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Activity Concept Notes Arrising from the DSF Work Plan 2009 - 2011


ACTIVITY CONCEPT NOTES | ARRISING FROM THE DSF WORK PLAN 2009-2011

Foreword The 14 Activity Concept Notes contained in this document represent the first round of programming under the DSF Work Plan 2009-2011. They were formally approved by the DSF Management Committee (MC) in the third and fourth quarters of 2009. Since their approval, a number of the activities will have been modified in the light of better information and changing circumstances, particularly in relation to the scheduling of activities and the scope of such activities. In some cases, changes will have been made to execution arrangements. However, in all cases the substance of the activities described herein remains largely unaltered. A second round of programming, involving 9 activities that were designed and conceived as extensions or developments of those that constituted the first round, was approved by the MC during November/December 2009. The majority of the latter, which are set out in a separate document, were developed as addenda to existing ACNs, thereby reducing the time needed for their detailed design and the establishment of execution and implementation arrangements. The conceptualization, design, and development of all of these activities were led by government with assistance from the DSF Executive. During the period 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 Management Committee (MC).

Peter Blunt Programme Manager January, 2010

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Table of Contents Activity Concept Note # 1 Capacity Strengthening Program for DPRD (Local Government Legislatures)

Activity Concept Note # 2 Capacity Building for Regional Development Policy Formulation

Activity Concept Note # 3 Pilot Implementation and Improvement of Monitoring and Evaluation System of the Utilization of Special Allocation Funds (Dana Alokasi Khusus/ DAK)

Activity Concept Note # 4 Management Strengthening and Institution Building for Local Public Service Providers (MSIB-LPSP)

Activity Concept Note # 5 Institution Building for the Integration of National-Regional Development and Spatial Planning

Activity Concept Note # 6 Building Capacity for the Development of Sub-National Government Capital Markets for Municipal Bonds

Activity Concept Note # 7 Government Training and Education Center Development: Introducing Competency Based Standards for Improved Public Service Delivery

Activity Concept Note # 8 Institution Building for the Accelerated Development of Border Areas

Activity Concept Note # 9 Capacity Building through Decentralization Education and Training (DET) for Public Service Delivery

Activity Concept Note # 10 Strengthening Local Government Natural Resource Management Capability

Activity Concept Note # 11 Formulation of Norms, Standards, Procedures and Criteria (NSPK) for Local Government Service Delivery

Activity Concept Note # 12 Strengthening Data Provision to the Regional Financial Information System by Sub-National Governments with Stand-Alone Electronic Data Bases

Activity Concept Note # 13 Improving the Policy Framework for Fiscal Decentralization (the ‘Grand Design of Fiscal Decentralization’ - GDFD)

Activity Concept Note # 14 Capacity Development for Minimum Service Standards Costing and Implementation

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DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 1/2009 Summary: This activity is designed to strengthen the capacity of provincial and district/municipal DPRD members and secretariats to perform their functions of legislation, budgeting, oversight and representation. Specifically, the Ministry of Home Affairs Directorate for Local Government Affairs in the Directorate General of Regional Autonomy expects DPRD members and secretariats to: 1) understand changes to the governance system at the national level due to the constitutional amendment; 2) comprehend the impact of changes to the governance system for provincial and district/municipal DPRD; 3) recognize the relationship between the head of the region and DPRD in the new governance system; 4) acquire technical capacities needed to perform DPRD functions; and 5) become accountable to citizens and government, conscious of the pitfalls and pressures to be otherwise, and aware of the consequences of transgressions under the law. The program will include capacity strengthening workshops based on local needs assessments, action learning (including on-the-job training), and monitoring and evaluation of targets set for the various DPRD functions.

Activity Title Capacity Strengthening Program for DPRD (Local Government Legislatures)

Counterpart Agency and Key Government Contacts • Directorate of Local Government Affairs, Directorate General of Regional Autonomy, Ministry of Home Affairs and six Provincial and Kabupaten/Kota DPRDs • Contact person: Dr. Made Suwandi, M.Sc., Director of Local Government Affairs, Directorate General of Regional Autonomy, Ministry of Home Affairs

Duration June 2009 - September 2011

Background and Rationale 1. The Capacity Strengthening Program for DPRD program was commissioned by the Directorate for Local Government Affairs of the Directorate General of Regional Autonomy in the Ministry of Home Affairs (MoHA) and approved by the DSF Management Committee. This section discusses the background and rationale for the project and the context in which it will be implemented. It addresses questions concerning the DPRD legislative functions; knowledge, skills, values and parliamentary performance; need for, and dilemmas surrounding, technical capacity; political economy of DRPD support; DPRD strengthening within the DPRD reform agenda; and the Directorate of Local Government Affairs DPRD strengthening program approach.

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2. Legislative functions. Parliamentarians worldwide are expected, without fear or favor, to perform functions of representation, legislation, and oversight. In Indonesia, the role of local parliamentarians (DRPD members) is defined in Law No.32/2004 as legislation, budgeting, and oversight. The international definition used by the World Bank Institute (WBI) includes the budgeting function in the oversight category in the form of asking “value for money” questions to evaluate the effectiveness of government spending.1 3. Knowledge, skills, values and parliamentary performance. In order for parliamentarians to perform these three functions effectively, a set of knowledge, skills, and values is required. Although no major survey or job analysis has been conducted nationwide of DPRD members, the sheer number of new DPRD members (in 2009 70% of the DPRD members are predicted to be new members) 2 with varying skills and backgrounds will present several challenges. 4. WBI states that based on international best practices there are four factors that influence parliamentary performance: type of political and electoral system; formal legislative powers; political will and political space; and technical capacity. 3 In Indonesia, due to the number of changes in elections laws and regional autonomy laws that dictate the roles and functions of DPRD members, elected representatives are continually adjusting to the new governance structure. 4 In addition, although some DPRD members have the political will to introduce reforms, many are caught in a trap of indebtedness to political parties due to campaign expenses and they are dependent on the support of interest groups, both of which can compromise DPRD work.5 5. Need for and dilemmas surrounding DPRD technical capacity. To date, DPRD strengthening programs have focused on knowledge transfer such as understanding of the rules and regulations governing DPRD and the relationship between DPRD and the executive branch. Support programs have also focused on skills upgrading, such as negotiating with political parties and engaging with constituents. Attention to values has also been evident through strengthening of DPRD members’ commitment to poverty reduction and improved public services. Most of these programs are designed for development of technical capacity. However, experience in developing countries shows that even with modern parliamentary structures in place a technical approach to capacity building, while necessary, may not be sufficient. A recent report on strengthening parliament from the Africa All Party Parliamentary Group states that development partners should do more to ensure that

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Johnson, John K. The Role of Parliament in Government. World Bank Institute Working Papers, 2005. Interview with Dr. Made Suwandi, Director of Local Government Affairs, Directorate General of Regional Autonomy, Ministry of Home Affairs, May 2009. 3 Johnson, John K. The Role of Parliament in Government. World Bank Institute Working Papers, 2005. 4 New DPRD members must understand the implications of the revised Law on Elections No.10/2008 for DPR, DPD, and DPRD, and proposed revisions to the Law No.22/2003 on Formation and Positioning of MPR, DPR, DPRD (Susunan dan Kedudukan or Susduk), and a number of additional regulations on regional development and budgeting. 5 Workshop on Mapping of Legislative Strengthening Programs in Indonesia, 11 May 2009, Jakarta. 2

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programs are planned based on an understanding of the political pressures and context within which parliamentarians work. 6 One respondent remarked, “Strengthening parliaments isn’t simply a capacity issue: it’s an intensely political issue. We need to dispel the entrenched idea amongst many donors that what’s holding parliaments back is an apolitical issue of capacity. Capacity building initiatives that approach parliament as a normal institution are doomed to failure.”7 6. Political economy8 of DPRD support: issues for government and donors. Government and donors in Indonesia are increasingly aware of the need to address the political economy of DPRD and the limitations of a purely technical approach to capacity strengthening. However, many of the government-run DRPD capacity strengthening programs concentrate on technical capacity due to federal mandates and funding for this type of assistance. Perhaps due to the complexity and difficulty of addressing political economy issues, donors have targeted their efforts on improving technical quality through training materials development and interactive training techniques. Some have attempted to develop specific modules on DPRD leadership and good governance. 9 7. The Corruption Eradication Commission (KPK) addresses political economy issues in its DPRD training, perhaps due to the large number of corruption cases involving DPRD members. 10 KPK’s training covers the position, role and function of DPRD in practicing good governance; the concept of representation in modern politics; and how to increase the capacity for representation. It also presents ways to combat corruption in performing the DPRD functions of legislation, budgeting, and oversight. The training includes action plans, such as publishing the annual budget, followed by 3-6 month follow up to monitor the implementation of action plans. 8. DPRD strengthening as part of a larger DPRD reform agenda. Capacity strengthening programs targeting DPRD members and DPRD secretariats are part of a much wider reform agenda. Key aspects of this agenda include regulatory framework reform; 11 political party reform and, in particular, the recruitment of DPRD candidates and campaign finance 6

Strengthening Parliaments in Africa: Improving Support, A Report by the Africa All Party Parliamentary Group (AAPPG), March 2008. 7 Ibid. 8 Political economy in this concept note refers to the way in which political institutions and political and social forces intersect with economic systems and incentives to influence the way government works. 9 “Program Penguatan DPRD 2005-2009,” Presentation at the Workshop on Mapping of Legislative Strengthening Programs, 11 May 2009. LGSP-USAID. 10 KPK reports that in 2004-2006, there were 767 cases of corruption in District/Municipal DRPD (spread across 110 districts and 25 municipalities) and 327 cases of corruption in Provincial DPRD. This compares to 63 cases of corruption of bupati/walikota and 7 cases of governors. “Peningkatan Kapasitas, Peran, dan Fungsi DPRD dalam rangka Pencegahan Tindak Pidana Korupsi,” Kedeputian Pencegahan KPK..Presentation at the Workshop on Mapping of Legislative Strengthening Programs, 11 May 2009. 11 Penguatan DPRD dalam Perspektif Konstitusi dan Penguatan DPRD dalam Perundang-undangan di Bawah UUD 1945. Dewan Perwakilan Rakyat Daerah, Bukan Dinas Perwakilan Rakyat Daerah (Telaah Kritis Peran dan Fungsi DRPD). UNDP-GRADE. December 2008.

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reform; 12and the role of civil society in holding DPRD members accountable. 13 Although this program is limited to capacity strengthening of DPRD members and secretariats, it will also attempt to contribute to the larger DPRD reform agenda through attention paid to public accountability. 9. In Indonesia, as in other developing countries, the political system is still characterized by a balance of patronage-based governance and rational-legal models of governance. 14 In addition, this is accompanied by public attitudes that acknowledge that use of political office to make money and demand special privileges is commonplace, although not always acceptable. The social deconstruction of corruption, or its prevention, is a long term endeavor. Investing in the demand side of reform, especially social and public accountability mechanisms, 15 is crucial to changing public attitudes and to prevention. 10. Analysis of the modus operandi of corruption in five provinces in Indonesia highlights the important role of community groups (including: villagers; NGOs or NGO coalitions; companies that lost out in rigged tenders; or competing politicians) in discovering and reporting corruption cases in local legislatures.16 Political pressure by community groups can also be effective in holding the DPRD more accountable for government development programs at the local level. Increased spending on impartial service delivery spearheaded by both the legislative and executive, for example, can undermine beliefs in patronage and improve accountability. 17 11. Given the importance of accountability, both on the demand and supply side for DPRD, there is a case for accountability training as a key competency for the DPRD strengthening program. However, a comprehensive capacity strengthening program for DPRD members covering all of the knowledge, skills, and values needed to effectively perform their functions is not realistic or necessary according to the results from a Mapping of Legislative Strengthening workshop in Jakarta with participants from MoHA, local government associations, and international organizations. 18 Due to the number of programs available addressing different aspects of capacity strengthening (MoHA induction programs on knowledge of governance structure; Corruption Eradication Commission-KPK programs on ethics in decision making; international organization training on constituency outreach), 12

Perbaikan Rekruitmen DPRD oleh Parpol. DPRD: Dewan Perwakilan Rakyat Daerah, Bukan Dinas Perwakilan Rakyat Daerah (Telaah Kritis Peran dan Fungsi DRPD). UNDP-GRADE. December 2008. 13 Local Government Accountability and Discretion: Application of a Local Governance Framework, Social Development Department, The World Bank, 2009. 14 Blunt, Peter (2009). “The Political Economy of Accountability in Timor-Leste: Implications for Public Policy.” Public Administration and Development No. 29, pp.89-100 illustrates this phenomenon in Timor-Leste and links to the period of Indonesian occupation. 15 Local Government Accountability and Discretion: Application of a Local Governance Framework, Social Development Department, The World Bank, 2009. 16 Taufik Rinaldi, Marini Prunomo, Dewi Damayanti. Memerangi Korupsi di Indonesia yang Terdesentralisasi: Studi Kasus Penangan Korupsi Pemerintah Daerah. Justice for the Poor/World Bank. May 2007. 17 Blunt, Peter (2009). “The Political Economy of Accountability in Timor-Leste: Implications for Public Policy.” Public Administration and Development No. 29, pp.89-100. 18 Workshop on Mapping of Legislative Strengthening Programs in Indonesia, 11 May 2009, Jakarta.

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DPRD councils can choose from a menu of options depending on the needs of their members and the knowledge, skills, or values regarded as most important for professional development. The DPRD local government associations (ADKASI, ADEKSI) can play a key role in disseminating information among member DPRDs regarding the types of capacity building programs on offer and the available service providers. 19 12. An issue mapping paper presented by the UNDP Indonesia for the Decentralization Support Facility (DSF) and Support Office for Eastern Indonesia (SOfEI) identified development issues and options for support to advance local legislative councils in Indonesia taking into consideration the legal framework and functions and management of DPRD. The following table states areas and issues needed for DPRD members to perform well focusing primarily on knowledge with some reference to skills needed to be effective. 20 This will be used as a basis for curriculum development of the MoHA program supported by DSF based on lessons learned from the previous MoHA program supported under the GRADE-UNDP project. Table 1

Area Constitution Susduk Law (UU 22/2003)

Law on Regional Governance (UU 32/2004)

Government Regulations (i.e. PP 37/2005 and PP 53/2005)

Issues Legal Framework for DPRD DPRD are considered a part of the regional authorities (Art. 18). Their position is not further specified. DPRD are considered a part of the regional government framework (Art. 60 prov. DPRD, Art. 76 district/city DPRD). The role and functions of the DPRD are defined as legislation, budgeting and oversight (Art. 61 for provincial DPRD, Art. 77 for district/city DPRD). DPRD are considered a part of the regional government framework (Art. 40). The law further defines the legislative-executive relations and ways how the DPRD should execute its authorities (Art. 42). Legislative-executive relations. Role of DPRD Head, Committees, and Special Committees. Detailing the functions and processes. Detailing the role and functions of the DPRD Secretariat.

19

ADKASI expressed its intention and interest in mapping of DPRD strengthening programs and potential role as a clearinghouse at the Mapping of Legislative Strengthening Programs, Jakarta, May 2009. 20 “Advancing Local Councils in Indonesia: Development Issues and Options for Support.� Issue Mapping Paper prepared by the UNDP Indonesia for the Decentralization Support Facility (DSF) and Support Office for Eastern Indonesia (SOfEI), May 2008.

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Area

Issues Functions and Management of DPRD Legislation Knowledge and expertise of drafting process for government regulations. Knowledge of enabling legal framework. Expertise in public engagement in legislation-making. Knowledge of human rights and minority issues. Knowledge of executive annual development plan and vision Access to DPRD in-house expertise. Planning and Budgeting Knowledge of budget planning and annual budget circle. Knowledge of public participation in development planning (Musrenbang). Knowledge of budget scrutinising. Knowledge of public auditing. Access to expertise. Oversight Knowledge of laws, local regulations and governor/regent decrees. Knowledge of activities by the RGH and local administration. Knowledge of oversight and supervision processes and follow-up. Knowledge of importance of media in government supervision. Access to expertise. Representation Knowledge of importance of constituent relations. Knowledge of particularities of constituents represented by the respective DPRD member. Knowledge of local programme of the respective political party. Access to expertise DPRD management and Knowledge of what DPRD members need to execute their support services functions. Knowledge of the legal framework regulating the DPRD and DPRD standing orders. Knowledge of how the local executive is organised and how it works. Knowledge about how to prepare an annual DPRD Work Plan. Expertise in collecting and processing information and data. Knowledge regarding the management and documentation of information and data. 13. MoHA Local Government Affairs approach to DPRD strengthening. The MoHA Local Government Affairs program is a thorough approach to training and development combining five main components: needs assessment; curriculum development and learning

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methodology; capacity strengthening workshops; action learning/technical assistance to reach post-workshop targets, and monitoring and evaluation. These components will be described briefly below and in more detail in the section on scope of services and subactivities. 14. The program begins with a needs assessment to determine the knowledge, skills, and values needed by the targeted DPRD using a combination of secondary data, interviews, and self assessment. It is then followed by curriculum development and learning methodology based on the results of the needs assessment with testing of modules in the field.21 The capacity strengthening modules can be modified from previous DPRD strengthening programs or newly developed. They should incorporate relevant technical knowledge, take into account political economy issues, use adult learner methodology, and incorporate practical applications of concepts through case studies, simulations, and fieldwork. Capacity strengthening workshops are then conducted with participating DPRD councils. Following the workshops, action learning plans 22 are developed with appropriate provision of technical assistance to reach specific targets such as conducting a public hearing, publishing the approved annual budget, performing gender budget analysis or other priorities identified by DPRD members. Finally, extensive monitoring and evaluation is conducted to gauge the overall adoption and practice of new knowledge, skills, and values in DPRD councils throughout the program and the extent to which the action learning targets were reached. 15. This program will be implemented in cooperation with other relevant programs to avoid duplication and ensure value added. The materials and monitoring and evaluation results will be shared with DPRD local government associations for replication in other interested DPRD councils. 16. Links to DSF Strategic Framework. The DSF strategic framework states that in the current state of decentralization service provision is not sufficiently linked to local demand. The DPRD representatives are elected officials expected to seek out and respond to local demands on issues such as public service delivery. However, the capacity of local DPRD representatives to both make decisions regarding provision of public services and be accountable to the public is variable, though likely generally to be weak. Thus, the activity proposed by the Directorate of Local Government Affairs, Directorate General for Regional Autonomy at the MoHA seeks to provide capacity strengthening opportunities for DPRD representatives to address this gap.

21 Learning methodology in particular is critical as the majority of previously conducted DPRD strengthening programs use a traditional lecture style that has proved ineffective. New strengthening programs are introducing adult learner methodology, simulations, and case studies in an attempt to improve the quality of learning and results. 22 Action learning is a process of learning-by-doing, receiving input from peers and experts, and making links to knowledge and concepts in real world situations. Action learning as an educational process is associated with Reginald Revans. See Revans, R. 1980. Action learning: New techniques for management. London: Blond & Briggs, Ltd. and Revans, R. W. 1982. The Origin and Growth of Action Learning. Brickley, UK: Chartwell-Bratt. Action learning has been institutionalized in education and management courses throughout the world.

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17. This activity shows the recognition of the central government, in particular MoHA, to the importance of local governance in the legislative branch and its impact on local development. This activity is consistent with the harmonization agenda because the modules proposed were developed through previous cooperation between MoHA and UNDP through the Governance Reform and DPRD Empowerment (GRADE) program. In addition, it will add to the work of several other organizations that have supported legislative strengthening programs including the Local Governance Support Program (LGSP)USAID, Konrad Adenauer Stiftung (KAS), Friedrich Naumann Stiftung (FNS), National Democratic Institute (NDI), and International Republican Institute (IRI). Other government institutions, such as KPK, Badan Pendidikan dan Pelatihan Depdagri (Badiklat), Bina Administrasi Keuangan Daerah (BAKD), Kesatuan Bangsa dan Politik Depdagri (Kesbangpol), and Pejabat Negara Depdagri also have responsibility for induction programs which are at various stages of development. A component of the DSF activity will include a review of existing curriculums and impact evaluations of previous training in order to better execute this activity and advance the DPRD reform agenda.

Goal and Objectives 18. The goal of the capcaity strengthening program for DPRD as stated by the Ministry of Home Affairs Local Government Affairs Directorate is to strengthen the capacity of DPRD representatives so they become effective conduits of the aspirations and concerns of citizens, and create legislation in the interests of equitable and sustainable development taking into account citizen demand. In addition, through this program MoHA seeks to strengthen the position and role of DPRD as a partner to local government resulting in constructive engagement for local development. 19. The objectives of the program are for DPRD representatives to understand and perform their functions of legislation, budgeting, oversight, and representation effectively and without fear or favor. MoHA expects DRPD members to: a. Understand changes to the governance system at the national level due to the constitutional amendment b. Comprehend the impact of changes to the governance system for provincial and district/municipal DPRD c. Recognize the relationship between the head of the region and DPRD in the new governance system d. Acquire technical capacities needed to perform DPRD functions e. Become accountable to citizens and government, be conscious of the pitfalls and pressures to be otherwise, and aware of the consequences of transgressions under the law. 23

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Stapenhurst and Pelizzo state that legislative training can play a crucial role in ethics reform by clarifying misconduct, presenting information on the roots of misconduct, showing that misconduct undermines democracy, raising awareness of the importance of eliminating misconduct, and identifying ways misconduct can be eliminated.

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20. The first four objectives are focused on the knowledge and skills needed to perform DPRD functions and develop a constructive relationship between local government entities. The last objective focuses on values, in addition to knowledge and skills, needed for DPRD members to be effective. This includes the ability to influence their political party factions and willingness to resist pressures to subvert the system. It also refers to capacity and political will to demonstrate upward and downward accountability. 21. Knowledge, skills, and values emphasized in the capacity strengthening program and action learning will be determined based on the local needs assessments of DPRD members and the priorities of the regions the DPRD members represent. The local needs assessment will also include solicitation of information on the political economy pitfalls and pressures DPRD members face and lead to some case illustrations that can be used during capacity strengthening. The local priorities and concerns identified in the local needs assessment will be combined with the national priorities articulated by MoHA including among others better understanding and skills development in local policy development; budgeting; personnel policy; reporting; oversight of the implementation of legislation; local economic development; and relationship between DPRD and third parties. 22. The capacity strengthening workshops and the action learning developed as a follow on to the workshops will take into account the (political economy) constraints DPRD members work within and the successes that can be built upon to promote good governance and sustainable development. The challenges faced by DPRD members and the strategies developed to address political dilemmas documented during this capacity strengthening program could be further developed for use in future training and prevention activities.

Scope of Services and Sub-activities 23. The program includes a series of sequential activities. MoHA will begin by contacting selected DPRD, discussing the program, and determining final participants. MoHA will invite selected DPRD heads to Jakarta for consultations and conduct a “road show� to the various regions. 24. A thorough needs assessment will then be conducted through secondary data review and visits to the local DPRDs (either in conjunction with the road show or separately). The assessment will determine the specific needs of DPRD representatives of participating DPRDs focusing on technical capacity, political issues, and development issues of the region. 25. Using data submitted from the Direktorat Penjabat Negara, KPU, and Sekretariat DPRD (Sekretariat Dewan or Sekwan) the needs assessment will begin with a review of the educational background and professions of participating DPRD members. Ideally, the needs assessment should equal the difference between what the position requires--in terms of knowledge, skills, and values--in order for it to be performed well and what the individual Rick Stapenhurst and Ricardo Pelizzo. Legislative Ethics and Codes of Conduct. World Bank Institute Working Papers: Series on Contemporary Issues in Parliamentary Development, 2004.

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possesses in these terms. Due to time limitations the needs assessment will not incorporate direct observations of DPRD members and independent validations of training and development needs of members from local stakeholders. It will depend largely on a combination of the input from the secondary data on DPRD member backgrounds, advice from the Sekwan (civil servant position that is not elected), and needs expressed directly by DPRD members. 26. Since a large proportion of DPRD members are newly elected there may be a number of knowledge domains that will be necessary for all representatives. In addition, in some of the “value� domains, it may be useful to provide access to these modules for all members. There may be a number of modules that are unique to a particular region and express the short term or mid-term goals of particular DPRD. 27. The next stage consists of curriculum and methodology development involving the modification or development of capacity strengthening modules based on the key knowlege, skills, and values highlighted in the needs assessment. The workshop material will take into account the results of a literature review of existing DPRD strengthening programs. It will also incorporate case studies and simulations on technical areas as well as political challenges expressed by participating DPRD members. 28. Based on previous experience with the GRADE program, MoHA has identified recommended capacity building modules that will help strengthen DRPD capacity in their core functions of legislation, budgeting, oversight, and representation. These modules may be modified for use in the 2009-2011 program (in particular adding case studies and simulations or topical material) or discontinued in favor of different modules deemed urgent. They include: 1. Relationship between the District/Municipal Head and DPRD in the Indonesia governance system, 2. Legislative function of DPRD, 3. Monitoring function of DPRD, 4. Public consultations of DPRD, 5. Strengthening of the DPRD Secretariat, 6. Local development planning, 7. Local government budgeting, 8. Strategies for increasing local revenue, 9. Cooperation between local government and third parties, and 10. Economic development potential. 29. When the modules are completed they will be tested in the regions and modified accordingly. The capacity strengthening provider will conduct workshops for DPRD members either by region or in mixed groups using learning methodology. The capacity strengthening workshops will include interactive learning and practical applications of various skills and competencies. The workshops will include case studies or simulations to illustrate concepts and skills in addition to exploring political constraints and strategies. The capacity strengthening workshops could also include field visits to learn about good practices in progressive DPRDs. 30. Following the workshops, the capacity strengthening provider will work with DPRDs on the development of action learning plans for application of workshop material to actual

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DRPD tasks and duties. The provider will also help determine technical assistance needed to assist DPRD members execute their plans. Action learning will take the form of on-the-job training in areas such as legal drafting, facilitating a public consultation, or preparation for an open budget hearing. Technical assistance will be provided to facilitate special projects or events at the request of DPRD members, and other needs that arise. 31. Independent monitoring and evaluation will then be conducted to determine the extent to which knowledge, skills, and awareness of values were apparent in the post-workshop activities, and that DPRD members were able to accomplish the goals set for the various functions of legislation, budgeting, oversight, and representation. 32. Summary of Sub-activities: a. Roadshow and signing of MOU with DPRDs • Ensure participating DPRDs (provincial and district/municipal) understand the goals, objectives, and expected results of the program • Obtain formal committment from selected DPRD for participation and cofinancing of the program • Set up mechanisms for national-subnational coordination of the program b. Needs assessment • Identify capacity strengthening needs and types of training required focusing on knowledge, skills, and values • Collect information on political pressures and constraints facing DPRD members in fulfilling their functions for case illustations in the capacity strengthening materials and activities c. Development of capacity strengthening modules and materials • Develop modules based on the DPRD functions and capacity strengthening needs identified in the local assessments • Conduct a literature review of existing DPRD strengthening programs and use relevant materials in the module modification/development • Modules should be focused, interactive, and include practical applications (case studies or simulations) • Some modules should address political constraints facing DRPD members and strategies for ethical political negotiation using real case studies collected from DPRD participants during the needs assessment d. Testing of capacity strengthening modules • Pilot test capacity strengthening modules with representative DRPD members and secretariats • Identify areas for improvement in the modules and modify substance or training techniques accordingly e. Capacity strengthening workshops • Include understanding of the legal framework for DPRD and the role of DPRD and local government

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• Develop capacity in technical areas identified during the local needs assessment and key general modules identified by MoHA • Apply knowledge, skills, and values obtained from the workshops in practical applications (case studies, simulations) that address political economy constraints f. Action learning (on-the-job training, technical assistance) • Develop action learning plan • Provide on-the-job training and technical assistance to DPRD members, Sekwan, or committees on specific targets related to key functions • Assist DPRD in achieving tangible results based on issues covered in the capacity strengthening workshops g. Monitoring and evaluation • Assess the level of learning by DPRD members of key knowledge, skills, and values covered in the capacity strengthening workhop • Monitor and evaluate the results of the action learning, on-the-job training, and technical assistance 33. Proposed beneficiaries. The Ministry of Home Affairs has identified the following six provinces as proposed beneficiaries for the DPRD stregthening program based on current MoHA priorities: Maluku, East Nusa Tenggara (NTT), West Kalimantan, Bali, Riau Islands, and South Sumatra. The locations are subject to change based on new developments and committment from prospective DPRDs. The provincial governments will sign MOUs with the Ministry of Home Affairs and the provincial governments will decide which district DPRD should participate in the program (one district/municipality per province) taking into consideration opportunities for previous training, number of new DPRD members, and strategic importance.

Deliverables 34. The service provider(s) will be expected to produce the following deliverables after each major sub-activity is completed as follows: a. Results of needs assessment (report) including the identification of the technical and political needs of DPRD in the six different regions and recommendations for types of modules, field visits, and practical applications needed to develop or modify capacity strengthening modules b. Capacity strengthening modules including the results of a literature review of existing DPRD strengthening materials, technical material that will be covered, the methodology and mode of presentation, and practical applications (such as case study or simulation) for each module c. Capacity strengthening report with the materials from the various capacity strengthening workshops and analysis of capacity strengthening results d. Action learning report of follow-up assistance in the form of action learning needed for DPRD members to put learning into practice including specific types of on-the-job

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training or technical assistance (such as legal drafting, assistance running a press conference, organizing a public consultation, or other DPRD priority) e. Monitoring and evaluation report including documentation of the change in the level of knowledge regarding DPRD functions after the capacity strengthening workshops (possible pre and post test) and results of the action learning and technical assistance to various DPRD (illustration of applied learning and analysis of concrete tasks/duties successfully accomplished) 35. The service provider will provide quarterly progress reports to the Ministry of Home Affairs and DSF with information regarding implementation of the various sub-activities and financial status of the program.

Sustainability 36. This capacity strengthening program for DPRD will be implemented by local organizations, most likely universities/research institutes, in cooperation with capacity building/training specialists. It will provide local governments with access to capacity strengthening providers and experience with a range of capacity strengthening topics. 37. The program includes co-financing from participating DRPDs as a requirement for participation. DPRD members pay for their own travel expenses and per diems. MoHA (with DSF support) pays for the capacity strengthening workshop costs, accommodation, and associated costs of action learning coaching, on-the-job training, and technical assistance. DPRDs have budgets allocated for capacity strengthening thus DPRD members will be able to commission similar workshops and action learning assistance in the future. 38. This program provides DPRDs with exposure to service providers (both local and national). Through participation in the various stages of the program (needs assistment, curriculum development and piloting, workshops, action learning and on-the-job training) DPRDs will gain an understanding of how to develop capacity strengthening programs and work with service providers to meet capacity strengthening needs. Once the program is completed DPRDs can commission future capacity strengthening services on their own and tap into the local service provider network.24 39. Given the anticipated response of DPRD councils and the approach of the capacity strengthening workshops and action learning, especially the proposed case applications of political strategy and negotiations for results, the DPRD strengthening program could be scaled up to other regions through coordination of the Ministry of Home Affairs or in cooperation with the DPRD local government associations. Since the program will be 24

A recent report on consultant services in Indonesia recommends that donors should “help local governments translate general development priorities into specified capacity needs, to assist new and existing consultant services to improve technical offers and marketing capabilities, and then to enhance the capacity of both to effectively manage the service contracting process.� Local Governance in Indonesia: Developing a Market for Consultant Services. LGSP-USAID. March 2009, pp.20-21. The MoHA program seeks to encourage this type of partnership between local government and Indonesian service providers.

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executed through budget support (through the Indonesian national budget or APBN), MoHA will have direct experience in managing the program and could allocate its own resources in the future. However, the program should maintain a tailor-made, demand side approach and allow DPRDs to contract services on their own or as part of a larger MoHA subsidized program.

Gender 40. Capacity strengthening for DPRD addresses a number of gender issues including gender analysis of public service and other development outcomes, gender budgeting, and women’s participation in politics. In addition, DPRD consultations with women and men constituents requires appropriate approaches (accessing women’s activist organizations, consulting with constituents in mixed gender and separate groups). Oversight of government programs should explore the different impacts on men and women (for example health allocations for women’s and men’s health services, women’s and men’s benefits from village infrastructure). 41. The modules of the capacity strengthening program for DPRD will include a gender perspective in all major topics addressed including legislation, budgeting, oversight, and representation. In addition, a special module on women’s participation in local politics and women’s leadership can be added to the general curriculum based on the local needs assessment. The capacity strengthening program for DPRD set targets of 30% or more women participants, but the achievement of this outcome depends on the outcome of the elections and the extent to which the 30% representation quota is met.

Program Management, Execution, and Implementation 42. The role of the Government of Indonesia/MoHA Local Government Affairs in the capacity strengthening program for DPRD is as sponsor/owner of the program with responsibilties for steering; procurement and contracting of service provider; monitoring of program implementation; and oversight. The DSF Executive will be responsible for program monitoring and quality assurance. MoHA and the DSF Executive will be jointly responsible for submitting program documents to the DSF Management Committee. The Service Provider(s) is responsible for implementing the program according to the Terms of Reference, allocated budget, and contract requirements. The Service Provider(s) must submit reports/deliverables to MoHA and DSF according to schedule for review. See table below for a summary of roles and responsibilties. MoHA Local Government Affairs: sponsor/owner of program; responsible for steering, procurement and contracting of service provider, management of program implementation, program monitoring and oversight, and submission of reports to DSF MC DSF Executive: responsible for program monitoring and quality assurance, and along with MoHA, submission of reports to DSF MC

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Service Provider: responsible for implementing the program according to the TOR, budget, and contract requirements, and submission of reports/deliverables to MoHA and DSF for review 43. This program will be implemented using the On-Budget, On-Treasury or Government Executed mechanism also known in World Bank terms as Recipient Executed. The allocated funds for the program will be transferred to GOI through a Grant Agreement. The management of funds must follow GOI regulations. MoHA will adhere to World Bank procedures for Recipient Executed programs and obtain No Objection Letters (NOL) as required.

Implementing Agency 44. The implementing agency(s) or service provider(s) will be selected using the GOI procurement systems (Kepres 80/2003) and in compliance with World Bank regulations. Due to the complexity of the program a consortium of universities/research institutes at the national and local level, in cooperation with capacity building specialists in all aspects of the program, is recommended. In particular, national research institutes would be responsible for the capacity strengthening workshops while local research institutes would assist with action learning and provision of technical assistance in the regions, both in cooperation with capacity building specialists. Thus, a combination of experts/scholars and training and development practioners is needed for the key personnel. In addition, capable administrative and financial personnel and a program manager with well developed reporting and communication skills is crucial. 45. The implementing agency(s) or service provider(s) should have the following qualifications: a. In-depth knowledge of the roles and functions of DPRD and local governance b. Extensive experience in all aspects of training and development c. Ability to design workshops with interactive participation and practical applications of DPRD functions d. Ability to design field visits of DPRD members to areas with successful public service provision e. Demonstrated management capacity to handle administrative and financial requirements of the contract f. Able to coordinate intensively with the Ministry of Home Affairs on all phases and activities in the program g. Ability to design monitoring and evaluation activities and faciliate action learning/technical assistance to DPRD as follow up to capacity strengthening workshops h. Excellent relationship and network with local governments in particular with DPRD and Sekwan

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i. Willingness to be flexible and respond to changes in the program based on results of needs assessment and demands from central or local government 46. The implementing agency should include two key personnel: 1) training and development/capacity building specialist and 2) parliamentery expert/DPRD strengthening specialist. Other suggested personnel include specialized facilitators for capacity strengthening workshops, resource persons on technical subjects, action learning coaches and technical assistance providers, and administration/finance personnel.

Procurement and Implementation Schedule 47. The procurement and implementation schedule will follow the GOI calendar and procedures according to Recipient Executed activities. The estimated schedule is as follows (and is subject to change)**: • June 2009: Activity Concept Note finalization and DSF Management Committee approval • July-August 2009: World Bank financial management, procurement, and disbursement orientation for MoHA technical, procurement, and planning units; World Bank financial management and procurement assessment at MoHA; preparation and verification of GOI documents for on-budget, on-treasury submission including Terms of Reference and GOI budget documents (Rancangan Anggaran Besar or RAB); Preparation of Grant Agreement • September-October 2009: Signature of Grant Agreement, submission of program documents to AKLN, Sekjen MoHA, and Ministry of Finance for approval and Registration Number • November 2009-January 2010: Bidding Process (Tender Advertised in Media Indonesia) • February 2010: Roadshow and socialization of DPRD program and signing of MOU between MoHA and participating DPRDs; Needs assessment • March-May 2010: Modification and development of modules; testing and final revision of modules • June 2010-June 2011: Capacity strengthening workshops for 6 Provincial and Kabupaten/Kota DPRDs accompanied by Action Learning, On-the-Job Training, and Technical Assistance • July-August 2011: Independent Monitoring and Evaluation • September 2011: Final Report **MoHA recently changed the execution mechanism for this activity from Bank Executed to Recipient Executed (GOI). Due to possible implementation delays for Recipient-Executed activities, the World Bank financial management, procurement, and disbursement teams will discuss the feasibility of the above schedule with MoHA procurement, planning, and technical teams to determine whether it can be completed in the time-frame of the DSF extension. If problems arise, the execution mechanism will be adjusted accordingly.

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DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 2/2009 Summary: As part of the Government’s strategy to reduce regional disparities, this activity is designed to lead to better-informed and better-managed policy making for regional development. This is to be achieved by assessing the suitability, availability, and validity of relevant data; analyzing policy making processes; and determining how best to develop more effective policies for regional development. A core component of the project will be to develop Bappenas capacity and to achieve crossministerial consensus on new approaches.

Activity Title Capacity Building for Regional Development Policy Formulation

Counterpart agency and key government contacts • The counterpart agency and main beneficiary of this activity is Bappenas, Directorate for Regional Development. • The main government contact is Ir. Arifin Rudiyanto, MSc., PhD, Director of Regional Development, Bappenas.

Duration June 2009 – December 2010

Background and Rationale 1. This Activity Concept Note envisages that activities for the project ‘Capacity Building for Regional Development Policy Formulation’ will take place over two phases over a period of 18 months. A budget of US$150,000 has been approved by the DSF MC (Management Committee) and this will be utilized for Phase 1 (6 months). Phase I covers a review of regional development policy to date, an assessment of development data and an assessment of policy making processes. Input will be provided for the upcoming RPJM. Upon completion of Phase 1, and contingent upon a satisfactory review from the DSF MC, further approval will be sought for Part 2 (12 months). This will build upon the foundations laid in Part 1 by providing capacity building training for national level government staff and formulating regionally specific development strategies. This Activity Concept Note describes all activities (Part 1 and Part II) but only Part 1 will be procured with the approved budget. 2. Indonesia faces huge challenges of development management in its regions. With development indicators across regions and over time showing considerable variation. For example, regional gross domestic product data shows that disparity of per capita provincial

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income is relatively large. 1 Resosudarmo and Vidyattama (2006) show that despite some convergence in per capita regional GDP between the poorest and richest provinces in the period 1993 to 2002 severe disparities persisted. 3. The table below shows per capita regional GDP in each region (the provincial average is given in each region). Per capita regional GDP includes mining, which affects Papua and Kalimantan more than other provinces. Without including the mining sector in 2002 per capita regional GDP in Papua is US$491 and Kalimantan is US$1214 (1983 prices). Of note is the very low per capita regional GDP in Nusa Tenggara, Maluku and Sulawesi and the comparatively high per capita rates in Sumatra, Java-Bali and Kalimantan. Inter-provincial differences in GDP per capita (not shown) can also be very high. Table 1: Per capita regional GDP, 1971-2002 Per capita regional GDP Region

(provincial average in each region, USD, 1983 prices) 1971

1983

1996

2002

Sumatra

453

823

1083

905

Java-Bali

262

455

984

956

Kalimantan

351

1045

1428

1599

Sulawesi

167

279

529

583

Papua

231

672

1060

1160

Nusa Tenggara

116

175

328

415

Maluku

249

312

575

460

Source: Resosudarmo and Vidyattama (2006)

4. Growth rates have varied considerably between the regions even over the past few years as indicated below. Except for 2005, west Indonesia has consistently grown faster than east Indonesia from a much higher base. Table 2: Regional GDP growth rates, 2004-2007 Region 2004 Sumatra 2.93 Java & Bali 5.38 Kalimantan 3.01 Sulawesi 5.69 Nusa Tenggara, Maluku & Papua (5.26) West Indonesia 4.72 East Indonesia 2.00 National 4.25

2005 3.57 5.74 3.92 6.26 13.97 5.16 6.43 5.37

Source: Badan Pusat Statistik (2009)

1

2

Resosudarmo and Vidyattama, 2006, ASEAN Economic Bulletin 23.1 (2006) 31-44.

2006 5.26 5.77 3.80 6.93 (4.06) 5.64 3.02 5.19

2007 4.96 6.17 3.14 6.88 5.04 5.85 4.50 5.63


ACTIVITY CONCEPT NOTES # 2 | ARRISING FROM THE DSF WORK PLAN 2009-2011

5. Inter-regional disparities are not only demonstrated through divergence in economic indicators but also by variations in standards of service delivery. For education, enrollment rates vary widely and regional differences remain more pronounced than differences in income levels 2 . While junior high school enrollment rates vary widely between provinces, variations are even bigger differences within provinces. Graph 1 shows provincial enrollment rates (district and city averages) plus highest and lowest enrollment rates within provinces. The data clearly shows variance between provinces and an even wider variance within provinces. Graph 1: Net Enrollment Rates in Junior Secondary School by Province 100 90 80 70 60 50 40 30 20 10

N u Iri a P sa n J ap T e aya ua ng B ga ar a ra t Ti Ka G mu li m or o r an nta l t Su an o Ba la Ba w es r at i Ka ngk Ba l im a B r at an el i t t Su an ung la Se lat Ka we an li m si an Te n Su tan gah T la we eng si a Se h la ta n M Ba Su alu n te ku n m at er Uta r a Se a la Su ta la we J a n m si Su T en b i gg m at ar Su er a a B la we ar a t si Ut La ar a m Ja p un w a g Ba ra t B a Ka l im M l i an al u ku ta n Ti m ur Ja R ia w a Te u ng ah B K Nu ep eng sa ul a ku u Te a lu ng n R ga ia ra u J a Ba ra w t a DK Ti m I J ur DI ak Na a Y ng S og r ta gr oe um yak a Ac te ar ta eh ra D a Uta r ru ss a ala m

0

Source: World Bank estimates based on 2007 Susenas data

6. For health, outcomes vary widely across Indonesia. The graph below illustrates the wide divergence across provinces (data not available for all provinces) in two key health indicators – infant and child mortality. The y-axis shows deaths per thousand births.

2

Investing in Indonesia’s Education (2007), World Bank Group.

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Graph 2: Infant and child mortality rates

Source: Investing in Indonesia Health (2008), World Bank. Data from 2002/3

7. The government of Indonesia has undertaken many efforts to address shortfalls in basic service provision and a major current initiative concerns the issuance of nationwide minimum service standards as regulated by Government Regulation No. 65/2005. Minimum service standards are to be issued to cover each of the obligatory functions of local governments and additional financing provided through the Dana Alokasi Khusus mechanism to achieve these standards. The DSF will provide support for both of these government initiatives which have implications for the regional development policy3. As minimum service standards are implemented it will be important to assess the extent to which disparities in public service delivery are reduced. 8. Inter-regional development disparities are of great concern to the Government of Indonesia (GoI) – for reasons of equity but also for reasons of national sovereignty. GoI is keenly aware that feelings among ordinary citizens of social and economic exclusion are crucial to such calculations. 9. Like many developing countries, Indonesia has experienced a tumultuous development path over the last few decades. The early years of 1960s saw the economy slip into crisis with spiraling inflation, followed by a period of relative stability. The exploitation of oil and gas reserves coincided with the spike in the world price of oil leading to huge government revenues which were used in part to finance a far reaching development program that had tangible benefits for most Indonesians all over the archipelago. Whilst never attaining the giddy growth highs of the so-called tiger economies, growth was steadily aided by huge inflows of foreign investment and supported by an authoritarian political system. External shocks and inflationary pressures at times undermined continued growth but it was not until

3

4

See: DSF Concept Note on Institutional Building for Improved Public Service Delivery.


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the onset of the Asian crisis in 1997 that swift reversals in economic development were experienced which wiped out years of development gains in the space of a few months. 10. The onset of decentralization in 2001 through the implementation of Law 22/1999 saw the devolution of a wide range of responsibilities to local governments. By 2001 recovery was well under way and in 2004 the decentralization agenda was entrenched through a major revision of the decentralization law. Substantial fiscal resources are now controlled by regional governments, especially at the district and city level of government. 30% of total state expenditure was transferred to the regions in 2008 although regional expenditure as a percentage of total national expenditure is even higher as regional revenues are supplemented by locally generated revenue. Total government spending has risen substantially in real terms since 2001. 11. This fiscal transfer has been accompanied by political decentralization whereby district and city heads of governments are elected directly. 12. Predictably perhaps, the results of decentralization to date have been mixed and many local governments have not yet been able to realize the better development outcomes that should be associated with increased fiscal resources and greater local autonomy over expenditure decisions. Significant inter-regional disparities remain. Data on intra-regional disparities in Indonesia are not widely available, but comparative experience from other countries shows that such differences can be exacerbated by decentralization, usually through partial distribution (capture) of services and resources by local elites (Manor, 19994). Questions of intra-regional disparity in Indonesia may prove to be of increasing socio-economic and political significance in the future. 13. Regional disparity represents an ever present challenge in most countries. Comparative evidence shows that the challenges are most pronounced in large developing countries that are unitary states. (Shankar and Shah, 2001)5. Shankar and Shah conclude that in such states regional development policies have not resulted in convergence in regional incomes. Rather, income disparities have continued to grow. They note that federal states have been, perhaps paradoxically, more successful at equalizing economic difference between regions despite their more limited policy options. 14. Development has long been focused on Java-Sumatra-Bali. Kalimantan, in particular, seems to be benefiting from a new wave of economic expansion in Indonesia. Despite the GoI’s efforts to spread development across the country, particularly through the use of the central transfers from the balancing fund development, development continues to proceed at an uneven rate. Resource-poor regions have suffered in particular as they are excluded

4

Manor, J. 1999, The Political Economy of Democratic Decentralization. Washington, DC: World Bank Shankar and Shah, 2001. Bridging the economic divide within nations: A scorecard on the performance of regional development policies in reducing regional income disparities, Washington, DC: World Bank. 5

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from natural resource revenue sharing transfers. Development has also been poor in some regions in eastern Indonesia and in sparsely populated regions (e.g. Maluku and Papua). 15. The World Development Report 20096 has far reaching implications for regional development policy. The main message is that economic growth will be unbalanced (within and between countries) but that development can still be inclusive. The report proposes that spatial transformations will be necessary to achieve this in terms of population density, reduced distances between workers and economic opportunities and reduced economic divisions. The report has a number of implications for Indonesia’s approach to regional policy which will need to be considered within a framework of policy formulation. 16. Given the complex pattern of development across Indonesia in recent decades, the successes and failures of development policy and the ever present issue of regional disparity now is the time to take stock and to reexamine the policy environment surrounding regional development from fresh perspectives. The implementation of decentralization remains the key development issue facing Indonesia. Significant authority has been devolved to local governments but many local governments have limited capacity to execute these new functions effectively. While local governments are now key actors in regional development policy there remains lack of clarity in divisions of authority between levels of government on regional development policy issues. Although this project focus on national policy for regional development the impact, realized and potential, of local governments on regional development policy needs to be bourn in mind. Since the onset of decentralization new challenges have emerged, such as environmental pressures for sustainable development, the commonly stated desire for wider stakeholder participation in development and the impact of globalization on regions. Economic, social and political pressures will continue to evolve requiring sustained and appropriate policy responses to meet these challenges. 17. The activities described in this note are designed to illuminate and improve development policy leading to the reduction of inter-regional disparities in Indonesia. It will do this by: a. Assessing the empirical bases of policy making: what data are currently available? What is the quality of such data, in terms of validity and recency? What gaps exist? b. Examining the extent to which such empirical data inform the policy making process. c. Analyzing the ways in which regional development policies are made and applied and considering how such policy making may be improved. d. Devising a program of professional development for key Bappenas staff to better enable them to initiate and develop policy reformulations for regional development. e. Consulting with stakeholders from each of the 7 regions to elicit substantive regional input. f. Formulating regionally nuanced development policies.

6

6

World Development Report 2009, Washington DC: World Bank.


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18. Bappenas has provided a geographic framework within which to assess regional planning and, based on that, to develop new concepts and approaches. Within this framework the country is divided into seven major islands/island groups: Sumatra; Java-Bali; Kalimantan; Sulawesi; Nusa Tenggara; Maluku; and Papua. 19. The Government’s long term and medium term development plans detail the targets and approaches to be used. A central feature of the Government’s Long-Term National Development Plan 2005-2025 is ‘realizing development that is more equitable and just’. GoI is currently preparing the next Medium-Term Development Plan (RPJMN7) for 2010-2014. Bappenas is drafting three major documents for the RPJMN 2010-2014. This activity will, among other deliverables, provide input for the third document paper (Pembangunan Berdimensi Wilayah - Development with a Regional Dimension) which will provide a regional perspective on development planning. The first document in the series concerns the macro framework for planning and the second concerns sectoral planning. 20. Development plans, at both national and regional levels, are elaborated into and synchronized with spatial planning, in terms of substances as well as timeframes. Spatial plans are used as a reference to the spatial implications of sectoral and cross-sectoral. The DSF will shortly begin implementation of a project on the integration of development and spatial plans at national and regional levels 8 and reference should be made to this.

21. Although this project represents a modest investment the prospects for leveraging an eventual significant redirection in regional development policy are very strong. This can be achieved by working closely with Bappenas staff, investing in developing staff capacity and developing the necessary consensus within government to affect policy change.

Goal and Objectives 22. The goal of this project is to contribute to a significant reduction in inter-regional disparities through better-informed and better-managed policy making for regional development. 23. The purpose is to build within Bappenas sustainable institutional capability to: (1) assess the empirical basis of existing Indonesian policy on regional development and the policy making process and make recommendations for improvements; (2) disseminate the results and begin to develop a cross-ministerial consensus on new policy approaches and the policy making process; and (3) propose policy recommendations and new approaches to regional development planning that are more appropriate and effective.

7 8

Rencana Pembangunan Jangka Menengah Nasional (5-year national development plan) See: Concept Note: Institutional building for the integration of national-regional development and spatial planning

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24. The objectives are to: a. Provide a brief historical overview of regional development since 1967 (from the first New Order 5 year development plan). A particular focus will be on the transition period from the late 1990s and government initiatives to promote regional development. b. Identify currently available data, data gaps and provide an assessment of available data and how data are used for policy making on regional development. c. Provide an assessment of government regional development policy and policy making processes. d. Disseminate policy review results. e. Develop the in-house capacity of Bappenas to assess and improve regional development policy by improving the skills of key Bappenas staff. f. Assess regional development policy, issues and priorities in the 7 regions and develop a strategy paper for each region and provide a thorough detailing of the policy implications.

Scope of Services 25. The scope of services outlined below encompasses all activities to be completed within a time frame of 18 months. The first part of this project will be conducted in a time frame of 6 months within a budget of US$150,000, as approved by the DSF MC. Upon successful completion, the DSF will seek continued MC endorsement to complete the remaining activities over the course of an additional 12 months. Part 1: a. Write a paper on “Regional development in Indonesia: A review of experiences and achievements�. Bappenas has requested a major stock-taking of regional development planning in Indonesia over the course of the last four decades. This will be used as input for the national RPJM 2010-2014. The consultants will need to work very closely with Bappenas to ensure that priorities are set and that deadlines for submission of input for the next RPJMN can be met. This will mean that the consultants will be required to focus on providing input by September 2009. Work will continue after this deadline and it is expected that further coordination with Bappenas will yield additional input by December 2009 whereupon the RPJM is to be signed by the President. This paper will begin with a literature review. This review will encompass national and international sources, as deemed appropriate. Given the wide scope of the review and the limited time frame it is essential that the consultants present a succinct review of the relevant literature. The literature review will focus on regional development policies and approaches. b. This project aims to affect policy change. To achieve this it is necessary to assess how regional development policy is made and a key part of this is to be provided by conducting an evaluation of available data. The Consultant will conduct an evaluation of national level data and also data specific to the regions. It is probable that the

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focus will be on the seven island regions, as identified by Bappenas, but the Consultant is expected to consider the rationality of this geographic division. This data assessment will include an identification of what data, including maps, are available, data accuracy, what is missing, how it is collected, where it is stored and how (or whether) it is used to inform development policy. c. To effect policy change it is necessary to establish how best to intervene in these complex policy making processes. Therefore, the consultant will be expected to develop and execute a well-thought out strategy for conducting an assessment of policy-making processes which will lead to an assessment of how policy is created, how it is implemented, and recommendations for improvements. d. Assessment of current regional development policy. This will be needed at both the national level and also how it has impacted on the seven regions. e. Conduct a skills needs assessment within Bappenas. This will involve an identification of Bappenas staff who perform key functions related to regional development policy and also an identification of which functions are to be targeted by a capacity building intervention that will best lead to enhanced institutional performance. The consultant will also be expected to draft a strategy for a program of capacity building to be executed in Part 2. f. Consult widely within national government and involve other stakeholders as necessary. g. Consult with stakeholders from the 7 regions to elicit input on regional development policy to date and initial input for the formulation of future regional development policy. Part 2: h. A major part of this work is to shape and redirect policy; therefore significant resources need to be focused on not only disseminating the results of the study but also to elicit input and create a sense of cross-ministerial buy-in. Clearly, high level government endorsement will be required and it is hoped that the coming RPJM, as approved by the incoming president, will lay out the foundations for a redirection of policy on regional development. i. Consult widely with local government representatives, regional experts (including from universities) and private sector representatives. This will continue throughout the course of the project and will need to be conducted in the regions as necessary. j. Conduct a training program for Bappenas staff working in the field of development policy for regions. This is to develop in-house capacity within Bappenas to conduct future assessments and reformulations of regional development policy. k. Develop a specific strategy for each of the seven island regions (or as geographically appropriate) based on their major characteristics and development issues. It is expected that the consultant will take an ambitious approach and seek to determine development strategy, policy and approaches that are suitable for the seven identified regions. This is a complex task which will be informed by the preceding

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work. This work is expected to offer an actionable way forward for regional development to be further elaborated by the respective regions themselves.

Deliverables 26. This covers deliverables over the course of 18 months. Part 1 covers the first 6 months with the approved budget of US$150,000. Part 1 (July-December 2009) Inception report detailing strategy for Part 1 of the project and progress to date.

Time Within two months of project inception

Review paper, including literature review

Within three months

Policy Paper for Bappenas. This paper will provide input for the RPJM 2010-2014. Assessment of policy data Assessment of policy making processes and current regional development policy Training needs assessment and strategy for Bappenas staff training program Paper on input from national and regional stakeholders Part 2 (January-December 2010) Inception report detailing strategy for Part 1 of the project and progress to date. Report on training program for national level government officials Strategy papers for each of the 7 regions.

Within 3 months

Final report

Within 4 months Within 6 months Within 6 months Within 6 months Time Within 14 months Within 16 months Draft within 12 months, final within 16 months 18 months

Sustainability 27. The Consultant will be expected to work in a manner conducive to ensuring sustainability, that is, in a way that ensures that the capabilities required to carry out the work are institutionalized with Bappenas. This will be done through formal education and development, but should also be a central feature of the analytical and consultancy work that is done, perhaps using action learning or a ‘buddy’ system as a means of achieving this. The prospects for sustainability and institutionalization will clearly be increased by the extent to which that work is done in line with local conditions and aspirations; is actionable; and fits within the national development agenda.

Gender 28. It is reasonable to suppose that the effects on women of regional development disparities in Indonesia are different from and probably more severely felt than those

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ACTIVITY CONCEPT NOTES # 2 | ARRISING FROM THE DSF WORK PLAN 2009-2011

experienced by men. Therefore, it is incumbent on implementing agents (firms and individuals) to consider carefully the gender ramifications of all activities undertaken in this project. It is expected that issues surrounding gender will be given prominence within the deliverables and that recommendations for future actions will contain a clear gender component. Due consideration should also be given to the gender implications of regional development policy, in order that better development outcomes for women may be realized.

Program Management, Execution and Implementation 29. The role of the Government of Indonesia/Bappenas Capacity Building for Regional Development Policy Formulation is as sponsor/owner of the program with responsibilties for steering, monitoring of program implementation, coordination with the consultants and submission of program documents to the DSF MC. The DSF Executive will be responsible for hiring individual consultants to perform the work commisioner by Bappenas, facilitation of program implementation, and assistance with program monitoring, quality assurance, and along with Bappenas submission of program documents to the DSF MC. The consultants are responsible for implementing the program according to the Terms of Reference; coordinating with Bappenas on a regular basis and submitting reports/deliverables to Bappenas and DSF according to schedule for review. See table below for a summary of roles and responsibilties. Directorate for Regional Development: sponsor/owner of program; responsible for steering, monitoring of program implementation, coordination with consultants and submission of program documents to DSF MC. DSF Executive: responsible for contracting consultants; facilitation of program implementation, assistance with program monitoring and quality assurance, and along with Bappenas, submission of program reports to DSF MC. Consultants: implementation of the program according to the Terms of Reference, coordination with Bappenas on a regular basis and submission of reports/deliverables to Bappenas and DSF for review. 30. Based on the decision of the Bappenas Directorate for Regional Development the activity ‘Capacity Building for Regional Development Policy Formulation’ will be “Bank executed” (responsiblity of the World Bank) through the constracing of short-term consultants. Under this mechanism, the DSF Executive is responsible for ensuring that procurement follows World Bank procedures 9 and that the results of the program meet the specified standards. 31. A small team will be formed with representatives from Bappenas and representatives from the DSF Executive to select qualified consultants. The DSF Excecutive will be

9

Procurement in Bank Executed programs will follow the Guidelines: Selection and Employment of Consultants by World Bank, Revised October 2006 using the World Bank e-procurement system.

