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2007 IRSA 1st International Seminar on: “Sustainable regional development: the role of infrastructure in achieving Millennium Development Goals�

Ashari Cahyo Edi and Laila Kholid Alfirdaus

[ Governance reform in infrastructure policy for poverty reduction ] 1-3 November, Bandung, Indonesia

Governance reform in infrastructure policy for poverty reduction1 Ashari Cahyo Edi2 Laila Kholid Alfirdaus3

Abstract Infrastructure is critical for poverty reduction because it enables the poor to get involved in economic activity. However, to what extent is the infrastructure effective to poverty reduction is often less clear rather than striking. In Indonesian context, infrastructure policy is identical with corruption, bureaucratic and elitist for lack of accountability, transparency and community engagement. Although we recognize the output, we tend to doubt the outcome. Therefore, there is a need for reform in infrastructure policy. For this purpose, governance reform that empowers government’s institution and encourages wider involvement of non-government parties, particularly local community, is crucial. Two successful cases in Purbalingga regency and Nusa Tenggara Provinces, illuminating state’s responsiveness and innovative participation, are presented as a portrait of reform.

Key word: infrastructure, poverty reduction, governance reform, state responsiveness, innovative participation.

Introduction The Asian Development Bank (2003) and the World Bank (2007) asserts that infrastructure has increased certain level of growth, and thus reduces certain level of poverty in developing countries such as the Philippine, Indonesia, and Vietnam. However, some people concerned with the social development, such NGOs’ activists, argue that infrastructure development for many decades has been identical with inefficiency, having unclear target, and being corrupt. There is a problem of lacking citizen’s involvement and partnership within the infrastructure development. Therefore, there is a need for governance reform focusing on institutions building. The reform includes some critical points such as empowering government, re-structuring budgetary policy and empowering stakeholders in order to have voice in infrastructure policies. To some extent, empowerment not only focuses on community, but also on government institution in order to have capabilities in asserting the initiatives of pro poor infrastructure. The cases of Purbalingga regency and Nusa Tenggara Provinces are referred as


Paper presented in IRSA 1st International Seminar on “Sustainable regional development: the role of infrastructure in achieving Millennium Development Goals”, 1-3 November, Bandung. 2 Ashari Cahyo Edi is a researcher at the Institute for Research and Empowerment (IRE) Yogyakarta. Email: 3 Laila Kholid Alfirdaus is a staff in Government Department, FISIP Diponegoro University, Semarang and Master Student at Policy and Governance Department, Crawford School of Economics and Government, the Australian National University, Canberra, Australia. Email:


an example in which the government and society is successful in exerting pro-poor infrastructure initiatives through cheap settlement and participatory budgeting. This paper emphasizes the crucial need for governance reform to make infrastructure effective for poverty reduction. The first part of this paper argues the theoretical basis of the linkage between infrastructure and poverty reduction, followed by the significance of governance and how this is linked to the infrastructure’s effectiveness on poverty reduction. The next part presents some constraints in achieving infrastructure’s effectiveness, including corruption, mistargeting spending and lack of community engagement in planning –in the village, sub-district, and district level-, budgeting, implementation, monitoring and evaluation. Focus is also on democratic deficit within infrastructure policy, where citizen’s involvement is only camouflage. In last part, this paper asserts alternatives for tackling the problem of governance’s stagnancy in infrastructure policy. Co-governance which emphasizes the equal role between the government and society in infrastructure is the key. The significance of cogovernance gains its right moment with the greater supports of the NGOs for the greater spaces of public involvement.

Looking at a glance: infrastructure, poverty reduction and governance Many people argue that infrastructure has an important role for poverty reduction (Lanjouw, 1995, p. 33). It is because infrastructure has a socio-economic value that eases the poor accessing to public facilities and undergoing economic facilities. Better road enables the poor to have wider social interaction and economic interrelationship and transaction. Better school buildings enable the children in poor areas to study safely. Better housing let the poor to live healthy. Better electricity and irrigation is beneficial for employment creation and improving agriculture, and so forth. Relating to this, a study conducted by Balisacan, Pernia and Asra in 2002 (Ali and Pernia, 2003, p. 5) found that road development, irrigation and electricity in Indonesia has a significant effect in increasing incomes of the poor, indicating the 0, 05 elasticity level – means that infrastructure improves the poor’s income until about 5%. For them, infrastructure has a multiplier effect on farm and non-farm sector. In short, it is hard to ignore that infrastructure is important for life and alleviating poverty for having impact on increasing income directly and improving economic growth indirectly (Ali and Pernia, 2003, p. 4) Although the impact of infrastructure on poverty reduction is apparent, it does not mean that there are no shortcomings. Mostly, the approaches used in infrastructure policy are traditional (Lanjouw, 1995, p. 33), bureaucratic and top-down. The government sets the policy, implements it and done! There is no clear assertion of the poor’s involvement as though they 3

