making services work for the poor in...

INDOPOV

Making Services Work for the Poor in Indonesia:Focusing on Achieving Results on the Ground

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Printed in 2006.

This volume is a product of staff of the World Bank. The fi ndings, interpretations, and conclusions expressed herein do not

necessarily refl ect the views of the Board of Executive Directors of the World Bank or the governments they represent.

The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations,

and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning

the legal status of any territory or the endorsement of acceptance of such boundaries.

Bank Dunia | The World Bank

East Asia and Pacifi c Region


Acknowledgements

This report was prepared by a team consisting of Menno Pradhan, Vicente Paqueo, Elizabeth King, (task team

leaders), Deon P. Filmer, Scott E. Guggenheim and Anne-Lise Klausen under the guidance of Emmanual Y.

Jimenez, Tamar Manuelyan Atinc, and Andrew Steer, Country Director World Bank Indonesia.

The team would like to acknowledge the extensive support provided by the INDOPOV team, led by Jehan

Arulpragasam, and trust funds provided by the governments of Japan and the United Kingdom.

The report draws on the conference “Making Services Work for the Poor,” held in Jakarta in April 2005,

sponsored jointly by the Menkokesra and the World Bank, coordinated by Kathy Macpherson. It also draws

on two background papers commissioned for this report. The fi rst, produced under the supervision of Stefan

Nachuk, documents nine local innovations in service delivery. The second, produced under the supervision

of Nilanjana Mukherjee, is a “voices of the poor” study on service delivery. Comments from peer reviewers

Christopher Pycroft (DFID), Ariel Fiszbein, and Lant Pritchett (concept note), and from the Government of

Indonesia facilitated by Sujana Royat (Menkokesra) are gratefully acknowledged, as are the contributions of

many World Bank colleagues.

vMaking Services Work for the Poor in Indonesia:

Focusing on Achieving Results on the Ground

Foreword from the Coordinating Minister for People’s Welfare

Assalamualaikum Wr. Wb.

All praise be to Allah SWT for his mercy, blessing and guidance that “Making Services Work for the Poor in

Indonesia” is completed.

The Government of Indonesia has developed many programs to alleviate poverty. However, some of the programs

still need to be followed by more intensive eff orts to improve the availability, aff ordability and quality of services

to achieve a better standard of living. The concerns range from ensuring that skilled staff are available at primary

health clinics, to ensuring farmers receive the needed agricultural extension services. The underlying causes of these

types of problems are often similar. Hence, this report focuses on the cross sectoral issues that hinder progress in

delivering public services to the poor.

Over the past decades, public services in Indonesia have shown some improvement, however the coverage is not

yet optimal. Access to basic services increased considerably, and so did most indicators of human development.

The challenge now has shifted towards improving the quality of existing services, and reaching those who have

not been able to benefi t from the increased access. The challenges have to be confronted within the context of a

decentralized and democratic Indonesia.

We hope this report will be of use to the central government, local governments, and communities involved in

service sector. This report also covers many articles that show examples of service delivery innovation in Indonesia.

Many of these innovations can be applied immediately by practitioners to see results on the ground. The broader

question now is how to translate these daily local experiences into sector programs and policies which can lead to

a widespread sustainable improvement in service delivery. These recommendations hopefully can provide a useful

reference in dealing with this question.

Wassalamualaikum Wr. Wb.

Aburizal Bakrie

Coordinating Minister for People’s Welfare

Republic of Indonesia

viMaking Services Work for the Poor in Indonesia:Focusing on Achieving Results on the Ground

Foreword from the World Bank When a sick child from a poor family goes to a public health clinic, a health professional is there to examine him.

When a young pregnant woman visits a government clinic wanting advice on safe motherhood issues, she is seen

by a trained midwife. All children below 15 years old go to schools and receive enough instruction time to learn

basic math and science well. Villages have functioning water supply systems.

Governments around the world are grappling with how to ensure that these basic services are delivered to their

citizens. Just spending more money is not enough. Public resources need to be managed well to make sure they

translate into better service delivery.

Indonesia is no exception. While Indonesia has made remarkable progress in improving services over the last

decades, there are ample indications that not all citizens receive the basic services they need. Decentralization and

democratization has had a profound eff ect on the way services are managed. Five years after, this report takes stock

and proposes a strategy to sustain improvements in service delivery in the new environment.

The fi rst recommendation of the report is to promote the use of service agreements, and over time, increase authority

of service providers over the operational aspects of service delivery. Under this scenario, one service agreement

between the local government and providers specifi es what the provider has to deliver and what resources they

have at their exposure to do so. The agreement provides a benchmark for users to monitor service delivery and take

action if services fall below standards.

The second recommendation is to give users and communities a larger say in the way services are delivered.

Communities in particular are often more effi cient in building and maintaining local infrastructure and could take

on a larger role in making sure that the poor have access to basic services.

The third recommendation is to fi x the decentralization architecture. Improving service delivery is a shared

responsibility between local and central governments. Both spend considerable sums on improving services, and

these need to be coordinated to ensure they have the desired eff ect.

It is my sincere hope that this report can be a source of inspiration for those working on improving services in

Indonesia. On behalf of the Bank, I congratulate the authors and their government counterparts for closely

collaborating and producing this timely and highly relevant report. We hope that it will stimulate sustained and

vigorous discussions within government and civil society.

Andrew Steer

Country Director Indonesia

viiMaking Services Work for the Poor in Indonesia:


Table of Contents

Contents

Foreword vii

Executive Summary ix

Chapter 1 Challenges in Service Delivery: Second-Generation Issues and Ineffi ciencies Associated with

Decentralization

17

Chapter 2 Service Delivery in an Era of Democratization and Decentralization 29

Chapter 3 Strengthening Accountability and Incentive Structures 33

Chapter 4 Strengthening the Role of Clients 61

Chapter 5 Making Intergovernmental Relations Work for Service Delivery 65

Chapter 6 Toward an Operational Strategy for Improving Services 71

References 79

Tables

Table 1. Locally initiated governance reforms implemented in West Sumatra province xv

Table 2. Absentee rates (percent) among teachers and health workers in selected countries (2003) 25

Table 3. Economic benefi ts from community-managed basic infrastructure 53

Table 4. Suggested functional allocation for service delivery 71

Table 5. Suggested policy actions for making services work in Indonesia 79

Figures

Figure 1. Routes to accountability in service provision in Indonesia xi

Figure 2. Indonesia has made dramatic improvements in outcomes over the past fi ve decades 19

Figure 3. Expanded access has made public expenditures more pro-poor 21

Figure 4. Some important indicators improved following decentralization 22

Figure 5. Declines in malnutrition (low weight for age) stopped in the postdecentralization period 22

Figure 6. Sources of spending on education and health have been in fl ux since decentralization 23

Figure 7. Learning levels among Indonesian 15-year-olds are low, even among the better off . 26

Figure 8. Health care workers’ knowledge of service standards is weak 26

Figure 9. DPT vaccination has started to decline 26

Figure 10. Inequality in outcomes and services remains high 27

Figure 11. Funding fl ows from Central Government to schools 38

Figure 12. Use of public and private service providers, by income quintile 42

Figure 13. Framework for assessing and reducing risk when contracting with private providers 44

viiiMaking Services Work for the Poor in Indonesia:Focusing on Achieving Results on the Ground

Boxes

Box 1. Service agreements: Indonesia’s Targeted Performance Based Contracts xiii

Box 2. Burkina Faso’s Performance-Based Management Scheme 36

Box 3. How can incentives change the behavior of frontline service providers? 40

Box 4. Providing basic health service through an NGO 43

Box 5. Contracting with the private sector to provide water in Jakarta 45

Box 6. Streamlining the district government in Jembrana 49

Box 7. Making block grants work for the poor in Blitar city 54

Box 8. Reducing corruption in community programs by publicizing audit results 56

Box 9. Reducing client power by distributing vouchers through providers 59

Box 10. Hurting the poor by mandating that service providers charge less than cost 60

Box 11. Vague and overlapping functions are hurting service delivery across sectors 63

Box 12. Too many bureaucrats, too few professionals 67

Box 13. Decentralization of education has not been eff ective 68

Box 14. Improving budget transparency in Bandung 69

Box 15. A cautionary tale of three reform initiatives 73

Box 16. Introducing health quality standards 74

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Executive Summary

What this report is aboutHow can Indonesia’s schools do a better job in providing high quality education? How can clinics be made better in

responding to the needs of the patients? How can local extension services better meet the demands of the farmers? How

can service providers better meet the needs of the poor in today’s decentralized Indonesia?

This report seeks to provide some answers to the questions above. It argues that the causes of low quality

in service provision are surprisingly common across diff erent types of services, and that there are some common

elements to the solutions to improve services. This report focuses on these cross-sectoral issues, with reference

to examples primarily from Indonesia. The good news is that there are many examples of innovations in service

delivery that are yielding good results. The challenge is to learn from these successes and scale up good practices.

This too is discussed in this report.

Good News, and BadHistorically, Indonesia’s progress in service delivery and human development have been remarkable. In

1960 under-fi ve mortality was more than 200 per 1,000—more than double the rate in the Philippines or Thailand.

By 2005 the fi gure had fallen to less than 50 per 1,000, representing one of the largest declines in the region. A child

born in 1940 had about a 60 percent chance of attending any school, a 40 percent chance of completing primary

school, and a 15 percent chance of completing lower secondary school. In contrast, more than 90 percent of children

born in 1980 have completed primary school and close to 60 percent have completed lower secondary school.

There is a widespread perception that service delivery deteriorated after Indonesia decentralized in 2001.

The fi gures show that the reality is more nuanced. The feared collapse in service delivery after decentralization

did not materialize. On the contrary, the evidence suggests that since the 2001 decentralization, some aspects of

service delivery and human development outcomes have improved. The percentage of children who died before

their fi rst birthday declined between 1997 and 2003. Following decentralization, the public sector increased its share

of primary, junior secondary, and senior secondary school students, and its share of outpatient health care utilization

rose. Studies of client perceptions also reveal overall satisfaction with service delivery since decentralization. These

successes however do not imply that decentralization positively aff ected service outcomes. Despite increased

government spending, some social indicators appear to have slowed—and even reversed direction since

decentralization. Malnutrition had been steadily declining before 2000 but remained fl at thereafter; follow-through

on vaccinations has fallen.

Indonesia now faces a second generation of issues: low effi ciency of public spending, low quality of services,

and remaining inequalities in access and outcomes. These problems were embedded in the past top-down

model. Increased openness and democracy have made them more visible. Teachers’ low productivity is exemplifi ed

by their high rate of absenteeism (19 percent) and lack of teachers in remote areas despite an overall national surplus.

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Indonesia has one of the lowest student/teacher ratios in the world, even compared with rich economies like the

United States. At the same time data from the Trends in Mathematics and Science Study (TIMSS) reveal worrisome

trends: while 66 percent of eighth grade Malaysian students performed at an “intermediate” level or higher on an

internationally comparable scale of math ability, only 24 percent of Indonesian students did so. Ineffi ciency and

poor quality also characterize the health sector: forty percent of professional health workers are absent from their

posts on any given working day and both public and private health providers deliver poor-quality services. About

half of professional health staff are not familiar with correct clinical procedures, and less than a third comply with

best-practice protocols in managing specifi c health problems, such as malaria and tuberculosis.

These second-generation issues have to be addressed within Indonesia’s new policy environment. Since

the 1998 economic crisis, a highly centralized approach to development has given way to one characterized by

democratization and decentralization. This shift has made persistent human development and service delivery

problems more visible to a public that has become less tolerant and more vocal about corruption, wastage of

public resources, poor service quality, and inequality. Leaders now face pressure of direct elections. Re-election of

the incumbent is by no means guaranteed, as 38 out of 103 district leaders experienced during direct elections in

2005 (NDI,2006).

Empowered by democracy and decentralization, Indonesian citizens are eager to participate in public

decision-making. They want to hold the government and service providers more responsible for their performance,

but getting accountability is not easy. For example, in 2004 citizens’ pressure led to 55 members of the provincial

parliament West Sumatra being charged with stealing $690,000 from public resources, but even though a guilty

verdict has been delivered, getting justice has proven diffi cult (See Chapter 2). This new environment provides a

golden opportunity to improve the delivery of services through better citizen participation and greater government

accountability for its performance.

Confusion over the roles and responsibilities of diff erent levels of government have caused signifi cant

ineffi ciencies. The resource fl ows to districts—and from them to frontline service providers—remain diverse and

fragmented, making it almost impossible for benefi ciaries to know how much funding they are supposed to receive

and whether the funds have been released. For example, the average government health clinic has 8 sources of cash

income and 34 operational budgets, many of which are provided in kind by the central or local government (World

Bank 2005b). The problem is exacerbated by the lack of preparedness and capacity of many of the newly empowered

local governments to carry out their new responsibilities effi ciently. Duplication of responsibilities between the

central and local governments has led to increased bureaucracy and personnel in an already overstaff ed civil service.

This situation has created potential opportunities for corruption and leakage and a risk that decentralization could

simply mean the proliferation of a public service culture that remunerates employees without linkage to the delivery

of good-quality service to clients.

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Policy and Strategic OptionsRegardless of its eff ectiveness in the past, the old centralized command and control policy is no longer a viable

approach to governance and service delivery in Indonesia. Reverting to such an approach today is unrealistic.

It is therefore necessary to adapt the old paradigm to current realities. To be consistent with the new policy

environment, the new paradigm should be highly selective in choosing centrally driven service improvement

programs. But it should retain key drivers of the old strategy that continue to be relevant. Those drivers include

sustained, rapid, and pro-poor economic growth; the allocation of the bulk of public sector spending to basic

services; and reliance on private fi nancing and market provision for other services.

This report focuses on actionable ideas, using the accountability framework introduced in the 2004 World

Development Report to organize them into a coherent strategy. The framework (World Bank 2003b) as it

applies to Indonesia is shown below. Accountability relationships in service delivery exist between four sets of

actors: clients, service providers, central government and local governments. Clients, for example patients in clinics

or students in schools, have a relationship with the providers, such as schoolteachers, doctors, or water companies.

For private providers, the clients hold the service provider accountable through the power of the purse—by paying

for satisfactory service or otherwise taking his or her business elsewhere. For public services, there is often no direct

accountability of the provider to the client. There is then a “long route” of accountability—by clients as citizens

infl uencing policymakers in government, and policymakers infl uencing providers. There are two “long routes” in

Indonesia since both local and central governments have direct relationships with service providers. Hence the

accountability triangle shows two parallel relationships between government and service providers. The report’s

fundamental message is that accountability matters and that getting incentives right is the key to sustained service

improvement.