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responsible for issuing consultants contracts. During program implementation Bappenas’ Directorate for Regional Development and the DSF Executive will evaluate the reports submitted by the consultants and monitor activities as appropriate. 32. Our policy is to employ the best qualified and experienced individuals and firms to implement the projects we finance; to provide them with clear objectives and guidelines concerning the work that needs to be done; and to be available to help wherever it is requested. The effectiveness of this policy therefore rests heavily on how well the selection of individuals and firms is done and on the quality of the documentation and briefings concerning what is required of consultants. 33. It is crucial to the success of this project that communication from the consultants directed both to DSF and to identified government counterpart, in this instance Bappenas. All DSF activities are derived from direction given by our management structure which comprises members from three government ministries and donor representatives. Activity proposals are developed closely with government counterparts and the government is not just the endorser of the project but also the main beneficiary. Therefore, close cooperation is essential with government counterparts throughout the life of the project. 34. The DSF Executive will gauge project progress on the basis of the periodic reports that it receives from consultants. It will monitor the achievement of agreed activity milestones and project objectives. DSF provides a quarterly report to its partners (GoI and donors). 35. Mode of execution. This activity will be World Bank executed (on-budget, off-treasury). 36. It is proposed to proceed with Part 1 of this project using individually hired consultants. This has several advantages: work can commence expeditiously without a potentially protracted procurement process (thus enabling RPJM deadlines to be met); the type of work in Part 1 lends itself to very well qualified consultants and doesn’t require institutional support; and given the limited budget of $150,000 we can get better value by hiring individual consultants and avoiding institutional overhead costs. It is likely to require several consultants under a team leader. It is proposed to hire a team leader first to start work quickly and to identify suitable consultants in consultation with him/her. 37. Procurement options for Part 2 will be assessed later. An initial assessment is that an institutional setting is advisable given the scope of services and larger budget implied. Given the range of services to be delivered in Part 2 it is possible that some institutions will submit joint bids. 38. Consultants’ qualifications. The lead consultant will have the following qualifications: a. A PhD in a relevant subject preferably related to development planning. b. Over ten year’s work experience specifically in regional development issues in Indonesia. c. A well-regarded academic in his/her field with a substantial body of published work.

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d. An excellent grasp of current and historical regional development issues, preferably with papers published in this field. e. Excellent analytical writing skills with a demonstrated ability to write concisely about a complex topic. f. Substantial experience of leading small working teams and a demonstrated ability of working successfully with a range of stakeholders and an ability to bring together stakeholders to a shared platform. g. Ideally, a strong record of working with regional government representatives. 39. Additional key personnel (for Part 1). a. Regional economics development specialist: Demonstrates an in-depth understanding of regional economics, particularly the island based regional economic development model. Eligible candidates must have relevant academic qualifications especially related to economics development (at least M.A). Has over 5 years work experience (government, non-government, policy research) in regional economic issues in Indonesia. Ideally, has a strong record of working with regional government representatives. b. Decentralization/regional development specialist: Demonstrates an in-depth understanding of regional issues and a demonstrated ability to assess regional development opportunities. Has knowledge of maritime based economic issues a clear advantage. Eligible candidates must have relevant academic qualifications especially related to planning/ development study (at least M.A). Has over 5 years work experience (government, non-government, policy research) in regional development issues in Indonesia. Ideally, a strong record of working with regional government representatives. c. Capacity building specialist: Demonstrates an expertise in conducting capacity building needs’ assessments. Has substantial experience in designing and managing capacity building programs for government staff. 40. Additional anticipated staffing needs (for Part 2) a. Sociologist: Demonstrates an in-depth understanding of islands in Indonesia including: societies’ behavior and cultures of each island in order to explore the human capital opportunities and threat to island development. Eligible candidates must have relevant academic qualifications especially related to regional sociology (at least M.A). Has over 5 years work experience (government, non-government, policy research) in regional sociology issues in Indonesia. Ideally, has a strong record of working with regional government representatives. b. Environmental specialist. Demonstrates an in-depth understanding of regional issues specifically related to the island context Indonesia. Eligible candidates must have relevant academic qualifications especially related to environment (at least M.A). Over 5 years work experience (government, non-government, policy research) in regional environment issues in Indonesia. Ideally, a strong record of working with regional government representatives.

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c. Specialist on international/regional (Southeast Asia context) economics. Demonstrated expertise in being able to understand and develop strategies for the regional development in an international context. Eligible candidates must have relevant academic qualifications especially related to international economics (at least M.A, preference PhD). Over 10 years relevant experience and for international candidates at least 5 years in Indonesia. Ideally, a strong record of working with both national and regional government representatives. d. Local experts (seven): Regional specialists from the local government and academic institutions who have an in-depth understanding of the regional development issues in their own region. One for each region: Sumatera, Sulawesi, Kalimantan, Java-Bali, Nusa Tenggara, Maluku, Papua.

Procurement and Implementation Schedule 41. Procurement and Implementation schedule for this project : • June 2009: MC approval of Activity Concept Note. Preparation of Expressions of Interest. Posting on World Bank E-Consult system and in national media. Evaluation by DSF/Bappenas. Contracting of Team Leader. Identification of support consultants and contracting. • July 2009: Beginning of project. Identify stakeholders, conduct consultations, and begin review paper. Begin assessment of regional development data, policy processes and current policy. • August 2009: Submit draft review. • September 2009: Presentation of Inception Report, including final Review paper and submission of draft paper for RPJM input deadline (30 September). • October 2009: Drafting of paper on assessment of data, policy processes and policy. • November 2009: Submission of draft paper on assessment of data, policy processes and policy. Review of draft RPJM, as requested. • December 2009: Submission of final paper on assessment of data, policy processes and policy. Presentation of Part 1 to Bappenas, ministries and regional government representatives. Dissemination and consultation. • January 2010: Finalization of procurement for Part 2. • February 2010: Consultations. • March 2010: Development of regional strategies. Capacity building for Bappenas staff. • April - July 2010: Development of regional strategies. Capacity building. • August 2010: Submission of draft report of regional development strategies. • September 2010: Finalization of 7 strategies. Submission of draft report on training program. • October 2010: Submission of report on regional strategies. National workshop. Submission of final report on training program. • November 2010: Follow up and revisions. • Dec ember 2010: End of project, final report.

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DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 3/2009 Summary: This activity is designed to improve the execution of monitoring and evaluation for Special Allocation Funds (DAK) utilization, and thereby lead to a better utilization of such funds. The activity does this by conducting pilot implementation of and improving the DAK monitoring and evaluation system. Proper implementation of the monitoring and evaluation scheme will provide sufficient feedback on the effectiveness of current DAK policies and will lead to improved policy concerning all aspects of DAK management.

Activity Title Pilot Implementation and Improvement of Monitoring and Evaluation System of the Utilization of Special Allocation Funds (Dana Alokasi Khusus/ DAK)

Counterpart Agency and Key Government Contacts • The main beneficiaries for this activity are State Ministry of National Development Planning/National Development Planning Agency (Badan Perencanaan dan Pembangunan Nasional/ Bappenas), Ministry of Finance (MoF), Ministry of Home Affairs (MoHA) and relevant technical ministries/agencies and, to a lesser degree, sub-national governments (SNGs). • Contact persons for this activity are: a. Drs. Wariki Sutikno, MCP, Head of the Sub Directorate for Regional Financial Capacity Development, Directorate for Regional Autonomy, Bappenas; and b. Agus Manshur, SE. MA, Junior Planning Staff and Head of the DAK Coordination, Planning, Monitoring and Evaluation Team (Tim Koordinasi Penyusunan Kebijakan, Perencanaan, Pemantauan, dan Evaluasi DAK/ TKP2E-DAK) Secretariat, Bappenas.

Duration January - December 2010

Background and Rationale 1. Special Allocation Funds (DAK). Following the decentralization of 2001, central government plays an important role in intergovernmental transfers in Indonesia. Transfers from the central government are the main financial source for sub-national governments (SNGs). The intergovernmental fiscal transfer consists of Shared Revenue Fund or Dana Bagi Hasil (DBH), General Allocation Fund or Dana Alokasi Umum (DAU), and Special Allocation Fund or Dana Alokasi Khusus (DAK). 2. DAK is a grant from the national budget (Anggaran Pendapatan dan Belanja Negara/ APBN) allocated to particular SNGs for the purpose of financing specified activities that are aligned to national priorities and conducted under the jurisdiction of SNGs. There are 3

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types of criteria that SNGs need to satisfy in order to receive DAK, namely: general, specific, and technical criteria. 3. The DAK has been growing very rapidly, increasing from IDR 2.2 to 24.8 billion between 2003 and 2009, and accounting for 0.7 percent to 2.4 percent of the national budget (APBN). In 2009, there are 13 sectors eligible for DAK allocation (see Table 1). Eligible recipient regions are required to provide a 10 percent matching fund (dana pendamping) for each DAK sector. Exceptions to this rule are allowed for regions with low fiscal capacity. In 2009, the Government of Indonesia (GoI) is directing DAK general policy to support regions with low fiscal capacity, in order to provide physical infrastructure for basic public service delivery. 1

Sector Education Health Road Infrastructure Irrigation Infrastructure Drinking Water and Sanitation Governance Infrastructure

Table 1: DAK allocations, 2001-2009 (in billion rupiah) 2003 2004 2005 2006 2007 625 653 1,221 2,920 5,195 375 456 620 2,407 3,381 843 839 945 2,576 3,113

2008 7,015 3,817 4,045

2009 9,335 4,017 4,501

339

357

385 204

628 608

859 1,062

1,497 1,142

1,549 1,142

88

228

148

449

539

362

562

Marine and Fishery 305 322 776 1,100 1,100 1,100 Agriculture 170 1,095 1,492 1,492 1,492 Environment 113 352 352 352 Family Planning 279 329 Forestry 100 100 Rural Infrastructure 190 Trade 150 Total 2,269 2,839 4,014 11,570 17,094 21,202 24,820 Source: Pelengkap Buku Pegangan Penyelenggaraan Pemerintahan dan Pembangunan Daerah 2009: Pelaksanaan Desentralisasi Fiskal di Indonesia, published by Directorate for Fiscal Balance, Ministry of Finance, 2009.

4. However, since the implementation of fiscal decentralization policy in 2001, policies surrounding DAK, and the application of such policies, have been inconsistent and increasingly unclear. This is reflected partly in apparent preferences for the allocation to the regions of DAU and DBH, which give wider discretion (than do DAK) for local government to manage the spending. This has diminished the role of the DAK, which is designed to

1

See Pelengkap Buku Pegangan Penyelenggaraan Pemerintahan dan Pembangunan Daerah 2009: Pelaksanaan Desentralisasi Fiskal di Indonesia, published by Directorate of Fiscal Balance, Ministry of Finance, 2009.

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stimulate the achievement of national development targets for local public service delivery. 2 It is recognized that it is important to rectify this situation, which the monitoring and evaluation activities proposed in this concept note are designed to help bring about. 5. Monitoring and evaluation of DAK. Monitoring and evaluation of projects/activities funded by DAK are integral to effective, efficient and transparent DAK implementation. Monitoring is intended to measure (and help to control) DAK implementation in terms of input, process, and output. The benefits of monitoring include identifying problems and means for necessary improvement in implementation. On the other hand, evaluation examines outcomes, benefits and impacts of DAK by comparing indicators before and after the DAK implementation using baseline data. Article 64 of Government Regulation No. 55/2005 states that the Minister of National Development Planning/Head of National Development Planning Agency (Bappenas) and technical ministers are responsible for monitoring and evaluating the use and technical implementation of DAK-financed activities. 6. Empirical evidence on DAK. A recent study undertaken by Bappenas reveals that DAK management over the last five years has encountered financial, technical, institutional and good governance problems. In the financial aspect, the main problem is regions’ less than optimal DAK performance due to a mismatch between the amounts of allocation and local needs. As suggested above, from a technical standpoint, it is suggested that DAK policies are in need of careful review. 7. To date, SNGs have not defined clearly the purposes to which the DAK are to be put and not specified precise, time bound targets for achievement using the DAK. From an institutional standpoint, problems are said to include: weak and less than optimal institutional coordination between the center and regions; no coordination team established in the center and provinces; and less than optimal performance of coordination teams in the districts. 8. From the point of view of good governance, the main problems arise in relation to the application of the principles of transparency, accountability and participation in DAK management. In addition, the provision of technical indicators (indikator teknis) and other data required for calculating DAK allocations is weak. 9. According to a study by The SMERU Institute, monitoring and evaluation of development projects, especially those related to DAK-financed activities, is still inadequate. 3 In a number of ways, the findings of this study corroborate those of the Bappenas study. Focus group discussion (FGD) participants (such as Secretary of Region, Head of Regional Development Board, Heads of various Dinas that receive DAK, Regional Supervisory Boards, Non-Government Organization, etc.) gave a relatively low ranking to the 2

See Grand Design Desentralisasi Fiskal Indonesia composed by Tim Asistensi Ministry of Finance for Fiscal Decentralization, 2009. 3 See Newsletter, No. 25, January-April 2008, published by The SMERU Research Institute.

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monitoring and evaluation aspect of DAK. One of the problems highlighted by informants was that both central government and SNGs do not allocate any funds in their budgets for monitoring and evaluation. In addition to the lack of funds, the superficial nature of monitoring and evaluation activities is related to the perceived benefit (or lack thereof) for the region. DAK recipient staff in some SNGs stated that they did not receive any feedback on their reports made to respective line ministries. This lack of response means that officials in the regions do not know whether their reports have even been received or accepted. 10. Comparative evidence on discretionary grants. Similar to the case of Indonesia, the central government of South Africa has direct fiscal relations with provinces and local governments and there the general grant constitutes the largest central government transfer. The decentralization process in South Africa started in the late 90s and thus is in a transitional phase in its general and special grants policy. Municipalities in South Africa have struggled with reporting on their use of the various transfers they receive from the national and provincial levels. It is also reported that the timeliness and quality of data on these processes within municipalities, or data on the relationship between municipalities and higher spheres of government, remain poor. 4 The South African approach to measuring intergovernmental and municipal performance started with a focused initiative on municipal grant monitoring. The grant monitoring agenda has been characterized by efforts: (a) to balance both the service delivery and empowerment objectives of decentralization; (b) to build monitoring systems—both in terms of what they measure and how they measure it— in a sequenced manner; and (c) to complement upward accountability relationships (from municipalities to central government transferring departments) with downward ones (from municipalities to their citizens). 11. Joint Circular Letter (Surat Edaran Bersama/ SEB). The above suggests that significant problems exist with all aspects of the DAK – from policy formulation and implementation through to monitoring and evaluation and that these problems occur at different levels within the system of decentralization. Among other things, remedial action would therefore need to address policy formulation, planning, budgeting, implementation, and monitoring and evaluation. Bappenas together with MoF, MoHA, and relevant ministries/agencies have prepared a system for monitoring the technical implementation - and evaluating the use - of DAK, in the form of Guidelines for Monitoring Technical Implementation and Evaluating DAK-Financed Activities through a Joint Circular Letter (SEB) of the State Ministry of National Development Planning Agency/Head of Bappenas, Ministry of Finance, and Ministry of Home Affairs Number 0239/M.PPN/11/2008; SE 1722/MK.07/2008; 900/3556/SJ dated 21 November 2008 on Guidelines for Monitoring Technical Implementation and Evaluating the Utilization of DAK.

4

See Girishankar, Navin, David DeGroot and T.V. Pillay. 2006. “Measuring Intergovernmental Fiscal Performance in South Africa: Issues in Municipal Grant Monitoring”. Working Paper Series No. 98. The World Bank: African Region.

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12. The goal of the SEB is to achieve an integrated and systematic technical monitoring activity and evaluation of the use of DAK among different levels of government. While the objectives of the guidelines are to: (a) provide a basis to carry out the monitoring and evaluation activity on DAK implementation; (b) provide a basis for better coordination among institutions managing the DAK at the central, provincial and kabupaten/kota levels in undertaking monitoring and evaluation of the DAK; and (c) provide a basis to maintain consistency and coordination between the Central Government and SNG in managing DAK. 13. The SEB was socialized to SNGs in August 2009; however, it has yet to be implemented effectively. Operational protocols, data collection instruments, and facilitation guidance to implement the SEB are not in place. Therefore, pilot implementation in a number of SNGs is required. These pilot studies will assess the feasibility and likelihood of a successful implementation of SEB nationally. The activity will also provide feedback on the effectiveness of current DAK policies, as well as data and recommendations concerning policy improvements on all aspects of DAK management.

Goal and Objectives 14. The goal of the proposed activity is to contribute to the timely and effective use of DAK through pilot implementation and improvement of the monitoring and evaluation system for the utilization of DAK (this will be based on the SEB, but may extend beyond it). 15. The objectives of the activity are: a. To obtain detailed information on SNG experience with DAK management, including obligatory reports related to implementation of DAK-funded projects in the roads infrastructure and health sectors; b. To solicit ideas and recommendations from SNGs’ regarding the improvement of overall DAK management and, in particular, monitoring of the DAK; and c. To formulate recommendations for improving DAK transfer mechanisms and policies, including implementation of a monitoring and evaluation system for the utilization of DAK nationally.

Scope of Services and Sub-activities 16. The stated goal and objectives will be attained through the following activities and subactivities. 17. Preparation. The preparation comprises two sub-activities: a. Preparation of supporting materials includes, among others, preparation of: SEB socialization materials; instruments for data collection (i.e. questionnaires/FGD modules and list of data/documents to be collected); facilitation guidance for field team; and materials for field team training sessions; and b. Training of the field team. Members of the field team who are responsible for collecting data and doing facilitation should be equipped with proper knowledge

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for undertaking their tasks. To serve this purpose, members of field team will be required to participate in a centralized training workshop. Bappenas and TKP2E-DAK staff, as the people who understand SEB the most, should play central roles in preparing training and facilitation materials, as well as conducting the training sessions. These responsibilities should not be borne solely by the implementing firm. 18. Socialization of DAK Monitoring and Evaluation System. The aim of this activity is primarily to make known to SNG high-ranking officials (such as governor, bupati/mayor, secretary of province/kabupaten/kota, and head of Bappeda) the monitoring and evaluation system for DAK management (based on the SEB); and to gain support from these officials for the pilot implementation of the new mechanism within their jurisdictions. In addition, the socialization is intended to obtain initial feedback from local officials on the proposed monitoring and evaluation mechanism. The workshop is to be conducted in Jakarta. 19. Fieldwork: Socialization to SKPD. The first step will be to socialize the DAK Monitoring and Evaluation System to SNG units (or Satuan Kerja Pemerintah Daerah/ SKPD). This will be followed by assigning a field team to describe and analyze existing DAK management and organizational systems in the SNG units responsible for managing DAK. This work will include an examination of relations between SKPD and relevant local actors (local parliament, governor/bupati/walikota, secretary of region, head of Regional Development Board, Regional Supervisory Boards, etc), as these relations pertain to DAK management. Knowledge of these matters will be essential to deciding what data to gather and how best to go about this (in general accordance with the monitoring and evaluation of DAK); to problem identification and analysis; and to the development of possible solutions. 20. Fieldwork: data collection and facilitation. As indicated above, the principal purpose of this work will be to improve the capacity of SKPD staff to monitor, evaluate, and report on, the use of DAK. Therefore, in addition to data collecting, members of the field team will train SKPD staff in the monitoring and evaluation of DAK management within respected SKPD. The training will focus on developing a reporting process that is in line with technical guidelines from each line ministries, and the data required by the DAK Monitoring and Evaluation System. Data collection will focus on roads infrastructure and health. In addition, facilitation teams will be established Coordination Team for DAK Management at both the Provincial and Kabupaten/Kota level. The team(s) is will play an essential role within the DAK Monitoring and Evaluation System. 21. In attempting to clarify and evaluate the uses to which DAK funds are put – that is, in evaluating the development effectiveness of DAK - the pilot will keep track of 2 DAK financed activities in each SNG. This will entail collecting data throughout the sequence: starting from procurement of these DAK-financed activities; through award of contract; implementation; and observation or validation of physical results or evidence of implementation. It should be noted that this activity is not specified in the SEB. However,

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this initial attempt is expected to provide feedback for improving future monitoring and evaluation of DAK management, and DAK policy. 22. The data collected during fieldwork will be stored in a ‘DAK database’ that contains (but is not limited to): a. DAK planning and implementation documents; b. Information on DAK allocation and utilization by sector and sub-sector as well as activity, within the roads infrastructure and health sectors; and c. DAK reports as directed by DAK Monitoring and Evaluation System/SEB, as well as relevant line ministries. 23. Analysis of the findings. Data collected during fieldwork will serve as input for an analytical report on monitoring of the technical implementation and utilization of DAK funds. With regard to DAK Monitoring and Evaluation System, the report should address challenges encountered throughout the DAK implementation cycle, such as DAK allocation at the SNG level; provision of matching funds; procurement of DAK-funded activities; supervision during activity implementation; reporting the use of DAK; and the establishment of a Coordination Team for DAK Management at the SNG. While on the utilization of DAK, the report should provide detailed information on how the SNG utilized DAK funds to finance development projects: whether the use of funds has followed technical guidance from line ministries; whether adjustments were made (if any) during the course of decision-making concerning investments; and so on. The report should also include a chapter on the training conducted for SKPD staff during the fieldwork. 24. The report is expected to provide information for the Central Government on: a. Utilization of DAK funds (in detail), including disparity between planned and actual use of funds; b. Problems and challenges in implementing DAK policy, including: adequacy of personnel (in both quantity and quality); organizational systems and processes within and between levels of government, including the role and function of the Coordination Team for DAK Management; and the presence of adequate good governance safeguards; c. Recommendations for improvement generally to the efficient and effective management of the DAK, but particularly in relation to monitoring and evaluation of the use of such funds. This section will also outline the technical assistance needed to address the problems identified and analyzed. 25. Reporting and dissemination. A report outlining the work undertaken, findings concerning the condition of DAK implementation and management in the regions, and recommendations, will be disseminated in participating provinces and at the national level in Jakarta. The dissemination will be carried out by Bappenas, MoHA, MoF and relevant line ministries. Two dissemination workshops are envisioned: at the national level (Jakarta) and at the provinces. The workshop in Jakarta will focus on interim findings based on DAK

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implementation during the first half of FY 2010. During the national workshop, an improved monitoring and evaluation strategy will be presented, including the strengthening of the Province’s role in the overall DAK management and monitoring system. In addition, associated capacity building needs at both central and local government levels will be presented at the national workshop. The regional/ provincial workshops will present the project findings during the first three quarters of FY 2010. The final report will also be posted on the TKP2E-DAK website. 26. Coverage. Pilot implementation will be carried out in 5 provinces (including all kabupaten/kota within the province) that receive the DAK in 2009. These provinces are Jambi (representing Sumatera region), D.I. Yogyakarta (Java-Bali), Central Kalimantan (Kalimantan), West Sulawesi (Sulawesi), and North Maluku (Maluku). Nusa Tenggara and Papua regions are not represented in the pilot project. 27. Program Supervision. In order to ensure program effectiveness, each stage of the activity will be supervised by a supervision team drawn from Bappenas, MoHA, and MoF, and coordinated by The Secretariat of TKP2E- DAK, Bappenas. The supervision will cover substantial, administrative and technical aspects related to the technical monitoring and evaluation of DAK utilization, and overall DAK management.

Deliverables 28. This activity will produce the following: a. DAK database on: • DAK planning and implementation documents; • DAK allocation and utilization by sector, sub-sector as well as activity; and • DAK reports - as directed by SEB, as well as relevant line ministries. b. Field-tested monitoring and evaluation instruments (such as questionnaires/FGD modules and list of data/documents that will be collected); training and facilitation guidelines (i.e. a standards of performance to be achieved; who should be trained; topics to be covered; and fieldwork protocols (i.e. a procedure on how to conduct monitoring of DAK management mandated by SEB). These materials may be used in the implementation of DAK Monitoring and Evaluation System (based on SEB) nationally, as well as follow-up activities for sustainability, including an action learning program. c. As indicated above, an analytical report addressing challenges encountered throughout the DAK implementation cycle, and detailed information on how SNGs have utilized DAK to finance their development projects; and so on (as above). d. In addition, the field teams will report on the establishment and operation of Coordination Teams for DAK Management at the level of SNG.

Sustainability 29. This activity is a pilot project that is designed to provide the basis for a fully-fledged DAK monitoring and evaluation scheme to be implemented by GoI. The success (or the lack of it)

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of this project will provide valuable inputs for GoI continuing initiatives on monitoring and evaluation of DAK and other intergovernmental transfers schemes and, to the extent that this happens, will be institutionalized. Questions of transfer of technical skills and knowledge are therefore of paramount importance in the implementation of this activity, and the implementing agent will need to demonstrate that such matters are receiving the level of attention required for institutionalization.

Project Management, Execution and Implementation 30. The role of the Directorate of Regional Autonomy, Bappenas and DAK Coordination, Planning, Monitoring and Evaluation Team (TKP2E-DAK) Secretariat, Bappenas in the Pilot Implementation and Improvement of Monitoring and Evaluation System of the Utilization of DAK is as sponsor/owner of the program with responsibilities for steering; monitoring of program implementation; coordination with the implementing firm; and submission of program documents to DSF MC. The DSF Executive will be responsible for procurement and contracting of the implementing firm; facilitation of program implementation; providing assistance with program monitoring and quality assurance; and along with Bappenas jointly responsible for submitting program documents to the DSF Management Committee. The Implementing firm is responsible for implementing the program according to the Terms of Reference, Technical Proposal and Financial Proposal; coordinating with Bappenas on a regular basis, and submitting reports/deliverables to Bappenas and DSF according to schedule for review. See table below for a summary of roles and responsibilities. Bappenas-Directorate of Regional Autonomy and TKP2E-DAK Secretariat: sponsor/owner of program; responsible for steering, monitoring of program implementation, coordination with implementing firm, and submission of program reports to DSF MC. DSF Executive: responsible for procurement and contracting of implementing firm, facilitation of program implementation, assistance with program monitoring and quality assurance, and along with Bappenas, submission of program reports to DSF MC. Implementing Firm: implementation of the program according to the Terms of Reference, Technical Proposal, and Financial Proposal; coordination with Bappenas on a regular basis (including one key personnel based in Bappenas), and submission of reports/deliverables to Bappenas and DSF for review. 31. Based on the decision of the Directorate of Regional Autonomy and TKP2E-DAK Secretariat, the Pilot Implementation and Improvement of Monitoring and Evaluation System of the Utilization of DAK will be implemented using the on-budget, off-treasury mechanism known as “Bank executed� (responsibility of the World Bank). Under this mechanism, the DSF Executive is responsible for ensuring that procurement follows World Bank procedures5 and that the results of the program meet the specified standards. 32. A small team will be formed with representatives from Directorate of Regional Autonomy and TKP2E-DAK Secretariat, Bappenas and representatives from the DSF Executive to formulate the procurement documents, review and evaluate proposals from

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candidate implementing agencies, and negotiate with the top ranked organization. The DSF Executive will be responsible for procurement and contracting of the implementing firm. During program implementation the Bappenas-Directorate of Regional Autonomy and TKP2E-DAK Secretariat and DSF Executive will discuss the reports submitted by the implementing firm and monitor activities as appropriate (joint monitoring missions with DSF MC members agencies and organizations may also be arranged).

Implementing Agency 33. The project will be implemented by a firm to be selected following the World Bank procurement procedures. Bappenas will be actively engaged throughout the selection process. 34. The firm should assemble a core team of specialists that will undertake the project under the direction and supervision of Bappenas with additional quality assurance from the DSF Executive. The core team should comprise: a. Team leader, this position requires someone with extensive experience as team leader with the qualification of master degree or PhD in Economics/Public Finance/Public Policy with minimum 8 years relevant experience especially in the monitoring and evaluation field; he/she will have the ability to undertake capacity needs assessment, training and development including adult and experiential learning techniques; and experience of this type of work; b. Public Policy Specialist, with the qualification of Master or Bachelor degree in public administration/ policy and at least 5 years relevant experience; c. Monitoring and Evaluation Specialist, with the qualification of Master or Bachelor degree in economics/public finance/public policy/public administration and minimum 5 years of relevant experience in government monitoring and evaluation programs; he/she will the ability to undertake capacity needs assessment, training and development including adult and experiential learning techniques; and experience of this type of work d. Public Policy Assistant, with the qualification of Bachelor degree in public administration/ policy and at least 5 years relevant experience; e. Monitoring and Evaluation Assistant, with the qualification of Bachelor degree in economics/public finance/public policy/public administration and a minimum of 2 years of relevant experience in government monitoring and evaluation programs; f. A number of field facilitators with minimum education of Bachelor degree in economics/management/social science with minimum 2 years relevant experience. Experience in field facilitation for government programs and FGD would be an advantage. 35. Implementing agency – other required inputs. The project requires full engagement with (and from) Bappenas and the TKP2E-DAK team throughout project implementation. During the preparation stage, Bappenas and TKP2E-DAK staffs’ involvement in preparing

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materials and conducting training are essential considering that these staffs have a thorough understanding of monitoring and evaluation system of DAK. 36. The DSF Executive will provide additional support, mostly related to quality assurance during project implementation. All inputs and support rendered to the project by the three main parties - Bappenas and TKP2E-DAK team; the implementing agent; and the DSF Executive – will be collaborative.

Procurement and Implementation Schedule 37. The following estimated schedule is proposed: • January – May 2010: procurement of implementing agency (consultant), comprising request for and review of Expression of Interests (EOI) from implementing agencies; approval of short listed organizations; issuance of Request for Proposals (RFP); evaluation of proposals; approval of top ranked firm; technical and financial negotiations; issuance of contract. • February 2010: Preparation of supporting materials (i.e. instruments for data collection, facilitation guidance for field team; and materials for field team training sessions). • March 2010: Pre-test on data collecting and field facilitation activities. • April 2010: Socialization on Pilot Implementation and Improvement of Monitoring and Evaluation System of the Utilization of DAK in Jakarta. • May 2010: Field facilitator training. • May-October 2010: Data/information collecting and facilitation. • August 2010: Dissemination of the findings (based on DAK data up to the first semester of FY 2010) in Jakarta. The event will also expose the strategy for improvement of DAK Monitoring and Evaluation Systems and associated capacity building needs at both central- and local governments. • October 2010: Dissemination of findings (based on DAK data up to the third quarter of FY 2010) at respected pilot provinces. • November 2010: Submission of Final Report.

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DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 4/2009 Summary: This activity is designed to: 1) strengthen the capability of service providers to assess and improve their own performance based on fundamental aspects of management and institution building; 2) support local government to be more flexible in defining strategic options for improved performance in service delivery; 3) formulate guidelines (and a model) for strategic management and institution building for local service delivery providers; and 4) develop an action plan for scaling-up nationally the strategic management and institution building model for improved service delivery.

Activity Title Management Strengthening and Institution Building for Local Public Service Providers (MSIBLPSP)

Counterpart Agency and Key Government Contacts • Ministry of Home Affairs, Directorate General of Public Affairs (Ditjen PUM): a. Drs. Norman Muhdad, Director of Deconcentration and Cooperation b. Drs. Arif Rahman, Sub-Directorate of Public Service c. Secretariat Directorate General of Public Affairs (Setditjen PUM), Planning Division • Ministry of Home Affairs, Secretariat General, Foreign Cooperation Center

Duration October 2009 – September 2011

Background and Rationale 1. This project builds on the DSF project entitled, ‘Alternative Mechanisms for Service Delivery’ (AMSD), which will end in July 2009. Ministry of Home Affairs (MoHA), Director General of Public Affairs wishes to implement the model developed by AMSD and to commence capacity and institution building for a sample of local governments and MoHA staff in selected regions. 2. Decentralization and public services. Indonesian decentralization reform began in 1999 following the issuance of Law 22/1999 on Local Governance, later revised by Law 32/2004. This law and its follow up regulation on distribution of functions has given broad authorities and functions to kabupaten and kota to implement local autonomy, including responsibility and authority to improve public service delivery in accordance with local priorities and the needs of the local community. In the same year, a fiscal decentralization law 25/1999 was issued, and later revised by Law 33/2004. This law provided broad discretion to local governments over the use of general block grants (DAU) and tax sharing funds. In addition, local governments were provided with grants (DAK), allocated to and managed by regions with

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specific direction from central government concerning their use for certain types of service delivery. 1 3. Problems and initiatives on public service delivery. Despite these initiatives, access to basic services by citizens is limited, mostly in education, health and infstructure, including social infrastructure. (World Development Report – 2004). For example, maternal mortality rates are high, as is the incidence of preventable diseases such as malaria; and there are shortages of health professionals and their distribution is not optimal. Mandatory health insurance funded throught the public budget now covers an estimated 76,4 million poor and near poor, but severe public health problems remain. 2 In the education sector, the enrollment rate of primary and secondary education has not reached the target of 100 percent of children attaining 9 years of compulsory basic education, but good progress has been made. Law 20/2003 on National Education System requires the state to allocate 20% of national total budget to improve education. On water, operational water supply systems have been established in about 1,206 villages covering some 3 million villagers, but progress in improving sanitation services has been inadequate. 3 Over the next five years, government plans to install 10 million new tapped water connections. Furthermore, the government has undertaken to ensure the attainment of MDGs . 4. Central government is aware that problems of basic service delivery must be addressed. The National Fiscal Decentralization Action Plan (2005) commits government to improving basic public services, especially in health, education and infrastructure. One of the means to improve accessibility and quality of those services is through the identification and implementation of minimum service standards, as mandated in law 32/2004 on local governance. 5. The government also recognizes that there are widespread and significant weaknesses in the management of service delivery. Most provinces and kabupaten/kota deliver public services directly through local service units (dinas) and their implementing facilities (e.g. Schools, puskesmas). In a limited number of special cases, local government-owned enterprises are the public service providers (as with local government owned water enterprises - PDAM). Although BLU4 and BLUD5 exist on paper (Government Regulation 1

DAK 2009 covers sectors and subsectors of education, health, infrastructure-road, irigation, drinking/clean water, sanitation, marine and fishery, agriculture, government insfrastructure, environment, family planning, forestry, village insfrastructure, and trade. 2 Health Financing in Indonesia: A Reforms Roadmap, The World Bank Report, Conference Edition, May 2009, Overview, page xiii, xiv. 3 World Bank Country Partnership Strategy for Indonesia FY 2009-2012, Page 62 4 BLU-Badan Layanan Umum: Public Service Organization is an institution within Government setting which is established to deliver services to public by selling goods and/or services with no priority for profit. Its operation will be based on efficiency and productivity principles. (Government Regulation No. 23/2005 on Financial Management of BLU, Chapter I, Article 1, Point 1) 5 BLUD-Badan Layanan Umum Daerah: Local Public Service Organization is a local sectoral office (Dinas/Kantor/Badan) or working unit under local sectoral office which is established to deliver services to public by selling goods and/or services with no priority for profit,. Its operation will be based on efficiency and productivity principles. (Ministry of

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No.23/2005 concerning Public Service Organization – Badan Layanan Umum, BLUD (Badan Layanan Umum Daerah – Local Public Service Organization), they have been used very little 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 limited. 6. Reinventing government. As with governments officials elsewhere, in their attempts to reform the civil service, Indonesian government officials have been exposed to successive waves of fashion concerning public management, such as the ideas espoused and popularized by Osborne and Gaebler (1992). 6 Many civil servants in Indonesia have received training on the ten operating principles that distinguish a new "entrepreneurial" form of government. Osborne and Gaebler suggest that governments should: 1) steer, not row; 2) empower communities to solve their own problems rather than simply deliver services; 3) encourage competition rather than monopolies; 4) be driven by missions, rather than rules; 5) be resultsoriented by funding outcomes rather than inputs; 6) meet the needs of the customer, not the bureaucracy; 7) concentrate on earning money rather than spending it; 8) invest in preventing problems rather than curing crises; 9) decentralize authority; and 10) solve problems by influencing market forces rather than creating public programs. Osborne and Gaebler admit that their writing does not offer original ideas; rather, it is a compilation of the ideas and experiences of others. 7. Administrative reform and management innovation. Management innovation and administrative reform both involve novelty – doing the same things differently, or doing new things, in relation to the management of the behavior of people and organizations. What is mundane or outmoded to some can clearly be revolutionary and appropriate to others. It is argued that the emphasis should be placed on the peculiarities of public service problems and their settings, and that solutions should be tailored to these circumstances rather than forcefed into predetermined off-the-shelf solutions that attempt to reproduce in developing countries prevailing notions of so-called “best practice” in the rich countries. It is also important to consider the extent to which “public service performance and management improvement is hostage to overriding forces associated with the character of governance and the nature of society in general”. Institution and capacity building should not be analyzed and conducted as if in a vacuum. 7 8. Alternative Service Delivery (ASD). Ideas associated with ASD have gained some currency in Indonesian government circles. As with other supposed ‘innovations’, the ideas themselves are not particularly new. It is a Canadian term that has been popularized under many names Home Affairs Regulation No. 61/2007 on Technical Guidance for Financial Management of BLUD, Chapter 1, Article 1, Point 1) 6 http://www.scottlondon.com/reviews/osborne.html downloaded in June 1, 2009, Osborne and Gaebler, Reinventing Government, 1992 7 Peter Blunt, Public Administrative Reform and Management Innovation for Developing Countries, a paper presented at 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), and held in Marrakesh, Morocco, 10-11 December 2002.

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and in many different forms in OECD countries. It is often understood differently by different people. ASD is defined by Ford and Zussman (1997:6) as: "… a creative and dynamic process of public sector restructuring that improves the delivery of services to clients by sharing governance functions with individuals, community groups and other government entities." 9. ASD includes reorganization and reengineering of mainstream government and also privatization. It is not just about deficit reduction, devolution, and central agency controls, but it does involve rethinking roles and functions. It depends heavily for success on a strong policy foundation and on a client service focus, neither of which can be said to exist in Indonesia. Ford and Zussman have described ASD as follows: “The forest is the public sector in total; the trees are the traditional, vertical delivery systems; the mists are the uncertainties of change; the shapes are emerging forms of alternative service delivery. It is clear that more and more of the shapes are distinguishable as new or innovative- as true alternatives.8 10. The term ‘alternative mechanisms for service delivery’ (AMSD)9 is frequently used with similar purposes in mind and covers broadly the same ideas, including what would conventionally be termed ‘institution and capacity building’. Hence the title of phase 1 of this project, referred to earlier. The AMSD phase was ‘novel’ in the sense implied by Blunt (2002)10 in that it introduced the ideas espoused by Osborne and Gaebler, and some derived from the ASD as well as more conventional notions of institution building and organizational development, into settings where they had not been applied before. 11. Other government initiatives. In its attempts to improve the quality and timeliness of services delivered to citizens, the Government has done, and continues to do, a great deal, including: 12. The establishment of one stop services. The notion of ’one stop services’ (OSS) has developed quite fast in the country, under a variety of somewhat similar names such as ‘one door’, ‘one window’ and ‘one roof’. To date, 143 ’one roof’ services and 131 ’one door’ have

8

http://www1.worldbank.org/publicsector/civilservice/alternative.htm, downloaded from the World Bank Group Web: Governance & Public Sector Reform Sites, per June 1, 2009; Ford and Zussman, eds.1997. 9 Alternative Mechanism for Service Delivery (AMSD) is a particularly Canadian term used to describe an array of methods government has in delivery services, this also often called “New Public Management”, “Contractualization”, and “new managerialism” (see Blue Print for Promoting AMSD, June 4, 2009, page 1). 10 Peter Blunt, Public Administrative Reform and Management Innovation for Developing Countries, a paper presented at 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), and held in Marrakesh, Morocco, 10-11 December 2002

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been established in 29 provinces There are at least 76 OSS supported by international agencies 11 . 13. The introduction of minimum service standards. The formulation of minimum service standards (MSS) began in 2000. To date, MSS in five sectors have been issued (health; environment; social; public housing and general public affairs, which includes population administration). A number of other sectors are working on draft MSS (women empowerment, education, public works, and food security). The Ministry of Health is among the most advanced in relation to MSS and has just issued a new Permenkes No. 317/MENKES/SK/V/2009 on Technical Guidance for Costing MSS Health Achievement (May 2009). An electronic template for data/information processes required in MSS costing is being developed. DSF, together with MoHA, supports the Ministry of Health in its costing of MSS. 14. Encouragement of inter-regional cooperation in public service delivery. This initiative was first introduced in 1999 through law 22/1999. Inter-regional cooperation is exercised in many ways, among others: cooperation among two or more neighbouring regions and among regions that geographically distant from one another. A successful example of inter-regional cooperation among three neighbouring regions is Kartamantul, comprised of Kota Yogyakarta, Kabupaten Sleman and Kabupaten Bantul. This cooperation is facilitated the province level. GTZ-Good Local Governance-GLG is supporting the operationalization of Kartamantul Secretariat and supporting substantive activities like spatial planning. A government regulation on Procedures for the Implementation of Cooperation among Regions No. 50/2007 is in place and Minister of Home Affairs Regulation No. 23/2009 on Guidance and Supervision of Interregional Cooperation has been issued. CIDA-GRS II GTZ-GLG was supported this activities. 15. Permitting ‘outsourcing’ of service provision to private sector or civil society entities. Government has practiced outsourcing in delivering public services, such as garbage collection. In the bureaucracy, a wide variety of support staff positions and services are outsourced. 16. MoHA has developed a service contracting scheme for local government referred to in Presidential Regulation No. 67/2005 on Cooperation between Government and Enterprises. Five modules have been formulated and introduced to regions i.e. Introduction of KPP 12; Assessment of KPP Potential; Assessment of SKPD preparedness to implement KPP; Preparation for Implementation of KPP; and Management of KPP. The modules introduced different types of contracts (operational contract, joint contract, service contract, management contract, rental contract and concession contract). In May 2009, MoHA issued another regulation, Minister of Home Affairs Regulation No. 22 on Technical Guidance of Regional Cooperation, including cooperation of local government with other parties.

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The international agencies, among others The Asia Foundation, implementing agency of DSF support project to MoHA, Investment Climate, Presentation of Study results on Mapping OSS, April 29, 2009 12 KPP is Kontrak Pelayanan Publik or Service Contract for Local Goverment

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17. Implementing citizen complaints surveys to improve public services. The State Ministry of Administrative Reform (Kementrian Pendayagunaan Aparatur Negara-KemPAN) in cooperation with local government and supported by GTZ-SfGG have carried out citizen complaints surveys to improve public services, e.g. in puskesmas (public health centre at sub district level), schools and other public services. Printed manuals and CD ROMs are available. KemPAN has helped more than 200 local governments to carry out citizen complaints surveys. In 2006, DSF in cooperation with the World Bank, conducted a citizen satifaction survey (GDS) in 29 provinces, 111 kabupatens and 23 kotas. 18. The solicitation of citizen feedback on services electronically and in other ways (SPIPMSistem Pelayanan Informasi dan Pengaduan Masyarakat). This is a new approach introduced by MoHA, Directorate General of Public Administration (Ditjen PUM) supported by USAIDLGSP to encourage kabupaten/kota to be more transparant and to listen to their citizens. Complaints, feedback and questions can be directed to a dedicated telephone number by SMS or to a local government website. Local Government responds electronically. Aceh is well advanced in the implementation of this innovation. Ten other provinces are doing the same thing, as are 6 kabupaten/kota. There are 60 other kabupaten/kota in the process of implementing similar systems. 13 19. Introduction of ‘one door’ services in Kecamatan level. Based on experience in Aceh (50 kecamatan in four kabupatens)14, MoHA, Ditjen PUM supported by AusAid-LOGICA has recently issued guidelines for the improvement of public services in kecamatan. Measures include: delegation of local government functions to kecamatan level; and establishment of one stop services in kecamatan (one door). These initiatives are described in a Circular Letter issued by the Minister of Home Affairs No. 100/121/PUM on Strategic Initiatives for Improvement of Public service delivery in regions, dated February 3, 2009. AusAid-LOGICA 2 will continue support the activities in other regions. 20. Transformation of local government service units (Dinas, UPTs) to BLUD-Badan Layanan Umum Daerah (Local Public Service Agency). BLUD (Badan Layanan Umum Daerah-Local Public Service Organization) has been regulated in Government Regulation No.23/2005, but few regions have implemented it. In current practices, provinces and kabupaten/kota deliver public services directly through local service units (dinas) and their implementing facilities (e.g. schools, puskesmas), in most cases, local government-owned enterprises (BUMD -Badan Usaha Milik Daerah). Attempts have been made to transform government universities and hospitals into BLU/BLUD. MoHA has developed guidelines (Regulation No. 61/ 2007) for managing the financial aspects of BLUD. 21. Law on Public Services. Recently, the government and DPR (Parliament) issued Law No. 25/2009 on public services. This law stipulates rights and obligations of executing and implementing agencies/service providers and citizens/community. The law also encourages 13 14

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Discussion with Adam Nugroho, USAID-LGSP, on June2, 2009 Phone discussion with Moh. Najib, AusAid-LOGICA, June 2, 2009


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transparency in public service delivery; it regulates service standards, information systems on public services, complaints, and establishes an ombudsman. Management strengthening and institution building of local service providers is one important way to improve the performance of service providers. Performance contracts/agreements between service delivery providers and local government offices/heads of region introduced in this project reflect government commitment to improving public service delivery. 22. AMSD Phase II or Strengthening Management and Institutional Building for Local Public Service Providers (SMIB-LPSP). The current support provided by DSF to MoHA, Ditjen PUM in Alternative Mechanisms for Service Delivery (AMSD) will end in June 2009. An output of this project will be a plan for the implementation of AMSD in a number of pilot regions. The project outlined in this note will undertake this work under the title Strengthening Management and Institutional Building for Local Public Service Providers (SMIB-LPSP) or Penguatan Manajemen dan Pengembangan Kelembagaan Penyelenggara Pelayanan Publik (PMPK3). 23. As a part of its general drive to improve the quality of services, and to consider alternative mechanisms of service delivery, MoHA is in the process of establishing general means for analyzing and developing the performance of service delivery units or organizations; and building within the MoHA (Ditjen PUM) and selected local governments sustainable internal capacity to carry out such institutional reform. 24. A central feature of such institutional reform or institution building will be a ’Flexible Performance Agreement or Performance Contract’ between local government and local service providers. It is envisaged that these performance agreements will be made in relation to: a. Organizational strategy and structure. Does the service delivery unit in question have clearly articulated and well thought through: • Goals and objectives • Roles and responsibilities • Delegation of authority and the relationship between authority and responsibility or between the decision maker/owner and the executor/operator. • Out-sourcing of functions (services) This will require local governments to clarify strategies and structure so the service delivery organization (SDO) knows what is expected and all relevant parties know their roles. One possibility will be to out-source service provision. b. Human resource management. How well does the service delivery unit in question attend to: • Selection and placement and induction and training • Performance management • Transparency and fairness

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Here the intention is to make the SDO more effective, empowered, autonomous, and results-oriented, partly by ensuring it has capable people; and partly by introducing greater flexibility, which will be possible on an SDO by SDO basis as part of the negotiation of the flexible performance agreement. Basically, as each SDO enters into a Flexible Performance Agreement (FPA), more authority over the above issues should be passed to the SDO. The BUMD and BLUD legislation enables this but it is currently rarely used; it will be more of a challenge for the current Dinas – for example, Dinas responsible for population administration and civil registration in Kabupaten Serang. c. Organizational culture. Is the service delivery unit in question conscious of the following aspects of organizational culture: service or customer orientation, integrity, leadership, and commitment? The target SDOs under the pilot are all aware of the devastating effects of the current civil service culture. The question is more "can they do anything about it"? More control of HRM by the SDO should open the way to better practices. There is plenty of legislation on customer orientation, integrity etc., but it is not having much effect at present. The leadership training is weak and commitment to a culture of service is just beginning, with efforts to produce codes of conduct. In another words, the reform should include how to improve the employees’ habits, minds, and heart. d. Covering the costs of service delivery. Is cost recovery appropriate for the service (s) selected? If so how is it done? In general, it should not be taken for granted that cost recovery for service delivery is an appropriate overarching goal. Should it be deemed appropriate, there are a number of ways in which it can be implemented: • User pay mechanism: enable the service provider to collect payment directly from the user/beneficiary • Public service obligation payment: public service obligation of government to the service provider to cover the cost of that portion of the service the user is unwilling or unable to pay • Public funding (public budget allocation) mechanism • The user pays indirectly through general taxation, perhaps special charges, retribusi – levies by the government • Equity financing: investment/injection (shares) in the service deliverer from government and private sector, most often without being related directly to performance • Debt financing: Funding by loans from various financial institutions (debt financing) with the pledging of assets, securitization of cash flow or other mechanisms of guaranteeing (securing) repayment of the debt • Unsecured borrowing: Using bonds that have limited or no resource i.e. that do not use specific guarantee. 15

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Blue Print for Promoting AMSD, Element 2: Alternative Mechanism Arising from the element 2: Covering the Cost of Service Delivery, June 2009

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On the three pilots, the local government owned water enterprise (PDAM) in Kota Cilegon selected a cost recovery strategy. Hospital services in Kabupaten Lebak can recover costs for certain procedures and classes of customers. But on population administration, the cost recovery may go through a "group service" they are trying to arrange. The AMSD suggests services are paid for (by funding levels or by the customer on a performance basis, not input basis). e. Out sourcing. Is this appropriate for the service(s) selected? If so, how is it done? In Banten, for example, there is already a surprising number of water systems that are out-sourced, but it is not a formal policy and the regulations can be interpreted to mean that the PDAM could stop it. Some in the pilot workshop concluded a PERDA was needed to put it on a formal basis. One issue with outsourcing is that not enough pressure is being put on SDOs to consider outsourcing "inputs" into their overall production process. For RSUD in Lebak, understanding of the health sector in general, there is nothing in the law stopping the government outsourcing all services. The move of the RSUD to BLUD status represents the first step in the region. For population administration, the standard response is that the Law 23/2006 on Population Administration explicitly prohibits any outsourcing but this was challenged in the pilot workshop. The GTZ consultant who supported the government draft law admitted upon challenge that it was in fact unclear / untried. The situation in general in Indonesia is that the biggest obstacles to more outsourcing are (I) ideological / political and (ii) lack of specificity in the laws and regulations. f. Inclusiveness, community integration and gender sensitivity. This will include: • Involvement of civil society and the private sector • Community engagement • Analysis of service provision in relation to gender Examples of civil society involvement include customer charters; citizen complaint surveys implemented by many regions; and citizen report cards. Government Private Partnership was introduced to improved service delivery. The companies’ contribution could be in terms of ‘in kind’ or monetary funds. Usually, the private company supports the project related to their products. Experience of the Aceh Tsunami reconstruction program tells us that many private companies created partnerships with other donor agencies, or with government to implement a project/program, for example Holcim cement factory to support rebuilding the houses. In addition, the community can provide professional knowledge and labour. 25. Using the framework outlined above, it is intended that an action plan for management and institution building will be drawn up, which will form the basis of the performance agreements mentioned above. The MoHA has determined also that to begin with it wishes to trial such institution building with a limited number of service delivery organizations in selected sectors, initially: health; drinking water; and population administration. These pilots

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or trials, which will be based on ‘action learning’16, will be targeted at a sample of hospitals, water companies, and population administration units; and will be carried out with a view to achieving the goals and objectives set out below.

Goal and Objectives 26. The goal of this activity is to improve the performance of public service providers in the regions by strengthening management and other institutional aspects; and to build the capacity of the Directorate General of Public Affairs to implement a general approach or model of strategic management and institutional development for public service delivery providers. 27. The objectives are to: a. Establish a procedure or model for organizational analysis and development or institution building b. Build the capacity of local service providers in the regions to apply institution building and strategic management techniques to their own organizations c. Enhance the capacity of Directorate General of Public Affairs to develop a general means, including guidelines and modules, for implementing the strategic management and institution building model d. Develop an action plan for scaling-up the strategic management and institution building model for improved service delivery nationally

Scope of Services and Sub-activities 28. The scope of the activity includes: a. Conducting baseline study on women’s access to public service delivery in selected sectors. b. Development of the strategic management and institution building model. c. Implementation of the model in selected piloted sectors, selected piloted provinces kabupaten, and kota. d. Assessment and recommendations for the drafting of different forms of legislation to support the above. e. The development of a capacity building program for Ditjen PUM/MoHA staff that includes significant elements of action learning. f. Developing a dissemination strategy for a wider implementation of the model. 29. Sub-activities: a. Baseline Study for women’s access to public services in the selected sectors in pilot regions. 16

Action learning is a process of learning-by-doing, receiving input from peers and experts, and making links to knowledge and concepts in real world situations. Action learning as an educational process is associated with Reginald Revans. See Revans, R. 1980. Action learning: New techniques for management. London: Blond & Briggs, Ltd. and Revans, R. W. 1982. The Origin and Growth of Action Learning. Brickley, UK: Chartwell-Bratt. Action learning has been institutionalized in education and management courses throughout the world.

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b. Development of the institution building procedure or model for implementation in pilot regions: • Determine district/cities and type of services that will be improved • Identify parties to be involved in the region. • Prepare material/modules for assessing services and organizations. • Conduct a series of workshops in the selected province and kabupaten/kota to assess the defined services and related policy making parties and service delivery organizations in order to develop preliminary action plan. • Sign agreements between the parties involved for pilot implementation and division of responsibilities and tasks. One of the pilot regions, Banten Province, has selected two kabupaten and one kota. Kabupaten Lebak will improve service delivery in district hospital; while in Kabupaten Serang the aim will be to improve services in population administration; and Kota Cilegon will focus on improving delivery of clean water. The second province is West Java. The kabupaten/kota and type of services will be defined during the second phase of the activity. c. Implementation of the instituion building model in pilot regions. • Review and elaborate the preliminary action plan. • Assess the existing laws and regulations related to the services/sector selected. • Deepen the understanding of the selected strategies. • Arrange consultations between Head of Region/Regional Secretary, Dinas, Local Service Unit/Service Delivery Organization, between the “policy maker” or owner and “operator” to establish a 'flexible performance agreement'. • Implement the action plan: It is possible that this step could require the revision of local regulations; development of new procedures; organizational re-structuring; rotation of human resources etc. d. Preparation of draft changes to the regulatory frameworks that are needed to support the implementation of institution building strategies, including, among various activities: • Regulations for the implementation of flexible performance agreements. • Regulations for output-based funding subsidies using the Public Service Obligation (PSO) mechanism. • Regulations for increasing rewards and punishment related to performance. • Regulations for the implementation of customer and public participation systems in service delivery. • Regulations for allowing certain exceptions/flexibilities for selected institutional options used to improve public service delivery. • Regulations for promoting opportunities to restructure sectors, including increasedpublic private and community participation. e. Capture and disseminate information on the pilots and other service improvement initiatives, including:

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Package/document of lessons learned, successes and failures of the pilot implementation. • Baseline conditions in the service. • The basis for the strategy used to improve the performance, in line with the conditions in the relevant local government and the particular public service. • Regulatory framework that has been developed to support the strategies. • System and procedures developed to support the pilot implementation. • Performance indicators and standards that are used, including the process of development. • Work mechanisms that respond to the needs of relevant stakeholders, etc. • National workshops to discuss and share the results and explore possibilities for replication. • Formulate legal product (circular letter) for dissemination. • Network region (peer to peer learning) for the implementation. • Expand the application of the model. f. Capacity building for personnel and organizations, including: • Preparation of targeted training modules, such as : (1) knowledge of basic strategies for institutional building, and instruments to realize these strategies; (ii) change management; (iii) performance measurement; (iv) preparation and negotiation of flexible performance agreement (KKF); and (v) monitoring of implementation etc. • Comparative study trips and exchange of information. • Restructuring sectoral governance and implementation arrangements at regional and central level. • Improving customer service capacity (front line personnel). • Developing funding mechanisms for improving capacity of personnel and organizational development. g. Development of a policy brief on ‘Strategic Management and Institution Building for Improved Public Service Delivery’. •

Deliverables 30. Expected Results to be achieved. The activity will produce the following products: First Part a. Report of the Study of womens’ access towards public services in selected sectors in selected pilot regions, including recommendations for program of improvement of women’s access to public services. b. Report on preliminary preparation for new pilot region (West Java) and confirmation on the Kabupaten/Kota that are selected as pilots and the public service sectors and functions that will be selected. c. Report on preparatory work for Implementation in existing pilot regions in Banten, Kabupaten Serang, Kabupaten Lebak dan Kota Cilegon.

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d. Materials to support the Secretariat for the Technical Working Group on Improvement of Public Services. e. Monthly reports of project progress from consultants recruited to support DG. PUM f. Report of Monev on project implementation. Second Part 31. At the end of the project the following results are expected to be achieved: a. Tested institution building model - designed in pilot sectors and pilot regions - that is ready to be replicated b. Improved regulatory framework to support the implementation of the institution building model. c. Revised regulations in regions and recommendations for national regulatory framework reform across sectors. d. Selected sectors/functions that demonstrate “best practice” service delivery using the strategies in the institutional building model, which can then be used as a reference by other work units or other local governments in Indonesia. e. Compilation of data and information for dissemination regarding success factors for sectors/functions and local governments that have implemented “good practices” f. Increased women’s accessibility toward public service delivery in the sectors/functions selected in this activity. g. Capacity building programs for personnel in the target local government and Directorate General of PUM (General Public Affairs) to enable the to understand their role in programs to improve service delivery; h. A functioning “Program or Service Improvement Management Unit”, which will coordinate all activities to produce these outputs, probably consisting of (i) Technical Working Group (TWG) on Improvement Service Delivery; and (ii) A Secretariat supporting the TWG. i. A plan for scaling-up the program nationally. 32. The implementing agency will make sure the above results will be performed and delivery their associate reports and submit the following main reports: a. Inception Reports and associated reports including assessment of local government needs in improving public services; Pilot design for two provinces, Joint agreement between central government, provincial and district/city government; Document on the establishment of regional teams; Pilot implementation plan; Inventory and analysis of the framework in accordance with selected strategies for the new sectors; Capacity building plan for local governments and MoHA, Ditjen PUM. b. Report on pilot implementation in the regions (stage 1), including selected institution building model; targeted public services; capacity building program; performance standards, service standards, gender perspective, regional workshops reports, milestone achievement in at least in two sector implementation, including assessment of women’s access to public services in two sectors. c. Report on the pilot implementation (stage 2), including among others flexible performance agreements; documentation of ‘good practices’ of improved service delivery;

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report concerning results of implementation in pilot regions for each of sector/functions; recommendations for regulatory changes in the regions; workshops/seminar reports both in the centre and regions, including assessment on women’s access to public service. d. Final report including: (a) institution building model that reflects all lessons learned; (b) capacity building programs for MoHA officials and service providers; (c) recommendations for regulatory change at the national level; (d) a general discussion of the project’s findings for the improvement of service delivery; and a plan for scaling-up the program nationally; national workshops; gender mainstreaming in public service delivery based on model implementation in the pilot regions. e. Policy Briefs.

