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p. 18 of 27 BACK | NEXT Executive Summary I. Background II. The Government's Development Priorities and Outlook III. Strategies and Programs of Other International Funding Agencies IV. ADB's Development Experience A. Summary of ADB Assistance B. Portfolio Status C. Evaluation of the Previous Country Strategy and Program D. Implications for the COS V. ADB's Strategy VI. Risks, Performance, and Monitoring

Country Operational Strategy Studies - Indonesia : IV. ADB's Development Experience

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D. Implications for the COS

116. Lessons from past ADB operations in Indonesia have value, but should be viewed cautiously in light of today’s dramatically different political and economic situation. This new environment has opened up new opportunities. For example, issues such as corruption that were not previously discussed are routinely on the agenda today. The key issue is how ADB should now allocate its resources in light of the experiences of the past.

117. Evaluating ADB programs reveals four broad implications. First, the 1997 economic crisis highlighted a major deficiency of past operations: the inability to engage the Government effectively on policy issues. For example, ADB has long engaged the Government on governance issues related to infrastructure development. However, Government commitment to undertake reforms such as those related to cost recovery was rare and it proved difficult to maintain some reforms during the crisis. ADB must regularly present to the Government a realistic and persuasive picture of the costs of inappropriate policies and the forward implications for ADB’s operations. The key question, requiring more careful focus by ADB and the Government, is what should be done if there is no dialogue and no policy reform? Institutionally, ADB does not easily consider delaying or discontinuing operations in areas where reforms are simply not moving. Past experience suggests that the alternative of staying in the sector and hoping that dialogue would succeed was the accepted route. Ongoing sector analysis, continual review of the policy environment, and active dialogue with the Government can increase effectiveness, provided they are conducted with greater clarity as to core expectations of both parties.

118. Second, a clearer assessment of institutional capability must precede sector commitments and project design and implementation. The 2000 country portfolio review mission (CPRM), for example, noted the need to improve the incentives facing ADB’s counterparts by changes in operating procedures, including sanctions for noncompliance with ADB requirements for project and financial statements. These and related steps can set the stage for improved working relationships between ADB and public agencies. Above all, however, there must be the will to discontinue engagement in sectors where the proper environment for effective use of assistance does not exist.

119. Third, less successful projects often were associated with design or implementation problems that could have been mitigated with more flexible business practices, particularly more staff attention. These issues are common to many country operations; however, given the structural diversity of Indonesia and ongoing decentralization of decision making, they take on a particular urgency. The expansion of the Indonesian Resident Mission (IRM), coupled with process changes underway at Headquarters, provides scope for addressing these issues.

120. Finally, structural diversity and change, the need for heightened policy and sectoral analysis and operational selectivity, and the need for increased staff efforts in project design and administration, all argue strongly for more focused country operations.

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