Indonesia: Sixth Development Policy Support Program

Sovereign Project | 43211-013

Summary

The program will support the government's key reform priorities aimed at achieving higher and pro-poor economic growth that is sustainable over the medium term. The reform priorities include efforts to improve the investment climate, strengthen public financial management, and governance, and enhance poverty reduction and access to public service delivery.

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Project Name Sixth Development Policy Support Program
Project Number 43211-013
Country Indonesia
Project Status Closed
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan 2723-INO: Sixth Development Policy Support Program
Ordinary capital resources US$ 200.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change
Sector / Subsector

Industry and trade - Trade and services

Public sector management - Economic affairs management - Public administration - Public expenditure and fiscal management

Gender Equity and Mainstreaming
Description The program will support the government's key reform priorities aimed at achieving higher and pro-poor economic growth that is sustainable over the medium term. The reform priorities include efforts to improve the investment climate, strengthen public financial management, and governance, and enhance poverty reduction and access to public service delivery.
Project Rationale and Linkage to Country/Regional Strategy

The proposed program is the sixth and last of a series of Asian Development Bank (ADB) development policy support programs (DPSPs) for Indonesia, prepared jointly with the World Bank and the Government of Japan. Since its initiation, the DPSP series was designed to support the Government of Indonesia's medium-term reform agenda in core areas underpinned by its National Medium-Term Development Plan (RPJMN). The focus of the DPSP series has evolved since 2003, reflecting changes in the country's needs and priorities. In first four years, the emphasis was on ensuring medium-term macroeconomic stability and building the basic legal and regulatory framework for investment as well as public financial management and governance. As macroeconomic resilience improved, the government and development partners agreed to replace the macroeconomic pillar with support for reforms in public service delivery. Since 2007, the DPSP series has focused on three core policy areas: the investment climate, public financial management and governance, and poverty reduction and public service delivery. In 2009, some of the reforms envisaged during the last 5-year plan period remained unfinished. At the request of the government, the proposed DPSP-6 was included for 2010 in ADB's Indonesia country operations business plan, 2010-2012. The DPSP series has complemented implementation of other ADB programs, including the Public Expenditure Support Facility, Countercyclical Support Facility, and, Local Government Finance and Governance Reform.

The program completion reports for the first three programs under the DPSP series suggested that policy actions supported by the series have contributed significantly to improved economic management, albeit from a low base. Among other achievements, the program has helped the government devise a public debt management strategy, reorient budget savings from reduction in fuel subsidies toward priority social sectors and targeted poverty reduction programs, and expand the tax base through tax administration reforms. Under the fourth DPSP onward, reforms to improve the investment climate have led to the passage of an Investment Law, a significant reduction in business start-up time, a shorter time for value-added tax refunds, and enhanced access of small and medium-sized enterprises to finance. Reforms in public financial management and governance have improved budget formulation, execution, monitoring, and evaluation. The DPSP series has supported efforts to increase budget allocation for poverty programs, improve pro-poor planning and budgeting, and enhance community-driven development under the government's PNPM Mandiri.

While significant progress has been achieved, the government is committed to implementing further reforms in DPSP core reform areas. Recent economic growth remains below the level achieved before the Asian financial crisis. To achieve higher and more inclusive growth, a recent ADB study suggests the need to accelerate infrastructure development, improve governance and institutions, and enhance access to better education. Despite recent improvement in economic competitiveness indicators, efforts are needed to improve trade logistics and simplify business procedures. Continued efforts are needed to implement a modern public financial management (PFM) system. While significant progress has been achieved, poverty rates remain high. Poverty incidence declined to 13.3% in 2010, but rates vary widely among regions and about 40% of the population is estimated to be near poor (clustered just above the national poverty line), making them highly vulnerable to fall back into poverty. The government's new RPJMN, 2010-2014 adopted a three-pillar development strategy: pro-growth, pro-jobs, and pro-poor. The government recognizes the need to increase private investment to support its pro-jobs growth strategy. It also recognizes that continued improvement in the investment climate, governance, public service delivery, and poverty reduction are crucial to achieving its pro-poor objective. Therefore, the three core policy areas supported under the DPSP-6 are among the 11 priorities in the RPJMN, 2010-2014.

Impact The impact of the Program is to achieve higher pro-poor economic growth that is sustained over the medium term
Project Outcome
Description of Outcome Improved overall economic management anchored on good governance
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

improved investment climate

Improved public financial management and governance

Enhanced poverty alleviation and access to public services

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location National
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects Implementation of the program will not have envitonmental impact
Involuntary Resettlement The program will not entail any land acquisition and/or physical and economic displacement of people.
Indigenous Peoples The program will not benefit or negatively impact indigenous peoples.
Stakeholder Communication, Participation, and Consultation
During Project Design Extensive consultations were held between the development partners (ADB, the Government of Japan, and the World Bank) and the government, led by a steering committee chaired by the CMEA on formulating the prior actions or triggers.
During Project Implementation The CMEA is the executing agency for the program, collaborating closely with the Ministry of Finance. Implementation of the DPSP-6 actions is being undertaken by a number of other ministries and agencies, including the Vice President's Office, the National Development Planning Agency (BAPPENAS), the Investment Coordination Board, several directorates general in the Ministry of Finance, BPS, and the National Public Procurement Agency, among others.Monitoring the implementation and attainment of the DPSP triggers is done through several mechanisms. These include monitoring committees and/or technical groups established by the government that are responsible for ensuring the implementation of policy actions as well as follow-up on progress; and regular joint government development partner meetings to discuss interim progress in achieving agreed milestones in the reform agenda.
Business Opportunities
Consulting Services Not required
Procurement Not required
Responsible ADB Officer Edimon Ginting
Responsible ADB Department Southeast Asia Department
Responsible ADB Division Indonesia Resident Mission
Executing Agencies
Coordinating Ministry for Economic AffairsWIDJANARDO@KIMPRASWIL.GO.ID2nd Floor, Jl Lapangan
Banteng Timur 2-4
Jakarta Pusat 10710
Timetable
Concept Clearance 01 Oct 2010
Fact Finding 01 Oct 2010 to 31 Jan 2011
MRM 31 Jan 2011
Approval 14 Dec 2010
Last Review Mission -
PDS Creation Date 27 Oct 2010
Last PDS Update 15 Dec 2011

Loan 2723-INO

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
14 Dec 2010 13 Oct 2011 25 Nov 2011 15 Dec 2011 - 30 Nov 2011
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 200.00 Cumulative Contract Awards
ADB 200.00 14 Dec 2010 200.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 14 Dec 2010 200.00 0.00 100%
Title Document Type Document Date
Sixth Development Policy Support Program Project/Program Completion Reports Mar 2013
Loan Agreement for the Sixth Development Policy Support Program between Republic of Indonesia and Asian Development Bank dated 13 October 2011 Loan Agreement (Ordinary Resources) Oct 2011
Sixth Development Policy Support Program Reports and Recommendations of the President Nov 2010
Sixth Development Policy Support Program Summary Poverty Reduction and Social Strategies Nov 2010

Safeguard Documents

See also: Safeguards

No documents found.

Evaluation Documents

See also: Independent Evaluation

No documents found.


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