Figure 1. Routes to accountability in service provision in Indonesia

National policymakers

Clients and citizens Public/private providers

Local policymakers

Source: World Bank (2003a).

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While the study focuses on measures that can be taken immediately, it also recognizes the need for Indonesia

to deal with the larger issues of decentralization architecture and civil service reform. The report deals with

certain aspects of those issues only to the extent that they are directly and critically relevant to proposed options for

improving service delivery. A broader and deeper analysis of these issues needs to be conducted separately.

The main recommendations of this report are:

Increase the use of service agreements, which make explicit what services providers have to deliver and

what support government will provide in return.

Strengthen the role of clients in service delivery by

using their inputs in adjusting and monitoring service agreements,

putting communities in charge of some components of service delivery,

providing the poor with fi nancial means to purchase basic services they otherwise cannot aff ord.

Make governments work more effi ciently by clarifying which level of government is responsible for what

aspect of service delivery, and organize staffi ng and budgets accordingly.

Ensure the sustained propagation of promising service improvement practices across the country.

Increase use of service agreementsService agreements are a tool for providers and government agencies to become more client and output

oriented. Service agreements make transparent deliverables (outputs) of providers and the resources they have at

their disposal to achieve them, that is, clarifying what providers can be held accountable for. For example, schools

can agree to the number of teaching hours they provide to their students, while district governments commit to

staffi ng and budget in line with this commitment. Box 2 discusses the Targeted Performance Based Contracts for

Midwives pilot, which also used a service agreement approach. Service agreements need to be accompanied by

complementary measures to ensure they have an impact. In particular users, civil society, and governments have

to monitor providers’ delivery of outputs and compliance with agreed upon standards. Over time, providers can

assume greater responsibility for operational planning, as accountability relationships and capacity improve. For

example, one could imagine providing public clinics a budget to buy drugs at the local pharmacy instead of in

kind provision of medicines, as is the current practice. Granting greater provider autonomy through clear service

agreements and tight monitoring of outputs would allow providers to better tailor services to local needs and bring

decision-making closer to users.

•

•

•

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Box 1. Service agreements: Indonesia’s Targeted Performance Based Contracts

The TPC pilot was introduced by the MOH in 1998, as a key component of the Safe Motherhood Project to sustain and promote the services of

midwives (BDDs) in rural areas and reduce maternal and infant mortality (Menelaws, 2000). The TPC service agreement is the classical contract

between a “fund holder” or fi nancier and a private service provider. Another form of service agreement is the so-called “relational contract”, which

is further elaborated in the main text. The common feature between these two forms of service agreement is that they both explicitly specify the

commitments of the parties involved regarding their deliverables (outputs of the provider and inputs from the fund holder) and the process of

performance measurement and review. Both of these agreements improve the transparency about who is responsible for what; consequently, they

can be highly useful in clarifying roles and responsibilities and promoting accountability in service delivery. These agreements are especially eff ective

when they are implemented as part of a comprehensive agenda to reform those aspects of the country’s public fi nancing and service delivery

system that are impeding improvements in health, education and other public services.

The TPC scheme is a good local example of performance-based service delivery schemes from which positive lessons can be learned. The scheme

was successfully piloted; but to sustain and scale up, it needs champions in the current government. Essentially, the TPC is a formal agreement

signed by three parties: the District Health Authority, the midwife, and the benefi ciary community. The District agrees to: (i) provide the midwife the

exclusive right to practice as a private provider of a list of specifi ed basic health services in a designated village; (ii) compensate the BDDs with TPC a

basic, fl at month honorarium (fee) for delivering “public goods” type services; and (iii) pay the above BDDs for specifi c services actually rendered to

poor families in accordance with a variable fee-for-service payment based on the number of specifi ed services provided. The District also agrees to

provide the BDDs an initial, one-time payment to defray some of the start-up costs of establishing a small midwife station or offi ce in the village.

In return, the BDDs with TPC agree to adhere to professional standards recognized by the Indonesian Midwife Association and to be domiciled in

a designated village – and to be monitored and evaluated accordingly. The BDDs commit themselves to provide a specifi ed list of services to the

village community, including safe motherhood services, newborn and well-baby care, treatment of diarrhea and other minor, family planning, and

“public goods” services such as health education, supervision/training of traditional birth attendants, and supervision of School Health Program.

The BDDs are allowed to earn income from non-poor families for private services rendered.

The community on its part agrees to help in the promotion of the program and, where necessary, to construct a village health clinic (within 24

months of signing of agreement) and make necessary improvements to existing health facilities (within 12 months of signing). To stimulate initial

demand, low income families in target village areas would be issued coupon books for a range of health services provided by BDDs. This approach

was meant to increase their ability to pay and to empower them with the capacity to choose.

Get better services for the poor from the private sector. The private sector already delivers many services to

the poor, but these services are often of low quality. Governments, especially local governments, need to work

more often with private providers as partners in delivering services to the poor. Government could increase access

to training opportunities for qualifi ed private providers while at the same time educating and informing users to

demand high quality services from private providers. Where public fi nancing of service delivery makes sense, private

providers should be made eligible for demand—side subsidies, and on a selective basis, services could be contracted

out completely to private providers, in particular for services and communities that are at present not adequately

served by the public sector.

Strengthen the role of clients in service deliveryInvolve users more in service delivery is critical because they are the ones who benefi t most from service

improvement and should therefore care most about it.

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Appropriately assign service delivery responsibilities and resources to communities or to partnerships

between providers and communities. Communities are well equipped to build and maintain village infrastructure.

Village infrastructure built using community driven projects yields costs savings in the order of 50 percent compared

to construction through contractors (See Table 3). Communities increasingly could take on responsibility for other

aspects of service delivery. Communities, for instance, might be better equipped than schools to ensure that

children enroll and attend school. Lessons learned from local experience point to the need to match responsibilities

to communities’ comparative advantage, work with existing local institutions, invest in facilitation, and transparent

and informed decision-making, transfer funds directly to local benefi ciary accounts, and monitor performance.

Involve communities directly in frontline service provision. The government of Indonesia has already issued

laws recognizing the roles users can play in planning and monitoring service providers. Governments at all levels

should now develop practical strategies—such as working with communities to monitor the implementation of

service agreements—for implementing those laws to promote wider involvement of user groups in service delivery

decision-making and monitoring.

Use vouchers or conditional cash transfers to stimulate demand for services by the poor. Vouchers and

conditional cash transfer programs are powerful and appropriate instruments for dealing with income-related

inequalities in access to services. If Indonesia decides to adopt these types of programs, they should be designed so

that they promote choice, increase the power of clients, and consider supply-side constraints in areas where provision

of services is falling behind. These programs have been successfully implemented in many countries, where they

have had remarkable success reducing income poverty and improving human development outcomes.

Make governments work more effi ciently to improve service deliveryRelations between central and local governments are critical for increasing the accountability of providers

and strengthening the role of users. Local and central governments need to improve clarity over who is responsible

for which aspect of service delivery. For example, at present there is no clarity over which level of government

has the authority to establish, accredit, or close a public health center. Once this functional assignment has been

established, the budget process, monitoring, and reporting arrangements needs to be brought in line with these

assignments.

Governments need to revamp their institutions to implement these measures eff ectively. They need to adjust

their institutions and staffi ng to the functions assigned to them after decentralization and take measures to improve

performance. Many governments are already doing this, as Table 1 shows for three governments in West Sumatra.

Often there are too many bureaucrats and too few professional staff in local government offi ces. Many required

changes are currently impossible because of centrally determined institutional and civil service regulations, which

can be addressed only by a broader civil service reform.

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Table 1. Locally initiated governance reforms implemented in West Sumatra province

Reform West Sumatra

province

Kabupaten

Solok district

Kota Solok

district

Performance contracts for echelon II offi cials √More equitable distribution of incentive payments √Proper tests for echelon II or echelon III-IV offi cials √ √ √External assessment for promotion √Reorganization under PP 08 (regulation on organization) √ √Pakta Integritas (integrity pact) for transactions with the public

and the private sector

√

Giro (Clearing Account) to giro: fi nancial transaction by bank

without interference

√

Performance-based budgeting (Kepmendagri Home Aff airs

Ministrial Decree 29/2002)

√ √ √

Participatory planning and budgeting for service delivery √ √Strengthened procurement processes (Kepres presidential

decree 80/2003)

√ √ √

Integrity pact for procurement √ √Source: (World Bank 2005f )

Pilot, learn and scale up successIndonesia needs to adopt a strategy for dealing with the complicated process of change. The key is to allow

many innovations to fl ourish and to create incentives for those that work to propagate. Investment in pilots should

be encouraged. They should be given suffi cient time to work. And their impacts should be carefully evaluated. This

is a strategically important message, since many of the ideas suggested in this report still have to prove their value

in the fi eld. The challenge is to sustainably scale up successful pilots and innovations, which often die or fail to be

adopted beyond small enclaves.

An eff ective change management strategy could be based on the following guidelines:

Diversify a portfolio of reform initiatives and champions.

Provide grants for innovative reforms and pilots.

Bring personal incentives in line with institutional objectives.

Analyze winners and losers and provide some social protection to losers.

Invest in evaluating impact and disseminating knowledge.

Engage civil society, and invest in pro-poor coalition building and local ownership.

This report provides a list of policy actions and pilots that the central and local governments could consider to

improve service delivery for the poor. The list includes concrete proposals that refl ect the stakeholder views expressed

at last year’s Jakarta conference on “Making Services Work for the Poor in Indonesia” and the analysis of this report.

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Chapter 1Challenges in Service Delivery: Second-Generation Issues and Ineffi ciencies Associated with Decentralization

This chapter focuses on three questions:

What is the state of service delivery in Indonesia? How has the environment for service delivery changed in recent years?What are the current challenges in service delivery?

•••

18

Chap

ter 1


There is a widespread perception that service delivery deteriorated after Indonesia decentralized in 2001. But

the fi gures show that the reality is more nuanced. Indonesia made remarkable progress in service delivery, but

progress is slowing, despite increases in public spending. Democratization and decentralization have created

an environment in which the public has high expectations of leaders, both national and local. At the same

time there is less clarity within government as to who is in charge of what. Indonesia is now facing a new set

of second-generation issues: how to improve the quality of services, reduce remaining inequalities, and tackle

corruption in the use of public resources. Reverting back to the command and control approach to service

delivery is not an option. A new paradigm for delivery and improvement of services is required.

There is a widespread perception that service delivery deteriorated after Indonesia decentralized in 2001.

Newspapers widely reported outbreaks of polio, a disease considered belonging to the past; cases of severe

malnutrition; and diffi culties parents face in fi nancing the education of their children. Politicians, now facing the

challenge of democratic elections, feel the pressure. Central policymakers have taken bold steps, such as reallocating

fuel subsidy savings to basic service delivery, a measure aimed at exempting poor users from paying for basic health

and education.

At the district level, decentralization has created an enormous variety of experiences. Some districts have

experienced corruption and theft, others have maintained the status quo, while yet others have introduced

innovations in service delivery.

Five years after decentralization, this report takes stock and proposes a way forward. Data on post-

decentralization service delivery and human development outcomes are available for evaluating whether the

perceived breakdown in service delivery indeed occurred. The wealth of district-level experiences holds valuable

lessons on what options exist to improve services and how the new policy environment in which services have to

be delivered has aff ected the tools policymakers have at their disposal. This report proposes a new paradigm for

improving services in a decentralized and democratized Indonesia.

Remarkable Progress, But a Recent Slowdown Indonesia has made remarkable progress in improving education and health outcomes. Dramatic reductions

have been achieved in child mortality and increases in schooling since independence. In 1960, under-fi ve mortality

was more than 200 per 1,000—more than double the rate in the Philippines and 50 percent more than the rate

in Thailand. By 2005, the fi gure had fallen to less than 50 per 1,000, representing one of the largest declines in

the region. A child born in 1940 had about a 60 percent chance of attending any school, a 40 percent chance of

completing primary school, and a 15 percent chance of completing lower secondary school. In contrast, more than

90 percent of children born in 1980 have completed primary school and close to 60 percent have completed lower

secondary school (Figure 2).

19

Chap

ter 1


Figure 2. Indonesia has made dramatic improvements in outcomes over the past fi ve decades

Under-five mortality, 1960–2000

0

50

100

150

200

250

1960 1970 1980 1990 2000

Dea

ths

per 1

,000

birt

hs

IndonesiaMalaysiaPhilippinesThailandViet Nam

Education attainment by year of birth, 1940–90

0

20

40

60

80

100

1940 1950 1960 1970 1980 1990

Year of birth

Perc

ent

Ever attendedschool

Completedprimaryschool

Completedlowersecondaryschool

Completeduppersecondaryschool

Source: Under-fi ve mortality fi gures are from UNICEF statistics (www.childinfo.org); education attainment fi gures are based on analysis of Susenas 2003 data.

These remarkable improvements in outcomes took place in the context of a growing economy. Many of the

improvements in outcomes are attributable primarily to rising incomes: income per capita doubled between 1970

and 1980 and doubled again by the late 1990s (before the economic crisis of 1997). One analysis of Indonesia’s

extensive family planning programs shows that a large part of the reduction in fertility was attributable to economic

growth and rising education levels. That analysis also shows, however, that the reduction in fertility was possible only

because a highly responsive contraceptive supply delivery system existed (Gertler and Molyneaux 1994).

During this period, government policies focused on meeting basic needs and increasing access to basic

services. In the mid-1970s, for example, the government used its oil windfall to fund primary school construction

and hire and deploy teachers. This initiative led to substantial increases in primary school enrollment. The number of

primary level students rose from 13 million in 1973 to more than 26 million in 1986, when more than 90 percent of

children of primary level age were enrolled in school (Filmer, Lieberman, and Ariasingam 2002).

A focus on basic health led to a substantial increase in coverage. For example, in 1989 the Indonesian government

began hiring nurse-midwives and placing them in rural villages, an initiative subsequently formalized as the Bidan

di Desa program. By the end of 1994, more than 50,000 nurse-midwives had been placed (Parker and Roestam,

2002). Among communities repeatedly surveyed in the Indonesian Family Life Survey, the share of communities

with a nurse-midwife increased from less than 10 percent in 1993 to almost 46 percent by 1997 (Frankenberg et al

2004). By 2002 almost half of births in rural areas were attended by a village nurse-midwife (Badan Pusat Statistik and

ORC Macro 2003). A focus on basic health is also refl ected in improvements in vaccination rates. While less than 20

percent of 12- to 23-month-olds had received their fi rst DPT vaccination in 1980, close to 90 percent were covered

in 2004 (UNICEF 2005).

