Regional Development Account Project in Indonesia (Loan 1501-INO)
This report evaluates the performance of the Regional Development Account Project designed to improve access to basic urban infrastructure and services and achieve urban sector policy and development priorities in Indonesia
ADB provided the Government of Indonesia a $50 million loan in December 1996 in support of the Government's prioritization of the strengthening of the regional development account whose demand increased significantly in the mid 1990s. In the midst of mounting backlog of loan applications for RDA, the Project was designed specifically to
- improve the availability of long-term credit to local governments and enterprises,
- support the RDA as a revolving municipal facility, and
- promote the financial and institutional autonomy of local governments. This evaluation took into account two major outputs:
- Urban infrastructure subprojects
- Implementation of physical investments, and capacity building
Summary of Findings
- The Project is rated 'partly relevant'. Despite the consistency shown by the targeted results with the Government's development priority and ADB's country strategy, its appraisal was weak as it failed to address adequately the RDA institutional issues that the project preparatory technical assistance consultant already highlighted. The timing of the approval was questionable. There was inadequate analysis of and lack of risk-mitigation measures of risks in potential delay in the issuance of the envisaged new RDA decree. ADB also inappropriately responded to the external factors, i.e., the financial crisis of 1997-1998 which changed the country's needs and risk profile of the Project.
- The Project is assessed 'ineffective'. Clearly, there were: (i) significant underutilization of the loan and underperformance of the nine subprojects, (ii) less-than-satisfactory RDA disbursement and underperformance of the funded projects, and (iii) RDAP's and RDA's minimal contribution to the promotion of financial and institutional autonomy of local government. Most of the Project targets were not achieved.
- The Project is rated inefficient due to the negligible contributions of the (i) three subprojects (visited by the operations evaluation mission) to the improvement of allocative efficiency of the economy, and (ii) RDA to the improvement of allocative and process efficiency in urban infrastructure investments.
- Sustainability is assessed as 'unlikely sustainable' on the following grounds: (i) the Directorate for Subsidiary Loan Management classifies 3 of 9 subloans under the Project as bad or questionable, (ii) demand for 3 subprojects visited by OEM is not evident, (iii) inadequate operations and maintenance for the 3 subprojects, (iv) RDA only made few approvals and the restructuring of nonperforming RDA loans has been slow; and (v) political support for the RDA has been weakened.
- ADB needs to consider seriously the project preparatory outputs, and be more focused on achieving development results than getting the project approved. In the case of this project, the project preparatory technical assistance highlighted the lack of an enforcement mechanism for the RDA loan recovery, inadequate staffing for RDA operations, and operational efficiency.
- Project experience again shows the need for proper risk analysis and risk-mitigating measures in project design.
- Underperforming projects need to be better handled within ADB.
- Project-related tasks should be integrated effectively into the core operations of the executing agency.
- Onlending mechanisms require ADB's extra attention to the economic justifications and financial viability of subprojects.
- Executive Summary
- Design and Implementation
- Performance Assessment
- Other Assessments
- Issues, Lessons, and Follow-up Actions