Sustainability 33. If the model is successfully implemented in the regions, the Directorate General of Public Affairs (Ditjen PUM) plans to scale up the program through application of the model in other regions and other sectors. The model will be included in a circular letter to support local governments in understanding the model and implementing it in their regions. In addition, sectoral ministries will evaluate and revise the related sectoral rules and regulations based on inputs from the pilot regions. 34. The independent local institutions involved in the activities will provide continued support to local governments, disseminate knowledge, and assist other government technical units (SKPD) to implement the model. 35. Local governments could promote “peer to peer learning” and share their experiences with other regions planning to implement the model, They could accommodate visiting missions to study the implementation of the model, and accept local government staff from other regions as interns or temporary residents so they can learn the steps and technical requirements for implementation of the model first hand. Data and information from the model implementation in each sector can be shared and with other regions and/or submitted to central government.

Gender 36. A gender perspective should be addressed in the Institutional Building for Improved Service Delivery activity. It will cover, among others, services in health service delivery by local hospitals, provision of clean water by Local Government Owned Enterprise for Clean Water (PDAM) and Population Administration (Dinas Kependudukan or other name). 37. Analysis of the increase in women’s access to public services such as health services, clean water, and administrative services will be incorporated into the activity through collection of baseline data and tracking of improved women’s access to the various services that are chosen for implementation of the services model. For example, in provision of health services, the increase in number of women with access to midwives and health clinics and/or provision of women’s health services in existing clinics can be encouraged and tracked.

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38. In addition, the implementing agency should incorporate a gender perspective in model design, implementation and evaluation result. Both women and men from service delivery units should be given opportunities to participate in the project and gender disaggregated data on participation of women in the project should be collected.

Project Management, Execution and Implementation 39. Considering the timeframe allotted for the implementation of the activity, procurement processes and the nature of work to be performed, the execution of the activity will be a combination of GOI/recipient executed (Grant in Cash) and WB executed (Grant in goods and services). 40. The role of the, Director General of Public Affairs (Ditjen PUM), Ministry of Home Affairs is as sponsor/owner of the project with responsibilties for procurement and contracting of the implementing agency; steering and facilitation of project implementation; coordination with local governments; jointly with DSF Executive, monitoring and evaluation of project implementation, and for submission of project documents in coordination with DSF Executive to the DSF Management Committee. The DSF Executive will arrange for the implementation of preliminary activities. Among others, this will include a base line study for women’s access to public services, preparation of the pilot region, facilitation of the implementation of preliminary activities, procurement and contracting of consultants, and quality assurance; and jointly with MoHA: monitoring and evaluation of project implementation, and submission of the project implementation report to the DSF Mc. The implementing agency is responsible for implementing the program according to the terms of reference, techncial proposal and financial proposal; coordinating with MoHA on a regular basis, and submitting reports/deliverables to MoHA and DSF Executive according to schedule for review. The local governments (pilot regions) will be responsible for producing work plans and implementing the model in line with direction from the implementing agency and MoHA (See table below for a summary of roles and responsibilties). They will provide a regional team to support model implementation and relevant counterpart funding for operational costs. MoHA Ditjen PUM: sponsor/owner of program; responsible for procurement and contracting of implementing agency, steering the implementing agency and facilitating project implementation; coordination with local government; approving the detailed activities and model design; monitoring of program implementation; and submission of project implementation reports in coordination with the DSF Executive to the DSF MC. DSF Executive: responsible for procurement and contracting of consultants and facilitation of program implementation for preliminary activities; assistance with monitoring and quality assurance of project implementation; and, jointly with MoHA, submission of project implementation reports to the DSF MC. Implementing Agency: implementation of the program according to the terms of reference, technical proposal, and financial proposal; coordination with MoHA on a regular basis (including one key personnel based in MoHA), and submission of reports/deliverables to MoHA and DSF for review. Local Government (Pilot Regions): responsible to produce work plan and implement the

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model with facilitation from implementing agency and MoHA including establishment of a regional team to support model implementation and counterpart budgets to cover operational costs incurred by the local governments. 41. MoHA is expected to provided counterpart funding for aspects of the project not covered under the contract with the implementing agency.

Implementing Agency 42. The first part of the project is implemented by short term consultants who will be recruited by the World Bank according to the Bank Executed regulation. 43. In implementing the first part requires consultants as follows: a. Consultant - gender b. Consultant for public services c. Consultant for public services, governance and finance d. Consultant of institution building and finance e. Consultant for management support f. Financial administrator 44. The second part of the project wil be conducted by an implementing agency: consulting firm, university, or other institutions and several short term consultant recruited by government, Directorate General PUM, Ministry of Home Affairs. Accordingly, procurement will be done by government using Keppres 80/2003. This should be in line with the World Bank regulations for recipient executed projects. 45. The implementing agency consisting of a consultant team. The implementing agency should have: a. In-depth knowledge of public service delivery; and experience in the sectors of PDAM, Hospital management, and Population administration would be an advantage b. Ability to design and facilitate implementation of public sector models, especially in public service delivery c. Experience in facilitating and advising regional pilots d. Demonstrated management capability and financial management capability e. Commitment to maintain regular communication with Ministry of Home Affairs and work under MoHA coordination, especially the Director General of Public Affairs f. Demonstrated experience in working with independent local institutions as field facilitators g. Ability to perform project management, implementation, and monitoring and evaluation. 46. The consultant team should meet the following requirements: a. Team Leader- experienced in managing projects and foreign donor supported projects for development of public service policy, in depth knowledge of public service management, especially strategic management and institution building for service

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b.

c. d. e. f.

g.

delivery; excellent communication, presentation and reporting skills. Minimum 15 years working experience. International experts/co Team Leader - experienced in managing projects and providing project support on the development of public service management and policies and institutional building for service delivery; excellent communication, presentation and reporting skills. Minimum 15 years of experience in leading position. Public Services and Strategic Management Expert (minimum 10 years experience) Public Policy and Governance Expert (minimum 10 years experience) Short Term Expert for Regulatory framework (minimum 10 years experience) Short Term Experts as needed according to the sectors selected by pilot regions (among others Management of Regional Hospitals, Population Administration, Provision of Water / Water, institutional experts). Regional Facilitator Team recruited from local institutions in two provinces.

Specific requirement for all experts will be described in a separate TOR.

Procurement and Implementation Schedule 47. The following estimated schedule is proposed: • June 2009: Finalization and MC approval of Activity Concept Note . • July 2009-January 2010: defining mode of execution, TORs and budget preparation • Jan-Feb 2010: Processing grant agreement for recipient executed • Jan-March 2010: procurement processes. Advertisement and request for expressions of interest, evaluation, short list. • Jan-June 2010: Baseline study of women’s access towards public service delivery, preparation of pilot regions • April-May 2010 : Request for proposals; technical and financial proposal evaluation; and negotiation with the top ranked firm/agency. • June 2010: Contract Issued and experts mobilization. • July 2010: Delivery inception report. • December 2010: Delivery of pilot implementation reports of phase I. • May 2010: Delivery of pilot Implementation reports of phase II. • August 2011: The delivery of final report. • September 2011: Policy brief and closing projects.

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DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 5/2009 Summary: This activity builds institutional capability at different levels of government for the better horizontal and vertical integration of sectoral, development, and spatial planning. It does this by: a) examining means for the better vertical integration with national spatial plans of sectoral and development plans produced at different levels of government; b) examining means for the better horizontal integration of local government spatial and development plans (for contiguous areas); c) designing and delivering training programs to institutionalize the necessary capabilities at different levels of government; d) analyzing relevant organization and management systems and making recommendations for their improvement; e) to begin with, undertaking this work in a small number of pilot provinces and districts; and f) producing a plan for the scaling-up of such institution building nationally.

Activity Title Institution Building for the Integration of National-Regional Development and Spatial Planning

Counterpart agency and key government contacts • Bappenas, Directorate for Spatial Planning and Land. Bappenas is the key beneficiary as outputs from this project will support efforts to improve development policy related to regional development. • Bapak Deddy Koespramoedyo, Director of Spatial Planning and Land, Bappenas.

Duration July 2009 –July 2010

Background and Rationale 1. National, provincial and district/city levels of government are responsible for making sectoral plans, development plans and spatial plans. These plans should be integrated horizontally within each level of government and also aligned vertically to ensure that plans across levels of government are coherent. The task of achieving such integration and alignment is extremely challenging as it involves many players often with competing demands. At all levels of government insufficient integration is evident and vertical alignment between levels of governments is lacking 1. For metropolitan areas specifically, Friedman (1999)2 notes that vertical and horizontal conflicts are evident in many Asian

1

Based on comments from Bapak Deddy Koespramoedyo, Director of Spatial Planning and Land, Bappenas Friedman J. (1999). The Governance of City-regions in East and Southeast Asia. Paper presented to International Conference on Cities in Asia, December, Hiroshima, Japan. 2

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cities. Firman (2008)3 focuses on how to overcome these problems of coordination for the Jakarta metropolitan area. While the challenges of coordination in the capital are specific rapid growth in other urban areas makes initiatives to overcome these challenges relevant elsewhere. 2. A planning system is “a system of laws and procedures that set the ground rules for planning practice” (Healey, 19974). A national planning system is, of course, highly complex and seeks, by various legal and other means, to accommodate conflicting interests within a limited fiscal capacity. In the context of this ACN, planning is more narrowly defined as those practices which produce planning documents. By these we refer to development planning documents at three levels of government (primarily the 5-year medium term development plan), spatial plans and sectoral plans. 3. A useful definition of spatial planning comes from the European Regional/Spatial Planning Charter: "Regional/spatial planning gives geographical expression to the economic, social, cultural and ecological policies of society. It is at the same time a scientific discipline, an administrative technique and a policy developed as an interdisciplinary and comprehensive approach directed towards a balanced regional development and the physical organization of space according to an overall strategy." 5 4. Spatial planning, more simply stated, is about where, physically, to concentrate limited resources. Planners need to select priority areas, both spatial as well as sectoral, so as to concentrate resources and to develop agglomeration effects as it is impossible to develop everywhere at the same time (Luiz, 2003)6. 5. For a definition of development planning, reference is made to Indonesian Law 25/2004: “The national medium term development plan is an elaboration of the vision, mission and program of the president which is guided by the long-term development plan. [This] contains the national development plan, policies and programs from ministries……and cross-regional programs. [It] also contains the macro economic framework which details complete economy including fiscal policy direction in work plans which are the indicative regulation framework and funding framework.” (UU 25/2004, Article 4, Clause 2). 6. Decentralization has seen the devolution of a wide range of responsibilities to local governments. Increased responsibility to manage far greater fiscal resources and to deliver services has led to increased demands on local governments to develop the capacity to plan effectively. The progress of the implementation of decentralization has been variable across 3 Firman T. (2008). In Search of a Governance Institution Model for Jakarta Metropolitan Area (JMA) Under Indonesia’s New Decentralization Policy: Old Problems, New Challenges. Public Administration and Development 28, 280-290. 4 Healey, P. (1997) Collaborative planning: shaping spaces in fragmented societies (London: MacMillan) 5 Prospects of development and of spatial planning in maritime regions. European Conference of Ministers responsible for Regional Planning (1983) European Union. 6 Luiz J. M. (2003). The Relevance, Practicality and Viability of Spatial Development Initiatives: A South African Case Study. Public Administration and Development, 23, 433-443.

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Indonesia with some regions performing well and others poorly (Firman, 2008). A lack of clarity over the functions of different levels of government impeded successful implementation (Firman, 2008 and Brodjonegoro, 20067) although Government Regulation No. 28 on Division of Functions has gone some way to clarifying this. 7. Decentralization is expected to lead to the creation of more appropriate development plans, which are better aligned with local needs and aspirations. However, as Firman (2008) states this has led local governments to consider their jurisdictions as being under their full control with resources available at their exclusive disposal. As a consequence they do not need to consider the larger area within which the district or city is located and they are yet to realize the potential of these development resources to improve public service provision. Azis (2003) goes as far as to claim that if local governments are authorized to do their own planning and development in a decentralized system then potential economic externalities are forfeited. During the Soeharto era, the national government could easily intervene to address vertical coordination problems; yet under decentralization the environment has grown much more complex (Firman, 2008). 8. Local governments, at both provincial and district/city levels, create medium-term development plans (RPJMD8). They do not necessarily cover the same timeframe as the national plan; indeed many seem to cover the period from 2006 to 2010. Local governments are not required to issue the RPJMD as local regulations (Perda) but usually issue them as bupati/walikota regulations. RPJMD generally reflect the local government’s leader’s (bupati or walikota at district and city level) vision for the five year development of the region. Local governments also make spatial plans which are required to be passed by the local parliament into law which necessitates approval from both the provincial and national government. Law 26 2007 specifies that local development plans are to refer to (‘saling mengacu’) spatial plans at both national and regional levels. 9. Given the complexity of ensuring coherent planning within a local government and between levels of government many local governments have yet to realize their potential in terms of effective and integrated planning. This is manifested through a lack of integration between development and sectoral plans with the regional spatial plan. Regional spatial plans are supposed to inform development plans and vice-versa and local government yearly work plans are also supposed to reflect spatial plans. Plans are supposed to be crossreferenced to ensure consistency and clarity, yet in practice development plans drafted by a local government administration, as led by a newly elected bupati/walikota, do not sufficiently refer to existing spatial plans. The result is that spatial plans are often not implemented thereby contributing to haphazard development.

7

Brodjonegoro B. (2006) Decentralization as a Fundamental Policy to Enhance the National Economic Growth and to Reduce Interregional Disparity in Indonesia. Acceptance Speech of Professorship in Economics, Faculty of Economics, University of Indonesia, 18 March, Jakarta. 8 Rencana Pembangunan Jangka Menengah Daerah

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10. Local governments are supposed to align their plans with national level plans. National sectoral plans need to be reflected in local spatial plans, yet, as explained below, the lack of integration at national level between sectoral and spatial plans makes this very challenging. The result is that spatial maps between levels of government are inconsistent. The information is inconsistent and different formats are used, making comparison difficult. 11. The national government expends considerable resources to develop plans, as expressed through sectoral plans, development plans and spatial plans. While considerable effort is exerted at national level to ensure that sectoral ministries’ plans are adequately reflected in the medium term development plan (RPJMN) there remains a lack of integration between the development plan and the spatial plan at national level, a problem compounded by the different time frames used. The medium term development plan runs for five years from 2010-2014 and the spatial plan was issued in 2008. For planning to be truly effective there must be integration of sectoral and development plans with spatial plans. If sectors such as forestry and infrastructure develop plans that are not adequately reflected in the national spatial plan the consequence will be chaotic spatial development. While this concept note does not present evidence that this is the case in Indonesia a somewhat cursory look would seem to suggest so. The above paragraph states that regional governments do not sufficiently integrate their plans with national level plans. By the same token the national government has yet to provide the framework, mechanism and support to ensure that there is proper alignment between levels of government. In other words, it works both ways. 12. A third, geographic, dimension to this picture of alignment of planning between and integration within governments is provided by spatial planning aspects which cut across jurisdictions. Clearly, there is often a need to develop integrated spatial plans that encompass more than one local government, whether it be provincial governments or district/city governments. At present, while national law articulates that cross district spatial planning issues are resolved at provincial level and cross provincial issues at national level in reality there is a lack of cooperation between jurisdictions and the mechanism to resolve issues at a higher government level is not working effectively. This has been further compounded in recent years since the acceleration regional separation (pemekaran). Recent local initiatives may point the way forward. Current initiatives include district cooperation in Central and East Java. A previous initiative in Jabotabek9 undertaken by Badan Kerjasama Pembangunan (Development Cooperation Authority) was undermined due to a lack of clarity on the sharing of financial responsibilities. 13. At the national level institutional responsibility for creating planning documents is spread across national government. Each sector is, of course, responsible for drafting planning documents. Most sectors draft long, medium and short term plans covering twenty, five and one year plans respectively. Sectoral plans are articulated as government 9

4

The metropolitan area of Jakarta, Bogor, Tangerang and Bekasi.


ACTIVITY CONCEPT NOTES # 5 | ARRISING FROM THE DSF WORK PLAN 2009-2011

works plans (RKP – Rencana Kerja Pemerintah). Bappenas has a coordinating role and is responsible for drafting the national long and medium term plan preparation (RPJPN and RPJMN10). Sectoral plans are to be reflected in this (and vice versa). Bappenas (Directorate of Spatial Planning and Land) is responsible for preparing policy input, coordinating, synchronizing of drafting and evaluation of national spatial plans as well as monitoring and evaluating their execution 11. 14. Spatial plans at national level are drafted by a BKTRN12, a cross-ministerial body with legal powers as articulated in Presidential Decree No. 4 2009). BKTRN’s main tasks are to prepare national spatial planning policies and to ensure the execution of the national spatial plan in an integrated manner and reflected in sectoral development programs and regional development programs. BKTRN is chaired by the Minister for Economic Coordination and cochaired by the Ministers for Public Works and Home Affairs. The Minister of Bappenas is the secretariat. There are 10 additional members, including ministers from the department of defense, agriculture, forestry, sea and fisheries and foreign affairs. The coordination role that BPTRN plays across ministries is crucial; yet even such a legally empowered body with high level representation has struggled to ensure that sectoral plans and spatial plans are integrated. 15. The Ministry of Public Works (Directorate General for Spatial Planning) is responsible for providing technical support for the spatial plan which reflects its role in national infrastructure development and the need to plan infrastructure development spatially. Ministry of Home Affairs (Directorate General for Regional Development) is involved in planning at the regional level and is currently drafting guidelines for local governments to use when drafting regional (district/city and provincial) development plans. 16. The complexity and diffusion of institutional responsibilities has resulted in a lack of clarity and purpose in the directions from central government to regional governments. 17. Given the complexity of the inter relations between planning documents at different levels of government a diagrammatic representation is useful and this clearly shows where the activity described in this concept note will seek to intervene.

10

The key development planning documents are the 5-year RPJM (Rencana Pembangunan Jangka Menengah) and the 20-year RPJP (Rencana Pembangunan Jangka Panjang), which are drafted at national, provincial and district/city levels of government. 11 See: Tugas, Pokok dan Fungsi Direktorat Tata Ruang dan Pertanahan (www.bappenas.go.id) 12 Badan Koordinasi Penataan Ruang Nasional (Government Agency for the Coordination of National Spatial Planning). See: http://www.bkprn.org/v2/

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Graph 1: Inter connections between plans within and between levels of government

18. Legal framework. Development plans, spatial plans and sectoral plans are legal documents. The long term development plan (RPJPN 2005-2025) is articulated in Law 17 2007. The medium term development plan is articulated in Presidential Decree No. 7 2005. The RPJMN for 2010-2014 is being finalized and should be approved by the president by the end of 2009. 19. National sectoral plans generally follow five year (Renstra – Strategic Plans) and one year (RKP – government work plans) cycles. The government work plans for 2010 are being finalized and should be approved by parliament before the end of the year. 20. The law on national spatial planning is enshrined in Law 26 2007 and Government Regulation 26 2008 articulates the current national spatial plan. This replaced Spatial Planning Law 24/1992 which could not adequately accommodate the changes resultant from the implementation of Law 25/1999 and Law 32/2004 on Regional Governance. The national spatial plan remains current but may be subject to revision. 21. In line with these decentralization laws, Law 26/2007 stipulates explicitly the authority of provincial governments and of district and city governments in regard to spatial planning. The new law also seeks to increase transparency and accountability and stipulates minimum standards of service in spatial planning. The 2007 law also emphasizes the importance of public participation in spatial planning and provides more detailed regulations than the previous spatial planning law, including the rights, obligations and forms of public participation in spatial planning.

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22. Government Regulation 26/2008 on National Spatial Planning articulates the national spatial plan. In keeping with Law 26/2007, this regulation aims at more effective and sustainable spatial planning. The focus is on: better harmonization between natural and manmade resources; better integration between planning at national, provincial and district/city levels; reducing negative environmental impact; more emphasis on sustainable development to improve welfare; and a better balance between regions and across sectors. It is stipulated in GR 26/2008 that regulations regarding spatial planning should now be passed by the provincial governments within one year of the national decree (i.e. by April 2009) and by all local governments within two years (i.e. by April 2010). However, many provinces, if not all, have failed to meet this deadline and Bappenas assesses that many district/city governments are also unlikely to achieve this target. There is a need and demand from the regions for more clarity and direction on how to proceed with the preparation of effective development and spatial plans and this project goes towards fulfilling this need. 23. At district/city level spatial plans are at different stages of legal drafting. Some are being revised to adhere to the new law on spatial planning, while some have already been adopted as local regulations and others are still awaiting the revision process to start. Regional and national spatial plans do not follow the same time frame and this has compounded the coordination and integration problems. The central government has recommended regional governments to produce transitional spatial plans so regional plans can move onto the same time frame as the central government. 24. As well as the national spatial plan there are also specific spatial plans for islands (for Java-Bali, Sumatra, Kalimantan and Sulawesi) which have been endorsed at the provincial level but are yet to be accorded legal status. The Ministry of Public Works has been instrumental in helping prepare the island spatial plans. Recently, the ministry has prepared and distributed guidelines and manuals for local governments to prepare their spatial plans. Similarly, MoHA has recently provided directives for local governments to prepare local regulations on spatial plans. 25. Other relevant laws include Law 25/2004 on National Development Planning System and PP 8/2008 on Stages, Drafting, Supervision and Evaluation of the Execution of Regional Development Planning. 26. Currently, there is a lack of regulations governing inter-regional cooperation and integration of planning documents, between provinces, between districts/cities and between provinces and districts/cities, especially concerning the division of financing responsibilities. 27. Activity rationale. Better planning will lead to better development outcomes. Although the investment is relatively small the prospects for leveraging a significant improvement in regional planning are very strong. The DSF log frame states that the overarching goal of the

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DSF is effective decentralization and improved service delivery. By better synchronizing planning between different levels of government and within and between local governments this project strengthens the decentralization system by developing mechanisms to integrate planning. With a better coordinated approach to planning citizens benefit through improved service delivery. 28. The activities described in this note are designed to improve the integration of spatial and sectoral/development planning at national level, to improve the alignment between spatial planning at different levels of government, to improve the integration of development and spatial plans at regional levels and to improve cross jurisdiction spatial planning. It will do this by: a. Providing institutional support to BKPRN, through the Bappenas, Directorate of Spatial Planning and Land Affairs, to develop integration between the national spatial plan and sectoral plans. b. Consult with regional stakeholders to elicit input for national level planners. c. Provide support to regional stakeholders to align spatial plans with higher levels of government. d. Provide training and support to regional stakeholders to better enable them to integrate spatial plans with sectoral/development plans. e. Study regional innovation in cross border spatial planning cooperation. 29. The 4 key planning issues to be addressed in this project are: (1) The lack of alignment between national sectoral/development plans with the national spatial plan; (2) the lack of alignment between different levels of spatial planning, including the lack of integration between line ministries’ sectoral plans and local spatial plans; (3) the lack of synchronization between spatial plans and development plans within a local government leading to a poorly executed spatial plans; and (4) the lack of coordination in spatial planning between neighboring local governments, both provincial as well as district/city. 30. The first three components are interlinked. Without such a national level focus support provided directly to regional governments would be useful but would not address key failings in the planning system. Improving vertical alignment in spatial planning would be useful in itself but would not address the key issue that spatial plans at regional level are often not implemented. 31. The first component seeks to improve alignment at the national level by working with Bappenas and BKPRN (Bappenas is the secretariat). The activity will also provide feedback from regional stakeholders to national level planners and this can be taken on board by national planners. The second component seeks to better align spatial planning at all three levels of government. The third component provides direct support to regional governments to better integrate sectoral/development plans with spatial plans. This should improve spatial planning in the regions. The final component explores regional initiatives in cross

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jurisdiction spatial planning cooperation and establishes whether and how such initiatives can be scaled up.

Goal and Objectives 32. The goal of the project is to build central and local government institutional capacity for the increased integration of development and spatial planning. 33. Its purpose is to improve vertical coordination in spatial planning and to improve horizontal integration and synchronization between sectoral/development and spatial plans (at both national and regional levels) in order to produce integrated regional sectoral/development plans and spatial plans. 34. The objectives of this project are: a. Improved integration between national spatial planning and national sectoral/development. b. Improved alignment of spatial planning between national, provincial and district/city governments. c. Better integration of cross-sectoral plans into the regional spatial plans. d. Better integration between local spatial and sectoral/development plans. e. Better coordination between neighboring districts/cities in making spatial plans

Scope of Services 35. The scope of services outlined below encompasses all activities to be completed within a time frame of 12 months. a. Map the institutional structure of development (including sectoral) planning and spatial planning at national level. Assess the legal framework with a view to establishing the context to which it helps or hinders the development of integrated planning. Undertake a review of the management of spatial and development planning in other countries. b. Provide an expert consultant to work with Bappenas and BKPRN to explore and help execute ways to improve alignment of sectoral/development and spatial planning. c. Provide recommendations as to how to improve integration at national level. This may cover both institutional as well as technical solutions. Develop a strategy for implementing the recommendations, after wide ranging consultation and support from national ministries and local governments. d. Provide input for the RPJMN. The RPJMN 20010-2014 is expected to be signed by the President by the end of December 2009 and final inputs are required by October 2009. The consultants/implementing agency is expected to work closely with Bappenas to ensure that Bappenas’ requirements for input can be met. e. Select target local governments. The focus will be on a small number of provinces but the Implementing Agency should establish ways of including district and city governments within the pilot provinces. Criteria for selection and final selection to be

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f.

g.

h.

i.

j.

k.

10

made in consultation with Bappenas’ Directorate of Spatial Planning. Selection may be aligned with other relevant DSF projects also in consultation with Bappenas. Map the national/regional structure linking development and spatial planning functions. Identify the shortfalls in the present system and provide recommendations as to how to address these shortfalls. Lessons from international experience should be considered where relevant. Draft recommendations on how to address these problems. Develop a strategy to implement the recommendations after wide ranging consultation and support from national ministries and local governments. Assess the institutional framework for producing, integrating, aligning and executing planning documents at regional levels. Provide recommendations as to how integration and alignment can be improved and identify those areas most likely to respond well to limited interventions. The implementing agency may consider both technical as well as institutional solutions encompassing human resources, processes and policies. A technical solution may include the introduction of more specific guidance, including revised document formats and standard formatting for spatial maps. Create a training and development curricula to address the medium term training needs of national level government officials involved in linking sectoral and spatial plans. This may include officials from the Government Agency for the Coordination of National Spatial Planning as well as official a drawn from ministries, as appropriate. The Implementing Agency will be expected to develop such a comprehensive training plan which may run beyond the life of the project and to deliver key aspects of it within the life of the project. Establish a technical working group. The working group will include cross ministerial representatives and may also include key actors, including local government representatives and non-governmental actors (e.g. Ikatan Ahli Perencanaan – Association of Planning Experts), universities and also private sector representatives. The working group will provide technical input designed to improve alignment and integration. Draft of technical input as needed to achieve greater alignment. Provide training and support directly to the target local governments to build local institutional capacity to align national and regional plans (vertical) and integrate regional sectoral/development plans and regional spatial plans (horizontal). A training curriculum will need to be developed based on a needs assessment. Support may include technical support to local governments in how to implement new technical input such as technology transfer in the area of thematic spatial mapping. Organize consultations and workshops as necessary to elicit input, achieve stakeholder support for the project, to disseminate results and to achieve stakeholder support for making the necessary changes at national and regional levels of government. Effective 2-way communication between levels of government will be essential to the success of the activity.


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l. Assess current initiatives on inter-district spatial planning cooperation and assess options for replicating and institutionalizing initiatives. Several initiatives have been taken by local governments to establish and strengthen inter-district cooperation. This project will seek to develop this kind of cooperation and seek ways to find sustainable solutions to improving inter-regional cooperation, perhaps including through strengthening the role of the provincial government. A key example is the cooperation in the Jakarta metropolitan area as mandated in Law No.29 2007. m. Create a database on planning documents. The Implementing Agency, in consultation with the client, Bappenas, will develop a list of documents to be uploaded and establish a mechanism through which the database can be maintained and documents updated. Before launching, a communication strategy will need to be designed to ensure all stakeholders are served by the database.

Deliverables 36. This covers deliverables over the course of 12 months. a. An inception report which covers: a literature review, highlighting the current management of spatial and development planning in Indonesia and in other countries; an assessment of the current legal framework; an assessment of the current status of spatial and development planning at national and regional levels; an institutional mapping of the key players involved at national, provincial and local levels, an assessment of the constraints to integrated planning at national level; and an identification of the institutional support needed at national level to improve integration at national level and alignment with regional spatial plans. The inception report will also detail progress made towards creating a cross-ministerial consensus on how to move ahead with this agenda. Close cooperation with Bappenas is necessary to ensure that the inception report meets the requirements of the activity to provide input for the RPJMN. October 2009. b. A strategy paper, including an institution building plan, with cross-ministerial buy-in to improve the integration of development and spatial planning at national level and integration with regional spatial plans. December 2010. c. A training and development curricula to address medium term training needs at national level. February 2010. d. A strategy paper including a needs assessment and key technical requirements for regional governments to improve alignment of spatial planning between national and regional governments (vertical) and between sectoral/development and spatial planning within regional governments (horizontal). February 2010. e. Report from pilots in provinces and districts/cities. This should cover (i) an assessment of current planning systems in these target regions and constraints faced with regard to ensuring vertical and horizontal alignment, (ii) report on outcome of TA support to build capacity in planning integration and alignment, and (iii) problems and constraints faced in introducing harmonized formats for various planning

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documents, such as thematic maps, and an assessment made as to how to overcome such constraints. June 2010. f. Report on initiatives in inter-regional spatial planning cooperation and recommendations on how to improve inter-regional spatial planning cooperation on a wider scale. June 2010. g. Web-enabled database on development plans and spatial plans. June 2010. h. Final report (accepted by Bappenas/DSF). July 2010.

Sustainability 37. The project implementing agents will be expected to work in a manner conducive to ensuring sustainability. Above all, this implies a particular approach in delivering project objectives. The idea is not to produce a sophisticated ‘study’ recommending a highly complex model of planning that does not fit within the well-established practices and resources available in the country. 38. Instead, the focus of this project is to build in-country capacity (both within government and non-government agencies), to progressively improve planning techniques, and dove-tail development and spatial plans through the use of more harmonized documents. 39. An important criterion for assessing the success of the project will thus be the technology transfer aspect – the extent to which capacity within the country has been enhanced with regard to more effective integration of national-regional development and spatial planning techniques. 40. For the long term success of this project it is essential to involve throughout the process local organizations, such as universities, NGOs and the private sector, so that training capacity is enhanced.

Gender 41. It is incumbent on implementing agents (firms and individuals) to consider carefully the gender ramifications of the work that they do, and to demonstrate in their work plans how they will do this and in their reports what progress is being made. One way of ensuring that more than merely the form of gender sensitivity is observed (as happens in so much development assistance) is to consider the question in terms of relative distributions of power and influence between men and women, and the way in which access to services – such as health and education – can distort the social construction of such power and influence. To help with making gender central to the projects it supports, the DSF Executive can provide access to recent publications on gender and, in some instances, to relevant expertise within the Bank.

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Program Management, Execution and Implementation 42. Management role of the DSF Executive. Our policy is to employ the best qualified and experienced individuals and firms to implement the projects we finance; to provide them with clear objectives and guidelines concerning the work that needs to be done; and to be available to help wherever it is requested; but not to interfere or ‘micro-manage’ the project. 43. The effectiveness of this policy therefore rests heavily on how well the selection of individuals and firms is done and on the quality of the documentation and briefings concerning what is required of implementing agents. 44. The DSF Executive will gauge project progress on the basis of the periodic reports that it receives from implementing agents. It will monitor the achievement of agreed activity milestones and project objectives. It will liaise with government counterparts as necessary, to obtain their feedback, and provide periodic assessments of project status, most generally through the DSF quarterly reports. 45. Mode of execution. This activity will be World Bank executed (i.e. expenditure will be off government treasury, and incurred directly by the DSF). 46. It is proposed to divide this work into two sections and contract individual consultants for six months to perform the national institutional strengthening role and an implementing agency for the regionally focused work for twelve months. 47. Consultants will be contracted to perform the support role for BKPRN and Bappenas. They will focus on developing institutional capacity at the national level. All the regional government level work will be performed by an Implementing Agency. This arrangement offers two advantages. Firstly, the national focus of the activity lends itself to an individual consultancy arrangement because it is proposed to provide day-to-day support to BKPRN through the provision of technical expertise. A small team of consultants, probably three, will also conduct the institutional mapping, review key concepts in spatial and development planning and assess relevant international experience at integrating the two. The consultant team will also provide recommendations as to how to improve integration at national level and develop a strategy for implementing the recommendations. Secondly, by contracting individual consultants work can begin expeditiously. Given the time frame for inputs for the RPJM this arrangement makes it possible to meet Bappenas deadlines. Procurement for an Implementing Agency will take much longer meaning early deadlines would be missed. 48. An implementing agency will be needed for the main part (regionally focused) of the activity as the scope of services necessitates an institution with sufficient resources (technical experts, administration, finance). A QCBS (Quality Cost Based Selection) method will be used for the selection process. A consortium of organizations may submit a proposal clearly delineating tasks.

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49. Bappenas and DSF will jointly prepare a Terms of References for consultants and an Expressions of Interest for the Implementing Agency. Bappenas and DSF will jointly select candidates. 50. Consultant and implementing institution. The consultants listed below will be contracted by the World Bank as Short-Term Consultants to perform the national level i9nstitutional strengthening role, working with BKPRN and Bappenas. It is expected that 2 consultants will be needed. One lead consultant and two support consultant will be contracted. 51. The Lead Consultant will have overall responsibility for all the national level work and will be responsible for ensuring that work is synergized with the implementing agency contracted to perform all other tasks. He/she will have the following qualifications: a. A master’s degree, preference to PhD in a relevant subject preferably spatial planning. b. Over ten year’s work experience specifically in planning issues in Indonesia and, ideally, knowledge of relevant international practices in integrated planning. c. A highly-regarded academic in his/her field with a substantial body of published work. d. An excellent grasp of current developments in spatial planning, preferably with papers published in this field. e. An in-depth knowledge of government structure and processes surrounding planning and an extensive network within central government, ideally with Bappenas, Ministry of Public Works and sectoral ministries. f. Demonstrated experience of institutional strengthening in Indonesia. g. Substantial experience of leading small working teams and a demonstrated ability of working successfully with a range of stakeholders and an ability to bring together stakeholders to a shared platform. 52. The two Support Consultants will take direction from the lead consultant and he/she will have the following qualifications: a. A master’s degree in a relevant topic, preferably in planning. b. Over five year’s work experience specifically in planning issues in Indonesia. c. An excellent knowledge of government structures and processes related to planning at the national level and a good understanding of challenges at the local level. d. Excellent analytical writing skills. 53. The implementing institution(s) will have the following qualifications: a. Demonstrated expertise in development planning and spatial planning at both national and regional levels in Indonesia. Knowledge and experience of international experience will be an added advantage. b. Demonstrated capacity to run an activity of this scale with the necessary human resources to manage a project of this complexity.

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c. Substantial experience working with the Government of Indonesia, preferably with Bappenas and also working with local government, preferably at provincial level as well as district/district. d. Substantial experience delivering Technical Assistance to national and regional governments in Indonesia. e. Substantial experience in the monitoring and evaluation of projects/activities. f. Demonstrated ability to deliver results within the given time frame. 54. Qualifications required for key positions within Implementing Agency: a. Project leader: At least a master’s degree, preference given to PhD in a relevant subject, preferably in planning. Over ten year’s work experience specifically in regional planning issues in Indonesia. Demonstrated grasp of key issues with preference given to those with a relevant publication history. Substantial management experience and demonstrated ability to manage a project of this complexity. b. Regional project leaders: Each province will have an assigned regional project leader. This individual is expected to display substantial experience in planning issues in that province or similar. Demonstrated ability to lead a provincial based team of facilitators and trainers. An in-depth understanding of regionally specific spatial and development planning issues and processes. In-depth knowledge of relevant national legislation. c. Regional facilitators: Demonstrated ability to deliver high quality technical assistance to local governments. Sufficient knowledge of planning issues.

Procurement and Implementation Schedule 55. Procurement and Implementation schedule for this project: Procurement • July 2009: ACN approval from Management Committee. Preparation of Terms of Reference and selection and consultants. Preparation of Request for Proposals and advertising in national media. • August 2009: Evaluation of proposals, finalization of contract with implementing agency. Implementation (Consultants) • August 2009: Literature review. Legal framework review. Institutional mapping at national level. Access relevant international practice. • September 2009: Input for RPJM. Formulation of strategy for strengthening national integration and functioning of BKPRN (to improve sectoral/spatial integration and vertical spatial alignment). • October 2009: Coordination with Implementing Agency. Development of crossministerial consensus for better integration at national level.

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• November 2009: Delivery of activities for strengthening of BKPRN. Coordination with Implementing Agency. • December 2009: Regular coordination and reporting to Bappenas’ Directorof Spatial Planning and Land Affairs. • January 2010: Assessment of impact and recommendations for future engagement. Implementation (Implementing Agency) • September 2009: Inception phase. Selection of pilot provinces. • October 2009: Assessment of planning documents, constraints to integration and alignment in pilot districts/cities. • November 2009: Institutional mapping at regional levels and links with national level. Preparation for work in target local governments. Cooperation with national consultants. • December 2009: Preparation for database on development documents. • January 2010: Consultations with stakeholders in local governments to assess vertical and horizontal constraints to greater integration between spatial and development planning. • February 2010: Assessment of local initiatives in inter-regional spatial planning cooperation. National workshop linking national and regional planners to discuss constraints and solutions to lack of alignment. • March 2010: TA delivery in local governments. • April 2010: Assessment of inter-district cooperation models. • May 2010: Database completed. • June 2010: National workshop (end project). Database launched. Draft reports on both national and regional level assistance. • July 2010: Close project, final report.

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DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 6/2009 Summary: The goal of this activity is to support the development by government of the domestic market for municipal bonds and to institutionalize relevant capabilities to carry out such work within government. Once established, a market for municipal bonds will provide an important means for accelerating the financing of urban infrastructure, which is government policy. The activity seeks to achieve its objective through: (a) the organization of an international workshop on municipal bonds and follow-up training activities; (b) the provision of sustained guidance and on-the-job training to selected sub-national governments concerning the preparation of municipal bonds for urban infrastructure financing; and (c) analyzing, and making recommendations concerning the enhancement of, the creditworthiness of subnational governments. Capacity for doing the latter will be built in the Ministry of Finance through a combination of on-the-job training and action learning.

Activity Title Building Capacity for the Development of Sub-National Government Capital Markets for Municipal Bonds

Counterpart Agency and Key Government Contacts • The main beneficiaries of this activity are the Ministry of Finance (MoF), selected subnational governments (SNGs), and other Indonesian parties involved in the issuance of municipal bonds. • Contact persons for this activity are: a. Drs. Adriansyah, Head of the Directorate for Regional Investment and Capacity, Directorate General of Fiscal Balance, MoF; and b. Sugiyarto S.E., Ak., MSc., Head of the Sub-Directorate for Regional Borrowing, Directorate for Regional Investment and Capacity, Directorate General of Fiscal Balance, MoF.

Duration November 2009 – May 2011

Background and Rationale 1. Historically, SNGs have borrowed long-term almost uniquely from the central government. The main sub-national lending mechanisms have been Subsidiary Loan Agreements (SLAs) and the Regional Development Account (RDA). Both lines of financing are managed by the Ministry of Finance. Frequently, requests for loans of this sort, particularly the SLA, have been driven by central government technical ministries who were managing donor-financed projects that were designed to respond to concerns articulated at

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the central rather than the local level. The commitment of SNGs and state owned enterprises to repay such loans was rarely established beforehand, and repayment problems arose as a result. Moreover, the RDA and SLA have tended to be managed primarily as if they were central government programs. 1 2. The basic principles of financial intermediation—e.g., using objective financial appraisal; undertaking regular monitoring and performance assessments; practicing sound loan supervision; and so on — have not been consistently applied in the management of such loan accounts. Lending policies, systems and procedures are insufficiently developed and poorly applied, and supporting loan documentation is usually limited. As a result, neither local beneficiaries nor central government sponsors have been able to obtain reliable financial data in a timely manner. Such a system blurs the distinction between grants for capital investments that may need central support and loans for infrastructure that local governments can elect to take on for their own purposes. 3. In large part due to the economic crisis of the late 1990s, much of the SNG debt to the MoF turned into non-performing loans (NPLs). While small in absolute terms, these loans accumulated significant arrears in terms of overdue principal, interest and penalties. The ratio of total arrears to total payments as of 2005 was nearly 50 percent. The fiscal capacity of SNGs was found to be a poor indicator of repayment performance—many SNGs apparently failed to repay loans by choice rather than out of necessity. The Government of Indonesia (GoI), through MoF, has determined that no further loans will be made to SNGs that have arrears on existing loans. The MoF has been reluctant to re-open the on-lending channel until outstanding NPLs have been resolved satisfactorily. 4. Infrastructure investment needs. Despite a brief return to near pre-crisis levels in 2003, public development expenditures have been steadily declining due to the absence of appropriate infrastructure financing facilities. World Bank estimates suggest that infrastructure expenditures will need to increase from roughly 3 percent to 5 percent of GDP to maintain a 6 percent annual real GDP growth rate. Before the 1997 financial crisis, infrastructure investment amounted to over 6% of GDP, and contributed substantially to Indonesia’s good progress on growth and poverty reduction. However, following the crisis, investment in infrastructure fell to a low of 2% of GDP in 2000, and reached just over 3% of GDP in 2005.2 5. GoI’s commitment to making infrastructure one of its development priorities began to take shape with the first Infrastructure Summit, held in January 2005. The Government’s ongoing commitment was publicly communicated in a further Infrastructure Summit (February 2006), and an Infrastructure Forum (April 2009). Two infrastructure ‘policy 1

See Lewis, Blane D. 2007. “On-lending in Indonesia: Past Performance and Future Prospects”. Bulletin of Indonesia Economic Studies, Vol.43 No.1: 25-57. 2 See World Bank. 2004. Indonesia: Averting an Infrastructure Crisis: A Framework for Policy and Action. Jakarta: The World Bank Office.

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packages’ (Inpres 6/2007 and Inpres 5/2008) have been issued, setting out hundreds of policy reforms to be undertaken during 2005-2009, and the Government has moved steadily to implement this program. Budget allocations for infrastructure have more than doubled (in nominal terms) since 2005. 6. Despite the budget allocations increase, levels of investment in infrastructure are still considered to be very low. The latter is a cause for concern and will hurt Indonesia’s regional competitiveness and its ability to meet some of the MDGs. Redressing the infrastructure investment backlog is now a key priority to promote competitiveness, sustain economic growth and reduce poverty. In comparison to other local services in Indonesia, as well as to comparable countries in the region, urban services in Indonesia are deficient both in terms of quality and access. For example: • Limited investments in urban roads have left most major urban areas subject to severe traffic congestion, particularly the rapidly urbanizing satellite towns. • Many Provincial and District Governments have neglected much-needed investments in public hospitals, which since 2001 have been a regional government responsibility. • National and regional ports require major investments in rehabilitation, upgrading and expansion. • Flooding is a major problem in many parts of Indonesia, even in the most developed urban areas. In 2007, the worst episode of flooding in Jakarta covered 60% of the urban area with five meters of water. • Despite surpassing Thailand, Taiwan, China and Sri Lanka in overall infrastructure quality rankings in 1996, Indonesia has fallen behind, and is spending less on infrastructure than Laos and Mongolia, who spend 4-7 percent of GDP. 7. With decentralization, the responsibility for investment in infrastructure now rests within SNGs. Provincial and District Governments have the main responsibilities for public investment, including those infrastructure sectors where the needs are greatest. While many SNGs run surpluses, when capital investment needs are taken into account, they have insufficient financial resources to meet their investment needs, which far exceed their revenues and surpluses. There are obstacles to the mobilization by SNGs of large-scale infrastructure funding - from both the public and the private sectors. These include the longstanding problem of non-performing loans issued by MoF to SNGs and regional water utility companies (PDAMs), which is only now being resolved, and a reluctance on the part of stateowned and private domestic banks to lend at loan tenors and interest rates consonant with affordable repayment schedules. In the case of private sector investment, the inability to obtain finance on appropriate terms is compounded by lack of clarity on certain key issues such as land acquisition. 8. To increase investments over time, SNGs will need to have access to credit, and the central government needs to develop an appropriate sub-national borrowing and debt management framework. Since the revisions of 2004 to the decentralizing legislation, MoF

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has sought to mitigate the moral hazard previously inherent in SNG borrowing through the issue of PP 54/2005 on Regional Government Borrowing which, inter alia, sets prudent limits on debt and establishes reporting systems to allow MoF to monitor SNG borrowing, and to ensure their limits are being respected. In addition, MoF has issued new decrees that will restructure SNG debt and this will set the foundation for developing a new framework for sub-national borrowing and debt management. One of the proposed inputs to that new framework for SNG borrowing is the development of domestic capital markets for infrastructure financing by municipal bond offerings from creditworthy SNGs. 9. Rationale for DSF involvement. Owing to its long-term working relationship with the MoF and its interactions with all of the other actors that need to make such a market work, the DSF is particularly well positioned to assist the Ministry of Finance with the development of a municipal bond market and to continue efforts to increase capacities and institutionalize relevant capabilities of the staff of the Ministry’s and SNGs. The extent and relevance of DSF’s experience is demonstrated by its recent engagements with the MoF on an intercept mechanism and municipal bankruptcy and in the assistance provided to two SNGs (DKI Jakarta and Kota Bandung) for the preparation of municipal bonds – one of the subjects of this ACN. DSF is also

Goal and Objectives 10. The goal of the proposed activity is to support government’s policy of accelerating urban infrastructure provision, and specifically to bolster the Ministry of Finance’s contribution to the realization of government policy by building capacity for the development of a domestic market for municipal bonds. The objectives of the activity are to: • Familiarize the concept of municipal bonds to large, creditworthy SNGs and other parties involved in municipal bond preparation and to build their respective capacities for making informed judgments about this form of financing; • Facilitate the issuance of municipal bonds by two such SNGs and institutionalize relevant capabilities; • As part of the facilitation and institution building process, review annual audit problems; and • Recommend steps aimed at structurally enhancing the creditworthiness of SNGs and build capability to make and sustain the changes required.

Scope of Services and Sub-activities 11. The stated goal and objectives will be attained through the following components: • Exchange of international best practices on municipal bond preparation through the organization of a two-day workshop, to be held in Jakarta in October or November 2009; • To consolidate the above, follow-up training with key stakeholders. • Continued guidance and on-the-job training to two sub-national governments (DKI Jakarta and Kota Bandung) with the preparation of municipal bonds;

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• Provide assistance and capacity building to DKI Jakarta to achieve sustainable management of its fixed assets; and • Building within MoF the capacity to enhance SNG creditworthiness through, inter alia, the establishment of independent credit-ratings of SNGs and credit enhancement facilities. 12. Component A – International workshop on municipal bonds. Through the DSF, MoF intends to provide support for the preparation of municipal bonds issues in selected SNGs and other parties involved in the issuance of municipal bonds (including, but not limited to, rating agencies, underwriters and capital market regulators). To better understand the ‘practical side’ of municipal bond financing, the Ministry intends to invite representatives from central and SNGs from other countries to share their experiences with Indonesian parties that are interested in (and likely to be involved in) issuing a municipal bond. MoF wishes to invite representatives from countries with domestic capital markets that are comparable to those of Indonesia. The organization of this two-day workshop, to be held in Jakarta in collaboration with the Bank in November 2009, includes (but is not limited to) the following sub-activities: • Preparation of program; • Selection and invitation of keynote speakers; • Selection and invitation of participations; • Review of presentation materials; and • Arrangement of logistical support (hotels, travel arrangements, meeting venues, translations, handouts, etc.). Subsequent to the workshop, these experts are to conduct a number “clinic” sessions with staff from MoF (and interested staff from SNGs) to consolidate learning concerning municipal financing. 13. Component B – Continued guidance on preparation of a municipal bond issue to DKI Jakarta and Kota Bandung. This component comprises the following sub-activities: • The selection of projects and guidance on the preparation of feasibility studies; • Advice on Private Sector Participation (PSP) and Public Private Partnership (PPP) arrangements for appropriate projects; • Investigating project finance facilities to support the municipal bond issue; • Guidance on the availability of credit enhancement mechanisms; • The projections of repayment capability statements; • A review of public finances vis-à-vis other provincial and district governments, including SNG revenue sources and expenditure assignments, current deployment of available funds with local governments, timing and predictability of transfers; • The analysis of the financial strength of the selected SNGs, based both on the international standard criteria applied by rating agencies and MoF methods;

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• The development of the Municipal Bond Issuance Plan (Rencana Penerbitan Obligasi Daerah or RPOD) and completion of any other supporting documentation for submission to the MoF as required by PMK 147/2006 on Regional Government Bonds; • Discussions with and clarifications to the MoF during the bonds issuance plan evaluation process; • Selection of the underwriter; • Financial and legal/regulatory aspects related to the due diligence process; • Preparation and submission of the prospectus and the valuation and structuring of the bond issue; • Exchange of information through video-conferences with overseas regional governments that have experience in issuing municipal bonds; • Research and marketing activities; and • Co-ordination and supervision of the activities by investment banking, legal and engineering consultants. 14. Component C – Assistance to DKI Jakarta for the development of sustainable asset management systems. Unqualified audit ratings are a prerequisite to obtaining a satisfactory credit rating for a municipal bond issue. For FY 2008, the State Audit Agency (BPK) gave DKI Jakarta a qualified opinion (wajar dengan pengecualian – WDP), an improvement from the FY 2007 disclaimer opinion (tidak memberikan pendapat). In response to the opinion, the Government of DKI Jakarta has signed a Letter of Intent with BPK to, among other things, improve the management/administration of assets. 15. Given DKI Jakarta’s commitment to a successful municipal bond issue, assistance will be provided to the Finance and Fixed Assets offices within its Regional Financial Management Agency to develop sustainable fixed asset management systems so as to prevent further, related audited issues and to maintain an updated assets register for balance sheet purposes and to provide for adequate operations and management budgeting. In this connection, it is proposed to provide guidance to DKI Jakarta in the following sub-activities: • Investigate current practices; prepare a road map and timeline to achieve the required objectives; • Determine a strategy for dealing with certification of land assets • Assist with methodologies for documentation of asset details, determination of useful asset life, valuation and depreciation, and operation and maintenance (O&M) requirements • Determine internal and external resources, systems, equipment and software to implement the strategy and maintain a detailed assets register 16. Component D – Recommendations on structural improvements to SNG creditworthiness. The domestic capital market will only be willing to lend to SNGs that meet basic creditworthiness criteria (such as sound financial management practices supported by independent audit reports, strong and stable cash flows, timely repayment of outstanding

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debt, etc.). At present, many SNGs do not meet such criteria, and would therefore a priori not be able to issue a municipal bond. In addition, even creditworthy SNGs may have difficulties in financing projects from the proceeds of a municipal bond issue if the capital market was to consider the project risks to be unacceptably high. To enhance the creditworthiness of SNGs in general, and to enhance the bankability of projects that such SNGs wish to undertake, the following sub-activities are proposed: • Propose measures to MoF that will permit lenders to assess and price SNG risks better, including but not limited to independent credit-rating of municipal governments; • Advise MoF on the development of public and private credit enhancement facilities; • Advise MoF on assisting SNGs with improved access to project finance. Additional components, such as support for revision of PP 54/2005 on Regional Government Borrowing, are to be included if deemed necessary.

Deliverables 17. Component A – International workshop on municipal bonds. This component will produce: • A workshop program; • Papers and presentation materials prepared by keynote speakers; • A “toolkit” for participants, containing the Government’s regulations and manuals on municipal bond preparation; and • A transcript of the workshop proceedings. 18. Component B – Continued guidance on preparation of a municipal bond issue to two SNGs. This component will produce the following: • Workshop presentations on subjects such as the role of municipal bonds in infrastructure financing, project finance to support municipal bonds, credit ratings, partial guarantees and other credit enhancement mechanisms; • Position papers on inputs provided for the preparation of a Municipal Bond Issuance Plan; • Position papers on inputs provided for the preparation of the prospectus. 19. Component C - Assistance to DKI Jakarta for the development of sustainable asset management systems. The following deliverables will be made: • Workshop presentation to DKI and discussion on roadmap and timeline • Position papers on the several sub-activities • Workshop presentation to MOF on the results of the component and their potential for replication in other SNGs 20. Component D – Recommendations on structural improvements to SNG creditworthiness. The outputs of this component will include recommendations to MoF on: • Measures that will permit lenders to assess and price SNG risks better, including but not limited to independent credit-rating of municipal governments;

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• The development of public and private credit enhancement facilities; • Measures to improve access to project finance by creditworthy SNGs; • Workshop presentations and position papers to be determined in consultation with MoF.

Sustainability 21. The activity supports current GOI policies to accelerate the financing of much-needed investments in urban infrastructure. Since 2006, the Ministry of Finance has actively encouraged SNGs to issue municipal bonds as a means to accelerate much-needed longterm investments in public infrastructure. At the request of MoF, DSF is already supporting DKI Jakarta and Kota Bandung with the preparation of a RPOD for review by the Ministry. The Ministry would like to continue technical support to DKI Jakarta and Kota Bandung and – through the international workshop – familiarize other sub-national governments that may be interested in issuing a municipal bond, and take steps to structurally enhance the creditworthiness of SNGs throughout the country. The proposed activity can therefore be considered as being part of DSF’s and MoF’s long-term strategy to promote municipal bond financing in Indonesia and to build the capacity of relevant institutions and individuals to carry out this work.

Gender 22. In many societies, women are routinely discriminated against – in terms of access to services and in terms of access to restitution and equality of treatment under the law. Women are also often poorly represented at all levels of decision-making in society. It is therefore incumbent on implementing agents to consider carefully the gender ramifications of the work that they do, and to demonstrate in their work plans how they will do this and in their reports what progress is being made. The proposed activity will explicitly address this issue (in accordance with Presidential Decree No. 9/2000 on gender mainstreaming in national development).

Program Management, Execution and Implementation 23. The DSF Executive will be responsible for procurement and contracting of individual consultants with endorsement from MoF. The DSF Executive is also responsible for submitting program documents to the DSF Management Committee. The individual consultants will be responsible for implementing the activity according to their Terms of Reference.

Implementing Institution 24. Under an existing DSF activity on Regional Government Borrowings3, consultants have already been engaged for some preparatory activities for Component B and, consequently, it 3

Tasks have already been completed in respect of the delivery of a position paper on a) sub-national borrowing and b) advice on specific aspects leading to the issue by MOF a decree (PMK 129/08) on an intercept of intergovernmental transfers in the event of SNG default on borrowings from MOF. Similar services to MOF in respect of SNG financial crises and the establishment of an emergency fund are expected to be complete by October 2009.

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is proposed that their services will be renewed. They will also be involved in the preparation and implementation of Component A, together with other consultants to be recruited. These will be selected following the World Bank Procurement Guidelines. MoF will be actively engaged throughout the selection process. The consultants will undertake their respective assignments under the direction and supervision of MoF with additional quality assurance from the DSF Executive.

Procurement and Implementation Schedule 25. The following indicative schedule is proposed. Organizational and individual capacity building is to be undertaken at all stages. Component A - International workshop on municipal bonds • September-October 2009: Preparation of program, selection and invitation of keynote speaker, selection and invitation of participations, review of presentation materials, and arrangement of logistical support (to be provided by DSF outside the terms of this ACN). • November 2009: Organization of international workshop. • December 2009: Reporting and dissemination. Component B - Continued guidance on preparation of a municipal bond issue to two SNGs • November-December 2009: Assist SNGs with the preparation of RPODs. • January-June 2010: Provide guidance to MoF and SNGs with the review of and (where required) clarifications and modifications of RPODs. • July 2010-May 2011: Provide guidance to SNGs with the selection of the underwriter, financial and legal/regulatory aspects related to the due diligence process, preparation and submission of the prospectus and the valuation and structuring of the bond issue, research and marketing activities; and co-ordination and supervision of the activities by investment banking, legal and engineering consultants. Component C - Assistance to DKI Jakarta for the development of sustainable asset management systems. • November 2009-April 2010: Prepare roadmap and timeline for desired objectives and agree with stakeholders; • March 2010-December 2010: Discussions with stakeholder technical departments and financial management agency to evolve policy, methodologies and operating procedures for management systems; • January 2011-May 2011: Synthesis and dissemination of outputs. Component D - Recommendations on structural improvements to SNG creditworthiness • November 2009-March 2010: Recommend on measures that will permit lenders to assess and price SNG risks better, including but not limited to independent credit-rating of municipal governments. • April-June 2010: Recommend on the development of public and private credit enhancement facilities. • July-December 2010: Recommend on measures to improve access to project finance by creditworthy SNGs; • January-May 2011: Synthesis and dissemination of recommendations.

