in these positions and that address questions of social and economic exclusion. Again, recognition of this is inherent in the goal of the DSF and its strategic priorities, which accord prime importance to improvements in service delivery for ordinary citizens.

Policy Choices in Relation to Service Delivery We reiterate our observation from 2009 that (understandable early) government emphasis on supply-side social engineering, particularly up-stream; centralist tendencies among power brokers; policy complexities and imperfections; and associated problems of implementation have constrained improvements to local service delivery and, thereby, national performance in relation to certain poverty indicators (as outlined above). Again, as in last yearâ&#x20AC;&#x2122;s report, our brief analysis of governance and development circumstances in Indonesia confirms that in relation to good governance, and decentralization and service delivery, there is much to be gained from demand side reform that creates heightened awareness of rights (and obligations) and expectations, and thereby demand, among citizens. This should be combined with continued supply side support that (among other things) promotes the allocation of well managed incentives to local governments for service provision. These conclusions are implicit in the four priority areas specified for the DSF by its Steering Committee, which embrace both supply and demand side considerations; capacity building; policy reform; and strengthening governance and accountability. The need to strike an appropriate balance between demand and supply-side perspectives on support to decentralization is increasingly recognised within the DSF. The programme of support to decentralization that (beginning in June 2010) is in the process of being designed by government with the assistance of the DSF Executive pays particular attention to this question.

Strengthened Purpose and Roles of the DSF The relevance and importance of the purpose and roles of the DSF are enhanced by these circumstances. In the current global environment, soundly based, equitable, and well directed and implemented policy; strong institutions; capable people of high integrity; and effective development assistance are more important than ever. Discussion in subsequent sections of this report of existing and planned DSF activities demonstrates DSFâ&#x20AC;&#x2122;s contribution to date and its potential contribution to these ends.

Governance Context and Decentralization In the rest of this chapter we collate governance developments that have taken place during the year that have a more direct and immediate bearing on different aspects of the DSF work program (principally changes in relevant legislation; institutions; key positions and associated authorities; and practices and processes).5 Decentralization in general. Two laws that form the basis of decentralization and local government are under revision, namely Law 32/2004 on Local Governance and Law 33/2004 on Fiscal Decentralization. Discussions concerning revisions to Law 32/2004, which are coordinated by MoHA, have been held over the last three years and have involved consultations with the general public as well as a number of local governments throughout the country. The business of revising this law is stipulated in the National Legislative Program 2010-2014. Considerable progress has been made with the revision of Law 32/2004 and a large number of strategic issues have been identified, including issues surrounding the establishment of 5

This does not pretend to be a complete account of such matters.

ANNUAL REPORT 2010

autonomous regions; the allocation of functions between different levels of government; the accessibility of a number of basic services; the role of the governor as a representative of the central government; inter-regional cooperation; and regional planning and data management. Government Regulation Number 19:2010 concerning ‘Procedures for the Implementation of Tasks, General and Financial Authorities associated with the Position of Governor as Government Representative in the Provinces’ has been issued as a follow-up to Law 32:2004. Its effective implementation will require a Presidential Decree and/or Minister of Home Affairs Regulation so as to define clearly implementation processes and procedures. This regulation is geared towards reemphasizing the coordinating, facilitating and supervising role of the governor in governmental affairs implemented by districts and municipalities; reducing the strain or improving relations between province and lower levels of local government in some provinces; providing for stricter control of performance of districts and municipalities in implementing governmental affairs; applying similar norms, standards and performance criteria (NSPK) in regional development throughout Indonesia; reducing gaps in economic development between districts and municipalities; and promoting inter governmental cooperation between districts and municipalities. Legislative councils (DPRD). In preparation for the 2009 legislative elections, a revision to Law No.22/2003 was passed. In discussions leading up to the revision, the position of the DPRD - as an elected body accountable to local authorities as opposed to an extension of the central government - was debated but not decided, and is therefore not addressed in the revision. However, the debate on this issue continues in discussions surrounding the proposed revisions to Law No.32/2004 on local governance. Several studies have indicated that a careful review of the system of checks and balances is needed, including the approval of local regulations (whether by judicial review or MoHA) and the relationship between the DPRD and local government heads. In addition, discussions surrounding Law No.32/2004 are examining the role of the governor and whether the position will be an appointment or directly elected. Resulting decisions will have a significant bearing on a number of aspects of governance, such as public accountability and political legitimacy. Competency-based training. The President announced that his number one priority in the Medium-term Development Plan for 2010-2014 is bureaucratic reform, covering the revision of the system of recruitment, education, appointment, promotion, and transfer of civil servants. The Government Training and Education Centre (Diklat) will make an important contribution to this reform program. Diklat’s mission is formalized in Minister of Home Affairs Decree No.378/2009 on the ‘Formation of a Reform Team for the Government Education and Training Centres in the Ministry of Home Affairs and Regional Governments’. Diklat must map competencies, review systems and procedures, and develop a competency-based training program to transform the training apparatus into a performance-based system. Diklat continues to be involved with the State Ministry of Administrative Reform (Kemenpan), the National Civil Service Agency (BKN), and the National Institute of Public Administration (LAN) on issues of consolidation and capacity building related to bureaucratic reform. Planning. The Medium-term Development Plan for 2010-2014 (RPJM) became law in January 2010 (Presidential Regulation No. 5, 2010). The RPJM is presented as three books: Book 1 on ‘National Priorities’; Book 2 on ‘Strengthening the Synergies between Sectors’; and Book 3 on ‘Development with a Regional Dimension’. This will clearly be a crucial reference point for all of the support provided in this area, as well as for many other DSF-supported activities. Investment climate is an important part of the RPJM and two ministries – the Ministry of Home Affairs (MoHA) and the National Development Planning Agency (Bappenas) – are designated as being responsible for improving investment climate. The DSF-financed activity will help MoHA to achieve 2010 national targets that have been agreed between the Minister and the President.

GOVERNANCE AND DEVELOPMENT CONTEXT

The Government continues to press regional governments to bring their spatial plans into line with the national spatial plan, as mandated by Law No. 26, 2007. Through Presidential Decree No. 4, 2009, government established the National Agency for the Coordination of Spatial Planning (BKPRN). This is a crossministerial agency whose job it is to ensure sectoral coordination in spatial planning and implementation and to resolve spatial planning problems at national and regional levels. As of June 2010 – over one year since the central government’s deadline for the completion of provincial spatial plans – only a handful of provinces have finalised their spatial plans. The DSF, through Bappenas, is supporting six municipal and district governments within three provinces (West Sumatra, Gorontalo and East Java) with the drafting of spatial plans that are aligned with higher-level spatial plans and integrated with development plans. Border areas. Presidential Regulation 12/2010 on the establishment of a National Agency for Border Management (BNPP) defines the positions, roles and responsibilities, and membership of the organization. BNPP will provide policy direction for the development of border areas, determine program budget allocations, coordinate implementation and monitoring, and evaluate the management of border areas. The head of BNPP is the Minister of Home Affairs. A permanent secretariat will be established with three deputies responsible for: state boundary management; resource potential management; and border area infrastructure management. Inter-regional cooperation. Several recent pieces of legislation are relevant to DSF work in this field, namely: a. Minister of Home Affairs Regulation number 19/2009 that provides guidelines for capacity building of organisations responsible for the implementation of inter-regional cooperation – it provides a syllabus for training; and directions concerning the identification and selection of participants and facilitators, organization, finance, and so on. b. Minister of Home Affairs Regulation number 22/2009 provides: guidance for the establishment of ‘coordinating teams for inter-regional cooperation’ at both the provincial and local government levels; detailed procedures for implementing inter-regional cooperation; and a list of options for managing such cooperation. c. Minister of Home Affairs Regulation number 23/2009 sets out procedures for the facilitation and supervision of inter-regional cooperation; and specifies roles, tasks and responsibilities of the joint secretariat for inter-regional cooperation in central government (MoHA) and the coordinating team for inter-regional cooperation, at both provincial and local government levels. Newly-autonomous regions. In relation to the evaluation of newly-autonomous regions, two ministerial regulations are noteworthy: a. Minister of Home Affairs Regulation 21/2010 provides guidance on the evaluation of autonomous regions that were created following the implementation of Law 22 of 1999 on regional government. b. Minister of Home Affairs Regulation 23/2010 sets out methods and procedures for the evaluation of newly-autonomous regions. Minimum service standards. The proper costing and implementation of minimum service standards (MSS) is clearly crucial at all levels of government. Law 25/2009 (on public services) mandates the setting of service standards in all sectors. To date, seven ministries have formalized MSS legally (health, social services, environment, public housing, home affairs, and women’s empowerment). Only the Ministry of Health has issued formal technical guidelines for MSS costing (Minister of Health Regulation 317/2009). The Ministry of Health has also set up a team to accelerate the implementation of MSS in health (through Minister of Health Decree 341/2010). In 2010, the aim is to formulate and implement minimum service standards in health, environment, social affairs, and home affairs in districts and municipalities in 33 provinces and to have these service standards reflected in local government budgets. Presidential Instruction 3/2010 among other things stresses the importance of equality of access and treatment of

ANNUAL REPORT 2010

women and children; the attainment of MDGs on poverty, basic education, gender equality and women’s empowerment, infant and maternal mortality rates, HIV/AIDS, malaria and other contagious diseases; and environmental sustainability. These matters were discussed at a national seminar held on 29 June 2010 (sponsored by MoHA and the DSF). Public services. Minister of Home Affairs Regulation 4:2010 - Guidelines for Sub-Districts’ Integrated Administrative Services – is designed to enhance the quality, efficiency, effectiveness and accessibility of public services. It does this by delegating some of the authorities in licensing and non-licensing services held by regents/mayors to heads of districts. It puts districts at the forefront of public service delivery, among other things, by establishing the circumstances under which districts can provide administrative services (such as population administration) and can form implementation teams to do this; it sets general standards of service and facilities; identifies budget sources; and provides guidelines on facilitation and supervision. Ministry of Home Affairs strategic objectives and performance indicators. On February 12, 2010, Minister of Home Affairs Decree 061-41: 2010 was issued. The decree sets out 15 strategic objectives and 33 key performance indicators for MoHA as a whole and does likewise for each directorate general within MoHA. All DSF support to MoHA accords with relevant strategic objectives set by MoHA. Strategic objectives of particular relevance to the DSF programs include: a. b. c. d.

The enhancement of the development of border areas The enhancement of the quality of the democratization process The enhancement of the implementation of minimum service standards The regularization of the implementation of evaluation processes surrounding the designation of newly-autonomous regions and the development of a ‘grand’ strategy for regional arrangements e. The enhancement of partnerships between government and the private sector f. The widening and acceleration of public services reform g. The harmonization of local regulations with MoHA legislation h. The establishment of accountable and transparent local financial management systems.

GOVERNANCE AND DEVELOPMENT CONTEXT

STRATEGIC FRAMEWORK AND WORK PROGRAMMING

Following a brief account of the strategic framework that underlies the DSF Work Plan 2009-2011 and broad descriptions of the activities it supports, this chapter outlines progress with the design and execution of those activities. Implementation progress for the DSF work programme as a whole is discussed in Chapter 4.

Strategic Framework The DSF framework builds on the four priority areas identified by the DSF SC and is reflected in the goals and purpose of the DSF monitoring framework. The strategic framework is also informed by the discussion of the general governance and decentralization context, which acknowledges, first, the considerable advances that have been made in recent years in Indonesia in relation to a number of important aspects of good governance; and second, the significant benefits yielded by the government’s decentralization program, at both national and local levels. A summary of the strategic framework is set out in Box 1 below. Box 1: DSF Strategic Framework Outline Demand for Local Public Services • • • ⇒ ⇒ ⇒

There exists high reported satisfaction among citizens with the current state of local public service delivery This co-exists with comparative evidence suggesting that performance on certain development indicators is lower than that of some poorer countries in the region Among a substantial proportion of citizens there is low willingness to pay for improvements to service delivery Weak citizen demand for public services Weak citizen demand for local government accountability Weak citizen understanding of the legitimacy of demand Supply of Local Public Services

• • • ⇒ ⇒ ⇒

There are significant productivity issues surrounding current (staff) and capital inputs to service provision (technically inefficient service provision) There is an imbalance between current (staff) expenditure (too much) relative to capital spending (allocatively inefficient service provision) Service provision is not (and currently cannot easily be made to be) strongly linked to local demand (which is weak) Weak local government capacity in provision of local services Under-responsive local government service provision Under-developed sense of service to the public

�STRATEGIC FRAMEWORK AND WORK PROGRAMMING

Box 1: DSF Strategic Framework Outline Policy Framework for Supply of Local Public Services • • • • • •

⇒ ⇒

There are numerous problems surrounding central/local assignment and implementation of decentralized functions Local staffing rules and payment are too centralized Tax assignments are too centralized Local own-source revenues are low Too frequently, central-local transfers are perceived as unrestricted entitlements The regulatory system for local infrastructure finance is incomplete and cumbersome Weak central government capacity in policy design Weak central demand for (upward) and support of (downward) local accountability Overall Outcome Insufficient continuing improvements to local public service provision Generalized Factors Underlying Result

• • •

Insufficient upward and downward accountability Insufficient citizen demand Inadequate local and central government capacity DSF Strategic Framework

• • • •

Promote local government (downward) accountability to citizen demand and strengthen citizen demand Promote local government (upward) accountability to central government Build local government capacity in service provision Build central government capacity in design of policies that govern service provision

The strategic framework expresses the overall purpose of the DSF in terms of: (a) demand for local public services; (b) supply of local public services; and (c) policy frameworks for the supply of local public services. A full account of the framework is presented in the DSF Annual Report 2009.

Work Plan Activities The activities supported under the work plan – described briefly below - are structured according to the four priority areas stipulated by the DSF SC and address one or more of the key issues highlighted in the strategic framework. Most activities contain significant institution building components.

Public Service Delivery The Government of Indonesia has been keen to specify clearly the functions that local governments should carry out and the standards to which they should perform these functions; and to strengthen generally the system of public service provision. Through the Ministry of Home Affairs, the DSF is supporting four activities in this category, namely: a. Improved definition of service functions: this involves support for the formulation of norms, standards, procedures and criteria for service delivery and review of their implementation in selected sectors. b. Capacity building for costing and pilot implementation of minimum service standards. c. Management strengthening and institution building for local public service providers - to begin with, in certain sectors and selected regions. d. Service delivery in border regions: this entails a review of public services in border regions, leading to policy recommendations and development of a national action plan for institution building.

ANNUAL REPORT 2010

These activities go directly to the purpose of the DSF, and hold considerable strategic significance for the government’s overall program of decentralization. They all have potential for scaling-up nationally; and they all carry important implications for upward and downward accountability.

Fiscal Decentralization In this area, the Ministry of Finance is being provided with DSF support directed at: a. b. c. d.

Sub-national borrowing. Monitoring and evaluation of DAK. Strengthening regional financial information systems. The improvement of the policy framework (grand design) for fiscal decentralization.

All of these activities are central to accountability and to other aspects of good governance, such as transparency. They contain significant elements of policy influence and capacity building.

Governance Reform Proposed by the Ministry of Home Affairs, the activities under this heading address local government capacity in the provision of local services and central government capacity in policy design. The first batch of activities in this category is outlined below. a. Capacity development for legislative council representatives: this involves tailor-made capacity strengthening workshops and follow-up action learning to meet DPRD performance targets and general, wide-scale DPRD orientation on basic duties and functions for DPRD provincial, district, and municipal representatives from 10 provinces. b. Education and training on decentralization: here support comprises a limited number of coursework Master degree programmes, short courses, seminars, workshops, and study tours on fiscal decentralization and social accountability for selected local and central government officials and CSO representatives. c. Sub-national investment climate reform. This support continues to build capacity within local governments for the effective and efficient management of business licensing. d. Government education and training centres: this support covers: first, the refinement of a strategic framework for the introduction of competency-based training in MoHA; second, training on competency based needs assessments and development of competency based standard training; and third, the design and piloting of competency-based training and education in the public service of ‘population administration’ in MoHA and three selected provinces and districts and municipalities.

Planning and Performance Management Proposed by Bappenas and MoHA, the activities in this category analyse problems surrounding the quality and integration of different types of planning and build human and organizational capacity to do the work involved. They also provide support to local government management of natural resources and local economic development. a. Institution building for the integration of national-regional and spatial planning: this activity builds institutional capability at different levels of government for the better horizontal and vertical integration of sectoral, development, and spatial planning. b. Managing natural resources for local economic development: Reform of natural resource planning and management to promote local economic development and local government fiscal capacity. c. Capacity building for regional development policy formulation: Contributing to government’s attempts to reduce inter-regional disparities, this activity is designed to produce better-informed and better-managed policy making and planning for regional development.

ďż˝STRATEGIC FRAMEWORK AND WORK PROGRAMMING

d. Border area development planning: This activity builds capacity for development planning in border areas. e. Local government evaluation: this support will help government to assess performance differences on a number of criteria (e.g., institutional, financial, and public service), first, between regions created during the last ten years and, second, between those established during the last three years. f. Institution building for a regional economic development facility: DSF will help to establish in Bappenas strategic management and planning capability for the establishment of a regional economic development facility. Before execution and implementation of activities under the work plan can take place, they must be developed in sufficient detail to provide a basis for procurement (into activity concept notes). The (implementation) work to be undertaken must also be set against relevant comparative experience and as far as possible should be informed by the best thinking in the field. The conditions for execution and procurement (by government or the World Bank) must then be established.

Work Programming Background. As indicated in Chapter 1, in May 2009, a no-cost extension for the DSF to September 2011 was formally approved.6 Pending such approval (that is, up to late May 2009), in accordance with the wishes of the principal financial donor and so as not to raise expectations that might not be met, design and development of activities under the DSF Work Plan 2009-2011 had been put on hold. Commencing immediately upon the granting of the no-cost extension, in the seven months from May to December 2009, a total of 23 activities, each involving in one way or another one or more of 20 government directorates in three different government agencies, were designed, subjected to a thorough process of internal and external review, and formally approved by the DSF MC. Considering the large number and variety of interested parties involved, the complexity of the issues addressed, and the relatively short time within which the work was done, this was a noteworthy achievement. Two rounds of programming. The 23 activities were separated into two rounds of programming. The first round, involving 14 full-blown activities (described in 14 separate ACNs), was largely approved in the third quarter of 2009 (12 out of 14 activities). The second round, involving 9 activities that were designed and conceived as extensions or developments of those that constituted the first round, was approved by the MC (by circulation) during November/December 2009. Progress of first round of programming. As indicated above, to 31 December 2009, fourteen full-blown activities had been through a thorough process of development, review, and approval. These activities are now in various stages of execution and implementation. A summary of progress to 30 June 2010 is provided in Table 1 below. Table 1: First Round of Programming under DSF Work Plan 2009-2011 Budget Name Trust Fund ACN # Estimate (counterpart) Status (USD) 1/2009

Capacity Strengthening Program for Local Government Legislatures (MoHA)

500,000

Active

Implementation Status

Grant agreement signed and effective. See Chapter 4 for further discussion of progress (Milestone 5).

In December 2009, a further no-cost extension â&#x20AC;&#x201C; to 31 March 2012 â&#x20AC;&#x201C; was formally approved and the Contribution Agreement between the Bank and DfID was amended accordingly.

ANNUAL REPORT 2010

ACN # 2/2009

3/2009

4/2009

5/2009

6/2009

7/2009

8/2009

Name (counterpart) Capacity Building for Regional Development Policy Formulation (Bappenas)

Monitoring and Evaluation of Special Allocation Funds (DAK) (Bappenas) Management Strengthening and Institution Building for Local Public Service Providers (MoHA) Institution Building for the Integration of NationalRegional Development and Spatial Planning (Bappenas) Building Capacity for the Development of Sub-National Government Capital Markets for Municipal Bonds (MoF) Government Training and Education Centre Development: Introducing Competency Based Standards for Improved Public Service Delivery (MoHA) Institution Building for the Accelerated Development of Border Areas (Bappenas & MoHA)

Budget Estimate (USD)

Trust Fund Status

Implementation Status

Part 1: 142,500

Active

Policy analysis and data collection in a number of sectors underway. Report entitled, ‘A Study of Regional Development in Indonesia: a Review of Experiences and Achievements’ completed. Procurement underway; services to commence by third quarter of 2010. See Chapter 4 for discussion of implementation (Milestone 3).

Part 2: 700,000

Funds being transferred

550,000

Active

500,000

483,400

GFR approved, awaiting GA signature for activation Active

Financial management and procurement assessments completed. Operations manual approved. Awaiting GA signature. Data collection and analysis commenced (Dec 1, 2009 – June 30, 2010). See Chapter 4 for discussion of implementation (Milestone 4).