are the main beneficiaries of the policy. This has failed infrastructure to answer the real needs of the poor. The problem of approaches in infrastructure policy thus triggers the questions of its effectiveness. Accountability and transparency have often been ignored. Involvement of community has also been scarce. Infrastructure becomes identical with corruption and bureaucratic. As Kenny (2007, pp. 1-32) argues, there is a weak assertion of governance, causing less relevant effects of infrastructure on poverty reduction and thus there is a further need for a paradigm shift. For this reason, the assertion of governance reform of infrastructure is worth noting (p. 4). As infrastructure is about delivering services, empowering government and society are unavoidably needed. Good enough governance does not necessarily means replacing government’s functions with private sector – although to some extent market is still needed-, but more importantly it means improving government’s capacity to regulate and to be accountable (Grindle, 2004, p. 526) thus they can facilitate development initiatives. Effective development including infrastructure programs need balance role and functioning government and social institution.

Some constrains of achieving infrastructure’s effectiveness on poverty reduction Relating to the Indonesian context, problems of infrastructure’s effectiveness on poverty reduction also deals with weak governance, including corruption, less government initiatives and budgetary management, and limited access for the poor to infrastructure policy. Relating to corruption, as Kenny (2007, p. 5) argues, infrastructure development often suffers from theft of materials and outputs causing heavier burdens of economic cost of corruption. Referring to Olken’s findings (2004), Kenny (2007, p. 5) asserts that an audit on physical road building, conducted under the oversight of village heads in Indonesia unfolds ‘missing materials’ worth about 24 percent of total spending. Another problem of infrastructure deals with mistargeted spending. Kenny exemplifies the Indonesian’s case in 1990-2000 where the central government allocates a grant of about 47 percent for road maintenance but by the end of the decade the grant has dropped to approximately 15 percent (p. 5). He suggests anecdotal evidence, connecting the fall of maintenance expenditure with greater opportunities for rent-seeking in new construction. In addition, a research of the Partnership for Governance Reform in Indonesia found that up to 5 percent of households income was used to pay bribe to public officials and 35 percent of business enterprises reported that they had not made new investment for higher cost of corruption (Sumarto, Suryahadi, and Arifianto, 2004, p. 9).


Problem of infrastructure is not only due to corruption and rent-seeking but also to the limited access for the poor. As a matter of fact, the meaning of infrastructure would only be relevant if it is affordable by the poor. However, often, the poor lack access to infrastructure facilities for the high cost they have to pay. Therefore, infrastructure fails to answer the real need of the poor, particularly in rural areas. As Briceño-Garmendia, Estache, and Shafik (2004, p. 12) argues, the poor in rural areas has 30 percent less ability to afford infrastructure for relatively lower income compared to urban populace. This problem becomes more severe because of socio-economic disparity, triggering social and political tensions (Balisacan, et. al, 2003, p. 330) for geographical constrains and ethnic issues, particularly those that deal with Java and off-Java, urban and rural, and indigenous and new comers issue. In addition, efforts for achieving infrastructure’s effectiveness also face a problem of participation. As Putzel (2004, p. 1) argues, the critical inquiry of effective development for poverty reduction is not a mere of ‘the participation of the poor’ but also ‘pro-poor participation’. He addresses initiatives and motives as a point for differentiating between the two terms. ‘Pro-poor participation’ clearly asserts the poor as the main beneficiaries of participation while the participation of the poor implies the doubt of participation’s impact on the poor for, for instance, the possibility of elite mobilization and political action (p. 1-2). This also has been apparent in Indonesia’s infrastructure context. The poor lacks access to policy-making in infrastructure. They also have very limited opportunity to be informed the budgetary management of infrastructure program. In addition, they are scarcely involved in planning, implementation and evaluation. Democratic deficit also illuminates the camouflage of participation. This occurs when it seems that in the surface people have representatives and spaces to speak. However, in practices representative mechanism is stagnant and spaces for delivering their aspiration are never accounted as important parts of decision making. This, indeed, does not mean to ignore Dasgupta and Beard’s findings (2007, pp. 229-249) asserting that not all elite capture in Indonesia is corrupt as in many cases elite has more ability to direct the program to be more pro-poor. However, we also cannot ignore that problem of the poor engagement in infrastructure is also apparent and wide spreading.