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DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 7/2009 Summary: With a view to furthering the development of a merit-based civil service, the Government Education and Training Center (Diklat) has initiated a broad reform program to improve human resource development and human resource management in MoHA by making such practices competency-based. Towards this end, the DSF activity will support the design and piloting of competency-based training and education related to an important public service, namely, ‘population administration’. Within this service field, the activity will: develop a strategic framework for introduction of competency based standards, build capacity for the formulation of competency standards and the conduct of national and regional needs assessments; hold workshops to formulate competency standards in Population Administration for MoHA and selected regional governments; develop a competency-based curriculum and methodology in Population Administration; and pilot competency-based training and education courses in Population Administration within MoHA and in three selected provinces and kabupaten/kota. The activity will analyze questions surrounding the management of competency-based human resource development, particularly how to make judgments about whether such work should be out-sourced or not and it will explore possibilities for the formation of partnerships with local universities, civil society organizations, and the private sector. Based on evaluation of the overall activity, a plan will be written for scaling-up the activity nationally.

Activity Title Government Training and Education Center Development: Introducing Competency Based Standards for Improved Public Service Delivery

Counterpart Agency And Key Government Contacts • Ministry of Home Affairs Government Education and Training Center (Badan Diklat Departemen Dalam Negeri) and 3 selected Provincial Government Education and Training Centers (Diklatprop) and Kabupaten/Kota branches • Contact Person: Dr. Muhammad Marwan, M.Sc., Head of the Ministry of Home Affairs Government Education and Training Center (Kepala Badan Diklat Departemen Dalam Negeri)

Duration July 2009-September 2011

Background 1. The National Long Term Development Plan 2005-2025 refers to the development of a professional public service system (embracing central and regional governments) that observes the principles of good governance in the interests of equitable and sustainable

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development. The Plan recognizes that in order to achieve this state, the public service system requires substantial reform. Such reform will entail significant revisions to most aspects of human resource management, an important aim being to institutionalize human resource management practices and decision-making that are based on merit rather than patronage or other particularistic 1 criteria. 2. This recognition by the Indonesian government of the importance of human resource management to professionalize the civil service and improve public service delivery is an essential part of decentralization in Indonesia. Turner, Imabruddin, and Sutiyono found that human resource management (HRM) is an often forgotten dimension of decentralization in Indonesia. They write, “while considerable attention has focused on the functions to be decentralized, funding formulas, accountability measures of political leaders, and electoral processes, there has been surprisingly little consideration of HRM.”2 HRM is particularly important in developing countries where bureaucratic models of public administration are infused with patron-client relations and the lack of merit-based and performance-based systems prevent greater productivity and development outcomes. 3 3. In a presentation at the workshop on “Reformation of Government Training and Education Centers to Achieve a Professional Civil Service in the Ministry of Home Affairs and Regional Governments” held in Jakarta in March 2009, the Ministry of State for Administrative Reform (MENPAN) highlighted two goals that are supportive of the type of reform referred to above: first, developing a profile and behavioral norms of public officials based on integrity, productivity, and ability to deliver public services; and second, developing a clean (free from corruption), effective, efficient, transparent, and accountable bureaucracy dedicated to serving and empowering the public. In order to accomplish these goals MENPAN recommends a change in mindset, organizational culture, and management of government.4 4. Systematic professional development is needed in order to achieve a professional public service. The MoHA training and education centers (Diklat) have the mandate and responsibility to provide integrated and sustainable training and education for government officials. Diklat is charged with guaranteeing the quality of education and training through

1

This is the Weberian term. It implies that decisions are reached on the basis of the personal affiliations of the individual rather than on ‘universalistic’ performance or merit-based criteria. 2 Turner, Mark, Amir Imbaruddin, and Wahyu Sutiyono, “Human Resource Management: The Forgotten Dimension of Decentralisation in Indonesia,” Bulletin of Indonesian Economic Studies, Vol.45, No.2,2009: 231-49. 3 McCourt. W. and Eldridge, D., Global Human Resource Management: Managing People in Developing and Transitional Countries, Edward Elgar, Cheltenham, 2003, and Mark Turner, Amir Imbaruddin, and Wahyu Sutiyono, “Human Resource Management: The Forgotten Dimension of Decentralisation in Indonesia,” Bulletin of Indonesian Economic Studies, Vol.45, No.2,2009: 231-49. Turner, Imbarudding, and Sutiyono, “Human Resource Management: 4 “Operationalization of Policy on Bureaucratic Reform in Indonesia,” Presentation by the Ministry of State for Administrative Reform(MENPAN) at the Workshop on Reformation of Government Training and Education Centers (Diklat) to Achieve a Professional Civil Service in the Ministry of Home Affairs and Regional Governments, Jakarta, 11 March 2009.

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development of standards in planning, implementation, and evaluation of training and education.5 5. Structure and Mandate of Diklat. Diklat provides education and training to: civil servants in the Ministry of Home Affairs (MoHA); heads of regions; vice-heads of regions; members of DPRD; government officials in the regions; regional working units; heads of villages; village working units; and members of village representative councils. Education and training may be conducted by Diklat itself or in partnership with others. 6 6. Both national and regional Diklat must develop training and education that is based on needs analyses, discussion of objectives, and formulation of curriculum and programs in relation to the Strategic Plan for the Ministry of Home Affairs for the central government and the Regional Medium Term Development Plans (RPJMD) at the regional government level.7 Training and education courses are required by government regulation to be oriented toward, and ultimately improve, competencies within the civil service. 7. Badiklat (the overarching term for the central body coordinating various government education and training centers) comprises a secretariat and five different education and training centers responsible for substantive areas related to MoHA: governance and politics; regional finance and technical matters; development and population affairs; bureaucratic and administrative training; and leadership training. 8 The development of competency standards in the DSF-supported activity described in this concept note will be piloted in the Center for Development and Population Affairs. 8. Diklat Management Strategy9. The main work of Diklat can be broken down into five fundamental training and development steps: 1) training needs analysis; 2) formulation of training objectives; 3) development of teaching and learning design; 4) implementation or education and training courses; and 5) evaluation of training and education effectiveness. This section briefly discusses each of these steps from a ‘competency’ point of view. a. Needs Analysis. Training needs analyses determine the competences needed to perform effectively in different positions and compare these with the actual competencies possessed by incumbents. The differences between the two constitute the training and development gap to be filled. The analysis includes evaluations of: a) needs of the organization/agency; b) needs of various positions; and c) needs of individuals. By identifying and analyzing the needs, in particular the knowledge, skills,

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Ministry of Home Affairs Decree No.31/2007 (Permendagri No.31/2007) on the Guidelines for Implementation of Education and Training in the Ministry of Home Affairs and Regional Governments. 6 Permendagri 31/2007. 7 Ibid. 8 Kepmendagri 130/2003, the Organization and Working Procedures for the Ministry of Home Affairs, Chapter XII Education and Training Centers, Articles 490-527. 9 Teknis Penyelenggaraan Pendidikan dan Pelatihan di Lingkungan Departemen Dalam Negeri dan Pemerintahan Daerah, (Technical Aspects of Education and Training Implementation in the Ministry of Home Affairs and Regional Governments) Ministry of Home Affairs Decree No.31/2007 (Permendagri 31/2007).

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and attitudes required, Diklat is able to develop specific training and education to address relevant competences. b. Formulation of Objectives. Once the needs analysis is completed, Diklat is able to formulate education and training objectives and to specify the basic competences needed for jobs and individuals and indicators of achievement. The basic competences are the knowledge, attitudes and skills that a participant should possess after completion of education and training courses. The indicators of achievement are the measurements used for gauging the level of achievement of participants in the basic competences. The annex to Minister of Home Affairs Decree 31/2007 (Permendagri 31/2007) defines competences for education and training as: a) cognitive domain (skills demonstrating the ability to change, increase knowledge and intellectual capacity; b) affective domain (behaviors that show motivation, attitudes, and values); and the c) pscyhomotoric domain (intellectual skills and behavior skills that demonstrate good judgment and efficiency). Note on Terminology 10 Competency and competences are used throughout the literature, often interchangeably. According to Staebler and Bevan in a report for the Institute of Employment Studies, the first definition of “competency” originated with Boyatizis in 1982 is: “an underlying characteristic of an individual which is causally related to effective or superior performance in a job.” The definition of “competence” contributed to Fletcher in 1991 is: “the ability to perform activities within an occupation to a prescribed standard. Competences involve the ability to transfer skills and knowledge to new situations within the occupational area.” The terms competency and competences will be used interchangeably in this concept note to refer to both the characteristics of individuals in the first definition and the ability to transfer skills and knowledge in the second definition. Government Regulation No.100/2000 defines “kompetensi” (Bahasa Indonesia for competency or competence) as “ability or characteristics of a civil servant in the form of knowledge, skills, or attitudes needed to perform duties of the structural or functional position.” In a National Civil Service Agency (BKN) document on competencies, the authors elaborated on the GR 100/2000 definition by adding that “kompetensi” includes “specification or minimal requirements that a person must have to

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Tim Peneliti BKN, “Sistem Rekrutmen Berbasis Kompetensi Dalam Rangkat Meningkatkan Profesionalisme Pegawai Negeri Sipil”, Pusat Penelitian dan Pengembangan, Badan Kepegawaian Negara, Jakarta 2004. This article describes various arguments related to the difference between “competency” and “competence” based on research conducted conducted by the Indonesian National Civil Service Agency (BKN). The references to various authors and their publications can be retrieved from the bibliography of this article. The article is located on the internet at www.bkn.go.id

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satisfactorily perform a job” and “the basic attitude of a person needed in order to be effective and succeed in a position.” 11 In addition, BKN highlights the need for competency to reflect not only the present situation but also future situations. It states “kompetensi” must include the “underlying characteristics of an individual that lead to effective or superior performances on the job” (attributed to Spencer and Spencer and Dharma). The authors, summarizing the literature review, claim that attitudes and characteristics that are evident in the present can predict future behavior and performance or in other words “competencies can be defined as the enduring traits and characteristics that determine performance.” Examples of competencies are initiative, influence, teamwork, innovation, and strategic thinking. c. Design of Teaching-Learning Competency-Based Curriculum. Diklat must then design and build a competency based curriculum. Curriculum development requires the production and/or conduct of: topics for the education and training courses; a logical framework; a schedule of education and training courses; methodology and teaching techniques; syllabus (identification of modules, determination of competency standards, and materials to be used); documentation of participating civil servants’ experiences; tests and evaluation; pilot training; and revision of curriculum. d. And e. Implementation and Evaluation of Training and Education Courses. Once the teaching-learning design is finalized Diklat organizes and implements the education and training courses according to instructions as detailed in Permendagri 31/2007 followed by course evaluations. Diklat is in charge of managing the whole process and is authorized to employ experts and /or partner with universities or civil society organizations as needed in addition to the government instructors (widyaswara) trained to deliver the courses. 9. Diklat Concept Note Approach. This concept note addresses the curriculum design phase in detail. The pilot training and education will be conducted at the national level in a key area of public service delivery determined by Diklat (population administration and civil registration) and at the regional level. 10. Population Administration and Regional Government. (Permendagri) 37/2008 regulates technical-sectoral education and training in regional governments. There are seven different technical-sectoral areas called “rumpun” of which one is population management, the area of public service chosen by Diklat for application of competency standards. The matrix below excerpted from Permendagri 37/2008 outlines the various topics the Ministry of Home Affairs identified as basic areas for education and training in population administration. The DSF supported activity will include a needs analysis to determine additional aspects of population administration that are needed in the pilot

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Tim Peneliti BKN, “Sistem Rekrutmen Berbasis Kompetensi Dalam Rangkat Meningkatkan Profesionalisme Pegawai Negeri Sipil”, Pusat Penelitian dan Pengembangan, Badan Kepegawaian Negara, Jakarta 2004.

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regions and develop the existing topics into a competency based curriculum to improve performance management in this technical-sector area.

Table 1: Population Administration Management Population Administration Sequence

Population Administration

Population Development

Basic Population Administration Basic Level Intermediate Population Administration Intermediate Level Advanced Population Administration Advanced Technical Aspects (Teknis) of Population Registration Management of Population Registration Technical Aspects (Teknis) of Civil Registration Technical Aspects (Teknis) of Population Administration Information Management of Population Administration Information Population Administration Documents Analysis of Population Data Population Registration Civil Registration Basics of Population Development Population Mobility Development of a Population Profile Population Projections Population Impact Analysis

Source: Permendagri 37/2008

11. Diklat proposes three regions for participation in the competency based training program: East Java, East Kalimantan, and West Nusa Tenggara. These proposed regional governments were determined based on participation in the Indonesia Australia Specialized Training Program III (IASTP) Certification IV program on Assessment and Training and because mentors from this program were available in East Java and West Nusa Tenggara. They were also chosen because of the establishment of “predictive competencies” in Population Administration by East Kalimantan as part of the reform articulated in the National Civil Service Agency (BKN) regulation on civil servant competencies.

Rationale 12. As part of the civil service reform initiated by Diklat and supported by the Decree from the Minister of Home Affairs No.378/2009 on “Formation of a Reformation Team for the Government Education and Training Centres in the Ministry of Home Affairs and Regional Governments,” Diklat must: 1) map competencies of regional government officials and develop competency standards for regional government with an accompanying certification system; 2) review the system and procedures needed to transform the training and education apparatus into a performance based system; and 3) develop a human resource development program for Diklat to improve its capacity to implement competency-based training and education for regional governments.

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13. Due to Indonesia’s reform movement and corresponding shift in the political context this is an appropriate time for Diklat to introduce competency standards as part of broader human resource management reform. However, it is unrealistic to assume that introduction of competency based training alone will revolutionize the HRM system, and make it meritbased. More likely, it will contribute to a gradual or incremental shift in the balance between patronage-based and legal-rational forms of governance that, in as in many other countries, continue to co-exist in Indonesia.12 Shepherd suggests that the civil service reform policy community should develop a more balanced view of the relative advantages and disadvantages of merit and patronage systems and incorporate politics into analysis and solutions.13 Nonetheless, as argued in the political economy section that follows, Indonesia is at a crucial juncture in its history. A significant step has been the legislation enacted to “depoliticize” the civil service and to limit corruption. The Diklat activity supported by DSF will constitute an important addition to the HRM conditions that are necessary for the establishment of a merit-based civil service and will build pressure for culture change in the same direction. But more will need to be done. The pressure will need to be maintained. 14. The following sections trace the history of competency-based standards; the use of competency-based standards in the public sector and political economy issues; the importance of neutrality in the Indonesia public service; resistance to reform; and local best practice in relation to the DSF-supported Diklat activity. 15. Short History of Competency Based Standards Movement14. The competency movement originated in the American and British management systems in the 1970s and 1980s due to concerns over declining international competitiveness and the need for more efficient and effective managers. In the US, competencies are defined as the “inputs” such as the abilities, aptitudes, and talents that a person brings to a job, which enables them to perform satisfactorily or exceptionally. The US approach puts more emphasis on potential than demonstrated proficiency. In the UK competencies are defined as “outputs” or a range of standards linked to occupational performance. The Management Charter Initiative defined competencies as the “ability to perform the activities within an occupation or function to the standard expected in employment.” This concept was later revised to consider more long term requirements. The more recent definition of occupational competences is “the ability to apply knowledge, understanding, practical and thinking skills to achieve effective performances to the standards required in employment.” The two

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See Peter Blunt, “The Political Economy of Accountability in Timor-Leste: Implications for Public Policy,” Public Administration and Development 29: 89-100 for further discussion of hybridity between patronage and rational-legal models. 13 Shepherd, Geoffrey, “Civil Service Reform in Developing Countries: Why Is it Going Badly?,” Discussion Paper at 11th International Anti-Corruption Conference, 25-28 May 2003. 14 Horton, Sylvia. “Introduction-the competency movement: its origins and impact on the public sector,” The International Journal of Public Sector Management, Vol.13 No.4, 2000, pp.307-318. This section of the concept note draws heavily on the research conducted in this article. The direct quotations used in this section are taken from this article and references to additional sources can be obtained through its bibliography.

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movements have converged to some extent to focus both on inputs and outputs, and to address both the drivers of performance and standards of work. 16. The movement went international through the globalization of trade and the rapid spread in the 1980s and 1990s of open-market forms of economic rationality involving ‘small’ government. The USA under Ronald Reagan and the UK under Margaret Thatcher were at the forefront of these developments. State-owned enterprises were sold; unions were put under extreme pressure; and the self regulation of financial and other private sector institutions was instituted The ‘privatisation’ of the public sector followed in the wake of this new wave. Competency-based thinking was part of the new ideology and provided a convenient way of expressing it for an HRM audience. So much so that in the public sector, “individual and organizational competencies are seen as a means not only of achieving more efficient performance but also of facilitating cultural change and the means to a modernized, effective, and responsive government (Cabinet Office, 1999 cited in Horton).” As a result, governments, following the examples and lessons learned from the US and UK, have started promoting skills and competency development through public education policies and partnerships. Horton concludes, “Performance management, now firmly established in both the US and UK systems of public administration, was the natural precursor to competency-based human resource systems. Although the competency movement originated in the US and the UK, it is an international phenomenon and is practiced increasingly throughout the OECD countries and beyond.” 17. Competency-based standards and training are useful and popular HRM tools that have helped many countries to reform their HRM system. However, relying on technocratic approaches alone is not sufficient to institutionalize more merit-based performance management systems. Shepherd reminds donor agencies that as they support the “depoliticization of the civil service” through merit reforms they should also be seeking to “repoliticize” the reform debate by addressing political economy issues to ensure a more conducive environment for reforms to take root. A review of 70 years of reform in 15 LatinAmerican countries also points out that the more successful civil service reforms were ad hoc, piecemeal, and gradual. 15 These findings support the Diklat approach in Indonesia of gradually introducing competency standards beginning in one area of public service and piloting it in several regional governments as an attempt to move the Indonesian civil service toward more merit-based performance management but also understanding its limitations. 18. Competency Movement in the Public Sector: Political Economy Issues. This movement spread to the public sector at the same time as the development of new public management in the 1990s. Profound differences between competency management in the private and public sectors are attributable to the public/political context within which government 15

Spink, Peter, “Possibilities and Political Imperatives: Seventy Years of Administrative Reform in Latin America,” in Carlos Bresser Pereira and Peter Spink, eds., Reforming the State Managerial Public Administration in Latin America, Boulder: Lynee Rienner Publishers, 1999.

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officials work. Virtanen points out that competences are often understood as technical or instrumental rather than value based. 16 He argues that value competences are crucial to personnel of professional organizations and especially for public managers where political and ethical competences make an important difference. Political competences include building and maintaining a power base, negotiation, vision-setting, and decision-making. Political competences also mean knowing how to contribute to politically acceptable outcomes. Ethical competence refers to understanding of the moral values and moral norms in a particular culture and an understanding of ‘ethics proper’ or the ‘right morality’, which may not necessarily be what is generally accepted. Ethical competence entails the ability to navigate the contradictions and make sound judgments based on thorough justification. 19. Virtanen outlines five competence areas for public managers: 1) task competence; 2) professional competence in subject area; 3) professional competence in administration; 4) political competence; and 5) ethical competence. In the public sector these competences include development of the policy object (e.g. better social services,); subject know-how (e.g. better mastery of legislation); policy program (e.g. less mistakes in service delivery); and know-how of co-operation (e.g. better efficiency, also in the implementation of service cuts).17 20. Dr. Prof. R. Siti Zuhro of the National Institute for Indonesian Research (LIPI) writes about the reform movement in Indonesia which culminated in 1998 and its influence on the role of the civil service. 18 She stresses the importance of making human resource management systems (recruitment, selection, promotion and performance management, etc.) merit-based and endorses the characteristics of a “neutral bureaucracy” described by Asmerom and Reis (1996): “Politics and policy are separated from administration; public servants are appointed and promoted on the basis of merit rather than on the basis of party affiliation or contributions; public servants do not engage in partisan political activities; public servants do not express publicly their personal view on government policies or administration; public servants provide forthright and objective advice to their political masters in private and confidence. In return, political executives protect the anonymity of public servants by publicly accepting responsibility for departmental decisions.” 21. In Indonesia, important HRM legislation was passed in 1999 (Law No.43/1999, GR No.12/1999). It allowed civil servants to participate in elections but forbade them from becoming members of, or holding leadership positions in, political parties. These regulations also require civil servants who want to campaign and run for office to take a leave of absence or resign from their positions. The new legal framework has significantly reduced 16

Virtanen, Turo. “Changing Competences of public managers: tensions in commitment.” International Journal of Public Sector Management, Vo.13, No.4, 2000, pp.333-341. 17 Ibid. 18 Zuhro, R. Siti, “Pokok-Pokok Pikiran Tentang Kepegawaian Daerah,” (Some Basic Thoughts on Regional Public Service) National Institute for Indonesian Research (LIPI). www.desentralisasi.org.

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the politicization of the civil service and turned attention to the primary objective of delivering pubic services. However, much more work needs to be done to institutionalize a merit-based and performance-based public service, particularly at the regional level. 22. Zuhro advocates setting competency standards for specific positions to increase efficiency and effectiveness of regional civil servants. The regional head should be given the authority to implement a merit-based recruitment system. Zuhro concludes that by setting competency standards it may help to decrease the potential for ‘native son’ appointments or appointments as a reward for leading the campaign team for a candidate. 23. Civil Service Reform and Competency Standards at the Regional Level. Although the governance argument is strong and there is recognition in the international community of the value of merit based performance management, what may appear as straightforward civil service reform to establish competences may in fact be more difficult to implement than it seems. In a case study of civil service reform in Mexico, reformers encountered strong resistance to merit-based hiring and performance appraisals because it threatened deeply entrenched practices based on nepotism and patronage. 19 Merit based reforms and performance management systems have run into trouble in other developing countries as well, reinforcing the earlier point concerning the reform viability of purely technocratic approaches to civil service. 20 24. Another lesson learned from the Mexico case applicable to Indonesia is that while state initiatives must conform to federal rules, local government actually became a logical place to begin civil service reform and often yielded the biggest return by showing that the reforms generated more effective public services directly to the people. 25. An example in Indonesia of a local government initiating civil service reforms is the Mayor of Ambon’s “standar kompetensi jabatan (SKJ)” or competency based standards for municipal civil servants. The Mayor introduced this reform as a conflict resolution strategy after violent communal conflict brought the municipal government to a stand still. His administration introduced clear standards for civil servants and transparent application procedures such as passing general administrative requirements, a “psycho-test” to rate candidates on ability to cope in a variety of situations performed by an independent Bandung-based university, and a public hearing in which top rated candidates presented their “vision and mission” for the city of Ambon judged by a panel of professors from various Ambonese universities representing different disciplines. 21 This process helped to change public perceptions that recruitment was religiously or ethnically motivated by providing a 19

Cadena, Cecilia, Raymond Cox, Martha Laura Hernandez, Ma. Esther Morales, and Ramona Ortega-Liston. “Civil Service Reform in Comparative Perspective: The Case of Local Government Change in Mexico and the United States,” Discussion Paper No.80, El Colegio Mexiquense, 2003. 20 Shepherd, Geoffrey, “Civil Service Reform in Developing Countries, Why Is It Going Badly?”, Discussion Paper, 11th International Anti-Corruption Conference, Seoul, Republic of Korea, 25-28 May, 2008. 21 Tomagola, Tamrin Amal, Cornelis Lay, Lies Marantika, Ricky Palijama, Rosa Pentury, Yusuf, Madubun. Format Ulang: Birokrasi kota Ambon. Penerbit Ininnawa. 2007.

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transparent process with safeguards against various biases. The mayor also streamlined the number of government agencies and reduced the number of civil servants emphasizing “the right person in the right job” principle which increased the efficiency of the government and reduced costs. This local “best practice” and other practices such as the performance based incentives for civil servants in Gorontalo province illustrate the kinds of reforms that can be implemented based on local conditions. 22 26. Practical challenges of establishing competencies23. Pickett notes there is a common tendency when developing competencies to produce “a very comprehensive set of competency guidelines that end up gathering dust on the office shelves.” In a study of competencies in the UK, the majority of organizations used 10 competencies or less, a quarter of the organizations used between 6-9 competencies, and another quarter of the organizations used between 3-5 competencies. In his experience it is difficult to achieve significant performance improvement in more than two or three areas at the same time. Thus, focusing on the critical elements is most effective in improving the performance of individuals, working units, and the overall organization. 27. One way of narrowing down competencies is to attribute them to different performance levels. For example, performance level “A” could include the competencies needed to undertake activities efficiently and with sufficient self management. Performance level “B” could incorporate the competency to manage activities and the selection, application, and integration of a number of elements. Performance level “C” could describe competencies to evaluate and reshape processes, establish and use principles, determine best approaches and develop criteria for judgment. These performance levels could be used for an integrated performance management system. In the Diklat activity a number of experts will be commissioned to help Diklat develop performance levels, determine a reasonable number of competencies, and make sure they are applicable and relevant to the needs of MoHA. 28. An example of a set of steps to initiate this process recommended by Human Resources International is to: a. Identify organizational and individual objectives b. Agree the standard of performance required and identify key performance indicators c. Review and assess the current level of performance by each person d. Determine the job-based competencies required to perform at a fully competent level e. Identify skills and knowledge gap and prepare individual development plan f. Conduct further review of performance and assess level of skills and knowledge acquisition against individual development plan target dates

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Muhammad, Fadel. Reinventing Local Government: Pengalaman Dari Daerah. PT Elex Media Komputindo Kompas Gramedia, Jakarta 2008. 23 Pickett, Les, “Competencies and Managerial Effectiveness: Putting Competencies to Work,” Public Personnel Management, Volume 27 No. 1, Spring 1998. This section draws heavily from this article and gives practical applications for competencies. Additional sources cited can be found in the bibliography of this article.

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29. These steps are applicable to individual development plans but also reflect the approach that Diklat is planning to use to develop performance competencies for MoHA. The activity described in this concept note will test the above steps in a technical area, population administration and civil service reform, both at the central and regional level.

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An example review of competencies that could be used by Diklat is as follows: Review of Competencies Position Title: …………………………….. Date:……………………………. Competencies Position Individual Development Action Project trends and course their Medium Low Attend business probable impact on the organization planning Understand and be able to use High Low Computer applications computers course Develop team commitment and High High No action cooperation Prepare financial plans and budgets High Low Budgeting course Source: Les Pickett, “Competencies and Managerial Effectiveness: Putting Competencies to Work,” Public Personnel Management, Volume 27 No. 1, Spring 1998.

30. Links to DSF Strategic Framework. Diklat has begun a broad reform program to improve human resource management in the Ministry of Home Affairs. It is prioritizing education and training based on competency standards, performance, and effective use of information technology in efforts to improve public service. This DSF activity includes assessment of the capacity needs of Population Administration at the national and regional levels. The assessment will also include an analysis of different mechanisms for delivering education and training through government instructors (widyaswara) in addition to local universities and professional trainers (private sector or civil society). This aligns closely with the strategic framework of the DSF to increase the capacity of central and regional governments to deliver public services and increase the capacity of the central government to design policies and perform oversight of public service. 31. In addition, the Jakarta Commitment Road Map Action Matrix identifies a priority action of “setting up umbrella programs for capacity building in each Ministry/Agency covering strengthening or improvement of organizational capacity, resources capacity, and supporting capacity of facilities and infrastructure.” The DSF support for capacity building of government education and training centers will help to improve government capacity for service provision in addition to contributing to the objectives of the Jakarta Commitment by investing in an existing umbrella program for capacity building in MoHA. 32. Finally, this activity builds on the work of several DSF development partners that in the past have provided assistance to Diklat, education and training in general, capacity building, and population administration. Some of the initial technical assistance to Diklat on competency based training was provided by CIDA through the Governance Reform Support II project (GRS II). The AusAID Indonesia Australia Specialized Training (IASTP) project provided training to provincial and kabupaten/kota governments on assessment and training, providing a cadre of civil servants with the basic skills and knowledge needed to introduce competency-based training. Relevant to this activity, the Indonesian-German development cooperation included components related to population administration, civil service reform, and capacity building through their programs on Good Governance in

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Population Administration (GG-PAS), Support for Good Governance (SfGG), and Capacity Building for East Kalimantan (CB Kaltim).

Goal and Objectives 33. Goal: Promote forms of strategic human resource management based on merit by introducing competency-based standards and performance management. 34. Objectives: a. Develop a strategic framework at Diklat for introducing competency based training grounded in national and international best practice and lessons learned b. Develop competency standards for central and regional governments as a basis for evaluation of competencies, performance, and status of government employees c. Develop curriculum and methodology for education and training based on competency so that training is delivered effectively, efficiently, and according to needs d. Strengthen the provincial Badiklat to build capacity for competency based education and training e. Support a system of “competency certification� for education and training in the Ministry of Home Affairs and selected provinces and kabupaten/kota f. Support pilot projects in regional government so that recruitment and selection systems start to incorporate, and eventually become based on, certificates of competencies and other performance-related attributes g. Evaluate the competency based training and develop a plan for replication and scale-up

Scope of Services and Sub-activities 35. In order to achieve the objectives stated above a number of sub-activities are planned involving stakeholders from central and regional governments. The DSF support will be used to conduct workshops and develop competency standards for one area of the Ministry of Home Affairs dedicated to public service, Population Administration. Population Administration is considered a vital area of public service and has become increasingly important due to the lack of accurate population data exposed during the controversy over voter registration lists in the 2009 legislative and presidential elections. In addition, the choice of Population Administration as the pilot public service makes structural sense because the Ministry of Home Affairs has full responsibility for this area thus streamlining coordination and preparation needed to execute the activity. 36. Capacity building will be provided to technical units in three provincial and kabupaten/kota governments in population administration and civil registration. The subactivities are as follows: a. Strategic framework for introduction of competency based training in the context of human resource management reform in Diklat

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Literature review of national and international best practice and lessons learned in implementation of merit based performance management systems incorporating competency based training • Stakeholder workshops to discuss opportunities and constraints of using competency standards and the best approach for competency based training within the Ministry of Home Affairs Training on assessment and development of competency standards and competency certification in Population Administration Management • Training for Competency Standard and Competency Standard Verification formulators • Training for Competency Assessors and Competency Assessor Mastery • Training for development of a certification scheme Needs assessments to inform the development of a scheme for competency certification for Population Administration Management of MoHA and technical units of Population Administration and Civil Registration of selected provinces and kabupaten/kota • Implementation of competency based needs assessment for Population Administration Management • Formulation of draft competency standard certification Formulation of competency standards for Population Administration Management of MoHA and technical units of Population Administration and Civil Registration in selected provinces and kabupaten/kota • Formulation of competency standards for Population Administration Management of MoHa technical units of Provincial and Kabupaten/Kota Population Administration and Civil Registration • Workshops on competency standards in Population Administration Management planned (MoHA, Province, and Kabupaten/Kota) to obtain input and make revisions based on stakeholder input • Revision of competency standards for Population Administration Management by each team Development of competency based education and training for civil servants in Population Administration Management of MoHA and technical units in selected provinces and kabupaten/kota • Analysis of education and training needs based on the results of the competency evaluation • Development of curriculum and syllabus for competency based education and training for Population Administration • Map and adapt modules/training materials previously developed by central government, regional government, and donors into the Diklat curriculum • Finalize modules and training materials for competency based training and education of population administration for MoHA and selected provinces and kabupaten/kota •

b.

c.

d.

e.

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f. Pilot of competency based education and training for Population Administration of MoHA, and technical units in selected provinces and kabupaten/kota • Training of trainers on Population Administration for Government Instructors (Widyaswara) and Provincial government • Pilot of competency based training Management of Population Administration at MoHA and selected provinces and kabupaten/kota • Competency certification for Population Administration Management at MoHA and selected provinces and kabupaten/kota g. Evaluation of competency based training and recommendations for replication/scaleup • Evaluation of competency based training and documentation of lessons learned highlighting both general applications and local-specific applications for replication and scale-up including prospect of partnerships with universities, civil society organizations, and private sector • Analysis of how competency based training fits into the larger merit-based performance management reform and make recommendations on ways to further advance the reform agenda

Deliverables 37. This activity has several main components: 1) development of strategic framework for introduction of competency based training in Diklat, 2) training of formulators and assessors of competency standards; 3) central and regional government needs assessments in population administration; 4) development of competency based curriculum in population administration; and 5) piloting of competency based education and training in population administration for MoHA and selected provinces and kabupaten/kota, 6) evaluation of competency based training and recommendations for scale up. 38. The expected outputs and deliverables are scheduled as follows: a. Strategic framework for introduction of competency based training in Diklat b. Formulators and assessors trained in competency certification of Population Administration Management c. Needs assessments of Population Administration Management at MoHA and selected provinces and kabupaten/kota completed d. Competency standards for Population Administration Management formulated e. Manuals for central and regional governments on competency based training including the curriculum, methodology, and application developed f. Analysis of the pilot training completed and plan written for scaling-up the activity nationally g. Final report and recommendations submitted to MoHA, DSF Executive, and DSF Management Committee

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39. This program will be conducted in parallel at the central and regional level and the subsequent reports on needs assessments, formulation of competency based standards, training manuals, and competency based training and education will reflect activities at both levels.

Sustainability 40. The results of the activity (the strategic framework on competency based training, results of the needs assessment, formulation of competency based standards, competency based curriculum, results of pilot training and plan for scale up), will become the basis for a longer term Diklat strategy for developing a competency based training and education system for all components within MoHA and regional governments that Diklat supports. From the needs assessment Diklat will also have a better understanding of the aspects of training that can be taught by government instructors and the aspects of training that are better outsourced. From the materials, methods, and techniques used in this activity Diklat can identify areas in which strategic partnerships with qualified institutions (either within the government or with universities or private sector) can be developed. 41. This activity is fully integrated into the government system and will inform competency based training and education development for subsequent technical areas of MoHA and regional governments identified as priorities. Diklat has a limited budget so will develop the competency based standards over time. With DSF support they are able to kick start their program and ground their approach at both the central and regional level using the pilots as key inputs for training and education policy and curriculum development.

Gender 42. According to Presidential Instruction 9/2000 on Mainstreaming Gender in National Development, each government agency is required to mainstream gender in its programs. In the capacity strengthening program for Diklat, gender issues should be discussed in the needs assessments and workshops to formulate competency standards to ensure that competence in gender analysis is one of the competences included in the education and training courses. In addition, the government procurement process should include capacity in gender analysis as one of the qualifications for the implementing agency/consultants and explicitly stated in the terms of reference.

Program Management, Execution and Implementation 43. The activity, “Government Training and Education Centre Development: Introducing Competency Based Standards for Improved Public Service Delivery,� will be Government Executed (or Recipient Executed in World Bank terms). The funds for this activity will be onbudget on-treasury. Diklat is responsible for preparing the necessary documents and submitting them to the Ministry of Home Affairs and Ministry of Finance as required for onbudget, on-treasury activities. Diklat will participate in a World Bank procurement and financial management assessment as input for the relevant clauses in the Grant Agreement

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that will be signed between The World Bank and the Government of Indonesia. Diklat will follow World Bank guidelines in procuring implementing agencies and/or individual consultants. 44. The description of roles that Diklat, the DSF Executive, and the Implementing Agency will assume during this activity are described below and summarized in the text box. 45. Diklat is the owner/beneficiary of the overall activity and is responsible for steering, management, procurement, monitoring, and evaluation. The role of the DSF Executive is to obtain World Bank approvals during procurement and implementation, provide monitoring and evaluation, and quality assurance. The role of the implementing agency or individual consultants hired by Diklat is mainly to provide assistance to Diklat in implementing the various activities detailed in this concept note and may also include assistance in preparation of procurement documents and preparation of required reports. The implementing agency and consultants will submit reports both to Diklat and the DSF Executive, which will both be responsible for submitting them to the DSF Management Committee at the appropriate time. Diklat: owner/beneficiary of the activity; responsible for steering, procurement and contracting of implementing agencies/consultants, management of program implementation, program monitoring and oversight, and submission of reports to DSF MC DSF Executive: responsible for program monitoring and quality assurance, and along with Diklat, submission of reports to DSF MC Implementing Agency/Consultants: assist Diklat in implementing the activity according to the assignments in the TOR, budget, and contract requirements, and submission of reports/deliverables to Diklat and DSF Executive for review

Implementating Institution 46. Diklat will implement this activity in cooperation with other units within the Ministry of Home Affairs (in particular, Population Administration), and regional governments. Diklat will procure technical consultants in competency based standards, population administration, and civil registration; and trainers and facilitators for needs assessments, competency based standard formulation workshops, and in design and delivery of competency based training. International and national expertise can be procured to provide expert advice and assistance with management of the program. A procurement plan detailing the number of consultants and qualifications needed, and whether they will be hired on an individual basis or part of an implementing agency that will provide assistance for the duration of the activity, will be developed in preparation for the Grant Agreement. 47. Key personnel: • Competency Based Standards Expert (International and National Hire, 2 total). These positions will require post-graduate qualifications in HRM and at least 10 years of

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experience of competency-based human resource development. They will be employed to assist with the strategic framework on introduction of competency based training in Diklat, ensure that elements of the strategic framework are applied to all sub-activities, and assist with the evaluation of the competency based training and recommendations for scale-up. They will be employed as short term consultants for deployment at different stages of the activity. Population Administration and Civil Registration Expert (1 National Hire). This position will required post-graduate qualifications in population administration or a related field with a specialty in population administration and at least 10 years of experience in advising national or local governments on technical issues related to population administration. This person will assist the Ministry of Home Affairs Population Administration and provincial and kabupaten/kota SKPD (technical working units) to formulate competency standards on population administration and civil registration.

48. Additional personnel. Diklat will manage this activity directly and use the sub-activities as an opportunity for capacity building of Diklat personnel and government instructors (widyaswara). However, given the work load and limited time period for execution a number of additional personnel may be necessary to assist Diklat in effectively implementing the activity. These include training specialists and workshop facilitators both at the national and particularly at the regional level. • Training Specialists (1 at national level, 3 at regional level, International or National) • Workshop Facilitators (1 at national level, 3 at regional level, International or National) • Resource persons (for various workshops) 49. Partnerships. For Diklat to effectively manage the eventual replication or scale-up of competency based training in all substantive areas under its jurisdiction both at the national level and at the regional level it will be essential to develop partnerships with universities or civil society organizations. Exploration of possible partnerships can be conducted through this activity by incorporating small procurement packages at the national or regional levels to assist with the training pilots. • Contract with national university and/or civil society organization for national pilot • Contract with local universities and/or civil society organizations for regional pilots

Procurement and Implementation Schedule 50. The indicative procurement and implementation schedule for this activity is as follows: • July-August 2009: Finalization and Approval of Activity Concept Note by the DSF Management Committee. • September-November 2009: Finalization of budget documents for DIPA submission including proposed counterpart funding, World Bank financial management and procurement assessment, Drafting and signing of Grant Agreement between World

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• •

20

Bank and the Government of Indonesia, Drafting of letters and submission of supporting documents to the Ministry of Home Affairs and Ministry of Finance to activate the Grant Agreement and set up a special account for the activity. December 2009-February 2010: Procurement of Consultants and Implementing Agencies by Diklat with World Bank No Objection Letter (NOL) at each stage of the process. March-May 2010: DIPA released; individual consultants and/or implementing agencies contracted, program implementation begins starting with development of a strategic framework for Diklat on introducing competency-based training. June 2010-July 2010: Training of formulators and assessors on competency based standards and scheme of certification. July-September 2010: Needs assessments conducted with the Population Administration section at MoHA and technical units of population administration management and civil registration in selected provinces and kabupaten/kota and workshops conducted on formulation of competency based standards and certification for population administration and civil registration at MoHA and selected provinces and kabupaten/kota. October-December 2010: Development of competency based training and education curriculum and methodology on population administration and civil registration for MoHA and selected provinces and kabupaten/kota based on results of the central and regional needs assessments and competency based standards formulation workshops. January-June 2011: Implementation of competency based education and training for population administration and civil registration in MoHA and in selected provinces and kabupaten/kota. July-September 2011: Evaluation of competency based training and plan for replication and scale up.


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DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 8/2009 Summary: This activity supports the Government of Indonesia’s intention to accelerate the social and economic development of border areas and thereby - at the same time - to contribute to the enhancement of border security. To help bring this about, support is provided to Bappenas to improve its capacity for data collection and analysis and crossministerial policy formulation. Support to MoHA is designed to strengthen government institutions at all levels that are responsible for providing management and development support to border areas; and a sample of service providers. Baseline data on development outcomes in border areas will be gathered and used by government as a basis for measuring progress in development over the course of the next five years (during the implementation of the Medium-term Development Plan 2010-2014). Policy reformulations will seek to improve service delivery and economic development in border areas, and through this to enhance border security. Institutional strengthening will include developing the capabilities of the newly-established Agency for the Management of Border Areas, at national and regional levels.

Activity title Institution Building for the Accelerated Development of Border Areas

Counterpart Agency And Key Government Contacts Bappenas • Ir. Suprayoga Hadi PhD, Director for Special Regions and Less Developed Regions (Direktur Kawasan Khusus dan Daerah Tertinggal). Ministry of Home Affairs • Drs. Eko Subowo MBA, Director for Administrative Region and Border (Direktur Wilayah Administrasi dan Perbatasan), DG PUM, Ministry of Home Affairs.

Duration October 2009 - March 2011

Background and Rationale 1. This ACN combines proposals from Bappenas and the Ministry of Home Affairs (MoHA) concerning the development of border areas. The approved DSF work plan contains two major activities on border areas based on requests from Bappenas and MoHA: Activity 1.4 on service delivery in border areas and Activity 4.3 on border area development planning. 2. The activities described in this ACN represent the culmination of discussions between Bappenas and MoHA. The ACN addresses the needs and interests of both ministries in relation to the activities described in the DSF Work Plan 2009-2011. The view was taken by both parties that a jointly-designed ACN would lead to better policy formulation and development outcomes for border areas.

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3. The project described herein is designed to support the government to improve border area security through economic development and improved public service delivery. 4. The project does this by: first, building capacity for data collection and analysis and relevant policy formulation; second, policy development for border area development; third, strengthening the institutions tasked with border area development, notably the national and regional border area development agencies; and fourth, building capacity for improved service delivery agencies in border areas. 5. Indonesia shares land borders with three countries - Malaysia, Papua New Guinea and Timor-Leste. In total, 16 districts/cities in four provinces on three islands (West Kalimantan, East Kalimantan, Papua and East Nusa Tenggara) have land borders with neighboring countries. The Indonesia/Malaysia border has a length of 2,000 km, dividing the island of Kalimantan. The boundary separates the Indonesian provinces of East Kalimantan and West Kalimantan from the Malaysian states of Sarawak and Sabah. Indonesia and PNG have a 760 km border, on the Indonesian side is the province of Papua. Indonesia’s third land border runs for 228 km separating West Timor on the Indonesian side and Timor-Leste. 6. Indonesia has sea borders with ten countries - India, Malaysia, Singapore, Thailand, Vietnam, the Philippines, Palau, Australia, Timor-Leste and Papua New Guinea. The Government of Indonesia attaches great importance to the many small islands that make up large parts of its geographical periphery. In all, 92 Indonesian islands have a sea border with a neighboring country. 15 provinces and 134 districts and cities share a land and/or sea border with neighboring countries. 7. Whilst the challenges facing border areas are varied, there are, nevertheless, commonalities. Most regions are relatively poor (in relation to neighboring countries as well as to other regions within Indonesia) and isolated from the main population and economic centres. The borders are porous and difficult to manage, due in part to their lengths and isolation from the main population centres. 8. There is a substantial flow of illegal migrant workers across the borders with Malaysia in particular - including women and girls for domestic services. But there is also trafficking of women and children. There is also extensive illegal logging and trade in illegal logging products, which depletes forest reserves and heightens threats to already endangered species of animals and plants. Since Timor-Leste’s independence in 2002, there has been widespread illegal cross border trading. Likewise, Papua’s border with PNG has problems with illegal border crossers, separatist elements, other border violations, and border development (Rumley and Minghi, 19911). In general, border areas are characterized by poor infrastructure and weak institutional environments. To date, sub-national governments have not given special attention to the development of sub-districts lying along international borders. For these and a variety of other reasons, including recent diplomatic border 1

2

Rumley, D. and Minghi (1991) The Geography of Border Landscapes


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disputes, border areas have caught the attention of the executive and legislative branches of government. 9. Many land border crossings do not have the physical and institutional infrastructure normally associated with such crossings, such as customs, immigration, quarantine, and security infrastructure. For example, the Entikong border crossing located in Kabupaten Sanggau, West Kalimantan Province only has quarantine and security infrastructure while Kabupaten Nunukan in East Kalimantan has reasonably good immigration facilities but little else. In the border areas of Kabupaten Sintang, Sambas and Kapuas Hulu in West Kalimantan and Kabupaten Kutai Timur in East Kalimantan there are no facilities whatsoever. According to an agreement with Malayasia reached at the Social Economic Malaysia Indonesia Forum, border crossings in West and East Kalimantan are to be developed gradually. 2 10. As in other countries, border areas have strategic significance for Indonesia - for economic, social, defense, security, and state unity reasons. The government realizes that many of the problems that arise in border areas are best addressed by improving the social and economic conditions of people living there. It is understood that improving these conditions will benefit both national development and border security. Government has therefore begun to reorient policy towards addressing the economic and social well-being of people living in border areas at the same time as it addresses more conventional security issues. 11. This reorientation is reflected in the government’s development plans. The Long-term Development Plan 2005-2025 calls for development across Indonesia that is more even and fair. The Medium term Development Plan (RPJMN) for 2004-2009 establishes the development of border areas as a national priority3, suggesting that among other things they be seen as economic and trade gateways with neighboring countries. This is partly a reflection of the growing importance of free trade across the ASEAN region. 12. The RPJMN 2010-2014 will set out the ways in which special attention will be given to social and economic development in border areas. It will propose how services will be improved and which institutions will be strengthened and how this will be done. It will also establish an order of priority for the development of border areas in terms of their strategic significance. 13. From an evaluation of all districts and cities carried out in 2008, Bappenas determined there to be 38 districts and cities of strategic importance – 16 on land borders and 22 on sea borders. 24 of the 38 are officially classified as less developed districts. A key part of the government’s strategy is to examine the prospects for developing national strategic centers

2

Unpublished paper of Directorate General of General Public Affairs (Ditjen. PUM), Platform Penanganan Permasalahan Perbatasan Antar Negara. 3 Presentation by the Director of Special Regions and Disadvantaged Areas on ‘Preparations for Drafting of the RPJM 2010-2014’ made on 27 November 2008.

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of economic activity (PKSN – Pusat Kegiatan Strategis Nasional), which are urban areas designated as growth centers to stimulate the economic development of border areas. A key function of the PKSN will be to provide services to cross-border economic activities. For 2010, the first phase of PKSN will target 7 urban centers in Kalimantan, North Sulawesi and Papua4. 14. Several ministries run dedicated programs for border areas. Bappenas runs programs specifically for border areas through the Directorate of Special Regions and Less Developed Regions under the Deputy for Regional Development and Local Autonomy (Deputi Bidang Pengembangan Regional dan Otonomi Daerah). The Ministry of Home Affairs’ Directorate General for General Public Affairs also has a key role in the development of border areas. Its role includes the coordination and facilitation of actors involved in addressing complex problems, such as border disputes and land demarcation as well as helping provincial and local governments with implementing social and economic development programs. 15. The Ministry for the Development of Disadvantaged Regions has identified 199 disadvantaged districts, 123 of which are located in eastern Indonesia and many of these lie in border areas. This ministry is tasked with formulating policy and coordinating policy implementation for the development of disadvantaged areas. 5 More specifically, the ministry manages assistance programs to local governments in the areas of: local economic development; community empowerment; and rural infrastructure. The ministry runs several programs to develop border areas, including: Support for Poor and Disadvantaged Areas (SPADA); Economic Growth Centers (P4DT); Development of Socio-economic Institutions (PSE-DT); and Development of Border Areas (P2WP). Given the potential for overlap between less developed areas (daerah tertinggal) and border areas (daerah perbatasan) it is essential that the implementers of this activity work closely with the Ministry for the Development of Disadvantaged Regions, and that they make use of existing studies. 16. Bappenas has collected information from five ministries concerning 36 programs designed specifically for the development of border areas. In the past, the sheer number of ministries and programs supporting border area development has probably diminished the overall effectiveness of the Government’s support. It is expected that the next RPJM, together with the implementation of Law 43/2008 on State Territory and the establishment of national and regional agencies to coordinate support, will overcome many of the coordination problems. 17. As a key part of the new orientation of government in relation to border areas, Law 43/2008 mandates the establishment of a national agency (BNPP - Badan Nasional Pengelola Perbatasan) and regional agencies (BPPD - Badan Pengelola Perbatasan Daerah) 4

See: Bahan Diskusi: RPJM Pengembangan Kawasan Perbatasan Tahun 2010-2014, Direktorat Kawasan Khusus dan Daerah Tertinggal, Bappenas, Jakarta, 28 November 2008. 5 See: Presidential Decree 9/2005 and revision 90/2006 (tentang Kedudukan, Tugas, Fungsi, Susunan Organisasi, dan Tata Kerja Kementerian Negara Republik Indonesia)

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to manage the development of border areas. The national agency reports to the President and the regional agencies report to regional government heads. The agencies are tasked with determining policies for the development of border areas (e.g. master plan and action plan); designating border regions/areas; determining budget requirements (funded through the state budget); coordinating programs; and the monitoring and evaluation of national government programs. The secretariat of the national agency is housed at MoHA. 18. A supporting Presidential Decree on national and regional agencies has been drafted and is expected to be passed into law soon. Each regional agency will then need to be supported by a local regulation. Several regional agencies are already operational. The draft decree describes the functions of the national agency and lists its members – the latter represent thirteen ministries. Law 43/2008 also more clearly defines what regions are to be considered as border areas - by bringing the law in line with Law 26/2007 and Presidential Regulation 26/2008 on spatial planning. Spatial planning laws focus on the district/city as the border region, while Law 43/2008 focuses on the sub-district level within these same districts/cities. The focus in border areas is stipulated as border sub-districts which are to be at the center of renewed development efforts. 19. Bappenas has initially selected 12 provinces: West Kalimantan; East Kalimantan; North Sulawesi; East Nusa Tenggara; Papua; Riau; Riau Islands; West Papua; Maluku; North Maluku; North Sumatera; and Aceh. 20. The Government of Indonesia and the DSF will shortly be implementing several complementary activities that have a bearing on this activity. Two activities are hosted by Bappenas and one by MoHA. The implementing agency will need to consider carefully how synergies can be maximized across the related activities to ensure that maximum impact is achieved. The activities include: • Institution building for the integrated national/regional development and spatial planning (Directorate for Spatial Planning and Land Affairs, Bappenas). • Capacity building for regional development policy formulation (Directorate for Regional Development, Bappenas). • Facilitating implementation of minimum service standards in health for selected regions, including some border areas (West Kalimantan-Kabupaten Sanggau, East Kalimantan, Kabupaten Nunukan. and Kepulauan Riau, Kabupaten Bintan). 21. The World Bank’s World Development Report 2009: Reshaping Economic Geography offers insights into the development of border areas. It proposes a policy framework for achieving welfare convergence along with the geographic concentration of economic activity. Likewise, Hon’s (2009)6 analysis of areas deemed to be lagging and/or remote has policy implications for border areas. Four classifications of lagging regions are identified: resource-rich-connected to markets; resource rich-remote regions (e.g. Kalimantan and 6

Hon V (2009). A Framework for Bank Engagement in Lagging Areas. World Bank Group

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Papua); resource poor-remote regions (e.g. East Nusa Tenggara); and resource poorconnected regions. The report argues the case for intervention (or non-intervention) and discusses policy options. The report suggests that disparities in economic development may be beneficial and that welfare increases are best promoted in other areas by linking people to existing economic opportunities. Institutions and infrastructure make this possible. Border areas, by definition, face an additional challenge whereby the nearest centers of economic activity may well be on the other side of an international border, thereby limiting (legal) labor mobility. The implementing agency should study both reports and consider their implications for the work required under this activity 22. The government’s RPJMN is expected to be approved by the president in December 2009 and input needs to be provided by the end of October 2009. The project described herein will run for 18 months but an interim paper for the RPJMN will need to be written by the end of October 2009.

Goal 23. The goal of the project is to contribute to national development and border security through improved prosperity by accelerating economic and social development and improved service delivery in border areas.

Objectives 24. The objectives are to : • Improved institutional capacity for the collection and analysis of data relevant to: economic and social policy development; border area profiling; and monitoring and evaluation of development progress in border areas. • Strengthened government capacity for the assessment of existing policy and the reformulation of policies for the acceleration of border area development and the better management of border areas over the next five years (2010-2014). • Increased institutional capacity of central and local government agencies to manage border areas and develop border areas. • Strengthened institutional capacity to develop a national/regional master plan and national/regional action plans for border area development (including public service delivery and local economic development).

Scope of Services and Sub-activities 25. In pursuit of the above, the following activities will be undertaken. I. Data Collection and Analysis 26. This work will be done under the direction of, and in collaboration with, Bappenas. In relation to the different categories of data listed below, the implementing agency will be expected to have the technical capability and experience to make judgments about what types of data are relevant; how best to collect such data; how to keep them up-to-date,

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analyze them, and make them easily accessible; and how to build sustainable capacity for doing the work involved. • Data for the formulation of development policy in border areas. Such data will need to embrace a wide range of indicators. Data should be collected based upon the criteria for border area selection developed under the Policy Development section (paragraph 27, first bullet point). Such data will pertain to, for example: a. Physical infrastructure; b. Energy; c. Social and economic development, including access to markets, possibly in relation to both sides of the border; d. Trade and border crossings (both legal and illegal); e. Government institutional presence and capability; f. Private sector activity; g. Civil society organisations – presence, mandates, vitality; h. Population demographics; i. Security and development issues specific to the border area in question. • Baseline for monitoring and evaluation. Data collected will provide a clear foundation for development programming and serve as a baseline against which progress will be measured throughout the border area program implementation. • Profile data on selected border areas. Collected data will be used to create profiles for selected border areas including data on settlement patterns and neighbouring countries’ land border areas. The profiles will address selected sectors that reflect government’s interests in social and economic development and security. The constitution of profile options will need to be agreed with the main institutional sponsors of this activity and other relevant government agencies. • Development of an information system. To be managed by Bappenas. • Capacity building for data management, mainly in Bappenas. This will entail a training needs assessment of relevant government agencies or a sample thereof; training methodology and curriculum design; and pilot testing. It is expected, however, that much of the training and development will be carried out on the basis of action learning and on-the-job coaching done as an integral part of the other work undertaken during the course of this activity. II. Policy Development 27. An integral part of the project is to develop more effective and coherent policies for border area development. The following aspects should be covered: • Establish criteria and develop procedures to designate border areas, districts/cities and

sub-districts in line with the definitions stipulated in Law 26/2007 on Spatial Planning and Law 43/2008 on State Territory. • Assess the current policy, legal and institutional framework for border area development in order to:

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• •

8

a. Identify current policies for border area development b. Identify existing institutions and functional relations at central and regional levels that deal with some aspect of border area development c. Highlight the weaknesses of existing policies and institutional arrangements and consider ways and means for overcoming them Determine how policy is implemented at the local level and its impact. The Implementing Agency, in consultation with Bappenas and MoHA, will conduct several `case studies in selected provinces, at kabupaten and sub-district levels in selected aspects of policy such as service delivery and economic development. The case studies will analyze the strengths, weaknesses, opportunities and threats for the selected sectors, map the internal and external nature of those, and recommend sectoral policy improvements and implementation strategies. Refine policy assessment. Results from the pilots will be used to cross-check and revise the findings of the initial policy assessment. Develop an integrated border area policy. Based on the refined assessment, existing policies will then be reformulated or replaced to provide for an integrated border area policy approach at the national level, which will clearly define the country’s border area development policy goals; provide flexibility for regional governments to implement the policy as appropriate to specific local conditions; and define inter-institutional relations; produce technical guidelines for border area development planning processes, templates of strategic documents and implementation and management procedures. This should be done with substantial local government involvement. Accordingly, to provide for consistent institutional, administrative and policy reforms the Implementing Agency should: a. Design institutional structures related to border area development and provide recommendations to improve these structures and their functioning. This is needed to streamline horizontal co-operation within and between the different institutions of national government, and at the same time address vertical exchange between national, regional and local levels. A more specific requirement to develop the BNPP and BPPD agencies is outlined in the next section under Institutional Development. b. Improve consistency and strategic design of border area development policy goals defined by the government, including procedures/regulations for policy implementation in the border areas. c. Design procedures and methodologies to guide border area development. Master and action plans for border area management at national and regional levels. The Government of Indonesia has requested technical assistance to develop a national border area development master plan. The Implementing Agency will work with relevant national government institutions, particularly Bappenas, to draft a national master plan for border area development in line with policy recommendations formulated through the assessment process and in accordance with the National Spatial Plan and the next RPJMN. The national master plan will be coordinated by Bappenas and will be provided to MoHA to be developed into more detailed action plans at national level. The national


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action plan will also include more specificity in regard to location and type of border area and set specific timeframes for implementation. The Implementing Agency shall also be requested to provide support to selected local governments in border areas (probably at provincial level) to develop local master plans and local action plans. The goal is to create integrated, consistent and coherent planning from national to regional levels that can be implemented and progress monitored. BNPP will oversee the local master plan drafting process in consultation with related government ministries. BPPD will manage the drafting process at the local level which will also involve ensuring that master and action plans are properly integrated with other local government planning documents. • Support local governments to formulate and implement border area development policy. The formulation and implementation of a border area development policy requires a clear understanding of the policy-makers’ roles and responsibilities in the planning process. To build local government capacity in this area a series of local level workshops will need to be conducted based upon an assessment of needs. The scope and focus of this capacity development will need to be established during the inception phase of the project. III. Institutional Development 28. A major aspect of the management of border area development processes is the establishment of a strong institutional framework. Therefore, an assessment of proposed institutional settings is needed, specifically for the national and regional border management agencies in order to: identify weakness of the proposed institutional framework; define assignment of functions on border areas for each level of government and recommend improved functional relations and organizational structures, and operational interactions between national and regional institutions; strengthen information flows and reporting lines and administrative procedures and management systems. A decree will shortly be issued detailing the institutional setting, roles and responsibilities of the agencies and how they relate to one another. The implementing agency is expected to provide key input to this decree and to assist government in planning implementation. 29. Within the framework of this sub-activity institutional strengthening of BNPP and BPPD will contribute to the : • Development of organization structure of the National Agency for Border Management (BNPP); • Establishment of internal standards and operational procedures for BNPP; • Establishment of guidelines for the organizational arrangements of the Regional Agency for Border Management (BPPD); • Establishment of guidelines on co-ordination mechanisms between BNPP and BPPD, and related ministries; • Develop guidelines to create and run a border area information system; • Development of guidelines and sample templates for monitoring, evaluation and reporting.

