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Presentation Version

DECENTRALIZATION AND POVERTY REDUCTION:

from Lessons Learnt to Policy Action

The Case of Indonesia

Bambang Bintoro Soedjito

A Workshop jointly organized by the OECD Development Centre and the Development

Cooperation Directorate

OECD Headquarters, Paris: September 29-30, 2004

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Since 2001 Indonesia has embarked on a program of fiscal, administrative, and political decentralization at the same time; moving the country from one of the most centralized systems in the world to one of the most decentralized;

The Big Bang decentralized much of the responsibility for public services to the local level, almost doubled the regional share in government spending, reassigned 2/3 of the central civil service, and handed over more than 16,000 service facilities to the regions;

Implementing a new intergovernmental fiscal framework, switching to a new accountability system at the local level, and promoting a vibrant civil society at the local level to critically monitoring local politics.

The ‘Big Bang’ Process

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The rapid decentralization and its hasty preparation have left much unfinished business…;

These issues fall into five broad categories: the lack of consensus on the vision of the

decentralized government; the lack of clarity on the division of power, functions

and responsibilities among central, provincial and local governments;

the need for strengthening human and institutional capacity of local governments;

the need for improving the structure of decentralized public finance;

the need for reinforcing local accountability.

Key Issues in the Implementation

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• Authority and functions should follow institutional and human capacity, and interest and willingness available at various levels of governments;

• The need to construct the mechanism for monitoring and evaluation of local governments performance in meeting the targets and indicators of their development plans;

• Improvement of the regional planning mechanism by improving vertical and horizontal coordination as well as the stakeholder participation.

Implications to Planning and Budgeting at the Regional Level

(1)

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• The introduction of unified and performance budgeting principle into planning system;

• Improving the intergovernmental fiscal system can only be done incrementally;

• Such a system requires: • a better designed, and larger local revenue base; • a more equalizing general grant; • specific grants that fund the center’s priorities in the

region; and • a regional borrowing framework that imposes hard

budget constraints on the regions.

Implications to Planning and Budgeting at the Regional Level

(2)

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“Big Bang” Decentralization: Changing the Map

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Population below the National Poverty Line, % and absolute numbers

37.3 m38.4 m

48.0 m

34.2 m

27.1 m 25.5 m 22.2 m

11.3% 13.7% 15.1%

MDG target 7.5% 17.4% 18.2%

23.4% 17.6%

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

1990 1993 1996 1999 2002 2005 2008 2011 2014

Source: Susenas

%

Millions poor population, using 1998 criteria Millions poor population, using pre-1998 criteria

Percentage, using pre-1998 criteria Percentage, using 1998 criteria

Millions

0

20

60

40

80

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Regional Level Perspective: the issues of disparity and of localizing

the MDGs

Putting forth national aggregates that just meet the international benchmark would do a great disservice to the regions; these figures would hide drastic differences in achievement;

Disparity between regions (sub-national level) is a great challenge in terms of a striking unevenness in regional performance;

Localizing the MDGs means in part addressing the minimum levels of achievement in service delivery expected of every region;

In terms of planning and budgeting process, it means linking MDGs and obligatory function (OF)/minimum service standards (MSS) to PRSP and medium-term expenditure framework (MTEF).

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Increasing In

comes Reducing ExpensesC

reati

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Com

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Cap

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Socia

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Planning, Programming and Budgeting Mechanism

Banking & non-banking financial institutions; private sector; community

Four Pillars of Poverty

Reduction Strategy

The Basic Building Blocks of Poverty Reduction Strategy

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Initiative for an effective poverty

reduction

Initiative for an effective poverty

reduction

Ideal environment for

investment

Ideal environment for

investment

Improving Performance of Local Governance

Improving Performance of Local Governance

Public access for appropriate information

Participatory planning and decision making process

Public participation in development planning

Open process in formulating regional regulations

Policy and regulation reforms: clear vision and priority setting

Public access for appropriate information

Participatory planning and decision making process

Public participation in development planning

Open process in formulating regional regulations

Policy and regulation reforms: clear vision and priority setting

Accountable local government and legislative:

Effective utilization of local budget according to local priority

Performance and output oriented

Clear local regulation towards a good governance

Independent public monitoring

Accountable local government and legislative:

Effective utilization of local budget according to local priority

Performance and output oriented

Clear local regulation towards a good governance

Independent public monitoring

Private investment that generates local economic and creating job opportunity

Involving NGOs in implementing and monitoring poverty reduction programs

Government program directed to fulfill the gap of poverty reduction programs

Private investment that generates local economic and creating job opportunity

Involving NGOs in implementing and monitoring poverty reduction programs

Government program directed to fulfill the gap of poverty reduction programs

Poverty Reduction Strategy through Initiatives for Local Governance

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The Central Issues

How the poverty reduction strategy can be mainstreamed into national and regional development policy and budgets?

How the new government will gain regional government cooperation and compliance on commitment made by the state to its citizen (which happen to be delivered through regional governments).

The policy framework

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Some Key Policy actions (1 )

The need to have strong government leadership and commitment at all levels (national/provinces/kabupatens & kotas) as champions to institutionalize and sustain poverty reduction efforts over time, including effective management system and effective delivery system;

The need to develop credible strategies and plans to foster economic growth, deal with implementation bottlenecks, and reach MDGs as part of PRSP, OF/MSS, MTEF and public expenditure program;

The need to develop & nurture culture of experimenting and learning, and ability to plan and implement on a large scale;

The need to improve equity and efficiency of resource mobilization and commit resources;

The need to improve governance including providing free flow of information, giving voice to communities, consumers and openness to NGOs and private sector, and ensuring accountability of decision makers;

The policy framework

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Some Key Policy actions (2)

Communication matters. Therefore there is a need to establish networking among government at all levels, NGOs, universities and private sector to spread lessons on what ‘s working. Regional poverty reduction committees (PRCs) should be encouraged but not made mandatory as a particular model. A flexible approach should allow for a variety of communicative and planning experiments in the regions;

The need to enhance absorptive capacity through decentralization, efficient targeting mechanism, and institutional reforms including having a clear fiduciary architecture and open reporting of results;

The need to link national strategies with regional budget allocations by working toward a common view of poverty, respecting the spending role of the regions, and increasing support for performance based budgeting;

The need to institute cost sharing, user charges or full pricing to keep the provider honest and sustainable and the client empowered;

The need to monitor and evaluate results, including strengthening the development of micro level data base for better and more accurate targeting.

The policy framework

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Thank You