20

Chap

ter 1


These increases in coverage were driven by a centrally led expansion in public services that included

the construction of schools and basic health facilities and the hiring of civil servants to staff them. In

combination with economic expansion, the approach was successful at achieving many of its goals. The large-scale

school construction program was directly responsible for the increase in enrollments—and analysis suggests that

this education was rewarded in the labor market (Dufl o 2001). Analysis of the nurse-midwife program credits it with

leading to signifi cant improvements in maternal health, infant health, and childhood nutrition (Frankenburg et al

2004).

Over time, this public spending has increasingly benefi ted the poor, but it is still not as pro-poor as it should

be. Excluding expenditures on higher education, both health and education expenditures became more pro-poor

between 1989 to 1998. The benefi t incidence of public expenditure in health and education did not become more

pro-poor between 1998 and 2003, however. Combining data on the use of public services across quintiles with per

unit public spending on those services reveals that while spending on basic services such as primary health facilities

or basic education are somewhat pro-poor, spending on hospitals and senior secondary education are extremely

pro-rich (Figure 3). Despite improvement in outcomes and usage among the poor, the overall benefi t of spending

in the health sector is pro-rich. Spending on primary and secondary education is pro-poor. These static incidence

fi gures do not tell the full story: evidence suggests that new spending in the past has typically been more pro-poor

than existing spending. New public spending, particularly if it is well targeted, could therefore disproportionately

benefi t the poor (Lanjouw et al 2001).

Indonesia’s massive decentralization of service delivery in 2000 created unrealized fears of system collapse.

Laws 22 and 25 of 1999, the cornerstone legislation of decentralization, outlined a decentralized vision of the

delivery of basic services in most sectors, in particular health, education, and infrastructure (for a useful review of

the decentralization, see World Bank 2003. Under the decentralization law, central line ministries relinquished their

implementation responsibilities and their personnel management functions to the districts for almost all sectors.

Financing was to be done primarily through block grants to districts. The transition involved an administrative

transfer of massive numbers of central government civil servants and government assets to regional governments.

21

Chap

ter 1


Figure 3 Expanded access has made public expenditures more pro-poor

05

1015202530354045

Publichealth

centers

Hospitals All PrimaryHealthCare

Hospitals All PrimaryHealthCare

Hospitals All

1987 1998 2003

Poorest quintile Quintile 2 Quintile 3 Quintile 4 Richest quintile

Percent

0

10

20

30

40

50

60

Primary JuniorSec.

SeniorSec.

Alllevels

Primary JuniorSec.

SeniorSec.

Alllevels

Primary JuniorSec.

SeniorSec.

Alllevels

1989 1998 2003

Percent

Poorest quintile Quintile 2 Quintile 3 Quintile 4 Richest quintile

Source: Health data for 1987 are from Van de Walle (1994), education data for 1989 are from World Bank sources (http://devdata.worldbank.org/edstats/);

health and education data for 1998 are from Lanjouw et al (2001), health and education data for 2003 are based on World Bank staff calculations.

Note: “All” category includes only expenditures that could be allocated to primary hospital care for health or to primary or secondary schooling for

education.

The evidence so far suggests that since decentralization some aspects of service delivery have continued

to improve. Before decentralization the public sector’s share of the supply of outpatient health care utilization and

primary, junior secondary, and senior secondary education was declining. Since decentralization it has started to

increase. The percentage of children in the lowest achievement categories of the Trends in International Mathematics

and Science Study (TIMSS) remained steady between 1999 and 2003, and the share of children who died before

their fi rst birthday declined between 1997 and 2002/2003 (Figure 4). Moreover, studies of client perceptions reveal

overall satisfaction with service delivery since decentralization. In 2003, most respondents to a question in Indonesia’s

Socioeconomic Survey said that the ease with which children could enroll in school was equal to that in 2000. Most

reported that the availability of drugs, the quality of care, and the health of household members was the same as it

had been three years earlier.

22

Chap

ter 1


Figure 4. Some important indicators improved following decentralization

Percentage of Grade 8 students performing at eachachievement level on the TIMSS mathematics test

1999 and 2003

0

10

20

30

40

50

60

Perc

ent

Below low Low Intermediate High Advanced

1999 2003

Number of deaths before age 1 per 1,000 births in the 13–24 months before Indonesia’s Socioeconomic

Survey

1991 1994 1997 2002/30

10

20

30

40

50

60

70

80

Dea

ths

per 1

,000

birt

hs

Source: Test score data are from Mullis et al (2004). Mortality data are from. Badan Pusat Statistik and ORC Macro 2003.

Note: Births in the 13–24 months before the survey were examined in order to avoid including births before decentralization in the calculation.

But some worrisome trend reversals occurred as well. Malnutrition, which had been steadily declining before

2000, increased thereafter (Figure 5). Follow-through on vaccinations, which has substantial public health benefi ts,

declined. Moreover, because of the variability in circumstances across Indonesia and the limited scope for using

fi nancial transfers to equalize resources across districts, there is a fear that decentralization will result in widening

cross-district inequalities.

Figure 5 Declines in malnutrition (low weight for age) stopped in the post-decentralization period

Percent malnourished children below age 5

0

10

20

30

40

50

1998 1999 2000 2001 2002 2003

Susenas national

Susenas urban

Susenas rural

Hellen Keller urban

Hellen Keller rural

Source: Analysis of Susenas (various years); Pee at al (2003).

Note: Due to changes in coding, the levels of malnutrition in 2000 and 2001 in the Susenas data are not comparable.

23

Chap

ter 1


These postdecentralization trends occurred during a period in which total public spending on health and

education rose sharply. Between 2001 and 2003, both consolidated public education and health spending rose

sharply (Figure 6). Education expenditures rose 40 percent, of which 60 percent was due to spending increases

by the central government. Most of the increase—59 percent—was for development expenditures. In the health

sector, public spending increased 47 percent in real terms, with central and local government responsible for about

equal shares. Most of the increase (85 percent) was in the form of increased development expenditures.

Figure 6. Sources of spending on education and health have been in fl ux since decentralization

Education

0

10000

20000

30000

40000

50000

60000

70000

1996/97

1997/98

1998/99

1999/2000

2000(12m)

20012002

2003

Central Routine

Central Development

Billion Rupiah 2003 prices

Health

02000400060008000

1000012000140001600018000

1996/97

1997/98

1998/99

1999/2000

2000(12m)

20012002

2003

Local routine

Local Development

TOTAL

Billion Rupiah 2003 prices

Source: Aran and Mochtar 2006a, 2006b

A New Policy Environment and Priorities Decentralization has resulted in an entirely new paradigm for service delivery. Six years after launching

legislation, confusion over the roles and responsibilities of diff erent levels of government persist. Decentralization

was a massive shock to the system, with funding moving from direct channels to a system of block grants to district

budgets. But the various resource fl ows to districts, and ultimately to frontline service providers, remain diverse

and fragmented, making it almost impossible for benefi ciaries to know how much funding they are supposed to

receive and whether funds have been released. This situation has created opportunities for corruption and leakage,

and it has exacerbated ineffi ciencies. Reporting systems through line ministries have broken down, because since

decentralization they have had no representation in the districts.

There is varying capacity to deliver services at the district level. A common argument for line ministries

retaining their implementation roles has been that regional governments lack skilled manpower in planning and

management. The central government has issued regulations that local governments should merge and streamline

their institutions, but these regulations have been issued in a rigid, top-down, infl exible manner, which has caused

dissatisfaction among regional governments. The major shortcoming is that there are still no provisions that would

permit local governments to shed excess staff (through accelerated early retirement, for example). The lack of

24

Chap

ter 1


provisions for rightsizing institutions leaves regional governments with the wrong people in the wrong jobs—

overstaffi ng in some functions and understaffi ng in others—with few possibilities to remedy the situation.

The decentralization law defi ned sectors, not the specifi c functions to be transferred to local governments.

The result has been confusion over responsibilities and accountabilities. Signifi cant overlap exists in functions,

with line ministries continuing to play a role in implementing programs, alongside provinces and districts. The

system has created confusion, lack of coordination, and mistrust among the three tiers of government. Senior local

government offi cials in the district offi ces are often unable to understand, let alone monitor, what is happening in

their sector, who is doing what, and when actions are being taken. The provinces’ responsibility is to coordinate,

evaluate, accredit, and standardize, but provinces continue to prepare and implement programs. As a result, central

governments and districts view provincial authorities as competitors rather than possible partners.

Decentralization has created a dynamic and heterogeneous environment. Before decentralization there were

fewer than 300 districts (kabupaten and kotamaya); the number now stands at about 420. The situation is still in

fl ux, with new staff taking on administrative positions, often without adequate training or experience. Signifi cant

ineffi ciencies have been created, as each district requires its own administrative structure. At the same time, the

diff erences between district budgets is large and growing, as districts receive larger national resource-sharing

transfers as a result of high oil prices.

Democratization, which has occurred simultaneously with decentralization, also defi nes the new

environment for service delivery. The centralized model of increasing the supply of services that Indonesia used

between the late 1970s and the late 1990s was consistent with its political structure, which was highly centralized

and authoritarian. With the popular uprising of the late 1990s, the political process has made a substantial transition

to democracy, both at the national level, with a move to multiparty politics and the direct election of the president,

and at the district level, with election of the district legislative body and the head of the district (bupati). These forces

have had two impacts. First, they have allowed regions to articulate their own preferences and priorities for public

investments. Second, they have created new ways of holding policymakers accountable. Local-level democratization

has also resulted in increased popular participation in some aspects of service provision. This is clearest in the

case of education, where parent and community participation has been formalized in newly reinvigorated school

committees.

Indonesia now faces a second generation of issues: dealing with the low effi ciency of public spending, the

low quality of services, and remaining inequalities in access and outcomes. These problems were embedded

in the past top-down model. Increased openness and democracy have made them more visible. Reverting back

to a centralized approach is not an option. Dealing with these second-generation issues in a democratic and

decentralized environment has taken on new urgency for Indonesia to compete economically within East Asia and

globally.

25

Chap

ter 1


High absentee rates suggest that substantial resources are being expended for little return. A recent study

made surprise visits to more than 100 primary schools and health centers in Indonesia (Chaudhury et al 2005). It

found absentee rates of 19 percent among teachers and 40 percent among health workers. Indonesia had the

highest absentee rate among health workers among the countries included in this global study (Table 2). A separate

study found that 20 percent of the students listed as enrolled in the rural primary and junior secondary schools

were not present in class at the time of a visit (World Bank 2005b). Indonesia has one of the lowest student/teacher

ratios in the world, even when compared with rich economies like the United States. Yet despite this abundance of

teachers, remote areas often lack teachers (World Bank 2006).

Table 2. Absentee rates (percent) among teachers and health workers in selected countries (2003)

Country Teachers Health workers

Indonesia 19 40

Bangladesh 16 35

Ecuador 14 ––

India 25 40

Peru 11 25

Uganda 27 37Source: Chaudhury et al (2005).

Note: –– indicates data not available.

The physical quality of basic services is often low. Much of the infrastructure of basic services dates to Indonesia’s

initial oil boom of the 1970s. Today, much of that infrastructure is in poor physical condition. Among the rural primary

schools visited as a part of the recent Governance and Decentralization Survey, about 40 percent had classrooms

whose roofs leaked when it rained and about 65 percent had classrooms without a functioning electric light. Only

30 percent of primary health clinics visited were fully stocked with medicines, and about 25 percent lacked more

than three types of medicines (World Bank 2005b).

Learning outcomes in Indonesia are weak, particularly relative to its economic competitors. Learning

outcomes are low by international standards. The recent Programme for International Student Assessment (PISA)

found that Indonesian 15-year-old students performed about as well on average as Brazilian students but far worse

than students in Thailand or the Republic of Korea (Figure 7). Moreover, poor performance is not simply a function

of poverty. While students in the richest quintile perform somewhat better than other students in Indonesia, their

average is substantially lower than that of the richest quintile of students in Brazil—and worse than those in the

poorest quintile in Thailand (Figure 7). A recent case study on education in Malang describes systemic factors that

contribute to the low quality of education, which are observed throughout the system, even in elite private schools

(Bjork 2005). A similar study found that while 66 percent of Malaysian eighth graders performed at an “intermediate”

level or above on an internationally comparable scale of math ability, only 24 percent of Indonesian students did

(Martin et al 2004). In Malaysia 30 percent of students in eighth grade performed at a “high” level or above, while only

6 percent of Indonesian students did so.

26

Chap

ter 1


Figure 7. Learning levels among Indonesian 15-year-olds are low, even among the better off

Math scores

200

300

400

500

600In

done

sia

Braz

il

Thai

land

Kore

a

Problem solving scores

200

300

400

500

600

Indo

nesi

a

Braz

il

Thai

land

Kore

a

Poorest quintile of studentsRichest quintile of students

Average score

Source: Analysis of 2003 Programme for International Student Assessment data.

Indonesia has reduced child mortality, but other indicators suggest widespread service quality problems.

A large percentage of doctors, nurses, and midwives in public and private facilities are unable to name the correct

procedures for dealing with hypothetical cases of illness (Figure 8). The proportion of correct procedures mentioned

was 42–52 percent for adult curative care, 41–44 percent for prenatal care, and 55–62 percent for child curative care

(Gertler et al 2002) (Figure 8). The percentage of children that have received their third DPT immunization has stalled

at below 80 percent and has even started declining (Figure 9).

Figure 8. Health care workers’ knowledge of

service standards is weak

Figure 9. DPT vaccination has started to decline

0.0

20.0

40.0

60.0

80.0

100.0

Public health centers Private nurses andm idw ives

Private MDs andclinics

Adult curative care Prenatal care Child curative care

Percent

0

20

40

60

80

100

1980 1985 1990 1995 2000 2005

Percent

Indonesia

Malaysia

Philippines

Thailand

Vietnam

Knowledge of service standards in health Per entage of 12- to23-month-olds that receive their third DTP vaccination

Source: Left panel from Barber, Gertler and Harimurti 2005 based on 1997 Indonesian Family Life Survey. Right panel from (UNICEF, 2005).

27

Chap

ter 1


One indicator of the low quality of public services is the fact that many clients have expressed their

dissatisfaction by seeking out the private sector—despite the government’s emphasis on public provision.

This is especially true in health care and nonprimary education. Across all economic strata, almost 60 percent of all

health care visits were to private facilities or providers in 2004. The low-end private sector is often better geared

than the public sector toward serving the poor (see Figure 12). A “voices of the poor” study commissioned for this

report also indicates that the poor use private services not only because they are cheaper but also because they

consider them to provide better service (Mukherjee 2006). This pattern is not new. In 1993, the level and pattern

were remarkably similar. Since decentralization, however, the share of visits to the public sector appears to have risen

somewhat, across all economic strata.