Governance reform: state’s responsiveness and innovative participation To tackle the problem of infrastructure, including corruption, mistargeted spending and limited the poor engagement, there is a crucial need for reforming governance. The need for governance reform gains its deeper relevance due to the fact that poverty is a multidimensional concept and is not limited to solely an economic matter (Sumarto, Suryahadi, and Arifianto, 2004, p. 4). Therefore, functioning governance is the key to make 5

infrastructure effective for poverty reduction. This paper emphasizes two important points for reforming governance: state’s responsiveness and innovative participation. These points assert the balance role between government and society, combining approaches of development from the top and bottom direction. Gaventa coins this as co-governance (2006, p. 23). Dealing with this, embodying capacity improvement to both institutions is unavoidably needed. State’s responsiveness asserts development initiatives from above – government-. As World Development Report 1994 ‘Infrastructure for development’ asserts, the policy makers need to concern the improvement of infrastructure responsiveness on users’ needs, strengthening incentives for infrastructure providers (public and private) for delivering the services of infrastructure at a cheap cost, and ensuring that the government holds the capacity to regulate and facilitate strategic plan long-term success (Lanjouw, 1995, p. 33). In addition, state’s responsiveness illuminates the consideration of social and environmental impacts of infrastructure policy. This clarifies government’s awareness of the context and circumstances in undergoing development. The accurate estimation of cost and benefit accounted not only from economic perspective but also social and political is worth noting. Consideration of whether the infrastructure facilities are affordable by the poor is also valuable in order to ensure that the programs do not lose its significance and relevance. However, there is sometimes a skeptic argument asserting that the problem is often not in the lack of government initiatives, but it lays on the limitation of government’s budget. Given the budget constrains the state-led infrastructure development, as Lanjouw argues (1995, p. 35), public resources should be devoted to sectors where they achieve the greatest distributional impacts. Fan (2004, p. 1) also adds that it is impossible to reach the MDGs without involving public investment and resources. Mobilizing social capital as energy for undergoing the program is worthy effort to tackle the problem of limited government budget. Gameinschaft as a common character of Indonesians asserting the community’s capacity to cooperate and help each other can be used to reduce the cost of development process (Fukuyama, 2001, p. 10). For this purpose, effective leadership is, indeed, needed. Empowering the audit system is another alternative to strengthen government institution. As infrastructure programs often deal with a huge amount of spending public money, scrutinizing, controlling and assuring that the programs meet the goals and objectives, as well as achieved the initially designed outcome, become crucial. For this reason, functioning audit institutions is unavoidable. Despite the critics of over-rigid standards, auditing is helpful and useful to improve accountability and performance. In addition, functioning ombudsmen institution and general inspectorate is as crucial as empowering audit bureau (Schneider, 1999, p. 530) to keep the infrastructure implementation on the track of public purpose. Developing 6

