Countries and Regions

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p. 25 of 33 BACK | NEXT I. Current Development Trends and Issues II. The Government's Development Strategy III. ADB's Development Experience IV. ADB's Strategy A. Summary of Key Development Challenges B. The ADB Strategy for Indonesia C. Strategic Areas of Engagement D. Operational Considerations V. ADB's Assistance Program VI. Risks and Performance Monitoring and Evaluation

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

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D. Operational Considerations

84. Poverty Focus. The CSP combines a range of interventions which will contribute to the sustainable lowering of poverty incidence, and a reduction in vulnerability. An important contribution will be through job creation emanating from economic growth. Support for MDG acceleration will focus on prioritizing and reorienting public expenditure towards health and education spending, and improving the quality, efficiency and effectiveness of social service delivery. This will be further enhanced by a special focus on nutrition. A focus on fiscal decentralization will empower local governments through more efficient expenditure management, while support for the Government’s community empowerment programs will enable a more inclusive approach to development. Support for improved disaster risk management will reduce the vulnerability of the poor and the near-poor.

85. Mainstreaming Thematic Priorities. To ensure mainstreaming of gender concerns, ADB will identify at the earliest stages of project design the possible positive and negative impacts on both men and women. ADB will also as a matter of good practice collect data on both project implementers and beneficiaries disaggregated by gender and analyze the data base for gender aspects that affect the ultimate results of project interventions. Projects will include, whenever feasible, affirmative action through target-setting and positive discriminatory support for women to reduce disparities between men and women. ADB will support raising public awareness of the importance of women as stakeholders of development efforts, promote women’s representation in public decision-making, and encourage women to engage in local planning and budgeting processes.

86. Given the weaknesses in capacity at all levels of government, there will be a focus on capacity development. Lessons learned call for a rethinking of the way ADB TAs are designed and implemented in Indonesia. As resources are decided on an annual basis, and since TAs are driven by lending priorities, ADB has taken a project-oriented approach³⁸ to TA resource allocation. Moving forward, ADB will adopt cluster TAs for the sustained provision of advisory and capacity development support, in a flexible manner. The CSP proposes the adoption of at least four TA clusters:

• Poverty Reduction, MDG Acceleration and Social Sector Strengthening Cluster
• Investment Climate, Finance and Policy Reform Cluster
• Physical Infrastructure Development Cluster
• Governance and Anti-Corruption Cluster

The objectives and scope will take a medium-term orientation, and align with the RPJM and CSP priorities. A key goal of the TA cluster modality will be to help enhance ADB’s effectiveness, through knowledge generation and dissemination.

87. ADB has played an important role in promoting improved governance and forwarding Indonesia’s anticorruption agenda. Continued support will be provided through lending and TA operations to improve financial management at the decentralized levels, public expenditure management, audit and procurement. Continued support will also be given to the KPK to enhance their efforts to strengthen the country’s corruption prevention efforts.

88. Use of Innovative Modalities. The CSP proposes the use of innovative approaches. ADB will provide program-lending using single tranche clusters in support of Government reform and expenditure programs. The flexibility of this approach has been highly welcomed by the Government, and is seen as an important element of meeting financing needs and encouraging the process of reforms. ADB will utilize the multi-tranche financing facility (MFF) to ensure long term, sustained sector engagement, and to enable combining investments with subsector policy improvements. The MFF facility will also provide the opportunity of combining public sector lending with sub-sovereign lending and private sector operations, thereby optimizing the financing of development projects. The use of TA clusters will be in support of this, and create further opportunities to private sector and nonsovereign operations. ADB’s guarantee facility can be used to mobilize additional funding for public-private partnerships in infrastructure. Guarantees can now be anchored in TA loans and grants, making the product more flexible. The timing of nonsovereign and private sector investments depend on the requirements of potential borrowers, and subject to their assessment of the full costs of borrowing.

89. Private Sector Development (PSD). ADB will provide wide-ranging support for PSD. PSD will be integrated in all ADB operations to the extent possible, given the overall aim of the CSP to accelerate investments in development in Indonesia. Private sector operations will focus on infrastructure and finance sectors, in particular. With regard to operational coordination within ADB, several steps will be taken. First, ADB's public and private sector operations will be linked more closely than in the past, with clear efforts made to leverage the combined resources efficiently to support PSD. Second, policy dialogue and capacity development efforts will be coordinated closely, so that any support and outcomes through public sector operations have a direct as well as catalytic impact on ADB's ongoing and planned private sector investments. Third, the design and execution of public and private sector projects under the IEI umbrella will be closely coordinated, so that ADB's resources are utilized efficiently.