900,000

Active

See Chapter 4 for discussion of implementation.

797,0001

Active

Grant agreement signed and effective. See Chapter 4 for further discussion of progress.

500,000

Active for Bappenas activity

See Chapter 4 for discussion of implementation.

500,000

Will use existing trust fund if MoHA activity is Bank executed, otherwise GFR is prepared for submission if MoHA activity is Recipient executed

Financial management and procurement assessments completed. Operations manual under review. Grant agreement can be prepared on the basis of this information if MoHA activity is Recipient executed.

ďż˝STRATEGIC FRAMEWORK AND WORK PROGRAMMING

ACN # 9/2009

10/2009

11/2009

12/2009

13/2009 14/2009

Name (counterpart) Capacity Building through Decentralization Education and Training for Public Service Delivery (MoHA) Strengthening Local Government Natural Resource Management Capability (MoHA) Formulation of Norms, Standards, Procedures and Criteria (NSPK) for Local Government Service Delivery (MoHA)

Strengthening Data Provision to the Regional Financial Information System (MoF) Grand Design of Fiscal Decentralization (MoF) Capacity Building for Costing and Pilot Implementation of Minimum Service Standards (MoHA)

Budget Estimate (USD)

1,593,520

749,500

1,000,000

Trust Fund Status Active (scholarships component) Active

GFR approved, awaiting GA signature for activation

250,000

Active

900,000

Active

1,200,000

Implementation Status See Chapter 4 for discussion of implementation. Short course & study tour components under preparation. Implementation will commence in third quarter of 2010.

The GA has been signed by the WB and sent to MoF for countersignature. The operations manual is being finalized. Procurement and disbursement plans are being written. The Centre for Economic and Public Policy Study, Gadjah Mada University will assess NSPK status (beginning in August 2010). See Chapter 4 for discussion of implementation (Milestone 1). See Chapter 4 for discussion of implementation (Milestone 2).

GFR prepared The project will be recipient and Bank executed; TOR and budget completed; division of responsibilities between MoHA and DSF agreed; and the operations manual is written. Procurement and disbursement plans are being written.

It can be seen in Table 1 that during the reporting period progress in relation to the finalisation of execution arrangements and implementation for the majority of the fourteen activities has been satisfactory in the circumstances. Nevertheless, from a disbursement standpoint, progress has been slow. Trust funds for eleven (including part of ACN 8) of the fourteen activities are now active and are being implemented Of the remainder, ACN 11 is close to finalising the conditions for execution; but progress for ACNs 4 (MoHA), 8 (MoHA component), and 14 (MoHA component) has been slow and puts these activities at serious risk of not being able to complete by the closing date of September 2011, at least without significant reduction to the scope of work. Progress of second round of programming. As indicated in Table 2 below, six of the nine addenda have now been completed or are covered in an existing ACN or in other documents referred to in that table. However, there has been little progress in relation to proposals 3 (MoHA), 5 (MoF), and 9 (MoHA). There are a number of reasons for this, some of which are discussed in a separate section below and others of

ANNUAL REPORT 2010

which are discussed in the DSF quarterly report for December 2009. There are also a number of projectspecific reasons for delay. Proposal 9 in Table 2, the ‘Grand Design on the Implementation of Regional Autonomy’, is clearly a highly complex matter of considerable moment and political sensitivity for government and involves all three DSF counterpart agencies. At the same time, government is working on a revision to Law 32/2004 – on local government. This has important implications for the ‘grand design’ of regional autonomy. Discussions surrounding the addendum have therefore been protracted and senior officers from all three agencies have wanted to participate in them, making organization more difficult. The latest estimate for an approved design (addendum to an existing ACN) is the end of July 2010. Assuming no further delays and Bank execution, this activity is still at risk of not being able to complete by September 2011. In relation to proposals 3 and 5 in Table 2, the slow rate of progress is partly due to changing priorities in government and partly a function of the lengthy delay in appointing a replacement senior economist to the DSF Executive and the increased qualitative and quantitative load this put on the fiscal decentralization specialist. However, for all three of these activities, time is running out and it seems improbable that they will be able to complete by September 2011 without a significant reduction in scope. Table 2: Second Round of Programming under DSF Work Plan 2009-2011 Proposal (notional budget)

Link to ACN

Counterpart

DPRD Orientation ($500,000)

ACN 1/2009

MoHA (Diklat)

Regional Development Policy ($700,000)

ACN 2/2009

Bappenas (Pengembangan Wilayah)

Local Government Evaluation ($300,000) Inter-Regional Cooperation ($760,000)

ACN on EPPD

MoHA (PDOK)

ACN 2/2009 ACN 4/2009

Bappenas (Otda) MoHA (PUM)

Regional Finance ($850,000)

ACN 12/2009 ACN 13/2009

MoF (DJPK)

Provincial Governance Strengthening Programme ($2,000,000)

ACN 2/2009 ACN 4/2009 ACN 5/2009 ACN 14/2009

Bappenas (KKDT), MoHA (UPD, PUM)

Status Addendum approved. RAB finalized (total $473,300). Financial management and procurement assessments completed. Draft amendment to GA completed. Signature awaiting initial DIPA approval of ‘mother’ GA. Covered in existing ACN – no addendum required. Implementation will commence in third quarter of 2010. Activity design, budget, and mode of execution are being finalised with MoHA. Addendum approved. Implementation for Bappenas component will commence in third quarter of 2010. 1. PEA-Otsus (600K): ACN under preparation with MoF. 2. Regional fiscal incentives (250K): discontinued at MoF request (as similar support being provided by ADB). Fiscal agency agreement & letter of understanding on performance signed. Implementation will commence in third quarter of 2010.

ďż˝STRATEGIC FRAMEWORK AND WORK PROGRAMMING

Proposal (notional budget) 7

Link to ACN

Counterpart

Status

Regional & Local Economic Development Facility ($600,000) Sub-national Investment Climate Reform ($700,000)

ACN 10/2009

Bappenas (Perkotdes)

Addendum approved. Implementation will commence in third quarter of 2010.

DSF Work Plan 2007-2008 continuation

MoHA (Bangda & Diklat) Bappenas (Biro Hukam)

Grand Design on Implementation of Regional Autonomy ($700,000)

ACN 13/2009

MoHA (Otda)

Grant agreement justification and summary proposal are drafted and will be submitted to the World Bank Country Leadership Team for review in July. Draft addendum completed; awaiting final confirmation by the Director of Local Government Affairs. Following a decision by the Director of Local Government Affairs, the project will be Bankexecuted.

The Provincial Governance Strengthening Program (PGSP). This major ($2 million) activity is designed to strengthen provincial government roles and functions, paying particular attention to policy-making, regional development planning, and public service delivery. This should lead to better integration between policies, planning, and budgeting, which in turn should translate into improved service delivery in selected pilot provinces. The counterparts for this program are Bappenas and the Ministry of Home Affairs. Initially, activities will be implemented in two provinces, Gorantalo and Bangka Belitung. The activity is being implemented through a fiscal agency agreement (FAA) between the World Bank and UNDP. Following thorough discussion within the Bank and, subsequently, between the World Bank and the UNDP, a FAA between the two parties was signed on 26 May 2010. Resolution of the issues involved, which was outside of the sphere of influence of both the DSF MC and the DSF Executive, consumed much of the first quarter of 2010. A letter designed to enhance communication and cooperation between the parties in relation to DSF reporting requirements was drawn up during the reporting period and was signed on the date that the FAA was signed. The formal launch of the project will take place in late July 2010. Work programme implementation and results achieved are discussed in the next chapter.

WORK PROGRAMME IMPLEMENTATION

This chapter outlines results achieved to date from the implementation of DSF-financed activities. The chapter also discusses impediments to progress, particularly problems associated with speed of execution and implementation.

Key Milestones The results achieved by five of the activities under the DSF Work Plan 2009-2011 have been designated by the principal financial donor as ‘key milestones’ for gauging DSF progress. Progress in relation to these milestones is discussed below.

Milestone 1: Improved Regional Financial Information Systems (SIKD) A well-functioning national budget and expenditure information system is clearly critical to successful budget and national fiscal policy implementation. It is also vital to redirecting resources and investments to local governments under the so-called national fiscal ‘grand design’. The development of computer software intended for transferring electronic data from the regions to MoF is complete. For FY 2007, data from 375 of 461 districts (81%) have been uploaded and are accessible to the public. For FY 2008, realization data for 317 out of 484 (65%) of the districts have been uploaded to the government website. Realization data for FY 2007 and 2008 are available at the Directorate General for Fiscal Balance website www.djpk.depkeu.go.id/datadjpk/47/. Officials at the Directorate for Funding Evaluation and Regional Financial Information (EPIKD) have opted to postpone further data entry for FY 2007 and instead to concentrate on data entry for FY 2008. For primarily data security reasons, EPIKD carries out manual data entry in-house. Preliminary systems for data transfer and new data entry modules were completed in April 2010. Socialization of the new (electronic transfer) SIKD system began soon thereafter, starting with North Sulawesi province (as the data for developing the systems came from 3 local governments in North Sulawesi). During the life of the activity, MoF expects to have 25 local governments transmitting their financial data electronically for easy transfer to its national SIKD system. The system will be made compatible with those being developed with support from the Asian Development Bank (ADB) – in 171 local governments. EPIKD and DSF staff have carried out several joint missions to the regions to collect regional financial data, as well as to inform and enable local governments to transfer regional financial data to the SIKD.

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Thus far, electronic data are available for 8 local governments. The goal of having 25 districts complete electronic data submission is within reach, a goal whose attainment is made more likely by the fact that EPIKD intends to undertake 2-3 socialization missions to the provincial level to solicit local government’s financial electronic datasets. This activity is on target - to complete by December 2010.

Milestone 2: Enhanced Fiscal Decentralization Policy (through Grand Design for Fiscal Decentralization - GDFD) The GDFD is designed to strengthen links between funding, performance and regional autonomy and is therefore a cornerstone of successful decentralization in Indonesia. The GDFD will attempt to align the fiscal policy framework (transfers, revenue generation and sharing, including inputs to the revision of Law 33/2004 on fiscal balance between central- and local government), with revisions to the policy framework on regional autonomy (Law 32/2004 on the Grand Design for Regional Autonomy). Three public consultations have been conducted - in Pontianak (West Kalimantan), Makassar (South Sulawesi) and Surabaya (East Java) – in order to gain insight into a wide range of perspectives on issues surrounding the current GDFD. Based partly on the qualitative data produced through these consultations, a first draft of a revised GDFD document is expected to be ready by late July 2010. The draft will address a wide range of issues connected with the five pillars of fiscal decentralization, namely; human resources; institutional and organizational matters, including mandates; information systems; regulations; and know how. The draft revision will be considered initially by the Secretary of the Directorate General of Fiscal Balance. Discussion on the improvement of balancing funds - the DAU and DAK - have been constructive and will feed into the revision of Law 33/2004 on fiscal balance between central and local government With DSF support, efforts to harmonize the GDFD (and respective inputs to the revision of Law 33/2004) with the revision of Law 32/2004 and the Grand Design for Regional Autonomy are currently underway. However, it now seems unlikely that MoHA will be able to finalize the Grand Design for Regional Autonomy in the near future. Consequently, the current milestone, which reads: ‘Policy Framework of fiscal decentralization improved, accepted by MoF, and harmonized with MoHA’s Design for Decentralization and Regional Autonomy by September 2010’ should be amended to read: ‘Policy framework of fiscal decentralization improved, and accepted by MoF, and a harmonization strategy for the revision of Law 33/2004 and Law 32/2004 completed’. This (revised) activity should be completed by June 2011.

Milestone 3: Strengthened Monitoring and Evaluation of Special Allocation Funds (DAK) (in 5 Provinces and 47 Districts) DAK grants for FY09 total about $2.4 billion for 14 sectors and constitute 8% of total transfers to local governments. DAK grants are used for capital maintenance and small infrastructure investments at the local level and therefore constitute a critical area for government oversight and efficacy in capital spending. Building capacity (human capabilities and systems) for monitoring and evaluation is clearly crucial to this. A number of preparatory steps have been taken towards this end, including: preparation of explanatory (‘socialization’) materials and instruments for data collection and for training of field teams. A pre-test on data collection and facilitation thereof was conducted in Karawang district in March 2010. Implementation will be split into two phases: the first phase in the D.I. Yogyakarta province, followed by a second phase conducted in a further 4 provinces (Jambi, Central Kalimantan, West Sulawesi and North Maluku). The purpose of this separation is to obtain data on - and lessons learned from - the

ANNUAL REPORT 2010

implementation of DAK monitoring and evaluation within the province of D.I. Yogyakarta. Lessons learned will be applied in the second phase. A seminar on lessons learned from the implementation in D.I. Yogyakarta as well as early results from the four provinces is planned for September 2010. Preliminary results on the application of a capacity strengthening strategy for central and local government will be presented in the seminar. A revised completion date for this activity is February 2011.

Milestone 4: Improved Provincial Spatial Planning (3 provinces and 3 districts/municipalities have approved spatial plans in line with the national spatial plan) Decentralization of increased decision making authority to local governments has greatly complicated planning, allocation and coordination of capital investments in projects such as ports and airports. Ensuring that national plans and needs are aligned with island, provincial and district needs has proved to be particularly problematic. With DSF support, local governments in the provinces of West Sumatra, Gorontalo and East Java are drafting spatial plans that are aligned with the national spatial plan and integrated with other provincial planning documents (and conform to provincial policies). Draft spatial plans should be completed by September 2010 and the milestone should be achieved by June 2011.

Milestone 5: For Legislative Councils (DPRD), Improved Legislative Processes, Resource Allocations, and Oversight Decentralization in Indonesia has devolved key functions to local parliaments. Elected officials have expanded mandates and new roles and responsibilities, but many of them do not possess the skills or knowledge needed to carry out their duties. Significant performance problems at the local level - including administrative and legislative failings - have arisen as a result of this. This activity will address skills and knowledge deficits among DPRD members, particularly those associated with legislative processes, budgeting, and oversight. Initially, the training will be provided to 150 provincial and district DPRD members, of which at least 30% will be women. By the end of the implementation period, about 1260 DPRD members will have been trained (300 under DPRD capacity strengthening and 960 under DPRD orientation). The target will be met by two parallel DPRD activities (capacity strengthening with followup action learning and technical assistance to meet DPRD performance targets and a separate general orientation and induction to DPRD duties). GOI has taken all of the steps necessary to bring this activity on-budget and on-treasury and has begun contracting of a local university or institute to implement the training for the first activity. An amendment to an existing grant is being prepared for the second activity and this too will be brought on-budget, on-treasury. As relevant government curricula are readily available for the second activity, it will be possible to fast-track associated training. This activity is progressing as planned and the milestone should be completed by December 2010 (and exceeded by September 2011).

Other Parts of the Work Programme Progress of activities approved in 2007, and in 2009 under the DSF Work Plan 2009-2011 is described below. Some cases are presented in a way that illustrates the range of processes that must be completed in order for an activity to be executed and implemented. For further discussion of progress, see Annex C.

Governance Reform The DSF finances four activities in this field: (a) local legislatures capacity strengthening; (b) government education and training centre development on competency based standards for improved public service delivery; (c) decentralization education and training; and (d) sub-national investment climate reform.

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Local legislatures (DPRD) (approved in 2009). The DPRD strengthening program was proposed by the Local Government Affairs directorate of the Directorate General for Regional Autonomy in the Ministry of Home Affairs. This activity assesses the needs of selected DPRD at the provincial, district and municipality levels, develops relevant materials and modules, and provides capacity strengthening workshops for newly-elected DPRD members. Following the workshops, action learning and technical assistance will be provided to assist DPRD members in achieving performance targets. Initially, six provincial-level and six district-level legislatures will be targeted - with a view to replication in other interested DPRDs or regions identified by MoHA. This activity is GOI-executed. With DSF support, MoHA prepared the necessary documents, including: a detailed budget that met both GOI and WB standards; and a project operations manual containing detailed project activities, financial management and procurement procedures, anti-corruption measures, and performance indicators. MoHA also underwent financial management and procurement assessments, and attended World Bank financial management and procurement training. Once the grant agreement had been signed (January 2010), MoHA submitted the documentation required for grant effectiveness (March 2010) and researched the process for registering the grant with MoF and activating DIPA (budget implementation document). This was a complicated process, which entailed: preparation of an annual work plan, procurement plan, and disbursement plan according to MoF specifications; the issuing of a Directorate General Regulation for the project; opening a special account; and registering for DIPA funds. A contract to an implementing agency should be issued in the third quarter of 2010. The skills and knowledge acquired by the Local Government Affairs Directorate and by procurement committee members - particularly in relation to applying procurement rules and regulations - is an achievement of significant practical value. Local Government Affairs has made considerable progress in relation to its understanding of the market for DPRD capacity-strengthening implementing agencies and it has learned how to evaluate expressions of interest. Local Government Affairs and the procurement committee have also learned about common corruption practices associated with procurement and how to avoid them. Once DIPA funding is available, Local Government Affairs will proceed with a ‘road show’, signing of MOUs with selected DPRDs, and (with the implementing agency) conduct needs assessments of participating DPRDs. In a related activity, the Government Education and Training Centre (Badiklat) requested DSF support to implement orientation for newly-elected DPRD members. The activity includes training of trainers (TOT), together with DPRD orientation in all districts and municipalities of four high priority provinces for approximately 960 DPRD members. Using an up-date of an existing curriculum, the DSF activity will conduct TOT and training in target provinces. The activity concludes with a technical coordination evaluation meeting to review the TOT and DPRD orientation and determine recommendations for improvement and national scale-up. This activity is recipient-executed through an amendment to an existing grant agreement (signed in January 2010 and effective in March 2010). Badiklat has registered the grant, set up a special account, and worked to obtain DIPA approvals from MoF. The grant agreement amendment for DPRD orientation will be signed following the request for initial deposit for the ‘mother’ grant. The financial management and procurement assessments have been completed and counterpart funding has been secured. The activity will run from July-December 2010. Competency-based standards for improved public service delivery (approved in 2009). This activity will build the capacity of government (MoHA) training and education centres so as to enable them to develop competency-based training for civil servants in important aspects of public service delivery. It does this through training of trainers for training needs assessments and the formulation of competency-based

ANNUAL REPORT 2010

standard training modules. The activity will be implemented in three provinces and will be directed at provincial and district and municipality government training and education centers therein. The work will be done in collaboration with local line agencies. The activity is recipient-executed (‘on budget’ and ‘on treasury’). Diklat prepared all documentation (as set out above in relation to ‘local legislatures’), underwent financial management and procurement assessments, and attended World Bank financial management and procurement training. Once the grant agreement had been signed, Diklat went through the steps described above in relation to ‘local legislatures’. DIPA funds should be available by August 2010. Diklat will then proceed with the refinement of the strategy on competency-based training (CBT) and with setting up workshops on CBT needs assessment and with the formulation of training programmes. To assist with implementation of the project, and through GOI procurement processes, Diklat will hire consultants in human resource management, competency-based standards, population administration, and finance. Procurement of these consultants commenced in May 2010 and the appointments should be made in the third quarter of 2010. Decentralization Education and Training (DET). This activity, which provides up to 40 scholarships for coursework Master degrees at UK universities and short courses of training and study tours on decentralization, is designed to contribute to the development of a group of professionals in central and local government who are able to provide for decentralized public service delivery that has downward accountability to citizens as an integral part. The scholarships part of the programme is being implemented through a grant agreement between the World Bank and the British Council (signed in May 2010). Scholars will commence their education in the UK at the beginning of the 2010 academic year. Before they leave for the UK they will undergo intensive English language training in Jakarta (see below). A long list of scholarship candidates was drawn up on the basis of written applications, formal qualifications and structured interview. All long-listed candidates qualified for a six-week English language course that began on 1st June 2010 and will end on 16th July 2010. IELTS scores will constitute the final selection hurdle for scholarship awardees. The British Council will assist scholars with their applications to UK universities, and it will provide academic and other forms of support while scholars are in the UK. The British Council will also help scholars with the development of action plans for the application of knowledge and skills acquired under the program upon return to their jobs in Indonesia. Execution arrangements for the short course and study tour components of the programme are in train. Sub-national investment climate reform (approved in 2009). This activity builds on the achievements of a previous project of this name (approved in 2007). It responds to important sections of the government’s RPJM 2010-2014. The aim of the activity is to institutionalize capacity within local governments to implement effective, efficient and accountable regulations and processes for business licensing. The program will: (a) support MoHA in monitoring the performance of one stop services (OSS) for business licensing across the country; (b) help three selected provincial governments (PGs) with facilitating the establishment of district-level OSS and improving the performance of existing ones; and (c) through support to Bappenas and three selected PGs, assist with the diffusion of regulatory impact assessments. The follow-on activity is being proposed for execution on the basis of a grant agreement. The grant agreement justification and summary proposal have been drafted and will be submitted to the World Bank Country Leadership Team for ‘no objection’ in July 2010.

