Countries and Regions

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p. 19 of 33 BACK | NEXT I. Current Development Trends and Issues II. The Government's Development Strategy III. ADB's Development Experience A. Impact of Past Assistance B. Portfolio Performance and Status C. Lessons Learned D. Conclusions and Lessons for the Country Strategy and Program IV. ADB's Strategy V. ADB's Assistance Program VI. Risks and Performance Monitoring and Evaluation

Country Strategy and Program 2006-2009 (Draft for Consultation): Indonesia : III. ADB's Development Experience

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C. Lessons Learned

60. Indonesia and ADB have a long history of partnership. The recent Country Assistance Program Evaluation35 (CAPE) and operational experience based on the 2002 Country Strategy and Program (CSP 2003-2005) were used to draw lessons, from both longer historical and more recent perspectives, for building a stronger partnership in the future.

61. The CAPE identifies important lessons from the recent past. During the period of crisis and profound changes between 1997 and 2004, the CAPE found that there was a strong congruence between the Government’s goals and ADB’s strategic objectives36 But a compromise between multiple agendas, partly driven by emerging country realities and partly by ADB’s concerns, made the strategies too broadbased, with programs that were not adequately linked to the strategies. This diluted the impact of ADB’s operations. During the crisis and after, ADB stayed engaged as the Government struggled with the recovery and the transition to a decentralized environment. The CAPE notes that the performance of ADB’s projects and programs has fluctuated over the last 15 years, but has shown marked improvement recently.

62. ADB has devoted substantial attention to governance issues in Indonesia by including governance-related activities piloting new approaches in collaboration with other development partners. The CAPE notes that governance reform is a long-term initiative requiring considerable experimentation and learning-by-doing. Results cannot be expected immediately. Governance should be further mainstreamed in ADB operations. The policy agenda needed to attract private sector investment includes legal, regulatory, civil service, and anticorruption reforms. The key to success is strong government ownership.

63. The CAPE advocates development of synergies through geographic targeting, to reduce transaction costs and increase the potential for sustainability of project outcomes, especially at the local government level. Based on more recent developments, projects and programs should be even better aligned to Government priorities, and where possible make maximum use of government systems. A good recent example is the Rural Infrastructure Support Project (Box 1), where ADB supported an and ongoing Government program with additional financing, utilizing existing implementation mechanisms.

64. The recommendations in the CAPE have been an important input for the CSP process. As recommended, the analysis has been constraint-driven, and moves towards focusing support to addressing the constraints in key areas. Coverage of the CSP will be aligned to available resources and capacities, both in the ADB as well as in the government. Increased use of country systems, as capacities are being developed, will be one of the ways in which transaction costs will be reduced. A matrix showing how the CAPE recommendations, and subsequent comments by the Development Effectiveness Committee, have been addressed in the CSP, is in Appendix 3.

65. Table A1.8 in Appendix 1 shows evaluation ratings by sector. The agriculture sector is least successful, with more than 20% of the projects rated as unsuccessful. Looking at the subsectors, the performance is mixed with no specific subsectors doing better or worse than others. Energy projects have been generally rated successful, both in transmission and distribution, and in energy development. Transport and communications is another sector were ADB projects have been generally rated successful. Performance in the financial sector has generally been good, including program loans, with the exception of one banking-sector project, an area the ADB no longer focuses on. Multisector projects have primarily focused on urban development, and projects have been highly rated. One exception is a project that was approved just before the crisis, and consequently suffered from the deterioration in Government finances. Education and is among the most successful sectors, especially in basic and secondary education. Health projects show a slightly more mixed performance.

66. CSP 2003-2005. Operations over the last 3 years were governed by the CSP for 2003- 2005, discussed by the Board in November 2002.³⁷ Five focal areas provided a framework for policy dialogue and lending: (i) governance; (ii) decentralization; (iii) human development; (iv) environment and natural resources; and (v) economic growth. Considerable delays have been encountered in implementing the 3-year lending program, resulting in much lower approvals than projected. The delays were mainly a result of a more strict application of project readiness criteria in order to increase the effectiveness of borrowing, complications arising from decentralization, and Government reconsidering its priorities.

67. While the 2002 CSP was responsive to the needs of the Government at the time, it suffered from a lack of prioritization and focus. Implementation has demonstrated that the processing of new projects became more challenging for a complex of reasons, including a reluctance to borrow, lack of ownership of projects, the impact of decentralization, lack of coordination between agencies, and the lack of institutional and human capacities. In addition, ADB’s traditional loan products were increasingly seen as outdated, with high transactions costs. There have been serious delays in project processing. For example, of the 11 loans in the 2003 program, 2 were approved in that year, 3 were approved in subsequent years, 3 are still under processing, and 3 were dropped.

68. The design and implementation of decentralized projects tests the capacity of the government system in general and of ADB. The ten decentralized projects currently under implementation involve some 200 districts. ADB does not have adequate resources for supervision, and results are difficult to measure. Principal issues weak capacities of district governments to prepare projects, and weak coordination and implementation mechanism. Under new legislation, part or whole of new loans will be on-lent to the regions, as long as arrears are not too high, rather than on-granted.

69. ADB as well as other donors have invested heavily in capacity development, but results have not always been clear. The TA modality is not necessarily suitable, because of its inflexible and short term nature. The most common complaint from Government officials is that foreign consultants do not effectively transfer knowledge, while on the other hand, officials are often too busy and transfer their workload to the consultants. A fresh approach within the TA modality needs to be explored to make capacity development better targeted and longer term in nature. This would include more Government involvement in the design and implementation of TAs, Government involvement in the consultant recruitment process, and use of the more flexible TA cluster modality, addressing some of the constraints discussed in paragraph 36.

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