Figure 10. Inequality in outcomes and services remains high

Proportion of current cohort that reaches to each grade

Main source of drinking water, by wealth quintile

Under-five mortality per 1,000 live births, by wealth quintile

Type of toilet, by wealth quintile

proportion

0

0.2

0.4

0.6

0.8

1

1 4 7 10grade

richest quintile

quintile 4

quintile 3

quintile 2

poorest quintile

0

20

40

60

80

100

Poorestquintile

2 3 4 Richestquintile

Piped Well/pump Surface Other

0

10

20

30

40

50

60

70

80

Poorestquintile

Quintile 2 Quintile 3 Quintile 4 Richestquintile

Deaths per 1000 births

0

20

40

60

80

100

Poorestquintile

2 3 4 Richestquintile

Private with sceptic tank Private without sceptic tank

Shared/Public PitNone/other

Percent

Percent

Source: Enrollment data are from analysis of data from Susenas 2004, current cohort defi ned as between 20 to 25 years of age. Mortality and water and

sanitation are from analysis of data from Demographic and Health Survey 2002/2003..

Inequality in access and outcomes remains high. Indonesia’s model of large-scale public provision has been able

to reach many parts of Indonesian society with many types of services. But not all services have been widely provided

to all income groups (Figure 10). While virtually all Indonesian children start school and virtually all children from the

richest quintile stay enrolled through the end of junior secondary school, this is not true for the poor. Child mortality

28

Chap

ter 1


among the richest quintile is less than 20 per 1,000 births, but it is more than 70 among the poorest quintile. Virtually

none of those in the richest quintile use a spring, river, stream, or dam as their main source for drinking, but more

than 30 percent of people in the poorest quintile do. While almost 60 percent of people in the richest quintile use

drinking water from a piped source, only about 6 percent of people in the poorest quintile do (Figure 10). Reaching

the poor and people in remote locations is crucial if Indonesia is to achieve its goal of an equitable society.

The Challenge in Service DeliveryEven if Indonesia’s service delivery model were delivering high-quality, effi cient, and equitable services, the new

political realities imposed by decentralization and democratization would require a review of the policy instruments

available to increase the quantity and quality of services. Decentralization and democratization—while not resulting

in an across the board collapse in services and outcomes—remains an unfi nished project, with lingering confusion

about responsibilities and accountabilities. The combined problem of addressing the second-generation issues

(improving service delivery to ensure competitiveness, using public resources effi ciently, and reaching those who

are currently underserved) in the context of the newly decentralized framework poses substantial challenges and

many opportunities to Indonesia’s policymakers. This report provides ideas on how to meet these challenges

and take advantage of these opportunities.

Chapter 2Service Delivery in an Era of Democratization and Decentralization

This chapter focuses on one question:

How has democratization and decentralization changed the relationship between users, governments and service providers?



Local policymakers

30

Chap

ter 2


The relationship between service providers, users of services, and local and central governments has changed

since Indonesia decentralized and democratized. The impact on the way services are delivered has been

signifi cant. Examples of actual situations these diff erent actors face provide some general lessons about

functioning eff ectively in the new environment.

The accountability relationships between Government, providers and clients have changed since Indonesia

decentralized and democratized. The accountability triangle, introduced in the executive summary and depicted

on previous page, shows these relations. The relation between clients and policy makers has changed because

leaders of central and local government and parliaments are now elected. This creates a pressure for these leaders

to perform as reelection is by no means guaranteed. For instance, in the 103 district head elections that were held in

2005, 38 incumbents lost (NDI, 2006). Citizens not only are more active in pressuring government, they also are more

ready to take an active role in organizing local service delivery in their area. More active community participation

in service delivery is a defi ning characteristic of the changing relationship between clients and providers. Relations

between providers and policy makers have also changed. With decentralization, district governments are offi cially

responsible for most functions in service delivery, but central government still maintains considerable leverage

through centrally controlled budgets, civil service regulations, and its large experienced staff in central ministries.

For example, development spending of the central health ministry in 2004 was about equal to district and provincial

health development spending combined (World Bank 2006b). Hence the accountability triangle shows two parallel

relationships between central government and service providers, on direct, and one through local policy makers.

To illustrate the importance of these accountability relationships, this chapter presents three stories of how

these relationships have infl uenced service delivery in Indonesia. The stories illustrate that these relationships

are complex and constantly changing. Several lessons can be drawn from the stories:

A professional attitude of service providers, peer group and user support can make a large diff erence on

how services are delivered. Too often providers have weak incentives to provide high-quality services.

Local governments that innovate in service delivery have to ensure that their results are communicated to

the electorate. Even successful innovators are not guaranteed re-election.

Clients, the benefi ciaries of services, still have very little say about how services are managed. Despite their

empowerment through decentralization and direct elections, in practice, citizens fi nd it diffi cult to enforce

accountability.

The incomplete and dynamic nature of decentralization has created a diffi cult environment, with much

confusion and overlapping roles and responsibilities across diff erent levels of government.

Service providers: some succeed, some don’tAlthough elementary school enrollment is high in Indonesia, large diff erences in school infrastructure, attendance,

and teaching methods provide reason for concern. The case of two schools provides a stark comparison. See Nachuk,

Leisher, and Gaduh (2005), and Mukherjee (2006).

•

•

•

•

31

Chap

ter 2


The six classes in SDN (Primary School) Bajo Pulau, a rural school in Bima District, West Nusa Tenggara, share three

classrooms; the others have fallen apart. Classrooms are full of garbage, candy wrappers, and leftover food. Three out

of four students do not have books or exercise material, which were eaten by goats. Some books are available, but

they are taken home by the teacher to avoid losing them. By contrast, the infrastructure in SDN 012, a rural school

in Polman District, West Sulawesi, is suffi cient. There are enough classrooms for all classes, and water and sanitation

facilities are available and adequate for all the students.

The interaction between students and teachers in the two schools could not be more diff erent. SDN Bajo Pulau is

dominated by chaos; students do not pay attention to the teacher, who simply wanders around. Students answer

the teacher, but they do not pose questions. Study groups are unheard of. If they can read what is written on the

board, students are allowed to go home. In SDN 012 teachers have introduced clocks to ensure timeliness. They use

visual tools and radio broadcasts. Students work in groups to improve learning, classrooms are orderly, and students

actively engage in classes.

As a result of these diff erences, students’ motivation varies substantially. In SDN Bajo Pulau, one third of the students

were absent for long periods, and teachers were often late. Students, often boys, drop out of school before the

fi fth class (grade 5) once they master basic abilities in reading and writing. A familiar reason is “I get bored learning

a, b, c every day!” Use of stimulating teaching methods has increased motivation among students at SDN 012.

They do their homework more often and for longer periods of time. Encouraged by their successes with the tools,

teachers have begun to design, use, and share their experiences in teacher working groups. Parents, inspired by their

children’s motivation and news letter, have become more involved.

Local Government: Sustainable Change Requires Winning Hearts and Minds The mayor of Tanah Datar District, West Sumatra, used his authority under the decentralization laws to cut the

number of government institutions from 22 to 8, saving the district about $1 million a year. The savings were used to

fund public sector improvements, including in the education sector. Some of these improvements were innovative.

For example, the district rewarded the best performing English teachers and headmasters with training and study

visits abroad. The environment for service delivery improved: the motivation of English teachers and headmasters

increased, the teaching methodology was adapted to local conditions, interest in student performance rose, and

there was an increase in the reform-mindedness of government education and school staff .

Despite these improvements, the mayor lost his bid for re-election in 2005. He had not won people’s hearts for some

unpopular policies. Failing to legislate the reforms reduced the sustainability of the policies. As a result, the new

government returned to pre-reform policies.

Clients: Demanding Accountability is Diffi cult but PossibleCorruption is often most visible to citizens at the lower government levels. In Padang District, West Sumatra

Province, law lecturer Saldi Isra noticed a sudden change in spending by provincial parliament members, who were

32

Chap

ter 2


exchanging their motorbikes for luxury cars. This prompted him to look into the West Sumatra government budget.

Isra, the son of a rice farmer in a village in West Padang, had diffi culty obtaining a copy of the budget, but he

eventually succeeded. The budget gave clear evidence of the rewards legislators were giving themselves. With this

evidence, Isra motivated his community to challenge government offi cials. It took three years, numerous protests,

and assistance from local newspapers and broadcast media to fi nd a provincial prosecutor willing to tackle the

legislators and haul them into court.

In May 2004, 43 of the 55 district legislators charged with misappropriating about $690,000 were found guilty. All of

them appealed. In August 2005 the Supreme Court upheld four- to fi ve-year jail sentences of 33 defendants; another

10 are awaiting sentencing. The offi cial letter of the Supreme Court reached the prosecutor’s offi ce in Padang in

December 2005. As of February 2006, the 33 convicts remained free. They were not complying with their sentence

because they allege that they have to be in Jakarta for national parliament commissions or are too old or sick to

serve their terms. The provincial prosecutor, Mochtar Arifi n, was promoted to deputy attorney general of Indonesia

and transferred to Jakarta. Isra was off ered posts at several prominent institutions in Jakarta but declined. “If people

with potential always move to Jakarta, in the end the regions will never develop. I see the need to empower the

local people,” he said.1

Central Government: Respecting local government responsibility and ensuring

alignment of objectivesIn February 2005 the Indonesian government announced a new health insurance program for the poor intended

to provide coverage for more than 36 million people. Because of confusion surrounding decentralization,

implementation has been rocky. Before the announcement, several districts had already implemented their own

district health insurance schemes under an earlier program (the JPK/Gakin scheme). The national initiative put these

local innovations at risk. More generally, since public clinics and hospitals report to district governments, the central

government had limited capacity to implement a national health insurance scheme that would operate through

this decentralized structure.

A solution was to appoint PT Askes, a domestic health insurance company that provides health insurance to civil

servants and has branch offi ces in almost every district. This decision was legally challenged by the districts that

had developed their own insurance schemes. The Supreme Court ruled that the central government’s decision to

implement the program through ASKES violated the decentralization laws. To operate, ASKES has had to team up

with more than 420 local governments to implement the program. It receives funding from the central government

budget, 10 percent of which it can keep for administering and publicizing the program.2

1 Based on articles that appeared in the Washington Post, the Jakarta Post and information from Reuters News, 2005, 2006

2 Based on authors observations and interviews with experts

Chapter 3Strengthening Accountability and Incentive Structures

This chapter focuses on three questions:How can the accountability relationships between public providers and governments be improved so that providers focus more on delivering good-quality services to the poor? How can governments work with private providers to improve the services they deliver to the poor? How can district governments organize themselves to manage service delivery better and reduce ineffi ciencies resulting from corruption?



Local policymakers

•

•

•

34

Chap

ter 3


To improve the quality of services, providers have to become more client and output oriented. Governments,

particularly local governments, need to increase the accountability of public providers for the services they are

supposed to deliver, work more with private providers as partners to deliver servicesto the poor, and reorganize

and build capacity in the public sector to manage these processes.

This chapter provides recommendations on how the accountability relationship between providers and

government can be improved to deal with the current challenges in service delivery. The relation between

governments and providers is of critical importance to the quality of services that the poor receive. Government

fi nances a large share of basic service delivery and can therefore set the rules on how these services are delivered.

Government can also help promote a well-functioning private market for service delivery, by enabling citizens to

make informed choices in purchasing the services they need.

The recommendations in this chapter are directed primarily to district governments, as they deal with

strategy development and the day-to-day management of service delivery. But to the extent that the central

government deals directly with providers, sets national regulations, or supports local governments in better

managing service delivery in their district, they apply to the central government as well. The recommendations are

designed with a view that it will take time for the decentralization process to stabilize and that in the meantime both

central and local government will continue to fund services.

The accountability relationship between public providers and governments can be improved by increasing

transparency about the services public providers are supposed to deliver and the resources they have at

their disposal to do so. Clarity about what providers can be held accountable for—as stated in service agreements—

will make monitoring by users and governments more eff ective. Over time, as accountability relationships and

capacity improve, a larger share of operational planning can be brought under the authority of service providers,

and accountability can be more often defi ned on the basis of outputs and outcomes. This will help providers tailor

services to local needs and bring decisionmaking closer to users.

Clarifying outputs and using service agreementsMany of the current institutional arrangements governing public service provision are unclear about

what providers are to deliver and how much they are to receive for doing so. The fi nancing and provision

of services is based on bureaucratic instructions, providing relatively little autonomy to providers or benefi ciaries.

The average government health clinic has 8 sources of cash income and 34 operational budgets, many of which

are provided in kind by the central or local government (World Bank 2005b). Making more explicit and formalizing

these reciprocal obligations between governments and providers can help clarify in measurable and accountable

terms the commitments of policymakers, bureaucrats, and citizens/clients. Explicit service agreements provide the

terms of reference against which compliance can be more eff ectively and fairly assessed, monitored, sanctioned,

rewarded, and made public.

35

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What are Service Agreements and Why Should They be Adopted?A service agreement is an agreement between a public service provider and government that identifi es the

services the provider will deliver and the resources it will have at its disposal to do so. A service agreement

increases transparency regarding what government holds the provider accountable to deliver and what clients

can demand from providers. The agreement has to be realistic given the available resources and the conditions in

the fi eld. Local governments have a comparative advantage in negotiating agreements. Service agreements need

to be monitored, by both government and clients, and government has to commit to take remedial actions if the

agreement is not met.

Service agreements are suited for predictable tasks for which the terms can be precisely written, measured,

and verifi ed at reasonable cost. For problems whose occurrence is unpredictable but the solutions to which

are amenable to standardized interventions (such as vaccinations to cope with sudden disease outbreaks), the

command and control approach is likely to be more suitable. Most second-generation issues, however, are not of

this type. Improving learning achievements of children or providing agricultural extension services, for example,

requires providing services that should be tailored to individual needs.

As second-generation issues become more important, service agreements will be increasingly relevant.

Wider adoptation of service agreements can provide the space to deal with second-generation problems for three

reasons. First, service agreements can increase equality in service provision by explicitly tying resources to the

outputs providers are expected to produce. Inequality in provision often arises because resources are controlled by

(district) government, and it is easier to channel resources to providers in urban areas. Second, service agreements

can contribute to improving quality by making greater use of the capabilities of staff working for service providers.

Service agreements provide more autonomy to providers. They provide greater ability for staff working for providers

to improve service delivery. Third, service agreements can reduce waste by increasing the transparency with which

funds are channeled to providers and allowing for more eff ective monitoring of expenditures.

