Regions and Countries

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p. 3 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program Update 2004-2006: Indonesia

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III. Portfolio Management Issues

A. Portfolio Performance

26. Of the 55 ongoing projects, 42 had satisfactory performance ratings as of 31 May 2003 for both implementation performance (IP) and development objectives (DO). This makes the less than satisfactory (i.e., “at risk”) ratio of projects about 24% of total compared to an ADB-wide average of about 14.5% as of 31 May 2002. This is an improvement over June 2001 when 46.2% of projects were considered to be at risk. During 2001–2003, 23 less than satisfactorily performing loans were partly or fully canceled. As a result of concerted efforts by the Government, full compliance on submission of audited accounts was reached for accounts due in 2002. Good performance on project disbursement and contract awards in 2002 was also recorded with projections exceeded by 6% for the former and by 5% for the latter. The good performance continued in the case of disbursements until May 2003. However, despite improvements, the portfolio continues to seriously underperform and needs to be closely monitored and corrective actions initiated.

B. Performance Monitoring and Evaluation

27. IRM regularly monitors portfolio performance, including through country portfolio review missions, as mandated by the Resident Mission policy. In addition, joint country portfolio performance reviews are conducted with the World Bank and JBIC. The last joint Country Portfolio Performance Review conducted in November 2002 noted that the share of projects at risk remained unacceptably high. Several major issues continue to affect project implementation such as corruption in projects, lack of effective project management and insufficient implementation oversight under decentralization, delays in disbursement, lack of provision to roll over unspent funds, and insufficient project readiness. Portfolio performance is also reviewed at the CGI level during discussions on aid effectiveness. At the CGI of January 2003, ADB, as chair of the Working Group on Aid Effectiveness, indicated that systemic weaknesses were responsible for the recent cases of corruption uncovered. It was suggested that the Government initiate preparation of a strategic and practical action plan to combat the problem and reform the procurement and financial management systems. ADB is involved in capacity building in both areas. Funding agencies urged that the Government pay special attention to procurement issues and establish an institute for public procurement policy by August 2003.

28. In 2002, five Indonesia projects were postevaluated. Four of these (three in road infrastructure and one in junior secondary education) were rated successful and one partly successful, conforming roughly with the overall ADB average. An average delay of 1 year in project completion was experienced, compared to the ADB average of 2.5 years. The project performance audit reports for the road projects focused attention on lack of maintenance, which has impacted seriously on project sustainability, and were concerned that the problem could be aggravated by decentralization of maintenance responsibilities to regional governments. The sector approach in the road projects was found to have been useful and worthy of emulation (but strict application of KEPMEN 35/2003 may render such projects infeasible in the future). Although the education project was rated as successful and the project performance audit report commended its sustainability, it found some weaknesses in project monitoring and evaluation. The Second Land Resource Evaluation and Planning Project was rated as only partly successful as weaknesses were found in developing sufficient capacity in the provinces and sustainability of benefits. Lessons from this project include the need to utilize experience gained from earlier projects, recognition that major changes in administrative structures take time, and the need to avoid multiple executing agencies.

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