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Public Service Delivery Minimum Service Standards (approved 2009). Central government is aware that problems of basic service delivery must be addressed. The National Action Plan for Fiscal Decentralization (2005) commits government to improving basic public services, especially in health, education and infrastructure. One way to improve the accessibility and quality of those services is to establish minimum service standards for them, as mandated in law 32/2004 on local governance. To date, government has issued MSS in seven sectors: health, environment, public housing, social, home affairs, women’s empowerment and family planning. In addition, final draft legislation has been prepared for MSS in education and this will be formalized soon in legislation. The objectives of this activity are to: (a) Improve MoHA’s capacity to work with other ministries to cost MSS for selected sectors, including the drafting of a manual on this subject for local governments; (b) Support central and provincial governments to implement MSS in selected local governments; (c) Develop the capacity of selected local governments to implement MSS and integrate MSS in their planning and budgeting documents; and, for selected sectors, (d) examine whether there is any relationship between MSS and the attainment of the MDGs. Pending the formal commencement of this activity (in the third quarter of 2010), DSF support has helped MoHA to develop an electronic system for costing MSS in health that was tested using data from Kota Yogyakarta (May, 2010). Feedback has been used to modify the system, with a view to its diffusion to other local governments. Norms, standards, procedures and criteria (approved in 2009). Law 32/2004 on Regional Administration stipulates that all sectoral ministries should amend and update their own statutes and regulations to be in accordance with the regional autonomy law (Law 32/2004 article 237 refers). Similarly, Article 9 in Government Regulation 38/2007 - on ‘Task Division between Central, Provincial and District Governments’ - requires ministries to formulate norms, standards, procedures and criteria (NSPK) that are designed to guide the implementation of regional government functions. The Directorate General of Regional Autonomy of MoHA has been helping ministries to formulate NSPK. The initial deadline for NSPK formulation was set at two years. This was an ambitious goal, as there are 31 sectors, each with a different NSPK that need to be developed and harmonised. Progress has been slow and there is no clear account of the NSPK that need to be formulated or revised. The objectives of this activity are to: (a) Strengthen MoHA’s capacity to facilitate, monitor and evaluate the formulation of norms, standards, procedures and criteria for service delivery in all sectors; (b) Support ministries in the formulation of norms, standards, procedures and criteria for service delivery and thereby help them to define more clearly the roles and responsibilities of every level of government in a number of selected sectors; and (c) Assess the extent and quality of the implementation of NSPK by local governments. A grant agreement for this activity has been signed and is awaiting counter-signature. The initial part of DSF-financed support will assess NSPK formulation status. The work will be done by the Centre for Economic and Policy Studies at the University of Gajah Mada and will commence in August 2010. Alternative mechanisms for service delivery. The government also recognizes that there are widespread and significant weaknesses in the management of service delivery. Most provinces, districts and municipalities deliver public services directly through local service units and their implementing facilities. In a limited number of special cases, local government-owned enterprises are the public service providers (as with local government owned water enterprises - PDAM). While government owned not-for-profit service delivery institutions are formally permitted, they have rarely been used to assist in the delivery of public services at the sub-national level and the formal use of private sector entities to deliver public services is also rare.

ANNUAL REPORT 2010

DSF support has resulted in the production of a ‘blueprint’ for promoting AMSD in regional governments that addresses basic aspects of organizational functioning and performance such as: organizational strategy and structure; human resource management; organizational culture; covering the costs of service delivery; out-sourcing; and inclusiveness, community integration, and gender. DSF support has also assessed the legal and regulatory framework on management development and institution building for public service delivery; produced a draft plan for pilot activity in this area; and, taking into account the support offered by other donors in this field, an implementation plan. In November 2009, a national workshop was held in Jakarta to present the AMSD system to a wider audience - including representatives from MoHA, Ministry of Finance, Bappenas, donors, and other stakeholders. The purpose was to inform and update progress on pilot regions’ implementation of the AMSD system. The follow-on activity commissioned by GOI was formalized in ACN 4/2009 on Management Strengthening and Institution Building of Local Public Service Providers. The TOR and budget have been finalized. Financial management and procurement assessments have been completed and a report produced. The GA is awaiting signature from GOI and the Bank. The Bank-executed component comprises: (a) preparation for the implementation of a pilot project in West Java Province; and (b) development of baseline information on women’s access to selected public services.

Fiscal Decentralization During the reporting period, the DSF provided support to four areas of fiscal decentralization: (a) subnational borrowing (ACN 6); (b) data provision to the regional financial information system (ACN 12 – and Milestone 1 above); (c) the policy framework for fiscal decentralization (ACN 13 – and Milestone 2 above); and (d) monitoring and evaluation of specific purpose grants to local governments (ACN 3 – and Milestone 3 above). Progress in relation to the three fiscal decentralization milestones is discussed above, in the section entitled ‘Key Milestones’. The remaining fiscal decentralization activities are discussed below. Sub-national borrowing - Jakarta bond. In relation to sub-national borrowing, DSF support has done much of the background analysis and preparatory work for the issuance of such a bond, which would be the first municipal bond to be issued in Indonesia. Such analysis has included debt servicing capability. Staff training and development needs have also been identified. In addition, the support has helped government to asses a long list of mainly infrastructure projects that might be financed in this way, and to draw up a short list for approval by the Governor. In the short term, future activities will focus mainly on the preparation of documentation required by PMK 147/2006 - for presentation to local government legislatures (DPRD) and Ministry of Finance as a basis for seeking approval to proceed with bond issuance. With DSF support, MoF has prepared a revised draft of Government Regulation 54/2005 on Regional Government Borrowing. The availability of alternative sources of financing (such as municipal bonds), and hence this piece of legislation, is important to the accelerated provision of infrastructure, regional economic development, and public service delivery. The draft has been approved by the Ministry of Finance (December 2009) and has been discussed with the Ministry of Law and Human Rights (February and May 2010). Further discussions with Ministry of Law and Human Rights are ongoing – and any issues arising therefrom must be resolved before approval by the President. By the end of July 2010 it is planned to present the draft local regulation and related technical documents to the DPRD for approval. In addition: a. Pre-feasibility studies and draft terms of reference for the four projects funded by the proposed municipal bond have been completed.

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b. Two draft local regulations have been written - the first to authorize a municipal bond issue and the second to establish a bond management unit within the local government’s financial section. c. DKI Jakarta’s ability to payback municipal bonds has been assessed. d. A ‘service note’ (Nota Dinas) is to be issued, which must be signed by the Governor to authorize formally municipal bond preparation for DPRD approval. Sub-national borrowing - Bandung bond. This work began in March 2009. To date, a detailed road map has been produced that sets out the steps that will need to be taken in order for Kota Bandung to be able to make use of such a financial instrument. The support has also assessed the borrowing or debt servicing capacity of Kota Bandung and various forms of capacity building have been provided. Sub-national borrowing - Surabaya bond. A scoping mission to Surabaya was planned for late April 2010 but was postponed until the inauguration of the new mayor of Kota Surabaya has taken place (in August 2010).

Planning and Performance Management Six important domains of planning and performance management are currently receiving DSF support: (a) spatial planning (ACN 5 and Milestone 4); (b) institution building for the development of border areas (ACN 8); (c) the strengthening of local government natural resource management capability (ACN 10); (d) strategic planning for the establishment of a regional economic development facility; (e) evaluation of newly-created regions; and (f) capacity building for regional policy formulation. Spatial planning (approved in 2009). This activity seeks to build central and local government institutional capacity for the better integration of development and spatial planning. The DSF is helping Bappenas (through the Directorate of Spatial Planning and Land Affairs) to map the institutional structure of planning; identify integration problems of development planning and spatial planning at the national level; make recommendations as to how better integration can be achieved; and to provide capacity building support to three provincial governments and six district/city governments to enable them to produce spatial plans that are integrated with the national spatial plan and with other regional planning documents. Progress in relation to this activity is discussed above, in the section entitled ‘Key Milestones’. Border areas (approved in 2009). The development of border areas is a matter of great national concern. This activity is a joint endeavour by Bappenas and MoHA that is designed to provide more comprehensive national government assistance for the development of border areas, both in terms of economic development and improved service delivery. Working under the close direction of the Director of Special Areas and Less Developed Regions (Bappenas), to date DSF support has provided input for a key government planning document – the Medium-term Development Plan 2010-2014 – for the section on border area development (Book 2, Chapter 9 on Policy Direction and Development Strategy). This required consensus between ministries on the identification of border areas and performance indicators to evaluate progress towards the attainment of development goals. This will help to improve consistency between ministries’ border area programs, the quality of such programs, and to promote more effective coordination. The activity has also helped Bappenas to address questions of organisational design and inter-institutional arrangements for the government’s nascent national agency for the management of border areas (BNPP). In February 2010, an analysis and recommendations concerning institutional arrangements for BNPP was presented to a cross-ministerial group comprising representatives from Bappenas, MoHA, the Ministry of Disadvantaged Areas and the Ministry of Finance. From June 2010 to September 2011 technical assistance will be given to BNPP, through Bappenas, to enable them to draft a master plan for the development of border areas. Among other things, this will set

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out government policy on border areas. The master plan will be used by MoHA to develop national and regional action plans for the improvement of public service delivery in border areas. In addition, DSF will help MoHA to develop regulations for government functions in border areas; and draw up guidelines for monitoring the implementation of border area management policies. These initiatives will be crucial to the formulation and implementation of government policies in border areas. The financial management assessment, the procurement assessment and the operations manual have all been finalized. The grant funding request has been completed and procurement will be initiated as soon as confirmation of Bank execution has been obtained. Natural resource management. The activity will: (a) examine in a small number of local governments the ways in which a sample of natural resources is managed; (b) consider means for improving such management and propose organizational changes and capacity building measures at the local level that take into account important aspects of the political economy context and draw on comparative experience; (c) build local capacity for undertaking such organisational development in two pilot areas; (d) make suggestions for the revision of governing legislation and on broader issues of organizational design at other levels in the government system; (e) establish principles underlying the better management of the sample natural resources that may be generalized to other local governments and/or natural resources; (f) devise training and development programs that embody these general principles and can be used as the basis for their dissemination; and (g) design training and development programs for carrying out such dissemination in the relevant sections of Bappenas. Local government evaluation. This activity deals with the evaluation of newly-created regions â&#x20AC;&#x201C; those created from 1999 to 2009 and those created in the last three years. From 1999 to 2009, 205 new autonomous regions were created (Daerah Otonom Hasil Pemekaran/ DOHP) comprising: 7 provinces, 164 districts, and 34 municipalities. Government is very conscious of attendant political and development risks and has therefore put a moratorium on the creation of more new regions so that it could ensure conformity with the law. The government is also in the process of evaluating different aspects of the performance of DOHP (under Minister of Home Affairs Decree 21/2010), including, among other things, the economic, financial, public service, and human resources aspects of government; and citizen welfare. The evaluation will also attempt to explain variations in such performance; assess capacity building needs and formulate a capacity building plan; and consider policy alternatives for the creation, termination, and merger of autonomous region in Indonesia. To do this work, the Directorate for Capacity Development and Evaluation of Regional Performance and Directorate General for Regional Autonomy, Ministry of Home Affairs have established an evaluation team, whose membership includes experts from major universities and the Indonesian Institute of Sciences, and representatives from the Indonesian Chamber of Commerce and Industry, non-governmental organizations, and mass media. Towards this end, the DSF has supported the socialization of MoHA Decree 21/2010 among regional governments, thereby helping to pave the way for the evaluation. A national launch was held in Jakarta in February, 2010; it was opened by the Minister of Home Affairs and was attended by more than 700 representatives from more than 200 newly-created regions. DSF will continue to provide technical support to the evaluation team, particularly in terms of data collection and analysis. Regional development policy. The aim of this activity is to build within Bappenas sustainable institutional capability to: (a) assess the empirical basis of existing Indonesian policy on regional development and related policies and make recommendations for improvements; (b) propose improvements to regional development planning processes; and (c) disseminate the results and develop a cross-ministerial and regional consensus in relation to such policy and planning improvements. A central part of the activity is

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to help local governments to produce development strategies for each of the seven major island-regions (as part of the implementation of the Medium-term Development Plan for 2010-2014). Economic development facility. This activity is designed to help government to accelerate local economic development through the establishment of a facility with a nation-wide remit to promote local and regional economic development. The activity will help the Bappenas’ Directorate of Rural and Urban Affairs to develop a concept and strategic plan for such a facility; and to develop cross-ministerial support for the initiative, which is to be piloted in several provinces. The DSF has collaborated with GTZ’s Regional Economic Development program to provide integrated support to Bappenas. Implementation of the support to the strengthening of local government natural resource management capability; capacity building for regional policy formulation; and strategic planning for the establishment of a regional economic development facility will commence in the third quarter of 2010.

Donor Harmonisation and Knowledge Management Donor harmonisation (third phase – from 2009). In 2006, the Ministry of Home Affairs commissioned the DSF to create a donor mapping database (DMD). The purpose of the DMD is to track, monitor, and analyze aid rendered to Indonesia by the international donor community, and thereby to serve as a valuable management tool for government and donors. Programme information will include: development objectives; geographic location; modalities of assistance; and monitoring methods and expected results. Database development has proceeded in phases. In phase 1, a prototype was created. In phase 2, the design was upgraded to a web-enabled dynamic HTML database. This version is now available in both English and Bahasa Indonesia on the DSF web-site at http://www.dsfindonesia.org/apps/dsf-dm/cgi-bin/ dw.cgi. The third phase of the activity is designed to institutionalise the database and its management in government. In close collaboration with government, DSF support will therefore: a. Upgrade design features; b. Improve data comprehensiveness and quality; c. Transfer responsibility for updating information online to respective donor agencies; and d. Hand over management responsibilities to the ‘owner’ entity in government. Knowledge management. This consists of four main elements: first, the production of occasional policy briefs arising from DSF-supported activities; second, the maintenance of an electronic repository of relevant documents on decentralization produced by development partners in Indonesia; third, the maintenance of a DSF web site; and fourth, knowledge sharing and knowledge building activities concerning critical aspects of the DSF strategic framework for the benefit of central and local GOI officials. The latter includes specialized education and training and exposure to international experiences – for example, on different aspects of fiscal decentralization and upward and downward accountability. In July 2010 a delegation of senior government officials (Echelons, 1, 2 and 3) drawn from all three of DSF’s government counterpart agencies will attend a two week short course on these matters at the European University in Budapest. The course has been tailored to meet the special requirements of the DSF. The fourth category also includes support to MoHA’s engagement with communities, civil society and the public generally, to begin with via a series of forums and public consultations on different aspects of governance such as the election of the heads of regions (the majority favoured direct elections) and issues of public service capacity building in the regions. The next public consultation will explore questions of border area management. The Minister of Home Affairs has attended these forums, and they have generated vigorous and useful discussion.

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Delays and Remedies In the December 2009 and March 2010 quarterly reports, we discussed a number of factors that were contributing to delays in programming and implementation. Below, we reiterate some of these points, primarily as a means for recording our experience of implementing the processes involved, so that we â&#x20AC;&#x201C; and others â&#x20AC;&#x201C; can learn from it. Recipient-execution. In order that government may commence procurement for the implementation of activities, three conditions must be satisfied: a. First, a grant agreement between government and the World Bank must be signed. This requires that budgets, together with financial management and procurement systems, have been developed by government to standards considered to be satisfactory by the Bank (on the basis of assessments the Bank carries out). b. Second, conditions for grant effectiveness must be established. Such conditions depend primarily on the production of an acceptable project operations manual, and the conduct of financial management and procurement training. The satisfactoriness of such conditions is assessed by the Bank. c. Third, grant activation must be instigated by government. This requires that government takes the steps necessary to allow for disbursement to commence. These steps comprise internal GOI processes that include grant registration; the establishment of a special account; and DIPA processing. Directorates in government naturally vary in their capacities (and eagerness) to satisfy these conditions, which in turn affects the pace of progress. For example, as earlier discussion in this report notes, some parts of MoHA have shown considerable energy and commitment in relation to the above; have sought advice and other forms of assistance when they were needed; and have been prepared to follow through on clearances and approvals in order to keep projects moving ahead. The Local Government Affairs directorate of the Directorate General for Regional Autonomy and the Government Education and Training Centre (Diklat), both in the Ministry of Home Affairs, have exhibited these qualities and are well advanced in relation to the above. Commitment to recipient-execution - implications. In the MoHA there has been laudable commitment to the idea of recipient-execution, premised on a desire to acquire necessary skills and knowledge as a basis for creating lasting institutional capability. For the reasons we have given, this can threaten to take longer than the current lifespan of activity implementation under the DSF (September 2011) or other implementation deadlines will comfortably accommodate (e.g., for scholarships, university admission deadlines and degree program lengths). It follows that recipient-execution slows down disbursement (for financial donors, and for the Bank, disbursement is regarded as an important performance measure). Balancing these competing claims is not easy, partly because judgements about what to do and when are subject to individual and institutional idiosyncrasies that are not amenable to any formal control that can be exercised either by the DSFâ&#x20AC;&#x2122;s governance structure7 or by the DSF Executive.8 Implementation of recipient-executed activities. Government-executed projects can also take longer to implement, partly because of the DIPA processing schedule and partly because of the need to follow 7

The MC has some formal authority in relation to such matters, but it is not clear how far this extends, particularly when it comes to institutional boundaries. The MC and the government technical team have done their best to influence these matters, primarily through exhortation (with strong TA and liaison support from a MC GOI position funded by the DSF). But this can only go so far. 8

The DSF Executive has no formal authority in relation to such matters and must rely exclusively on rational argument and exhortation, with all of the attendant limitations for getting things done efficiently and effectively. The DSF Executive is converting a part-time position devoted to supporting government in a wide range of matters associated with recipient-execution to a full-time one.

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government procurement procedures. However, the DPRD and CBT projects have anticipated these possible delays and taken a number of steps to minimise them. Nevertheless, delays in DIPA disbursement and/or procurement processes are likely to arise in governmentexecuted activities, which in turn will slow down project implementation and the attainment of project objectives. The desirability of recipient-execution and associated capacity building. In all cases, however, it is clear that government capability for doing this type of work needs to be, and is being, improved. The importance of such capacity building is recognised by DSF’s counterparts in government. To date such capacity building has comprised: a. A training and orientation workshop for government staff; and b. Day-to-day interactions between professional staff of the DSF Executive and government counterparts; coaching; and what amounts to action learning in relation to different aspects of execution and procurement. From time-to-time workshops or clinics have been – and will continue to be – held that address different points in the critical paths for recipient-executed activities. For example, in April 2010, a workshop was held with staff of MoHA that attempted to produce in one-sitting drafts of all or most of the documents needed for recipient-execution. In May 2010, a clinic was conducted by DSF procurement and administrative staff with MoHA project implementing units on the format and requirements for preparing Request for Expression of Interest and criteria for short-list evaluation reports. World Bank and DSF Executive practices. The DSF Executive has taken a number of steps to help ensure that Bank and DSF Executive processes – for both recipient and Bank-executed activities - work as expeditiously as possible. These steps include: a. The reconfirmation of internal service standards between units in the Bank for the turnaround of approvals and the conduct of financial and procurement assessments, and so on; b. The clarification of lines of authority and communication between the DSF Executive and relevant sections of the Bank; c. Meetings between the DSF Program Manager and Deputy Program Manager and relevant heads of units in the Bank (accounting and procurement) to explain underlying rationales for modes of execution and the number of transactions and to discuss ways of clearing bottlenecks on the Bank side and building capacity and maintaining momentum on the government side; d. Within the DSF Executive, at least bi-weekly portfolio review meetings between the Program Manager and Deputy Program Manager and portfolio managers to examine progress and devise means for addressing obstacles to it; e. The establishment within the DSF Executive of a greater awareness of the importance of internal service standards and a better sense of shared responsibility by all concerned for the work that has to be done; and f. Among staff of the DSF Executive continuous review of work processes, including working lunches on critical paths related to Bank and recipient-execution.