The adoption of service agreements is politically attractive, as it sends a strong message regarding

government’s political will to create a culture of accountability, transparency, and performance. Successful

implementation of the service agreement approach is likely to resonate well with voters, in both central and local

government elections. It is a concept that the public can easily understand and around which it can be mobilized to

support service delivery reforms. Most voters are familiar in their daily lives with service contracts as a key instrument

for ensuring service delivery. Australia, New Zealand, and the United Kingdom have found the strategy useful in

reforming their public sector services and gaining citizens’ support for their public sector reform agenda. Service

agreements can also be practical and useful in less developed economies, as Burkina Faso’s Performance-Based

Management Scheme shows (See Box 2)

36

Chap

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What are the Characteristics of Good Service Agreements?Good service agreements should have clear objectives, and the agreed upon deliverables should be

couched in terms of measurable, goal-related outputs and outcomes. Ideally, the outputs should be measured

in terms of both the quantity and quality of service provided. There are many possible indicators of outcomes and

outputs. A good practice is to keep them simple and transparent and to include only a few critical ones. Examples

of good strategic output/outcome indicators used in the education sector in Indonesia and elsewhere include

school enrollment, the number of graduates, and student learning achievement in mathematics, science, language,

civics, and other important subject matter areas. Indicators in the health sector include the level of surveillance of

communicable diseases and the number of consultations, in-patients, and immunizations. Indicators for water could

include the number of users, the volume of water delivered, and days of water availability.

Box 2. Burkina Faso’s Performance-Based Management Scheme

The Burkina Faso’s Performance-Based Management Scheme illustrates the relational contract form of service agreements. This is a less rigid form of

performance-based agreement, often deemed appropriate for partnership agreements between public sector agencies or between governmental

and non-governmental partner organizations. The key diff erence between the relational and classical contracts is that the enforcement mechanisms

of the former is based largely on administrative oversight and management interventions rather than sanctions and penalties prescribed by the

existing legal code for enforceable contracts.

The scheme is governed by quasi-contract implementation agreements among key stakeholders. These agreements were considered quasi-

contractual in that although they adopted the language and form of a classical contract, they did not carry the weight of a legal document.

Components of the agreement included statements of purpose and of the obligations of signatories, modalities for fi nancial transactions,

accounting procedures, auditing requirements, and terms of cancellation. General and the contracting parties (regional directors, district directors,

facility in-charge) were required for formal authorization.

All major actors in the health sector reached a consensus on a key set of performance indicators, which refl ected the objectives in the Poverty

Reduction Strategy Paper. The indicators measured both level of eff ort (process indicators) and eff ectiveness (output indicators). They were

incorporated into plans of local governments and providers. The objectives, activities, indicators and budgets proposed in the action plans were

presented, debated, negotiated, amended, and informally adopted during an annual public forum at regional level.

Once the plans had been amended and approved, government offi cials and service providers used the agreement as the basis for their accountability

relationship. The agreement provided the formal structure for an exchange of performance (per process and output indicators in the action plans),

for technical support and funding from the government above and beyond that available through the routine government budget channels.

The quasi-contractual implementation agreement made explicit, in performance terms, what had previously been an implicit expectation of

Ministry of Health offi cials. By tying the off er of increased funding, fi scal liquidity, and technical assistance to this expectation, the government

created a structured, formal, and highly public exchange that off ered greater accountability for the use of public funds to the government and to

the public. The implementation agreement not only focused all actors’ attention on a set of priority results, but also clarifi ed the specifi c roles and

responsibilities of all actors involved in the exchange.

Source: World Bank 2003c

37

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Set service standards locally. The concerns and values of citizens and consumers diff er across districts, as do

economic conditions. Standards must be set that refl ect what is economically feasible given local circumstances.3 It

would be advisable, therefore, for central government to leave standard setting to the district governments, which

are in a better position to be aware of these changing realities. Various decentralized countries, including the United

States, leave much room for states and substate governments to set service standards. Central government can

guide districts in setting standards by, for example, developing adaptable model service agreements.

Choose standards that matter for human development outcomes. Standards are often not causally related to

what local people and policymakers really care about. For example, a low student/teacher ratio is often included in

the list of minimum standards, despite its lack of consistent correlation with student learning achievement. Such a

standard is inconsistent with the fact that until student/teacher ratios become very high, they are often indicators

of productivity (Hanushek 2003, Pritchett and Filmer 1999). In the early stages of its development, for example,

the Republic of Korea had as many as 60 students per teacher but was nevertheless able to achieve high student

learning outcomes (McGinn 1980).

Exercise restraint and keeping the number of service standards to a minimum. Service standards can be

abused as a back door to micromanaging frontline providers by setting too many mandates. As a consequence,

providers could lose needed autonomy and their ability to implement solutions that fi t their particular problems

and circumstances. Provider autonomy should be enhanced rather than undermined by the standards chosen. The

implication is that both the central and local governments should exercise restraint and keep the use of mandates

to a minimum. The emphasis should be on standards as guideposts for information to complement the monitoring

of agreed upon service standards.

Regularly review service standards. Welfare losses from unrealistic and infl exible minimum standards mandate

can persist over time if the process of setting standards and making adjustments is insulated from market and

political feedbacks—or if no learning mechanisms (for example, regular and systematic assessment of the usefulness

of chosen standards) exist. It is therefore important that standards be regularly and systematically evaluated to

inform adjustments. A process that is responsive to client needs and the results of technical assessment should be

established for reviewing and adjusting standards.

Link resources to services delivered. By making the link between resources and service delivery explicit, service

agreements reduce the scope for resource allocations based on proximity to leadership or preferences of staff in

terms of work location. A good example linking resources to services is formula-based funding for schools. Schools

are rewarded budgets and positions for teachers, infrastructure, and operational expenses based on the number of

students enrolled. If more students enroll, more services are delivered, and budgets increase automatically.

3 The concept of national minimum service standards has been adopted by national governments as a tool for holding local governments and provid-

ers accountable for their performance. Chapter 4 points to the need for clarifying the concept and redesigning its application, so that decentralization

is enhanced rather than undermined. Local national minimum service standards are discussed in this chapter as a tool with which to hold providers

accountable.

38

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Encourage limited revenue collection by providers. User fees retained by providers provide a direct monetary

incentive to deliver services. User fees for public providers, however, should be set by local governments as part of the

service agreement, with a view to ensuring that basic services remain aff ordable to the poor. The government of the

Purbalinga District raised fees at public health centers while it rolled out a health insurance program that exempted

the poor (Arifi anto et al 2005). Allowing providers to retain user fees brings the risk that they focus on revenue-

generating activities. To prevent this from happening, local governments need to pay attention to nonrevenue-

generating services during supervision.

Minimize the number of service agreements and providing them at regular intervals with consolidated

resources. Financing streams from governments to providers are highly fractionalized. Figure 11 shows the diff erent

fi nancing stream as they fl ow from the central government to schools. These general streams do not show the

multitude of project fi nancing. Consolidated budgets for services, provided at regular intervals, can improve planning

at the facility level and thus empower facilities to deliver on the agreement.

Figure 11. Funding fl ows from Central Government to schools

Direc t Educat ion GrantsState Budget

General Budget Allocation

Sectoral Expenditures - Education

Department of Educatio n K/L Other MAPENDA, PKPONTREN, andthe Minist ry s

District Own-Source RevenueRoutine Development

Development Routine

Provincial BudgetInfrastructure Project Management Deconcentrated Expenditures

Block Grant ProjectManagement ManagementDistrict Own-Source

Revenue ManagementDeconcentrated

Expenditures

Provincial Education Budget Deconcentrated Funds (center)

Ministry of ReligiousA rovincial Level Ministry of

ReligiousA

(Center)Management

ProvincialDeconcentrated Funds

District BudgetKab/Kota

District BudgetKab/Kota

Provincial Depar tment ofEducation and Barok an

Deconcentrated Province to

Infrastructure

MAPENDADistrict O

Infrastructure Deconcentrated Funds for Management

Deconcentrated Infrastructure

Funds

Education

Education Dept in K AB/KOTA

District Budget K ab/Kota toManagement

District Budget K ab/Kota to Infrastructure

Deconcentrated Fundsfrom Province to

Kab/Kec

Deconcentracted ProjectManagement Unit

Provincial Budget to Management

Provincial Budget t oInfrastructure

Deconcentrated Fundsfrom Kabupaten to

Management

Deconcentrated Fundsfrom Kabupaten to

Infrastructure

39

Chap

ter 3


Would Service Agreements Work in Indonesia?Service agreements have been applied in Indonesia. In the Operational Aid for Schools Program (BOS), the

agreement between the Ministry of Education and schools states that in return for a block grant, schools must

abolish all fees for poor students. As the program’s manual indicates, the program “aims at providing aid to schools

in the frame of relieving pupil’s contribution, but allowing the school to maintain the quality of educational services

to the community…. All public and private schools have the right to receive BOS…. the school must relieve all poor

pupils in said school from the school fee…. The BOS Fund is then channeled to the BOS recipient school through

the assigned Post Offi ce/Government…. In general the aim of the monitoring and supervision is to make sure that

… funds are received by the rightful benefi ciaries in the correct amount, time, method and utilization…. Sanctions

in respect of abuse of competencies that may be damaging to the State and/or the school and/or the students will

be imposed by the competent apparatus/offi cials” (Ministry of National Education and Ministry of Religion 2005).

The BOS agreement represents a break from the past in that it does not specify how the school has to achieve this

objective. It does not, for instance, specify that all the money has to be used to reduce school fees for poor students

or to provide scholarships. In this sense it provides unusual autonomy to the schools to achieve their objectives in

the most cost-eff ective manner. This idea has yet to be applied to the bulk of the money allocated to education.

Service agreements need to be better monitored, by Government, civil society and through feedback from

users. Governments that introduce service agreements need to plan ahead to make sure they are able to verify

their implementation. Governments face a reputational risk if clients, aware of what services should be delivered,

are left empty-handed. Civil society, in particular NGOs and research institutes, can provide independent evidence

to complement Government monitoring. Governments are encouraged to systematize user feedback mechanisms,

through complaint mechanisms, public hearings, and participatory planning. Involving users in monitoring also

helps governments assess whether the terms of the service agreement are in line with user concerns.

Monitoring results need to be translated into personal incentives for staff working for providers. The key to

making service agreements work is to ensure that people working for the providers have incentives to deliver on

the agreement. Many districts have experimented with incentives (Box 3). Involving users in evaluating performance

of staff can be a powerful tool with which to increase the client orientation of service providers. Governments can

encourage public pressure from users by increasing transparency on service agreements and resources available

at the provider level. User committees can play an important role in communicating concerns of clients directly to

service providers (See Chapter 4).

Over time, as monitoring systems and the capacity of local government improve, governments can adjust

these service agreements toward increased provider autonomy for operational planning. To do so, they

will have to reduce in-kind transfers in favor of cash funding and couch state service agreement more in terms of

outputs rather than services delivered. The desirability of enhancing provider autonomy derives from the subsidiarity

principle (giving decisionmaking authority to people closest to local information). Provider autonomy should be

40

Chap

ter 3


increased gradually while the capacity of local governments and providers to work under this type of arrangement

improves.

Reduce in-kind fi nancing of service providers. Providers currently receive a large share of their resources in kind,

in the form of learning materials, medicines, or contractors who repair or build their infrastructure. If providers do not

have control over how their resources are spent, they cannot be held accountable to deliver services as stated in the

service agreement. Rather than provide in-kind services, governments should provide direct transfers and optional

facilities for the joint procurement of inputs.

Box 3. How can incentives change the behavior of frontline service providers?

Numerous experiments of incentives for local service providers have been conducted in Indonesia in recent years. In all cases, there was a marked

change in the behavior of service providers in response to a changed incentive framework.

In Tanah Datar District, West Sumatra, a scheme was launched in 2002 to provide stronger incentives to English teachers and headmasters by

off ering them tours of Australia, Malaysia, and Singapore to study English and observe teaching methods. These trips motivated behavioral change

in several ways:

• The trips increased the motivation to do better work. Teachers returning from study trips submitted a group report to the mayor, with follow-

up observations and recommendations. Their observations included the need for stronger discipline of teachers, students, and parents;

smaller class sizes; and improvement in the quality of education by providing classes in computer skills and English, changing the teaching

methodology, and consulting with students.

• The trips eff ected changes in teaching methodology by some English teachers, including those who went abroad and some who did not but

associated with those who did (as friends or colleagues). One English teacher began teaching her classes in English rather than Indonesian

following her trip to Australia. She has also begun using a “student agenda,” in which students record their activities in English, as well as

what they have learned from them, as an aid in teaching.

• Interest in student performance and teaching hours increased, due to both school-based management and the stronger incentives policy.

On average students now study about 15 hours more a week. To demonstrate his commitment to raising student test scores, one headmaster

actually signed an agreement with his school committee stating that if scores at his school were not above a certain level he would resign.

In Jembrana District, Bali, health sector reforms created a new health care program, the Jaminan Kesehatan Jembrana (Jembrana Health Insurance).

The program provided free primary health care for all enrolled citizens and free secondary care for all poor members. It also enhanced client choice

by enabling members to choose between private and public health care providers, both of whom were reimbursed under the scheme. In addition to

increasing coverage of health services, the scheme directly aff ected the behavior of public health staff , who had to compete for clients with private

providers in the wake of this reform. As a result, public providers measurably improved their client orientation by sending mobile clinics and doctors

to remote areas at least once a month (rather than just providing health education in these remote areas, as they previously had); improving

medicine packaging; and providing “full smile” reception for patients. In addition, the management board of the project supervised quality control

for reimbursements by both creating a clear set of service standards for all providers and investigating cases of malfeasance.

Source: Leisher and Nachuk 2006

How can Service Agreements be Used in Remote Areas?One of the best ways to ensure that the poor benefi t from basic services is to have a system that is accessible for all.

But even with a good overall system, remote areas and marginalized groups will need special attention.

41

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Allocate adequate resources. Under decentralization, pro-poor programs are largely the responsibility of local

governments. But providing services to the poorest people is more expensive and therefore particularly hard for

districts with high average poverty and limited local resources. The central government has a mandate to promote

national equity. It can support districts using incentive schemes, funding partnerships between the central and

regional governments. These arrangements could be funded through Dana Alokasi Khusus (DAK, Special Allocation

Funds) when the programs are managed locally, or through district governments contributing from their Dana

Alokasi Umum (DAU, General Allocation Funds) to centrally managed programs that serve their districts. As discussed

in Chapter 4, linking this funding to specifi c pro-poor performance targets is important to ensure accountability.