90. Regional Cooperation and Integration. Strong domestic economies provide the skills and the confidence required for successful regional cooperation and integration. Regional cooperation strategies are complementary to country CSPs, focusing on specific issues that cannot be resolved or promoted just at the country level. Indonesia is a founding member of ASEAN and has been an active participant in a wide range of regional and global initiatives to promote peace, stability and economic prosperity. The RPJM advocates a continuation of this pro-active approach. Indonesia participates in subregional cooperation programs, together with its near neighbors, including the Brunei-Indonesia-Malaysia-Philippines-East ASEAN Growth Area (BIMP-EAGA) and the Indonesia, Malaysia, Thailand Growth Triangle (IMT-GT). ADB is assisting in formulating a "Roadmap" to guide the future development and direction of the IMTGT. Consideration will be given over the period of the CSP to the planning and implementation of development projects that have national and regional significance, with particular emphasis on transport, energy, trade facilitation, tourism, and environmental management. Recent examples include supporting enhanced cooperation among Southeast Asian equity markets,³⁹ the development of standards for Islamic financial services,⁴⁰ support for responding to communicable diseases,⁴¹ and the proposed RETA on Facilitating Trade Cooperation in Southeast Asia. To facilitate cross-border investments within Asia, ADB guarantees can support foreign direct investment from investors in Asia that may normally not have access to risk mitigation instruments. Office of Regional Economic Integration (OREI) also provides ongoing support for the analysis of the ASEAN economic community, and for Indonesian capacity enhancement activities for regional economic surveillance.

91. Disaster Management has the potential to significantly reduce costs if risk reduction strategies are incorporated into future development projects. Working in harmony with the Government’s objective of moving toward a proactive disaster risk reduction framework, ADB will assist through policy and advisory support, and by incorporating hazard management techniques into relevant projects. Three projects (Madrasah Education Support Project, Integrated Citarum Water Resources Project, and Flood Management in Selected River Basins Project), have been identified for the use of such techniques in relation to natural disasters, adding to new practices being developed in Indonesia. To mainstream DRM as an integral part of the development process, the strategy will carry out risk and vulnerability assessments for key components at relevant junctures, to help ensure the overall viability of operations, and to reduce risk as a result of location, size or activity.

92. Enhancing Effectiveness. To enhance ADB’s effectiveness, the CSP has an improved sector focus, which has been derived from the guidance from the MTS II and from (i) lessons learned from prior operations; (ii) the Government’s objectives and priorities; (iii) the overall outcomes and intermediate outcome indicators in line with the Government’s targets; (iv) partnerships with other development agencies, and (v) where private sector investment will not meet the requirements. In comparison with the previous CSP, ADB will not provide public sector lending support for airports, fisheries, credit lines to SMEs, non-formal education, technical and vocational training and skills development, agriculture production, agriculture research, land rehabilitation, housing finance, and credit lines for microfinance during this CSP period. ADB will play a key role in program lending operations to enhance infrastructure reforms, financial sector deepening, the Government’s MDG expenditure programs, and improved air quality. ADB will continue to play a leading role in education, energy, and roads, together with other key development partners. A more supporting role will be played in water supply and sanitation, rural and regional infrastructure, and coastal resources management. The number of subsectors for lending will be reduced from 26 in the previous CSP period to 17 subsectors (Table 4).

93. Further enhancement of ADB’s effectiveness will be achieved through a continued focus on donor coordination. ADB, JBIC and WB have been harmonizing the policy dialogue with Government, especially for macroeconomic reforms, and infrastructure reforms. Close collaboration between these parties also exists in the area of portfolio management, and procurement. Anticorruption is an area where ADB will harmonize with other donors. Harmonization among donors is increasingly successful in supporting the Government’s decentralization efforts, through the DSF. Effective donor coordination is also achieved through co-financing arrangements, and ADB will continue to work closely together with AusAid, the Netherlands, the European Commission, and CIDA. Finally, ADB will prepare its loan in full accordance with the Government criteria for project readiness, minimizing the start-up and physical implementation delays noted earlier.

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