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In its present circumstances, the formal life expectancy of the DSF is determined by two documents. The first is the memorandum of understanding between the Government of Indonesia and the World Bank concerning the DSF, which expires in December 2011.9 The second is a letter from the DSF’s principal financial donor, DfID, addressed to the World Bank as trustee, which stipulates a closing date for the DSF of 31 March 2012. Under the latter agreement, DSF activities must be completed by no later than 30 September 2011.10 If the life of the DSF is to extend beyond these dates, at least two conditions must be satisfied. First, and most important, government11 must derive sufficient benefit from the existence of the DSF for it to want the DSF (in some form) to continue. And second, sufficient funding must be committed by government and by donors to allow this to happen. Assuming that these conditions can be met, and with a view to allowing sufficient time for an orderly transition to whatever end state is deemed desirable and feasible, the purpose of this chapter of the report is to provide a basis for discussion of some of the issues involved. It does this, first, by describing briefly the current structure and functioning of the DSF; achievements to date; and challenges. Second, it considers a number of possible future scenarios for the DSF. One of these scenarios envisages two complementary streams of operation or strands of technical assistance: the first involving a continuation of the relatively localized and tailored technical assistance currently provided to directorates in DSF’s three counterpart government agencies; and the second involving technical support associated with a larger and strategically more significant form of support, possibly financed by a sector investment or development policy loan. It is suggested that at least for the first of these streams the role played by the DSF Executive in its supply of technical assistance lends itself to gradual assimilation by government over the medium term12 (nationalization). The chapter considers briefly how this might be done.

While this document is not legally binding on its signatories, and therefore is not in any sense the legal basis of the DSF, its absence would probably make the DSF untenable. 10 As mentioned earlier in this report, the six months between the cessation of activities and the formal closing date allows for the settlement of outstanding payments and the orderly winding down and closure of the facility. 11

As represented principally by government institutional membership of the DSF – the Ministry of Finance, the Ministry of Home Affairs, and Bappenas. 12 Having in mind the gradually diminishing needs in middle income countries for technical assistance, we surmise that ‘medium term’ will be a period of about ten years.

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Third, a revised governance structure for the DSF is proposed, which is well-suited to all of the scenarios discussed and constitutes a natural progression towards enhanced government leadership and ownership. This proposal has been reviewed by government members of the MC and by the government technical team that supports the DSF. And finally, fourth, it sets out the next steps to be taken.

Structural Components and Responsibilities The DSF is made up of three structural components: a. A Steering Committee (SC) comprising senior (Echelon 1 level) representatives of the Ministry of Finance, the Ministry of Home Affairs, and the National Development Planning Agency, and the heads of nine international development partners. This entity is responsible for the strategic management of the DSF and for determining work program priorities and the roles that the DSF as a whole shall play. The committee is co-chaired by one government and one donor member. b. A Management Committee (MC) that is responsible for overseeing the operations of the DSF Executive and approving its work program. The committee is co-chaired by one government and one World Bank member. c. The DSF Executive whose job it is: first, to assist government with the design, procurement, and management of projects financed by the DSF and with the realization of aid effectiveness objectives; second, to promote informed debate of decentralization and aid effectiveness issues among the decentralization development community, and action; and third, to provide secretariat support to the SC and the MC. The World Bank serves as trustee and administrator of the funds contributed by donors and it staffs and manages the DSF Executive.

Achievements and Challenges Achievements The achievements of the DSF fall into three categories. Technical assistance and development support. The first and most obvious of these pertains to its work programme of technical assistance and development support. Such achievements are discussed in detail elsewhere in this report and will not be repeated here. The second and third categories of achievement are perhaps less obvious and less remarked upon. Both are concerned with institution and capacity building - one constituted by the development of the DSF itself (as a multi-donor, government-led facility) and the other by virtue of the type and extent of interactions between different directorates within ministries and between ministries, and between professional staff of the DSF Executive and professional staff of its three counterpart government agencies, particularly in relation to preparations for recipient-execution. Government capacity building arising from the project cycle. As mentioned in Chapter 4, this has been a product of activity design, preparations for execution, and procurement. For example, there has been considerable capacity building that has occurred as a result of joint activity design; sometimes protracted and rarely straightforward preparations for recipient-execution (including the strengthening of financial management and procurement capabilities in government); and government involvement in or exposure to procurement processes for both Bank and recipient modes of execution. Multi-donor facility institution building. The importance to effective development of multi-donor facilities such as the DSF has long been recognised by the development community, and is clearly expressed in the Paris Declaration on Aid Effectiveness (2005), the Accra Agenda for Action (2008) and the Jakarta Commitment (2008).

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The sine qua non for the effectiveness of such facilities is that there should be genuine government leadership of them, combined with good levels of mutual trust between the executive arms of such facilities and their principal clients in government. From a starting point about 18 months ago where confidence in the DSF on the part of both government and donors had been at very low ebb, it is probably now safe to say that both of these conditions have been reasonably well satisfied. And while there is still room for improvement in relation to these conditions and in relation to other aspects of its performance, the DSF can be said to be operating satisfactorily in relation to its purposes. It therefore constitutes a viable means for realizing the advantages for development effectiveness and efficiency (through lower transaction costs for all stakeholders) contemplated by the international declarations and commitments referred to above. In the circumstances of a fast-developing middle-income country like Indonesia, it is important that such vehicles be established, and that the sometimes considerable time and other resources needed to make them work be invested in them by all concerned.

Challenges The main challenge facing the DSF is that of speeding-up the transition from the general approval of an idea for support through its translation into a detailed design document and then to implementation and disbursement. A second challenge is to arrive at a more widely shared interpretation of the meaning of government-led. Both of these matters are discussed in the chapter in this report entitled ‘Risks and Challenges’.

The Future of the DSF: Complementary Strands of Development? Despite the advances that have been made by the DSF, the existence of strong government support for it, and the general desirability of such facilities in middle-income countries, the future of the DSF beyond its current closing date remains uncertain. Outlined below and in Figure 1 are five possible future scenarios for the DSF. a. Scenario 1 – closure. This would entail winding-down and closure of the Facility at the existing end date of 31 March 2012. Before then, it is possible that following a review of the DSF by its principal financial donor (DfID), a ‘culling’ of non-performing activities could take place in September 2010, with ‘savings’ either being withheld or re-allocated. b. Scenario 1b – delayed closure. This would involve completion of as many existing activities (DSF Work Program 2009-2011) as possible by the current end date, but with a further no-cost extension (of, say, 12 months) for those that had not completed – to September 2012, with a Facility end date of 31 March 2013. This scenario also includes a possible ‘culling’ of non-performing activities following the review in August 2010. It is also likely to include a phased reduction in DSF Executive staffing. c. Scenario 2 – continuation of existing operations with new funding. This would entail a continuation of the Facility beyond its existing end date – for, say, a period of three years - along its current lines of operation, but with additional donor funding for new and probably larger and more strategically significant technical assistance activities proposed by government. In addition, (as above) for existing activities, a further no-cost extension could be granted by the principal financial donor. d. Scenario 3 – new program in support of a loan. This would entail the design of a new program of donor-financed technical assistance that supports a larger and more strategically significant government program financed by a loan from the World Bank and through collaboration with the ADB. Under this scenario, and following the DSF review in August/September 2010, savings from the existing program could be diverted to preparing the way for a loan to government. The closing date for the existing DSF program would remain 31 March 2012, but with the possibility of a no-cost extension for some existing activities under the DSF Work Program 2009-2011.

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e. Scenario 4 â&#x20AC;&#x201C; some combination of Scenario 2 and 3. This might entail the maintenance of two somewhat inter-related but organizationally separate (within the DSF Executive) streams of activity. Under this scenario, in addition to new donor funding, a further no-cost extension might be granted by the principal financial donor for the existing DSF program. In Figure 1 below, September 2010 is the likely submission date for a DfID review report on the DSF; 31 March 2013 is a possible no-cost extension date for uncompleted activities under current financing; and 31 March 2015 is a possible end date for a technical assistance programme in support of a loan. Figure 1: Future Scenarios for the DSF

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Below we discuss some of the issues that are relevant, in particular, to Scenarios 2, 3 and 4. Demand from government. There is clear demand from central government for the type of support currently provided by the DSF. As in other middle-income countries, the Government of Indonesia perceives access to national and international expertise and experience, among other things, as being vital to policy development; to institution building; and to the professional development of government officials. Moreover, government clearly likes to be able to direct development assistance to where government perceives its most important and urgent needs to lie; to play an active lead role in the design of the support that it receives; and either to execute and manage implementation itself or to be integral to non-recipient execution and implementation management. All of this is achievable under the DSF and much of it is being - and has been - done. Systemic change. The question arises, however, as to how the relatively large number and diversity of activities currently undertaken under the auspices of the DSF can be augmented by other forms of support that cohere around (or address) some higher order unifying objective and that are capable of generating greater momentum for constructive systemic change at a faster pace. Grounds for development. The current program of support prepares the ground for larger, more strategically significant13, and different, forms of support in at least three important ways. First, the existing DSF program, which is well-premised in the logic of piecemeal social engineering, addresses important and urgent relatively localized problems identified by central government directorates in the MoHA, MoF, and Bappenas. Some of these activities have the potential to be scaled-up. Moreover, the program has arisen from, and rests on, a foundation of trust between these units of government and the executive arm of the DSF. Such trust has been built painstakingly from the bottom up on the basis of three necessary ingredients: perceptions of sufficient levels of competence; integrity (doing what you say); and benevolence (genuine intentions). Second, while there is still considerable room for improvement,14 important elements of the institutional arrangements that now comprise the DSF constitute strengths to be built upon. Likewise, third, as mentioned above under ‘achievements’, the capacity building in government that has come about as a result of the extensive work that has been done with government on the preparations for recipient-execution and activity design will clearly make it easier for new activity design and for recipientexecuted activities that follow. In the next section, we consider in broad outline how the early stages of such complementary strands of technical assistance might be energised and sustained.

Strand 1: Extension of Existing Technical Assistance? The existing work program. The DSF has legal and moral commitments to complete the work that it has begun under its approved work program for 2009-2011, particularly those parts of the program for which financial commitments have been made, but also those in which government still has strong interest. To some extent, and in some cases, the degree of government interest in a particular activity can be gauged by the pace of recipient-execution and implementation progress. Refining the program. However, at some stage soon – perhaps at the time of the forthcoming DSF evaluation in August 2010 or earlier (see Chapter below) – judgements will need to be made about which 13

In employing this much over-used term, we simply mean to imply that the support should be capable of yielding results that can be argued or, preferably, shown to contribute clearly - directly or indirectly - to the attainment of national development goals, whether expressed in terms of national unity and political stability or economic development or different aspects of poverty reduction or sustainable human development. 14

Below, we discuss some such possibilities in relation to the DSF’s existing governance structure and we have mentioned above difficulties encountered with speed of execution and implementation.

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activities are showing sufficient progress to enable them to complete by the current DSF activity end date of September 2011, and which activities are not. With the approval of the principal financial donor and the DSF MC, savings arising from a weeding-out of non-performing activities could then be put to other uses, at least one of which is discussed under Strand 2 below. Time needed for satisfactory completion? However, for at least some of what remains of the DSF 20092011 program, considered and effective implementation is likely to take longer than the current activity end date allows - for some activities perhaps as much as 12 months longer. Designing a new program. An extension of 12 months to the existing programme should allow all concerned to fulfil their obligations and should provide sufficient time and resources for the development of a second, related but strategically more substantial strand of work to be developed and implemented. It is envisaged that at the end of this proposed extension period either: a. If the work done by the DSF under its existing programme does not yield good enough results to sustain donor and government confidence, or government and the DSF have not been able to design new projects of a similar type that attract new donor funding, a declining Strand 1 would be absorbed by Strand 2 (see below Strand 2 and Scenario 3 above); or b. If the work done by the DSF under its existing programme does yield good enough results to sustain donor and government confidence, and new programs are designed that attract new donor funding, then Strand 1 could continue to operate along current lines (Scenarios 2 or 4 above).

Strand 2: Technical Support to a Loan? The second strand of DSF work would be designed to: a. First, with government, prepare the ground for a ‘development policy’ loan from the Bank. As suggested above, such preparation is likely to take at least 12 months from the date that a decision is taken by government and the World Bank to proceed with some form of loan. b. Second, once the loan has been made, provide technical assistance in support of the loan for a period of, say, three years. As mentioned above, it is envisaged that such technical assistance would be financed partly by possible savings from the DSF work plan for 2009-2011and partly by new donor grant funding (Scenario 4 above). c. Third, alternatively, grant-funded technical assistance channelled through the DSF might be used to support an existing WB loan to government – such as the so-called ‘DAK reimbursement loan’. Depending on the purposes to which any loan might be put, it is possible that some existing DSF activities (under Strand 1) would be complementary to a loan technical assistance program. This would make it easier for Strand 1 to be absorbed by Strand 2.

Towards Nationalisation If Scenario 4 above were to come about, then over a period of, say, three years a process of nationalisation of at least one division (responsible for Strand 1 activities) of the DSF Executive should be well advanced. Such nationalisation might comprise some or all of the following: a. A re-design of the governance structure of the DSF that strengthens government leadership and ownership (see below); b. Gradual nationalisation of professional staff positions in one structural division of the DSF Executive; c. Physical relocation of one division of the DSF Executive to an appropriate location in government (this would probably entail spinning-off one structural division of the DSF’s work into a separate organisation); d. Nationalisation of the position of Division Manager or the creation of a new Program Manager position; and e. Some (preferably, increasing) level of government financing.

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The Future of the DSF: Governance Structure Basic principles of organization design suggest that management systems and structures work best when they are adapted to the circumstances in which they operate. Most importantly, in designing systems of organisation and management attention should be given to the complexity of the activities to be managed, the experience and capabilities of the human resources available to do the work, and the speed and predictability of change in the surrounding environment. An environment characterised by high product or activity complexity and variability coupled with rapid and unpredictable environmental change calls for management systems and structures that are small, accessible, well-informed, flexible, and capable of rapid response. This is a reasonable representation of likely DSF operating conditions under any of the scenarios discussed above. The structural elements proposed below and set out in the organisation chart in Figure 2 are those that are best suited to such an environment and to the type of work carried out by the DSF. They also constitute a natural progression towards the type of government leadership and ownership of development assistance envisaged in international declarations (Paris and Accra) and in the Jakarta Commitment (2008). Figure 2: Proposed Governance Structure for the DSF

DSF Supervisory Board. Responsibility for the oversight or supervision of the DSF as a whole would be assumed by a small body comprising Echelon 1- level representatives from each of the Ministry-level entities involved on the side of the government (one from each), with the Program Manager of the DSF Executive as secretary. The roles of this body will be principally those of: a. Good governance oversight. The Supervisory Board will act both as an assurer and facilitator of good governance (effectiveness, efficiency, upward and downward accountability, transparency, equity, inclusiveness, and so on) within the DSF itself and in so far as possible within the activities that the DSF supports. b. Government policy amplification and guardianship. It will also act as an amplifier (downward to the DSF) and guardian of government policy concerning decentralization. With respect to the latter,

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d. e.

and relying on advice received from the DSF Management Group (see below), the Supervisory Board will ensure that the DSFâ&#x20AC;&#x2122;s work program is supportive of such policy, and its development. Review of policy recommendations. The technical assistance financed by the DSF will have implications for policy development at different levels of government. Where implications for policy cannot be considered and decided at the levels at which the technical assistance is operating or by the DSF Management Group, it will be the job of the DSF Management Group to draw such matters to the attention of the DSF Supervisory Board for their review and determination as to how best to proceed. Determination of operating procedures. On the basis of recommendations received from the DSF Management Group, the Supervisory Board will approve revisions to the DSF Operations Manual. Operational review. Here, the Supervisory Board could be expected to play an important facilitative role in relation to resolving bureaucratic bottlenecks or impediments to progress that cannot be resolved by the DSF Management Group. Such bottlenecks or impediments may be either intra- or inter-ministerial â&#x20AC;&#x201C; for example, issues surrounding recipient-execution. This work would be done on the basis of the periodic formal written reports produced by the DSF, but also on the basis of briefings provided from time-to-time by members of the DSF Management Group. Determination of Donor Consultative Group mandate and membership. On the basis of recommendations from the DSF Management Group, the Supervisory Board will determine the criteria to be employed in determining membership of the Donor Consultative Group and approve its terms of reference. Donor liaison. As needs arise, the Supervisory Board will liaise with donor heads of agencies concerning DSF business, including the World Bank.

Much of this business could be done semi-formally among government colleagues, or between government and donors, or by circulation, with a necessity for, say, only one formal meeting per year. DSF Management Group. For the DSF, experience to date and principles of organization design suggest that the management of DSF operations could best be performed by a small group comprising Echelon 2-level representatives from each of the Ministry-level entities involved on the side of the government (one from each ministry, each with representative functions). The Program Manager of the DSF Executive would act as secretary. This body would assume all of the roles and functions of the existing DSF MC and would have authority to make decisions concerning all DSF operational matters, including its work program. Meetings would be held according to need, probably bi-monthly. In summary, the roles of this body will be principally those of: a. Work program design and oversight. The Management Group (MG) will determine the work program of the DSF and oversee its execution and implementation. This will naturally entail extensive intraand inter-ministerial communication and coordination, which it will be the duty of the MG to foster. b. Drafting of operating procedures. The MG or its agents will draft, and make recommendations to the Supervisory Board concerning, changes to the DSF Operations Manual. c. Government policy implementation. Here, the MG will ensure that the work program of the DSF conforms to government policy and is supportive of it or its development or revision. d. Policy influence filter. Where the work of the DSF has implications for government policy that cannot be dealt with at the level of the MG or at the level at which the work is done, then the MG will act as a filter of upward policy influence, which it shall direct to the Supervisory Board in whatever form it sees fit. e. Donor liaison. The MG will draft terms of reference for the Donor Consultative Group (DCG) and criteria for membership thereof, for the approval of the DSF Supervisory Board. It will also liaise with the DCG about DSF business and about donor-supported activities outside of the DSF. The MG will determine appropriate means for periodic reporting of the latter to the DSF. The MG will also liaise with the World Bank Sector Manager or nominee in a manner and as frequently as deemed

ANNUAL REPORT 2010

necessary to allow the World Bank to fulfil its fiduciary obligations, both as trustee of the DSF and as lender. f. Determination of consultative and advisory group mandates and membership. The MG will determine the terms of reference and membership of all consultative and advisory groups apart from the DCG. g. Inter-governmental, civil society, and community liaison. The MG will determine the extent and form of liaison with other arms and levels of government, civil society, and communities. Government leadership and ownership. The sine qua non of DSF future scenarios 2, 3 and 4 is strong government ownership and leadership, which is reflected in the membership of the governance components outlined above. Donor Consultative Group. The DSF would manage donor support and ensure informed donor involvement in its business through a Donor Consultative Group, representatives of which could be invited â&#x20AC;&#x201C; or request - to attend DSF Management Group or Supervisory Board meetings. Donors would also be provided with written quarterly and annual reports of progress and occasional policy briefs, which could be supplemented from time to time by face-to-face meetings with government or with representatives of the DSF Executive. As suggested above, formal responsibility for donor liaison on all operational matters would rest with the Management Group. DSF Technical Advisory Group. In relation to the technical assistance activities financed under the DSF, it would be desirable to have access to an advisory body comprising authorities on decentralization in Indonesia and internationally. This body would comprise, say, two national and two international members, who would be accomplished in both fiscal and administrative decentralization; knowledgeable of the latest thinking on decentralization and of international and Indonesian experience; and would be of either national or international standing in their respective fields. Members of the Technical Advisory Group would be paid a retainer, and a daily consulting fee for any work undertaken on behalf of the DSF. Local Government Consultative Group. This soon-to-be established body among other things will provide for the DSF a much-needed bottom-up perspective on decentralization in Indonesia; on possibilities for DSF support to local government; and on existing and planned DSF activities. All of the matters referred to above would be clearly spelled out in a revised operations manual. World Bank fiduciary responsibilities. As depicted in Figure 2 above, the World Bankâ&#x20AC;&#x2122;s fiduciary responsibilities in relation to the DSF would be managed at different levels through close liaison with the Supervisory Board and the Management Group and through the DSF Executive. Any loan would be managed by a World Bank-designated Task Team Leader.15 When necessary, this person would liaise with the DSF Executive. Natural progression towards enhanced government leadership and ownership. The proposed governance structure outlined above, which builds on DSF experience to date, constitutes a natural progression precisely towards the ends envisaged by international declarations on aid effectiveness (e.g., Paris and Accra) and the Jakarta Commitment (2008), and particularly in relation to: a. Enhanced (formalised) government leadership and ownership (responsibility); b. Reduced transaction costs for government and for donors or greater efficiency; c. Greater flexibility and responsiveness; and d. Better informed and more inclusive decision-making and, thereby, enhanced effectiveness. In short, while ensuring sufficient levels of oversight and good governance for the DSF, the lightlyengineered governance structure depicted above is designed to optimise government ownership and leadership, informed management flexibility and speed of response, overall performance, and stakeholder consultation. 15

It is assumed that government would put in place a separate governance structure for its management of any loan. To reiterate, the proposed DSF structure is designed only to govern technical assistance associated therewith.