government institution capacity through improved accountability and performance reveals the state’s responsiveness to public needs. Second direction of the reform is from the bottom, called innovative participation. This is to ensure that infrastructure is substantially designed to answer the community’s needs as the main beneficiary of the policy. Involving people in planning and decision making enables the government to contextualize their infrastructure policy with social, political, and cultural circumstances of society. This can avoid the infrastructure projects from the problem of mistargeted spending and beneficiaries. For this purpose, spaces for public deliberation, where people can freely speak their mind with respecting the others’, resolve deep conflict and engaged in political system, through discussion and dialogue, is deeply needed. Despite enclosing infrastructure policy to the users’ needs, further, public deliberation can contribute to the strengthening of democracy (Carpini, et. al., 2004, p. 318 & 336). Another form of the poor’s engagement is through improving capacity of expenditure tracking. This is crucially needed because infrastructure services involve multiple levels of government institutions (Kenny, 2007, p. 19). The multiple level of government in delivering infrastructure services thus creates more complex challenges. Monitoring from community is needed to provide a database of information on budget allocation that is useful as inputs for government planning. Lesson from other countries, such as Australia, tells us that public access to information of contracts and amendment in infrastructure policy is good for government openness (p. 20) and thus reduces the higher cost caused by corruption. Citizen’s engagement can also be designed in the form of participatory budgeting. By participatory budgeting, as Wampler (2000) means, is that citizens are directly involved within the policy making process, enabling them to allocate resources, prioritize infrastructure for broad social policy, and monitor public spending in infrastructure programs. Besides enabling the government to satisfy the users’ needs, participatory budgeting in infrastructure policy also has a multiplier effect on promoting public deliberation, public learning, active citizenship, improved social justice and administrative reform (Avritzer, 1999, p. 34). The combination of these two aspects is expected to lead infrastructure development effective for poverty reduction. First, it directs the infrastructure policy to answer the real needs of community. Second, it takes into account social, political and cultural circumstances of the community as the main beneficiary, thus infrastructure policy becomes more contextual. Third, it asserts not only the aspect of efficiency but also effectiveness, thus it encloses the outcome achievement. Finally, it enables public learning, active citizenship and public servants’ ethic to operate. From these arguments, it is clear that empowering state is as important as empowering civil society in governance reform. 7

Successful examples: Purbalingga Regency and Nusa Tenggara Provinces Although governance reform sounds ambitious and incorpoating a big issue, this does not mean that it is impossible to achieve. This paper refers to two successful cases in Purbalingga regency and Nusa Tenggara Provinces, illuminating the possibility of initiatives from both sides, namely the top side – government- and the bottom side – society-. The two cases show us that initiative of reform can come from either government or society. It asserts that governance reform does not necessarily mean to eliminate government’s role, but it should be directed to improve both government and citizens’ capability, therefore it can contribute to the policy effectiveness of poverty reduction. First is the case of Purbalingga’s regent in initiating the policy of cheap housing for the poor, particularly in rural areas. Realizing the improper housing of the Purbalingga citizens, the Purbalingga’s regent initiates a policy called ‘a Stimulant Program for Housing Rehabilitation’ for the poor families. The aim of the program is to help the poor people to rehabilitate their houses; therefore they can stay in a house that is proper for healthy conditions, comfortable for studying for the schooling children, and nice for the family to stay. The program supposes to reconstruct more than 14.000 of the poor’s houses within seven years from 2003 to 2010. The government does not provide total money for the program, so it can avoid the creation of citizens’ dependency. Instead, the government provides assistance in the form of raw materials - as stimulation, and the rest expenses should be paid by the citizens with their own belongings. To reduce the citizens’ burden, the government encourages the ‘gotong royong’ mechanism in undergoing the rehabilitation process. To avoid the mistargeted problem, the government sets the strict rules for the village staffs in determining the recipients, assuring that the determination of targets is known by the rest of the citizens and based on their consensus. The program is successful. Until 2007, there have been more than 8,500 houses being reconstructed. The most interesting point is that the government itself has limited budget. However, the ability to mobilize social capital as a form of public resources becomes the key. This case illuminates the success of state initiative of infrastructure policy. This also addresses the importance of effective leadership in infrastructure policy. Second is the case of Nusa Tenggara in exerting participatory development programs for poverty reduction. Supported by a Germany NGO (GTZ), the program is successful in encouraging civil society engagement in participatory regional development planning and public finance (including a participatory monitoring and evaluation system; the publication and dissemination of budget information, public hearings and other means to enhance transparency; support for better legal institutionalization of participatory processes and more 8

effective control mechanisms for city councils; customer satisfaction surveys as a means to encourage the improvement of public services), capacity building for self-governance on village level,









( To ensure that the program has a positive impact on poverty reduction, the activities are combined with the measurement of direct betterment of the living conditions of the poor through strengthening self-help groups and improvement of government services toward self-help initiatives. This program promotes the bottom-up approaches to development planning, including infrastructure projects. Besides improving community’s capacity, this program affects greater public learning and deliberation for more intense dialogue between stakeholders – public and private. The shortcomings of both the programs are, indeed, still found. In the first case, there is a possibility of people to become dependent on the single leader. Although the regent has a clear and strong vision and mission, the evidence that this program has embodied in Purbalingga’s government institution has not been found. In the second case, as the program is deeply supported by an NGO, there is a possibility of stagnancy once the program finished. Thus, there is a problem of institutionalization in both cases. However, the programs have given us a portrait that reform initiatives both from the government and society is important. They provide a lesson of promoting infrastructure’s effectiveness on poverty reduction. The programs are expected to inspire us for exerting the reform of governance.