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IV. Improved Capacity for Improved Border Area Service Delivery 30. Clear identification of institutional development needs is required at both national and regional levels; together with an explicit definition of issues and tasks to be implemented that result in better functioning administrations at both national and regional levels, leading to better provision of services. Thus, to improve the service delivery skills of administrators and policy-makers, technical assistance and facilitation will be provided to national, regional/local institutions in order to: • Improve their planning, management, monitoring and evaluation skills; • Enhance their knowledge of important aspects of border area development and service delivery; • Improve their ability to assess public service delivery quality and service accessibility. 31. Within the institutional strengthening and capacity building framework the Implementing Agency, in consultation with relevant governmental institutions, will identify service providers in specific sectors (to be agreed upon through consultation with government counterparts) to pilot the activity. The choice of pilots (location and administration scale) is to be determined through consultation with key government counterparts during the inception stage of the project. For the implementation of the pilot project, the Implementing Agency will conduct several assessments, including: 1) assessment of the current organization and management of the service providers; 2) identification of weaknesses in these respects that might hinder timely and proper service provision; and 3) assessment of service coverage and quality. Recommendations for improvement and institution building will be made. 32. Accordingly, facilitation for development of service providers will be conducted. Increased capacity coupled with innovative institutional operations is key to improved and citizen-oriented service delivery. Existing approaches introduced by either government or other good practices should be considered. 33. The Implementing Agency will document the progress and results of the pilot project to recommend application and institutionalization of the approach in other sectors of service delivery.

Deliverables 34. All of the following deliverables will be delivered to both Bappenas and MoHA counterparts. However, given that the work presented within this ACN will be executed under two seperate contracts for the sake of clarity the deliverables have been divided into two sections. It is essential that both implementing agencies fully understand how the two lists of deliverables cross-relate to ensure that synergies between the two are maximised and overlaps avoided. After submission of both final reports a synthesis report will be provided by independent consultants and a policy brief. These deliverables also include deliverables to be provided by the short-term consultants as explained in paragraphs 46 and 48.

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No. 1 2 3 4 5

6 7 8 9 10 11 12 13 14 15 16 17

No. 1 2 3 4 5

6

7

Deliverables for Bappenas Inception report Input paper for RPJMN 2010-2014. M & E matrix Border area development indicators (in consultation with both Bappenas and MoHA) Criteria for definition of border areas, districts and subdistricts (to be provided to MoHA as input into draft decree) Assessment report on current policy framework Case studies on border area development Baseline data Profiles for selected border areas Integrated border area policy paper Input for guidelines for local governments to create local master and action plans Material for conferences and workshops Input paper for draft National Master Plan Input for guidelines for creating and operating a border area information system Final report Regular (quarterly) reporting Joint Policy Brief on Border Area Development ( Bappenas and MoHA) Deliverables for Ministry of Home Affairs An historical review of 25 years of social and economic development in border areas shared with Malaysia Draft list of border areas based on criteria and definitions as input for the decree on border areas. Inception report Monitoring and evaluation matrix Academic paper including recommendations on: assignment of functions on border area management across levels of government; guidelines for internal standards and operational procedures and for BNPP; guidelines on co-ordination mechanisms between BNPP and BPPD and related ministries. As input for decree(s) on above aspects of border area management. Study report on selected aspects of service delivery based on field work and the baseline data/profile and other existing data Input paper and draft guidelines for the organization and management of the Regional Agency for Border

Date Nov. 2009 Nov. 2009 Nov. 2009 Nov. 2009 Nov. 2009

Jan. 2010 March 2010 April 2010 April 2010 April 2010 May 2010

May 2010 August 2010 March 2011 March 2011

Date Nov. 2009 Dec. 2009 Dec. 2009 January 2010 May 2010

May 2010

June 2010

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No. 8 9 10 11 12 13

14 15 16

Deliverables for Ministry of Home Affairs Management (BPPD) Input paper and draft guidelines and sample templates for monitoring, evaluation and reporting Draft Action Plans for national level Material for facilitation of local government in preparing Master Plan and Action Plan Draft Master Plan and Action Plans in pilot areas Material for conferences and workshops Report and recommendations drawn from the pilot project for the institutional strengthening of local government service providers in selected sectors, including accessibility and quality status of public service delivery Regular (quarterly) reports and mid-term report Final Report (including status of public service delivery in the pilot border areas) Joint Policy Brief on Border Area Development (Bappens and MoHA)

Date July 2010 July 2010 Aug. 2010 Oct. 2010 Dec. 2010

March 2011 March 2011

Sustainability 35. The institution building elements of this activity are designed to ensure sustainability. In addition, an essential requirement for sustainability is partnership, which can accelerate changes in development management through the application of dynamic planning instruments. Border area development depends partly on building consensus and aligning the reasonable expectations of the community with the actions of the authorities. 36. The main issue in relation to sustainability relates to good balance and coherence of internal elements of the activity (goals, objectives, programs) supported by the sound application of development planning principles such as partnership, stakeholder ownership and integration. 37. One of the key outputs from this activity is the production of data profiles and a database on border areas down to sub-district level. To ensure that this is sustainable the Directorate for Special Regions and Less Developed Regions will be responsible for providing human resources and the budget to update the data and maintain the online database. The border area information system is also a key deliverable and this will be maintained beyond the life of the project.

Gender 38. It is incumbent on implementing agencies to consider carefully the gender ramifications of the work that they do, and to demonstrate in their work plans how they will do this and in their reports what progress is being made. One way of ensuring that more than merely the form of gender sensitivity is observed (as happens in so much development assistance) is to

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consider the question in terms of relative distributions of power and influence between men and women, and the way in which access to services – such as health and education – can distort the social construction of such power and influence. To help with making gender central to the projects it supports, the DSF Executive can provide access to recent publications on gender and, in some instances, to relevant expertise within the Bank. 39. The development of border areas has important ramifications for women and girls. As noted above, Indonesia supplies a large number of domestic workers for the Malaysian market and the porous nature of the Borneo border facilitates an illegal flow of women and girls looking to enter this market. Illegal workers are more likely to fall prey to unscrupulous brokers and employers. The Implementing Agency must ensure that full consideration is given to the gender implications of current development patterns in border areas and that recommendations made address issues of gender.

Program Management, Execution and Implementation 40. Our policy is to employ the best qualified and experienced individuals and firms to implement the projects we finance; to provide them with clear objectives and guidelines concerning the work that needs to be done; and to be available to help wherever it is requested; but not to interfere or ‘micro-manage’ the project. 41. The effectiveness of this activity therefore rests heavily on how well the selection of individuals and firms is done and on the quality of the documentation and briefings concerning what is required of implementing agents. 42. The DSF Executive will gauge project progress on the basis of the periodic reports received from implementing agents. It will monitor the achievement of agreed activity milestones and project objectives. It will liaise with government counterparts as necessary, to obtain their feedback, and provide periodic assessments of project status, most generally through the DSF quarterly reports. 43. Bappenas and MoHA have indicated that the activity may be World Bank or GoI executed or through FAA (as according to the DSF Operations Manual). GoI MC will take the final decision as to execution method. 44. Bappenas and the DSF, MoHA and the DSF will prepare Request for Proposals and conduct selection of implementing agencies requested to submit a technical and financial proposal separately for the deliverables directed to Bappenas and MoHA. These will be made by two small teams comprising Bappenas and the DSF executive staff; MoHA and the DSF executive staff. A QCBS (Quality Cost Based Selection) method will be used for the selection process. One or two different organizations with separate team of consultants may submit proposals clearly delineating tasks. Bappenas and the DSF; MoHA and the DSF team will review and score the proposals.

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Implementing Agency 45. Two implementing agencies will be contracted; one team will work mostly with Bappenas and the other will work mostly with MoHA. However, both teams should cooperate and communicate with each other and have regular meetings as necessary to harmonize the activities and share the results. In general, both teams will have the following qualifications: • A background in delivering quality projects of a similar nature in Indonesia for at least five years. • Demonstrated expertise in: development policy formulation; regional development issues; Government of Indonesia institutions relevant to development policy; local economic development; regional development planning; local government service delivery; decentralization; • A strong network of contacts within national and, preferably, regional governments. • Demonstrated capacity to run an activity of this scale with the necessary human resources to manage a project of this complexity. • Substantial experience working with the Government of Indonesia, preferably with Bappenas, MoHA and/or the Ministry of Disadvantaged Regions. Preferably experienced in delivering capacity building programs. • Substantial experience working with local governments, particularly in delivering capacity building programs. • Substantial experience in the monitoring and evaluation of projects/activities. • Demonstrated ability to deliver results within the given timeframe and to be responsive to changing demands from a variety of partners. • Demonstrated ability to bring to bear on the issues at hand the latest and best comparative thinking and evidence and to demonstrate clearly in recommendations made or options presented that they are so informed. 46. Qualifications required for key positions within Implementing Agency for Bappenas. In order to address Bappenas’ priorities the work will be divided into two parts as follows: • Short Term experts will be hired In 2009: a. Formulate border area development indicators (in consultation also with MoHA) b. Input paper for RPJMN 2010-2014. Bappanas require input on border areas for the upcoming RPJMN by October 2009. c. Criteria for definition of border areas, districts and sub-districts (to be provided to MoHA as input into draft decree) 47. Qualifications required for key positions within Implementing Agency for Bappenas: • Project leader: At least a master’s degree, preference given to PhD in a relevant subject. Over ten year’s work experience specifically in regional development issues in Indonesia. Preferably some experience specifically in border areas and familiar with developmental challenges within these areas. Demonstrated grasp of key issues with preference given to

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• •

those with a relevant publication history. Substantial management experience and demonstrated ability to manage a project of this complexity. Policy and legal expert: Demonstrated experience in assessing government policy and legal frameworks for development. Excellent understanding of institutional settings of policy formulation and experienced in providing support to national government on policy formulation. Evaluation expert: At least five years experience in conducting assessments of government policy in the areas, preference given to past experience of conducting assessments of a similar nature. Data expert: A specialist in development data. Experienced working with national and regional governments and other agencies (e.g. BPS) on data collection. Experienced with managing large data sets. Regional project leaders: Each pilot will have an assigned regional project leader. This individual is expected to display substantial experience in planning issues in that province or similar. Demonstrated ability to lead a provincial based team of facilitators and trainers. Workshop/conference organizer: Experienced at hosting events for national and regional government representatives. Regional trainers/facilitators: Experienced at facilitating training processes and delivering training to regional government officials.

48. Qualifications required for key positions within Implementing Agency for MoHA. In order to address MoHA’s priorities the work will be divided into two parts as follows: • Short Term experts will be hired In 2009: a. To review 25 year social economic development of border area between Malaysia and Indonesia. b. To prepare inputs for decree to define border regions/areas based on criteria, definition and procedures prepared by Bappenas c. To conduct independent monitoring and evaluation based on the data collected. • Qualifications required for key positions within Implementing Agency for MoHA: a. Project leader: At least a master’s degree, preference given to PhD in a relevant subject. Over ten years’ work experience specifically in regional development and institutional building in governmental sectors. Preferably some experience specifically in border areas and familiar with developmental challenges within these areas. Demonstrated grasp of key issues with preference given to those with a relevant publication history. Substantial management experience and demonstrated ability to manage a project of this complexity. b. Public policy expert: Demonstrated experience in assessing government policy and legal frameworks for development. Excellent understanding of institutional settings of policy formulation and experienced in providing support to national government on policy formulation.

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c. Legal expert: Demonstrated experience in supporting formulation of legal framework for development. d. Regional planning expert: Demonstrated experience in supporting government in formulation of plans for national and regional/local levels. e. Organizational development specialist for BNPP and BPPD: Substantial experience (plus 10 years) providing technical expertise in organizational development to government institutions especially for service delivery providers. An excellent record of providing TA to national and local governments. Previous experience drafting high quality guidelines for government institutions. Possess an excellent network of contacts within national government. Preference given to a well-regarded academic with an excellent understanding of national-regional government relationships. f. Monitoring and evaluation expert: Substantial (plus five years) experience in conducting assessments of government policy in the areas, preference given to past experience of conducting assessments of a similar nature. g. Regional project leaders/Facilitators: Each pilot will have an assigned regional project leader/facilitator. This individual is expected to display substantial experience in planning and public service delivery issues in that province or similar. Demonstrated ability to facilitate participative regional and local planning development. h. Workshop/conference organizer: Experienced at hosting events for national and regional government representatives. i. Regional trainers: Experienced at delivering training to regional government officials.

Procurement and Implementation Schedule August 2009 – March 2011 (18 months implementation) Timeframe Aug. 2009 Aug. 2009

Sept. – Dec. 2009

16

Activities – Implementing Agency 1 (Bappenas) ACN approval by Management Committee Procurement of Implementing Agency and contracting with Short Term Experts Inception Phase: Selection of pilot regions Field visit to border areas (Bappenas, MoHA and DSF Executive) Drafting of border area development indicators Draft Criteria for definition of border areas, districts and sub-districts (to be provided MoHA as input into draft decree)Development of M&E matrix Baseline data collection Development of ‘Profiles’ for selected

Activities – Implementing Agency 2 (MoHA) ACN approval by Management Committee Procurement of Implementing Agency and contracting with Short Term Experts Inception phase: Review of 25 years of social and economic development in border areas shared with Malaysia (Sosek Malindo) Field visit to two of border areas (Bappenas, MoHA and DSF Executive) Inception report


ACTIVITY CONCEPT NOTES # 8 | ARRISING FROM THE DSF WORK PLAN 2009-2011

Activities – Implementing Agency 1 (Bappenas) border areas Inception report

Activities – Implementing Agency 2 (MoHA)

Activities – Implementing Agency 1 (Bappenas)

Activities – Implementing Agency 2 (MoHA)

Jan. – May 2010

Draft an assessment of current policy framework Develop case studies

Develop case studies in selected aspects of service delivery Develop a monitoring and evaluation matrix

Apr. - May 2010

Develop an integrated border area policy paper Develop mid-term report Conduct training needs assessment and draft a report

June – Aug. 2010

Prepare handouts for conferences and workshops and conduct workshops and conferences Develop an Input paper for draft National Master Plan Develop guidelines for creating and operation a border area information system

Sept - Nov. 2010

Draft National Master Plan

Draft an academic paper including recommendations on: assignment of functions on border area management; guidelines for internal standards and operational procedures for BNPP; and guidelines on coordination mechanisms between BNPP and BPPD. As input for decree(s) on border area management Input paper and draft guidelines for the organization and management of BPPD Input paper and draft guidelines and sample templates for monitoring and evaluation and reporting Develop material for facilitation of local government in preparing master and action plans Draft action plan at national level Draft master plan and Action plans in pilot areas Developing materials, conduct workshops and conferences Draft a report and recommendations drawn from the pilot project for the institutional strengthening of

Timeframe

Timeframe 2010

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Timeframe

Dec. 2010

Activities – Implementing Agency 1 (Bappenas) Develop quarterly reports

March 2011

Draft final report

Timeframe

March 2011

18

Activities – Implementing Agency 1 (Bappenas)

Activities – Implementing Agency 2 (MoHA) local government service providers in selected sectors, including accessibility and quality status of public service.

Activities – Implementing Agency 2 (MoHA) Develop a report and recommendations concerning accessibility and quality of public service delivery, including gender sensitivity Develop quarterly reports Develop and submit final report Develop jJint Policy Brief on Border Area Development (Bappenas and MoHA)


ACTIVITY CONCEPT NOTES # 9 | ARRISING FROM THE DSF WORK PLAN 2009-2011

DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 9/2009 Summary: This activity aims to provide high quality decentralization education and training for central and local government officials and civil society leaders on important aspects of public service delivery, principally fiscal decentralization and social accountability. Fiscal decentralization issues such as how central funds are allocated across different regions, the conditions attached to these transfers, and whether or not local governments have their own sources of revenue importantly determine who pays, who monitors, and who is ultimately responsible for the quality of public services. Social accountability too plays a crucial role in affecting service quality by affirming a basic tenet of democracy: that citizens have a right to demand efficient and equitable services and that public actors have an obligation to be accountable to the citizens. The education and training provided will include: workshops, seminars, and short courses conducted in Indonesia and overseas; action learning and on-the-job training and follow-up Indonesia; international study tours; and scholarships for young professionals to pursue one-year masters degree programs in the UK.

Activity Title Capacity Building through Decentralization Education and Training (DET) for Public Service Delivery1

Counterpart Agency and Key Government Contacts • The main beneficiaries for this activity are MoHA, MoF, and Bappenas, and target subnational governments and civil society organizations. • Lead contact person for this activity is the Head of the Centre for Management of Overseas Cooperation (AKLN) in MOHA. A small inter-ministerial advisory team, comprising Director level representatives of MoHA, MOF and Bappenas, will closely guide and monitor the implementation of this activity. • Composition of GOI DET team: 1. Nuryanto, Director and Head of Centre for Management of Overseas Cooperation, in Ministry of Home Affairs. 2. Heru Subiyantoro, Secretary to the Director General on Fiscal Balance, Ministry of Finance and MC Co-chair. 3. Himawan Hariyoga, Director of Regional Autonomy, Bappenas, and Former MC CoChair.

1

This Concept Note develops the initial proposal received from MoHA (and endorsed by MOF and Bappenas as well) for capacity improvement through professional education and training of the state apparatus implementing decentralization and regional autonomy. It falls under DSF Priority Area 3 on Governance Reforms. (See Activity described at 5.3.2 (paras 92-94 and 98a) in DSF Work Plan 2009-2011).

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• Local Government Consultative Group. The GOI DET team will consult closely with local government officials from provinces and kabupaten/kota that are participating in the DSF Work Program 2009-2011 to determine an effective nomination and selection process for LG officials. The GOI DET team will also consult with the provincial and kabupaten/kota local government associations. • Civil Society Consultative Group. The GOI DET team will consult closely with civil society organizations from provinces and kabupaten/kota that are participating in the DSF Work Program 2009-2011 to determine an effective nomination and selection process for CSO leaders. Cooperation with a national CSO such as the Working Group for CSO Accountability may also be established to determine CSOs that meet accountability criteria (financial management systems, demonstrated constituency, code of ethics, track record of performance, publish annual report, etc.)

Duration August 2009-September 2011

Background and Rationale Decentralized Service Delivery 1. In the last ten years, the Indonesian state has achieved significant successes on a number of fronts: political stability, democratic governance, macro-economic stability, poverty reduction and social development. Decentralization has contributed significantly to this achievement, by creating an enabling environment in which the objective of citizens’ welfare can be more systematically pursued in an effective and democratic way. 2. But despite GOI’s efforts in creating this positive environment through the issuance of new laws and regulations, a decade later, evidence of actual improvements in service delivery is still patchy, and overall, rather disappointing 2. The main problem seems to be weak institutional capacity to translate decentralized authorities into more responsive and accountable governance. District administrations in Indonesia have been given much of the responsibility for planning local public expenditure and delivering basic public services. However, their capacity is extremely weak and a “service” or “client” orientation, and awareness of downward accountability to the citizens, is significantly missing in the way they budget or plan local spending. National Government also faces enormous difficulty with the effective allocation of resources to the local level and with assessment of the performance of local governments in managing public finances and delivering services. And civil society is as yet unable to effectively articulate citizens’ expectations and monitor public institutions and their services.

2

Campos, J. E. and Hellman, J. S., “East Asia Decentralizes - Chapter 11: Governance Gone Local: Does Decentralization Improve Accountability?”, The World Bank, June 2005 and Lewis, B. D. and Smoke, P. “Indonesia’s Fiscal Decentralisation: Where to Now?”, DSF Working Paper, December 2008.

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3. The overall result is poor quality basic service provision for millions of people in Indonesia, especially the poor. This suggests that to improve decentralized public service delivery, more effort is needed by way of enhancing the capacity of key actors to provide and demand better services. This project is intended to contribute to this effort by offering opportunities for high quality professional education and training to individuals from all stakeholder groups responsible for service outcomes. 4. Links to strategic framework: The rationale for this activity emanates from the DSF’s strategic framework, which identifies weak local government capacity in provision of basic services, weak central government capacity in policy design, and weak citizen demand for public services and local government accountability as three capacity building areas for improvement. To address these challenges requires a better understanding among all stakeholders of the need to strengthen downward accountability to citizens and the principles of prudent fiscal/financial management. Professional education and training in the principles of fiscal decentralization and social accountability will go a long way towards meeting this need. 5. Fiscal decentralization. Fiscal decentralization refers to the division of spending responsibilities and revenue sources between levels of government. Fiscal decentralization issues such as how central funds are allocated across different regions, the conditions attached to these transfers, and whether local governments have their own source of revenue are all of great significance in determining who pays, who monitors, and who is ultimately responsible for the quality of public services 3. 6. Social accountability. Social accountability implies that governments are obliged to serve the public interest in an efficient, effective, and fair manner; and that ordinary citizens and/or civil society organizations can hold them accountable to fulfill this obligation. Governments can do a great deal on their own to improve accountability through actions such as strengthening top-down oversight, professionalizing staff through civil service reform, empowering internal comptrollers, establishing performance contracts and creating new independent public oversight agencies. Nevertheless, pro-accountability reform is much more effective when societal actors play a central role as well. Social accountability has been defined as “an approach towards building accountability that relies on civic engagement, i.e. in which it is ordinary citizens and/or civil society organizations who participate directly or indirectly in exacting accountability” 4.

3 “Fiscal decentralization sets the framework of expenditures, revenues and legal discretion within which regional and local governments operate. It does not deal with issues of financial management, the process of budgeting, accounting, delegation, procurement, auditing etc by which individual local governments manage their financial affairs. These are equally important, but the subject of a separate body of law and practice.” Davey, Kenneth, “Fiscal decentralization”, UNPAN, June 2003. 4 Carmen, M with Reiner, F. and Janmejay, S., “Social Accountability – An Introduction to the Concept and Emerging Practice”, Social Development Papers, Participation and Civic Engagement, Paper No. 76, The World Bank, December 2004.

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7. Social accountability mechanisms include a broad range of measures. These include, among others, participatory planning and budgeting; public expenditure tracking; and monitoring of public service delivery through, for example, citizen charters/report cards/satisfaction surveys 5. These citizen-driven accountability measures complement and reinforce conventional mechanisms of accountability such as political checks and balances; accounting and auditing systems; and administrative rules and legal procedures. Evidence suggests that social accountability mechanisms can contribute to improved governance and better public services; and success depends crucially on civil society and state capacities and synergy between the two 6. GOI Policy Initiatives to Improve Service Delivery 8. GOI has been aware of this and has taken a number of initiatives to strengthen both upward and downward accountability, and to create space for a constructive collaboration or engagement with civil society. These include: • Presidential Decree on National Capacity Development Framework • Law on public services • Law on administrative procedures • Revised (32/2004) framework law for regional government • Competency-based human resource development (recent SKD from Diklat in MOHA) • Proposed Permendagri on Best Practices 9. This activity thus supports GOI’s policy frameworks and efforts to improve service delivery, and has been prioritized by all 3 ministries (Home Affairs, Finance, and Planning). It will provide a range of professional development opportunities for both central and local government officials, and civil society leaders. 10. Accountability of public officials is the cornerstone of good governance and democracy, and it is critical that public officials at both national and local levels are professionally equipped, through education and training, to fulfill their obligations to provide services in a fair, efficient and accountable manner. By providing sound theoretical and practical knowledge of fiscal decentralization and social accountability mechanisms, this activity will enable them to grasp the fundamental principles underlying effective and accountable service delivery. 11. Similarly, it has been noted that “good laws, open institutions and pro-active public servants will do very little if civil society itself is not able to take advantage of these openings. Civil society organizations and groups need to build their capacity to dialogue with 5

This concept note is concerned only with those social accountability measures that seek accountability in regard to the relevance, accessibility and quality of public goods and services. They include mechanisms like public hearings, citizens’ charters, community or social audits, or citizens’ report cards which are used to solicit citizen feedback that can be disseminated and presented to government officials to demand accountability and lobby for change. It would exclude participatory planning and budgeting which invite citizens to play a decision making role. 6 Ackerman, John M., “Social Accountability in the Public Sector: A Conceptual Discussion”, Social Development Papers, Participation and Civic Engagement, Paper No. 82, The World Bank, March 2005.

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government and hold it to account. This involves including the education and training of civil society as a central element of any social accountability initiative”7. 12. Links to other work: This activity focuses on building capacity at the individual level. As the literature8 and experience show, such efforts are more effective if they are part of wider organizational and institutional reforms that create more conducive contexts for the trainee- participants to return to and operate in. Annex 1 describes how this activity fits with the wider reforms undertaken by Government and other partners. This activity will proactively seek to link with and build on these efforts. In particular, it will draw on the service provider networks and training materials developed by the AusAID-funded Indonesia Australia Specialized Training Program (IASTP) and the USAID-funded Local Governance Support Program. The GTZ-ASSD project with 12 Indonesian universities will create more courses in decentralization studies across the country. Selecting the same geographic area as other approved Activity Concept Notes of the DSF will ensure greater synergy between the activities. There is a mutually reinforcing link particularly with DSF work on minimum service standards (MSS); Capacity Strengthening of DPRD; Management Strengthening for Local Public Service Providers; and Institution Building for Accelerated Development of Border Areas. Based on this consideration, table at annex 2 indicates 10 suggested provinces as priority areas for this activity. 13. In brief, working in tandem with these other efforts, this activity seeks to fill a significant gap in measures to improve service delivery in Indonesia. As the 2009 Indonesia Stocktaking Study Update notes: “Because service provision covers a broad range of activities, it is to be expected that relevant training is scattered throughout various offerings (e.g., planning and budgeting, MSS target setting and costing, scorecard methodology). There does not appear to be any integrating training that would serve to provide an overview of approaches, good practices or innovations”9.

Goal and Objectives 14. The goal of the proposed activity is to strengthen the capacity of officials in targeted central ministries and local governments to provide for (and of CSOs to monitor) decentralized public service delivery with a greater emphasis on downward accountability to citizens. 15. The objectives of the activity are: • To develop a group of professionals in central and local government and nongovernment organizations who have sound theoretical and practical knowledge of 7

Ibid. National Capacity Framework, “Indonesia Australia Specialized Training Project Phase III (IASTP III): Independent Completion Report” Australian Government, 18 December 2008. 9 “Stock Taking on Indonesia’s Recent Decentralization Reforms Update 2009”, USAID-DRSP, March 2009. 8

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fiscal decentralization and social accountability mechanisms as part of downward accountability to improve decentralized service delivery; and who are committed to lead change management processes. • To support identified Indonesian civil society organizations (universities, foundations and non-government organizations) to act as service providers in imparting education and training in fiscal decentralization and social accountability approaches to service delivery.

Scope of Services and Sub-activities 16. The stated goal and objectives will be attained through a number of activities and subactivities. 17. The main emphasis is on providing individuals from all three stakeholder groups (local and national government as well as civil society) a range of professional development opportunities, focusing on the key decentralization challenge in Indonesia - how to deliver public services in a more transparent, responsive, equitable and accountable manner. A variety of adult learning methods may be used, including but not necessarily restricted to: • Workshops, seminars, and short courses conducted in Indonesia • International study tours • Scholarships for young professionals to pursue one-year Master degree programs in the UK • Action learning and on-the-job training and follow-up in Indonesia 18. Essentially, this activity consists of three sub-activities: • Short term professional education and training for local government officials and CSO representatives, through workshops, seminars, short courses, action learning, and on-the-job training • Study tours to learn from experience and better understand good practices in other countries, in strengthening downward accountabilities in service provision, through fostering citizen engagement and sound fiscal decentralization policies. • Scholarship awards to pursue one-year Master degree programs in the UK, specifically for studies in social accountability and fiscal decentralization. 19. All three sub-activities will consist of the following steps: (a) assess local interest, demands, and needs for DET; (b) review materials from previous professional education and training programs to inform design; (c) determine the service providers, universities or other institutions that will provide or facilitate DET (either in the form of short courses, study tours, or Masters programs in the UK); (d) prepare pre-departure orientation and finalize schedule; and (e) facilitate action-learning, follow up activities, and re-integration upon completion of DET. The implementing agency will also examine whether any links have been established between Indonesian and foreign universities that enable students to pursue

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“sandwich” study programs (combining study in-country and overseas). If not, it should report on the feasibility of this approach in regard to decentralization related studies. 20. This activity will be Government executed (as explained in Section 10 below), with MoHA’s Centre for Management of Overseas Cooperation (AKLN) as the GOI counterpart agency. The specific approach and content of each sub-activity is explained below. Short Courses 21. To implement this sub-activity, AKLN will contract an Indonesian institution or firm to act as the lead implementing agency. This agency will be fully responsible for the preparation and delivery of this program. The implementing agency will cooperate with the training and education units within MoF, Bappenas, and MoHA (Badan Pendidikan dan Pelatihan Keuangan, Depkeu; Pusat Pembinaan, Pendidikan, dan Pelatihan Perencanaan, Bappenas; Badan Pendidikan dan Pelatihan, MoHA) and with the respective counterparts in participating local governments. The implementing agency and government training and education units are responsible for working closely with the GOI DET team, LG consultative group and CSO consultative group to determine the beneficiaries, develop the preparatory workshops for participants, and coordinate mentoring and action learning plans for integration into the government unit or CSO organization following the training and education. 22. A pool of service providers (university faculty, NGOs, and individuals) has been created in the country, through their involvement in providing capacity development and training support at local and national levels on behalf of various donor supported projects. Lists of such service providers – with details of their geographic location/reach, technical expertise, and experience, are available with individual projects. The implementing agency will be expected to collate this data into a consolidated data-base. In addition, the implementing agency should identify selected institutions in other countries (e.g., University of the Philippines; National University of Singapore; Georgia State University; East-West Centre, University of Hawaii etc.) that can provide key short courses relevant to fiscal decentralization and social accountability. 23. In addition, there are a number of CSOs and coalitions of CSOs active in specific areas of work such as legislation and implementation of the Freedom of Information Act, use of citizens’ charters or community report cards. These Indonesian institutions have the most valuable knowledge and expertise in their chosen fields. Many are working constructively in providing inputs to central policies. They are ideally suited to be service providers for this activity. The implementing agency will be expected to explore and negotiate this possibility with them, and incorporate them in the database. It is envisaged that the implementing agency will sub-contract or partner from among this pool of Indonesian institutions and actively strengthen this network of service providers as one of the objectives of the project.

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24. To prepare for short courses the implementing agency will review, select and compile relevant materials from donor supported training programs such as IASTP, LGSP, GRS II, as well as other sources, including World Bank and Indonesian institutions to assist in facilitating the short courses. In particular, instruments to apply adult learning techniques such as personal development or action plans, work-books/questionnaires/FGD; facilitation guidance for service providers; and materials for actual training sessions10 will provide the implementing agency with valuable information to facilitate the DSF DET program. These materials may also be used as reference documents for development of orientation or “predeparture” sessions and follow up mentoring and action-learning programs to assist integration into respective LG agencies and CSOs. 25. Members of GOI DET team in cooperation with the LG and CSO consultative groups will be responsible for negotiating with local governments in the target provinces regarding the specific dinas or service delivery units to be covered and the numbers of participants. 26. The GOI DET Team, as the persons who are leading this initiative and who understand the incentives driving local governments, should play central roles in orienting target regional governments to take advantage of these learning opportunities, and conducting ‘program orientation workshops’ in the regions. The implementing firm is expected to support and facilitate the GOI DET team in discharging this leadership role. 27. The implementing agency will be responsible for the overall plan to organize the workshops and courses, taking into consideration the interest and needs of local governments and CSOs and the availability of high quality service providers to deliver the training. Annual targets will be determined after assessing demand and matching service provider capacity. 28. The implementing agency will be responsible for developing an orientation program for participants before they begin their designated education and training. Participants should develop action learning goals for re-integration into their home institution. Action learning includes applying concepts learned during the professional education and training into the workplace with oversight and support from a mentor or supervisor. The participant along with his/her mentor or supervisor must set an institutional goal the participant should aim to achieve and to which both will be accountable. The participant should also make a presentation to his/her colleagues to share knowledge gained or lessons learned and solicit the assistance of his/her colleagues in implementation of the institutional goal. 10

Considerable work on course design and training modules tailor made for local government officials and civil society organizations in Indonesia has been done under AusAID’s Indonesia-Australia Specialised Training Project (IASTP) and USAID’s Local Governance Support Program (LGSP). The former closed in December 2008, and the latter is closing in September 2009. Both have offered their course curricula and training modules to the DSF. The bulk of this material (including facilitators’ guides, work-books, action-plans, posters and charts) is available in Bahasa Indonesia. Other projects, including those of the WB, also have relevant training materials. This and other material will have to be reviewed in light of overall purpose of the project.

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Study Tours 29. To implement sub-activity 2, the implementing agency will negotiate with relevant host institutions abroad, develop a relevant study tour program under the direction of the DET team and provide logistical support as needed. The initial target is to organize two international study tours, one to the UK and the other to a developing country that is considered ‘progressive’ in implementing decentralization and public service improvements, such as South Africa for example. In the first year, these study tours will be open to members of the DSF Management Committee and a member of their technical staff who is directly managing DSF supported programs. Directors who are not on the Management Committee but are managing DSF programs and one member of their technical staff may also participate. 30. The objective of these study tours is to provide members of the DSF Management Committee and their staff with knowledge about new tools and approaches dealing with decentralized service delivery; enhanced understanding of dealing with issues and approaches to fiscal decentralization and social accountability; and opportunities to visit state and city government service delivery to understand first hand how fiscal decentralization and social accountability mechanisms work in practice. 31. These joint study tours are also expected to promote participants’ personal commitment to be champions for change, and to foster inter-ministerial coordination and harmonization of policies and regulations relating to decentralization more generally. Other study tours may be organized in subsequent years as required in support of overall program objectives. Scholarships for Masters Degree Programs 32. To implement sub-activity 3, AKLN will contract services of a reputed, expert, independent scholarships program management agency. The annual target for this subactivity is 10 full scholarships to pursue masters degree programs in the UK. These will be primarily for advanced courses that offer specialties in issues of fiscal decentralization (such as tax policies, fiscal transfers, sub-national borrowing etc) and social/administrative policies having a bearing on service outcomes. A list of UK universities offering relevant courses is in Annex 3.

Deliverables 33. This activity will produce the following: • Results of needs assessment conducted to determine local needs including reports on FGDs with local stakeholders (local parliament, CSO/NGO and local media, governor/bupati/mayor, service providers, and citizens groups and committees). • Service Provider database including: universities, foundations, and associations capable of providing relevant training and capacity building services, with the geographic location and areas of expertise.

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• Evaluations of the DET conducted for each of the three sub-activities including short courses, workshops, and seminars; study tours; and Masters programs. • Results from participant action plans implemented in home institutions demonstrating efforts to institutionally improve public service delivery compiled and analyzed 11. • Project completion report with critical analysis and evaluation of project strategies and achievements and lessons learnt.

Sustainability 34. Through the inter-ministerial DET team the three main ministries of MoF, Bappenas, and MoHA will gain experience in managing decentralization education and training and develop relationships with implementing agencies and service providers at the local level, nationally, and internationally. In addition, the local government and CSO consultative groups will also gain experience in managing DET programs and have access to the same networks. This sets the stage for future central-local collaboration in DET programming moving forward. In addition, the inclusion of the training and educations centers in the program provides valuable management experience for running a similar program with APBN or APBD funds.

Gender 35. The decentralization education and training opportunities provided in all three subactivities should incorporate gender implications of public service delivery and aid participants in developing the knowledge and skills needed to mainstream gender in relevant government or civil society service delivery programs. In addition, gender balance should be required in the nomination and selection process for participants at both the national and sub national levels. It is essential to ensure significant levels of women’s participation to address the gender gap in promotion of civil servants and CSO leaders.

Program Management, Execution, and Implementation 36. The activity, “Capacity Building through Decentralization Education and Training” (DET) will be Government Executed (or Recipient Executed in World Bank terms). The funds for this activity will be on budget, on-treasury. AKLN is responsible for preparing the necessary documents and submitting them to the Ministry of Home Affairs and Ministry of Finance as required for on budget, on-treasury activities. AKLN will participate in a World Bank procurement and financial management assessment as input for the relevant clauses in the Grant Agreement that will be signed between The World Bank and the Government of Indonesia. AKLN will follow World Bank guidelines in procuring implementing agencies and/or individual consultants. 11

Due to the timing of the Master degree program, the students will return from the UK at the time the current DSF programming is scheduled to end (September 2011). Therefore, the implementation and analysis of action plans of Masters degree participants will need to be conducted separately or with an additional DSF extension. Implementation and analysis of actions plans of study tour and short course participants will not be affected.

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37. The description of roles that AKLN, the DSF Executive, and the Implementing Agency will assume during this activity are described below and summarized in the text box. 38. AKLN is the owner/beneficiary of the overall activity and is responsible for steering, management, procurement, monitoring, and evaluation. The role of the DSF Executive is to obtain World Bank approvals during procurement and implementation, provide monitoring and evaluation, and quality assurance. The role of the implementing agency or individual consultants hired by AKLN is to implement the various activities detailed in this concept note and to submit the required reports. The implementing agency and consultants will submit reports both to AKLN and the DSF Executive, which will both be responsible for submitting them to the DSF Management Committee at the appropriate time. AKLN: owner/beneficiary of the activity; responsible for steering, procurement and contracting of implementing agencies/consultants, management of program implementation, program monitoring and oversight, and submission of reports to DSF MC. DSF Executive: responsible for program monitoring and quality assurance, and along with AKLN, submission of reports to DSF MC. Implementing Institution/Consultants: implement the activity according to the assignments in the TOR, budget, and contract requirements, and submission of reports/deliverables to AKLN and DSF Executive for review.

Implementing Institution 39. AKLN will execute this activity in cooperation with other units within the Ministry of Home Affairs (in particular the directorates for Regional Autonomy, Planning and Budgeting, Diklat), MoF, Bappenas and regional governments, local government associations, and other stakeholders. AKLN will procure technically competent consultants (either a private firm or other Indonesian institutions having relevant expertise) to act as the implementing agencies for each of the project sub-activities. The concerned implementing agency should assemble a core team of specialists that will undertake the project sub-activities under the direction and supervision of the GOI DET Team with additional quality assurance from the DSF Executive. The core team of consultants to implement sub-activity 1 should comprise: • Team leader, this position requires someone with extensive experience as team leader with the qualification of a masters degree or PhD in Education/Public Administration/Public Policy, with minimum 5 years relevant experience especially in project management and monitoring and evaluation for results; • Training coordinator, with the qualification of Master degree in public administration/ policy and at least 3 years relevant experience; he/she has the ability to undertake capacity needs assessment, training and development including adult and experimental learning techniques, action learning and post-training/reintegration approaches;

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• Evaluation coordinators, with the qualification of Master degree in Economics/Public Finance/Public Policy/Public Administration and minimum 5 years of relevant experiences in (i) application and evaluation of social accountability mechanisms, and (ii) regional public finance evaluation study would be an advantage; he/she has the ability to undertake capacity needs assessment, training and development, including adult and experiential learning techniques; • A number of Training Facilitators, with the qualification: minimum education at least bachelor degree or equal, and minimum 5 years of relevant experiences, to organize, lead and manage work-shops, seminars and focus group discussions, and follow up on the individual action plans of training participants.

Implementing Institution – Other Required Inputs 40. The project requires full engagement by the GOI DET team, and LG and CSO consultative groups throughout project implementation. During the preparation stage, the DET team, LG, and CSO consultative groups will be involved in selecting the regions, in preparing the key actors in local governments to participate in the program, and in ‘socializing’ the basic principles of accountable service delivery. 41. The DSF Executive will provide additional support, mostly related to quality assurance during project implementation. All inputs and support rendered to the project by the three main parties – GOI DET Team, LG and CSO Consultative Groups; the DSF Executive; and the implementing agency will be collaborative.

Procurement and Implementation Schedule 42. The following estimated schedules are proposed for the 3 sub-activities respectively: Short Courses • August-September 2009: ACN finalization and MC approval. • October-December 2009: Grant Agreement preparation; a) Child Trust Fund (CTF) and Government Annual Budget (DIPA) preparation to register this activity; b) Procurement process such as: Request for and review of Expression of Interests (EOI) from implementing agencies, approval of short listed organizations; issuance of Request for Proposals (RFP); evaluation of proposals; approval of top ranked firm; technical and financial negotiations; issuance of contract. GOI DET team establishes criteria for selection of local government officials and CSO leaders in consultation with the LG and CSO consultative groups. • January-March 2010: Activity socialization at the provincial and kabupaten/kota levels by DET Team, LG, and CSO Consultative Groups and parallel needs assessment conducted by the implementing agency; literature review of previous DET programs and identification of service providers completed by implementing agency; presentation of inception report and detailed work-plan by implementing agency to DET Team.

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• April-September 2010: Implementation activities including trainee-participants orientation, institutional goal setting and action learning plan for re-integration agreed bet ween participants and mentors/supervisors, participation in short courses, seminars, and workshops; implementing agency submits mid-term report. • October 2010- September 2011: Post-training evaluation and monitoring of action learning implementation; second round of Short Term courses planned depending on decision of DSF MC and available time and resources; Final report submitted by implementing agency. Study Tours • August-September 2009: ACN finalization and MC approval. • October-December 2009: Further discussion between GoI DET team and DSF Executive on specific institutions and countries to visit; finalization of study tour ToR; and contact with host organizations. Study tours to the UK for the Management Committee, technical staff, and participating government agencies in DSF programming (number of participants to be finalized) designed by DET and DSF Executive. Grant Agreement preparation: Child Trust Fund (CTF) and Government Annual Budget (DIPA) preparation to register this activity. • January 2010: Pre-departure orientation and re-integration action plans completed. • February-July 2010: Study tours completed and re-integration action plans started; evaluation of first study tour and recommendation for additional study tours if budget allows. • August 2010: Review and analyze results of action plans completed by participants of study tours. Master Degrees • August-September 2009: ACN finalization and MC approval • October-December 2009: Grant Agreement preparation; a) Child Trust Fund (CTF) and Government Annual Budget (DIPA) preparation to register this activity; b) Procurement process for hiring an expert, independent agency for management of scholarships to the UK (to pursue masters degree in decentralization studies) and nominations for candidates proposed by MoF, Bappenas, and MoHA. • January-February 2010: Review of applications and screening of candidates by independent agency. • March-April 2010: Interviews with qualified candidates. • May 2010: Announcement of selected candidates and commencement of application process to UK universities, English language testing. • May-June 2010: Finalize applications and send to UK universities. • July-August 2010: Response from UK universities; Pre-departure program including search for housing, cross cultural training, additional English training, and formulation of re-integration action plans.

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• September 2010-September 2011: Leave for UK and begin one-year graduate program, return in September 2011, complete evaluation, and commence re-integration program. (Meantime, above steps in candidate selection process concluded for second batch of scholars to leave for UK in September 201112).

12

Due to time constraint the second batch of scholars will leave for UK in September 2010 instead of September 2011.

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Annex 1 Stakeholder Contributions to Increased Professional Competence in Delivery Service Stakeholder

GOI

Aus Aid

USAID

GTZ Institutional CB at university level (ASSD project) Institutional CB at MENPAN and LAN (SfGG project) 12 leading universities revise syllabi to include studies in decentralization. (ASSD)

Key Focus

Conducive policy environment

Specialized training in several subject areas, across different levels of government and civil society organizations

Institutional CB at LG level

Expected Outputs

Perpres on National Capacity Development Framework

High quality courses delivered to central and local officials

Law on public services

Training modules and useful adult learning tools and methods

Training, technical assistance and other capacity building support provided to central government, local administrations, locally elected counsels and civil society.

Law on administrative procedures Revised (32/2004) framework law for regional government

Location of Activities

Competency-based human resource development Jakarta

Network of service providers

Papua, Maluku, Sulawesi, NTT, NTB, E. Java, Bali, Aceh

Provinces: 9 Makassar, Medan, Padang, Bandung, Banten, Semarang, Surabaya, Mankwari, Aceh Kabupaten : 68

LAN’s enhanced capacity as training provider on matters related to service delivery and administrative procedures. (SfGG) Aceh, Padang, Jakarta, Menado, Yogyakarta, Surabaya, Papua Banjarmasin Kupang, (ASSD) NG in Jakarta (SfGG)

DSF Activity 1.3 Institutional development at service delivery units (e.g. hospitals water services) schools)

National policy on alternative service mechanisms including performance agreements related to service delivery, based on results of pilot implementation by June 2011 Circular letter/ Ministerial regulation on alternative mechanisms for service delivery

Banten

DSF Activity 3.2 Professional development of selected individuals in government & CSOs related to Service Delivery Short courses, seminars, and on-the-job training on social accountability approach to service delivery. International study tours on effective decentralized service delivery. Masters’ program in decentralization studies (fiscal decentralization , social accountability)

Comments

IASTP closed in Dec 08. LGSP closes in Sep 09. Some of the training modules developed by these projects can be used for DSF’s ETD activity

There is scope to select provinces and districts for the DSF activities with a view to maximize synergy.

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Stakeholder

Aus Aid

GOI

1

USAID 2

DSF Activity 1.3

GTZ 3

4

DSF Activity 3.2

Project Name Duration

IASTP III

LGSP

ASSD

AMSD

ETD5

2003-2008

2003-2009

2006-2009

2009-2011

2009-2011

Value

AUD 65,000,000

USD 61,000,000

EUR 3,650,000

USD 500,000

USD 450,000

Contact Person

Ade Ganie ade.ganie@ausaid.gov. au

Judith Edstrom jedstrom@rti.org

Agus Dwiyanto agus-d@gtz.or.id

Erita Nurhalim enurhalim@worldbank.org.

Aruna Bagchee a-bagchee@dfid.gov.uk

Comments

1

Indonesia Australia Specialized Training Phase III Local Government Support Program 3 Advisory Services Support for Decentralization 4 Alternative service delivery mechanisms 5 Education Training for Decentralization 2

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Annex 2

1

2

Priority Provinces Kepulauan Riau

Banten

3

West Java

4

Yogyakarta

DSF Activity

Identified Kab./Kota

Minimum Service Standards Strengthened capacity of DPRD

Kab. Bintan

Border area development planning

Kota Batam, Kab. Natuna, Kab. Bintan, Kab. Kep. Anambas Kab./Kota Tanggerang Kota Serang, Kab. Lebak, Kota Cilegon

Minimum Service Standards Alternative Mechanisms of Service Delivery Alternative Mechanisms of Service Delivery National policy on local government borrowing Minimum Service Standards

Kab. Bantul, Kab. Sleman, Kab. Gunung Kidul, Kab. Kulon Progo, Kota Yogyakarta

Dana Alokasi Khusus 5

6

West Kalimantan

East Kalimantan

Minimum Service Standards Strengthened capacity of DPRD

Kab. Sanggau, Kab./Kota Pontianak

Border area development planning

Kab. Sambas, Kab. Bengkayang, Kab. Sanggau, Kab. Sintang, Kab. Kapas Hulu

Dana Alokasi Khusus Improved capacity of targeted government education and training centres Border area development planning

7

North Sulawesi

Sub National Investment Climate Border area development planning

8

9

10

18

Maluku

East Nusa Tenggara

West Nusa Tenggara

Kab. Kutai Barat, Kab. Nunukan, Kab. Malinau

Strengthened capacity of DPRD Border area development planning

Strengthened capacity of DPRD Border area development planning

Dana Alokasi Khusus Improved capacity of targeted government education and training centres

Kab. Kep. Talaud, Kab. Kep. Sangihe Kab. Maluku Barata Daya, Kab. Maluku Tenggara Barat, Kab. Kep. Aru Kab. Kupang, Kab. Timor Tengah Utara, Kab. Belu, Kab. Alor, Kab. Rote Ndao


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Annex 3 List of UK universities with relevant one-year masters programs 1. University Birmingham

2. University Southampton

3. University Birmingham

4. King’s College London

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5. London School of Economics

6. University of Warwick

7. University of Surrey

8. University of Sussex (IDS)

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ACTIVITY CONCEPT NOTES # 10 | ARRISING FROM THE DSF WORK PLAN 2009-2011

DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 10/2009 Summary: This activity seeks to improve the way natural resources are managed by local governments. More effective management will boost local economic development and provide additional revenue for local governments to finance service delivery. Towards this end, the activity will: (1) examine in a small number of local governments the ways in which a sample of natural resources is managed; (2) 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; (3) build local capacity for undertaking such organisational development in two pilot areas; (4) make suggestions for the revision of governing legislation and on broader issues of organizational design at other levels in the government system, and; (5) establish principles underlying the better management of the sample natural resources that may be generalized to other local governments and/or natural resources; (6) devise training and development programs that embody these general principles and can be used as the basis for their dissemination; and (7) design training and development programs for carrying out such dissemination in the relevant sections of Bappenas.

Activity Title Strengthening Local Government Natural Resource Management Capability

Counterpart Agency and Key Government Contacts Bappenas, Directorate for Regional Autonomy. • Dr. Himawan Hariyoga, Director of Regional Autonomy, Bappenas. • Dr. Ir. Son Diamar, Special Advisor on Spatial Planning and Maritime Affairs, Bappenas. •

Duration January 2010 – June 2011 (implementation 18 months)

Background 1. Indonesia is abundant in natural resources, including petroleum, natural gas and minerals such as tin, nickel, copper gold and silver. Fertile soils, forests and substantial marine resources are also prevalent in many parts of the country. Natural resources are a key contributing factor to economic development in a country like Indonesia. The revenue generated from natural resource extraction in the 1980s and up to the crisis in 1997 spurred the economy and funded much of the nation’s development programs. Although revenue from oil and gas has fallen significantly as a share of total revenue, these two commodities combined still contributed as much as 29% of central government revenue in 2008. Revenue

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from fisheries, forestry and mining contributed a combined 13% to Indonesia’s total revenue1. 2. Natural resources are under increasing pressure due to economic activities and a growing population leading to a decline in the availability of economically important natural resources. Biodiversity is declining at an alarming rate as evidenced by deforestation, coral reef degradation, fisheries depletion, land fertility depletion and increasing pressures on water resources. 3. In this activity attention is given only to land-based resources, such as land suitable for plantation development and urban development and also marine-based resources, such as beaches and coral for tourism development and sea resources for fisheries. Forests, oil and gas reserves and mineral resources are excluded as the national frameworks for managing these resources is complex, local governments have less flexibility in managing them, and the activity will generate more useful results by focusing on a limited number of resources. 4. Growth in the agricultural sector, the major employment sector in rural Indonesia, has stagnated due to a lack of investment and conversion of land to other economic uses. Productivity needs to increase and environmental problems need to be addressed simultaneously to cope with soil erosion, over-use of water sources and misuse of fertilisers. Given Indonesia’s archipelagic nature, coastal zones support a large population and are essential to economic activity. Over exploitation is evidenced throughout Indonesia as mangroves are converted to rice and palm oil plantations and peat swamp forests converted for fish-farming. National and local government plans often do not adequately reflect the value of resources and the longer-term benefits of sustainable natural resource management are often foregone due to short-term revenue pressures. Coastal spatial planning and land-based planning systems are often not integrated although the two ecosystems are closely connected. Cross-border issues and cross-sector resource issues are not handled effectively, either though a lack of cooperation mechanisms, a lack of capacity or a lack of clearly defined authorities. Large-scale plantations have been able to externalise environmental costs due a lack of effective controls and legal enforcement leading to degraded environments for surrounding communities and wildlife. 5. An extensive literature exists on the potential and real economic problems that arise from natural resource abundance (see, for example, Sachs and Warner, 19972 and, more recently, Brunnschweiler, 20083). Much of the literature assesses the impact at the national level and little evidence has been gathered on impacts at the local level in a decentralized context. The relationship between natural resources and conflict has also been extensively

1

Budget Statistics 2005-2010, Ministry of Finance, Republic of Indonesia. Sachs, J.D. and Warner, A.M. (1997). The curse of natural resources. Center for International Development and Harvard Institute for International Development. Harvard University, Cambridge MA. 3 Brunnschweiler, C. N. (2008). Cursing the Blessings? Natural Resource Abundance, Institutions, and Economic Growth. World Development Vol. 36, No. 3. Elsevier Science Ltd. 2

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explored in the literature4. The potential for violent conflict over natural resources in Indonesia needs to be addressed and the possible impacts of changes to the management of resources on such potential taken into account. 6. Many countries have decentralized at least some aspect of natural resource management in the last few decades (Agarwal, 20015; and Palmer and Engel, 20076). Ribot (2002)7 notes that decentralization usually involves the full or partial transfer of authority over natural resource management from the state to local user groups or communities. In line with the conventional wisdom of decentralization, increased local participation in natural resource management is said to be a means for improving local management, as local institutions (if sufficiently empowered) are thought to have better knowledge of local needs and to be more likely to respond to local aspirations (Ribot et al, 20068). In theory, the prospects for downward accountability are also improved. 7. A substantial literature exists on approaches to decentralization in specific sectors and potential benefits (see, for example, Ribot et al, 2006, Edmonds et al 20039 and Chambers, 199710). However, as Ribot notes, case studies (e.g. Agrawal 2001, Agrawal and Ribot 199911 and Ribot 2002, 200312) do not bear out the theoretical promise that decentralization leads to improvements in service delivery. Decentralization reforms are often incomplete, flawed in design or resisted so much that they are ineffective. Based on evidence from over 50 countries in Africa and Latin America, Agrawal finds that central governments have tended to grant local actors the capacity to use resources but have devolved only limited powers to manage them and even less powers to own the resources. 8. Indonesia’s rapid transformation from a highly centralized country to one of the world’s most decentralized ones (Hofman and Kaiser, 200213) - on the back of the economic and political crisis in the late 1990s - affected the management of different natural resource 4

See, for example: Aspinall, E. (2007). The Construction of Grievance: Natural Resources and Identity in a Separatist Conflict. Journal of Conflict Resolution 2007; 51; 950 5 Agrawal, A. (2001). The Decentralizing state: nature and origins of changing environmental policies in Africa and Latin America 1980-2000. Paper presented for the 97th annual meeting of the American Political Science Association. San Francisco, California 30 August – 2 September 2001. 6 Palmer, C and Engel, S. (2007). For Better or for Worse? Local Impacts of the Decentralization of Indonesia’s Forest Sector. World Development Vol. 35, No 12. Elsevier Science Ltd. 7 Ribot, J. C. (2002). Democratic decentralization of natural resources: Research report. Washington DC: World Resources Institute. 8 Ribot, J. C. et al (2006). Recentralizing While Decentralizing: How National Governments Reappropriate Forest Resources. World Development Vol. 34, No. 11. Elsevier Science Ltd. 9 Edmonds, D. et al (2003). Introduction in D. Edmunds, and E. Wollenburg (Eds.), Local forest management: The impacts of devolution policies. London: Earthscan. 10 Chambers, R. (1997). Whose reality counts? Putting the first last. London: ITDG Publishing. 11 Agrawal, A. and Ribot, J. C. (1999). Accountability in decentralization: a framework with South Asian and West African case studies. The Journal of Developing Areas, 33. 12 Ribot, J. C. (2003). Democratic decentralization of natural resources: institutional choice and discretionary power transfers in sub-Saharan Africa. Public administration and Development, 23(1). 13 Hofman, B. and Kaiser, K. (2002). The Making of the Big Bang and its aftermath: a political economy perspective. Paper presented at the conference: ‘Can decentralization help rebuild Indonesia?’ International Studies Program Conference, Andrew young school of Policy Studies, Georgia state University May 1-3 2002, Atlanta, Georgia.

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sectors in different ways. In recent years, several papers have analysed the forestry sector, which was profoundly affected by the changes (for example, Palmer and Engel, 2007, and Casson and Obidzinski, 200214). The power vacuum left by the collapse of the Soeharto regime led to widespread local claims on forest resources. Local governments were granted powers to issue logging licenses but loggers also negotiated directly with community groups. This gave a de facto legality to loggers’ otherwise illegal operations. Other natural resources have been affected differently of course and an analysis of the forestry sector has limited usefulness for insights into the changes decentralization wrought for the management of other natural resources. In the forestry sector most of the decision making authority was devolved to the district level while bypassing the provinces. 9. Ribot et al (2006) argue that conflicting legal interpretations of decentralization laws has led to confusion over how authority is divided between different levels of government and across agencies (Government Regulation 38/2007 on Division of Functions sought to clarify this). The forest sector was particularly exposed to this tug-of-war between central government agencies, most of whom clearly had vested interests in maintaining control of forests and could point to different laws to support their claims. On the other hand, dissent from local authorities was based on their interpretations of decentralization laws (Ribot et al, 2006). The immediate impact of decentralization was the issuance of a huge volume of logging licenses, even though this contradicted other laws such as those prohibiting logging in protected areas. 10. A clear dilemma is how to reconcile national interests in (among others) protecting resources with local demands to exploit resources to raise revenue. As Ribot et al (2006) note, in a decentralized environment for natural resource management, adequate controls need to be established in order to ensure that longer-term sustainable management issues take precedence over short-term revenue pressures. Based on six case studies, including Indonesia, they find that governments have tended to use a variety of strategies to limit democratic decentralization of resource management and that purported efficiency and equality gains have largely been unrealized. 11. Ribot et al (2006) recognise, as do we, that the political-economic context of decentralization largely determines how decentralization proceeds in practice and how vying interests seek to exercise influence. Several papers address the issue of natural resource management in a decentralized context from a political-economy perspective, taking particular account of elite capture of resources and of recentralization tendencies (for example, Ribot, 2003, Oyono, 200415 and Ribot and Oyono, 200416). Ribot et al (2003)

14

Casson, A. and Obidzinski, K. (2002). Form New Order to Regional Autonomy: Shifting the Dynamics of “Illegal� Logging in Kalimantan, Indonesia. World Development Vol. 30, No. 12. Elsevier Science Ltd. 15 Oyono, P. R. (2004). One step forward, two steps back? Paradoxes of natural resources management decentralization in Cameroon. J. of Modern African Studies, 42, 1. Cambridge University Press. 16 Ribot, J. and P.R. Oyono (2004). Resisting decentralization in Africa: some state and elite strategies for holding onto and capturing power. In B. Wisner & C. Toulmin (Eds.), Toward a new map of Africa. London: Earthscan.