Use innovative solutions for staffi ng and alternative modes of delivery. Remote areas fi nd it diffi cult to attract

and retain good-quality staff . Indonesia used to have a program in which publicly trained doctors were required

to serve for a period of time in remote areas. Once that program ended, doctors quickly stopped working in those

areas, with negative impacts on the quality of medical care. Providing fi nancial incentives for staff to work in remote

areas has been tried, but it can be extremely costly. One attempt to estimate how much it would take to induce a

doctor to work in the most remote areas determined that it would amount to multiples of current pay (Chomitz,

Setiadi et al 1998). If it is not possible to require qualifi ed staff to work in remote areas, alternative approaches need

to be used to ensure that services are provided. If it is impossible to ensure good coverage of doctors, for example,

an approach that emphasizes providing transport or reimbursing transport costs might be the next-best option.

Adjust expectations—and laws—about what can be achieved. The consequences of infl exible, high-cost, one-

size-fi ts-all standards can be signifi cant. Requiring that primary school teachers be university graduates and birth

deliveries be handled by medical doctors, for example, could deprive people of the help that could be delivered by

trained secondary school graduates and midwives. Strict adherence to the rule that every primary school should have

eight teachers—as is the case in Indonesia—could deprive remote areas of access to education. National rules could

be loosened for the sake of enabling some service (instead of none) to be provided. Allowing multigrade teaching

in small schools, for example, might be a way of providing schooling to more children in the most remote areas.

An alternative way to get people to work in remote areas could be to allow local hiring. While their qualifi cations

might not meet national criteria, hiring staff with ties to the local area would make it easier to keep them in the area.

Accountability might also be greater among employees with local ties. Each of these approaches might entail a loss

in quality and therefore might result in worse outcomes than under perfect conditions. However, the alternative is

not perfect conditions but rather no services at all.

Increasing the benefi ts from the private sectorThe private sector already delivers many services to the poor, but they are often of poor quality. The government can

improve the services the poor receive from the private sector by empowering poor users to demand better services

and by contracting out service delivery to the poor to private sector providers. Governments can support the private

sector in delivering better services to the poor by increasing access to training opportunities for qualifi ed private

providers, educating and informing users to help them demand higher quality from private sector providers, and

42

Chap

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making private providers eligible for demand-side subsidies. On a selective basis, governments can pilot contracting

out services to private providers, in particular for services public providers currently do not provide (such as services

in remote areas and new services).

The private sector already serves the poor. In almost every sector, there is a high-end private sector that delivers

high-quality services to those who can aff ord them and a low-end private sector that serves the poor (Figure 12).

The poor use these services because they are tailored to their needs or because they are the only services to which

they have access. Often they pay substantially more than public facilities charge. A recent “voices of the poor” study

found that prices charged by private water vendors in urban slums in Simukerto and Antasari were 15–30 percent

higher than those charged by public water utilities (Mukherjee 2006). Private religious schools provide education for

the poorest, but their quality does not measure up to that of public schools (Newhouse and Beegle 2005).

Figure 12. Use of public and private service providers, by income quintile

Source of drinking water

Primary education Junior secondary education Borrowing

Outpatient visits

0%

20%

40%

60%

80%

100%

Public Private low e nd private high end

14.4 8.2 2.2

0%

20%

40%

60%

80%

100%

Public Private low e nd private high end

4.7 2.7 3.2

0%

20%

40%

60%

80%

100%

Public Private low end private high end

12.2 0.5 0.8

0%

20%

40%

60%

80%

100%


3.5 0.4 0.9

0%

20%

40%

60%

80%

100%


2.6 4.2 3.7

AverageUtilization

5th (richest) income quintile

1st (poorest) income quintile

Source: Drinking water, outpatient visits, and education data are from Susenas (2003); borrowing data are from the Indonesian Family Life Survey

(2000).

Inform the public of service standards of private sector providers. Consumers can make better choices about

the use of private service delivery if they are aware of the quality of the service they buy. Particularly in the health

sector, there is a lack of awareness of the importance of basic hygiene standards, service standards for curative

care, and the dangers associated with not following these standards. In cases where users cannot be expected to

recognize quality—as is the case, for example, in assessing the cleanliness of drinking water—government has a

role to play in monitoring service quality and informing the public of it. Government can inform users by facilitating

43

Chap

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testing of service providers and proving certifi cates in recognition of quality services. The Bidan Delima program,

supported by the Indonesian Midwife Association, enables midwives to self-assess their skills and then study to

improve them. When they reach an objective standard, they are tested. If successful, they are certifi ed as high-quality

providers. Private midwives are very interested in participating in this program because certifi cation enables them

to attract more clients.

Extend training and recognition to qualifi ed private providers that serve the poor. A combination of training

and certifi cation of providers enables the poor to recognize quality through certifi cation. It enables private providers

to improve the standards of services they deliver. For well-functioning user groups, government could provide

recognition by giving them legal status, thus allowing them to contract as a group. For instance, informal savings

and loans groups sometimes manage large sums of money but cannot open a bank account under the name of

the group. After their fi nancial soundness has been established, they could benefi t from being able to link to the

private banking sector.

Make qualifi ed private providers eligible for demand subsidies. Government could support the private sector

and promote choice by making private sector providers eligible to receive voucher-type subsidies. (Such programs

are discussed in more detail in Chapter 4.) To minimize the risk of collusion, eligibility should be extended only to

private providers of recognized quality. Harmonizing the way government deals with private and public providers

makes it easier for users to choose the most cost-eff ective provider, and it provides an incentive for performance.

Some districts, such as Jembrana and East-Sumba, have allowed private health providers to be reimbursed under a

district managed health insurance program. Both districts have used a fee for service arrangement that is identical

for public and private providers (Gaduh and Kuznezov 2006 and Arifi anto et al 2005).

Selectively contract out service delivery to the private sector. In the short run, most contracting out to the

private sector will be for services the public sector does not deliver. In remote areas, where public services fail, for

instance, local governments could experiment with contracting NGOs to deliver basic services. Box 4 provides an

example of an NGO that provides a school-based health service that could benefi t the poor. The private sector can

also assist the public service provider in delivering on its service agreements. Spraying for mosquitoes, for instance,

is now usually carried out by public clinics. It would arguably be more effi cient to use private providers as there is a

well-developed private market for this service.

Box 4. Providing basic health service through an NGO

Yayasan Kusuma Buana, a Jakarta-based NGO, established a school-based intestinal parasite control program in 1987. The program includes an

educational component that explains problems caused by parasite infections, the impact on health and nutritional status, and the importance

of personal hygiene and sanitation to prevent infections. It also conducts twice-yearly stool examinations followed by treatments. Pfi zer provides

fi nancial and in-kind contributions, such as medication and plastic containers for stool collections. According to the program’s own evaluation,

prevalence rates of intestinal worms in program schools decreased from 78.6 percent in 1987 to 8.4 percent in 2003, an excellent improvement when

compared with intestinal worm infections among school children in Indonesia of 60–80 percent.

Source: Adi Sasongko (2004)

44

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Avoiding Costly Contracts and Non-performanceMinimize the risk of collusion when contracting out to the private sector. It is more diffi cult to hold private

providers accountable, since they are not civil servants and are bound only by the terms of the contract, which are

often diffi cult to enforce. Private sector providers need to be held accountable for the services they deliver. With a

weak legal system like Indonesia’s, accountability will have to come from government monitoring and pressure from

end users. The risk of underperformance and corruption is directly related to the ability of both to hold private sector

providers accountable for the services they deliver.

Move responsibility for implementation down to providers and communities can reduce the risk of

corruption. So can holding service providers accountable for measurable target indicators rather than the

delivery of services. These strategies correspond to the arrows in Figure 13. An example of the fi rst strategy is

to provide a budget for the purchase of textbooks, with the government providing information regarding which

books conform to national standards and how they can be obtained. This strategy is less prone to collusion than

procurement at the national level. Schools feel the immediate consequences of corruption, and there will be

immediate pressure from school committees and parents to ensure that the budget is used wisely. An example

of the second strategy is monitoring children’s health—by, for example, tracking the incidence of diarrhea and

intestinal worm infections rather than monitoring whether children are given their anti-worming medicine.

Figure 13. Framework for assessing and reducing risk when contracting with private providers

Low ability of government to hold provideraccountable

Empow er users:Move responsibility dow n to providers andcommunities

Q2: Low riskExample: public health cliniccontracts private firm to sprayagainst mosquitoesPolicy: Bring public and privateprovider to level playing f ield

Q1: Medium riskExample: NGO is put in charge todelivery some components of health deliveryPolicy: Enhance accountability to end-users; Move to Q2

Q4: Medium riskExample: large central government procurement of textbooksPolicy: Improve procurement ;Move to Q2

Q3: High riskExample: Large scale contract w ith private w ater provisionPolicy: Avoid; try to move aw ayfrom this area

High ability of end-user to hold provider accountable

Low ability of end-user to hold provider accountable

High ability of governmentto hold provideraccountable

Hold service provider accountable forobservable targets andoutputs

Source: authors of this report.

45

Chap

ter 3


For medium-risk contracts, government can reduce risks by improving procurement, involving end users

in performance evaluations, or both. The procurement process is crucial in cases where end users cannot be

expected to be able to hold providers accountable (Quadrant 4 in Figure 13). For instance, an external procurement

agent with an international reputation at stake can be used to minimize the risks of corruption on large government

contracts. In cases where government cannot be expected to evaluate performance (Quadrant 1), government can

increase accountability by letting end-users evaluate contract extensions.

Avoid high-risk contracts with the private sector. Contracting with the private sector should be avoided if the

terms of the contract cannot be assessed by either the end user or the government (Quadrant 3 in Figure 13). The

risk of corruption and nonperformance by the provider is very high. In this case, the public sector is better placed to

deliver the services (Box 5).

Box 5. Contracting with the private sector to provide water in Jakarta

The 1997 Jakarta water agreements, called “concessions,” theoretically provided the opportunity for residents of Jakarta to benefi t from improved

water reliability and quality by delegating management, operation, and investment in water services in the city. PAM Jaya, the public operator,

directly negotiated cooperation agreements involving two private consortiums.

A number of issues and problems, most arising before the concessions began, marred the performance of the operators and fundamentally

constrained their willingness and ability to expand coverage and deliver services to the poor. Many of these problems can be attributed to the

capacity of the public partners to adequately prepare for and manage the private sector provider arrangement. These problems included lack of

understanding, especially within PAM Jaya, as to why such an arrangement with the private sector might be desirable; lack of a project preparation

period to generate consensus; and lack of transparency in the bidding process.

But the problems also refl ect a lack of understanding of how to promote successful private sector provider arrangements in water service delivery.

In particular, separation of the tariff and private sector provider debate (necessary in nearly all situations) was not handled well in Jakarta. The

concessionaires were mobilized before the tariff increase and then shouldered the blame for a government cost-recovery strategy. The lack of an

operational and independent regulator at the outset, followed by an attempt to create a regulatory body from the remnants of the original operator

without the skills and independence to function properly, meant that independent regulation was not and has not been achieved. Although the

establishment of the function was achieved in 2001, it is still struggling to asserts its independence. The lack of clarity of roles for the outgoing public

operator and the lack of proper incentive structures for the private operators meant the risk/reward calculation did not lend itself to delivering water

to poor areas.

These problems cannot be fi xed overnight. The key lies in establishing a truly independent and competent regulatory body, developing greater

capacity in the public sector to dialogue with private operators, and developing greater demand among consumers for accountable services.

Source: Interviews by the authors of this report

Improving Governmental Organization and CapacityLocal governments need to revamp their institutions to implement reforms eff ectively. They need to adjust their

institutions and staffi ng to the functions assigned to them after decentralization and take measures to improve

performance. Many required changes are impossible because of centrally determined institutional and civil service

regulations. A broader civil service reform is needed to address those changes.

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Regional governments and frontline providers across Indonesia are striving to optimize the use of available

resources and improve service delivery through organizational changes and better management. Examples

include reorganization within specifi c sector units, recruitment reforms, elements of performance management,

agreements with staff to be “clean” in exchange for a fi nancial bonus, performance pay schemes, and agreements

on service monitoring by user groups (See Table 1 in the executive summary). With direct elections to the positions

of regent, mayor, and governor, local leaders have gained confi dence in testing new approaches. Sharing and

exchanging experience across jurisdictions can take on a new signifi cance, as leaders now have a high stake in

delivering on their promises. Devolving more responsibilities to service providers is a logical step in a continued

eff ort to test approaches to improved service delivery.

At the same time, local governments fi nd it diffi cult to operate because of unsolved regulatory issues,

fi nancial dependency, and unclear division of responsibilities across tiers of government following

decentralization. The struggle between diff erent tiers of government to control resources hampers effi cient

delivery to end users. A case in point is the weak coordination of spending of centrally controlled and managed

activities and programs, which often run in parallel, uncoordinated with local government spending. At the provider

level, this causes interruption in supplies and sometimes the delivery of unneeded items, such as medicines and

textbooks. As one assessment notes, “More often than not, centrally bulk-purchased drugs and medicines that were

sent through the district government health offi ce to the public health clinic were not needed, but the head has

no option except to receive them. As a result, medicines and drugs are either sold to interested buyers or left idle to

expire. If sold, the proceeds become extra funds of the personnel.” (Morga and Manuel 2003)

Decentralization has made it apparent that a broad administrative and civil service reform is necessary to

meet the public’s need for better public services. Organizations must have the right size; personnel and fi nancial

systems must be reformed so that skills, incentives, and management systems can deliver optimal performance.

Government needs to prepare to tackle these agenda items in the proper sequence with the right policies and

resources. Chapter 5 discusses actions the central government can take to modernize the civil service and bring it

in line with decentralization.

Meanwhile, sets of locally initiated and managed institutional and personnel actions can play a signifi cant

role in improving service delivery outcomes within the current institutional setting. The mismatch between

functions, institutions, and personnel and the lack of performance incentives in regions make it diffi cult for

governments to eff ectively manage service delivery. District governments can deal with some of these problems

independently of the central government, in various ways. The recommendations presented below are based on

experiences of districts that have reformed their administrations along these lines.4

4 Discussion of comprehensive and deep administrative and civil service reforms is beyond the scope of this report. For a discussion of the deeper

reforms needed in Indonesia, see World Bank (2000).

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Agree on the division of responsibilities between district and provincial governments. District governments

do not need to wait until the central government clarifi es functional allocations and budgets. Provincial and district

governments can overcome many of the coordination problems by agreeing among themselves about who is

in charge of which functions. Based on this agreement, institutions and personnel can be adjusted. Such analysis

should also identify and resolve overlaps and gaps between service units within the same administration (horizontal).

