ADB Loan Package to Boost Indonesia's Audit Sector Reforms
MANILA, PHILIPPINES (14 December 2004) - ADB will help establish a strong audit sector in Indonesia to improve efficiency, accountability, and transparency in the country's financial management through two loans approved totaling US$225 million. The project comprises a $200 million program loan and a $25 million investment loan for a mixture of policy and capacity-building initiatives to build an audit sector that operates to internationally accepted standards. The program loan will introduce policy reforms affecting the entire audit sector, while the investment loan will support critical investments needed to enhance capacity building and strengthen sector management practices, that may otherwise be hampered by resistance to change or budgetary constraints. "An effective state audit function is key to an effective and well-functioning accountability framework for parliaments, the executive, the judiciary, and civil society," says Farzana Ahmed, an ADB Financial Management Specialist and team leader for the project. "Through improved financial management, scarce government resources will be better used and more effectively deployed than before. It will also foster public-private partnerships and boost investor confidence, benefiting Indonesia's economy in general." The legal, policy, and institutional frameworks for Indonesia's public sector audit system have not significantly evolved to promote transparency and accountability since they were established in the early 1940s. The program loan will work on strengthening the legal and regulatory framework for public sector audit. It will initiate a realignment of national auditing resources, which has not always been in line with policy and legal mandates, to enable audit institutions to fulfill their mandate. It will also improve the currently deficient parliamentary oversight on public audit institutions, and provide strategies to increase the low public awareness of the benefits of audit. The audit sector's capacity has also been weak. The Government's decentralization, with the enormous transfer of resources involved, has necessitated the strengthening of regional audit institutions to make sure they effectively fulfill their internal control and audit functions. To address this, the investment loan will build upon past support to enhance the capability of audit institutions, and introduce techniques and approaches that will allow them to operate effectively and efficiently and to incorporate international best practices. A professional formal education and nonformal certification program that internal auditors can take cost-effectively at local education institutions will also be designed. Two technical assistance (TA) grants totaling $5 million, from the Government of Netherlands, accompany the two loans. A $1.3 million TA will ensure that the project objectives are achieved, and a $3.7 million TA will enhance project monitoring and quality assurance reviews of investment loan activities. The program loan comes from ADB's ordinary capital resources. It carries a 15-year term, including a grace period of three years. Interest in determined in accordance with ADB's LIBOR-based lending facility. The investment loan, which will cover 58% of the total investment cost of $42.7 million, comes from ADB's concessional Asian Development Fund (ADF). It carries a 32-year term, including a grace period of eight years. Interest is determined in accordance with ADB's ADF loan facility. The Government of Netherlands will provide a cofinancing grant worth $5 million for the investment component for the project. The regional governments will contribute $4.2 million and the Central Government will contribute $8.5 million toward the project cost. The Ministry of Finance is the executing agency for the program loan, which is due for completion in June 2007. The National Development Planning Agency is the executing agency for the investment component, due for completion in December 2009. About ADB | 
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