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identify four important issues that need to be addressed if decentralization of natural resource management is to be improved, namely: (a) a better understanding of the politicaleconomy context of resource management; (b) downwardly accountable institutions that go beyond electoral systems at the local level; (c) discretionary powers for local officials with clearly defined realms of decision making; and (d) broad coalitions that bring together a diversity of interest groups to counter-balance recentralizing tendencies. 12. Corruption in natural resource management is, of course, a major issue. Robbins 17 (2000) views corruption in natural resource management as being strongly associated with the illegal use (and overuse) of local natural resources with the tacit approval of state agents. Although Robbins draws upon a single case study in India, his institutional approach to corruption offers useful insights for Indonesia. Simply put, any reworking of natural resource management must account for prevalent patterns of corruption. 13. Decentralization in Indonesia changed the fiscal relationship between the centre and the regions, including how revenues from natural resources are shared (Alisjahbana, 200518). Producing regions have benefited most from the changes. In the forestry sector, predecentralization royalties were divided between centre and regions at 55/45 and after at 20/80, including a more complex division between producing districts and non producing districts and provinces. Similarly, revenues from forest concessions were split 30/70 before and 20/80 after the implementation of decentralization. Revenue sharing from mining followed a similar pattern with a larger share of revenue directed to producing regions after decentralization. Revenue from oil and gas is also divided between the centre and regions with producing regions receiving a proportionally larger share. Aceh and Papua have different arrangements, whereby an even larger share of revenue generated from within the provinces is returned to the provinces. The general allocation of the central and regional government for nontax revenue is 20/80 percent. Oil and gas revenues are two important exceptions. Regions receive different percentages of oil, gas and reforestation funds 19. National Legal and Institutional Framework 14. The legal framework governing the exploitation of natural resources is highly complex. Aside from the main decentralization laws (Law 32/2004, Law 33/2004 and also GR 38/2007), detailed laws governing the control of natural resources and specific commodities are drafted by the relevant sectoral ministries. Law 33/2004 provides for more types of natural resources revenue-sharing between the national and regional governments. Previously, natural resources revenue-sharing included only forestry and mining. Under Law 33/2004, fisheries, oil, and gas are included under the revenue-sharing arrangement. Even ten years after the passing of the first decentralization law (Law 22/1999), there remain 17

Robbins, P. (2000) The rotten institution: corruption in natural resource management. Political Geography 19. Alisjahbana, A. (2005). Does Indonesia have the Balance Right in Natural Resource Revenue-sharing? Chapter 7 in The Politics and Economics of Indonesia’s Natural Resources edited by Resosudarmo, B. P. Institute of Southeast Asian Studies. 19 Aceh Public Expenditure Analysis. 2006. World Bank. 18

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contradictions between sectoral laws and the broad decentralization laws. Through GR 38/2007, local governments have discretionary authority over many natural resources but not exclusive authority over many and the precise division of responsibilities for each commodity is complex and at times confusing. GR38/2007 defines governance functions into two domains. The first domain contains functions that are absolutely under central government authority. The second domain is called “concurrent functions”, which contains functions that are jointly managed by both central and local government. Concurrent functions are divided into obligatory functions (urusan wajib) and optional functions (urusan pilihan). Most of the functions related to natural resource management fall under optional functions (sea and fisheries; agriculture; forestry; energy and mineral resources; and tourism) as different types of resources are prevalent in different local jurisdictions. 15. At the national level, responsibility for natural resource management is spread throughout the relevant departmental ministries – Home Affairs; Industry; Trade; Energy and Natural Resources; Forestry; Agriculture; Maritime Affairs and Fisheries; Culture and Tourism. Of the state ministries, Bappenas has a key role in providing support and guidance to other ministries and will use the evidence derived from this activity to help other relevant ministries to improve the way natural resources are managed in the interests of better local economic development. 16. Bappenas’ Deputy for Regional Development and Regional Autonomy is the main client of this activity and is tasked with formulating policy and plans for national development. In relation to regional economic affairs, the Deputy for Regional Development and Regional Autonomy coordinates and synchronizes development planning at the national level, formulates polices, and conducts evaluations and analysis in the regions. It is this last function which provides the basis for the institutional hosting of this activity. In Bappenas, the Deputy for Natural Resources and the Environment is responsible for formulating policy and national development plans in the area of natural resources and the environment. Five directorates report to the Deputy: Food and agriculture; forestry and water source conservation; sea and fisheries; energy, mineral and mining resources; and the environment. The Implementing Agency (IA) will ensure that Bappenas is given every opportunity to contribute fully to the success of this activity. 17. While the main engagement is with Bappenas, the IA needs to understand how other relevant ministries set many of the rules that constrain or incentivize local natural resource management practices. The IA will therefore need to engage closely with these other ministries. Bappenas will be able to facilitate this. Local Economic Development and Revenue Sources 18. Decentralization theory proposes that affording local governments the opportunity to formulate policies that address local priorities promotes local economic development through the creation of greater productive efficiencies 20. 20

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19. For most local governments, natural resources are the cornerstone of the local economy, whether they be oil, gas, minerals and forest resources, fertile soils for agriculture, beaches, coral and panoramic views for tourism development or seas and waterways for fishery development. As a result of the changes brought about by the implementation of decentralization since 2001, regional governments now have more management responsibility over these natural resources. While some local governments have adapted quickly and taken advantage of newly-acquired powers, others (even relatively resource rich ones) have struggled. Many local governments lack the management capacity to make the most of the natural resources lying within their jurisdictions. 20. Central government, of course, continues to play a crucial role in economic development at the local level and ministries have considerable powers to initiate programs in regions to stimulate the economy. The role of the provinces also needs to be considered. This complex interplay across levels of government needs to be well understood, as do the political-economy determinants of economic development. Commonly, local economic development (LED) is driven by private enterprise but government has a key role in providing the infrastructure (roads, rail, air, electricity, and ports), facilitating investment (simple licensing procedures, non onerous taxation regimes), and attracting investment (promotion of key sectors). To reiterate, local governments (at both provincial and district/city levels) now play important roles in facilitating economic development. As a result of decentralization, local governments are responsible for a larger share of infrastructure spending; they have more power over taxes and charges that affect private enterprise; and they have more scope to attract inward investment. 21. Local governments have a vested interest in generating revenue to pay for development programs, this despite the fact that most local government revenue (64% in 2007) comes from central government transfers in the form of the general allocation (Dana Alokasi Umum – DAU) 21. About 15% also comes from the central government in the form of special allocation funds (Dana Alokasi Khusus - DAK). In many other countries, land and property tax authority is devolved to local governments and constitutes a major share of revenue. But in Indonesia the central government has maintained the power to collect these taxes. Indonesia has devolved many functions to the local level and central government has provided untied funds to execute these functions, but as before the major source of funding remains the central government. Of note, a current draft law on local taxes and charges may grant collection authority over property taxes to local governments, which would constitute a significant shift in tax-sharing authorities. 22. The desire for increased fiscal independence at the local level is often expressed by central government. Locally-generated revenue (PAD – Pendapatan Asli Daerah) remains a very small component of total local government revenue. The World Bank calculates that only 6% of total district and city revenue is accrued from locally-generated revenue (this 21

World Bank estimates for 2007 based on SIKD.

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excludes revenue sharing from natural resource extraction). If local governments are serious about increasing PAD in a sustainable and business-friendly manner, then they need to explore options for stimulating the local economy. 23. Local governments face considerable challenges in developing and implementing economic development strategies. Evidence gathered soon after the implementation of the first decentralization law (Law 22/1999) suggested that many local governments have tended to focus on increasing own source revenue by placing additional taxes and charges on enterprises 22. While this is commonly held to be a deterrent to investment and private enterprise, the evidence is mixed. McCulloch (2006)23, for example, reports that most entrepreneurs do not find taxes and charges to be a problem. Current efforts to increase PAD are generally limited to increasing tax and retribution objects. Tax revenue sources, as mentioned above, are limited. The separation of responsibility to provide services from the authority to generate revenue to finance service provision is not conducive either to better service delivery or to the generation of additional revenue. Donor Engagement 24. Starting in 1990 USAID’s Natural Resource Management Program24 was designed to improve natural resource management in the interests of economic growth. From 1997, as the authority and responsibilities of local governments increased, the program began to focus more on regional natural resource management 25. West Kalimantan, North Sulawesi and Irian Jaya (Papua) were selected as focus regions. Key lessons learned included: the need to involve all stakeholders in natural resource management; the need for clarity of functions between agencies and levels of government; the development of networks to preserve ecological systems; and a legal system that covers the roles of all stakeholders. 25. Several donor programs focus on economic development and environmental issues. For example, the Indonesian-German Environmental Program26 (1999 to 2011) seeks to reduce environmental pollution and improve the eco-efficiency of industrial companies. The German Government also supports Indonesia’s forestry sector through a project entitled, ‘Strengthening Management Capacities in the Indonesian Forest Sector’27. German support has also been provided to the Ministry of Environment.

22

See SMERU Research Institute reports: Regional Autonomy and the Business Climate, by Usman et al (2001 and 2002). 23 McCulloch (2006). Revitalizing the Rural Economy: An Assessment of the investment climate faced by non-farm enterprises at the district level. World Bank Group. 24 USAID’s Natural Resources Management Office lists many relevant Indonesian specific papers (Go to: http://rmportal.net/groups/nrm/) 25 Go to: http://www.bappenas.go.id/node/53/ 26 Go to: http://www.gtz.de/en/themen/umwelt-infrastruktur/16633.htm 27 Go to: http://www.gtz.de/en/weltweit/asien-pazifik/indonesien/17496.htm

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26. The World Bank’s Coral Reef Rehabilitation and Management Program II28 (2004-2009) seeks to make coral management more sustainable. The Bank’s Water Resources and Irrigation Sector Management Program Project seeks to ensure the inclusion of local communities in decision-making over resource allocation to irrigation, and river management. The Bank also works in the forestry sector to bring about more sustainable and equitable forest governance and management programs 29. 27. AusAID has supported several programs related to natural resource management, including the Coral Reef Rehabilitation and Management Program I, Bapedal Regional II Institutional Strengthening Project (completed 2004) and Bapedalda East Java Institutional Strengthening Project30 (completed 2005). 28. DFID is a major funder of the Multi-stakeholder Forestry Program31. The program seeks to support forest governance reform by strengthening government and civil society partnerships at local and national levels to build capacity, empower community forest managers and develop and implement policy. The first phase ran from 2000-2006 and DFID committed to further funding for a second phase from 2008. 29. The Danish government funded the Environmental Sector Program Support between 2006 and 2008 with a second phase from 2008 to 201232. The three program components cover support to public sector institutions, energy efficiency and, of most relevance to this activity, support to decentralized natural resource management and renewable energy. Support is channelled through PNPM and is focused on North-western Sumatra, community natural resource management, local capacities for resource management, rural electrification and developing renewable energy sources. For program management, on the government side Bappenas chairs a cross-ministerial committee which seeks to ensure that the program is aligned and supportive of government priorities for environmental issues. 30. The UNDP recently launched a new initiative in collaboration with the Ministry of Forestry and the Global Environment Facility to improve forest and watershed management in Indonesia33. The project is designed to enhance and upscale the Government’s programs on community-based forest and watershed management by addressing inequitable distribution of benefit from forest resources and also developing models of community based in watershed management.

28

Go to: http://web.worldbank.org/external/projects/main?Projectid=P071316&theSitePK=40941&pagePK=64283627& menu PK=228424&piPK=73230 =228424&piPK=73230 29 See: Sustaining Indonesia’s Forests: Strategy for the World Bank, 2006-2009. 30 Go to: http://www.acil.com.au/Documents/CA%20Project%20Sheets/BEJIS_V1_0607.pdf 31 Go to: http://www.mfp.or.id/ 32 See document: Environmental Support Program Phase 2 (2008-2012). Go to: http://www.danidadevforum.um.dk/en/menu/topics/environmentandsustainableenergy/environment/programs/co untryprograms/indonesia 33 Go to: http://www.undp.or.id/press/view.asp?FileID=20090825-1&lang=en

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31. Donors have also been working in Papua, a natural resource rich region which offers huge potential for improved natural resource management. The Papua Development Needs Assessment (PADNA) is a multi-donor study led by the World Bank and the UNDP34. 32. It is essential that the IA take proper account of recent and ongoing donor engagement to avoid duplication and ensure that the work envisaged under this activity has maximum impact. The DSF Executive may be able to facilitate dialogue with donor program staff working in the field of natural resource management.

Rationale 33. While regional autonomy has assigned regional governments greater authority in managing the economy this has yet to lead to significant improvements in local economic development. Efforts thus far undertaken have often been piecemeal and, as in other aspects of local autonomy, many governments have struggled to cope with their increased authority and responsibilities. This is partly reflected in regional governments’ continuing dependence on centrally transferred balancing funds. After eight years of the implementation of regional autonomy there has yet to be a concerted and sustained effort from central and regional governments to reduce fiscal dependence. 34. The economic impacts of decentralization at the local level are substantial, yet somewhat neglected, perhaps because local governance and democracy issues take precedence. The current management of natural resources at the local level is far from optimal and this is evidenced by poor welfare outcomes for citizens, even in resource-rich regions. Better management will lead to better economic and welfare outcomes through increased employment opportunities and increased revenue for local governments, which can be spent on service delivery. It could also result in reduced dependence on national government fiscal transfers. 35. Natural resource management should be sustainable, both economically and environmentally and generate benefits over the longer-term. Better management needs to attend to all of these dimensions. This activity will concentrate on building local government management capability, but it will also yield and think through implications for other levels of government and different government agencies. At the local level, support will be provided directly to local governments to develop their capacity to manage the natural resources lying within their jurisdictions 35. For central government, efforts will be made to improve the institutional and legal framework within which local governments are afforded the authority and given the support to manage resources. Bappenas plays a key coordinating role in providing support to other ministries and is well placed to fulfil this function. Evidence from the local level will inform the work at the central level.

34

Go to: http://www.undp.or.id/papua/docs/PNA_en.pdf For a practical guide on developing local government capacities see: UNDP’s ‘Supporting Capacities for Integrated Local Development’ (2007).

35

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Goal 36. The goal of the activity is to strengthen local government capability to manage natural resources in the interests of local economic development.

Objectives 37. The objectives of the activity are: • Improved local government natural resource management (NRM) systems and organisational arrangements. • Sufficient capacity within local governments to implement and sustain new systems and to undertake the organisational development activities necessary to support the implementation of new management systems. • Improved national legislation and organizational design at national and provincial levels of government. • Improved capacity within Bappenas to conduct, review and update training programs to support local governments in implementing more effective natural resource management systems.

Scope of Services 38. The scope of services is organised according to following sections: • Desk review of literature, legislation and policy concerning NRM in Indonesia at the national level; • Literature review on NRM in other lower middle-income developing countries; • Examination of how NRM works in practice at the local level - by carrying out field studies in a sample of local governments in between two and four provinces; • Detailed investigation into management of selected natural resources in two pilot provinces; • Examination of management and organisation and other aspects of capacity for the management of selected natural resources in the two pilot provinces; • Recommendations for capacity development and the introduction of change in the pilots; • Development of training programs and other interventions for capacity development in pilot local governments; • Formulation of capacity development guidelines for other local governments and/or the management of other natural resources; • Design and implementation of training program for Bappenas to be able to carry out dissemination activities and capacity development for local governments; and • Recommendations for improvement of existing legislation and organisational arrangements at national and provincial levels pertaining to the selected natural resources.

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Desk Review of Literature, Legislation and Policy Concerning NRM in Indonesia at National Level 39. The IA will conduct a desk review of relevant literature on NRM in Indonesia; relevant current and recent government and donor programs related to NRM; and key national level legislation and policies. The desk review should exclude the mining, oil and gas and forestry sectors as these will not be included in later stages of the activity. The IA will also need to identify and draw upon existing institutional maps of natural resource management at national, provincial and district/city levels and existing legal analysis. The IA is not expected to conduct a new institutional mapping or legal analysis. However, it is necessary to understand how different levels of government exercise their authority and interact with one another and the extent to which local governments have the authority to manage different natural resources, and existing analysis will be able to inform this. Legal (in)consistencies between sectoral and decentralization laws need to be understood. Literature Review on NRM in Other Lower Middle-Income Developing Countries 40. The IA will conduct a literature review on NRM in selected other lower middle-income countries. International practice on natural resource management at the local level will inform the recommendations to be made at a later stage in the activity. The IA is expected to include at least two other countries for the international literature review. Establish How NRM Works in Practice at the Local Level by Carrying Out Field Studies in a Sample of Local Governments 41. The field studies will complement the desk review and derive evidence from selected locales on how natural resources are managed in practice. The initial selection for the field studies will be made at provincial level with subsequent selections made at district/city level within the provinces. It is expected that between two and four provinces will be selected for the field studies and between one and three districts in each. The selection will be proposed by the IA and agreed by Bappenas/DSF. Criteria for selection of regions for field studies should include resource abundance; type of jurisdiction (for example, Special Development Area and Less Developed Area); the importance of different sectors such as marine, agriculture and tourism to the local economy; and DSF priority provinces - where more than one DSF-supported activity is running or will run shortly. Due consideration should also be given to what cases are already considered as good/bad examples of natural resource management, which can be drawn from the earlier desk review. At a later stage of the activity two pilot areas (at provincial level) will be selected from these field study sites. 42. The field studies will first collect data on existing natural resource management systems and organisational arrangements and assess weaknesses and strengths of such systems and arrangements. The field studies will need to examine the way provinces and districts/cities interact to manage natural resources.

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43. The field surveys will document information on: (1) type, location and prevalence of natural resource (including where resources lie across jurisdiction boundaries); (2) sociocultural conditions; (3) ecosystems; (4) economic potential; and (5) existing and required infrastructure. 44. Interviews will need to be conducted with government officials from relevant departments, representatives of the business community involved in resource extraction, and others as necessary, including, for example, employees and community members in the vicinity of the resource. Current patterns of management and organisation should be assessed for natural resources which are already exploited as well as an assessment made for natural resources not currently exploited. The IA will be expected to establish: • The current management system of the natural resources in each field study by focusing on a limited number of natural resources in each field study. • How local governments interpret and implement laws and regulations on resource management and how they deal with higher level institutions. • How local governments set and enforce the rules on private sector investment. • The extent to which government revenues are generated through taxes, charges and concessions related to natural resources. • The impact on local communities of resource extraction and the extent to which downstream economic activities are generated. • The extent to which local governments’ strategies and polices on natural resources are environmentally sustainable and how issues of gender are accommodated. • How private enterprises interact with government at different levels, how investment opportunities are identified and promoted and what constraints are faced and incentives provided in developing businesses related to natural resources. Selection of Natural Resources for Detailed Investigation in Selected Pilot Local Governments 45. The IA will select from the field studies two provinces and two or three natural resources for the pilot stage of the activity. It is expected that between one and three districts/cities within each province will be further selected. The pilot stage aims to provide a far more in-depth understanding of NRM systems from which recommendations can be drawn on how to improve management systems and organisational arrangements. This work will inform the type of capacity development needed by each local government and lessons drawn will also inform general guidelines on local government resource management and national legislation and organisational arrangements pertaining to selected natural resources. 46. In close consultation with Bappenas, the IA will select provinces and districts/cities and identify the type of natural resources to be included in the study. Natural resources over which local governments have considerable authority should be prioritized. It is reiterated that mining, oil and gas and forestry sectors (specifically logging) will not be covered as the management of such resources is tightly defined and strictly regulated, leaving local

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governments with little room for manoeuvre. Forestry may be considered in terms of timber processing and connected downstream economic activities, but logging per se would not be suitable. Consideration should be given to a wide range of possibilities, including those that might be categorised as marine-based resources for tourism and fisheries; and land-based resources suitable for plantations, urban development and tourism. 47. It is worth noting that effective change often hinges on effective local leadership and an assessment should be made of this factor in pilot selection at both provincial and, perhaps even more importantly, at district/city level. Examination of Management and Organisation and Other Aspects of Capacity for the Management of Selected Natural Resources in Pilot Local Governments 48. The IA will conduct a thorough examination of management and organisation systems for selected natural resources in the pilot areas. The focus will probably be at the district/city level, but the role of the provincial government will need to be properly accounted for, in terms of its exercise of coordination, facilitation, oversight and mediation roles. 49. The IA is encouraged to explore alternative management systems for local level natural resource management that are not currently evident in the pilot areas and to establish the feasibility of these systems based on input from regional stakeholders, national and international experience, and input from relevant national government officials. The IA should assess the key areas of natural resource management including those as outlined below. This will inform the subsequent recommendations for capacity development and change in the pilot local governments. Areas for consideration include: • Inventorizing natural resources and their economic potential; • Asset capitalization; • Business plans, including pre-feasibility studies, business strategy formulation, production management design, marketing, human resources, business supporting facilities and infrastructure, and management selection and vertical (upstreamdownstream) and horizontal investment needs. Due consideration also needs to be given to environmental impact, economic costs/benefits and impact on communities; • Proposing organization changes that will be needed if a new approach is to be successfully implemented. This will need to encompass both provincial and districts/city governments given that natural resources often lay across district/city boundaries. • Proposals on new institutions to manage natural resources (if necessary) such as joint enterprise models to accommodate all relevant stakeholders (business managers, workers, surrounding communities, provincial governments, and district/city governments). The IA should explore the feasibility of implementing a management system and organisation for joint ownership among stakeholders in enterprises. • Supervision and control, covering systems and procedures for supervising and controlling production, marketing and environmental impacts;

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• Formulation of policies on fiscal incentives, credit guarantee, infrastructure and other

supporting facilities. Recommendations for Capacity Development and the Introduction of Change in Pilots 50. Based on a more detailed and nuanced understanding of NRM issues at the local level, the IA in consultation with stakeholders is expected to derive recommendations for capacity development and the introduction of change in the pilot local governments. 51. To implement change local government capacities will need to be developed. Capacity development goes beyond training. Whilst the individual’s capacity to perform is important, this is only one of three levels of capacity. The other two levels are: first, the organization level of capacity that encompasses the internal policies, arrangements, procedures and frameworks that enable an organisation to operate and fulfil its mandate; and second, the higher level enabling environment level of capacity, which describes the broader system within which individuals and organisations function and helps or hinders their performance36. 52. It should be noted that capacity development interventions are unsustainable if they do not address political considerations and deal with the question of ‘winners and losers’. Given the opportunities to extract rent from natural resource management this issue is all the more pertinent for this activity. Therefore, the IA will need to consider appropriate political and social incentives and, crucially, mobilize strong political ownership and commitment from the outset. Donor development assistance can, perversely, undermine ownership and capacity if it is not well managed. Therefore, it is absolutely crucial that the IA establishes a capacity development strategy with this risk mitigated as far as reasonably possible. 53. The IA will need to consider which local government units and which local government staff to engage with to develop the necessary capabilities 37. A capacity assessment will need to be conducted and the IA will be expected to develop/modify a tool to assess capacity needs which covers the aspects of capacity mentioned above covering the enabling environment, the organisational level and the individual level. 54. Following UNDP’s recent work on developing capacities for local development, the IA will consider: • Capacity to engage with stakeholders outside of the local government (including community groups, busines srepresentatives, academic institutions, worker groups and environmental NGOs). The Government of Indonesia is eager to explore multistakeholder options for the better management of natural resources. The first 36

See: UNDP Capacity Development Practice note (October 2008). Go to: http://www.undp.org/capacity/resources.shtml 37 See: UNDP Supporting Capacities for the Integrated Local Development (November 2007). Go to: http://www.undp.org/capacity/resources.shtml

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16

requirement is the capacitiy to identify relevant stakeholders and what roles they currently play and what roles they could play. Women’s organisations should be considered as potential stakeholders if not currently included. The next stage is to moblise staekholders Capacity to assess the current situation, including how to identify natural resource potential and weaknesses in current sytems of mangament. Key to this is the capacity to collect and analyse data. Capacity to create a realistic vision for natural resource magement in the longerterm and the capacity to formulate policies and strategies to achieve that vision. The vision is usually articulated by the local government head (bupati or walikota); however these visions are sometimes unrealistic and are not supported with policies and stategies. Whilst leadership is important, lower level capacities need to be develooped and policies formulated that will support continued successful impelmentaiton beyond the local election cycle into successive administrations. The new strategies derived form this activity may be articulated in a master plan for regional economic development (such as a five-year plan) with a primary focus on long-term sustainable natural resource management. This will include providing recommendations as to how resources can be better harnessed to generate revenue (PAD) in an economically and environmentally sustainable manner. This should be strongly linked to national development frameworks to ensure politcal support and consistency. Capacity to implement. This includes develoing the capacities to budget and manage the process. Any new managment systems will have budget implications and local governments need to develop the capacity to know what these are, where they will be budgeted and how this process will be managed. Technical skills will be needed to implement new systems and the IA, together with local government staff, will need to identify these technical skills and devise and implement a training program to develop these skills. Specifically, the IA may be required to develop local governemnt capacities to formulate business plans for specific resources. Developing the capacities of the local government to monitor and evaluate the new system of natural resource management. This is essential to ensure the sustainability of the activity beyond its 18-month life. Local governments need to develop their own in-house capacity to track implementation and to make adjustments as necessary. A participatory approach to monitoring and evaluation is likely to yield good results and has been shown to deepen local ownership and commitment. Given the contentious nature of natural resources, this approach may be advisable and efforts should be made to bring local government along with this approach. Capacity building for regional stakeholders involved in resource management may need to be included - dependent upon the new management systems to be implemented.


ACTIVITY CONCEPT NOTES # 10 | ARRISING FROM THE DSF WORK PLAN 2009-2011

55. Capacity development alone may not suffice. For new management systems to operate effectively, institutional arrangements need to be in place if the development objectives are to be realized. The capacity assessment may reveal that intra-government and intergovernment (horizontally and vertically) coordination mechanisms are ineffective and/or inefficient for managing natural resources. Therefore, the IA will need to work with the local governments to strengthen these mechanisms - perhaps between districts where neighboring districts have an interest in developing a shared resource and between levels of government where the province has a role in coordinating between districts. Resistance to change and organisational culture will also be crucial factors to consider. At the local government level, such analyses should include: • The extent of organisational differentiation in the management of natural resources, that is, the extent to which different natural resources are managed by separate specialised organisational units or, if differentiation in the management of natural resources is based on different criteria, what those criteria are, and the rationality of such arrangements. • Management of the interactions between units, or integration – how is this done? How is authority distributed? Is there sufficient delegation? Are meetings held? How are they managed and used? Is there too much top down control? Is there too much or too little standardisation of work processes or work outputs? Are jobs too rigidly defined, reducing flexibility and mutual adjustment? • The culture of the organisation in terms of, for example: cohesion and unity of purpose; commitment; service orientation; integrity; productivity and action orientation; resistance to change and uncertainty avoidance. 56. This will not be an easy task; hence considerable effort needs to be directed at this. The approach adopted by the IA will need to account for stakeholders’ interests, shifts in power and responsibilities and other political-economy considerations, including, for example, changes in opportunities to extract rents. Development of Training Programs and Other Interventions for Capacity Development in Pilot Local Governments 57. The IA is expected to develop training programs and other interventions as appropriate to achieve the capacity development and institutional change deemed necessary to achieve the goal of improved local-level management of natural resources. The types of knowledge to be transferred need to be clearly identified as well the target institutions and positions. The training needs to be delivered using the most effective techniques to achieve desired results within a set time frame. The IA will require considerable training resources to conduct such activities and experience with adult learning techniques, including action learning. Due consideration should be given to the fact that whilst real improvements are required in the pilot local governments longer term capacity development initiatives for local governments across Indonesia will need to be coordinated at the national level and human and financial resources found to deliver capacity development programs. Therefore,

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the type and scale of training should be developed in close cooperation with Bappenas in order to allow for the possibility of national level uptake. Formulation of Capacity Development Guidelines for Other Local Governments and/or the Management of Other Natural Resources 58. Based on the work in the pilot local governments, the IA will be required to draft guidelines on natural resource management that are appropriate to other local governments and/or other natural resources. 59. It is recognised that many of the challenges of managing natural resources are specific to individual local governments and/or natural resources. A host of factors point to regional specificity, such as resource type, prevalence, capacity, infrastructure, market access, local institutional arrangements, differing local regulations and socio-cultural factors. Nevertheless, it is likely that some findings will have general relevance – across either or both other natural resources and local governments. Likely examples would include: management structures, management expertise, engagement with non-government stakeholders, and local government revenue generation. 60. These guidelines, both resources specific and/or generic will be disseminated to all relevant local governments. The IA should work with Bappenas to develop training and other development programs for local governments that embody the general principles represented in the guidelines. Design and Implement Training Program for Bappenas to be able to Carry Out Dissemination Activities and Capacity Development for Local Governments 61. The IA is expected to assist Bappenas to develop its capacity to disseminate the lessons drawn from this work, including the guidelines, and to develop Bappenas’ in-house capacity to conduct organizational and management analyses and capacity development activities for local governments. This is essential if longer-term goals are to be reached whereby a significant number of local governments are able to improve the way they manage natural resources. Bappenas plays a key coordinating role in central government and a relatively modest investment in improving capacity within Bappenas has the potential to achieve significant results. The IA will work closely with Bappenas to identify capacity shortfalls, develop a capacity development program and deliver the training and other activities as appropriate. The IA should also work with Bappenas to develop a national monitoring and evaluation framework for the widespread adoption of more effective management systems. Recommendations for Improvement of Existing Legislation and Organisational Arrangements at National and Provincial Levels Pertaining to the Selected Natural Resources 62. The aim of the activity at the national level is to establish a strategy to implement a more effective approach to natural resource management on a nation-wide scale. The IA will provide input to central government, including recommendations as to how central

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government can improve the national framework within which local governments manage natural resources. This should address the enabling environment or the ‘rules of the game’ within which local governments are afforded the powers to manage specific natural resources. It will likely include input for national regulations, as deemed necessary by Bappenas, and a restructuring of how national government, provinces and districts/cities cooperate and how powers are divided. This may include strategies on how to assist local governments to increase their own-source revenue derived from natural resources. The revenue generating potential of natural resource management is particularly pertinent for central government counterparts and this will form a key part of input to central government. Central government particularly wants to emphasize what is seen as the urgent need to increase locally-generated revenue outside of tax and retribution in an effort to reduce regions’ dependence on balancing funds (primarily DAU).

Deliverables 63. The following deliverables will be required from the IA based on a start date of 1 January 2009. No.

Details

1

Desk review of Indonesian literature on NRM, legislation and policies Review of literature on NRM in other lower-middle income countries Monitoring and evaluation plan for activity Field study report Selection and justification for pilot local governments and natural resources Report on management and organisational capacity on natural resources in pilot local governments (including recommendations for change in pilot governments) Strategy and materials for training andlocal other interventions for capacity development in pilot local governments Strategy and materials for capacity development in Bappenas reports on training provided in pilots and in Assessment Bappenas Generic guidelines on NRM for other local governments Report on delivery of capability development in Bappenas Input for national legislation revisions and recommendations on improving organisational arrangements National level dissemination event

2 3 4 5 6 7 8 9 10 11 12 13

Time 28 Feb. 2009 31 March 2010 31 March 2010 30 June 2010 31 July 2010 30 Nov 2010 31 Dec 2010 28 Feb 2011 30 April 2011 30 April 2011 31 May 2011 30 June 2011 June 2011

Sustainability 64. The institution building elements of this activity are designed to ensure sustainability. Significant emphasis is placed on dissemination nationally to develop support for new approaches. It is recognized that this will be very challenging but we hope that this activity can build on existing work and provide the foundations for making a real and lasting change

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ACTIVITY CONCEPT NOTES # 10 | ARRISING FROM THE DSF WORK PLAN 2009-2011

to the way local governments manage the natural resources lying within their jurisdictions. It is recognized that control over natural resources is contested and that seeking to shift patterns of management needs to take a political-economy perspective by fully accounting for stakeholders’ interests and powers. Central government agencies have, of course, varying interests in the management of natural resources and due consideration will have to be given to this issue even though Bappenas is the major counterpart agency. Management approaches are unlikely to change rapidly when there are inevitable winners and losers associated with change but we expect that this activity can generate evidence as to what alternatives may be more effective in the long-term and realistically achievable. Consensus is unlikely given the range of stakeholders involved but by involving in a meaningful way different vested interest groups, such as business communities, employee and community representatives this activity should be able to achieve results beyond its eighteen month life.

Gender 65. It is incumbent on implementing agencies to consider carefully the gender ramifications of the work that they do, and to demonstrate in their work plans how they will do this and in their reports what progress is being made. One way of ensuring that more than merely the form of gender sensitivity is observed (as happens in so much development assistance) is to consider the question in terms of relative distributions of power and influence between men and women, and the way in which access to services – such as health and education – can distort the social construction of such power and influence. To help with making gender central to the projects it supports, the DSF Executive can provide access to recent publications on gender and, in some instances, to relevant expertise within the Bank. 66. Several recent papers deal with the issue of gender and natural resource management. Agrawal (2001)38 notes that community participation in resource management has been widely touted as an institutional imperative. However, she notes that such participation can, perversely, lead to the exclusion of significant sections of the community, such as women. Whilst case studies are drawn from India, Agrawal notes that such issues are prevalent in many countries, including in many western countries. Cleaver (2000)39 notes that much research concludes that women’s participation in resource management leads to better overall outcomes. Similarly, Meinzen-Dick et al (1997)40 note that “…[accommodating] gender differences in property rights can improve the outcomes of natural resource management policies and projects in terms of efficiency, environmental sustainability, equity, and empowerment of resource users” (p. 1303). Women may face barriers to obtaining and maintaining property rights over natural resources and policies should seek to overcome these. Whilst culturally defined roles in natural resource management are often 38

Agrawal, B. (2001). Participatory Exclusions, Community Forestry, and Gender: An Analysis for South Asia and a Conceptual framework. World Development Vol. 29, No. 10. 39 Cleaver, F. (2000). Analyzing Gender Roles in community Natural Resource Management. IDS Bulletin Vol. 31. N0. 2. 40 Meinzen, R. S. et al (1997). Gender, Property Rights, and Natural Resources. World Development, Vol. 25, No. 8.

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strong, Cleaver maintains that such roles can be a lot more flexible than at first appears and subject to negotiation and change. Clearly, the policy implications of gender roles in natural resource management need to be well understood if equity considerations are to be accommodated in reformulations. The IA is expected to address these gender issues.

Program Management, Execution and Implementation 67. Our policy is to employ the best qualified and experienced individuals and firms to implement the projects we finance; to provide them with clear objectives and guidelines concerning the work that needs to be done; and to be available to help wherever it is requested; but not to interfere or ‘micro-manage’ the project. 68. The effectiveness of this activity therefore rests heavily on how well the selection of individuals and firms is done and on the quality of the documentation and briefings concerning what is required of implementing agents. 69. The DSF Executive will gauge project progress on the basis of the periodic reports received from consultants and implementing agents. It will monitor the achievement of agreed activity milestones and project objectives. It will liaise with government counterparts as necessary, to obtain their feedback, and provide periodic assessments of project status, most generally through the DSF quarterly reports. 70. This activity will be World Bank executed (in line with options detailed in the DSF Operations Manual). A Quality Cost Based Selection (QCBS) will be made to procure the services of an implementing agent. 71. Bappenas and representatives from the DSF Executive will prepare Request for Proposals and conduct selection of implementing agencies requested to submit a technical and financial proposal Proposals may be submitted by a single firm or by a consortium of two or more provided roles are clearly delineated. Bappenas and the DSF executive will select consultants and review and score the proposals from prospective implementing agents. Two staff from the DSF Executive will be nominated and two from Bappenas, the latter at the discretion of the Director of Regional Autonomy, Bappenas.

Implementing Institution 72. The implementing institution will have the following qualifications: • At least five years experience of delivering quality projects of a similar nature in Indonesia. • Demonstrated expertise in: natural resource management issues (previous substantial project experience involving one or more natural resources is required); regional development issues; • Substantial experience of working with Government of Indonesia institutions dealing with natural resource management; local economic development opportunities and hindrances; and decentralization.

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• A strong network of contacts within national and, preferably, regional governments. • Demonstrated capacity to run an activity of this scale, with the necessary human • • • • • •

resources to manage a project of this complexity. Substantial experience working with the Government of Indonesia, preferably with Bappenas. Substantial experience of organizational analysis and capacity development Substantial experience working with local governments, private sector and community representatives. Substantial experience in the monitoring and evaluation of projects/activities. Demonstrated ability to deliver results within the given timeframe and to be responsive to changing demands from a variety of partners. Demonstrated ability to bring to bear on the issues at hand the latest and best comparative thinking and evidence and to demonstrate clearly in recommendations made or options presented that they are so informed.

73. Personnel specifications required for key positions within Implementing Institution: • Team leader: At least a Master degree in a relevant subject. Over ten year’s work experience in regional development issues in Indonesia, preferably with significant experience in natural resource management at regional levels. Demonstrated grasp of key issues with preference given to those with a relevant publication history. Substantial management experience and demonstrated ability to manage a project of this complexity. • Management and organizational development specialist: Higher degree plus at least ten years experience in developing countries of carrying out management and organizational analyses and designing associated capacity development programmes. • Natural resource experts (3): Land-based, marine-based resource experts. Experts with backgrounds in developing at least one resource related to plantations, fisheries, tourism or forestry (and downstream economic activities, but not logging). • Environmental specialist: A specialist with substantial environmental sustainability expertise. • Community development specialist: A specialist with significant experience in working with community groups and NGOs in Indonesia, preferably with experience in different parts of the country and in dealing with community issues related to natural resources. Preference given to someone with a background in gender issues for development projects. • Facilitators (2): Several years’ experience in setting up dialogues with local stakeholders and facilitating national and regional events. • M&E expert: Minimum five years’ experience in M&E for development projects of a similar size. • Regional project leaders (2): Each pilot will have an assigned regional project leader. This individual is expected to have substantial experience of coordinating projects in Indonesia.

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74. Reporting requirements. The implementing Institution will report to Bappenas’ Directorate for Regional Autonomy and also to the DSF Executive. All deliverables must be approved by both Bappenas and the DSF. If approval is declined, the project may be terminated and/or payments may be suspended.

Procurement and Implementation Schedule 75. This activity will be implemented over a period of 18 months in the following phases: Procurement Stage Sept. 2009 Oct. 2009

Nov. 2009 Dec. 2009

ACN finalized, submitted to DSF MC ACN approved. ToR drafted and approved by DSF/Bappenas. Request for Expressions of Interest placed in Kompas. Request for Proposals sent to short-listed candidates. Submission and evaluation of proposals Finalisation of contract negotiations with IA. Contract signed. Implementation Stage

Jan. - March 2010

April-June July-Nov 2010 Dec-April 2011 May-June June 2011

Inception period: Desk review of Indonesian specific literature, legislation and policies Monitoring and evaluation plan for activity Field studies Pilot stage Capacity development in pilots and Bappenas Input for national legislation and organisational arrangements Dissemination activities, including national conference

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Annex An example of a revenue generation scheme through natural resource management is provided by Bappenas, as illustrated below. A natural resource with economic potential is identified. The local government develops supporting infrastructure and provides a loan guarantee to a financial body which provides credit to start up a company to exploit the resource. The company is owned by the district and provincial governments and also by a professional management group, employees and the local community and profits are divided accordingly. The loan is paid back to the financial body. Regional governments receive a share of the business profits on natural resources as shown in the scheme. The revenue can be used to develop regional infrastructure and improve public services, particularly to support the integrated development of potential natural resources both from upstream to downstream activites.

Schematic

Revenue 10

Capital 3

Financial Institution

Government

Payment

State Cash

Loan 6

Credit

Permit Input

Credit Invest

2

9

1

4

Professional Manager

District 20%

Professional Manager 20%

District Infrastructure 5

Implementation Development

Province 20%

Profit

7

Revenue 8

Community 20%

24

Employees 20%

Business 1

Business 2

Business 3

Business 4

Business 5


ACTIVITY CONCEPT NOTES # 11 | ARRISING FROM THE DSF WORK PLAN 2009-2011

DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 11/2009 Summary: As a follow-up to the implementation of GR38/2007, this activity is designed to improve service delivery by helping central government to clarify further the allocation of authority and responsibility for selected services across levels of government. It will do this by: (i) strengthening MoHA’s capacity to facilitate, monitor and evaluate the formulation of norms, standards, procedures and criteria for service delivery in all sectors; (ii) supporting ministries in the formulation of norms, standards, procedures and criteria (NSPK) for service delivery and thereby helping them to define more clearly the roles and responsibilities of every level of government in a number of selected sectors; and (iii) assessing the extent and quality of the implementation of NSPK by local governments.

Activity Title Formulation of Norms, Standards, Procedures and Criteria (NSPK) for Local Government Service Delivery

Counterpart Agency and Key Government Contacts • •

Ministry of Home Affairs, Directorate General of Regional Autonomy. Dr. I Made Suwandi, Director of Local Government Affairs.

Duration January 2010 to September 2011

Background and Rationale 1. Decentralization reform and assignment of government functions in Indonesia. Indonesian decentralization reform began with the issuance of Law 22/1999 on Local Governance. Law 22/1999 granted broad autonomy to the local governments, yet leaving functional assignments unclear and underlining the need to revise the legal framework. 2. Revision of Law 22/1999 to Law 32/2004 on local governance and follow up regulations. Although Law 22/1999 on regional government and Government Regulation (GR) 25/2000 introduced some bold changes in “who does what” in the context of decentralization and broader reforms, shortcomings in the overall architecture of functional assignments remained. Regional actors were also not sufficiently prepared to work with its bold new design, and tensions between levels of government quickly developed due to misunderstandings and gaps in the framework1.

1

“Exploring Reform Options in Functional Assignment” by Dr Gabriele Ferrazzi, 2008

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3. It became obvious to government and parliament that changes should be introduced to improve the legal framework. Law 32/2004 was therefore adopted, which among other changes, clarified obligatory functions, spelled out discretionary functions, and listed functions across level of government, with further details to be specified in a government regulations. Government Regulation on Assignment of Functions to Central Government, Province and Kabupaten/Kota 4. After having gone through a long process of broad consultations with sectoral ministries, provinces, districts/cities, DPRD and other stakeholders, GR 38/2007 on the division of functions between central government, provinces and kabupaten/kota was issued. 5. GR 38/2007 lists 31 sectors with functional assignments accross different levels of government. It attempts to delineate clearly functional assignments between levels of government, but unfortunately some of the functional definitions still remain unclear and vague, and many of the functions assigned to the central government are similar to those assigned to provinces and districts/cities, differentiated only by “scale of province” or scale of “district/municipality”, thereby leading to confusion among service users and providers. 6. Further, Article 9 of GR 38/2007 calls on ministries and non ministerial agencies to formulate NSPK for the implementation of regional government functions, sets a two-year deadline for the ministries to establish NSPK, and mandates ministries to coordinate with MoHA in the formulation of NSPK. 7. Formulation of norms, standards, procedures and criteria. In the process of NSPK formulation, clear delineation of authority and responsibility of each level of government should be ensured and the norms, procedures, technical standards and criteria should be clearly defined. 8. Norms and standards are essential to providing guidance and direction to the sectors in undertaking their service activities. They also inform the expectations, rights and obligations of local government officials and the public. The chances of successful implementation are likely to be increased when NSPK are developed in consultation with all stakeholders. 9. Current status of NSPK formulation. Although a two year deadline was provided to the ministries to align sectoral regulations with the functional lists stipulated in GR 38/2007 and to develop NSPK, there has been little progress. Many ministries have technical standards in place that were issued before the adoption of GR 38/2007. These still need some refinement and harmonization with decentralization law and regulations. 10. By the time of expiry of the deadline for NSPK formulation (July 2009), many NSPK remained to be formulated and issued.

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ACTIVITY CONCEPT NOTES # 11 | ARRISING FROM THE DSF WORK PLAN 2009-2011

11. Donor support. There are a number of donors/international financial institutions and non government organizations that have been active in this field. 12. GTZ-ASSD (with inputs from other donors) has developed a simple chart of donor support to functional assignments and presented it to the Decentralization Donor Working Group (DWGD). 13. Among other donors who provide assistance to GOI in this field are: CIDA-GRSII who has helped MoHA to strengthen the application of Government Regulation No. 38/2007; UNDPProvincial Governance Support Program that has assisted Bappenas (Regional Development and Regional Autonomy) with the implementation of functional assignments in Gorontalo; USAID-LGSP has given support to functional assignments in Aceh, North Sumatra, Central Java, East Java and South Sulawesi; and GTZ-ASSD has helped Bappenas (Regional Development and Regional Autonomy) with functional assignments (GR 38/2007) in the context of national development. 14. GTZ is working on functional assignments between province and kabupaten/kota in the health sector in Aceh. GTZ-ASSD in cooperation with DSF has helped MoHA and Bappenas to review GR 38/2007 on functional assignments. Additionally, DSF has compiled a preliminary inventory on the status of the formulation of NSPK and donors’ support for this. 15. Few agencies support Government of Indonesia in the actual formulation of NSPK. Among others, ADB-TA 7010 provided support for formulation of NSPK in two sectors: environment and communication and information; GRSII is supporting the transportation sector; and DSF, in addition to the assistance provided in the formulation of NSPK in the health sector, is planning to support the Government of Indonesia in the formulation of NSPK in several more sectors. 16. The absence of norms, standards, procedure and criteria in some sectors and for certain functions encourages local governments to develop their own regulations, which can cause variations in levels and quality of service delivery, and resource requirements. 17. To provide for the formulation of uniform norms and standards that will help to ensure an acceptable and equitable level of service delivery across the country, MoHA has requested DSF assistance – as set out below. MoHA will work closely with Bappenas and other selected sector ministries in this activity.

Goal and Objectives 18. Goal: to strengthen government’s capability to deliver improved services. 19. The objectives of the activity are to: • Strengthen MoHA’s capacity to facilitate, monitor and evaluate the formulation of norms, standards, procedure and criteria (NSPK) in all sectors, as mandated by GR 38/2007.

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• Support ministries in the formulation of norms, standards, procedures and criteria

and thereby to help them further define the roles and responsibilities, tasks and functions of every level of government in the delivery of selected services. • Assess the extent and quality of implementation of NSPK by local governments.

Scope of Services and Sub Activities 20. The scope of services outlined below will be implemented in two phases. Phase I Period January 2010-April 2010 a. Describe the status of the formulation of NSPK in all sectors. 21. GR 38/2007 requires ministries to formulate NSPK for the implementation of regional government functions and sets a deadline of two years from the date of adoption (July 9, 2007) of the regulation. The regulation mandates the Ministry of Home Affairs (MOHA) to ensure the implementation of GR 38/2007 and to ensure that the formulation of NSPK is done in consultations with stakeholders. MOHA does not possess a consolidated status report on the formulation of NSPK in all sectors, but anecdotal evidence suggests that progress is highly variable between ministries. 22. To provide for the implementation of the GR 38/2007, it is necessary for MoHA to have some basis upon which to make judgments about progress in relation to the implementation of the regulation. The consultants will therefore produce a status report on the formulation of NSPK and establish a means for its up-dating and maintenance. 23. The status report will provide information and comment on the following: • In general, NSPK conformity with GR38/2007 requirements. • Satisfactorily formulated NSPKs. • NSPK in need of improvement. • NSPK that remain to be formulated. • NSPK not covered by the functions stipulated by GR38/2007. The status report shall also address the constraints and achievements in the process with reference to selected NSPK. Phase II Period May 2010-September 2011 24. Phase II sub-activities are as follows: b. Develop MoHA capacity to help selected sectoral ministries formulate NSPK 25. Ministries need different levels of assistance with the formulation of NSPK. Some ministries are actively working on NSPK, some have not begun or made any meaningful progress, and others are attempting to clarify further the allocation of authority and responsibility between different tiers of government. To tackle all the issues mentioned the following tasks shall be performed:

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• In consultation with line ministries and MoHA, identify and prioritize sub-sectors and

services for the development of NSPK. • Conduct thorough analyses of government functions that need NSPK - including further clarification on authority and responsibility for the delivery of selected services. This should include extensive consultation with all stakeholders. • With the aim of improving the cost-effectiveness and timeliness of the delivery of these services, make precise recommendations for further clarification of authority and responsibility. Such recommendations should take account of comparative international experience. • Support the selected ministries in the development of NSPK by building capacity to:  Draft NSPK for selected sectors.  Consult with stakeholders concerning NSPK and make use of feedback.  Socialize issued NSPKs in order to ensure that regions and sub national governments (SNGs) are well informed.  Follow-up with regions on the implementation of NSPK. c. Monitoring and evaluation of NSPK implementation in the regions. 26. If new NSPK have been implemented during the life of the project, then the effectiveness of such implementation will be assessed and means for monitoring progress will be established. If new NSPK have not been implemented, then the activity will evaluate the effectiveness of NSPK implemented before the activity described herein began. 27. With support from the implementing agent, monitoring will be conducted by the Ministry of Home Affairs and other Departments/LPND that issued the NSPK. This will be done in 5 provinces (i.e. Maluku Province – Kabupaten Central Maluku, Province Riau Islands-Batam City; West Kalimantan Province- Pontianak City, NTT Province-Soe, Bali Province-Kabupaten Badung). 28. Through such monitoring and evaluation, the activity will: • Identify which NSPKs are implemented in the selected regions; • Define constraints and problems faced during NSPK implementation; • Describe required changes and suggest means for their introduction; • Document success stories and best practices; and • Help local governments to implement NSPK. A monitoring and evaluation report will be produced that incorporates the above. d. Assess organizational and other implications of NSPK implementation 29. The activity will assess the likely effects on SNGs of the changes arising from the implementation of NSPK and associated with allocations of responsibility and authority for service delivery between different levels of government. 30. This will entail: • Assessment of local policies and regulations that provide for the implementation of issued NSPK;

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ACTIVITY CONCEPT NOTES # 11 | ARRISING FROM THE DSF WORK PLAN 2009-2011

• Assessment of selected NSPK implementation effectiveness and efficiency (strengths

and weaknesses), including examples of good practice; • Assessment of local capacity for the implementation of selected NSPK (i.e. sectoral office management systems and organisational structures; personnel; and budgets); • Recommendations for capacity building and the introduction and management of change. e. Comparative Study of International Experience 31. In order to learn about how other countries (one developed and one developing) manage the matters referred to in this concept note, two international study tours will be organized for MoHA and selected sectoral ministry representatives. Particular attention will be given to: • Understanding legislative frameworks and regulations that govern such matters. • Learning of the problems faced and the manner of their resolution. • Identifying good practices that may be adapted and applied in Indonesia.

Deliverables 32. Deliverables of this activity are: No . 1 2 3 4 5 6 7

8 9 10 11 12 13 14 15 16

6

Deliverables PHASE I Instruments for identifying sectoral regulations on NSPK to be harmonized with decentralization regulations Status report on the formulation of NSPK Monthly progress reports Final report on Phase I PHASE II Inception report Monitoring and evaluation matrix Report, including recommendations on further clarification of the allocation of authority and responsibility within selected services across levels of government Inputs for draft ministerial regulations on NSPK for selected sectors Comparative study report Monitoring and evaluation report on the implementation of NSPK in the selected regions Report and recommendations concerning the implications of NSPK Implementation by the regions Handouts for workshops and conferences Brief monthly activity reports Quarterly report Final report Policy Briefs

Date Jan - June 2010 March 2010 June 2010 March-June 2010 June 2010 July 2010 August 2010 August 2010-March. 2011 August 2010 - July 2011 Sept-Oct.. 2010 Sept. 2010-July 2011 July 2011

August 2011 September 2011


ACTIVITY CONCEPT NOTES # 11 | ARRISING FROM THE DSF WORK PLAN 2009-2011

Sustainability 33. Several elements of the activity will provide for sustainability. They are as follows: • Clear delineation of authority and responsibility within selected services across levels of government will guide government operations in the selected sectors countrywide. • Further clarification of the regulation of authority and responsibility can be applied by line ministries in new sectors and sub sectors. Additionally, the processes and practices used for the formulation of NSPK may serve as a reference for ministries. • Adoption of ministerial regulations on NSPK will entail implementation by the local governments which will have a countrywide impact. • Assessment of implications of NSPK implementation in regions will address allocation of local government authority and responsibility for service delivery, transformation of authority and responsibility into the structural service units, local government capacity to accommodate authority assignments; and will contribute to potential structural reforms.

Gender 34. It is incumbent on implementing agents (firms and individuals) to consider carefully the gender ramifications of the work that they do, and to demonstrate in their work plans how they will do this and in their reports what progress is being made. One way of ensuring that more than merely the form of gender sensitivity is observed (as happens in so much development assistance) is to consider the question in terms of relative distributions of power and influence between men and women, and the way in which access to services – such as health and education – can distort the social construction of such power and influence. To help with making gender central to the projects it supports, the DSF Executive can provide access to recent publications on gender and, in some instances, to relevant expertise within the Bank. 35. In selection of services/sub sectors for regulation by norms, standards, procedures and criteria, besides the service-related matters prioritized, issues of gender need to be taken into account. The implementing agent will be required to demonstrate how this will be done early in the process of implementation.

Program Management, Execution and Implementation 36. The activity is divided into two phases. Considering the timeframe allotted for the implementation of the activity, procurement processes and the nature of work to be performed, the execution of the activity will be a combination of GOI/recipient executed and WB executed. 37. The success of the activity will depend very much on the quality of the implementing agency and qualifications of the short-term consultants. Therefore it is important to employ the best qualified and experienced individuals and firms to implement the projects and to

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provide them with clear objectives and guidelines concerning the work that needs to be done; and to be available to help wherever it is requested. 38. The major part of the allocated funds for the program will be transferred to GOI (Ministry of Finance) through a Grant Agreement. Since the activity is government executed, management of funds will follow GOI regulations. MoHA will adhere to World Bank procedures for Recipient Executed programs. A small part of the funds will be managed by the World Bank for the implementation of Phase I. 39. MoHA is expected to provide counterpart funding for aspects of the project not covered by the trust fund.

Consultants and Implementing Agency 40. For the implementation of Phase I, five short-term consultants and one support staff will be selected and contracted using the World Bank recruitment procedures. 41. For the implementation of Phase II, the procurement of and contracting with the implementing agencies will be done by GOI using the GOI procurement systems (Kepres 80/2003) and in compliance with World Bank regulations. Due to the complexity of the activity and time limitations, the implementation agency could be a consortium of universities/research institutes at the national and local level in combination with shortterm consultants. The consultants and implementing agencies will perform the activity according to the terms of reference and submit deliverables to MoHA and the World Bank (DSF Executive). 42. MoHA and DSF Executive will jointly prepare Terms of References for consultants/implementing agency and will jointly monitor and evaluate the implementation of the activity. Phase I The implementing agency shall have the following qualifications: • In-depth knowledge of decentralization, including the assignment of government functions, and the allocation of authority and responsibility for service delivery across levels of government. • Demonstrated expertise in mapping and analysis, especially in relation to government functions, authority and responsibility, and regulatory frameworks on service delivery. • A strong network of contacts within ministries together with substantial experience of working in selected sectors. • Demonstrated ability to deliver results within the given timeframe and responsiveness to changing demands from a variety of partners. • Demonstrated ability to bring to bear on the issues at hand the latest and best comparative thinking and evidence and to demonstrate clearly in recommendations made or options presented that they are so informed.

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Person specifications required within the implementing agency are as follows • Project Coordinator/Public policy consultant: Demonstrated experience in assessing government policy and legal frameworks for service delivery. Excellent understanding of institutional settings of policy formulation and experienced in providing support to national government on policy formulation. • Legal consultant: Demonstrated experience in supporting formulation of legal framework for decentralization. • Decentralization and regional autonomy consultants: Demonstrated experience in decentralization issues especially on assignment of functions and regulatory framework. • Monitoring and evaluation specialist: At least five years experience of conducting assessments of government policies and regulations especially decentralization policies and sectoral regulations. • Support staff: Demonstrated experience in compiling database of laws and regulations; expertise in programming; experience in decentralization issues; and previous work experience with sectoral ministries. 43. The consultants should have also the following qualifications: S2 degree and mastery of governance matters and related sectoral laws and regulations; able to work independently; experience in performing similar types of work with government institutions; able to prepare reports both in Bahasa Indonesia and English. All the individuals are expected to work closely with MoHA and sectoral ministries. The implementing agency will be contracted for four months. Phase II 44. The implementing agency(s) should have the following qualifications: • In-depth knowledge of decentralization, including assignment of government functions, allocation of authority and responsibility for service delivery across levels of government, and a good knowledge of international practices. • Demonstrated expertise in monitoring and evaluation, especially related to government functions, authority and responsibility, regulatory framework on service delivery, local government organizational structures, competences and financing. • A strong network of contacts within ministries together with substantial experience of working in selected sectors - examples of which would be trade, agriculture, mining and energy, marine and fishery. • Experienced in the assessment of local government capacity – management, organizational structures, personnel, and budgets. • Substantial experience in monitoring and evaluation of projects/activities. • Demonstrated ability to deliver results within the given timeframe and responsiveness to changing demands from a variety of partners. • Demonstrated ability to bring to bear on the issues at hand the latest and best comparative thinking and evidence and to demonstrate clearly in recommendations made or options presented that they are so informed.

