Regions and Countries

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Country Strategy and Program Update 2005: Indonesia

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IV. New Directions

22. Transition. This is an important transition year for ADB’s operations in Indonesia. A new Government has taken office, a new vision has been formulated, priorities have been established, and new approaches are being contemplated. A new CSP will be formulated for approval later this year, based on the Government’s strategic plans and the lessons learned through the Country Assistance Program Evaluation.¹⁰ The enhanced poverty reduction strategy of ADB will be the guide, and ADB’s Management for Development Results agenda, which guides ADB in becoming a results-oriented institution, will assist in defining what the Government and ADB hope to achieve in the coming years.

23. Lessons Learned. The 2002 CSP addressed the main medium-term needs of the economy, stressing (i) improvements in governance, (ii) meeting local needs through decentralization, (iii) human development, (iv) environmental management and sustainable use of resources, and (v) raising long-term growth prospects and economic potential. Implementation of the CSP has been difficult. A reluctance to borrow by previous governments, serious processing challenges, slowness of ADB to adjust its approach, and the evolving political situation resulted in low loan approvals over the past few years. The processing challenges highlight the need for increased capacity building support at all levels of Government. Equally, ADB must streamline its business processes with urgency to become more flexible and responsive to the country’s needs.

24. While the 2002 strategy was responsive¹¹ to the needs of the Government at the time, it suffered from too little prioritization and too little focus. It also was insufficiently grounded in indepth sector and thematic knowledge. This has been addressed in recent years, and ADB now bases its strategy on higher quality analysis (e.g., poverty, governance, and private sector assessments). ADB has been engaged effectively in promoting good governance, and should continue to do so in all its operations. The introduction of the geographic focus as part of the previous strategy was a step in the right direction, though more needs to be done. ADB also has supported decentralization through capacity building at various levels. However, more links must be built between levels to ensure sustainability. Key issues hampering project implementation include (i) frequent ADB staff turnover; (ii) overreliance on implementation consultants; and (iii) substantial delays in the startup of projects, which lead to implementation problems. ADB’s policy dialogue and support for reform also suffered from difficulties in forecasting when political decisions could be made—tightly scheduled multitranche program loans often failed to meet the political realities of Government decision-making over several years. While some of these problems can be addressed using the project readiness filters, success depends on the extent and quality of resources available to ADB and the Government for preparation and monitoring.

25. Response. As Indonesia enters a new era of democratic and decentralized government, with promises and hopes for sustained higher levels of growth, the challenge for ADB is to remain relevant and responsive to the country’s diverse development needs. The delivery and impact of ADB’s operations must be strengthened. Projects need to be focused more on specific outcomes, in line with ADB’s move towards results-based management. Moreover, ADB-funded investment projects often almost stand alone, delivering benefits at the local level. ADB’s assistance needs have more impact at national and sector levels, while also achieving results at the local or project level.

26. In a country as large and diverse as Indonesia, with a considerable variety of development-related needs, assistance needs to become more selective to increase effectiveness and efficiency of operations. The 2002 CSP recognized the need for a geographic focus, introducing a three-tier system that encouraged the grouping of projects in common areas. In the context of the Management for Development Results agenda and the review of ADB’s Poverty Reduction Strategy, the new CSP will aim to address the selectivity issue by examining (i) selectivity of outcomes, (ii) sector selectivity, (iii) thematic selectivity, and (iv) geographic selectivity.

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