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p. 8 of 27 BACK | NEXT Executive Summary I. Background II. The Government's Development Priorities and Outlook A. Public Finance and Investment B. Medium-Term Plan C. ADB’s Assessment of the Government’s Development Agenda III. Strategies and Programs of Other International Funding Agencies IV. ADB's Development Experience V. ADB's Strategy VI. Risks, Performance, and Monitoring

Country Operational Strategy Studies - Indonesia : II. The Government's Development Priorities and Outlook

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B. Medium-Term Plan

75. At the end of the national plan, REPELITA VI (1994-1998), the preparation of REPELITA VII was postponed with the economic crisis in 1997 and the nearly concurrent political transition. In 1999, the new Government moved to redraw its development strategy, articulated by the Guidelines of State Policy 1999-2004 (GBHN). These form the basis for the medium-term development strategy, PROPENAS, presented in October 2000. PROPENAS sets out five broad national objectives: (i) ensure national cohesion and social stability; (ii) achieve good governance and rule of law; (iii) accelerate economic recovery and strengthen the foundations for sustained growth; (iv) develop the social sectors and human welfare; and (v) strengthen regional autonomy, rural and urban development, and structural poverty programs.

76. Good governance is thus a central theme of the Government’s medium-term reform program. The key components of the Government’s strategy include an anti-corruption program; administrative and fiscal decentralization; improved public financial management; civil service reforms; dismantling the state monopolies; and further deregulating trade, finance, industry, and investment. The Government also attaches high priority to widening the scope of market-based economic decision making.

77. The Government aims to speed economic recovery and then lay the groundwork for sustainable economic development. The key instruments of the Government’s growth strategy are macroeconomic stability, a strong banking sector, faster progress on corporate debt restructuring, and generating market confidence with the help of free-flowing information. PROPENAS aims to achieve broad-based economic growth driven by market signals, based on Indonesia’s comparative advantages.

78. For infrastructure, PROPENAS` priority is rehabilitation and betterment of existing infrastructure, prioritized on economic and urgent social considerations. Improving infrastructure services that support production and export activities and expanding employment and business opportunities will be key. Greater competition, demonopolization, and enhanced participation of the private sector in providing infrastructure are major goals. In certain subsectors such as toll roads in Java and electricity production in Java and Bali, the private sector is expected to provide investment funds.

79. In the social sectors, the overriding national objective is to ensure all citizens access to basic services. Consistent with its commitment to decentralization, the national Government has outlined a development program giving major responsibility to local governments: they will determine specific development priorities based on regional needs and resources. Private sector involvement in social infrastructure is a major objective. It is expected that in the education and health subsectors, public investment will focus on primary and secondary education, basic health service delivery, and preventive health care.

80. The Government views regional autonomy as central to improving governance. Greater local government autonomy through Law 22 and Law 25 is expected to make decision making more participatory and create greater accountability. Decentralization of government functions will also enhance the quality and delivery of public services, strengthen implementation of programs and enhance development impacts.

81. PROPENAS addresses a range of crosscutting issues including environmental sustainability, gender, poverty, good governance, and decentralization. The medium-term program envisages transparent natural resource management with enhanced community participation in decision making. Governance structures will be strengthened and the rule of law enforced to prevent overexploitation of natural resources.

82. Poverty reduction is a key crosscutting issue. The principal elements of the poverty reduction strategy are broad-based growth, investment in human resources, and equitable access to assets and opportunities. The social safety net and poverty reduction in public programs will be mainstreamed. The intention is to develop an effectively targeted and sustainable social safety net system based largely on self-financing mechanisms.

83. ADB consultations with local governments, when drafting the Poverty Assessment, indicated that they endorsed the medium-term development priorities reflected in PROPENAS. They also noted social development as a major priority, showed a willingness to borrow for social development projects, and expected to be highly proactive in the development assistance process.

84. The draft PROPENAS has been further articulated with a 10-point program summarized below, to encourage recovery and sustainable development. This program was issued by the economic team of the new cabinet in August 2000 and formed part of the Government’s Letter of Intent to IMF in the following month.

1. Maintain economic stability with support of IMF/World Bank/ADB.
2. Reduce unemployment by creating jobs in all regions.
3. Improve agricultural productivity and farmer welfare.
4. Increase non-oil export revenues, particularly in manufacturing and agro-industry.
5. Promote domestic and foreign equity investment.
6. Expedite banking and corporate restructuring.
7. Accelerate privatization of State-owned enterprises.
8. Initiate development programs for SMEs.
9. Ensure sustainable development of natural resources.
10. Implement economic decentralization through an orderly and phased transition.

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