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45. Person specifications required for key positions within the implementing agency are as follows: • Project leader: At least a Master degree, preference given to PhD in a relevant subject. Over ten years’ work experience in decentralization, with strong understanding of governmental functions, specifically in allocation of authority and responsibility for service delivery across levels of government. Preferably some experience working with technical ministries. Demonstrated grasp of key issues with preference given to those with a relevant publication history; substantial management experience and demonstrated ability to manage a project of this complexity. • Public policy expert: Demonstrated experience in assessing government policy and legal frameworks for service delivery; excellent understanding of the institutional settings of policy formulation; and experience in providing support to national government on policy formulation. • Legal expert: At least five years’ experience of working on matters associated with the legal framework for decentralization. • Short-term sectoral experts (sectors to be determined later): At least 10 years experience of advising on the formulation of regulations; an excellent network of contacts within national government; combined with an excellent understanding of national-regional government relationships. • Organizational development and capacity building expert: An excellent record of providing TA to national and local governments; experience of drafting high quality guidelines for government institutions; and experience in supporting local governments in restructuring, introducing reforms within specific working units (SKPD) and assessing personnel competences, especially within the sectors covered by this activity. • Short-term public finance specialist: demonstrated experience in analyzing public expenditures for financing certain local government functions and activities. • Facilitators: Each region will have an assigned regional project facilitator. This individual is expected to display good networking with local government institutions and substantial experience in related local government services and local government structure and personnel requirements. This should be combined with demonstrated ability to facilitate participative formulation of NSPK. • Independent monitoring and evaluation team of expert: a small team of experts for project monitoring and evaluation will be required for impartial monitoring and evaluation and to provide feedback to DSF and MoHA on progress, development and achievement of deliverables, objectives and goal. The expert should have experience working with donor agencies. More detailed requirement for all experts will be set out in separate TOR.

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Procurement and Implementation Schedule 46. Procurement and Implementation schedule for this activity: January 2010 – June 2011 Timeframe October 2009 Nov.2009.-Jan 2010 Jan-Feb 2010

Activities Finalization and MC approval of Activity Concept Note TOR, detailed budget, procurement plan, financial management and procurement assessment and grant agreement processes. Implementing agency recruitment for Phase I. Contracting by the World Bank

Timeframe March - June 2010 January-June 2010 March - June 2010 March March – May/April 2010 - June April March 20102010 June July 2010September 2011 July 2010 August 2010 July 2010 August2010-March 2011 Sept.-October 2010 Sept. 2010-July 2011 August 2010July2011 Sept 2010-July 2011 Octt. 2010-August 2011 August 2010-August 2011

August 2011 September 2011

Activities Procurement of and contracting with the implementing agencies for Phase II PHASE I: Implementing agency I Conduct discussions with MoHA and ministries responsible for 31 sectors to identify the status on NSPK formulation Draft instruments for identifying sectoral regulations on NSPK to be harmonized with decentralization regulations Draft status report on the formulation of NSPK Preparation of monthly reports Preparation of final report for Phase I PHASE II: by Implementing agency II Inception report Development of monitoring and evaluation matrix Select sectors/sub sectors and functions for development of NSPK Draft a report, including recommendations for the further clarification of the allocation of authority and responsibility within selected services across levels of government Draft a comparative study report Prepare a monitoring and evaluation report on the implementation of NSPK in the selected regions Provide inputs for drafting ministerial regulations on NSPK for selected sectors Draft a report and recommendations concerning the implications of NSPK implementation by the regions Socialization of issued NSPK Conduct workshops and conferences Brief monthly reports Quarterly reports of project activities Final report Policy briefs

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DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 12/2009 Summary: This activity is designed to improve the quantity, quality, timeliness and sustainability of Regional Financial Information System data (Sistem Informasi Keuangan Daerah/SIKD) generated by those sub-national governments (SNGs) that have stand-alone electronic information systems and data bases, that is, those that are not among the 171 SNGs covered by the Local Government Finance and Governance Reform program supported by the Asian Development Bank. The objective will be achieved by: (a) developing a standard modification or ‘patch’ that can be used to extract electronically from local SNG systems the data needed by the centre that is currently supplied in hard copy and then entered manually into the central system; (b) testing the ‘patch’ in 10 SNGs in order to determine the extent of ‘tailoring’ that will be needed for it to be adapted to local system variations in other SNGs; (c) determining how such local ‘patch’ adaptation may best be done; (d) devising a scheme for rolling out ‘patching’ to all SNGs outside of the ‘171’, that is, those SNGs that have stand-alone systems; and (e) designing training programs to ensure that the skills necessary to do this work are institutionalized in government, particularly among staff of the Directorate for Funding Evaluation and Regional Financial Information (Direktorat Evaluasi Pendanaan dan Informasi Keuangan Daerah/ EPIKD).

Activity Title Strengthening Data Provision to the Regional Financial Information System by Sub-National Governments with Stand-Alone Electronic Data Bases

Beneficiaries and Contact Person • The main beneficiaries of this activity are the Ministry of Finance, Ministry of Home Affairs and, to lesser degree, sub national governments in Indonesia. • Contact persons for this activity are: Edison Sihombing, SE, MT and Meyland Pardomuan Damanik, SE, Directorate for Funding Evaluation and Regional Finance Information (Direktorat Evaluasi Pendanaan dan Informasi Keuangan Daerah/ EPIKD), Directorate General of Fiscal Balance, Ministry of Finance (MoF).

Duration 18 Months, commencing in November 2009 – April 2011.

Background and Rationale 1. Under its fiscal decentralization policy, the Government of Indonesia (GoI) has taken several steps to improve the provision of public services. 1 2 Law 33/2004 on Fiscal Balance 1

Fiscal decentralization, or the devolution of fiscal power from the central government to SNGs, is designed to improve efficiency in the public sector, to increase competition among SNG in delivering public services, and to stimulate economic growth (see: Bahl, Roy W. and Johannes F. Linn. 1992. Urban Public Finance in Developing Countries. Washington, DC: World Bank and Oxford University Press). Empirical evidence indicates that fiscal decentralization in Indonesia promotes economic growth and has reduced regional income disparity during the period

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outlined the intergovernmental fiscal (and financial) framework in Indonesia. As a result, provinces and districts (Kabupaten and Kota) are currently managing 36 percent of total expenditures and half of public investment in Indonesia.3 Moreover, surveys suggest that people are satisfied with the services they receive. 4 Despite these achievements, fiscal decentralization in Indonesia still faces a number of major challenges, such as how to spend the resources better and how to reduce SNG dependency on central government transfers.5 2. While there have been significant shifts of responsibility and authority made in relation to some fiscal functions, GoI or the central government still has responsibility for formulating and implementing policy on the National Budget (Anggaran Pendapatan dan Belanja Negara/ APBN). Budget decisions need to be made on the basis of good quality and timely data and, in the interests of transparency and good governance, such data need to be made easily accessible to citizens. 6 The Regional Financial Information System (Sistem Informasi Keuangan Daerah /SIKD) is intended to do both of these things. The Regional Financial Information System (SIKD) 3. SIKD is a system for documenting, administering, and processing regional financial management data as well as other relevant data. The information is public and it is essential to planning, policy-making, and local and national government accountability. More precisely, the uses to which SIKD data may be put are: (a) Formulating national fiscal policy and control; (b) Sharing - nation-wide - regional financial information; (c) Formulating regional fiscal policy – for example, in relation to transfers to the regions (dana perimbangan), regional borrowing (pinjaman daerah), and deficit control; and (d) Monitoring, controlling and evaluating the financing of decentralization, deconcentration (dekonsentrasi), co-administration (tugas pembantuan), regional borrowing, and budget deficit.7

of 1994-2004 (see Widhiyanto, Imam. 2008. Fiscal Decentralization and Regional Income Disparity (1994-2004). Jurnal Keuangan Publik, Vol 5, No.1, 19-53). 2 The classical arguments in favor of fiscal decentralization are the assumptions of (a) decentralization will increase economic efficiency because SNGs are better positioned than the central government to deliver public services as a result of possessing better information, and (b) population mobility and competition among SNGs for the provision of public services will ensure matching with the preferences of local communities (see Tibout, C. 1956. A pure theory of local expenditures. Journal of Political Economy, 64, 416-424). 3 See Fengler, W. and B. Hofman. 2009. Managing Indonesia’s Rapid Decentralization: Achievements and Challenges. In Shinichi Ichimura and Roy Bahl (eds), Decentralization Policies in Asian Development. Singapore: World Scientific Publishing Co. Pte. 4 Results from the Governance and Decentralization Survey 2, conducted in 2006 in 133 SNGs show that more than 75 percent of the households are either satisfied or somewhat satisfied with health, education and administrative services, while satisfaction levels with policing service is slightly lower (64 percent). See Pattinasarany, D. 2007. Decentralization and Public Service Delivery: Preliminary Results from the Governance and Decentralization Survey 2006. Presentation at Decentralization Support Facility, Jakarta. 5 See Fengler and Hofman (op cit). 6 See: Directorate General for Fiscal Balance Ministry of Finance, 2008. Pelengkap Buku Pegangan 2008. Penyelenggaraan Pemerintahan dan Pembangunan Daerah. Jakarta. 7 Article 9, GR 56/2005 on Regional Financial Information System.

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4. There are two tiers of SIKD, one at regional level, administered by each SNG, called the Regional Financial Management Information System (Sistem Informasi Pengelolaan Keuangan Daerah/ SIPKD), and another at the national level that is administered by central government and is known as the national SIKD.8 5. SIKD presents both financial and non-financial information on each region. The main financial data consist of: (a)regional budgets (Anggaran Pendapatan dan Belanja Daerah/ APBD); (b) transfers from central government (Dana Perimbangan); (c) regional balance sheets (Neraca Daerah); (d) regional cash-flow reports (Laporan Arus Kas); (e) notes on regional financial reports (Catatan atas Laporan Keuangan Daerah); (f) financial reports on regional-owned companies (Laporan Keuangan Perusahaan Daerah); and (g) other data related to fiscal needs and regional fiscal capacity. As indicated above, all of this is public information. 9 6. SIKD has become a crucial tool for fiscal and financial management, particularly in relation to regional government’s performance on budget management. The system presents valuable information on regional public finance not only for the internal use of MoF, but also for other government departments and agencies, academics, donor institutions, and citizens.10 The SIKD clearly contributes to important aspects of good governance and is central to the good management of fiscal decentralization in Indonesia. 11 Donor Engagement in the Development of SIKD 7. In 2003, the World Bank (with a grant from the Netherlands) provided support for SIKD through a piloting activity in 19 SNGs. The activity covered the automation of data collecting processes, data consolidation, and analysis of regional financial information. The pilot activity was not intended to develop an accounting system; the purpose was mainly to

8 The acronym ‘SIPKD’ is not stated in GR 56/2005. Pelengkap Buku Pegangan 2008. Penyelenggaraan Pemerintahan dan Pembangunan Daerah (op cit) uses the acronym and provides details on the link between SIPKD and National SIKD. 9 Article 103, Law 33/2004 on Fiscal Balance. This statement is in line with the spirit of the newly-enacted Freedom of Information Act. 10 SIKD data are used extensively by the World Bank for its Public Expenditure Analysis and Capacity Enhancement (PEACH) initiative (see website: http://www.worldbank.org/peach). In addition to the national report (World Bank. 2007. Spending for Development: Making the Most of Indonesia’s New Opportunities. Jakarta: World Bank), there are provincial public expenditure analyses (e.g., Aceh, Papua, Gorontalo, Maluku, NTT and currently is being prepared for provinces in Sulawesi) as well as sectoral reports (e.g., agriculture, health and education). Within the government community, MoF uses SIKD for allocating the General Allocation Fund (Dana Alokasi Umum/ DAU), and SIKD inform policy-making in, for example, the Ministry of National Education and Ministry of Health. 11 Compared to other countries in the region, Indonesia is relatively advanced in implementing fiscal account reporting in an integrated information system such as the SIKD. The Philippines, which devolved in 1991, has no SIKDlike system in place despite the two-way financial reporting system. Every year, each Local Government Unit (LGU) is required to submit its financial report to both the Bureau of Local Government Finance (BLGF) and the Commission of Audit (COA). Interestingly, each of the BLGF and COA has its own formats that are significantly different. In addition, within an LGU, Statements of Income and Expenditure (SIE) are prepared by different officials. SIE reports to the BLGF are prepared by the LGU treasurer, while the one to the COA is prepared by the LGU accountant. See the COA (www.coa.gov.ph) and BLGF (www.blgf.gov.ph) websites for further information.

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integrate with, and collect information that had been processed by, accounting systems at the SNG level. 12 8. The Asian Development Bank’s (ADB) Local Government Finance and Governance Reform (LGFGR) program encompasses development of comprehensive computerized SIPKD and the implementation of supporting hardware in 171 SNGs.13 Two components of the LGFGR project loan are related to the development of SIKD-SIKPD, namely: First, expansion of electronic access to the SIKD to 100 SNGs. The enhanced-SIKD adheres to legal and regulatory reforms in public financial management as well as MoHA, MoF and SNG needs for improved financial reporting and accountability. Second, development and implementation of SIKPD in 71 SNGs.14 9. Although the ADB-supported project is not yet completed, SIPKD development to this point is encouraging, suggesting that the development of a nationwide integrated system should follow. 15 Nationwide implementation will not be straightforward, however, partly because most SNGs still have limited computer infrastructure to run this system properly, while others have shown some reluctance to apply the system at all. 16 10. In 2008-2009, the DSF and the World Bank supported the SIKD data entry activity at the Directorate for EPIKD, mainly involving verification of budget (APBD) and realization (Laporan Realisasi Anggaran/ LRA) reports sent by all SNGs. It is seen as an interim strategy to maintain data availability until the system developed by ADB can be made fully operational. The support helps government at the centre to enter into the system manually data that are provided on paper by certain SNGs. The data from the SNGs are printouts from their own electronic databases. The manual entry done at the centre is costly in terms of time and resources, introduces transcription error, and makes it difficult to assess data validity.

12

This pilot activity was considered as an early stage of the development of SIKD. See Gregorio, Jorge C. 2005. SIKD Implementation Project: Final Report. Directorate General for Budget and Fiscal Balance, Ministry of Finance and The World Bank. Jakarta. 13 See Asian Development Bank. 2005. Report and Recommendation of the President to the Board of Directors on Proposed Loans and Technical Assistance Grant to the Republic of Indonesia for the Local Government Finance and Governance Reform Sector Development Program. RRP: INO 36541. Manila: Asian Development Bank. The program started on December 2005 and is planned to be completed by the end of 2009. 14 Under both components, electronic access to the upgraded SIKD will be available to a total of 171 SNGs. 15 Among recent SNGs that fully endorsed the SIKPD system are the Province of North Sumatera and Kabupaten Sumenep (East Java). See jakarta.wartaegov.com: Sumut: Implementasikan SIPKD Serta SIKD (posted May 10, 2009) and Sumenep: Bangun Transparansi Dan Akuntabilitas Dengan Sistem Keuangan Daerah Online (posted on November 21, 2008). 16 The implementation of SIKPD in the 171 SNGs has been accepted by the SNGs with varying degrees of enthusiasm. Kota Yogyakarta (D.I. Yogyakarta), for example, have been compelled to convert their information system (called the Sistem Informasi Manajemen Keuangan Daerah), which has been running satisfactorily for a number of years, into SIKPD. While, Kota Surabaya (East Java) are currently running SIKPD at the ‘front-end’ and their own system at the ‘rear end’, a compromise solution for not converting to the full SIKPD system. In a sense, SNGs felt that their initiatives to develop their own information systems have been hindered by the central government. See jakarta.wartaegov.com: Inovasi e-Government Terhalang Kebijakan (posted on October 18, 2008).

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Current condition 11. A total of 171 SNGs will employ the SIPKD system in the near future, although some SNGs are currently running a hybrid system (i.e., combination between SIKPD and local (SNG) computerized systems). Most of the remaining SNGs currently use their own information systems; while a small number of SNGs, including newly-established SNGs, do not have an electronic system of any kind. 17 As a result, outside of the ‘171’ SNGs, financial systems are highly variable, in terms of database systems and reporting formats. The ability of the Directorate for EPIKD to consolidate SNG fiscal accounts is complicated accordingly. Rationale for DSF involvement

12.For the reasons given above, the DSF, in particular, is in a good position to help MoF improve the quantity, quality and timeliness of SIKD data and to do this in a way that will ensure sustainability. To reiterate, the DSF (in collaboration with the World Bank) has been engaging in activities related to the provision of SIKD data for the past 2 years. During that time, the DSF has built excellent relationships with EPIKD and has a reasonable idea of what capacity building needs to be done. The DSF and EPIKD have also identified an interim strategy to improve the delivery of higher quality and more timely SIKD data, pending nationwide application of the SIKD system. The strategy takes into account the development of SIPKD and SIKD systems (that are currently underway with the support of ADB) and the information systems that are currently running at the SNGs.

Goal and Objectives 13. The goal of this activity is to improve the quantity, quality, timeliness and sustainability of Regional Financial Information System data (Sistem Informasi Keuangan Daerah/SIKD) generated by those sub-national governments (SNGs) that have stand-alone electronic data bases, that is, those that are not among the 171 SNGs covered by the Local Government Finance and Governance Reform program supported by the Asian Development Bank. 14. The objectives of this activity are: (1) To develop a standard modification or ‘patch’ that can be used to extract electronically from local SNG systems the data needed by the central government; (2) To test the ‘patch’ in 10 SNGs with the intention of determining the extent of ‘tailoring’ that will be needed for it to be adapted to local system variations; (3) To determine how the local ‘patch’ adaptation may best be done and to devise a scheme for rolling out ‘patching’ to all SNGs (i.e., those outside of the ‘171’ SNGs that have stand-alone systems); (4) To continue support for data entry and verification of budget (APBD) and realization (LRA) data to ensure the continuity of the national SIKD data until GoI has reached 17

No accurate information is available on: the number of SNGs that have adopted the SIKPD system; the numbers that run their own information systems; and those that have no information system in place. An estimate of the latter category, according to EPIKD staff, is around 50 SNGs.

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the decision to roll out the SIKPD that is currently being piloted in 171 SNGs and/or MoF has initiated to scale up the ‘patching’ of local computerized database systems plan; and (5) To design and implement training programs to ensure that the skills necessary to do this work are institutionalized in government, particularly among staff of the Directorate for Funding Evaluation and Regional Financial Information (EPIKD).

Scope of Services and Sub-activities 15. There are 3 (three) closely linked principal activities: (1) pilot work on the modification of SNG financial information systems; (2) SIKD data entry; and (3) capacity building for EPIKD staff. Each of these activities is elaborated as follows. 16. Pilot work on modification of SNG financial information system. As previously mentioned, numerous financial information systems are currently in place outside the 171 SNGs (henceforth, SNGs). There are variations in SNG database systems and reporting formats. Based on information available from their own financial information systems, SNGs send paper financial reports to MoF. In turn, MoF, through the Directorate for EPIKD, manually enters the data into its own database (and checks them) in order to produce a national SIKD. The proposed activity attempts to improve both the effectiveness and efficiency of data transmission by SNGs and data entry and checking at the centre - by the addition of a ‘patch’ to SNG financial information systems. 18 The ‘patch’ will produce a file comprising extracts from SNG databases that satisfy central government’s needs. The modification will not otherwise affect existing SNG information systems. For this reason, it is likely not to meet with strong resistance. 17. The proposed initiative will be tested in 10 SNGs that currently have their own computerized financial information systems, are not among the 171 SNGs covered by the LGFGR program, and are willing to participate actively in this ‘patching’ pilot. The data extracted from the ten databases will then be merged into the national system at the centre, thereby replacing the manual system. The activity seeks to achieve its ends with minimal disruption or cost to participating SNGs. 18. Evaluation of the ‘patching’ pilots will follow. Issues of particular interest will include: (a) whether the extracted data completely satisfy the national SIKD requirements of central government; (b) the level of adaptation of SNG systems needed to accommodate the ‘patch’; and (c) implications for the design of a strategy for rolling out these ‘patches’ to all remaining SNGs (i.e., those outside of the ‘171’ SNGs). The latter is crucial because of the likelihood that any GOI decision to scale-up SIKPD systems beyond the 171 SNGs may be 18

A ‘patch’ or ‘add-on’ is a software extension that adds extra features to a program. It may extend certain functions within the program, add new items to the program's interface, or give the program additional capabilities (http://www.techterms.com/definition/addon).

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long in the making. The roll-out of ‘patching’ should therefore be seen as an interim measure to improve the quantity, quality and timeliness of national SIKD. 19. Sub-activities proposed for this activity are: • Assessment of the hardware and software systems currently used to implement the national SIKD at EPIKD; this will include an evaluation of EPIKD software needs to ensure that electronic data sent by SNGs to central government can be easily transferred/read; • Preparation of data needs by EPIKD; • Selection of 10 (ten) SNGs within 2 provinces as pilot locations; • Commencement workshop/socialization in the regions to explain the purposes of ‘patching’ and how it will work; • Assessment and modification of existing SNG information systems in preparation for ‘patching’; including the training of local operators in the use of the patch and transmission of relevant data to the centre; • Simulation of data consolidation; this will involve merging data from the 10 pilot SNGs into the national SIKD; • Evaluation of the ‘patch’, including implications for the roll-out of ‘patching’ to all SNGs (that is, outside of the 171 SNGs); and • The conduct of at least one workshop at the central level to disseminate results and lessons learned from the piloting activity. 20. SIKD data entry. Pending a GOI decision to roll-out the SIKPD currently being piloted in 171 SNGs to the remaining SNGs and/or an MoF initiative to scale up the ‘patching’ of SNG financial information systems, preparation and presentation of national SIKD should be maintained. This activity deals with data entry and verification of financial reports sent by SNGs. It complements DSF support to EPIKD provided over the past two years; however, two features that distinguish this activity from that of previous DSF support are worth noting: First, to the extent possible, electronic data will be gathered from the ‘171’ SNG19 and those involved in the ‘patching’ pilot activity. Second, paper reports will be converted into electronic files in order to conserve storage space make access easier. Data and documents that will be handled in this support are: • Electronic database: APBD for 2010 and 2011, and LRA for 2007-2009. • Digitization of documents: APBD for 2007-2001 and LRA for 2007-2009. 21. Capacity building for EPIKD staff. The activity will include training for staff that is intended to ensure that the skills required for preparing, presenting, and maintaining the national SIKD are well institutionalized in government, particularly among the staff of the Directorate for EPIKD. Such training will include:

19

Provided that these SNGs sent electronic version of the database to EPIKD.

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• •

• •

Data management: receiving and archiving/storing hardcopy reports from the SNGs; and data management, including document coding and archiving procedures. Data presentation for policy making and public consumption: presenting SNG financial data so that they can be used for policy making within MoF and be easily understood by the public. This purpose will be served partly through training on database applications (such as SQL or Cognos) and/or statistical packages (such as SAS, SPSS or STATA). Data analysis and presentation for other purposes: such as trends on the use of APBD in the regions; SNG spending patterns; and so on. Exchange of experience: to be derived from study tours to other countries (to be determined) by senior EPIKD staff.

Deliverables 22. Expected outputs from the proposed activity are: • Ten installed and properly functioning ‘patches’ capable of extracting electronically from local SNG financial information systems the data needed by the central government for the national SIKD; • Extracted data produced by the ten ‘patches’ are properly consolidated at the centre, and incorporated in the national SIKD database; • Final report on modification of SNG financial information systems in 10 SNGs; the report should address: (a) lessons learned on how local ‘patch’ adaptation may best be done; and (b) formulation of a scheme for rolling out ‘patching’ to all SNGs that have stand-alone information systems and are not included in the 171 SNGs involved in the LGFGR program; • APBD (2010-2011) and LRA (2007-2009) data are posted on MoF website; the LRA data should include information at the program level; 20 • APBD (2007-2011) and LRA (2007-2009) documents are scanned, coded, and stored into electronic files; and hardcopy documents are properly stored; • Descriptive and analytical reports related to SNG finance, that utilize the SIKD data and are prepared by EPIKD staff, are posted at MoF website; • Up to 20 staff of EPIKD trained in data management, data processing and data analysis; and • 3 senior staff of EPIKD afforded the opportunity to exchange experiences with senior officials from other countries on the subject of this activity.

Sustainability 23. The changes to technical systems and procedures and the training that constitute this activity and will involve SNGs and the centre will all lead to significant improvements in the sustainability of data provision, entry, and checking. Interim GOI policy regarding the

20

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At present, only summary data on budget and realized budget are available at the website.


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provision and dissemination of accurate and timely SIKD data is likely to be strongly influenced by the work undertaken by this activity. 24. If the ‘patch’ works as intended, a logical next step would be to roll it out to other SNGs that have stand-alone information systems and are not included in the 171 SNGs involved in the LGFGR program. A natural initial extension of this support would be to SNGs located within the 13 DSF “priority provinces”.21 The DSF executive has anticipated such extension, and this activity could easily be expanded for such purposes. The extension of ‘patching’ to other SNGs may require (at least) a circular letter from the DG for Fiscal Balance. 25. It is imperative for MoF to give careful thought to the legal aspects of electronic data transfers so as to ensure that the electronic data transferred by SNGs can substitute for information that is currently supplied in hardcopy form. One way to proceed with the matter would be to specify the legal status of such electronic data transfers in a Ministry of Finance decree (Keputusan Menteri Keuangan/ KMK). 26. Assuming successful SIKPD pilots in the 171 SNGs, and GOI policy to create a standardized national system, the next steps might be to: a. Install SIPKD systems in SNGs that do not have computerized information systems. b. Extend ‘patching’ to all remaining SNGs. c. Gradually install SIPKD to all SNGs.

Project Management, Execution, and Implementation 27. The role of the Directorate for EPIKD, Directorate General of Fiscal Balance, MoF in the Strengthening Data Provision to the Regional Financial Information System by Sub-National Governments with Stand-Alone Electronic Data Bases activity is as sponsor/owner of the program with responsibilities for steering; monitoring of program implementation; and coordination with the implementing firm. The DSF Executive will be responsible for procurement and contracting of the implementing firm; facilitation of program implementation; and assistance with program monitoring and quality assurance. The DSF Executive is also responsible for submitting periodic reports to the DSF Management Committee. The Implementing firm is responsible for implementing the program according to the terms of reference, technical proposal and financial proposal; working closely with the Directorate for EPIKD, and submitting reports/ deliverables to MoF and DSF on time. See table below for a summary of roles and responsibilities. MoF – Directorate for EPIKD: sponsor/owner of program. Responsible for: directing and monitoring program implementation and working closely with the implementing 21

A province can be categorized as “priority province” if it currently undertakes 2 (two) or more DSF activities. There are 13 provinces that fall into such category; they are North Sumatera, South Sumatera, Kepulauan Riau, Banten, West Java, D.I. Yogyakarta, Bali, West Kalimantan, East Kalimantan, North Sulawesi, West Nusa Tenggara, East Nusa Tenggara, and Maluku. See Decentralization Support Facility. 2009. Local Government Options Paper. Draft version. Jakarta: DSF.

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firm; and submission of reports to DSF Executive. DSF Executive: responsible for: procurement and contracting of implementing firm; facilitation of program implementation; assistance with program monitoring and quality assurance; and submission of program reports to DSF MC. Implementing Firm: responsible for: implementation of the program according to the terms of reference, technical proposal and financial proposal; working closely with MoF; and submission of reports/ deliverables to MoF and DSF for review. 28. This activity will be World Bank executed (in line with options set out in the DSF Operations Manual). A Quality- and Cost-Based Selection (QCBS) or Selection based on the Consultants’ Qualifications (CQS) will be made to procure the services of an implementing agent.22 29. MoF and representatives from the DSF Executive will prepare a ‘request for proposals’ document and make a selection from among those bidders invited to submit a technical and financial proposal. Proposals may be submitted by single firms or by consortiums of two or more firms. MoF and the DSF Executive will score the proposals and make the final selection. 30. Our policy is to employ the best qualified and experienced individuals and firms to implement the projects we finance; to provide them with clear objectives and guidelines concerning the work that needs to be done; and to be available to help wherever it is requested; but not to interfere or ‘micro-manage’ the project. 31. The effectiveness of this activity therefore rests heavily on how well the selection of individuals and firms is done and on the quality of the documentation and briefings concerning what is required of implementing agents. 32. The GOI and the DSF Executive will gauge project progress on the basis of the periodic reports received from consultants and implementing agents. It will monitor the achievement of agreed activity milestones and project objectives. It will liaise with government counterparts as necessary, to obtain their feedback, and provide periodic assessments of project status, most generally through DSF quarterly reports.

Implementing Agency 33. The project will be implemented by firm(s) and/or short-term consultant(s) selected following World Bank procurement procedures.23 The Directorate for EPIKD will be closely involved in the selection process. 22

Procurement processes for consultant services will conform strictly to Guidelines: Selection and Employment of Consultants by World Bank, Revised Version October 2006, and using World Bank e-procurement system (e-consult). 23 Having a single implementing firm to undertake the whole project would be ideal. However, implementation by two firms and a number of short-term consultants is also envisioned. The first firm will concentrate on modification of SNG financial information system and capacity building activities related to database processing. The second firm shall conduct data entry and verification functions, along with training on data management for EPIKD staff. The short-

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34. The firm should assemble a core team of specialists to undertake the project under the direction and supervision of EPIKD with additional quality assurance from the DSF Executive. 24 The core team should comprise: • Team leader, this position requires someone with extensive experience as team leader with the qualification of Master degree, or PhD in computer science, or management information. He/she should also have a minimum of 5 years experience in the development of computerized information systems, in particular systems that are similar to SIKPD; • Database maintenance coordinator, with thorough knowledge of the existing database systems and extensive experience in maintaining computerized information systems; • Data entry and verification manager, with extensive experience of data entry and data verification as well as having good command of data management generally; • Public finance experts, with the qualification of PhD or Master degree in economics/ public finance/ public policy/ public administration and a minimum of 5 years of experience in the evaluation of regional public financial systems; and experience of capacity needs assessment, and training and development, including adult and experiential learning techniques. 35. Implementing agency – other required inputs. The project requires full engagement with (and from) the EPIKD team throughout project implementation. During the preparation stage, involvement of EPIKD staff in material preparation (e.g., data template for the pilot work on the modification of SNG financial information systems) is essential, and will make it possible to take advantage of their thorough understanding of information needed for the national SIKD database. 36. The DSF Executive will provide additional support, mostly related to quality assurance during project implementation. All inputs and support rendered to the project by the three main parties – EPIKD, the implementing agent, and the DSF Executive – will be collaborative.

Procurement and Implementation Schedule 37. The projected schedule is as follows: • September 2009: Submission of Activity Concept Note for approval to DSF MC. • October-November 2009: Preparation of ToR and procurement of the implementing firm(s) and consultants. • December 2009-August 2010: Implementation of pilot work on modification of SNG financial information system. term consultants will build analytical capability and will assist EPIKD staff in preparing their first descriptive and analytical reports. 24 Detail task requirements/specifications - for implementing firm(s) and/or short-term consultants - will be explained in ToR(s) developed by EPIKD and DSF.

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• December 2009-April 2011: Implementation of SIKD data entry. • December 2009-December 2010: Implementation of capacity building.

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DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 13/2009 Summary: The activity is designed to support the endeavours of the Ministry of Finance’s Assistant Team for Fiscal Decentralization (TADF) to clarify and specify in more detail the policy framework for fiscal decentralisation (the ‘Grand Design of Fiscal Decentralization’ - GDFD). As part of this work, and in order to provide grounds for its possible revision, the intentions, provisions and context of Law 33/2004 will be analysed. This law deals with fiscal balance between central government and regional governments. Achievement of the objective will also require: (a) research into areas covered by the GDFD and Law 33/2004, including careful analysis of vested institutional interests; (b) at different stages of its development, discussion of the GDFD with local governments and other stakeholders; (c) consultations with leading international experts in the field of decentralization concerning critical aspects of the development of the GDFD and its implementation; (d) comparative field studies of policy frameworks for fiscal decentralization and of the implementation of such frameworks; (e) close and continuous collaboration with the Ministry of Home Affairs; (f) the preparation of a plan for establishing the legal basis of GDFD; and (g) the design of training programs to ensure that the skills and knowledge required for the development and assessment of public policy related to fiscal decentralization are institutionalized in government, especially among staff of the Secretariat Team for TADF.

Activity Title Improving the Policy Framework for Fiscal Decentralization (the ‘Grand Design of Fiscal Decentralization’ - GDFD)

Counterpart Agencies and Key Government Contacts •

The main beneficiaries of this activity are Ministry of Finance (MoF), Bappenas, Ministry of Home Affair (MoHA) and, to some extent, Sub-National Governments (SNG) in Indonesia. Contact persons in government are: a. Prof. Dr. Heru Subiyantoro, Secretary for Director General of Fiscal Balance, Directorate General of Fiscal Balance, MoF. b. Prof. Dr. Robert A. Simanjuntak, Head of MoF’s Assistant Team for Fiscal Decentralization (Tim Asistensi Desentralisasi Fiskal, TADF) and Coordinator of the Preparation of Academic Background Paper for the revision of Law 33/2004.

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Duration November 2009 – January 2011

Background and Rationale 1. Fiscal decentralization, or the devolution of fiscal power from the central government to sub-national governments (SNGs), is designed to improve public sector efficiency, to increase competition among SNGs in delivering public services, and to stimulate economic growth.1 2 The classical arguments in favor of fiscal decentralization are that: (a) decentralization will increase economic efficiency because SNGs are better positioned than the central government to deliver public services as a result of possessing better information; and (b) population mobility and competition among SNGs for the provision of public services will ensure matching with the preferences of local communities. 3 2. Bahl (2009) provides an excellent summary of the benefits and costs of fiscal decentralization. 4 The primary benefit of fiscal decentralization is the welfare gained from moving governance closer to the people. The latter arises from the argument that SNG officials are expected to know more about local needs and aspirations and to be more accountable, as they can be held responsible for the quality of services delivered to the citizens that elected them. In addition, citizens are expected to express higher willingness to pay for services, as they get the services that they want. The second important benefit of fiscal decentralization is the promise of increased revenue mobilization. In theory, subnational government will also be able to broaden the overall tax base, as it has better potential to reach traditional income, consumption, and wealth tax bases and can do so in ways that the central government cannot. 3. On the other hand, the costs of implementing fiscal decentralization are not trivial. From the viewpoint of central government, the most important cost is the loss of macro-economic control and the ability to respond quickly and flexibly to changes in national economic conditions. For example, in cases where SNGs have discretionary spending power, central government could lose some control over infrastructure development - national priorities for capital investment are sometimes different from SNG priorities. Moreover, fiscal 1

See Bahl, Roy W. and Johannes F. Linn. 1992. Urban Public Finance in Developing Countries. Washington, DC: World Bank and Oxford University Press and Bird, Richard and Francois Vaillancourt (eds). 1998. Fiscal Decentralization in Developing Countries. Cambridge: Cambridge University Press. 2 Fiscal decentralization can take many forms, including: (a) self-financing or cost recovery through user charges, (b) co-financing or co-production, in which users participate in providing services, and infrastructure through monetary or labor contributions, (c) expansion of local revenues through property or sales taxes or indirect charges, (d) intergovernmental transfers of general revenues from taxes collected by the central government to local governments for general or specific uses, and (e) authorization of municipal borrowing and mobilization of national or local government resources through loan guarantees. See Rondinelli, Dennis. 1999. What Is Decentralization? In Litvack, Jennie and Jessica Seddon (eds). Decentralization Briefing Notes. WBI Working Papers. Washington, DC: World Bank Institute. 3 Tibout, C. 1956. A pure theory of local expenditures. Journal of Political Economy, 64, 416-424. 4 Bahl, Roy. 2009. Promise and Reality of Fiscal Decentralization. In Shinichi Ichimura and Roy Bahl (eds), Decentralization Policies in Asian Development. Singapore: World Scientific Publishing Co. Pte.

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decentralization may not be an inherently equalizing economic development policy. It is possible that intergovernmental transfer policy will not benefit poorer or rural SNGs.5 SNGs may lack the management and administrative skills needed to deliver decentralized services efficiently and effectively. Services provided by local government may also be provided by central government; and so on. 4. Sato (2004) observes that, on balance, ‘fiscal Decentralization per se is not good or bad, but its net benefit relies on how it is designed and this involves many dimensions.’ 6 Nonetheless, an important measure of benefit from fiscal decentralization policy is economic growth. However, empirical results on the relationship between the two are inconclusive. 7 Zhang and Zou (2001) find a negative association between fiscal decentralization and provincial economic growth in China, but a positive correlation between central government development spending and economic growth. 8 In contrast to the China case, they also find that fiscal decentralization in India is positively correlated with state economic growth. Using a sample of 23 less developed countries, Woller and Phillips (1998), also failed to find any strong and systematic relationship between the two. 9 For the case of Indonesia, empirical evidence indicates that fiscal decentralization promotes economic growth and has reduced regional income disparities during the period of 19942004.10 Fiscal Decentralization in Indonesia 5. Law 33/2004 on Fiscal Balance between the Central Government and the Regional Governments outlines the intergovernmental fiscal (and financial) framework in Indonesia. Fiscal decentralization in Indonesia means that expenditure by regional governments is funded primarily by transfers from the central government. In such a design, emphasis is placed on the authority of SNGs to spend their budget according to local priorities and needs. However, national income remains under central government management. 5

Hofman and Guerra (2005) compare revenues and expenditures per capita against income per capita as a means of assessing the equalization properties of intergovernmental transfer systems. When the income elasticity of expenditures is lower than the income elasticity of revenues, it can be argued that the transfer system is equalizing. Using this measure, they found that grant systems in East Asian countries—Indonesia, China and Vietnam—were equalizing. Per capita revenue disparities, however, remain large. For example, the richest province in the Philippines has 28 times more revenues per capita than the poorest one. Corresponding figures for China, Indonesia, and Vietnam are 8, 10, and 22, respectively. See Hofman, Bert and Susana Cordeiro Guerra. 2005. Fiscal Disparities in East Asia: How Large and Do They Matter? In World Bank. East Asia Decentralizes: Making Local Government Work. Washington, DC: The World Bank. 6 Sato, Motohiro. 2004. Fiscal Decentralization in Asia Revisited: a Theoretical Foundation. Mimeo. Hitotsubashi University. 7 Martinez-Vazques and McNab (2001) point out that absence of an adequate theoretical framework on the impact of fiscal decentralization on economic growth has undermined the validity of the empirical work on this subject. See Martinez-Vazquez, Jorge and Robert McNab. 2001. Fiscal Decentralization and Economic Growth. Working Paper #011. Atlanta: Andrew Young School of Policy Studies, Georgia State University. 8 Zhang, Tao and Heng-fu Zou. 2001. The growth impact of intersectoral and intergovernmental allocation of public expenditure: With application to China and India. China Economic Review 12: 54-81. 9 Woller, Gary and Kerk Phillips. 1998. Fiscal Decentralization and LDC Economic Growth: An Empirical Investigation. The Journal of Development Studies Vol. 34, No. 4: 139-148. 10 Widhiyanto, Imam. 2008. Fiscal Decentralization and Regional Income Disparity (1994-2004). Jurnal Keuangan Publik, Vol 5, No.1, 19-53.

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6. The implementation of fiscal decentralization policy has resulted in significant transfers from central government to SNGs. Provinces and districts manage 36 percent of total expenditures and half of public investment in Indonesia.11 Moreover, surveys suggest that people are satisfied with the services they receive. 12 Despite these achievements, fiscal decentralization in Indonesia still faces a number of major challenges, such as how to spend the resources better and more quickly and how to reduce SNG dependency on central government transfers. 13 7. Fiscal decentralization systems vary between countries. For example, fiscal decentralization does not seem to be a key policy issue in Malaysia – there, most authority governing state fiscal management resides with the federal government, including the management of government income and spending, and the authority to issue loans. Central government controls most aspects of the social and economic agenda, relying on deconcentration rather than decentralisation. 14 On the other hand, In the Philippines, there is a well developed system of central government transfers to the regions; reasonable degrees of accountability; and some measure of competition between SNGs.15 In Japan, reform policy on fiscal relations between central government and SNGs - the ‘trinity reform’ - began in 2002. There, as in many other places, a range of questions surrounding subsidies from the centre to SNGs and the distribution of authority are problematic.16 Grand Design for Fiscal Decentralization (GDFD) 8. In Indonesia, despite every effort to improve the system over the last eight years, the policy framework for fiscal decentralisation remains weak – in places it is ambiguous and open to a variety of interpretations, and generally it is riddled with inconsistencies and lacunae.17 In large part, this reflects the absence of a clear view as to the overall purpose and character of fiscal decentralisation, but it is also (as everywhere) very much a reflection of conflict between institutional vested interests. The general problems of fiscal decentralisation in Indonesia will not be soluble through technocratic means alone. A

11

See Fengler, W. and B. Hofman. 2009. Managing Indonesia’s Rapid Decentralization: Achievements and Challenges. In Shinichi Ichimura and Roy Bahl (eds), Decentralization Policies in Asian Development. Singapore: World Scientific Publishing Co. Pte. 12 Results from the Governance and Decentralization Survey 2, conducted in 2006 in 133 SNGs show that more than 75 percent of the households are either satisfied or somewhat satisfied with health, education and administrative services, while satisfaction levels with police service is slightly lower (64 percent). See Pattinasarany, D. 2007. Decentralization and Public Service Delivery: Preliminary Results from the Governance and Decentralization Survey 2006. Presentation at Decentralization Support Facility, Jakarta. 13 See Fengler and Hofman (op cit). 14 Anuar, Abdul Rahim. 2000. Fiscal Decentralization in Malaysia. Hitotsubashi Journal of Economics, 41 (2). 15 Djokno, Benjamin. 2009. Decentralization in the Philippines After Ten Years: What Have We Learned? In Shinichi Ichimura and Roy Bahl (eds), Decentralization Policies in Asian Development. Singapore: World Scientific Publishing Co. Pte. 16 Ikawa, Hiroshi. 2009. Trinity Reform of Local Fiscal System in Japan. In Shinichi Ichimura and Roy Bahl (eds), Decentralization Policies in Asian Development. Singapore: World Scientific Publishing Co. Pte. 17 There have been two formulations of fiscal decentralization policy in Indonesia. The first was the formulation of Law 25/1999 and the second Law 33/2004, both on Fiscal Balance between the Central Government and the Regional Governments.

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workable solution will have to take serious account of political economy issues.18 This, of course, is easier said than done. 9. The importance of improving the policy framework for fiscal decentralisation is widely recognised at the highest levels. For example, President Yudhoyono’s annual speech at the 2008 Plenary Session of the Regional Representatives Council stated as follows: ‘… we must still improve on the direction of fiscal decentralization policy in the future, in the form of a grand design that will provide guidance to long-term fiscal decentralization policy. This grand design is very important in anticipation of Indonesia’s future challenges as a nation, including the role of the regions in generating faster national economic growth and to accelerate the people’s comprehensive and sustainable well-being.’ 19 10. In response to this, in 2009, MoF (with help from TADF) formulated the Indonesia GDFD.20 The GDFD outlined a vision of Indonesia’s fiscal decentralization toward 2030 as ‘Efficient allocation of national resource through a transparent and accountable fiscal relation between central and local government.’ 11. The vision is articulated in terms of: (a) fiscal relations between central government and SNGs that minimize vertical and horizontal disparities/inequality; (b) efficient systems of local revenue and development financing; (c) effective local expenditure cycles and processes; and (d) harmonized central-local expenditures for the delivery of optimal public services. Further refinement is afforded through a set of objectives that promote: (a) the minimization of vertical and horizontal disparities, by improving mechanisms of allocation and implementation of transfers to the regions; (b) efficient and effective management of regional income, especially taxes; (c) efficient and effective regional spending, both in terms of disbursement and budgeting; and (d) harmonized central and regional spending, aimed at reducing inefficiency and overlap in government spending. The GDFD has been translated into an action plan towards 2015. 12. In general, as suggested above, the policy framework for fiscal decentralization outlined in the GDFD is considered to be an early draft that needs to be revised and strengthened in a number of ways. Once completed to a satisfactory standard (which most observers agree it currently is not), the proposed grand design can serve as reference or input from MoF for the revision process of Law 32/2004 on Regional Administration and, most importantly, Law 18

Eaton, Kent, Kai Kaiser and Paul Smoke. 2009. The Political Economy of Decentralization Reforms in Developing Countries: A Development Partner Perspective. Paper presented at Political-Economy Analysis for Decentralization Reforms Towards an Operational Framework for Development Partners Workshop at New York University, New York. 19 State Secretariat of the Republic of Indonesia. 2008. The Government Statement on the Regional Development Policy before the Plenary Session of the Regional Representatives Council of the Republic of Indonesia on 22nd August 2008. Provisional Translation. Jakarta: Sekretariat Negara. 20 Tim Asistensi Desentralisasi Fiskal, Departemen Keuangan Republik Indonesia (TADF). 2009. Grand Design Desentralisasi Fiskal Indonesia: Menciptakan Alokasi Sumber Daya Nasional yang Efisien Melalui Hubungan Keuangan Pusat dan Daerah Yang Transparan, Akuntabel, dan Berkeadilan. The formulation of GDFD is part of Presidential Decree No. 7/2005 on Medium term development Plan 2004-2009 (Rencana Pembangunan Jangka Menengah Nasional/ RPJMN) in which one of the point is completing the formulation of Grand Design of Decentralization, particularly in the area of fiscal management aspect (National Action Plan of Fiscal Decentralization).

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33/2004 on Fiscal Balance between central and regional governments. However, the current GDFD document is still insufficiently precise about the character of the fiscal decentralization system to be developed and the stages that will need to be traversed in order to reach a satisfactory end point. For this to happen rationally, there needs to be thorough and careful analysis carried out of the strengths and weaknesses of the existing system in Indonesia. And the GDFD needs to be specified in more detail. The design of a modified system would clearly benefit also from the judicious application of international expert opinion, and lessons learned in other countries. 13. In 2009, the MoF directed TADFP to: (a) ‘coordinate the finalization’ of the GDFD; and (b) ‘improve’ the GDFD. This work was to be funded from the national budget (Anggaran Pendapatan dan Belanja Negara/ APBN). However, TADF considers that the APBN allocation is insufficient to cover the range and complexity of the work that needs to be done and has been required of them. From the point of view of the TADF, the activities described in this ACN effectively bridge the gap between what is needed to do the work well and the allowance made in the APBN. With assurances that the activities described herein will be different in character and in addition to those funded by APBN, TADF, with MoF acknowledgment and approval, has requested DSF financial support for those additional activities. The largest component of DSF support to TADF will be committed to sharpening and elaborating the current GDFD.21 14. Fiscal decentralization is only one of the decentralization pillars in Indonesia’s national development. Rondinelli (1999) defines four types of decentralization—political, administrative, fiscal, and economic or market— each of which has different characteristics, policy implications, and conditions for success.22 TADF acknowledges the situation and would like to make an effort to synchronize GDFD with the grand design of regional autonomy that is currently being developed by the MoHA. Among other things, generally the activity will support this endeavour through close collaboration with MoHA and Bappenas, including a series of workshops. 21

Only a limited number of aspects of the GDFD and/or its action plan will be covered by the DSF. There are two reasons for the latter; first, the limited duration of the support (i.e., 15 months) which makes it impossible to cover all aspects mentioned in the GDFD. Second, as mentioned earlier, some aspects are to be covered under the APBN. Research topics within the scope of this concept note have been discussed and agreed by the TADF. 22 The following definitions follow those of Rondinelli (1999), op cit. Political decentralization aims to give citizens and their elected representatives more power in public decision-making. It is often associated with pluralistic politics and representative government, but it can also support democratization by giving citizens or their representatives more influence in formulating and implementing policies. Administrative decentralization seeks to redistribute authority, responsibility, and financial resources for providing public services among different levels of government. It is the transfer of responsibility for planning, financing, and managing certain public functions from the central government and its agencies to field units of government agencies, subordinate units or levels of government, semi-autonomous public authorities or corporations, or area-wide, regional, or functional authorities. While economic or market decentralization deals with shifting responsibility for functions from the public to the private sector. The most complete forms of decentralization from a government’s perspective are privatization and deregulation; they shift responsibility over functions from the public to the private sector. They allow functions that had been primarily government’s exclusive liability to be carried out by businesses, community groups, cooperatives, private voluntary associations, and other non-governmental organizations to the private sector.

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15. Legal status of the GDFD. It is expected that eventually GDFD will be institutionalised in law, thereby cementing its status as the main policy framework for fiscal decentralization. To achieve this, its legal status should be at least that of a ‘law’ (Undang-Undang/ UU).23 Another portion of the DSF support will involve planning for this eventuality. MoF’s Assistant Team for Fiscal Decentralization (TADF) 16. TADF was established in 2001 to assist the Ministry of Finance with, among other things, reviewing and conducting research on fiscal decentralization issues. Membership of TADF changes annually and appointment of team members is regulated by a Minister of Finance Decree. 24 17. Team structure and composition: (a) a steering committee comprising the Minister of Finance and related Escehlon-1 officials of MoF; (b) a working group for enhancing fiscal decentralization policy; (c) a working group for conducting research on fiscal decentralization policy; (d) a working group for disseminating GDFD and obtaining feedback on fiscal decentralization policy issues; and (e) a MoF internal working group consisting of Echelon-2 and 3 officials. Team members of (b), (c) and (d) are prominent professors from various universities in Indonesia. TADF team is supported by a secretariat. DSF will support (b), (c), and (d) in its attempts to improve the GDFD and with the revision of Law 33/2004. In addition, on-the-job and other forms of training – mainly pertaining to policy development and relevant analytical knowledge and skills - will be developed for and provided to the TADF secretariat.25 26 Revision to Law 33/2004 on Fiscal Balance between the Central Government and the Regional Governments 18. The two main laws that govern decentralization in Indonesia—Law 32/2004 on Regional Administration and Law 33/2004 on Fiscal Balance between the Central Government and the Regional Governments—are currently being revised. With a view to making recommendations concerning its revision, one of the main tasks of TADF will be to analyse the intentions, provisions, and context of Law 33/2004 and to write a detailed report on

23

TADF (op cit) p.8. The existence of the TADF team depends on the Ministry of Finance’s needs. For FY2010, budget for TADF has been secured. The current TADF is established based on Kepmenkeu No. 56/KMK.07/2009 dated March 3, 2009. 25 In 2008, USAID through the Democratic Reform Support Program (DRSP) provided support to some of the core members of TADF in order to help them finalize the current GDFD document. In doing so, the TADF consulted some local stakeholders (including local NGOs) and international experts. The TADF also held discussions on the grand design with the team in charge of revising Law 32/2004 on regional administration. 26 As previously noted, the largest component of DSF support to TADF is intended to update the current GDFD document (i.e., the document whose finalization was supported by USAID in 2008). The DSF support builds on the support provided by USAID, but goes beyond it in a number of important ways. In addition to updating the GDFD, the DSF support will take steps towards the integration of the GDFD with the Grand Design for Regional Autonomy. It will also do the groundwork for the revision of Law 33/2004. To facilitate the updating process of the GDFD and Law 33/2004, TADF will conduct desk reviews, consultations with national and local stakeholders, consultations with international experts, and international comparative field studies. In addition, the DSF will provide assistance for the preparation of a plan for establishing the legal basis of GDFD, and capacity building among staff of the Secretariat Team for TADF. 24

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this.27 As mentioned above, such analysis will need to take careful account of the political economy context of fiscal decentralisation, particularly as this pertains to vested institutional interests. DSF will support this work.

Goal and Objectives 19. The goal of this activity is to improve the quality of the policy framework for fiscal decentralisation (Grand Design of Fiscal Decentralization – GDFD). 20. The objectives of this activity are to: a. Improve the comprehensives, clarity, internal consistency, feasibility, and equity of the GDFD; and b. Analyze the intentions, provisions and context of Law 33/2004 on fiscal balance between central government and regional governments to provide grounds for its possible revision. 21. These objectives will be achieved by: a. Carrying out research into areas covered by the GDFD and Law 33/2004, including careful analysis of vested institutional interests; b. At different stages of its development, and in order to obtain feedback on relevance and feasibility and equity, discussing the GDFD with local governments and other stakeholders; c. Consulting with leading international experts in the field of decentralisation concerning critical aspects of the development of the GDFD and its implementation; d. Carrying out comparative empirical studies (field visits) of policy frameworks for fiscal decentralization and of the implementation of such frameworks; e. In order to provide grounds for its possible revision, analysing the intentions, provisions and context of Law 33/2004 and writing a detailed report on this; f. In order to integrate the GDFD with the grand design for administrative decentralization, maintaining close and continuous collaboration with the Ministry of Home Affairs and relevant sections of Bappenas; g. Preparing a plan for establishing the legal basis of GDFD; and h. Designing and implementing training programs to ensure that the skills and knowledge required for the development and assessment of public policy related to fiscal decentralization are institutionalized in government, especially among staff of the Secretariat Team for TADF.

Scope of Services and Sub-activities 22. In accordance with the above, the following activities will be carried out: a. Desk review of the GDFD and Law 33/2004 and planning for empirical work

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The report is called Naskah Akademik. The Head of TADF is also in coordinates the preparation of this report.


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b. Stakeholder consultations and revision of the main ideas and policies (‘the body’) that constitute the GDFD c. Consultations with international experts in Indonesia d. International comparative field visits e. Redrafting of the GDFD f. Analysis of Law 33/2004 g. Integration of GDFD with the Grand Design for Regional Autonomy h. Establishment of the legal basis of the GDFD i. Training design and implementation Activity 1: Desk review of the GDFD and Law 33/2004 and planning for empirical work 23. Analytical studies, intended to improve the substance of the GDFD, will explore two major areas: Standard Spending Assessments and Public Private Partnerships. 28 24. Standard Spending Assessments (SSA). 29 Assessing the effectiveness of public sector spending across level of governments is one of the most important themes of the GDFD. The public sector should clearly ensure easy access to good quality services at reasonable cost for all citizens. To achieve this purpose, the existence of minimum service standards (MSS) for basic public services is a necessary but not sufficient condition. MSS, and costings thereof, must be properly linked to the accountability measures that exist at the national level, namely the Standard Spending Assessment (SSA). 25. SSA is a standard that expresses the workload and cost of every program or activity to be implemented by a working unit (such as health and education units) within a SNG in one fiscal year. SSAs therefore provide solid grounds for SNG budgeting and for certain aspects of performance measurement. The implementation of SSA is intended to: (a) provide the basis for determining appropriate spending in undertaking an activity; (b) minimize nonessential spending; (c) improve efficiency and effectiveness in managing SNG finance; (d) ensure that budget formulation and ratification are based on clear performance indicators; and (e) provide more and better quality information pertinent to budget formulation and management by working units. 30 26. The development of satisfactory SSA clearly depends on the quality of the MSS that are established for working units and for sectors.31 An effective means of coordination between 28

With regard to updating the GDFD, these two topics will be the main focus of DSF support to TADF. Funding for additional topics will be provided from the APBN. 29 The analytical study should pay close attention to the Minimum Service Standards (MSS) and its costing at the SNG level proposal to be implemented by the DSF. See Activity Concept Note # 14/2009. 30 Pusat Studi Ekonomi dan Kebijakan Publik-Universitas Gadjah Mada (PSEKP-UGM). 2009. Penyusunan Analisis Standar Biaya: Pengalaman Praktis di Pemerintah Daerah. Yogyakarta: PSEKP-UGM in collaboration with GTZ and Apkasi. 31 In order to obtain an ideal unit cost for delivering primary education services. Halim et.al. (2009) conducted SSAs for elementary schools in 6 SNGs They used the existing condition of major school facilities, such as classrooms, furniture, and other facilities, such as toilets, libraries, sport facilities, etc. See Halim, Abdul, Armida Alisjahbana, Akhmad Makhfatih, Bambang Juanda and Syarifuddin. 2008. Analisis Standard Biaya (ASB) pada Sekolah Dasar (SD). Research Report. Jakarta: TADF, Ministry of Finance.

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administrative authorities (i.e. MoHA) and fiscal authorities (i.e. MoF) is crucial to this, and recommendations concerning such coordination should be made in order to improve quality and to provide a clear path for SSA implementation.32 The current version of the GDFD suggests that for the moment it is best to focus on standards in three basic sectors of national or provincial services -education, health and infrastructure. 27. Public-Private Partnerships (PPPs). 33 The principal source of income for SNGs is central government transfers. Local tax revenues vary considerably between SNGs. While for many SNGs budget spending is currently a greater problem than shortage of funds, as development in Indonesia gathers pace the opportunities for diversifying sources of revenue and decreasing reliance on central government increase. Public-private partnerships (PPP) constitute an underutilized, yet viable, alternative source of income. 28. Public-private partnerships refer to arrangements whereby the private sector supplies infrastructure assets and services that traditionally have been provided by the government (IMF, 2004). Such partnerships aim to realize the comparative advantages of each partner and can take a number of forms - which are different in principle form privatization, joint ventures, franchising, and subcontract schemes. PPPs can be structured as design-buildfinance-operate (DBFO) schemes, operating leases, or concessions. In many cases, government is the main purchaser of the services provided. 34 29. Such possibilities are mentioned briefly in the GDFD. These need to be discussed in greater detail. Presidential decree - Perpres 67/2005 on Partnership between Government and Private Sector to Provide Infrastructure – addresses certain aspects of PPPs, as does Minister of Finance Regulation 38/PMK.01/2006 on Guidance for Risks Control and Management of Infrastructure. However, existing regulations do not stipulate how SNGs might be able to take advantage of PPPs, or the conditions under which this would be permissible. Two further issues pertaining to PPPs need to be resolved: (a) the distribution of authority and responsibility between SNGs and line ministries in relation to matters that might be amenable to PPPs (such as physical infrastructure); and (b) the design of effective means of central government regulation of SNGs in order to ensure fiscal discipline and appropriate risk management. 30. With regard to the revision of Law 33/2004, in addition to the above, a major part of the analytical work to be supported by the DSF will deal with intergovernmental transfers, and in particular the formulae used for determining the quantum of equalization grants (Dana Alokasi Umum/ DAU) and special purpose grants (Dana Alokasi Khusus/ DAK). Another important topic to be explored will be that of revenue sharing (Dana Bagi Hasil).

32

Martinez-Vazquez, Jorge, J. Boex, and G. Ferrazzi. (2004). Linking Expenditure Assignments and Intergovernmental Grants in Indonesia. Working Paper #04-05. Atlanta: Andrew Young School of Policy Studies, Georgia State University. 33 The current GDFD document gives little attention to PPPs. This will be rectified in the revised GDFD. 34 International Monetary Fund. 2004. Public-Private Partnerships. Washington, DC: the IMF, in consultation with the World Bank, and the Inter-American Development Bank.