THE FUTURE OF THE DSF

Next Steps Next steps to be taken are likely to include:16 a. DSF Executive/World Bank discusses with government different possible scenarios for the future of the DSF.17 b. Government discusses the scenarios internally and decides what it wants to do and how it wants to proceed. c. DSF (government) and the DSF Executive/World Bank jointly or severally discuss the above with the DSFâ&#x20AC;&#x2122;s principal financial donor.18 d. DSF (government) and the DSF Executive/World Bank jointly or severally discuss with other donors the scenarios for the future of the DSF.19 e. Government commissions through the DSF studies of large and strategically significant decentralization projects that would lend themselves to financing by donor grants and/or a loan from the World Bank.20 f. Building on (e) above, with government, DSF/World Bank explores program design possibilities that might be financed by a loan from the World Bank. g. World Bank reviews its own positioning and internal organisation vis-a-vis support to decentralization in Indonesia and identifies a role for the DSF in relation to this.21 In order for there to be sufficient lead time to avoid closure of the DSF at the current end date of 31 March 2012 (Scenario 1 above) and for there to be sufficient resources available to carry out the work envisaged under Scenarios 2, 3 or 4, by no later than August/September 2010, the scenarios outlined in this paper or others like them will need to have been carefully considered by, in particular, the Government of Indonesia, the DSFâ&#x20AC;&#x2122;s current principal financial donor (DfID), other donor members of the DSF (and non-members), and the World Bank.

16 This is not a precise or complete critical path. The ordering of steps could vary and clearly some steps could be carried out in parallel. Moreover, as indicated below, some work has already been done in relation to most of these steps. 17

The first discussions with government representatives of the DSF MC on the basis of the material set out in this chapter took place on 17 May 2010 and its contents were well-received. Further discussions were held in June 2010. 18

Such discussions commenced in the fourth week of May and were continued in the first week of June 2010.

Discussions - initially with donor members of the DSF MC (AusAID, CIDA, and USAID) and the Government of Germany (GTZ as proxy) - commenced in the second week of June. Beginning in July 2010, these discussions are likely to be extended to include donor members of the DSF SC (ADB, The Netherlands, and UNDP) and possibly others like the European Union.

This work commenced in late May 2010.

This work is ongoing under the direction of a former Lead Economist of the World Bank.

AID EFFECTIVENESS

The DSF MOU assigns a ‘donor coordination’ (or ‘harmonisation’) function to the DSF. To date, the DSF’s contribution to donor coordination has been limited to the establishment of a donor mapping data base, which is in the process of being up-dated and institutionalised within government. The DSF has also participated in donor meetings that have been held from time-to-time on the general subject of harmonisation. Discussions with relevant arms of government – in Bappenas and MoHA – concerning how best to proceed in relation to aid effectiveness (as defined below)22 began late in the second quarter and wil continue in the third quarter of 2010. Aid effectiveness will be considered in some or all of the following (conventional) terms: a. ‘Market’ composition – including the overall significance of development assistance in relation (for example) to government spending on decentralization; the type and number of participants; size and type of contributions; length of presence; and so on. b. Alignment – or the extent to which development assistance is in line with government policy and government interests and variability in relation to this. c. Modalities, accountability, and government systems – for the market as a whole and according to participant, how development assistance is rendered in terms of the full range of possibilities (budget support; stand-alone bilateral projects; multi-donor trust funds; different forms of execution and implementation; and so on); how it is governed; how it is monitored and evaluated; and how it manages questions of accountability and reporting to government. d. Government ownership and leadership – and, in particular, the extent to which this might vary according to modality and/or participant. e. Harmonisation – or the extent to which different programs of development assistance take account of one another, so as to optimise complementarity and to avoid so-called ‘duplication’ and ‘overlap’. f. Programme emphases and geographical dispersion – or a typography and geographical mapping of development assistance programmes. g. Quality of design and implementation – or the way in which programmes are designed and, in particular, the extent to which they can be said, genuinely, to represent government ownership and leadership and to represent government interests and concerns; but also the quality of technical assistance rendered and how this is managed and by whom.

Donor coordination per se is a relatively minor contributor to aid effectiveness. A role for the DSF should be fashioned in relation to the support that it could provide to government across the full spectrum of aid effectiveness constituents.

AID EFFECTIVENESS

It is envisaged that discussions concerning these aid effectiveness matters between different arms of government and the DSF may result in some rational division of labour and responsibilities, and a program of support rendered by the DSF.

GOVERNANCE, LOCAL GOVERNMENT ENGAGEMENT, AND THE DSF EXECUTIVE

Governance arrangements that have evolved during the transition period (from January to June 2010) between the incoming and outgoing MC and SC government co-chairs are discussed briefly below. This is followed by an account of progress in relation to DSF engagement with local government and then by a description of developments in the DSF Executive.

Governance Transfer of co-chair responsibility. The government-held positions of co-chair of the MC and the SC are in the process of being reassigned. Government membership of SC. There has been discussion in government concerning government representation on the SC. Adjustments to such membership are likely to be mooted formally during the third quarter of 2010 – see Chapter 5 above. Management and conduct of DSF business. During this transition period, the business of the DSF has continued uninterrupted and more than satisfactorily under the guidance of breakfast meetings held from time to time between the DSF Executive and government members of the DSF MC (principally, the first government co-chair of the MC, from Bappenas; the outgoing co-chair, from the Ministry of Finance; and the - possible - incoming co-chair, from the Ministry of Home Affairs).

Engagement with Local Government In late October 2009, a paper outlining a number of possibilities for DSF engagement with local government was put to the MC for its consideration. The MC agreed that the idea of a ‘local government consultative group reporting to the DSF MC be endorsed and recommended to the DSF Steering Committee for its consideration.’ The relevant minute of the meeting also states that: ‘subject to Steering Committee approval of the recommendation, a MC task force be established comprising members drawn from the government technical team and the DSF Executive, whose job it would be to make detailed recommendations concerning terms of reference for the consultative group; membership; and forms of logistical and other support to be provided.’ A discussion paper on the roles and responsibilities of the Local Government Consultative Group (LGCG) has been reviewed by the GOI technical team and approved by the MC co-chair. The LGCG initial membership will consist of the heads of the six local government associations and representatives from local governments participating in DSF projects. An invitation for expressions of interest was sent by the MC co-chair to the potential membership mentioned above and an inaugural workshop is scheduled for August 2010.

GOVERNANCE, LOCAL GOVERNMENT ENGAGEMENT, AND THE DSF EXECUTIVE

The DSF Executive Institution building. Further progress has been made throughout the year in building an effective, efficient, and cohesive DSF Executive. All aspects of institution building continue to receive attention, namely: organizational structure and design, including roles and responsibilities and distribution of authority; internal communication, meetings, and team working; internal work processes and interactions with other sections within the World Bank; selection, placement, induction, and development of staff; performance management, quality control, and discipline; organizational culture and staff morale; corporate image and external relations, including engagement with government; and reporting. Our philosophy in relation to all of these matters remains one of continuous improvement. Staffing. International and national professional staff appointments (replacements and new appointments) during the year were as follows: Adviser Decentralization (Anahit Karapetyan, July 2009); Senior Adviser Decentralization (Widjono Ngoedijo, February 2010); Senior Economist (Soren Nelleman, March 2010); and Senior Governance Adviser (Henrik Lindroth, April 2010).

RISK AND CHALLENGES Risks

In the DSF 2009 Annual Report, we drew attention to five significant and inter-related categories of risk faced by the DSF, namely: aid effectiveness; the management of expectations concerning civil service reform; project design, execution, and implementation (the project cycle); engagement with local government; and the DSF’s governance structure. Elsewhere in this report, we have dealt with questions surrounding the DSF’s governance structure, engagement with local government, and with the project cycle. Our earlier (2009) arguments concerning the character of civil service reform remain valid and relevant, but will not be repeated here. Aid effectiveness considerations continue to be of paramount importance to the DSF. The extent to which the aid effectiveness commitments made by donors under the Paris Declaration (2005), the Accra Agenda for Action (2008) and the Jakarta Commitment (2008) are not fulfilled constitutes the main risk to the DSF. These declarations emphasise the importance of government ownership and leadership of development assistance, a reduction in the number of stand-alone bilateral projects, and the use wherever possible of national (financial and procurement) systems. On the question of government leadership, we reiterate that the Jakarta Commitment (2008) states that ‘government will articulate and development partners will support...development objectives’ and that ‘development partners will align themselves more fully with government programmes and systems’ (p. 2). The Jakarta Commitment (2008) also points out that ‘multi-donor trust funds have emerged as important vehicles for (the provision of)...support to Indonesia’s development’ (p. 3), and the DSF is mentioned as an example. Moreover, it goes on to state that ‘government and development partners commit to reduce the number of ad hoc freestanding (projects)’ (p. 3), which multiply transaction costs for government and donors alike. In relation to the use of government systems, the Accra Agenda for Action (2008) states that: ‘we will strengthen and use developing country systems to the maximum extent possible’ and ‘donors agree to use country systems as the first option for aid programmes’. The DSF is the only genuinely government-owned and led multi-donor trust fund in the field of decentralization. It is well placed to provide some of the efficiency and effectiveness gains contemplated in the declarations and commitments referred to above. It is also the only programme of development assistance to decentralization that employs recipient execution for a significant percentage of its activities, that is, it provides grants to government that are both ‘on budget’ and ‘on treasury’ and thereby makes use of government systems of financial management and procurement.

RISKS AND CHALLENGES

The main threats to significant movement towards the use of multi-donor facilities like the DSF and away from stand-alone bilateral projects remain as stated in the DSF Annual Report 2009. These stem from donor hesitancy occasioned, first, by perceived dilution and increased complexity of control of project design, execution, implementation, and identity; second, by disbursement delays and inefficiencies that could arise from different forms of project execution; and third, by the perceived crowding-out effects (in a shrinking market) on participants whose operations depend either on sole-source bi-lateral funding or on third party contributions more generally.

Challenges Speed of implementation and disbursement. As mentioned in Chapter 5, the main challenge facing the DSF is that of speeding-up the transition from the general approval of an idea for support through its translation into a detailed design document and then to implementation and disbursement. As for much development assistance, the DSF experiences acutely the tension between, on the one hand, its principal donor’s imperative to disburse funds as quickly as possible and, on the other, government’s ability to absorb technical assistance, particularly its capacity to execute and implement activities. Almost inevitably, the latter takes longer than donors want or are able easily to accommodate. Recipient-execution. For recipient-execution in particular, the various steps that need to be taken – design; establishing the necessary conditions for procurement and financial management; and implementation - generally require extensive preparation and capacity building and involve government budgetary and other processes that have largely predetermined and inflexible (and long) timelines. This is not to say, however, that there is not scope for speeding things up, on the parts of all involved. Progress. And some headway is being made, particularly as a result of the groundbreaking preparatory work already undertaken by the DSF in relation to recipient-execution. But improvement is always likely to be incremental and to take longer than is ideal. Even so, all parties would agree that if the idea of government ownership is to be taken seriously, then an important part of it should comprise government execution, that is, execution based on government financial management and procurement systems. The meaning of government-led. A second challenge is to arrive at a more widely shared interpretation of the meaning of government-led. Interpreted literally (as we think it should be, and as we have done), it means that government will decide what support it needs and wants and how such support will be rendered. This interpretation is stated explicitly in the Jakarta Commitment (2008) and is consistent with Indonesia’s status as a strong lower-middle income country and with the sentiments expressed in signed declarations of intent arising from international aid effectiveness meetings such as those held in Paris (2005) and Accra (2008). This view implies that the role of donors and their agents should be to help government: first, to make the best use of international experience in the design and implementation of the support that it (government) says that it needs and wants; second, to build capacity for recipient-execution and the management of implementation; and third, to make the long term commitments that these things require.

CONTRACTS AND AGREEMENTS

This chapter sets out contracts and agreements signed during the first six months of 2010 (Table 3); and those that are expected to be signed by September 2010 (Table 4). Table 3: Signed Agreements and Contracts for First & Second Quarters of 2010 Activity Public Service Formulation of Norms, Standard, Procedures, and Criteria for Local Gov. Serv. Delivery Support to Public Service Delivery Fiscal Decentralization Improving the Policy Framework for Fiscal Decentralization Strengthening Data Provision to the Regional Financial Information System by Sub-National Governments with Stand-Alone Electronic Data Bases Building Capacity for the Development of Sub-National Government Capital Markets for Municipal Bonds Governance Reform Strengthening Program for Local Government Legislatures Introducing Competency Based Standards for Improved Public Service Delivery Decentralization Education and Training (DET) Scholarships for Public Service Provincial Governance Strengthening Program (PGSP) Planning and Performance Measurement Inst. Building for the Integration of Nat. Reg. Dev. and Spatial Planning

Amount of Signed Notes Legal Contract or GA 905,000 Grant Agreement (GA) 26,053

Short Term Consultants (STC)

260,986

STC

1,360

STC

90,951

STC

500,000

797,576

908,059

2,000,000

FAA

376,496

Firm

3,568

STC

CONTRACTS AND AGREEMENTS

Activity Institution Building for the Accelerated Development of Border Areas Regional Development Policy Knowledge Management MoF Budapest training Communications Assistant Total

Amount of Signed Legal Contract or GA 409,832 Firm 31,609

STC

13,392 14,674

CEU STC

Notes

6,339,556

Table 4: Projections of Contracts and Agreements to be Signed by 30 September 2010 Activity Unsigned Grant Agreements MSIB (Public Service) Border Areas MoHA (Public Service) Sub-national Investment Climate (Governance Reform) Amendments to Existing Grant Agreement DPRD Orientation (Governance Reform) Unsigned Contracts Inter-regional Cooperation (Public Service & Planning and Performance Measurement) * NRM (Planning and Performance Measurement) Local Government Evaluation (Planning & Performance Measurement) DET Bank Executed activities (Gov Reform) MSS Bank Executed activities (Public Service) * Regional Development Policy Regional & Local Economic Development Regional Finance Support for EPPD / EDOHP Grand Design for Regional Autonomy Knowledge Management MoF Budapest training MoHA Public Consultations Knowledge Management Total

Amount of Projected Commitment

Notes

429,000 450,000 700,000

GA GA GA

473,300

760,000

Firm & STC

631,842 300,000

Firm Workshops and STC

685,461 450,000 700,000 600,000 250,000 100,000 500,000

Study Tours & Short Courses Workshops, travel & STC Firm Firms Workshops and STC Workshops and STC Workshops and STC

43,848 50,000 150,000

Travel & accommodation Workshops & documentation Aid effectiveness; workshops; & STC

7,273,451

*This activity will commence procurement in the 3rd quarter and contracts should be signed in the 4th quarter of 2010.

CONCLUSION

The DSF remains the only genuinely government-led multi-donor facility in the field of decentralization in Indonesia. It is clearly government owned and is valued by government as a means for managing development assistance to decentralization. It has made, and will continue to make, important contributions to capacity building for fiscal decentralization, public service delivery, planning, and good governance. Its support to the development of local government borrowing (bond issuance); data provision to the regional financial information system; and monitoring and evaluation of the use of special allocation grants to local governments is particularly noteworthy. And, among others, its strengthening of the capacity of local government legislatures and local public service providers shows great promise. Many of the activities financed under the DSF Work Plan 2009-2011 are in the process of being implemented using government systems of financial management and procurement (‘on budget’ and ‘on treasury’). The DSF is unusual in this respect.

While there is still room for improvement (mainly in terms of speed of execution and implementation), the DSF constitutes a viable means for donors to fulfil many of the aid effectiveness obligations set out in the Paris Declaration (2005), the Accra Agenda for Action (2008), and the Jakarta Commitment (2008). Currently, most development assistance to decentralization in Indonesia is delivered via stand-alone bilateral projects, which can dilute government leadership and ownership and multiply transaction costs for government and donors alike. Signatories to the Jakarta Commitment (2008, p. 3) have undertaken ‘to reduce the number of ad hoc freestanding (projects)’. In the context of discussion on the future of the DSF, the report raises the question as to how the relatively large number and diversity of activities currently undertaken under the auspices of the DSF can be augmented by other forms of support that cohere around (or address) some higher order unifying objective and that are capable of generating greater momentum for constructive systemic change at a faster pace. Led by government, and in consultation with other interested parties, the DSF is in the process of designing such a programme. A vital part of programme design will be to identify links to development assistance to decentralization provided outside of the DSF and to consider prospects for genuine collaboration and synergy between these different elements. The aim is to have this (programme design) completed by around September 2010 and for it to provide the basis upon which assistance to decentralization managed through the DSF beyond 2012 can be built and the means by which links with other programmes of development assistance to decentralization soon to commence implementation (such as those of AusAID, CIDA, GTZ, and USAID) can be forged and maintained.

CONCLUSION

ANNEXES

ANNEX A: SOURCES Blunt, Peter. 2002. ‘Public Administrative Reform and Management Innovation for Developing Countries.’ Paper presented at the Fourth Global Forum on Reinventing Government organized and sponsored by The United Nations Division for Public Economics and Public Administration of the Department of Economic and Social Affairs (New York). Marrakesh, Morocco, 10-11 December. Blunt, Peter. 2003. ‘The Anatomy of Development Cooperation: Principles and Prospects Derived from Exemplars at the Ministry of Finance Government of Lebanon.’ UNDP, pp. 44. Blunt, Peter. 2004. ‘UNDP Programme Support to Governance Reform in Lebanon: An Outcome Evaluation.’ Beirut: UNDP, pp. 23. Blunt, Peter. 2006. ‘Support to Policy Development and Implementation in the Government of Lebanon: A Review of UNDP Modalities.’ Beirut: UNDP, pp. 41. Blunt, Peter, & Turner, M. 2007b. ‘Decentralization, Deconcentration and Poverty Reduction in the Asia Pacific.’ In S. Cheema & D. Rondinelli (Eds.), ‘Decentralized Governance: Emerging Concepts and Practices’. Brookings Institution Press and the Ash Institute for Democratic Governance and Innovation, John F.K. Kennedy School of Government, Harvard University. Blunt, Peter. 2009. ‘The Political Economy of Accountability in Timor-Leste: Implications for Public Policy.’ Public Administration and Development, 29 (2), 89-100. British Cabinet Office 1999. ‘Professional Policy Making in the Twenty-First Century.’ London: Strategic Policy Making Team, British Cabinet Office, pp. 78. Bullock, H., Mountford, J., & Stanley, R. 2001. ‘Better Policy Making.’ London: Centre for Management and Policy Studies, British Cabinet Office, pp. 44. Cheema, S., & Rondinelli, D. (Eds.). 2007. ‘Decentralized Governance: Emerging Concepts and Practices’. Brookings Institution Press and the Ash Institute for Democratic Governance and Innovation, John F.K. Kennedy School of Government, Harvard University. DSF Policy Brief No.5. 2008. ‘Exploring Reform Options in Functional Assignments.’ DSF Policy Brief No.7. 2008. ‘Local Tax Effects on the Business Climate.’ Government of Indonesia. 2009. ‘National Action Plan on Fiscal Decentralization.’

