Download Suggested Strategic Directions

Operating in a decentralizing
Indonesia
What will happen, what can
we do
Operating in a decentralizing
Indonesia
Features of Indonesia’s decentralization
The New Business Environment
Questions for the Bank
What’s Next?
Indonesia’s decentralization
 The current legal framework (Laws 22 and 25 of 1999)
will give Indonesia substantial decentralization.
 The districts/cities will manage most of the Government
services we care about, including health, education, and
infrastructure
 The Government has decided for a “Big Bang”
implementation in 2001
Indonesia’s decentralization
 Regional governments will spend about 40-45 percent of
total (8-9 percent of GDP)
 Central government will mainly spend on:
Interest payments (6 percent of GDP)
Subsidies (2-3 percent of GDP)
Central civil service (1.5 percent of GDP)
 Exact division not yet known
Regional Finance
Alokasie Umum (>25 percent of revenues,
3.5 percent of GDP)
Alokasie khusus (unknown)
Revenue sharing (oil, gas, forestry, fishery,
mining, 1.2 percent of GDP)
Own revenues (1 percent of GDP)
Borrowing
Alokasie Umum
90 percent to District/City; 10 to Province
Distribution per formula
Grant=f(Needs-/-Revenue capacity)*a
Needs=g(population, area, #poor, east)
Revenue=h(regional GDP)
a=adjustment factor, to ensure at least FY00
allocation
Alokasie Khusus & Borrowing
Distribution Umum-Khusus unknown
Line Ministries determine factors for
Khusus
Approval control of foreign borrowing
Formula-control of total borrowing
Total debt
Debt service
Risks
Debate on level of autonomy not settled
Macro-economic neutrality not guaranteed
Political accountability in regions shaky
Many appointed bupati’s & governors
Inexperienced DPR
No local tax rate control
weak links to service users
Big Bang will be messy
Opportunities
Better tailored service delivery
Experimentation
Competition
Participation
Using diversity of regions
Challenge:How to minimize risk, maximize
benefits
The New Business Environment
350 potential clients
1/3 of “regions” has 86 percent of the poor
4 themes
3 lines of business
2 types of financing
Shrinking operational budgets
Questions for the Bank
Which regions?
What level of government?
What process?
What products?
What role for the center?
Which regions?
Focus on the poor regions
…that face natural resource management
issues
…are well governed
…and are developing a competitive and
just economy
So which ones?
What process?
How to use competition among regions
How to get cross-sectoral focus
How to catalyze democratic, participatory
planning processes
How to promote innovation & experimentation
How to operate cost-effectively
How to monitor our impact
What products?
Lending or knowledge?
Projects or Programs?
IBRD or IDA?
What level of Government
The district has most of the money
The district responsible for most of the services
The district is small
spill-overs
small operations/high costs
The district has little planning/design capacity
(for now)
 The Bank could catalyze the right level of
cooperation
Central Business
Policy Advice
Decentralization design
National Projects
“Earmarked transfer” business
Financial Intermediary
Next steps
Do more analysis on regions
Design feasible operations
Design analytical tools to select regions
Agree with center on administrative tools &
processes
Continue advice to center on policy