Countries and Regions

	Table of Contents
p. 6 of 6 BACK | NEXT I. Current Development Trends and Issues II. The Government's Development Strategy III. ADB’s Development Experience IV. ADB’s Strategy V. ADB’s Assistance Program VI. Risks and Performance Monitoring and Evaluation

Country Strategy and Program Update 2002-2005: Indonesia

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VI. Risks and Performance Monitoring and Evaluatio

A. Risks

100. The risks to the program are substantial: (i) the possibility that reforms will slow down, (ii) threats to peace and security, (iii) external shocks, and (iv) failure to implement decentralization properly. Specific sectoral risks are discussed in section V, and Appendix 3.

101. With respect to the unfinished reform agenda, critical areas include (i) maintaining and extending macroeconomic stability, (ii) an effective on-lending policy to support local government projects using international loan funds, and (iii) improvements in governance particularly related to project and program implementation. Recognizing these issues, the program provides TA and loan funds to facilitate reforms in many sectors. The expanded IRM staff supports extended policy dialogue and advisory assistance. One unanswered question is the extent to which policy reforms can be maintained in the difficult political atmosphere as the 2004 election approaches.

102. Developments in currency and asset markets in recent years show some of the costs of security concerns and an uncertain political environment. Deterioration of security and any widespread political unrest would severely hamper development potential and international assistance. Regional strife poses special problems. Staff have been participating as part of the UN’s country team, exchanging information on regional conditions and assistance programs. This provides an opportunity to flexibly reorient loan and TA activities to address local assistance needs, especially in postconflict localities, in cooperation with other external funding agencies.

103. In the event that external or internal security issues impact adversely on investments and the economy, the case for additional support will be assessed. ADB should maintain flexibility to respond with program lending if conditions merit. The processing of assistance packages in social protection, the financial sector, and social sectors provide areas of possible additional support.

104. Declining agricultural productivity heightens the impact that a reoccurrence of El Niño could have on the country. ADB’s prospective agriculture sector strategy and action plan will focus on possible short-term interventions that could mitigate the costs of natural disasters.

105. Problems may emerge from the evolving decentralized environment, particularly with respect to on-lending policy formulation, governance, and project effectiveness. CGI has urged the Government to finalize an on-lending policy in 2002. The Government has prepared a draft policy and consulted funding agencies on the issue, and an announcement of an interim on-lending policy is expected soon. ADB has devoted a large part of its overall assistance package to supporting decentralization. Staff will work to share information on decentralization across sectors. The geographic focus is one tool to increase the effectiveness of ADB’s projects. Staff will also continue to work closely with other international funding agencies to monitor the situation and determine realistic responses.

B. Monitoring Process and Plan

106. At the macro level, the main monitoring indicators will be the incidence and severity of poverty, particularly in ADB’s geographic focus areas. A decline of 5 percentage points in the incidence of poverty is targeted in the provinces of the focus area by 2005 from 2001, as is the millennium development goal of halving the poverty incidence by 2015 from 1990. Annual reviews of the poverty situation in ADB’s area of focus will be conducted in the context of the PRPA.

107. In the medium term, the performance of the CSP will be gauged by the delivery of the proposed program with respect to public and private sector lending and grant operations, including cofinancing. Fulfillment of sector and thematic area objectives as indicated in section V will also be important ways of measuring performance. Significant improvement in portfolio performance is targeted: projects at risk should decline to less than 20% by December 2005, compared to 33% at the beginning of 2001.

108. The new business processes require that the country team support the regional management team (which has the main responsibility) for the implementation of the CSP. The teams will frequently review the CSP to ensure its successful implementation.

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