Managing for Development Results at ADB

Rapid assessment of Indonesia's results management capacity

Extracted from the Indonesia Country Strategy and Program (CSP) 2006-2009

This note provides a rapid assessment of results management capacity by looking at the five key building blocks of results management:

1. commitment, norms and values for results management
2. clarity of expected results
3. making results happen by linking objectives and planning
4. determining contributions to results through monitoring and evaluation
5. making results matter by providing feedback on decision making

The assessment provides inputs to the new CSP for Indonesia, and will be further elaborated during the preparation of the CSP. This assessment focuses primarily on the central government as the primary provider of resources to all levels of government. Given the variety and diversity of local governments (of which there are about 440), such assessments at that level would be very resource intensive.

However, such assessments will progressively be made during the CSP period of local governments where ADB has relevant projects, such as the districts where the Local Government Finance and Governance Project has major activities. Such assessments can then be reflected in CSP progress reports. However, as long as local governments have little discretion in their spending, the value of such assessments remain limited. Clearly, the main conveyor for steering towards results and assessing results is the budget process. While in Indonesia institutions on the central level, such as line ministries are embarking on an improved budget process within a 3-year performance based budgetary framework, the way local governments are financed obstructs a similar development on that level.

Commitment, norms, and values for results management

Indonesia has successfully made the transition from an authoritarian state with centralized management of the economy, to a full-fledged democracy with a decentralized structure. Given the speed with which this transformation has taken place, especially in terms of developing the necessary legal and regulatory framework, it is not surprising that the implementation of these reforms, and especially the required capacity development, would take more time.

Yet, Indonesia is well on the way to introducing the important building blocks for results management. The commitment to results management is clearly reflected in the Law on State Finance (Law No.17/2003), which is the first law to provide the legal basis for performance-orientation in public sector resource management in Indonesia. The principal goal of the law is to improve efficiency, transparency and accountability in the use of state finances. It aims to integrate macroeconomic planning and fiscal policy formulation, besides enhancing overall accountability of the budget process. The law requires each line ministry and budget institution to submit a work plan together with its budget proposal. Subsequently, Parliament also enacted the Law on State Treasury (Law No.1/2004) and Law on State Audit (Law No.15/2004). Together, this triumvirate of laws could potentially cover the ex-ante as well as the ex post aspects of the full budget cycle.

Clarity of results

The medium-term development plan (RPJM, 2005-2009) provides for a clear set of higher level targets that the Government wants to achieve by the end of the period. Among them are:

• sustained growth of higher than 6%,
• job creation to absorb 1.5 million new entrants in to the labor market annually
• achievement of MDG targets
• reduction in the stock of debt to 31.8% of GDP

The Government is holding itself accountable to parliament and the public for achieving those results. Based on the RPJM, the Government prepares an annual work plan (RKP) that sets more specific targets for the year, and is used as an input into the budget process. The RPJM sets out a good policy framework for the required reforms and investments for each of the sectors.

At the local levels, performance standards have been issued as Minimum Service Standards (MSS) for the decentralized functions. ADB has supported the process of developing these standards (TA 3967-INO: Local Government Provision of Minimum Basic Services for the Poor), which are not yet operational more than five years into the decentralization process. Law 32/2004 stipulates that the obligatory functions assigned to local governments need to be evaluated against certain minimum service standards. The lack of clarity in the assignment of functions and concerns over fiscal constraints that may impede the attainment of MMS once they are mandated, have led to delays in developing the standards. This is also due to the fact that MMS were originally conceived as administrative standards without links to the budget.

Linking objectives and planning

A key aim of the Law 17 on State Finances is also to move Indonesia towards a medium-term expenditure framework (MTEF, with effect from 2008). To support this process partly, the law also stipulates transition to accrual accounting. In practical terms, both requirements pose major challenges. The PBM needs to be gradually and progressively integrated into an MTEF. The Government is slowly adopting a combination of top-down and bottom-up approaches, based on a system of expenditure projections. The line ministries are required to submit their budgetary requirements on a rolling two-year cycle at present. This needs to be gradually expanded into a 3-year process, before a full-fledged MTEF takes shape. However, most line ministry budgets are not sophisticated enough to identify costs associated with the deliver of programs and policies. The eventual adoption of accrual accounting could help in this process.

In September 2004, Parliament enacted the Law on National Development Planning (Law No.25/2004), outlining, among others, a system of annual work plans at both national and local levels to ensure greater harmonization between annual budget preparation, and outputs and outcomes. To help implement these laws, the President approved two key Government Regulations on Government Work Plan (PP.No.20/2005) and Budgeting (PP. No.21/2005). The regulatory framework on work plans attempts to define performance, although improvements would be needed on this front. In addition to these, the Government has also embraced the Government Finance Statistics Manual (2001), which paves way for moving towards unified performance based budgeting.

At the local government level, the picture is somewhat different. The general allocation fund (DAU), which is the main sources of funding for most local governments, is a formula-determined block grant intended to finance the decentralized functions and services including civil service wages and other overheads. In theory, the block grant mechanism allows receiving regional governments to decide on their own priorities. However, the majority of regional governments receive just enough DAU funds to cover basic salary and administrative costs, making it impossible to link development objectives local government may have to planning and budgeting. A further problem is the lack of accountability inherent in this kind of block-grant.

For example, education is a national priority and local governments are expected to allocate sufficient financial resources for that purpose. While many local governments do prioritize education, others may chose to do otherwise, e.g. build new administrative buildings or buy new cars instead of give priority to education. They can do so without being held accountable as long as the financing comes from unconditional block-grants. With this kind of financing mechanism for local governments, the capacity for managing for results remains a serious challenge.

Monitoring and evaluation

Despite having traditionally a strong statistical system, monitoring and evaluation is a major weakness of the Indonesian government planning system. Feedback of progress and results achieved is rarely provided, despite the numerous requirements for filling out forms and lodging them. Most of those forms are for recording purposes only, not for monitoring progress and evaluating results. A possible exception is the monitoring of progress towards the MDGs, where the international community has provided strong support. Additionally, the central government requires local governments to prepare poverty reduction strategies, where progress towards the MDGs is reported at the local level. The Government has shown strong interest in strengthening monitoring and evaluation, but will require substantive technical support to achieve this.

Feedback of results information to decision making

There is a strong tradition in Indonesia to base decisions - at least in part - on the available information, either from the statistics system, or through special studies. However, more often than not, decisions are also based on informal feedback received from the field through the civil service system. This means that there is a fertile ground or using results information in the decision-making process. The absence of results oriented monitoring and evaluation information is a deficiency that needs to be addressed.

Conclusions

The rapid assessment shows that the potential for effective results management in Indonesia is firmly embedded in the prevailing legal framework. Since 2003, the Government has firmly put in place a number of processes that will eventually lead to a strong results management system. The biggest challenge is the absence of any genuine attempts at civil service reform, which will be necessary to change to norms and values system of the civil service, and introduce an alternative incentive system. Without such changes, the capacity for result management will remain weak. The Government has not requested any donor for support in studying and initiating civil service reforms. Should such a request come, ADB will be ready to provide support where needed and effective.

See:

• Rapid Assessment Guide - Summary
• The complete Rapid Assessment Guide
• Introduction to Results Management
• MfDR in Indonesia