Conclusion Although infrastructure is widely believed to have impact on alleviating poverty, there is still some constraint to achieve its relevance. The doubt of infrastructure’s effectiveness is due to the problem of corruption, mistargeted spending and lack of the poor’s involvement as the main beneficiary of the programs. There is scarce concern with public accountability and transparency of public spending in infrastructure. There is also a lack of government openness in infrastructure planning and implementation. From community’s side, people are restricted to access the information. They are also hardly involved in infrastructure planning and policy making. These problem has caused infrastructure policy becomes identical with elitist and hierarchical nature and tends to place people as passive recipients. Governance suffers from dysfunction symptoms and stagnancy and democracy is deficit. Because of this problem, infrastructure has mostly failed to be effective for poverty reduction. The evidence of failure is more striking than the evidence of success. Having experienced the problem, it is clear that there is need for governance reform. Governance reform illuminates the improved state’s responsiveness and innovative 9

participation. The aim of reform is not to eliminate government’s role. Instead, it is to improve government’s capacity, thus, government can deliver infrastructure services as needed by the community. Reform is also to build community’s capacity so they can actively participate in the policy process. Pro-poor participation is asserted to enable public deliberation in policy making and expenditure tracking. Reform that is directed to build co-governance is expected to make infrastructure effective for poverty reduction because of improved ability to answer the poor’s needs, contextualizing the programs with social, political and cultural circumstances and increasing accountability and transparency of the government.

References Ali, I & Pernia, E 2003, ‘Infrastructure and poverty reduction: what is the connection?’, Economic and Research Department (ERD) Brief Series, the Asian Development Bank, no. 13, pp. 1-13. Avritzer, L 1999, ‘Public deliberation at the local level: participatory budgeting in Brazil’, paper delivered at the Experiments for Deliberative Democracy Conference, January, Wisconsin. Balisacan, A, Pernia, E & Asra, A 2003, ‘Revisiting growth and poverty reduction in Indonesia: what do subnational data show?’, Bulletin of Indonesian Economic Studies, vol. 39, no. 3, pp. 329-51. Briceño-Garmendia, C, Estache, A & Shafik, N 2004, Infrastructure services in developing countries: access, quality, costs and policy reform’, Policy Research Working Paper, the World Bank, no. 3468, pp. 1-33. Carpini, M, Cook, F & Jacobs, L 2004, ‘Public deliberation, discursive participation and citizen engagement: a review of the empirical literature’, Annual Reviews of Political Science, vol. 7, pp. 315-44. Dasgupta, A & Beard, V 2007, ‘Community driven development, collective action and elite capture in Indonesia’, Development and Change, vol. 38, no. 2, pp. 229-49. Fan, S 2004, ‘Infrastructure and pro-poor growth’, paper prepared for the OECD DACT POVNET, Helsinki Workshop, 17-18 June, pp. 1-21. Gaventa, J 2006, ‘Finding the spaces for change: a power analysis’, IDS Bulletin, vol. 37, no. 6, pp. 23-33. Grindle, M, 2004, ‘Good enough governance: poverty reduction and reform in developing countries’, Governance: an International Journal of Policy, Administration, and Institutions, vol. 17, no. 4, pp. 52548. Kenny, C 2007, ‘Infrastructure governance and corruption: where next’, Policy Research Working Paper, the World Bank, no. 4331, pp. 1-32. Lanjouw, P 1995, ‘Infrastructure: a ladder for the poor’, Finance & Development, vol. 32, no. 1, pp. 33-5. Putzel, J 2004, ‘The politics of participation: civil society, the state, and development assistance’, LSE Research Online Discussion Paper, January, pp. 1-12. Schneider, H 1999, ‘Participatory governance for poverty reduction’, Journal of International Development, vol. 11, pp. 521-34. Sudarno, S, Suryahadi, A & Arifianto, A, 2004, ‘Governance and poverty reduction: evidence from newly decentralized Indonesia’, SMERU Working Paper, March, pp. 1-39.


Governance reform in infrastructure policy for poverty reduction