ANNEX A: SOURCES

Government of Indonesia. 2009. ‘National Framework for Capacity Building to Support Decentralization.’ Government of Indonesia. 2004. ‘National Medium-Term Development Plan (RPJMN 2004-2009).’ Government of Indonesia, Director of Special and Less Developed Regions, Bappenas. 2008. Discussion document: ‘Preparation for Formulation of RPJM 2010-2014, Program for Development of Border Regions.’ Government of Indonesia. ‘Regional Autonomy Implementation Strategy.’ IMD. 2010. ‘World Competitiveness Yearbook 2010’. Geneva. Lewis, Blane D., & Daan Pattinasarany. 2009. ‘Determining Citizen Satisfaction with Local Public Education in Indonesia: The Significance of Actual Service Quality and Governance Conditions.’ Growth and Change 40(1), pp. 85-115. Lewis, Blane D., & Daan Pattinasarany. 2008. ‘The Cost of Public Primary Education in Indonesia: Do Schools Need More Money?’ Working Paper, DSF. Lewis, Blane D., & Smoke, P. 2008. ‘Fiscal Decentralization in Indonesia: Where to Now?’ Working Paper, DSF. Mimeo, pp. 15. MacIntyre, A., & Ramage, Douglas E. 2008. ‘Seeing Indonesia as a Normal Country.’ Canberra: Australian Strategic Policy Institute. Silver, C. 2003. ‘Do the Donors have it Right? Decentralization and Changing Local Governance in Indonesia.’ The Annals of Regional Science, 37 (3), pp. 421-434. The Jakarta Commitment: Aid for Development Effectiveness-Indonesia’s Road Map to 2014. December 2008. UNDP (P. Blunt & D. Rondinelli). 1997. ‘Reconceptualising Governance’. UNDP Division of Public Affairs: New York, pp. xi & 93. USAID-DRSP. 2009. ‘Stocktaking on Indonesia’s Recent Decentralization Reforms.’ World Bank. 2010 (June). ‘Indonesia Economic Quarterly: Continuity Amidst Volatility’. Jakarta, pp. 60. World Bank. 2009. ‘The Online Sourcebook on Decentralization and Local Development’. http://www. ciesin.org/decentralization/SB_entry.html World Bank Institute. 2005. ‘Country-Tailored Capacity Development.’ Chapter of WBI Annual Report 2005.

ANNUAL REPORT 2010

ANNEX B: FINANCIAL REPORT Summary • Donor Contributions: Three donors have pledged a total of USD 44.06 million (exchange rate June 30, 2010). • Commitments: USD 41.88 million or 95% of total pledges has been allocated to 58 projects, the approved DSF Work Plan 2009 – 2011, and DSF operations. • Disbursements: USD 17.34 million or 39.33% of total contributions pledged or 41.38% of allocations. • Remaining Funds: USD 3.19 million in Unallocated and Uncommitted Funds.

I. Donor Contributions DSF has 9 donor partners, 3 of whom are financial contributors: DFID, AusAID, and CIDA. Total pledges amount to USD 44.06 million (30 June 2010 exchange rate). About 96.6% of the total amount (USD 42.56 million) has been pledged by DFID. As of 30 June 2010, DSF had received USD 29 million or 65.82% of total pledges (see Table 1): USD 27.50 million from DFID, USD 1 million from AusAID, and USD 500K from CIDA. Table 1: Pledges Received on the Basis of Signed Contribution Agreements Contributors DFID AusAID CIDA Total

Contribution Currency GBP USD CAD

Contribution Amount 24.36 1 0.5

USD equivalent 42.56 1 0.5

Cash Received in USD million 27.5 1 0.5

44.06

II. Fund Allocations and Commitments The projects and allocations set out in Table 2 were approved by the MC at its meetings of 24 January 2007, 16 February 2007, 12 February 2009, and 28 October 2009 and by circulation in November 2009. Table 2: Fund Allocations and Commitments to 30 June 2010

Budget (USD)

Total Pledges Investment income (as of June 30, 2010) Projected Administration fee (1% of total pledges) Other Income (as of June 30, 2010) Total Available Funds

44,058,315 1,421,933 -440,583 24,836 45,064,501

Fund Allocations approved in January 2007 Focal Area 1 Tax Assignment and Own-source Revenue Transfer Borrowing

20,547,866 2,968,714 350,000 600,000

ANNEX B: FINANCIAL REPORT

Â Surplus and Reserves Data for Monitoring and Evaluation Assessing and Revising the System for Setting Territorial Boundaries Fiscal Agency Intergovernmental Framework Fund Exploring Future Reform Options in Functional Assignment Supporting the Establishment of Financially Feasible Minimum Service Standards Alternative Mechanism of Service Delivery

275,000 480,000 227,500 476,214 55,000 305,000 200,000

Focal Area 2 Local Government Performance Measurement Identification and Replication of Good Practice Appraisal : Sub national Investment Climate Reform Knowledge Management for Effective Local Government Support Programs Mapping and Analysis of Local Planning and Budgeting Processes Improved Evidence Base of Good and Bad Local Perda

1,395,774 187,174 382,392 600,000 58,823 49,703 117,682

Focal Area 3 National Program for Community Empowerment CDD Summit Policy Development for PNPM Cost Accounting Review for CDD Programs Technical Assessment for CDD Programs Information, Education and Communication for PNPM User Fee Assessment for CDD Programs MIS Improvement for PNPM Short Term Monitoring and Evaluation Medium / Long Term Monitoring and Evaluation CCT Baseline Survey

5,413,244 1,072,961 421,705 58,666 16,512 53,685 484,739 419,000 106,000 710,385 399,926 1,669,665

Support Office for Eastern Indonesia (SOfEI)

2,972,226

Quick starts Project Operations thru March 31, 2010 Staff costs Operations costs Approved Work Plan 2009 - 2011 (1st round) ACN 1/2009: Capacity Strengthening Program for DPRD (Local Government Legislatures) ACN 2/2009: Capacity Building for Regional Development Policy Formulation ACN 3/2009: Improving and Piloting the Implementation of Monitoring and Evaluation System of Special Allocation Funds Utilization ACN 4/2009: Management Strengthening and Institution Building for Local Public Service Providers (MSIB-LPSP)

Budget (USD)

97,908 7,700,000 4,200,000 3,500,000 10,890,520 500,000 150,000 550,000 500,000

ANNUAL REPORT 2010

Â ACN 5/2009: Institutional Building for the Integration of National Regional Development and Spatial Planning ACN 6/2009: Building Capacity for the Development of Sub-National Government Capital Markets for Municipal Bonds ACN 7/2009: Government Training and Education Centre Development: Introducing Competency Based Standards for Improved Public Service Delivery ACN 8/2009: Institution Building for the Accelerated Development of Border Areas ACN 9/2009: Capacity Building through Decentralization Education and Training (DET) for Public Service Delivery ACN 10/2009: Strengthening Local Government Natural Resource Management Capability ACN 11/2009: Formulation of Norms, Standards, Procedures and Criteria (NSPK) for Local Government Service Delivery ACN 12/2009: Strengthening Data Provision to the Regional Financial Information System by Sub-National Governments with Stand-Alone Electronic Data Bases ACN 13/2009: Improving the Policy Framework for Fiscal Decentralization ACN 14/2009: Costing and Pilot Implementation of Minimum Service Standards Service Delivery in Border Regions Support for EPPD

Budget (USD) 500,000 900,000 797,000 500,000 1,593,520 750,000 1,000,000 250,000 900,000 1,200,000 500,000 300,000

Approved DSF Work Plan 2009 - 2011 (2nd round) DPRD Orientation Regional Development Policy Local Government Evaluation Inter-Regional Cooperation Regional Finance Provincial Government Support Program Regional & Local Economic Development Sub-National Business Climate Reform Grand Design on Implementation of Regional Autonomy

7,650,000 500,000 700,000 300,000 1,000,000 850,000 2,000,000 600,000 1,000,000 700,000

Approved additional DSF Executive Operations Work Plan 2009 - 2011 Knowledge Management for Aid Effectiveness DSF Executive Operations Additional donor contribution for DSF Operations

2,788,505 700,000 1,502,043 586,462

Total allocations to programming & DSF Executive staffing & operations 41,876,891 [1] Total Unallocated and Uncommitted Funds 3,187,609 [1] Fund balance for unallocated and uncommitted funds fluctuates according to the prevailing exchange rate and return on investment.

III. Disbursement Status To date, DSF has received USD 30.45 million, consisting of USD 29 million of donor contributions and USD 1.42 million of investment income. As of June 30, 2010, USD 17.34 million had been disbursed to work streams and operations. In addition, a total of USD 290,001 has been charged as WB administration fee (see Table 3).

ANNEX B: FINANCIAL REPORT

Focal Area 1 (Strengthening Inter-Governmental Framework) has disbursed USD 2.23 million or 75% of the total approved budget of USD 2.97 million. Focal Area 2 (Support to Sub-National Entities) has disbursed USD 1.39 million or 100% of the total approved budget. Focal Area 3 (Strengthening Accountability, Participation and Civic Engagement) has disbursed USD 5.37 million or 99.26% of the total approved budget of USD 5.41 million. Table 3: Disbursement Status of the DSF as of June 30, 2010

Receipts Paid in Contributions Investment Income Other Income Total Receipts Disbursements Focal Area 1 Tax Assignment and Own-source Revenue * Transfer Borrowing Surplus and Reserves Data for Monitoring and Evaluation Assessing and Revising the System for Setting Territorial Boundaries Fiscal Agency Intergovernmental Framework Fund Exploring Future Reform Options in Functional Assignment Supporting the Establishment of Financially Feasible Minimum Service Standards Alternative Mechanism of Service Delivery Focal Area 2 Local Government Performance Measurement Identification and Replication of Good Practice Appraisal : Sub national Investment Climate Reform Knowledge Management for Effective Local Government Support Programs Mapping and Analysis of Local Planning and Budgeting Processes Improved Evidence Base of Good and Bad Local Perda Focal Area 3 National Program for Community Empowerment CDD Summit Policy Development for PNPM Cost Accounting Review for CDD Programs Technical Assessment for CDD Programs Information, Education and Communication for PNPM

Budget (USD)

44,058,315

Actual (USD)

Commitments (USD)

44,058,315

29,000,052 1,421,933 24,836 30,446,821

2,968,714 350,000 600,000 275,000 480,000 227,500

2,233,522 90,754 588,973 183,105 360,467 227,500

30,391 7,967 -

476,214 55,000 305,000

476,214 47,467 59,287

3,140 19,283

200,000 1,395,774 187,174 382,392 600,000 58,823

199,755 1,394,890 187,174 382,392 599,116 58,823

49,703

117,682 5,413,244 1,072,961 421,705 58,666 16,512 53,685 484,739

117,682 5,373,135 1,072,961 421,705 58,666 16,512 53,685 484,739

11,985 -

ANNUAL REPORT 2010

User Fee Assessment for CDD Programs MIS Improvement for PNPM Short Term Monitoring and Evaluation Medium / Long Term Monitoring and Evaluation CCT Baseline Survey

Budget (USD)

419,000 106,000 710,385 399,926 1,669,665

Actual (USD)

391,215 93,676 710,385 399,926 1,669,665

Commitments (USD)

11,985 -

Decentralization Support for Eastern Indonesia (SofEI) Quick starts Project Operations Staff costs Operation costs

2,972,226 97,908 8,700,000 5,200,000 3,500,000

2,972,226 97,908 4,894,770 2,990,925 1,903,845

175,692 20,240 155,452

Approved Work Plan 2009 - 2011 (1st round) New projects approved and registered in FY09 (1st round) Support to Public Service Delivery Strengthening Data Provision to the Regional Financial Information System by Sub-National Governments with StandAlone Electronic Data Bases Improving and Piloting the Implementation of Monitoring and Evaluation System of Special Allocation Funds Utilization Improving the Policy Framework for Fiscal Decentralization Building Capacity for the Development of Sub-National Government Capital Markets for Municipal Bonds Decentralization Support Facility II Capacity Strengthening Program for Local Government Legislatures Government Training and Education Center Development: Introducing Competency Based Standards for Improved Public Service Delivery Institutional Building for the Integration of National Regional Development and Spatial Planning Capacity Building for Regional Development Policy Formulation Institution Building for the Accelerated Development of Border Areas Strengthening Local Government Natural Resource Management Capability Capacity Building through Decentralization Education and Training (DET) Scholarships for Public Service

7,071,635 366,000 250,000

371,670 5,222 9,826

1,821,991 26,020 59,118

550,000

9,967

4,334

900,000 900,000

113,605

232,734 66,047

908,059

Approved Work Plan 2009-2011 in process of registration (1st round) Approved DSF Work Plan 2009 - 2011 (2nd round) Approved DSF Work Plan 2009 - 2011 (2nd round) registered Provincial Government Support Program Regional & Local Economic Development Regional Development Policy

3,818,885

3,300,000 2,000,000 600,000 700,000

500,000 797,576

42,991

75,000 -

500,000

53,071

343,280

150,000 500,000

49,171 10,756

31,609 416,409

750,000

2,061

642,441

ANNEX B: FINANCIAL REPORT

Approved DSF Work Plan 2009 - 2011 (2nd round) in process of registration Approved additional DSF Executive Operations Work Plan 2009 - 2011 Knowledge Management for Aid Effectiveness Approved additional DSF Executive Operations Work Plan 2009 2011 in process of registration Total Project Disbursements Administration fee Total Disbursements Outstanding commitments Total Cash Available (= receipts - disbursements commitments)

Budget (USD)

4,350,000

Actual (USD)

1,788,505

700,000 1,088,505 41,876,891 440,583 42,317,474

17,338,121 290,001 17,628,122 2,068,417 10,750,282

Commitments (USD)

28,358 28,358 2,068,417

Support Office for Eastern Indonesia (SOfEI) has disbursed USD 2.97 million or 90% of the total USD 3.31 million approved budget. Since this project was ended, fund balance of SOfEI was returned back to Main TF. For DSF operations, USD 4.90 million has been disbursed. This includes office and project operations as well as staff costs. Outstanding commitments: as indicated in footnote 8 above this refers predominantly to formal contractually-based financial commitments. Such commitments amount to USD 5.6 million in DSF operations, including staff contracts over the life of the DSF plus the existing programmatic contracts of USD 2,068,417. Total cash available as of June 30, 2010 is USD 10.75 million. These funds are fully committed, that is, either in the process of being allocated to child TF or earmarked for such allocation – for programming and for DSF Executive staffing and operations. IV. Outlook Table 4 shows expected cash receipts and disbursements for the current and projected portfolio of projects. The Fund expects to disburse USD 32.38 million to project accounts through to the end of fiscal year 2011. Table 4 is based on total project funds committed, as set out in the current Contribution Agreement and Administrative Agreement. The current DSF TF closing date is March 31, 2012. Table 4: Projection of Cash Receipts and Disbursements 2007 – 2011 Expected Receipts Projected Cash Remaining from prior period Paid in Contributions DFID AusAID CIDA Cash Receipt during current period

Actual per June 30, 2010 -

Year ended June 30, 2011 (USD million) 10.76

27.50 1.00 0.50 29.00

Projections as of Apr. 30, 2012 (USD million)

15.06 15.06

13.14 -

ANNUAL REPORT 2010

Actual per June 30, 2010

Year ended June 30, 2011 (USD million)

Projections as of Apr. 30, 2012 (USD million)

Investment Income Other Income Expected Cash Available to DSF TF Disbursements Focal Area 1 Focal Area 2 Focal Area 3 Eastern Indonesia projects (SoFEI) Quick starts Project Operations Priority Area per FY09 Public Services Fiscal Decentralization Planning and Performance Measurement Governance Reform

1.42 0.03 30.45

25.82

0.01 0.22 0.08 0.08

3.19 2.38 2.12 2.82

13.14 2.30 1.50 0.85 3.60 1.70

Total Project Disbursements (Projections) Administration fee Total Disbursements (Projections) Outstanding commitments Total Cash Available for subsequent year(s)

17.33 0.29 17.62 2.07 10.76

14.61 0.15 14.76 (2.07) 13.14

9.95 9.95 3.19

2.23 1.39 5.37 2.97 0.10 4.89

0.80 3.30

66 Indicators Local government expenditure and local government performance in basic public service delivery

Purpose

Equitable, accountable and high quality public services provided by national and local governments

* First milestone/ target

Indonesia’s Human Development Index (HDI)

Improved socio-economic development and reduced poverty

1 – Fully achieved 2 – Largely achieved 3 – Partially achieved 4 – Achieved to a very limited extent 5 – Not achieved at all X– Too early to judge

Further contributions to the development and dissemination and implementation of legislation and procedures governing functional assignments; minimum service standards including costing; institution and capacity building of service providers; and identification and diffusion of good practices.

Progress

Decentralization Support Facility (DSF) Phase 2 Indicators Progress

Project Name Goals

ANNEX C: MONITORING FRAMEWORK

Rating Comment

Rating Comment ANNEX C: MONITORING FRAMEWORK

Indicators Number of new guidelines (norms, standards, procedures and criteria) for service delivery completed/ issued

Objectives

1.1. Guidelines (norms, standards, procedures and criteria-NSPK) for service delivery in selected sectors formulated

With regard to the Bank executed component, requests for expressions of interest for assessment of NSPK status have been completed. The implementing agency has been selected. Technical and financial proposals have been submitted and reviewed. The contract will be signed in July 2010. This activity is expected to achieve milestone 1 in December 2010.

The terms of reference and budget have been prepared. Financial management and procurement assessments have been conducted by the Bank and the assessment reports have been completed. The Grant Agreement (GA) was signed by the Bank in June 2010 and submitted to MoF for countersignature, and discussion and consultation with MoHA, and Bappenas. The operations manual was prepared and submitted for approval. The annual plan, including a procurement and a disbursement plan has been finalized. It is expected that the Grant Agreement will be signed by MoF in July 2010.

Phase 2: ACN 11/2009 on Formulation of Norms, Standards, Procedures and Criteria (NSPK) was approved in October 2009. It was agreed by MoHA and the DSF Executive that approximately 90% of the budget would be recipient executed and 10% Bank executed.

The final report on the NSPK assessment was submitted in August 2009, marking the end of phase 1. The discussion process provided inputs for developing the Activity Concept Notes for phase 2.

A key product of this activity is a paper on â&#x20AC;&#x153;Exploring Reform Options in Functional Assignments,â&#x20AC;? which was completed in March 2008.

Assessment on the conformity of the 26 draft NSPK in health with Government Regulation 38/2007 resulted in prioritization of at least 5 health functions for NSPK formulation. Brief assessments were also made of NSPK in other fields i.e. agriculture, trade, land management, energy and mineral resources.

Phase 1: Consultations held with regions in July 2009 for formulation of 26 norms, standards, procedures and criteria (NSPK) in health. This resulted in confirmation that 10 out of 26 NSPK were defined as eligible for further action. Presently 5 out of the 10 NSPK have been issued by the Minister of Health as regulations including: hospital licensing; foreign health workers in Indonesia; and hospital classification.

Output 1: Public Service Delivery Progress

Rating

Comment

ANNUAL REPORT 2010

68 Indicators

1.2. Minimum Service Implementation of MSS in Standards (MSS), in selected sectors in selected targeted sectors budgeted districts and municipalities and implemented in selected district governments

Objectives

Phase 2: ACN 14/2009 on Capacity Development for Minimum Service Standards Costing and Implementation was approved in November 2009. Initially the GOI was to execute most of the activities. However in May 2010 the GOI decided on a new allocation of execution responsibilities with 50.1% MoHA executed and 49.9% Bank executed. Concerning the recipient executed component, a TOR and budget have been finalized. Financial management and procurement assessments were completed by the Bank. A financial report has been prepared and a procurement report is expected to be finalized. The Grant Agreement will be processed as soon as the procurement report is cleared which is expected to be in August. In parallel, an operations manual is being prepared and an annual plan, including procurement and disbursement plans, has been completed. Concerning the Bank executed component, an assessment of MSS status will be conducted. When the city of Yogyakarta has completed the costing for MSS achievement of targets the costing for MSS health will continue in other districts/municipalities in the province of Yogyakarta. A Costing Manual will be completed for other selected sectors, including electronic instruments for the MSS costing data system.

MoHA, in cooperation with DSF, organized a seminar in commemoration of Regional Autonomy Day titled â&#x20AC;&#x153;Creativity of Regions in Improving Public Servicesâ&#x20AC;?, which was opened by the Minister of Home Affairs. A TV dialogue on the same theme was also organized. These events recognized regions and heads of regions for their creativity and innovative ideas as well as actions for improving public services. Regions were encouraged to be more creative and innovative in implementing their functions, and to more effectively document and disseminate experiences from service delivery and community improvements. It was also suggested that a revision of Law 32/2004 should encourage innovation by regions.

An electronic instrument for MSS costing in health has been developed with assistance from DSF. After first testing the costing instrument Yogyakarta is now uploading MSS related data.

Phase 1: A Manual for Minimum Service Standards (MSS) Costing based on field testing of regional data was prepared by MoH in cooperation with MoHA and DSF. The manual was formalized by Minister of Health Decree 317/2009. DSF supported the printing of 1000 copies of the manual which was distributed to the regions by MoHA and MoH.