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31. This preparatory stage of implementation of the activity will produce a detailed plan, saying how this work and the rest of the work required in this activity will be done; who will be responsible for different aspects of the work; how the work will be organised; what reports will be produced; who will be consulted; and a schedule with clearly specified time and performance targets. The work plan should also lay out a timetable for conducting field visits in Indonesia and abroad. 32. In order to ensure that resources, particularly leading international experts/ academicians, will be available at the specified time set out in the work plan, such planning will need to be completed by the end of November 2009. Activity 2: Stakeholder consultations and revision of the main ideas (the ‘body’) of GDFD 33. Updating of the GDFD will take place in two stages. The first stage will consist largely of an a priori review and revision of the current version of the GDFD, conducted without the benefit of the activities described below. The second stage, which will be a posteriori, will rely much more on empirical testing of the first stage version done in three ways: first, through extensive further discussions with a wide range of stakeholders in Indonesia at the centre and the periphery; second, through discussion with leading international experts; and third, through carefully targeted international field visits. 34. The first stage will be undertaken through critical analysis and discussion based on feedback obtained from high-ranking SNG officials—such as the head of SNG (Bupati/Walikota), secretary of SNG (Sekretaris Daerah), head of SNG Planning Board (Badan Perencanaan Pembangunan Daerah/ Bappeda) and members of local parliament (Dewan Perwakilan Rakyat Daerah/ DPRD). Feedback will also be sought from civil society and the private sector. Thus far, the GDFD had been disseminated in Denpasar (intended for SNGs within the Provinces of East Java, Bali and West Nusa Tenggara) and Padang (SNGs within the Provinces of West Sumatera, Riau, Kepulauan Riau and Jambi). The main intention of the additional (feedback) workshops is to obtain perspectives from stakeholders residing in different regions, in particular eastern Indonesia. 35. In order to serve this purpose, TADF intends to hold workshops in three locations: Makassar (to cover Sulawesi region), Pontianak (Kalimantan region), and Bandung (western and central Java region). 35 Every workshop will be followed by a 2-3 day internal retreat for TADF to discuss the results of each workshop so as to inform the revision of the GDFD. Additional consultations (through in-depth interviews and focus group discussions) with local officials/stakeholders are also envisioned during these workshops and retreats. 36. The output for the first stage will be a (a priori) revised GDFD document (to be submitted by January 2010). Activity 3: Consultations with international experts in Indonesia 35

The locations are indicative. Due to logistical constraints, dissemination of GDFD to SNGs in Maluku and Papua will not be funded through this support.

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37. There are several unresolved and technically complex issues – of policy and implementation - in the existing GDFD that need to be resolved as quickly as possible. Rapid assessment of these important, urgent, and complex issues will be made by the team in collaboration with a number of international experts. Here the emphasis is on obtaining critical comment and constructive advice from the best minds in the business, based on their deep understanding of the principles and policies involved and their wide experience of seeing them applied in different development settings. 38. There are two main issues that need to be resolved: (a) making theoretically sound (equitable and developmental) and administratively feasible links between MSS, SSA, and the intergovernmental transfer scheme; and (b) establishing a comprehensive and workable PPP scheme that best serves the interests of sustainable and equitable development. Any implications for the intergovernmental transfer system that arise from this will inform revision of Law 33/2004. 39. The precise form that the consultations with international experts takes will be clearly set out under Activity 1 above. 40. These consultations will result in a number of analytical reports on each topic, jointly prepared by the experts and TADF (to be submitted by October 2010). These reports will also serve as inputs to the revision of GDFD and Law 34/2000. Activity 4: International comparative field visits 41. Fiscal decentralization reforms are being pursued in countries around the world in order to enhance the efficiency with which government services are provided to citizens, and much has been learned from this experience. The revision of the GDFD and Law 34/2009 need to be informed by this experience. Field visits have the virtue of revealing the realities of intergovernmental fiscal relations and affording opportunities for discussions with system designers and implementers, those that know the system from having to try to make it work. The latter perspective in particular is crucially different from but complementary to what can be gained from international experts alone. Both are necessary. 42. As stated in the current GDFD document, practicable decentralization policies should address the following: (a) the effective and efficient management of human resources in the public sector; (b) well designed and effective institutions; (c) the process of policy development and implementation; (d) general issues of good governance such as accountability and transparency; (e) the timely flow of valid and reliable information; and so on. All of these matters would benefit from insights gained from well designed field visits. Benefit can be gained as much from learning from the mistakes of others as the successes. Likewise, ‘innovation’ need not always involve the avant-garde. As Blunt (2002) notes, ‘innovation is a relative phenomenon...what constitutes novelty or the well-known in one setting may not do so in another. What is mundane or outmoded to some can clearly be

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revolutionary and appropriate to others. What works here may not work there’ (p.2).36 A great deal can also be learnt from the perspectives that different stakeholders can bring to bear on a subject – demand and supply-side perspectives, for example, and perspectives from civil society and the private sector and not just government. 43. Field visits will be made to three countries—China, Canada, and UK. As suggested above, the main topics of interest will be those of tax assignment, public-private partnerships, standard spending assessments, and institutional arrangements. However, some of the more general issues mentioned in paragraph 42 may also be covered. Brief rationales for the countries selected are set out below. 44. China - Tax Assignment and Public-Private Partnership. In 1994, the central government of China started initiatives to overcome its revenue problems. They have done so, among other things, by introducing a tax assignment system (fenshuizhi), which specifies the way revenues are shared between the central and provincial governments. Subsequently, National Tax Services were established in all provinces to collect central-fixed revenues and shared revenues. The reform has been successful in increasing the ratio of central government’s share to total revenue (by 1994) and in reversing the declining trend in the revenue-to-GDP ratio (by 1996).37 Bahl and Bird (2008) noted that the tax reform in China incentive system for tax sharing, particularly in relation to how central and lower level governments could cooperate to improve tax collection, is an exemplar of good policy and practice. 38 Nevertheless, Bird (2008) has also raised concerns about China’s political structure and its effects on the fiscal autonomy of the regions. 39 45. China’s experience is salutary in a number of important respects. Although the incentive scheme in tax sharing at first was initiated merely to make central and lower level governments cooperate better in improving their tax collection, for both national and local taxes, this scheme has become one of the most significant elements of China’s fiscal management system. 46. There would clearly be many benefits to be derived from a field visit to China. 40 47. Such a visit would also contribute a great deal to a deeper understanding of PPP policy and practice. In relation to PPP, the China case is interesting because it addresses such 36

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). Marakesh, Morocco, 10-11 December. 37 Shen, Chunli, Jing Jin, and Heng-fu Zou. 2006. Fiscal Decentralization in China: History, Impact, Challenges and Next Steps. Working Paper. Wahingston, DC: The World Bank. 38 Bahl, Roy, and Richard Bird. 2008. Subnational Taxes in Developing Countries: The Way Forward. Public Budgeting & Finance Vol. 28, No. 4, Winter 2008, 1-25. 39 Bird, Richard. 2008. Tax Assignment Revisited. Working Paper #08-01. Atlanta: Andrew Young School of Policy Studies, Georgia State University. 40 TADF may provide inputs to the preparation of some government regulations related to the newly enacted law on local taxes and service charges based on China’s experience.

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possibilities at the local; relationships between different levels of government; and the allocation of risk responsibility. With regard to the former, since 2000, the central government has introduced a series of policies, guides and rules concerning the provision of public facilities and services by the private sector. Local government, in turn, has started to establish detailed rules governing the scope, procedure and relevant details for opening up the market for the provision of public facilities and services. 41 De Jong (2008) notes that China’s overall experience with PPP has been positive although, in some cases, failure and corruption does occur. However, he also noted the strong willingness among political leaders and officials to follow developed-countries’ (somewhat variable!) standards of good governance. 42 48. PPPs carry an array of risks. IMF (2004) has divided these risks into five, somewhat overlapping, categories: construction risk, financial risk, performance risk, demand risk, and residual value risk. 43 PPP, in delivering high-quality and cost-effective services to consumers and the government, seek to transfer most or all of these risks from the government to the private sector. A thorough study on the allocation preferences of risks in China’s PPP for construction projects revealed that the private sector bears the majority of 10 (out of 37) types of risks. Therefore, PPP procurement for construction projects in China falls short of achieving the objective of full risk transfer from the public sector to the private sector. 44 Abednego and Ogunlana (2006) provide evidence to suggest that in Indonesia with the right policy mix and good regulation (significant provisos!) it may be possible to achieve proper risk allocation, along with good project governance. 45 The visit to China would provide valuable opportunities for obtaining relevant insights for Indonesia. 49. Canada – institutional arrangements. Institutional arrangements for policy and administration of intergovernmental fiscal transfers vary across countries. Shah (2007) has categorized these arrangements into four types, namely: central/national government agency, national legislature, intergovernmental forums, and independent agencies. 46 Canada, Germany, Indonesia, Nigeria, and Pakistan rely on intergovernmental forums for 41

Ko, Paul. 2006. Development of Public Private Partnerships (PPPs) in China. Surveyor Times, Vol. 15, No. 10. Hong Kong: the Hong Kong Institute of Surveyors. 42 De Jong, W.Martin. 2008. The effectiveness of public-private partnerships in China’s transport infrastructure. Network Industries Quarterly, Vol. 10, No.2, 12-14. 43 The following definitions are excerpted from IMF (2004), op. cit. Construction risk relates to design problems, building cost overruns, and project delays; financial risk relates to variability in interest rates, exchange rates, and other factors affecting financing costs; performance risk relates to the availability of an asset, and the continuity and quality of service provision; demand risk relates to the ongoing need for services; and residual value risk relates to the future market price of an asset. 44 All 10 risks belong to the project level risks. See Ke, Yongjian, ShouQing Wang, Albert Chan, and Patrick Lam. 2009. Preferred risk allocation in China’s public-private partnership (PPP) projects. International Journal of Project Management, forthcoming. 45 Abednego, Martinus and Stephen Ogunlana. 2006. Good project governance for proper risk allocation in publicprivate partnership in Indonesia. International Journal of Project Management, Vol. 24: 622-634. 46 Shah, Anwar. 2007. Institutional Arrangements for Intergovernmental Fiscal Transfers and a Framework for Evaluation. In Boadway, Robin and Anwar Shah (eds). Intergovernmental fiscal transfers: principles and practice. Washington, DC: The World Bank.

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decisions on fiscal transfers. Intergovernmental forums facilitate consultations among different levels of government, strike a balance among competing interests, and mediate conflicts. 50. Primary responsibility for the legal aspects of the design of fiscal transfers to provinces and territories in Canada rests with the federal government (i.e. the Ministry of Finance), while final approval rests with the national parliament. The federal government of Canada places strong emphasis on intergovernmental consultation and shared decision making on intergovernmental fiscal transfers through federal-provincial fiscal arrangements committees. The establishment of the Council of the Federation in 2003 introduced an additional dimension to these consultations. The council, consisting of provincial premiers and the leaders of the three northern territories, aims to develop a common position on national and interprovincial issues, including federal-provincial-territorial fiscal arrangements. 51. In Indonesia, the intergovernmental forum is served by the Regional Autonomy Advisory Board (Dewan Pertimbangan Otonomi Daerah/ DPOD). The board—chaired by the Minister of Home Affairs, with the Minister of Finance as the deputy chair—reports directly to the president regarding decentralization issues on, among other things, the assessment of new SNG creation and intergovernmental transfer issues. 47 Smoke (2005) has noted that due to systemic inefficiencies of public administration in Indonesia, the performance of the DPOD has not been optimal. He has also observed that weak coordination, and strong interministerial competition, especially between MoF and MoHA, remained as significant problems for decentralization and has resulted in inconsistencies between core decentralization policies. 48 52. Accordingly, this field visit should provide a wide range of insights that are relevant to addressing a number of important challenges faced by DPOD in performing its duties and improving that section of the GDFD that deals with institutional aspects of fiscal decentralization. 53. United Kingdom – Standard Spending Assessment and Public-Private Partnership. There are two types of grants from central government to local authorities in the UK— general-purpose grants and specific-purpose grants. The former are mainly used to address the issue of regional inequality, while the latter address spillover or externality effects of national projects (such as roads, education and social welfare). General purpose grants are paid through an equalization grant scheme known as the revenue support grant (RSG). The most controversial part of the RSG calculation is the determination of the funds that need to 47

Other members of the board comprise the Minister of Defense, the Minister of Law and Human Rights, the Secretary of State, the Minister of Administrative Reform, the Chairman of Bappenas, the Secretary of Cabinet, representatives from SNGs, and experts on regional autonomy and public finance (Government Regulation 28/2005 on Dewan Pertimbangan Otonomi Daerah). 48 Smoke, Paul. 2005. The Rules of the Intergovernmental Game in East Asia: Decentralization Frameworks and Processes. In East Asia Decentralizes: Making Local Government Work. Washington, DC: World Bank.

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be spent by each local authority; these amounts are called formula spending shares (FSSs). Methods for calculating the FSSs are determined by the central government. FSS estimates are supposed to serve as measures of relative rather than absolute need. However, given the way in which these estimates are incorporated into the grant formulae, they play the role of estimates of true need.49 54. Before FSS came into being, the central government relied on SSAs. SSAs for each local authority are broken down into seven broad groups of services—education, social services, highway maintenance, police, fire, capital expenditures and other services. Many factors are considered within each of these groups to determine the amount of expenditure needed. 50 SSA has been criticized on equity grounds. It is also said to be too complex. 51 55. Murniasih (2006) has noted the relevance of SSA to the ‘Indonesian equalization grant formula’. The application of SSA in Indonesia, however, may not be straightforward, mainly because capacity constraints would limit ability to make standard spending assessments for each SNG. In addition, there are likely to be data sufficiency problems for such calculations.52 The TADF is charged with examining the case for making use of SSA in Indonesia.53 Close examination of the UK system in practice in the field will clearly be very helpful to this. 56. The field visit to the UK would also examine the implementation of public private partnerships. PPP has been widely embraced in the UK over the past decade. The principal vehicle for delivering PPP in the UK is the Private Finance Initiative (PFI), which was introduced in 1992. The PFI institutes a way for the public sector to secure the use of extra assets without borrowing. Local authorities are limited in the extent to which they can use the PFI, as the central government determines the total value of PFI projects that can be undertaken in a given year and allocates this total among government departments. The departments, in turn, determine how much will be available for local authorities. Individual local authorities apply for PFI credits for individual projects. The utilization of PFI, however, causes local authorities to lose some control over the design of the assets that they will use.54

49

King (2006) provides details on the operations of RSG as well as procedures for determining FSS figures. See King, David. 2006. Local Government Organization and Finance: United Kingdom. In Shah, Anwar (eds). Local Governance in Industrial Countries. Washington, DC: The World Bank. 50 See Ma, Jun. 1997. Intergovernmetal Fiscal Transfers in Nine Countries: Lessons for Developing Countries. Policy Research Working Paper #1822. Washington, DC: The World Bank. 51 House of Commons Library. 2002. Local Government Finance in England: Replacing the Standard Spending Assessment. Research Paper 02/56. London, U.K. 52 Murniasih, Erny. 2006. New Intergovernmental Equalisation Grant in Indonesia: a Panacea or a Plague for Achieving Horizontal Balance across Regions? Dissertation. International Development Department, School of Public Policy, University of Birmingham. 53 A member of the working group for enhancing fiscal decentralization policy is designated as coordinator for research on SSA (Ministry of Finance decree No. 56/KMK.07/2009). 54 King (2006). Op cit.

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57. The central features of the PFI, which might be applicable to the Indonesian case, are the following: First, PFI projects are concerned with the provision of services, and not with the acquisition of assets. Second, the private sector makes a long-term commitment to maintain the assets and provide services while the government makes a long-term commitment to procure those services. Third, the private sector will bear a significant part of the risk for such projects. Finally, it is considered that public sector investment projects should represent value for money and meet the UK government’s criteria for efficiency, equity and accountability. 55 58. Learning about the design and implementation of PFI directly from those government units that manage it would enrich the TADF perspective on PFI, and on PPP in general – particularly PPP policy concerning the funding of SNG infrastructure needs. 59. Within 30 days of the completion of a field visit, reports will be written that analyse the relevance for Indonesia of the national experience in question and summarise the main findings from each field visit. These reports will contribute to the revision of the GDFD and Law 33/2004. The TADF will also make a workshop presentation of the findings to GoI and the donor community (October 2010). Activity 5: Redrafting of the GDFD 60. Redrafting of the GDFD will commence upon the completion of the review of the main features of the GDFD (see Activity 2). Analytical and empirical results as set out in reports from comparative field visits are expected to serve as valuable inputs for the TADF in redrafting the grand design. During the redrafting process, additional consultations may be held with national and local stakeholders, international experts and academicians. If deemed necessary, the drafting team may complete the task during a retreat designed specifically for this purpose. 61. The output for this activity is a revised GDFD document (to be submitted by November 2010) that takes into account all of the empirical evidence and expert opinion generated during the course of the activity, as outlined above. The draft will be reviewed by the TADF steering committee and/or an internal MoF working team (the latter established by the Secretary of DG Fiscal Balance). A final draft should be completed by January 2011. Activity 6: Analysis of Law 33/2004 62. Here support rendered to the TADF will pay particular attention to the following aspects of Law 33/2004:56 a. Intergovernmental transfers, particularly the formulae governing the equalization of general grants (Dana Alokasi Umum/ DAU) and specific grants (Dana Alokasi Khusus/ DAK); 57 55

A VFM test is used to determine whether a public sector project should be privately or publicly financed. For details, see IMF (2004), Op. cit. 56 As is the case with updating the GDFD documents, additional topics for the revision of Law 33/2004 will be funded through the APBN.

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b. The evaluation of the inclusion and re-classification of various transfer nomenclature; c. Revenue sharing, focusing on revenue sharing of provincial taxes with local governments; and d. The potential inclusion of PPP as a financial source for SNGs. 63. It is expected that MoF will use the GDFD for improving regulations on fiscal decentralization. The revision of Law 33/2004 would provide early direction to such endeavours. 64. As with the redrafting of the GDFD, additional consultation with national and local stakeholders, and international experts and academicians may be carried out if needed and resources allow. 65. The main output for this activity will be a series of well-argued recommendations for the revision of Law 33/2004 (to be submitted by November 2010). The draft will be reviewed by the TADF steering committee and/or an internal MoF working team (the latter established by the Secretary of DG Fiscal Balance). A final draft should be completed by January 2011. Activity 7: Integration of GDFD with the Grand Design for Regional Autonomy 66. The GDFD should not be a stand-alone design; ideally, it should be a part of the Grand Design of Regional Autonomy. Subject to area of function, the Ministry of Home Affairs (MoHA) will formulate the Grand Design of Regional Autonomy. MoF, through TADF, would naturally need to communicate, socialize, and discuss the GDFD with MoHA and other related ministries/agencies, including the DPOD. 67. With a view to harmonizing the two grand designs, a joint team will be established comprising members drawn from MoF and TADF as well as MoHA and Bappenas. 58 The implementing agent will consult with the team in order to determine the way in which this work might best be done. 68. The output of this activity will be a report and recommendations concerning harmonization of the GDFD and the GDRA that will be presented to the steering committee of TADF by September 2010. Activity 8: Establishment of the legal basis of the GDFD 69. Currently, the legal standing of the Grand Design for Fiscal Decentralization (GDFD) document is indeterminate. Some parties, including the TADF, would like to clarify and

57

This is in line with mid-term planning 2010-2014. GoI should redouble its efforts to enhance the equalization performance of DAU. While the DAU has had some success in equalizing fiscal capacities to fund service delivery across regions, more work needs to be done on this. In recent years, some estimates suggest that the distribution of resources across local governments may have become more unequal (World Bank staff estimates). 58 The TADF should also make suggestions for the revision of Law 32/2004 on regional administration, to ensure that the substance of GDFD is well covered in the draft revision of that law.

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strengthen the legal status of the GDDF so as to make it the main reference point for fiscal decentralization policy at all levels of government. 70. In order to make a judgement about how to proceed, MoF would need to be presented with a number of well-argued options for its consideration. The activity will provide the human and other resources needed to do this. 71. The main output of this activity will be a series of well-argued options for establishing the legal basis of the GDFD to be presented to the MoF and other relevant officials by August 2010. Activity 9: Training design and implementation 72. The activity will include training for staff that is intended to ensure that the skills and knowledge required for the development and assessment of public policy related to fiscal decentralization are institutionalized in government, especially among staff of the Secretariat Team for TADF. Such training will include the following general topics, modified to ensure their relevance to fiscal decentralization: a. Qualitative research techniques b. Quantitative research techniques c. Data analysis and interpretation: for example, using standard statistical packages (such as SAS, SPSS or STATA) d. Policy formulation e. Principles of good governance

Deliverables 73. Expected outputs from the proposed activity are: Output 1. Work plan for the activity as a whole 2. Initial revision of the main features of the GDFD*) 3. Reports on consultations with International experts on fiscal decentralization 4a. Reports on comparative field visits 4b. Presentation of results from comparative field visits 5. Final revision of GDFD*) 6. Recommendations for the revision of Law 33/2004*) 7. Report and recommendations on harmonization of GDFD and Grand Design for Regional Autonomy 8. Report and recommendations on options concerning the legal standing of the GDFD 9. Staff of the Secretariat Team for TADF trained

Delivery date November 2009 First draft: January 2010 Final draft: March 2010 October 2010 One month after the visit October 2010 First draft: November 2010 Final draft: January 2011 First draft: November 2010 Final draft: January 2011 September 2010 August 2010 Throughout project duration

Notes: *) to be reviewed by Secretary of DG Fiscal Balance

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Sustainability 74. The final product of this activity is a document that sets out a policy framework for fiscal decentralization (GDFD). It therefore has huge potential significance for the future of decentralisation. To a large extent the sustainability of the activity will depend on the legal status accorded to the GDFD; on the success of the attempts at harmonisation with the grand design for regional autonomy and the extent to which these policy frameworks become reference points for the development of decentralisation in Indonesia; and on any changes that may be made to Law 33/2004. Institutionalisation in government of the skills needed to do the type of work involved will depend on the relevance and quality of training given to government staff and the opportunities afforded to them to make use of these skills at work.

Project Management, Execution, and Implementation MoF – Secretary for Directorate General of Fiscal Balance (DGFB): sponsor/owner of program. Responsible for: directing and monitoring program implementation and working closely with the implementing firm; and submission of reports to DSF Executive. DSF Executive: responsible for: procurement and contracting of implementing firm; facilitation of program implementation; assistance with program monitoring and quality assurance; and submission of program reports to DSF MC. Implementing Firm/Consultant: responsible for: implementation of the program according to the terms of reference, technical proposal and financial proposal; working closely with MoF; and submission of reports/ deliverables to MoF and DSF for review 75. This activity will be World Bank executed (in line with options set out in the DSF Operations Manual).59 76. MoF and representatives from the DSF Executive will prepare a request for proposals document and select from among those bidders invited to submit a technical and financial proposal. Proposals may be submitted by single firms or by consortiums of two or more firms. MoF and the DSF Executive will score the proposals and make the final selection. 77. DSF policy is to employ the most qualified and experienced individuals and firms to implement projects; to provide clear objectives and guidelines concerning the work that needs to be done; and to be available to help wherever it is requested; but not to interfere or ‘micro-manage’ the project.

59

Procurement will adhere to: Guidelines: Selection and Employment of Consultants by World Bank, Revised Version October 2006.

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78. The effectiveness of this activity therefore rests heavily on how well the selection of individuals and firms is conducted and on the quality of the documentation and briefings concerning what is required from the implementing agents. 79. The DSF Executive will gauge project progress on the basis of the periodic reports received from consultants and implementing agents. It will monitor the achievement of activity milestones and project objectives that have been agreed. It will liaise with government counterparts as necessary, to obtain their feedback, and provide periodic assessments of project status - in general through the DSF quarterly reports.

Implementing Institution 80. Members of TADF, international experts on fiscal decentralization, public- and administration lawyers, and additional researchers will be hired as Short-term Consultants (STC), which procurement process will follow the World Bank procurement procedures. The series of workshops encompassed in this activity, which will be held in several different cities, will be administered by the DSF, or sub-contracted to third party (i.e. event organizer). 81. A dedicated administrative support (ACS) may be hired to carry the additional administrative workload. 82. During project implementation, the DSF Executive will provide additional support, mostly related to quality assurance. All inputs and support rendered to the project by the three main parties—Secretary for DGFB, the implementing agent, and the DSF Executive— will be arranged in the most collaborative manner to ensure effectiveness and efficiency of project implementation.

Procurement and Implementation Schedule 83. Procurement and implementation schedule will follow GoI calendar and procedure. The estimated schedule is as follow: • October 2009: Submission of Activity Concept Note for approval to DSF MC. • November 2009: Prepare workplan. • November-December 2009: Workshops in the regions intended to prepare revision of the main concept of GDFD (first revision). • January-August 2010: Analytical studies, comprising desk studies, field studies/visits, and consultations with international experts on fiscal decentralization. • February-August 2010: Consultations with MoHA and Bappenas on integrating GDFD and Grand Design for Regional Autonomy. • April-August 2010: Comparative field visits. • May-July 2010: Preparation of roadmap for legal format of GDFD. • January-December 2010: Capacity building for staff of the Secretariat Team for TADF trained.

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DECENTRALIZATION SUPPORT FACILITY ACTIVITY CONCEPT NOTE 14/2009 Summary: This activity is designed to support the implementation of minimum service standards (MSS) as a means for improving access to and quality of basic public services. It will do this by: (i) Improving 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; (ii) supporting central and provincial governments in MSS implementation in selected local governments; (iii) developing the capacity of selected local governments for the implementation of MSS and integration of MSS in their planning and budgeting documents; and (iv) in selected sectors, examining whether there is any relationship between MSS and the attainment of the Millennium Development Goals.

Activity Title Capacity Development for Minimum Service Standards Costing and Implementation

Counterpart Agency and Key Government Contact Ministry of Home Affairs, Directorate General of Regional Autonomy (or Ditjen Otda) • Head of Directorate for Capacity Development and Evaluation of Local Government Performance • Head of Sub Directorate for Facilitation of Minimum Service Standards

Duration January 2010 to March 2011

Background and Rationale 1. In 1999 reforms were intoduced in Indonesia to provide for decetralized government. Law 22 on Regional Government assigned obligatory functions in eleven sectors to local governments. Functions devolved were: health, education and culture, public works, agriculture, transportation, industry and trade, investment, environment, cooperatives and manpower. The Law was followed by the issuance of Government regulation 25/2000, which assigned functions only to the central and provincial governments allowing districts and cities to assume those not listed in the regulation. 2. The broad authority and the set of ‘unlisted’ functions devolved to kabupaten/kota made them hesitant and uncertain about how to respond to this newly-granted autonomy. Among other things, the situation was improved by the introduction of minimum service standards that were to guide local governments in the implementation of their obligatory functions and allow the central government to monitor local government performance against the standards set. Further progress was achieved through revisions of the Law on Regional Government (Law No. 32/2004), which states in Articles 11 and 12 that while

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measuring the performance of obligatory functions government will refer to minimum service standards (MSS). These matters are also addressed in Government regulation No. 65/2005, which defines MSS as a standard minimum measurement of a type and quality of basic public service that all citizens have the right to receive. 3. MSS is formulated by central government and implemented by local governments. The role of central government in the formulation of MSS is designed to ensure a minimum level of service quality throughout the country. 4. The process of MSS formulation is as follows: with help from the Ministry of Home Affairs, each sectoral ministry drafts MSS and submits them to the Inter-ministerial Consultation Team 1 for the Formulation of MSS for approval. Before MSS can be formally recognized by ministerial regulation, a final review must be done by the Regional Autonomy Advisory Board, DPOD2. The system was introduced to ensure that the indicators set for obligatory services and the achievement of targets are reasonable. 5. To date, MSS in the following sectors have been formulated and issued: health, environment, internal government affairs, social, public housing, and women’s empowerment (Integrated Service Centre for Witnesses and/or Victims of Human Trafficking in Kabupaten/Kota). Draft MSS in three sectors have been disscussed by the Consultation Team for MSS Formulation, but have not yet received an endorsement from DPOD (i.e. family planning, national education and women empowerment and child protection). Still under preparation are MSS in the sectors of public works, communication and food security (see attachment). The health sector is regarded as the most progressive sector in relation to MSS. Recently, the Ministry of Health issued a new Permenkes No. 317/MENKES/SK/V/2009 on Technical Guidance for Costing MSS Health Achievement (May 2009). 6. The Government recognizes the need to improve basic services and in the National Action Plan for Fiscal Decentralization 2005-2009 prioritizes sectors/services to be improved, namely: health, education and infrastructure. Moreover, the National Annual

1

The Consultation Team for Formulation of MSS consists of a Steering Committee (Minister of Home Affairs, Minister of Finance, Minister of National Development Planning/Head of Bappenas, Minister of Administrative Reform and Secretary General of Ministry of Home Affairs); Team in Charge (director general level of MoHA, Bappenas, MoF and State Ministry for Administrative Reform) ; and a Co-ordination Team (director level of the four ministries mentioned above). The composition of the Consultation Team is stipulated in the Ministerial Decree of Home Affairs No. 100.0576, 7 February 2007. 2 The DPOD – Regional Autonomy Advisory Board - advises the President and others on policy related issues such as (a) establishment, abolition, and proliferation/merger of regions; (b) fiscal ballance between central and sub national governments covering:1) calculation of tax sharing and natural resources for each region based on rules and regulations; 2) approval for DAU-block grant formula and calculation of allocation for each region based on the ceiling of DAU defined by rules and regulations; 3) DAK-specific annual grant allocation for each region based on DAK ceiling using criteria as defined in rules and regulations; (c) assessment of capacity of provinces, kabupaten, and kota to implement government functions. The Board is chaired by the Ministry of Home Affairs. The organizational structure, membership and procedures are regulated in Presidential Decree No. 28/2005.

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Plan (RKP) for 2010, adopted by Presidential Regulation No. 21/2009, requires MSS formulation in four sectors and implementation of two of those in 33 provinces. It also contains a clause recognizing the need for sub national government capacity development for MSS implementation. 7. The Government agenda for improved service delivery is further underlined in the draft National Development Mid Term Plan (RPJM) 2010-2014. Under the section entitled, Improvement of the Quality of Public Services, the draft RPJM clearly defines activities for MSS development and implementation i.e.: Draft RPJM 2010-2014 Sector: Improvement of the Quality of Public Services • Facilitation for accelerating MSS formulation by relevant ministries related to the obligatory functions • Socialisation of MSS Facilitation in the implementation of MSS • Development of financing and budgeting schemes to accommodate MSS implementation • Development of incentive/disincentive system to promote MSS implementation in the regions • Provision of technical guidance to the regions on MSS implementation • Improvement of capacity of sub national governments for MSS implementation • Monitoring and evaluation of MSS implementation 8. Donor Support: Several donor-supported projects were involved in the preliminary stages of design of MSS policies and MSS formulation. GTZ-SfDM was among the first of these. Donors involved in supporting MoHA in developing MSS and its model building exercise3 were USAID-Perform, World Bank-Dutch Trust Fund, USAID-MSH and ADB-Basic Education. The latter two helped the Ministry of Health and Ministry of National Education. 9. Revisions to the Law on Regional Government led to changes in existing MSS and suggested a need for continuing support from donors. Among others, GTZ-ASSD continues to support MoHA in its work on MSS formulation in several sectors. DSF – in cooperation with GTZ – helped the Ministry of Health with costing of MSS, using case studies of NTT and Yogyakarta. An ADB project continues to provide support to MoE; UNICEF supports the Ministry of Women Empowerment; CIDA supports a project in South Sulawesi that includes an MSS component; while the DSF is helping the MoHA and the Ministry of Health to develop a MSS costing manual.

3

SfDM Report 2005-1, March 2005, on Providing Policy Advise for Indoensian Decentralization: The case of the Model Building Exercise (MBE) for the Development of Obligatory Functions and Minimum Service Standards. Prepared by Gabriele Ferrazzi.

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10. International Experience: Minimum standards, defined in terms of physical or financial inputs or the production of certain outputs, have been and continue to be the most common specification of minimum standards. The use of minimum standards, expenditure needs (sometimes referred to as expenditure norms), and budgetary norms is important in the formulation of budgets and in the establishment of transfer and grant formulae. Minimum standards are also of interest because central government agencies often use them in an attempt to control expenditure policies of sub-national governments or to make sure that certain national expenditure priorities are preserved at the local level. 11. Examples of some international practices are set out below. 12. The United Kingdom has been an innovator in the introduction of Citizens’ Charters, with clear standards of services for clients and users and with quantitative targets for budget organizations. The National Audit Commission carries out value-for-money evaluation and expenditure programs and publishes a series of indicators of local governments’ performance. Although the emphasis is clearly on increasing local government accountability to its residents, the United Kingdom, as a unitary country, routinely asks local governments to implement standards of service delivery established by the central authorities. The local governments, however, have flexibility in determining how the standards are to be met4. 13. An example is the ‘National Minimum Standards - Fostering Services Regulations' that contains the regulations and National Minimum Standards that form the basis of the new regulatory framework for the conduct of fostering services 5. 14. The standards set are ‘minimum’, rather than ‘best possible’ practice. Minimum standards do not mean standardization of provision. The standards are designed to be applicable to the wide variety of different types of fostering services providers, and to enable rather than prevent individual providers to develop their own particular ethos and approach to care for children with different needs. 15. Although the standards are issued for use by the National Care Standards Commission (NCSC) in regulating fostering services providers, they also have other important practical uses. They may be used by providers and staff in self-assessment of their services; they provide a basis for the induction and training of staff; they can be used by parents, children and young people as a guide to what they should expect a fostering service to provide and to do; and they can provide guidance on what is required when setting up a fostering service. 16. The Canadian system for measuring expenditure norms is very simple (Clark 1997). The central government bases one of its transfers (for education and health) to provincial 4

Georgia State University, International Studies Program, Working Paper 02-15 On the Use of Budgetary Norms as a Tool for Fiscal Management, James Alm, Jorge Martinez-Mazquez, May 2002 5 Department of Health, National Minimum Standards for Fostering Services, 2002

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governments on an equal per capita assessment of needs, with additional requirements that the provinces follow some guidelines on accessibility and standards. The result is a practical process in which management and control are better handled and transparency goals are easier to achieve6. 17. The use of minimum standards is quite common between the intermediate level of government, the provinces, and local governments. Often the minimum standards are associated with categorical or conditional grants. The Canadian constitution gives the provinces complete discretion in the management of affairs with their local governments. This power is used to issue mandates and standards for important public services, such as health and education. 18. In India a number of agencies and expert groups and committees have provided a range of options for physical as well as financial standards of basic infrastructure and services. 19. In the case of five basic services – water supply, sewerage/sanitation, solid waste disposal, primary education and primary health - different agencies have adopted different methods or technological options for the estimation of urban infrastructure needs, norms and standards and cost estimates. 20. Besides, adopting different technological options and methods, most of the technical agencies / study groups or committees have used different sources of data and reference years for developing standards and norms for various urban services. This has led to large variations in service standards, both in physical and financial terms. 21. The question as to what levels of services ought to be provided and maintained in different urban areas has been debated at various forums. Some of the committees or agencies have proposed norms that represent the most desirable levels of services, rather than the levels that would be within the means of the local bodies or service delivery agencies. Very few local bodies would be able to attain the standards of services as suggested by the Zakaria Committee on Augmentation of Financial Resources of Urban Local Bodies or the Committee on Plan Projects for Industrial Townships. This required development of a new set of norms for the urban basic services that could be used as a minimum level of services, which should be maintained by all urban local bodies in the country. The Working Group on Expenditure Norms, (1995) made an attempt to suggest minimum physical standards of services, which ought to be attained by each local body in the near future. 22. Although the proposed standards were labeled as ‘minimum’, clearly some cities in India, and many settlements (especially low-income clusters) are likely to be far below this level. In such cases, state finance commissions looked into the matter and suggested a time 6

Georgia State University, International Studies Program, Working Paper 02-15 On the Use of Budgetary Norms as a Tool for Fiscal Management, James Alm, Jorge Martinez-Mazquez, May 2002

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frame within which each settlement should achieve the target and make the necessary recommendations to enable the local bodies/service delivery agencies concerned to reach the target and introduce the concept of equity in the delivery of basic urban services to their residents 7. 23. To support the costing and implementation on minimum service standards and thus ensure improved and equitable level of basic public service delivery throughout the country the Ministry of Home Affairs has requested DSF assistance as set out below.

Goal and Objectives 24. With a view to improving the accessibility and quality of basic public services in the regions and at the national level, the goal of this activity is to support the implementation of minimum service standards by building government capacity to cost and implement MSS in the regions. 25. The objectives of this activity are to: a. Strengthen MoHA capacity to work with other ministries to cost MSS for selected sectors b. Improve central and provincial government support to kabupaten/kota for MSS implementation c. Develop local government capacity for implementing MSS for selected sectors d. Analyse factors underlying the successful implementation of MSS and possible relationships with the achievement of the MDGs

Scope of Services and Sub Activities 26. In pursuit of the above, the following activities and sub activities will be undertaken: I. Strengthen MoHA capacity to work with other ministries to cost MSS for selected sectors. •

Evaluation of the status of MSS formulation, implementation and costing in all sectors.

27. This sub activity will assess progress in relation to the formulation of MSS for all sectors, as well as the status of MSS implementation and costing. 28. A comprehensive report will be written that contains: a. A complete list of drafted, officially ratified and implemented MSS; indicators and accomplishment dates b. A discussion of bottlenecks in the process c. Recommendations for remedial measures/actions d. A thorough discussion of the status of MSS implementation and costing e. A report on the availability and suitability of technical guidelines for costing MSS 7

Norms and Standards of Municipal Basic Services in India, Dr. M.P. Mathur, Dr. Rajesh Chandra, Dr. Satpal Singh, Dr. Basudha Chattopadhyay

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Costing of MSS: Instrument testing using local data

29. Before attending to the costing exercise, it is important to consider the adequacy of policies; distribution of roles and authorities among the levels of government; and norms, standards, procedures and criteria set for the selected functions/services. After completion of such a review the following steps shall be performed: a. Review draft MSS and already issued MSS for the selected services; b. Examine the extent to which the service indicators and time lines allocated for MSS achievement by the central government are reasonable and affordable for implementation by local governments; c. Revisit MSS if needed; d. Calculate costs for the achievement of MSS. For costing purposes national data will be used. If national data are not available, data from representative local governments will be utilized to estimate financial resources required for the provision of services. •

Produce an MSS costing manual for local governments

30. An instrument to be used for costing of MSS will be revised based on pilot costing of MSS in selected local governments. This instrument will be published in a manual, approved by ministerial decree and provided to local governments as an official basis for costing MSS implementation within targets set. II. Improve central and provincial government support to kabupaten/kota for MSS implementation. •

Distribute and ‘socialize’ the manual on MSS costing for selected sectors

31. This sub activity will inform the regions of the availability of a manual, provided by the government, the purpose of which is to help them with the costing of MSS implementation. The manual will be self-explanatory, but the socialization will help users to understand better the costing techniques. 32. Distribution and socialization of the manual on MSS costing will be carried out by relevant departments and supported by the Ministry of Home Affairs as well as the implementing agency. This support will ensure the efficiency and effectiveness of distribution and socialization. 33. Central to this process will be a series of workshops that will be conducted in selected cities with regional representation. Additionally, in-depth practical workshops will be conducted for selected kabupaten/kota to show how the manual can be used to calculate the resources required for the delivery of a service. Actual data from kabupaten/kota will be used for this exercise. 34. In view of the important role of the province in monitoring and evaluation of MSS implementation by kabupaten/kota, provincial staff will also attend the workshops.

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Monitor MSS implementation

35. Monitoring of the implementation of MSS costing will be conducted through visits to a number of selected local governments that have implemented MSS and done costing using guidelines stated in the manual. The monitoring will be conducted to identify challenges, as well as innovative practices applied by the local governments while implementing and costing MSS. Based on the findings of monitoring site visits the manual on costing MSS may be revised accordingly, and the performance of Kabupaten/Kota with regard to the implementation of MSS will be evaluated. 36. In addition, with the technical assistance of the implementing agency, selected provinces will review current mechanisms for monitoring and evaluation and, based on this review, design an effective means for monitoring and evaluating the implementation of MSS in their regions. 37. In addition to the monitoring and evaluation conducted by the provinces, the Directorate General for Regional Autonomy, Ministry of Home Affairs, supported by the implementing agency and the DSF Executive, will perform monitoring and evaluation. • Develop a strategy for rewarding kabupaten/kota that have demonstrated consistent

and exceptional results in MSS implementation. • Examine the relationship between the implementation of MSS and the attainment of the

MDGs 38. This study will be conducted in pilot local governments by the implementing agency and will commence immediately after the launch of the activity. Interim results of the analyses will supply input to the activities and sub activities and the final report will serve as a resource paper and guidance for the government in its formulation, implementation and costing of MSS. 39. The study will include, but not necessarily be restricted to, the following: a. Analysis of local planning documents for at least the last five years and examination of the types of activities that support MSS and MDG achievement b. Analysis of local budgets for the last three to five years (e.g., APBD) to identify expenditures earmarked for MSS and MDG achievement c. Consideration of the pattern of MSS and MDG achievement from a local planning and spending perspective d. Analysis of the role of governor/province in MSS implementation by kabupaten/kota, including consideration of the perceptions of various stakeholders • Develop the capacity of central and sub-national government personnel

40. Conduct workshops and seminars on MSS. Through workshops, seminars - knowledge and experience sharing forums conducted in cooperation with other donors– participants will learn how to provide citizens with access to basic public services, and how gradually and

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consistently to improve the quality of the basic public services. International experts and competent practitioners will be invited to the workshops and seminars to share their knowledge and experience. 41. Organize a study visit to a developing country. A study visit will be organized to a developing country that is considered ‘progressive’ in the formulation, implementation and costing of MSS; and has provided for an equitable and uniform level of service delivery across the country, and improved access to basic public services. III. Develop local government capacity for implementing MSS for selected sectors 8 42. The activity will assist selected local governments to improve their implementation of MSS. 43. The proposed sub activities are: • “Self Assessment” of MSS implementation and achievement in selected sectors by a

sample of local governments 44. Sectors selected for this particular sub activity will be those that already have adopted MSS, and have MSS costing manuals. One of the selected sectors will be the health sector, where DSF has provided support in costing of MSS and development of an MSS costing manual. 45. Self assessments should benefit from local knowledge and awareness of the local context and this in turn should make for better-informed judgments about feasible levels of performance, the quality of services provided, and local capacity to do better. 46. A self assessment tool will be developed by the implementing agent that will help local governments to develop a clearer understanding of their strengths and weaknesses and the challenges and opportunities they face in implementing MSS. It should also help them to identify steps that need to be taken to address weaknesses and improve the quality and timeliness of service delivery. 47. The self assessment of implementation and achievement of MSS in certain sectors will concentrate on: a. Data availability and quality for MSS indicators; b. Achievement of MSS current indicators; c. Integration of MSS indicators into planning documents and assessment of the activities stated in the planning and budgeting documents that support the achievement of MSS; d. Analysis of planned and actual spending on MSS implementation; e. Analysis of the organizational capacity (organizational structure of service unit and personnel) of each sector. 8

To date, three sectors have been selected for capacity building on MSS implementation in the regions. The sectors are health, women’s empowerment and environment. These selections might change due to the status of MSS formulation.

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• Costing (the new) MSS

48. With the technical assistance of a team of consultants, selected local governments will cost their achievement of MSS in selected sectors. The costing process will be guided by a manual developed and published by the respective ministry. • Setting MSS targets and budgets

49. Once MSS costing has been done, local governments will then determine annual budgetary requirements for the achievement of MSS targets. The annual targets are set, taking into account a region’s capacity and potential, as well as historical records of APBD for the respective sectors and types of services. The cost of each target will be calculated by local governments in line with the instructions stated in the manual. • Integrating MSS Targets into Planning and Budgeting Documents

50. MSS targets shall be integrated into planning and budgeting documents. Ideally, MSS targets should be reflected in local mid-term development plan (RPJMD), strategic plan of local working unit (Renstra SKPD), local government annual plan (RKPD) and annual budget of the local government working unit (RKA SKPD); it should clearly illustrate the activities to be put into plan, to be financed, and therefore to be implemented. Integration of MSS achievement target needs to be adjusted with local planning and budgeting cycle. Location of Activities 51. Activity II and II will be located and piloted in 6 provinces and 10 kabupaten and 6 kota, namely: a. Kepulauan Riau Province and Kabupaten Bintan b. Yogyakarta Province and the entire Kabupaten/Kota within it, Kabupaten Sleman, Kabupaten Bantul, Kabupaten Gunung Kidul, Kabupaten Kulon Progo and Kota Yogyakarta c. West Kalimantan Province, Kabupaten Sanggau and Kota Pontianak d. North Sumatra Province, Kabupaten Serdang Bedagai and Kota Sibolga e. Banten province, Kabupaten Tangerang and Kota Tangerang f. West Nusa Tenggara Province, Kabupaten Lombok Timur and Kota Mataram

Deliverables 52. Results or products to be delivered are as follow: No. 1 2

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Deliverables Part I. Report on the status of MSS formulation, implementation and costing in all sectors Tested instrument for costing MSS in women’s empowerment and child protection sectors and actual costings of MSS using data from selected local governments

Date January–May 2010 May 2010 May 2010


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No. 3

1 2

3 4 5

6 7 8 9 10 11 12

13 14 15

16 17 18 19 20 21 22

Deliverables Report on piloting the manual for costing of MSS implementation in the health sector Part II. Inception Report Matrix on project monitoring and evaluation Strengthen MoHA capacity to assist other ministries with the costing of MSS Instrument for costing of MSS Report on pilot costing of MSS in selected local governments Manual for costing MSS Capacity Development for MoHA, other relevant departments and provinces on facilitating, monitoring and evaluating MSS implementation in Kabupaten/Kota A plan for the dissemination and socialization of the Manual Report on findings of monitoring site visits Draft tool for monitoring and evaluation of MSS implementation by kabupaten/kota Draft strategy paper on incentive mechanisms for rewarding MSS implementation Report on MSS and possible relationships with MDG achievement Workshop and seminar materials, handouts Report on international study visit Capacity Development for Pilot Local Governments in Implementing MSS in Selected Sectors Self assessment tool Report on self assessment for MSS implementation in selected sectors Result from costing of (new) MSS achievement and annual targeting of MSS achievement in selected sectors in pilot local governments Local planning and budgeting document that encompasses MSS targets Project monitoring and evaluation report Monthly brief reports Quarterly project reports Mid-term report Final report Policy brief

Date May 2010 May 2010–June 2011 April 2010 May 2010

July 2010 September 2010 SeptemberDecember 2010

June 2010 February 2011 June-December 2010 January 2011 June-December 2010 January 2010-March 2011 September 2010 April 2010-March 2011 May 2010 July 2010 August 2010

July 2010 and January 2011 March 2011

October 2010 March 2011 March 2011

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Sustainability 53. Several elements of the activity will ensure sustainability. They are as follows: • Documented MSS review and costing processes will help to institutionalize these systems and capabilities in the ministries. • The MSS costing manual endorsed by respective ministerial regulations will provide guidance to SNG countrywide and serve as a model for replication by other sectorial ministries. • Capacity built through this activity among all levels of government on MSS formulation, implementation and costing will be applied in new sectors thus ensuring sustainability. • Evaluation and comprehensive study on MSS achievement will produce analyses on data availability and quality, and institutional capacity, and will provide valuable input for institutional improvement (organizational structure of service unit and personnel), data systems, and planning and budgeting processes.

Gender 54. It is incumbent on implementing agencies to consider carefully the gender ramifications of the work that they do, and to demonstrate in their work plans how they will do this and in their reports what progress is being made. One way of ensuring that more than merely the form of gender sensitivity is observed (as happens in so much development assistance) is to consider the question in terms of relative distributions of power and influence between men and women, and the way in which access to services – such as health and education – can distort the social construction of such power and influence. To help with making gender central to the projects it supports, the DSF Executive can provide access to recent publications on gender and, in some instances, to relevant expertise within the Bank. 55. While reviewing policies, norm, procedures and MSS for selected sectors and/or services, specific problems of concern to women will be identified to provide adequate access and acceptable service and outcomes in service delivery processes. 56. In selection of services for MSS formulation, implementation and costing, issues of gender need to be taken into account. The implementing agency will be required to demonstrate how this will be done from the start of the project implementation.

Project Management, Implementation, and Execution 57. The execution of the activity is likely to involve a combination of GOI and WB execution. 58. The effectiveness of this activity rests heavily on how well the selection of individuals and firms is done and on the quality of the documentation and briefings concerning what is required of implementing agents and short term consultants. Thus, it is imperative to employ the most qualified and experienced individuals and firms to implement the projects we finance; to provide them with clear objectives and guidelines concerning the work that needs to be done; and to be available to help wherever it is requested.

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59. The major part of the allocated funds for the program will be transferred to GOI through a Grant Agreement. Since the activity is government executed, management of funds will follow GOI regulations. MoHA will adhere to World Bank procedures for Recipient Executed programs. A small part of the funds will be managed by the World Bank for the recruitment of short term consultant services for the implementation of Part I activities and sub activities (see Deliverables). 60. MoHA is expected to provide counterpart funding for aspects of the project not covered by the trust fund.

Implementing Institution 61. For the implementation of Part I activities and sub activities, a number of short-term consultants will be selected and contracted using World Bank recruitment procedures. 62. For the implementation of remaining activities and sub activities, the procurement of and contracting with the implementing agencies will be done by GOI using GOI procurement systems (Keppres 80/2003) and in compliance with World Bank regulations. Due to the complexity of the activity and time limitations, the implementing agency could be a consortium of universities/research institutes at the national and local level in combination with short term consultants. The consultants and implementing agencies will perform the activity according to the terms of reference and submit deliverables to MoHA and the World Bank (DSF Executive). 63. Based on this ACN, MoHA and the DSF Executive will jointly prepare terms of reference for consultants/implementing agency and will jointly monitor and evaluate the implementation of the activity. Short Term Consultants 64. Consultants with the following qualifications will be required: • Public finance consultant: this position will require candidates with: (1) extensive experience of designing and testing costing instruments for public services, preferably in Indonesia; and (2) profound understanding of data quality and collection issues in the regions, especially those connected with women’s empowerment and child protection. • Local planning and budgeting consultant: this position will require candidates with excellent knowledge and experience of minimum service standards, and extensive experience of legal framework formulation (especially in relation to functional assignments and their implications for local government). • Public policy and public services consultant: this position will require experience of assessing government policy and legal frameworks associated with relevant aspects of decentralization, functional assignments, service delivery, and the harmonization of policies among sectors.

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• Decentralization and local autonomy consultants: this position will require extensive

practical experience of decentralization in Indonesia, either as a consultant or government official, and particularly service functions and minimum service standards. • Monitoring and evaluation specialist: this position will require at least five years of experience of conducting assessments of government policies and regulations enforced by local governments, especially in the area of basic public service delivery. • Experts in information system electronic design: Extensive experience of software design and programming. 65. The consultants should have also the following qualifications: minimum S2 degree and a good understanding of governance and public service management, especially in relation to minimum service standards; the ability to work independently; experience of performing similar types of work with government institutions; and the ability to write good quality reports in both Bahasa Indonesia and English. All consultants will be required to work closely with MoHA and sectoral ministries. 66. Six consultants will be contracted for up to five months. Implementing Agency 67. The implementing agency(s) should have the following qualifications: • In-depth knowledge of decentralization, including assignment of government functions, allocation of authority and responsibility for service delivery across levels of government, and establishment of minimum service standards in Indonesia. • Expertise in and experience of monitoring and evaluation, especially in relation to government functions, authority and responsibility, regulatory frameworks on service delivery, and preparation of manuals on financing or costing. • A strong network of contacts within relevant ministries together with substantial experience of working in selected sectors such as health, women’s empowerment and child protection, social, public housing, and home affairs. • Extensive experience of capacity development for central and sub national government and profound knowledge of public service delivery. • Skills and experience necessary for effective working with local independent institutions as a field facilitator. • Ability to deliver results within the given timeframe and responsiveness to changing demands from a variety of partners. • Ability to bring to bear on the issues at hand the latest and best comparative thinking and evidence and to demonstrate clearly in recommendations made or options presented that they are so informed. 68. Person specifications required for key positions within the implementing agency are as follows: • Project leader: a. At least a Master degree in a relevant subject

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ACTIVITY CONCEPT NOTES # 14 | ARRISING FROM THE DSF WORK PLAN 2009-2011

• •

b. Substantial project management experience, preferably dealing with decentralization or civil service reform c. Excellent oral and written communication and presentation skills d. Some understanding central-regional relationships, particularly as these pertain to functional assignments e. Some experience of working with ‘line’ or technical ministries Decentralization experts: this position will require extensive practical experience of decentralization in Indonesia and particularly service functions and minimum service standards. Public policy and public services expert: this position will require experience of assessing government policy and legal frameworks associated with relevant aspects of decentralization, functional assignments, service delivery, and the harmonization of policies among sectors. Public Finance Specialist: this position will require candidates with: (1) extensive experience of designing and testing costing instruments for public services; and (2) profound understanding of data quality and collection issues in the regions, especially those connected with women’s empowerment and child protection. Planning Specialist: this position will require candidates with excellent knowledge and experience of minimum service standards, and extensive experience of legal framework formulation (especially in relation to functional assignments and their implications for local government). Regional Finance and Budgeting Specialist: this position will require candidates with extensive experience in assessing and developing regional financial policy documents and budgets. Short-term sectoral experts (sectors to be determined later): this position will require at least ten years of experience of advising on the formulation of regulations on minimum service standards and an excellent network of contacts within national government. Short-term public finance specialist: this position will require experience of analyzing public expenditures for financing certain local government functions and activities. Facilitators: This individual is expected to display good networking with local government institutions and substantial experience in related local government services and local government structure and personnel requirements. This should be combined with demonstrated ability to facilitate participative decision making processes. Independent monitoring and evaluation team of expert: a small team of two experts for project monitoring and evaluation will be required for impartial monitoring and evaluation and to provide feedback to DSF and MoHA on progress, development and achievement of deliverables, objectives and goal. The experts should have experience working with donor agencies.

69. More detailed requirement for all experts will be set out in separate TOR.

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ACTIVITY CONCEPT NOTES # 14 | ARRISING FROM THE DSF WORK PLAN 2009-2011

Procurement and Implementation Schedule 70. The indicative procurement and implementation schedule of this activity is as follow: Period October-November 2009 November-December 2009 January 2010 January-May 2010 January-May 2010 January-May 2010

April 2010 May 2010 June 2010-March 2011 June 2010-March 2011

July 2010-March 2011

January 2010 – March 2011 February 2010 onward July 2010 onward October 2010 March 2011 March 2011

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Description ACN approval by DSF MC. Grant agreement process and fund transfer. Recruitment of independent (individual) consultants. Draft a status report on MSS formulation, costing and implementation in all sectors Simulation result for costing of MSS for women empowerment and child protection Piloting the manual for costing of MSS achievement on health sector according to Permenkes 317/2009 in one of the selected province/kabupaten/kota Inception report Formulation of matrix for monitoring and evaluation a. Strengthen MoHA capacity in facilitating other ministries in costing of MSS b. Capacity Development for MoHA, other relevant ministries as well as province in facilitating, monitoring and evaluating MSS implementation in Kabupaten/Kota c. Capacity Development for Pilot Local Governments in Implementing MSS in Selected Sectors Brief monthly report Quarterly Report Mid-term Report Final Report Policy Brief


ACTIVITY CONCEPT NOTES # 14 | ARRISING FROM THE DSF WORK PLAN 2009-2011

Attachment

STATUS OF MINIMUM SERVICE STANDARDS (MSS) No 1.

Sector Health

MSS Status

Legal Products

• Formalized and issued

• Ministerial Regulation No. 741/MENKES/PER/VII/2008 on Minimum Service Standards in Health Sector • Ministerial Regulation No. 828/MENKES/SK/IX/2008 on Technical Guidance on Minimum Service Standards in Health for Kabupaten/Kota • Ministerial Regulation No. 317/2009 on Technical Guidance on Financing Plan for Achievement of Minimum Service Standards in Health Sector • Ministerial Regulation No. 19/2008 on Minimum Service Standards in Environmental Sector • Ministerial Regulation No. 20/2008 on Technical Guidance on Minimum Service Standards in Environmental Sector for Province and Kabupaten/Kota • Draft manual on MSS for environmental sector

2.

Environment

• MSS for province and kabupaten/kota formalized and issued

3.

Home Affairs

• Formalized and issued. It is being revised

Ministerial Regulation No. 62/2008 on Minimum Service Standards of Home Affairs in Kabupaten/Kota

4.

Social

• MSS for province and kabupaten/kota formalized and issued

Ministerial regulation No. 129/HUK/2008 on Minimum Service Standards (MSS) in Social Sector for Province and Kabupaten/Kota

5.

Public Housing

• Formalized and issued

Ministerial Regulation No. 22/PERMEN/M/2008 on Minimum Service Standards on Public Housing for Province and Kabupaten/Kota

6.

Women’s Empowerment

• Formalized and issued

• Ministerial Regulation No. 5, 2008 on Minimum Service Standards for Integrated Service Centre for Witnesses and/or Victims of Human Trafficking in Kabupaten/Kota

• Draft MSS discussed by Consultation Team. Subsequent discussion at the next DPOD meeting

• Draft MSS on Women Empowerment and Children Protection for Integrated Services for Women and Children Harassed

7.

Family Planning (BKKBN)

Draft MSS discussed by Consultation Team. Subsequent discussion at the next DPOD meeting Draft MSS discussed by Consultation Team. Subsequent discussion at the next DPOD meeting

8.

National Education

9.

Food Security

Being formulated

10. 11. 12. 13.

Manpower Public Works Communication Culture

Being formulated Being formulated Being formulated Not formulated yet

Source: Sub Directorate for MSS Facilitation, Directorate of Capacity Building and Local Government Performance Evaluation, Directorate General of Regional Autonomy, MoHA, as of 9 October 2009.

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ACTIVITY CONCEPT NOTES # 14 | ARRISING FROM THE DSF WORK PLAN 2009-2011

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ACN Complilation  

Compilation of DSF Activity Concept Notes (ACN)

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