Indonesia: Second Local Government Finance and Governance Reform Program - Subprogram 1

Sovereign Project | 38264-013

Summary

LGFGR 2 will have significant benefits and positive effects on regional service delivery, financing, and capacity development. The key expected benefits are as follows: (i) Strengthened management and coordination of fiscal decentralization by the central Government, and improved leadership, supervision, and coordination of the capacity

development of regional governments. (ii) Clearer assignment of expenditures between levels of government and improved criteria for establishing new regional governments, leading to more efficient allocation of expenditures and better vertical balance in financing between levels of government. (iii) Improved technical and policy environment for

intergovernmental fiscal transfers, revenue sharing, and local own-source revenues, leading to more transparent and equitable outcomes across regions (better horizontal

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Project Name Second Local Government Finance and Governance Reform Program - Subprogram 1
Project Number 38264-013
Country Indonesia
Project Status Closed
Project Type / Modality of Assistance Loan
Technical Assistance
Source of Funding / Amount
Loan 2478-INO: Second Local Government Finance and Governance Reform Program - Subprogram 1
Ordinary capital resources US$ 350.00 million
TA 7184-INO: Local Government Finance and Governance Reform
Technical Assistance Special Fund US$ 1.50 million
Strategic Agendas Inclusive economic growth
Drivers of Change
Sector / Subsector Public sector management - Public expenditure and fiscal management
Gender Equity and Mainstreaming
Description

LGFGR 2 will have significant benefits and positive effects on regional service delivery, financing, and capacity development. The key expected benefits are as follows: (i) Strengthened management and coordination of fiscal decentralization by the central Government, and improved leadership, supervision, and coordination of the capacity

development of regional governments. (ii) Clearer assignment of expenditures between levels of government and improved criteria for establishing new regional governments, leading to more efficient allocation of expenditures and better vertical balance in financing between levels of government. (iii) Improved technical and policy environment for

intergovernmental fiscal transfers, revenue sharing, and local own-source revenues, leading to more transparent and equitable outcomes across regions (better horizontal

balance), and less dependence on central government transfers. (iv) Strengthened management of regional reserves and debts, contributing to better access to long-term

investment financing for infrastructure. (v) Enhanced organizational, systems, and human resource capacity of regional governments, particularly to manage and report finances and to measure performance, thus improving public service delivery and accountability. (vi) Strengthened governance through coordinated performance monitoring and evaluation to improve accountability.

Project Rationale and Linkage to Country/Regional Strategy

While decentralization has administrative, political, and other dimensions, LGFGR 2 focuses mainly on the fiscal dimension, where implementation is critical and also most challenging. LGFGR 2 will support the Government's ongoing efforts to improve regional autonomy and financing (by strengthening the intergovernmental financing policy framework, regional

organizational systems, and regional revenue systems), governance and service delivery (by providing adequate financing and performance measurement), and capacity development (by improving public financial management and human capacity).

LGFGR 2 will broaden reforms in six target areas: (i) strengthening the management and coordination of fiscal decentralization; (ii) clarifying regional administration to improve services and accountability; (iii) making the release of fiscal transfers and shared revenues more equal, predictable, and transparent; (iv) reducing regional dependency on fiscal transfers by developing more buoyant revenue sources; (v) bolstering the management of regional reserves and debts; and (vi) developing human and systems capacity and strengthening public financial management and accountability.

The Asian Development Bank (ADB) supports Indonesia according to the country strategy and program 2006 2009 of (i) pro-poor, sustainable economic growth; and (ii) social development. Governance improvements and anticorruption efforts are key themes. Decentralization and local government finance and governance are key issues in this regard, and are among the five key operational areas of engagement: (i) infrastructure, (ii) financial sector deepening, (iii) decentralization, (iv) achievement of Millennium Development Goals (MDGs), and (v) environment and natural resource management. The proposed program cluster will improve decentralization and accelerate MDG achievement by strengthening regional government capacity and contributing to a more transparent, effective, and efficient policy and legal environment for fiscal decentralization, financial management, and service delivery. A joint team from the Government and ADB has been working on

the reform program since early 2007.

Impact More efficient, effective, and equitable regional government spending
Project Outcome
Description of Outcome

Improved organizational capacity of regional governments, which operate in a more transparent, effective,

and efficient policy and legal environment for fiscal decentralization, financial management, and

service delivery

Progress Toward Outcome
Implementation Progress
Description of Project Outputs

Improved management and coordination of fiscal decentralization by central Government

Better defined functional and organizational arrangements for regional governments

Greater equity, predictability, and transparency in the release of fiscal transfers and shared revenues

Improved access of regional governments to own-source revenues

Strengthened management of regional reserves and debts

Improved capacity development, public financial management, and accountability

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services Not required.
Procurement Not required.
Responsible ADB Officer Rabin Hattari
Responsible ADB Department Southeast Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SERD
Executing Agencies
Directorate General Fiscal BalanceJalan Lapangan Banteng Timur 2-4
Jakarta Pusat 10710 Indonesia
Timetable
Concept Clearance 26 Apr 2007
Fact Finding 09 Jun 2008 to 20 Jun 2008
MRM 25 Jul 2008
Approval 04 Dec 2008
Last Review Mission -
PDS Creation Date 01 Mar 2006
Last PDS Update 27 Oct 2010

Loan 2478-INO

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
04 Dec 2008 11 Dec 2008 18 Dec 2008 31 Dec 2008 - 31 Dec 2008
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 350.00 Cumulative Contract Awards
ADB 350.00 04 Dec 2008 350.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 04 Dec 2008 350.00 0.00 100%

TA 7184-INO

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
04 Dec 2008 03 Apr 2009 03 Apr 2009 30 Jun 2010 30 Jun 2012 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
1,500,000.00 0.00 300,000.00 0.00 0.00 0.00 1,800,000.00 04 Dec 2008 1,442,761.59

Safeguard Documents

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Evaluation Documents

See also: Independent Evaluation

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