Output 1: Public Service Delivery Progress

Rating

Drawn out decisionmaking process regarding execution responsibilities has delayed project initiation

Comment

ANNEX C: MONITORING FRAMEWORK

Indicators

Number of selected district governments developed pilot alternative schemes in service delivery and number of women reached by these pilot schemes

Objectives

1.3. Alternative service delivery schemes established in selected sectors and districts and municipalities with better access for women (ACN Title: Management Strengthening and Institution Building for Local Public Service Providers (MSIB-LPSP))

The Bank executed component consists of two activities: (a) preparation of the implementation of pilot project MSIB-LPSP in West Java Province and (b) development of baseline information on women’s access to selected public services.

Phase 2: The follow-on activity commissioned by GOI was formalized in ACN 4/2009 on Management Strengthening and Institution Building of Local Public Service Providers. This is a recipient executed activity. The TOR and budget have been finalized. Financial management and procurement assessments have been completed and a report produced. The project operations manual was approved. The Grant Agreement is awaiting signature from GOI and the Bank.

The ‘Alternative Mechanisms for Service Delivery’ (AMSD) activity was successfully completed in December 2009. A final report containing a blueprint for promoting AMSD was prepared and submitted to DSF.

National Workshop on Alternative Mechanisms for Service Delivery (AMSD) was held in November 2009. Representatives from 3 regions in Province Banten presented preparation for the pilot implementation of: Management Strengthening and Institution Building for Local Public Service Providers.

Regional Workshop was conducted in August 2009. The progress reports of each selected pilot region (district Serang, Lebak and city Cilegon) were presented at the workshop.

Milestone 1. MSS implementation in health and women’s empowerment in 5 selected districts is expected to be underway by December 2010. Phase 1: Assessment of Legal and Regulatory Framework report completed in October 2009.

A national seminar on “Implementation of Minimum Service Standards Towards Achievement of Millennium Development Goals (MDGs)” was conducted in June 2010. The objectives of this seminar were: (a) disseminate the issued MSS to regions to increase commitment of regions in MSS achievement; (b) launching of the capacity building program on MSS costing and implementation; and (c) announcement of MSS as a national priority and effort in MDG achievement. The seminar was followed by discussions with pilot regions in preparation for Capacity Development for Minimum Service Standards Costing and Implementation activity. Several pilot regions confirmed their participation, others are likely to follow.

Output 1: Public Service Delivery Progress

Rating

Comment

ANNUAL REPORT 2010

70 Action plans for improved public service delivery completed by selected local governments in border areas The Operations Manual was prepared by GOI with DSF support and awaits clearance by the Bank.

For objective 4.3 the client is Bappenas and the focus is on improved planning. This is a Bank executed activity on behalf of Bappenas.

Milestone 1. Public service assessment in selected sectors in selected border areas is expected to be met in December 2010.

This activity links to activity 4.3 on border area development. ACN 2/2009 covers objectives 1.4 and 4.3 and represents the DSF’s support for one of the government’s key development priorities. For objective 1.4 the client is MoHA and the focus is on improved service delivery. The TOR has been finalized for this government-executed activity.

Milestone 1. The report on baseline data is expected to be completed by end of August 2010. The TOR has been finalized for this government-executed (MoHA) activity. A procurement plan and financial management assessment is scheduled to be completed in July 2010.

Two gender specialists have completed their field work, including recording baseline data on women’s access to alternative service delivery in the above pilot regions. Initial findings indicate that in Banten women’s access to water and health services is still low. Substantial improvements have been made in population administration services. In Sumedang West Java, substantial improvements in women’s access to hospital services have been made.

Pilot regions selected include: West Bandung (for population administration services), Sumedang (for hospital services) and Majalengka (for water supply services). Preliminary findings indicate that Rumah Sakit Umum Daerah (RSUD) in Sumedang has partially implemented some of the MSIB-LPSP elements such as the use of performance indicators, performance contracts and design of strategic planning measures, which significantly improved provision of services. It was agreed with Director General of Public Services, MoHA (Ditjen. PUM), provincial government of West Java and participating regions to conduct training workshops for local MSIB-LPSP facilitators by August 2010

1.4. Improved public service delivery by selected local governments in border areas

Output 1: Public Service Delivery Progress

Indicators

Objectives

Rating

MoHA and Bappenas are seeking to strengthen crossministerial support for border area development. Activity 4.3 provides support to Bappenas for the production of a master plan for border area development. This will constitute the basis for activity 1.4, which is concerned with the development of national and regional action plans.

Comment

ANNEX C: MONITORING FRAMEWORK

Indicators National policy on good practices issued

Local government performance in implementing OSS for business licensing

Objectives

1.5. Improved local government systems for dissemination and replication of good practices in service delivery

1.6. Local governments adopt effective, efficient and accountable regulations and processes for business licensing

Grant justification and summary proposal for phase 2 have been prepared by the DSF and are expected to be approved by July 2010.

Phase 2: To ensure the momentum of this work, a follow-on project was approved by the DSF Management Committee in late 2009. The aim of the project is to institutionalize capacity within local governments to implement effective, efficient and accountable regulations and processes for business licensing. The project will: (a) support MoHA in monitoring the performance of the OSS for business licensing across the country; (b) support three selected provincial governments (PGs) to facilitate establishment of district-level OSS and improve the performance of the existing ones; and (c) support the National Development Planning Agency ( Bappenas) and three selected PGs in disseminating and utilizing the RIA method.

The Sub-National Business climate Reform activity was successfully completed in January 2010. Final report was submitted. 4

Phase 1: The project has successfully delivered all outputs stipulated in the contract, with regard to both One Stop Shops (OSS) for business licensing and use of Regulatory Impact Assessments (RIA). A presentation of project achievements to all key stakeholders, including the DSF Management Committee, was held in January, 2010. This meeting reflected on lessons learnt and discussed national strategies to scale up the pace and performance of sub national business licensing reforms in order to improve the overall business and investment climate in the regions.

Rating

Comparative analysis of good practice programs in Indonesia completed in April 2009. MoHA has held several rounds of consultations on a draft permendagri (ministerial regulation) on best practices. The project implementation consultants presented a mid-term report to MoHA in August 2009. In spite of DSF efforts to rectify the situation, it was noted that progress was disappointing. The consultants had not submitted an inception report in Bahasa Indonesia, nor completed the pilots and database work as stipulated in the TOR. In order to enable the consultants to meet with GOI and rectify the deficiencies, a one month no-cost extension was allowed beyond the project closing date of 30 September 2009. As the consultants failed to comply, the project was closed on 31 October 2009.

Output 1: Public Service Delivery Progress

MoHA (Directorate for Capacity Building and Local Government Performance Evaluation) and DSF expressed dissatisfaction with activity performance. As a consequence, the project was closed on 31 October 2009.

Project implementation was handicapped by key members of the selected consultancy team not being available as proposed and poor compliance to TORs.

Comment

ANNUAL REPORT 2010

1.7. Improved understanding of international best practices, social political dimensions, costs and benefits and alternatives for territorial reform

Objectives

Consultations and dissemination workshops with national and local multi-stakeholder forums were held during preparation, finalization, and outreach for the analyses. Parts of the reports have been used in presentations and seminars by senior GOI central and local government officials. The research also informed policies related to fiscal, administrative, and social-political aspects of territorial reform.

Milestone 1 (a) 10% increase in OSS operating under revised guidelines is on track to be achieved in September 2010, and (b) target provinces and districts apply RIA to evaluate draft local regulations will be achieved as scheduled assuming the project is initiated before mid August 2010. Evidenced based research on Six analyses completed for Bappenas, MoF, MoHA, DPD, DPR, territorial reform adopted and local government, with information on lessons learned from by three key ministries: MoF, international, national, and local experience of territorial reform: • Experiences in Territorial Reform: Implications for Indonesia Bappenas and MoHA for policy input • Territorial Restructuring: Country Case Studies • Process and Implications of the Social-Political Dimensions of Territorial Reform: Case Studies from Sambas and Buton. • Costs and Benefits of Proliferation of Regions (Pemekaran) analysis completed for MoF with key findings for fiscal transfer formulas related to pemekaran, November 2007 • Evaluation of the Proliferation of Administrative Regions in Indonesia 2001-2007 • Territorial Reform and People’s Welfare: Finding Alternatives

Indicators

Output 1: Public Service Delivery Progress

Rating

A Fiscal Agency Agreement (FAA) with UNDP for coverage of work under territorial reform, disaster management, and sub national data was operational until June 30, 2009. UNDP submitted the final report covering the entire body of work under the FAA in December 2009. However, the work that formed the basis of the report was carried out by RTI International, UNDP, and a freelance consultant. The trust fund for the FAA has been closed.

Comment

ANNEX C: MONITORING FRAMEWORK

Indicators Number and process of data entry of local government budgets recorded in the Ministry of Finance Regional Financial Information System

Objectives

2.1. The Ministry of Finance Regional Financial Information System recording local government budgets is upgraded

Data entry for LRA 2007 was suspended by the government in order for it to focus on LRA 2008 instead. The current LRA 2007 data is thus, in effect, 100 percent complete (Milestone 1 and milestone 2 i). • For security reasons data entry for 2008 will be conducted by the government in-house. As a result DSF cannot be responsible for the completion of LRA 2008 data entry (Milestone 2 ii). • The goal of having 5 percent, or 25, districts submit data electronically to the EPIKD by December 2010 is within reach. Between June and December 2010, EPIKD intends to undertake 2-3 socialization sessions at the provincial level to solicit local government’s financial electronic datasets. (Milestone 2 iii)

•

The development of computer application/software intended for transferring electronic data from the regions to the MoF SIKD systems was completed in June 2010. In addition to transferring the data, the software is also designed for data entry purpose; the latter is an additional request from Directorate for Funding Evaluation and Regional Finance Information (EPIKD).

Scoping mission to 4 local governments in North Sulawesi and 2 in East Java to review regional financial information systems carried out in December 2009, January and June 2010. Electronic data from the regions is available for 8 districts as of June 2010.

Phase 2: ACN 12/2009 on Strengthening Data Provision to the Regional Financial Information System by Sub-National Governments with StandAlone Electronic Data Bases, approved by DSF MC in October 2009.

Two user manuals were prepared: data entry procedure intended for data entry operators; and a guide for users to access the data.

Realization data (LRA, 2007): 351 districts and municipalities (75 percent of total).

Budget data (APBD, 2009): 481 districts and municipalities (94 percent of total)

Data entered and verified in Phase 1:

Phase 1: DSF supported data entry of MoF’s Regional Financial Information System (SIKD) for Fiscal Year 2007 Support duration: MayAugust 2009.

Output 2: Fiscal Decentralization and Capacity Development Progress

Rate

Comment

ANNUAL REPORT 2010

74 Indicators

Implementation of ‘Grand Design of Fiscal Decentralisation’ across government ministries and local governments

Municipal bond issuance, including credit worthiness assessments

Objectives

2.2. Improved fiscal decentralization policy

2.3. National policy on local government borrowing, including issuance of municipal bonds, adopted

Support for revision of Government Regulations GR 54/2005: Local Government Borrowing and GR 57/2005: Local Government Granting, is complete. Draft revisions have been signed by the Ministry of Finance and are currently being discussed with the Ministry of Law and Human Rights (MLHR).

Revision to the main ideas of fiscal decentralization policy framework is currently being finalized and is expected to be completed for MoF approval by September 2010 (Milestone 1). Phase 1: Review of Indonesian Civil Code on issues relating to debtor, creditor, and bankruptcy/insolvency completed May 2009. Review of Regulatory Framework and Best Practices Study on Local Government Financial Emergency Procedures completed in December 2009.

Efforts to harmonize the GDFD (and respected inputs to the revision of Law 33/2004) with the revision of Law 32/2004 and, therefore, Grand Design for Regional Autonomy (GDRA) are currently underway.

Inputs to the revision of Law 33/2004 are being provided through implementation of studies related to intergovernmental transfers (in particular on the general- and specific allocation fund); these studies are on-going.

Three workshops/public consultations were conducted in Pontianak (West Kalimantan), Makassar (South Sulawesi) and Surabaya (East Java). The purpose of these workshops was to gain insights from a wide range of stakeholders in Indonesia, regarding the appropriate strategy to improve the current GDFD.

Project implementation plan for the whole support completed in January 2010

Procurement for capacity building for EPIKD staff is on-going. The capacity building will be undertaken through (a) a workshop on regional finance and data analysis to be conducted by LPEM, a research institute under the Department of Economics, University of Indonesia, and (b) consultations with experts from LPEM for preparing short analysis on various regional finance topics. These will be posted on the DGFB website by September 2010. ACN 13/2009 ACN on Improving the Policy Framework for Fiscal Decentralisation (‘Grand Design of Fiscal Decentralization’ - GDFD) approved by DSF MC in November 2009.

Output 2: Fiscal Decentralization and Capacity Development Progress

Rate

In the absence of a decent draft on GDRA as well as MoF and MoHA immediate needs to synchronize an array of substantive issues related to the revision of Law 32/2004 and 33/2004, efforts should be redirected to the harmonization between the revision of Law 33/2004 (which is based on GDFD) and that of Law 32/2004.

The DSF will provide support to MoF team in charge for the revision of Law 33/2004.

Comment

ANNEX C: MONITORING FRAMEWORK

Objectives

Indicators

Milestone 2: Dates for future discussions to finalize the GR will be determined by MLHR. It is expected that the revised GR will be signed by the President by late 2010 or early 2011.

Milestone 1: Credit worthiness assessment of two pilot municipalities for issuance of municipal bonds will be completed by an independent credit rating company by December 2010.

Two rounds of discussions on revision of GR 54/2005 on local borrowing between MoF and MLHR took place in February and May 2010. Additional meetings are warranted to complete revision.

• Two draft Perda (local regulation) to i) authorize a municipal bond issue and ii) establish a Satker (implementation unit) within the local government’s financial unit to manage and administer the Jakarta bond were completed in June 2010. • Analysis on DKI Jakarta’s ability to pay back municipal bonds completed in June 2010. • The DSF team has supported the preparation of a presentation on the municipal bonds within DKI Jakarta. • A Nota Dinas (official memo) has been prepared which must be signed by the Governor of Jakarta to formally authorize municipal bond preparation for DPRD approval in June 2010. • Capacity building has been provided to the government of city Bandung, but their project, a theme park, requires considerable technical definition and may be beyond the level of assistance which the DSF can reasonably provide.

• These four projects are: o provision of improved sewage facilities in the central business district and jalan Casablanca areas; o construction of an inter-city bus terminal at Pulo Gebang; o low-cost housing rehabilitation at Tanah Pasir; and o addition of a trauma wing at Pasar Rebo hospital. (total estimated value of the four projects is Rp 1.7 trillion in 2011 prices)

Phase 2: Analysis and preparatory work for issuance of DKI Jakarta and city of Bandung bonds: • prefeasibility studies and draft terms of reference (kerangka acuan kegiatan/KAK) documents for the four projects to be funded by the proposed municipal Jakarta bond were completed in June 2010.

Output 2: Fiscal Decentralization and Capacity Development Progress 3

Rate

Comment Directorate of Regional Financing and CapacityMoF has submitted request to expand the scope of activities to the Provinces of Kepulauan Riau and Kota Surabaya Scoping mission to Kota Surabaya will take place after the inauguration of the new mayor of Kota Surabaya in August 2010.

ANNUAL REPORT 2010

76 Indicators Public financial analysis of SAF completed by selected local governments as a basis for local government planning and budgeting

Monitoring and evaluation reports completed on expenditures of pro-poor government fund in selected local governments

Objectives

2.4. Improved public financial management of Special Allocation Funds (SAF) by local governments

2.5. Government pro-poor special allocation fund (DAK) monitored and evaluated

SEB data forms tested and technical assistance to fill out these forms provided to officials in Karawang, West Java in March 2010.

Modules for field facilitators and data collecting activities completed by DAK Coordination, Planning, Monitoring and Evaluation Team (TKP2E-DAK) Secretariat, Bappenas, February 2010. These documents comprise (a) DAK general comprehension (pemahaman umum tentang DAK); (b) DAK monitoring (pemantauan DAK); (c) DAK evaluation (evaluasi DAK); (d) DAK reporting system (sistem pelaporan DAK); (e) organization of DAK monitoring and evaluation (organisasi pelaksanaan monitoring dan evaluasi DAK); and (f) guidelines on data and information collecting in the field (pengumpulan data dan informasi di lapangan).

In order to obtain initial feedback on SEB-DAK focus group discussions and socialization on SEB-DAK conducted for Bappeda, city of Bogor in January 2010.

Project implementation plan for the entire activity completed in January 2010.

ACN 3/2009 on Socialization and Pilot Implementation of Joint Circular Letter (SEB) on Monitoring of Technical Implementation and Evaluation of Use of Special Allocation Funds (DAK) approved by DSF MC in July 2009.

Phase 2: ACN for Public Expenditure Analysis on SAF in Aceh under preparation with MoF. Kick-off meeting to solicit inputs on this activity is scheduled for August 2010.

Empirical analysis on regional government investment in public infrastructure based on audited financial data for 2004-2007 completed in June 2009.

Phase 1: Empirical analysis of regional government surpluses based on data from 27 provinces and 220 districts and municipalities resulting in report with recommendations completed in June 2008.

Output 2: Fiscal Decentralization and Capacity Development Progress

Rate

Phase 2 was on hold until government approval was received in May 2010. Due to time constraints, MoF and DSF have agreed to limit the coverage of the study to only one province, Aceh. Implementation in the remaining 2 provinces, Papua and West Papua, as time permits. Consequently milestone 1, which mandates the activity to be completed in 3 provinces, may not be achieved. Implementation will be split into two phases: the first phase in the Daerah Istimewa Yogyakarta (DIY) province, followed by a second phase consisting of 4 provinces (Jambi, Central Kalimantan, West Sulawesi and North Maluku). The purpose of this separation is to obtain lessons learned on how to properly implement DAK monitoring and evaluation These inputs will be utilized in the execution in the other four provinces.

Comment

ANNEX C: MONITORING FRAMEWORK

Objectives

Indicators

Target (b) A seminar on lessons learned from the implementation in D.I. Yogyakarta as well as early results from the four provinces are planned for September 2010. Preliminary results on capacity strengthening strategy for central- and local government will be presented at the seminar.

Target (a) â&#x20AC;&#x153;Government designed monitoring and evaluation system for DAK will be implemented in the district of the province of Yogyakarta by September while in the other four provinces implementation will be completed by January 2010.

Output 2: Fiscal Decentralization and Capacity Development Progress Rate

Comment

ANNUAL REPORT 2010

78 Indicators Number of provincial and district MPs, including women MPs, trained in legislative processes, budgeting and oversight

Objectives

3.1. Effective legislative processes, resource allocation and oversight functions demonstrated in selected local legislatures

The milestone of 150 DPRD members trained by December 2010 in the DSF logical framework will be met and will draw from DPRD members trained through the DPRD capacity strengthening program (Local Government Affairs/Regional Autonomy) and/or the DPRD orientation activity (Local Government Training and Education Centre) which is also administered by the DSF.

The addendum for the DPRD orientation implemented through the Government Education and Training Center (Badiklat) was completed and a draft amendment was prepared to the Badiklat Grant Agreement TF095995. The political affairs unit of Badiklat successfully completed financial management and procurement assessments and internal budget review to allocate counterpart funding for the activity, a first for this unit. The amendment is scheduled for signing in the next quarter with Training of Trainers (TOT) implementation and DPRD Orientation completed by December 2010.

MoHA advertised request for expressions of interest for the implementing agency in June 2010. Short listing, request for proposals and negotiations will proceed in the next quarter. MoF requested and received the initial deposit for the project in June 2010. Needs assessment, curriculum development and testing, and implementation of capacity building workshops are scheduled for completion in the fourth quarter 2010 and first quarter 2011.

MoHA took the steps necessary to register the Grant Agreement with the Ministry of Finance (MoF); to open a special account which required preparation and approval of an annual work plan and issuance of a Perdirjen (Director General regulation) for the project; and to complete budget implementation document (DIPA).

DSF II Capacity Strengthening for DPRD (Local Government Legislatures) TF 095584 Grant Agreement was signed by the World Bank in January 2010 and countersigned by the Government of Indonesia (represented by the Ministry of Finance) in February 2010. MoHA submitted a request for grant effectiveness with supporting evidence and the Grant Effectiveness Declaration letter was signed by the Bank in March 2010.

Output 3: Increasing Accountability Progress 3

Rate

The MoHA DPRD activities include two approaches: 1) DPRD capacity strengthening covering tailor-made training based on needs assessments in selected provinces and districts followed by action learning and technical assistance to achieve performance targets; and 2) DPRD orientation in targeted provinces and districts for newly elected DPRD members providing basic knowledge on national affairs, local

The DPRD activities are implemented through government systems. Both the Local Government Affairs Directorate of the DG Regional Autonomy and Badiklat have been active in bringing the project onbudget, on-treasury. With DSF support the project implementing units have gained capacity in program management and have broadened their networks with key counterparts within MoF. They have also gained knowledge on financial management, procurement, and anticorruption measures applicable to other government projects.