Although some uncertainties cannot be resolved, districts can get a clearer picture of their own tasks and outline

objectives and set targets for outcomes. Work agreements between provinces and districts, including information

sharing on activities and resources, can facilitate a better operational environment for service delivery—as they are

in West Sumatra and Yogyakarta Provinces.

Deal with overstaffi ng and matching functions and skills. The rigid staffi ng system in the civil service leads to

almost unresolvable capability gaps, which reduce the quality of services. Overstaffi ng is common in provinces and

many districts. Districts often have too few technically skilled staff and too many generalists; as a result, they hire

contract staff to meet their technical needs. Provinces have few functions and are often overstaff ed and better off

fi nancially than districts. Many remote districts are short of staff . Transfers are exceptions rather than a rule, and civil

servants in the wrong place and position can stay put for years. Some regions take advantage of the age structure

of the civil service and leave nonessential positions vacant when staff retire. For example, in the education agencies

in West Sumatra Province, there used to be 700 staff . Through natural retirement, the size of the staff has now been

reduced to 480, and the administration hopes to see the number fall to 200 over the next fi ve years. This is a second-

best solution, because the reduction in staff has not resulted in a better match between posts and employees. In

what follows, several concrete recommendations on what regions can do (and some already do) are outlined.

Move excess personnel temporarily to a pool of staff in waiting. Pool staff can then reapply for positions once a

reorganization has been done and clear job descriptions are in place. If an employee’s skills match those needed to

perform a job and he or she is trainable, it is possible for the employee to return to the mainstream of the institution.

Employees without potential for redeployment can be left in the pool, assist in ongoing tasks where possible, and

be encouraged to fi nd opportunities outside government employment. If voluntary departures do not occur and

nondeployable staff remain in the service of government, it is still a better deal to keep them in a pool rather than

in frontline positions.

Ensure that recruitment and promotion is open and transparent and based on clear job descriptions. To

raise the professionalism in key positions, many local governments use specialized companies to assess candidates

for recruitment and promotion. This can also mitigate the danger of political interference in local employment,

which is a curse to many district governments. Although candidates put up for promotion still have to fulfi ll certain

rank criteria, the assessment system does introduce an element of professional standard setting. The drafting of

clear job descriptions for those recruited or promoted is also important, because it clarifi es and specifi es the tasks,

enables performance to be evaluated, and introduces performance-based incentive schemes. Local governments

can introduce performance-related allowances, but the management of such schemes requires that staff have job

descriptions and that targets have been set.

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Set proper terms and conditions for contract staff and using this workforce as an asset in providing services.

Shortage of civil service positions and understaffi ng in certain types of professions have resulted in massive contract

employment. Contract employment of teachers and doctors was initially a second-best employment solution

for dealing with staff shortages. But contracting is now used to hire large numbers of low-skilled staff in support

functions. Used wisely, contract employment is a healthy addition to the public employment regime. Contract staff

can be used in places where civil servant rules make it impossible to hire the people needed to carry out tasks

that are temporary in nature. A properly managed work force of contracted staff can be the most direct route to

improving the skills level of staff in service provider institutions and local administrations. This will ease the constraints

posed by rigid civil service rules. Local administrations can develop appropriate regulations on reasonable tenure of

employment, rights and security, and remuneration. Contract employment can also introduce fl exibility within the

local human resources planning system.

Develop local individual- and institution-based incentive schemes for good performance and sanctioning

bad performance and corruption. Schemes to enforce attendance and discipline mushroom in administrations

and frontline institutions. These can hardly be described as reform initiatives, so local governments may therefore

add performance-based incentives, either on a group or an individual basis. Revamping or defi ning policies for

sanctions and building team spirit around performance goals, which are rewarded through better pay, can go along

way toward improving service delivery (Box 6). This was done successfully in Yogyakarta Province and other regions,

which transformed the “welfare allowance” in the budget into performance pay.5 Provision of training opportunities

is another incentive that can be applied strategically to boost performance. Financial incentive schemes should be

transparent. Institution-based systems could be monitored and evaluated by the public receiving services. Possible

negative sanctions include moving staff to administrative positions, in which bonuses over the basic salary are more

modest.

5 In Indonesia the term incentive payment is often used to refer to a top-up on the basic salary that applies to all teachers, independent of performance.

In this report, performance payment refers to extra pay based on performance. A best teacher award, for instance, would fall into this category. The

example above is a short-term measure that does not substitute for deeper reforms. Performance-based pay is diffi cult to implement and manage;

trying to fi x the fl awed wage system in Indonesia with discretionary allowances and nonwage benefi ts pervades the pay system. Indonesia needs

a major pay reform as one element of an administrative and civil service reform. Merit-based pay should be the foundation of an overhauled pay,

grading, and classifi cation system that recognizes work responsibilities and meaningful credentials.

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Box 6. Streamlining the district government in Jembrana

Kabupaten Jembrana in Bali Province consists of 4 subdistricts and 40 villages. The district employs 4,628 civil servants (including teachers), 3,084

of whom are in functional positions. The number of civil servants has been reduced by not replacing retiring staff , by imposing sanctions after

undisciplined behavior, and by circulating employees.

Study tours and student exchanges to Japan have helped generate new ideas. Staff must confi rm their attendance four times a day by electronic

fi ngerprint. Absenteeism is sanctioned by cuts in annual leave. In more extreme cases, employees are suspended and their pensions cut. Attendance

and performance are rewarded with incentive pay of Rp. 1 million at the end of the year.

The merging of agencies (dinas) as part of the reorganization of the district government has resulted in a reduction of 125 management positions.

Certain tasks, such as waste management, have been delegated to the subdistrict level, for example. All subdistricts are connected with the district

through a local area network, making the exchange of information fast and convenient.

Sources: Notes from fi eld visits of World Bank staff , the TIFA foundation and GTZ.

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Chapter 4Strengthening the Role of Clients

This chapter focuses on three questions:When and how can service delivery functions be assigned to communities?How can participation of users in public service delivery lead to better services? How to ensure that the poor can aff ord basic services?



Local policymakers

•••

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Increasing client power in service delivery has enormous potential to increase service delivery. Governments

can support users by appropriately assigning service delivery responsibilities and resources to communities, by

establishing partnerships between providers and communities, by involving communities directly in frontline

service provision, and by using vouchers or conditional cash transfers to stimulate demand for services by the

poor.

At fi rst glance, making service providers accountable to end users appears to be a signifi cant change from

the centrally driven programs designed and managed by large line agencies. Yet for many years, Indonesia

has been a world leader, through programs such as the BRI unit desa (BRI bank village unit) or the Integrated Pest

Management Program, which have helped users manage, monitor, and deliver services to the rural poor. Can scaled-

up community programs be harnessed in ways that can support a much broader range of improved service delivery

across Indonesia’s wide range of geographical and socioeconomic environments? Although rigorous quantitative

evidence that documents the eff ectiveness of community-based service delivery is only just becoming available,

these studies already suggest that Indonesia has at its disposal a powerful instrument that will provide cost-eff ective

service delivery to the rural poor.

This chapter reviews three ways of making providers more accountable to users. The fi rst is to assign service

delivery functions directly to communities (or partnerships between communities and providers), thereby reducing

the distance between providers and clients. The second is to increase participation of users in public service provision.

The third is to provide vouchers for poor users to purchase services.

Governments should more systematically assign responsibilities for certain aspects of service delivery

to communities (or partnerships between providers and communities), taking into account the lessons learned

from Indonesia’s experience in involving community-driven programs. Communities are well equipped to build

and maintain village infrastructure and increasingly could take responsibility for other aspects of service delivery.

Experience has shown that it is important to match responsibilities to communities, work with existing local

institutions, invest in transparent and fair decisionmaking, transfer funds directly to local accounts, and monitor

performance.

Using Communities to Provide Basic Services to Poor PeopleWhat empirical evidence supports expanding community-based service delivery? Is this approach more appropriate

for some services than for others? What are some of the policy and programming options open to the government

for using community-based service delivery? What are some of the key characteristics of successful demand-led

programs?

Growing evidence suggests that involving community groups in service delivery is cost-eff ective and

results in services that are better tailored to needs. Much of this evidence was presented at the 2004 Shanghai

World Poverty Congress, in the form of case studies from Brazil, Cambodia, India, Indonesia, and Yemen (World Bank

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2005d). Reviews of community construction programs around the world consistently show cost savings of 30–50

percent compared with traditional, supply-led construction methods (World Bank 2005c).

Three main reasons explain the good performance of community-managed development programs. First,

particularly for basic rural infrastructure, services that respond to community demands can count on very high

rates of local contributions, for both construction and maintenance, thus stretching scarce government budgets.

Second, high levels of local involvement provide additional monitoring and oversight, which reduce corruption,

mistargeting, and other forms of waste. Third, community involvement increases the likelihood that the services that

are provided are more closely aligned to community members’ needs and will therefore more eff ectively achieve

defi ned outcomes.

Indonesia has enjoyed impressive results from community-based approaches to basic infrastructure.

Evidence on realized cost savings from four large community development projects shows that communities built

infrastructure for as much 66 percent less than contractors did (Table 3). Savings were evident in both single-sector

(water supply) and multisector programs. Using community-based approaches on large-scale projects can save

hundreds of millions of dollars. Cost savings achieved by community methods are often particularly high for upland

and isolated communities, where the costs of mobilizing contractors can be higher than the cost of construction

itself.

Table 3. Economic benefi ts from community-managed basic infrastructure

Project Total value ($million)

Community contribution

(percent)

Percentage savings of using community

rather than contractors

P2D (phase 3) 200.0 — 23

Water Supply for Low- Income Communities 2 106.7 23 49

Kecamatan Development Project 2 310.0 21 55

Urban Poverty Project 100.0 35 66 — Not available.

Source: Findings of Post-Construction Economic Impact Analysis, Bappenas, Jakarta, 2005. TF-05382¬IND.

Opportunities for Community-Based Service Delivery in IndonesiaPrograms for the large-scale involvement of communities in improved service delivery can be classed into

two broad categories: programs that transfer resources and responsibilities directly to communities and

partnerships. Each has potential for scale-up in Indonesia.

Block grant transfer programs increase end-user control over service demand and quality. Block grant transfer

programs give unallocated resources directly to communities, who follow a communitywide decisionmaking process

designed to let them obtain services and materials directly from government or private sector providers. Indonesia

already has extensive experience with both multisector and single-sector block grant transfer programs, although

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they have yet to be tried in the health sector. Side by side comparisons show that such programs can deliver certain

kinds of basic services to the poor in highly cost-eff ective ways. These programs have now passed the pilot stage

and need to be brought onto the regular budget, which will increase their predictability and sustainability. Some

local governments have moved in this direction. The city of Blitar, for example, has adopted a community-based

approach with block grant fi nancing to deliver neighborhood-level infrastructure (Box 7).

To date, Indonesia’s block grant transfer programs have been unconditional, requiring only that communities

meet basic project rules. However, given the success of the unconditional programs, it would not be diffi cult to

link block transfers to a transfer of responsibilities by grafting on a “contract” whereby communities agree to achieve

a defi ned set of performance standards in exchange for a supplement. A large-scale conditional cash transfer

program that builds on the existing community-based programs could yield substantial improvements in the ability

of service delivery programs to reach the poor.

Block grant transfers can be central transfers or part of decentralized budget allocations. The government

will need to determine the extent to which such block grant transfers should be part of local government funds

provided under decentralization or part of a national anti-poverty program that supplements the decentralization

funds provided for routine services. Given that line agency providers are already weakest in the poorest districts,

some national anti¬poverty grant transfer program for communities, which would allow them to accelerate catch-

up, would be advisable.

Box 7. Making block grants work for the poor in Blitar city

The Blitar Community Block Grant Program, implemented since 2002, provides grants for development projects in the 20 urban villages (kelurahan)

of Blitar City, East Java Province. Community participation is a key element. Communities are highly involved in selecting projects, mainly through

annual city-led, government-mandated meetings (Musrenbang), which elicit citizen input into city planning. Blitar also holds “pre-Musrenbang,”

basically Musrenbang at the local level. At both Musrenbang and pre-Musrenbang, the active participation of attendees is encouraged—something

that is rare in Indonesia.

Communities’ fi nancial and in-kind contributions have ranged from 13 percent to 22 percent of the total program budget annually (which itself

increased from Rp. 3.62 billion, about $380,000, in 2002 to Rp. 6.14 billion, about $646,000, in 2004). Funded projects refl ect communities’ preference

for infrastructure, but city government has been encouraging intangible but (in its view) more effi cient projects, such as training: beginning in

2005, no more than 60 percent of program funds may be spent on infrastructure. The Village Community Empowerment Institutions (Lembaga

Pemberdayaan Masyarakat Kelurahan, or LPMKs) play an important role in mobilizing communities.

Though targeting the poor was not originally an explicit goal, there has been a pro-poor funding bias in two of Blitar’s three subdistricts, likely

because of a new (2003) project selection criterion on the number of poor benefi ciaries. Program funding for renovating slum housing has provided

the most direct benefi ts to the poor. Recognizing this, city government mandated that beginning in 2005, 13 percent of program funds be spent on

this activity.

The Community Block Grant Program appears to be technically, institutionally, fi nancially, and socially sustainable. It is also very low cost, representing

less than 2 percent of the city budget. The mayor’s willingness to let communities make mistakes has increased the likelihood of sustainability, not

only because the program is able to improve based on lessons learned but also because communities are learning how to implement a program

over which they have ownership.

Source: Kuznezov and Ginting (2005)

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Funded partnerships expand the ability of service providers to reach poor groups. A number of kabupaten

are already experimenting with partnerships in which communities work with service providers to diagnose and

resolve problems. Communities can use funds from their block grants to expand line agency programs. Partnerships

should be formalized, through contracts or service provision agreements between communities and providers that

clearly specify the goals to be reached and the services to be provided. Vouchers that go directly to communities

rather than to providers are another route for promoting partnerships with providers that increase accountability

and provide both communities and providers with incentives for performance.

Characteristics of Successful Community-Managed ProgramsMatch the type of community program to the type of service. Indonesia has only just started to explore which

service delivery functions should be assigned to communities. Preliminary but signifi cant evidence suggests that

most responsibilities and the accompanying budgets for maintaining tertiary infrastructure can and should be

transferred to communities. Standards for basic service provision should also involve communities directly. Once

desired outcomes are set, communities should become increasingly accountable for ensuring that they are met.