Comment

ANNEX C: MONITORING FRAMEWORK

Indicators

Number of national and local government officials and CSO leaders professionally trained in effective and accountable public service delivery

Objectives

3.2. Effective and accountable public service delivery by local government officials and effective monitoring by CSO leaders demonstrated in selected local governments

After rigorous interviewing, the selection committee identified candidates for a 1.5 month English language program which will be completed by mid July. The candidates will sit the International English Language Testing System (IELTS) exam and the results of the IELTS tests will determine who will be provided with a scholarship. Successful candidates will be supported by the British Council in applying to UK universities, and will also receive academic and practical guidance while enrolled. The British Council will follow-up with the scholars on the development of action plans for the application of knowledge and skills acquired under the program upon return to their jobs in Indonesia.

Following a ”no objection” by the Country Leadership Team (CLT) of the grant justification and summary proposal, the grant agreement was signed in May 2010by the Bank, and the British Council which will be the implementing party of the scholarship program.

• Scholarships for Master degree programs in decentralization related studies in the UK.

• Study tours

ACN No. 9/2009 on Capacity Building through Decentralized Education and Training (DET) approved for a total budget of USD 1.593,520. The activity has 3 components that aim to enhance the professional capacity of local and national officials to provide,and CSOs to monitor, improved public service delivery: • Short courses in Indonesia and the Region

Output 3: Increasing Accountability Progress

Rate

In view of the tight timeline for the execution of the scholarships project, on 31 March 2010 AKLN/MoHA asked that the Bank assume responsibility for the execution of the scholarship component of the project.

government, and basic duties and functions of DPRD. The two activities share respective curriculum and teaching/learning methodology to encourage synergy where appropriate, and coordinate regarding geographical distribution of participating DPRDs to avoid overlap. ACN 9/2009 has been divided into 2 grants: 1) scholarships and 2) short courses and study tours.

Comment

ANNUAL REPORT 2010

80 Indicators

Competency-based training programmes on decentralized public service delivery developed by local government training centres

Objectives

3.3. Local training and education centres demonstrated improvement in conducting training programmes for local government officials

The milestone of capacity building needs assessment on management of service delivery training is on track to be met by December 2010.

Badiklat advertised for individual consultants in June 2010. The consultants will be officially hired and the kick-off workshop implemented in the next quarter when DIPA funds are expected to be available. Provincial Diklats in East Java, West Kalimantan, and East Nusa Tenggara have allocated regional budget for participation in training and are prepared for implementation. Other activities scheduled in the next quarter include training for assessment, verification, and development of competency based standards including preparation for competency based training in the public service of population administration and civil registration.

After the Grant Agreement was signed in January, MoHA took the appropriate steps to register the Agreement with MoF; open a special account which required preparation and approval of an annual work plan and issuance of a Perdirjen for the project; and completed the budget implementation document (DIPA).

In addition an estimated 30 national and local government officials and Civil Society organizations (CSO) leaders will have received training in effective and accountable public service delivery participation in short courses in line with milestone 1. Short courses and study tours will be organized in the third quarter pending decision on execution method. DSF II Government Training and Education Centre Development: Introducing Competency-Based Standards for Improved Public Service Delivery TF 095995 Grant Agreement was signed by the Bank in January 2010 and countersigned by the Government of Indonesia (represented by the Ministry of Finance) in February 2010. Diklat submitted a request for grant effectiveness with supporting evidence and the Grant Effectiveness Declaration letter was signed by the Bank in March 2010.

The scholarship program is on track to be completed by September 2011 and will meet milestone 2.

By September 2010, 20 candidates are expected to be enrolled in British universities for primarily advanced programs that offer a one year Masters program specialized in fiscal decentralization(such as tax policies, fiscal transfers, sub-national borrowing), and social/ administrative policies having a bearing on service outcomes.

Output 3: Increasing Accountability Progress

Rate

This is the first time Badiklat has managed a grant through government systems (on-budget, ontreasury). With DSF support Badiklat has developed capacity in preparing government documents for the planning bureau of Badiklat and MoHA and for the treasury, debt management, and budget offices within MoF. Badiklat has developed capacity in program management and demonstrated proper ownership of grant funded activities. Badiklat has also demonstrated the ability to use the concept of and approach to competency based training developed with DSF assistance to meet the strategic needs of Badiklat with other donor supported projects including UNDP ACTP in Aceh, AusAID LOGICA in Aceh, and CIDA BASICS program in Sulawesi.

Comment

ANNEX C: MONITORING FRAMEWORK

Public accountability mechanisms developed and implemented by CSOs

3.4. Improved public accountability of local governments delivered by CSOs

3.5. Improved knowledge Publicly accessible data sharing on support to local base on support to local governments government developed and number of development forums and harmonization activities facilitated

Indicators

Objectives

In 2006, the Ministry of Home Affairs commissioned the DSF to create a donor mapping database (DMD) The purpose of the DMD is to track, monitor, analyze and prioritize aid rendered to Indonesia by the international donor community, and thereby serve as a valuable planning and monitoring tool for the government and members for the donor community. For the government and donors alike, it is clearly desirable to maintain such an up-to-date map of donor-supported activities, one that provides comparable data on key dimensions: matters addressed; geographic location; tools and approaches used; nature of assistance - whether loan/grant/TA; monitoring frameworks; expected results; and so on. The database development has proceeded in phases. In phase 1, a prototype was created. In phase 2, the design was upgraded to a web-enabled dynamic HTML database. This version is now available in both English and Bahasa Indonesia on the DSF website at http://www.dsfindonesia.org/apps/dsf-dm/cgi-bin/dw.cgi.

Discussion paper on local government consultative group produced in May 2010 approved by the Management Committee.

In October 2009 a paper outlining options for local government engagement in the DSF was reviewed by the DSF Management Committee and the formation of a Local Government Consultative Group was endorsed. A discussion paper detailing the roles, responsibilities, and membership of the LGCG was prepared in May 2010, discussed with the GOI task force appointed for this purpose, and finalized. An invitation for expressions of interest/participation in the LGCG was sent by the DSF co-chair in June 2010 to local government associations and local governments participating in DSF projects. The kick-off workshop is scheduled for August 2010.Task force established and operations initiated.

Output 3: Increasing Accountability Progress

N/A

Rate

DSF will support MoHA to update and administer the DMD

GOI is keen to incorporate the tool in a government system for monitoring and reporting on development assistance in decentralization.

The Local Government Consultative Group is moving toward achieving the indicator of improved public accountability of local governments but does not yet involve CSOs. The Management Committee did not commission work on public accountability delivered by CSOs in the 2009-2011 workplan. However GOI has requested inclusion of public accountability mechanisms in the future DSF program currently under discussion. The database is well received and commended as a useful tool for coordination and monitoring of donor support to decentralization.

Comment

ANNUAL REPORT 2010

Objectives

Indicators

82 The third phase of the activity is designed to institutionalize the database and its management in government. A consultant is therefore in the process of being been hired in order to, in close collaboration with government,: • upgrade design features, increase and refine data content, and provide technical maintenance support; • transfer responsibility for updating information online to individual donor agencies; and • identify and hand over administrator rights and responsibilities to the “owner” entity in MoHA

Output 3: Increasing Accountability Progress Rate

Comment

ANNEX C: MONITORING FRAMEWORK

Indicators Provincial and district/ municipal spatial plans completed and approved by respective parliaments

Objectives

4.1. Provincial and district/ municipal spatial plans produced which are in line with national spatial plan and integrated with provincial and district/ municipal development plans

ACN 2/2009 on Capacity Building for Regional Development Policy Formulation is linked to Objective 4.1. Part 1 was implemented by five consultants between September 2009 and July 2010. The main outputs are an input paper for the RPJMN 2010-2014 (for Book 3 on Development with a Regional Dimension) and the report: “A Study of Regional Development in Indonesia.” Part 2 of this activity will develop island based development strategies to be implemented by a firm. Procurement is underway; request for proposals will be issued in July.

Milestone 1 (a) should be amended to focus on district/city level instead of provincial level and three district/city plans will be submitted to parliament by December 2010. Milestone 1 (b) capacity building plans will be developed for targeted district/cities by September 2010.

A firm has been contracted to draft spatial plans and to strengthen the national agency for the coordination of spatial planning (BKPRN). The firm has begun work in cities/districts in all three provinces- West Sumatra, Gorontalo and East Java.

This activity was designed to support three provincial and six district/ city governments to draft spatial plans. Three provinces are close to finalizing their plans. In line with evolving needs and at the government’s request DSF will focus more on the district/city level

ACN 5/2009 on Institution Building for the Integration of NationalRegional Development and Spatial Planning approved. Initial work was implemented by a consultant between December 2009 and March 2010. Paper prepared on: “Identifying the Connections between Regional Spatial Plans with Regional Development Plans.”

Output 4: Planning and Performance Measurement Progress

Rate

Comment

The first part of the activity has produced a substantial review paper on regional development policy that draws on lessons learned from past experiences and builds upon the RPJMN for 2010-2014 to provide key

Activities under ACN 5/2009 are designed to improve the consistency between regional government planning documents (spatial plans and development plans) and also the consistency between spatial plans at different levels of government. A key component of the activity is to develop the capacities of the 3 provincial governments and 3 district/ city governments in each to produce spatial plans that are aligned with the national spatial plan and integrated with regional development plans. The implementing agency will focus on providing capacity building support to district and city governments to draft spatial plans. ACN2/2009 is an additional activity requested by Bappenas’ Directorate of Regional Development. It is linked to activity 4.1 but not listed in the Log Frame.

ANNUAL REPORT 2010

84 Indicators

Local governments adopting policies and systems for natural resource planning and management policy

Objectives

4.2. Natural resource planning and management policies developed by targeted local governments

Rate

A firm has been contracted to support local governments in Papua and South East Sulawesi to develop improved natural resource management systems. Procurement of these services has taken longer than expected due to delays associated with technical problems with the on-line procurement system. As a result the achievement of milestone 1, improved natural management systems drafted in 4 local governments, is expected to be marginally delayed but achieved by November 2010.

ACN 10/2009 on Strengthening Local Government Natural Resource Management Capability was approved.

4 An addendum to ACN 2/2009 covers inter-regional cooperation and addresses issues of concern to both Bappenas (Directorate of Special Regions and Less Developed Areas) and MoHA (Directorate for Deconcentration and Cooperation). Both ministries seek to strengthen inter-regional cooperation through the provision of capacity building interventions and support to implement national legislation. The addendum is the result of inter-departmental discussions on how DSF support can best address governmentâ&#x20AC;&#x2122;s development objective of improving service delivery and accelerating economic growth in border areas.

Output 4: Planning and Performance Measurement Progress Comment input into governmentâ&#x20AC;&#x2122;s approach to regional development policy. Bappenas is the client. The second part builds upon this work by formulating development strategies for the major island groups, with a focus on eastern Indonesia. Implementation is expected to commence in the third quarter of 2010. This activity highlights the importance of crossministerial cooperation in activity development and implementation, which is likely to yield positive results in terms of greater coordination between related inter-regional cooperation programs. Implementation is expected to commence in the last quarter of 2010. This activity seeks to improve the way natural resources are managed by local governments. The capacity to do this type of work will be developed in local governments in 2 pilot target provinces and is intended to assist local governments to identify the potential

ANNEX C: MONITORING FRAMEWORK

Indicators

Action plans for improved economic development planning completed by selected local governments in border areas

Objectives

4.3. Local governments in border regions have improved capacity in economic development planning

DSF contracted a consultant to provide input for the RPJMN 2010-2014 (Book 2 on Strengthening the Synergies between Development Sectors; Chapter IX on Regions and Spatial Aspects). A paper on suitable institutional arrangements for the national border area agency (BNPP) was presented at an inter-ministerial forum in March 2010. A firm has been contracted from June 2010 to September 2011 to support Bappenas draft a national master plan and to pilot activities in several key border areas. Activities to reach milestone 1 are in progress and the milestone will be achieved by September 2010.

ACN 8/2009 on Institution Building for the Accelerated Development of Border Areas approved. This ACN covers activities related to border area development, prioritized by both Bappenas and MoHA. This objective is linked to activity 1.4 on service delivery in border regions. The activities are closely inter-related and both involve Bappenas, MoHA and the Ministry of Disadvantaged Regions.

An addendum to ACN 10/2009 on the establishment of a facility to support local economic development was approved in March 2010. The client is the Directorate of Urban and Rural Affairs (Bappenas). Procurement of services is underway. Request for proposals was issued in July 2010 and it is expected that by December 2010 the concept and implementation plan for the facility will be finalised.

Output 4: Planning and Performance Measurement Progress

Rate

Comment

for resource development in a sustainable manner. Lessons will be derived from these pilots and made available on a wider scale. Key resources within the scope of this activity include land for plantations, marine resources for fisheries, and resources with tourism development potential. This activity has been designed in collaboration with Bappenas and GTZâ&#x20AC;&#x2122;s Regional Economic Development program (RED). Implementation is expected to start towards the end of the third quarter of 2010. Through this activity, MoHA and Bappenas are seeking to strengthen cross-ministerial institutions and to improve the policy framework for the development of border regions. The implementing agency is also providing capacity support in 3 provinces: West Kalimantan, East Kalimantan and Riau.

ANNUAL REPORT 2010

Objectives

4.4. Improved quality and availability of sub-national statistics for local decision making

Indicators

Study of sectoral data systems at central and regional level with policy recommendations adopted by BPS (Central Statistics Agency)and participating local governments

86 BPS is using the results of this activity in negotiations with the Bank concerning a national statistics capacity building program (STATCAP) loan.

Final report with 21 policy recommendations grouped in the categories of: • system design, setup and maintenance; • promotion of data quality; application of information and communication technology; • human, physical and financial resources; strengthening of data sharing, analysis, and utilization; and • legislation and regulation, May 2009.

Assessment of health data for 11 districts/municipalities and assessment of education data for 12 districts/municipalities completed in January 2009.

National and local level sectoral data system analysed for 19 governments (6 provinces, 4 cities, 9 districts), January 2009.

“Improving the Quality and Availability of Sub-National Statistics for Local Decision Making & Streamlining the Flow of Statistics between Regions and the Centre” study completed in support of BPS and local governments, January 2009.

Output 4: Planning and Performance Measurement Progress 1

Rate

Comment

This project is complete and has met its objectives. The findings from this project are relevant to many other DSF projects, since these rely on the availability of good quality sub-national sectoral data. A follow-on to this project could include extension of the web-based system for transmitting data from technical agencies at the sub-national level to relevant ministries in Jakarta. Capacity building recommended for local governments in relation to use of information technology.

ANNEX C: MONITORING FRAMEWORK

ANNUAL REPORT 2010

ANNEX D: LIST OF ACRONYMS, ABBREVIATIONS, AND TRANSLATIONS ACN: Activity Concept Note ADB: Asian Development Bank AIDS: Acquired Immune Deficiency Syndrome AKLN: Administrasi Kerjasama Luar Negeri (Bureau of Foreign Cooperation) AMSD: Altenative Mechanisms of Service Delivery AusAID: Australian Agency for International Development Badiklat: Badan Pendidikan dan Pelatihan (Government Education and Training Centre) Bappenas: Badan Perencanaan dan Pembangunan Nasional (National Development Planning Agency) BKN: Badan Kepegawaian Negara (National Civil Service Agency) BKPRN: Badan Koordinasi Penataan Ruang Nasional (National Agency for the Coordination of Spatial Planning) BNPP: Badan Nasional Pengelola Perbatasan (National Agency for Border Management) BPK: Badan Pemeriksa Keuangan (Audit Board of the Republic of Indonesia) BKN: Badan Kepegawaian Negara (National Civil Service Agency) CBT: Competency-Based Training CIDA: Canadian International Development Agency CSO: Civil Society Organization DAK: Dana Alokasi Khusus (Special Allocation Fund) DAU: Dana Alokasi Umum (General Allocation Fund) DCG: Donor Consultative Group Depdagri: Departemen Dalam Negeri (Ministry of Home Affairs) DET: Decentralization Education and Training DfID: Department for International Development DG: Director General Diklat: Pendidikan dan Pelatihan (Education and Training) DIPA: Daftar Isian Pelaksanaan Anggaran (Budget Implementation Document / Issuance of spending authority) Ditjen Bangda: Direktorat Jenderal Pembangunan Daerah (Directorate General of Regional Development) DI. Yogyakarta: Daerah Istimewa Yogyakarta (Yogyakarta Special Region) DJPK: Direktorat Jenderal Perimbangan Keuangan (Directorate General of Fiscal Balance) DKI: Daerah Khusus Ibukota (use in DKI Jakarta, Special Region of the Capital of Jakarta) DMD: Donor Mapping Database DOHP: Daerah Otonom Hasil Pemekaran (Newly Autonomous Regions) DPRD: Dewan Perwakilan Rakyat Daerah (Provincial Legislative Council) DRSP: Democratic Reform Support Program DSF: Decentralization Support Facility EPIKD: Evaluasi Pendanaan dan Informasi Keuangan Daerah (Directorate for Funding Evaluation and Regional Financial Information) EPPD: Evaluasi Penyelenggaraan Pemerintahan Daerah (Guidelines for Regional Government Evaluation) FA: Focal Area FAA: Fiscal Agency Agreement FMA: Financial Management Assessment FY: Financial Year GA: Grant Agreement

ANNEX D: LIST OF ACRONYMS, ABBREVIATIONS, AND TRANSLATIONS

GDFD: GDP: GFR: GOI GTZ: HIV: HTML: IELTS: IMD: Kemenpan: KKDT: LAN: LGCG: MC: MG: MoF: MoHA: MOU: MSIB-LPSP: MSS: NGOs: NRM: NSPK: OSS: Otda: Otsus: PAN: PDOK: PEA: Perda: Perdirjen: Perkotdes: Permendagri: PGs: PGSP: PMK: PUM: RAB: RPJM: RPJMN: SC: SIKD:

Grand Design of Fiscal Decentralization Gross Domestic Product Grant Funding Request Government of Indonesia Gesellschaft f端r Technische Zusammenarbeit Human Immunodeficiency Virus Hyper Text Markup Language International English Language Testing System International Institute for Management Development Kementerian Pendayagunaan Aparatur Negara (State Ministry of Administrative Reform) Kawasan Khusus dan Daerah Tertinggal (Directorate of Special Regions and Less Developed Areas) Lembaga Administrasi Negara (National Institute of Public Administration) Local Government Consultative Group Management Committee Management Group Ministry of Finance Ministry of Home Affairs Memorandum of Understanding Management Strengthening and Institution Building for Local Public Service Providers Minimum Service Standard Non Governmental Organizations Natural Resource Management Norma, Standar, Prosedur, dan Kriteria (Norms, Standards, Procedures and Criteria) One Stop Services Otonomi Daerah (BAPPENAS: Directorate of Regional Autonomy; MoHA: Directorate General of Regional Autonomy) Otonomi Khusus (Special Autonomy) Pendayagunaan Aparatur Negara dan Reformasi Birokrasi (State Ministry of Administrative Reform) Penataan Daerah dan Otonomi Khusus (Directorate of Regions Management and Special Autonomy) Public Expenditure Analysis Peraturan Daerah (Local Regulation) Peraturan Direktur Jenderal (Director General Regulation) Perkotaan dan Perdesaan (Directorate General of Urban and Rural Development) Peraturan Menteri Dalam Negeri (Ministry of Home Affairs Regulation) Provincial Governments Provincial Governance Strengthening Program Peraturan Menteri Keuangan (Ministry of Finance Regulation) Pemerintahan Umum (Directorate General for General Governance) Rencana Anggaran Biaya (Government Budget Estimation) Rencana Pembangunan Jangka Menengah (Medium-Term Development Plan) Rencana Pembangunan Jangka Menengah Nasional (National Medium-Term Development Plan) Steering Committee Sistem Informasi Keuangan Daerah (Regional Financial Information System)

ANNUAL REPORT 2010

STC: TAF: TF: ToR: TOT: UK: UNDP: UPD: USAID: USD: WB:

Short-Term Consultant The Asia Foundation Trust Fund Terms of Reference Training of Trainers United Kingdom United Nations Development Programme Urusan Pemerintahan Daerah (Directorate of Local Government Affairs) United States Agency for International Development United States Dollar World Bank

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