Not all service delivery can or should be delivered through community transfers. Direct management by

communities works best where the technology is fairly simple and investments do not require sophisticated

network planning and analysis. Kecamatan and village roads, water supply, irrigation, school buildings, and clinics

are all examples of the kinds of projects that Indonesian villagers can easily plan and manage. Services that require

more sophisticated technology or involve long supply chains require a more structured partnership between

service providers and end users or benefi ciaries. Which strategy to pursue depends in large part on the nature of

the service.

Transfer funds directly to local accounts. Some of the most successful large community programs transfer fi xed

block grants to subdistricts and villages. Not all funds need to be transferred in their entirety, but transferring some

funds directly to end users makes for a more level playing fi eld. It also creates a simple, eff ective mechanism with

which to hold service providers accountable.

Work with existing local institutions. Programs that use (and improve) the existing administrative and social

organization of villages generally work better and are more sustainable than programs that create new, project-

specifi c groups. Where new groups are formed, they should be linked to an enduring function (such as providing

education or water) and given a statutory role that allows them to fi t into the normal village administration.

Invest in transparent and fair decisionmaking. Promoting public discussion of programs; ensuring that all

parties have equitable access to information; keeping open, accessible books; and preventing elite capture of public

decisionmaking are preconditions for success. Standardized block grants and provider-level accountability standards

are easier to make transparent (and suff er from fewer distortions) than highly variable allocations and measures.

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Use facilitators from the private sector and NGOs to explain the rules, mediate disputes, and share

information. Comparisons of successful and unsuccessful community programs consistently highlight the role

played by local facilitators, at least in the early years of a project. Facilitation is particularly important for dealing with

the very poorest and most marginalized groups, who normally do not participate in village institutions and programs.

Facilitators who can explain the new system are particularly important during the early years of program design.

From the outset, phase-out plans should develop local counterparts who take over the facilitator’s functions.

Promote choice of provider. One advantage of community-managed programs is that they make it easy to involve

private sector providers. National and local governments should set standards and mediate contract disputes, but

encouraging communities to fi nd their own qualifi ed providers will improve end user satisfaction and increase

service coverage without expanding civil service payrolls. In remote areas that cannot be served by private providers,

government services can be expected to increase.

Monitor performance. Community programs include both unconditional block grant transfers and conditional

transfers that reward communities for achieving targets. Communities need to be held accountable for their

performance. Government monitoring, audits, and willingness to enforce sanctions for poor performance are critical

to the success of a program (Box 8).

Box 8. Reducing corruption in community programs by publicizing audit results

The results of a randomized experiment involving 600 community-built road projects in Java suggests that increasing audit samples and publicizing

audit fi ndings signifi cantly reduces corruption (Olken 2005). Reading audit fi ndings to village meetings makes private knowledge about corruption

and leakage a public issue that communities can then follow up. Research results suggest that the number of audits should be increased from

Indonesia’s current standard of 2.5 percent to 7.5–l0 percent.

Stabilizing the Foundations for Community ParticipationIn issuing appropriate laws, Indonesia’s government has recognized the roles users can play in planning and

monitoring service providers. To support them, governments should stabilize their foundations and involve these

groups more widely in monitoring and making decisions about service delivery.

User groups can play an important role in increasing the client orientation of service providers. User

associations can increase the capacity for collective action by users to demand better services. They can also play

an important role in monitoring the implementation of service agreements and forging cooperation between

providers and communities to improve service delivery.

Government acknowledges this by legally recognizing user groups in various sectors. The School Committees

(Decree of Ministry of National Education No. 44/2002) and Puskesmas Supporting Body (Badan Penyantun

Puskesmas) (Decree of Ministry of Health No. 128/Menkes/SK/II/2004) formally recognize the role users play in

helping providers improve the quality, equality, and management of facilities. These decrees provide the legal basis

to encourage broader participation from users in service delivery. Village-level democracy was improved by the

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establishment of the badan perwakilan desa (BPD) (village representative committee) (Antlov 2003), but recent turn

arounds have been undermined.

The challenge is to increase the eff ectiveness of user groups. School committees are similar to the parent-teacher

committees that existed before the decree. They focus on collecting parental contributions, playing only a limited

role in school-based management. In the health sector there was no experience involving users in a systematic way;

the new supporting bodies still have to establish an eff ective way to work. Changes in the regulatory framework

have hindered the eff ectiveness of the BPD. The institution was tried out during the fi rst round of administrative

review.

Stabilize community-level legal and administrative foundations. Community institutions require stability to be

credible. To provide a stable regulatory architecture for communities, the Ministry of Home Aff airs should improve

the latest regulations governing the BPD to recognize community councils and assign them roles in monitoring

service delivery; actively promoting community involvement in service delivery, including nullifying regulations that

ban community contract management; and mandating community-level transparency.

Support user committees to monitor service delivery. Service agreements should include specifi c service

standards, which user committees can monitor. Community involvement in service delivery will not succeed

without a substantial investment in transparency. The mechanisms and media that service providers use to convey

information can make a big diff erence in determining whether communities are able to understand and act on the

information provided to them. Cities in India (Paul,1999) and the Philippines (World Bank, 2001) successfully use

citizen “report cards” and social surveys to measure end users’ satisfaction by linking improvements in satisfaction to

increased budgets, promotions, and the like for line agency providers.

Supporting user committees in taking an active role in decisionmaking. Service providers increasingly involve

communities in planning and decision committees that include frontline providers. Involving communities in

the mechanisms that set local performance standards builds in a mechanism to monitor and report on whether

standards are met. Several such eff orts are underway in Indonesia, although most are at an early stage of learning.

School committees now include community leaders and parents as well as teachers and principals. Water user

groups increasingly involve representatives of the poor alongside extension agents and irrigation engineers.

Stimulating Demand for Services by Poor and Marginalized GroupsConditional cash transfers can be used to stimulate demand for services by the poor. Outcomes are worse

and service coverage lower among the poor partly because poor people cannot aff ord the direct or indirect costs

of using services. School fees and uniforms can be expensive, as can the travel time required to reach the nearest

health facility. Programs that transfer resources directly to poor families have proved eff ective at raising utilization

and outcomes. One of the best known such programs is Mexico’s Oportunidades (formerly called Progresa), which

gives poor families a substantial cash transfer on the condition that children attend school and maintain a good

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attendance record, that new mothers and their children regularly visit clinics, and that mothers attend nutrition

education training sessions, where nutrition supplements are provided. Evaluation of the program shows that it led

to notable improvements in secondary school enrollment as well as to declines in malnutrition and illness (World

Bank 2003b). Similar conditional cash transfer programs in Brazil and other Latin American countries have also proved

promising (Rawlings and Rubio 2005). In these programs, families can use the cash transfer for anything they like, but

they continue to receive the transfers only if they fulfi ll the schooling and health visit conditions.

Unconditional transfers can also stimulate demand. While most of the international evidence is on conditional

cash transfers, unconditional cash transfers have also been used. They have raised demand for an old age pension

scheme in South Africa (Case and Deaton 1998), and they have recently been nationally introduced in Indonesia.

Making a transfer to the poor unconditional on a specifi c behavior implicitly assumes that the needs of the poor

are varied and that the poor are in the best position to decide how to spend additional resources. Since conditional

cash transfers, in eff ect, reduce the price of services, they are expected to increase demand for the use of services,

but they are more costly than unconditional cash transfers to administer.

Community-based approaches that aim at increasing utilization can also be considered. Which approach

is most suitable is an empirical issue. Before adopting an approach, policymakers should review cross-country

experience with unconditional cash transfers and pilot alternative schemes.

Vouchers, or conditional cash transfer programs, are suitable for dealing with income-related inequalities

in access to services. If Indonesia decides to adopt such a program, it should be designed to promote choice and

increase the power of the client. It should consider supply-side constraints in areas where provision of services is

falling behind.

Vouchers can increase end user choice and promote competition among providers. Vouchers allow

communities or users to periodically decide which provider off ers the best service. Both vouchers and formula-based

programs—implemented in order to promote competition among providers—presume that users face a choice of

providers and are able to accurately monitor local choices and respond accordingly. These conditions rarely exist

in isolated areas. In urban areas and areas of high population density, however, both vouchers and formula-based

funding strategies have considerable potential to improve provider performance.

Targeting Programs to Reach the PoorTargeting can be eff ective, but it is diffi cult and expensive to do. Indonesia has shown that it can implement

targeted programs, but there is room for improvement. To mitigate the social impact of the economic crisis of the

late 1990s, Indonesia implemented a series of programs with targeted transfers. One lesson from that experience

is that targeting can work in Indonesia. But the results suggest substantial scope for improving targeting, as many

program benefi ts went to the nonpoor (Sumarto, Suryahadi, and Widyanti 2000). While narrow targeting maximizes

the impact of a program, this goal needs to be assessed relative to implementation costs, and the potential loss of

political support for a program if there are too few benefi ciaries.

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Keep targeting procedures simple and transparent. Two main types of targeting approaches are typically

used to identify the poor in transfer programs. The fi rst approach uses a set of indicators, usually aggregated into

a single indicator, that can be ranked from poorest to richest. The second approach uses a group of community

representatives to determine who is poor. Both approaches can work well, and both can fail, in identifying the poor:

success is determined by how well the approach is implemented (Coady et al 2004). In combination with geographic

targeting (perhaps with the use of updated poverty maps) either can be a practical way of identifying the poor.

Unless providers have a direct incentive to target the poor, targeted vouchers should not be distributed

through them. If providers are given the power to select benefi ciaries, they will focus on existing clients. Unless

they face incentives to seek out new clients, voucher programs implemented through them can easily degenerate

into unconditional block grant programs for providers (Box 9). Vouchers could be distributed through independent

channels, using community-based approaches. Doing so would reduce the incentive to give vouchers to existing

users.

Box 9. Reducing client power by distributing vouchers through providers

Distributing vouchers through providers limits the power of the client, because it does not allow them to choose their provider. Two Indonesian

experiences, the JPS Jaringan Pengaman Sosial (Social Safety Net) scholarship program and the midwife voucher program, illustrate the problem.

The examples also show that strong incentives for providers to seek out new clients can increase eff ectiveness.

The JPS scholarship program provided scholarships to junior secondary school, distributed through junior secondary schools. While the program

was intended to increase the number of students who went on to junior secondary school, most scholarships were given to students who were

already enrolled rather than to those who had dropped out. The implementation of the JPS program was not always consistent with a focus on

the client. While the program started as a direct transfer (provided by the post offi ce), it soon eff ectively became a block transfer to service providers:

scholarships were frequently collected “on behalf of parents” by school principals or treasurers. Allowing providers to select the recipients, and failing

to provide rewards to school to seek out new clients (drop-outs), limited the program’s eff ectiveness.

As part of the Safe Motherhood Program, vouchers were distributed to poor women in Pemelang District, Central Java, for the purchase of midwife

services during pregnancy. As a result of the program, midwife use by the poor rose from almost nothing in the late 1990s to 1,164 in 2000. Poor

women reported that they started using midwives for the fi rst time only after the Targeted Performance Contracting for Midwives program placed

midwives in their villages. The salary of the midwives consisted of a low base, topped up with the money they received through the vouchers. This

provided them with a powerful direct incentive to seek out new clients.

Source: Ridao-Cano and Filmer (2004); Tan, Kusharto, and Budiyati (2005).

Charge user fees. Protecting poor users by exempting them from fees and expecting providers to cross-subsidize

can have perverse impacts. If it is hard to monitor the collection of fees, for example, fees can be driven underground.

Where monitoring is possible, exempting the poor from fees may reduce the incentive to serve them (Box 10).

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Box 10. Hurting the poor by mandating that service providers charge less than cost

Well-intentioned policies that require service providers to exempt the poor from paying real costs may backfi re if service providers are not otherwise

compensated for serving the poor. If service providers have no incentive to serve the poor, they will direct their services to clients that pay the full

cost.

Access to municipal water enterprises is limited to 16 percent of the urban poor and has not signifi cantly increased since Indonesia’s economic crisis.

Part of the reason is that there is no fi nancial incentive for the enterprises to increase connection rates among the poor. The Department of Home

Aff airs issued a social tariff to enforce a low water tariff for low-income households, but this tariff is so low that it does not allow providers to cover

costs, even with cross-subsidies. Coverage could be expanded if municipal water enterprises were funded by the government based on the increase

in the number of connections to poor households. Willingness to pay studies indicate that the poor already pay for water, often more than the per

cubic meter tariff s charged by the municipal water enterprises. Update Project (2002)

Another example of a regulation that backfi red is Article 8 of 7/2004, which assigns water user rights to farmers without permits and as a top priority

above all other needs. The law in eff ect exempts farmers from paying for irrigation water. Nonfarmers, such as industry and commercial irrigators,

do pay for water. The result has been that the rights of commercial users, as specifi ed in a direct contract between the user and the water basin

management authority, are better protected than those of farmers. Evidence shows that including organized farmers associations in water basin

management associations results in less confl ict, better protection of farmers’ rights, and better maintenance of infrastructure facilities.

Source: World Bank (2004a, 2004b)

Considering Supply-Side Constraints when Stimulating DemandIncreasing demand for services can backfi re if there is no supply of services to meet the demand. Government has

two options to ensure that the supply of services increases as demand does.

In areas where use is hitting supply constraints, the public sector could provide services, by providing

more infrastructure and staffi ng or by improving the accountability of service providers along the lines discussed

in chapters 3 and 4. Reducing absenteeism, for example, will not be solved by placing more staff at providers.

Accountability of public providers can also be stimulated by allowing voucher recipients to use their vouchers and

allowing providers to keep the money received through the vouchers. This would create competition for serving

voucher recipients, thereby increasing the client orientation of providers.

For services for which there is a developed private market, qualifi ed private sector providers can deliver the

service. Supply will follow demand for services, if users can aff ord the service. The midwife voucher pilot (see box

4.3) combined both approaches. Midwives were placed in underserved areas and received a basic salary, but their

pay was based largely on the number of clients they served, making them similar to private providers.

Chapter 5Making Intergovernmental Relations Work for Service Delivery

This chapter focuses on three questions:How can central and local governments work together more effi ciently to improve service delivery?Can civil service regulations be adjusted to make government more eff ective in improving service delivery?

What changes in the budgeting process are required to improve service delivery?



Local policymakers

•

•

•

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Increased accountability of providers and greater community participation has the potential to improve service

delivery. But the eff ectiveness of these policies depends on how eff ectively central and local governments are

organized. Central and local governments have to improve the architecture of decentralized service delivery. To

do so, they need to clarify functional assignments between central and local governments, modernize personnel

management, and align the budget process and monitoring with decentralization.

Governance and accountability relationships across diff erent levels of government, service providers, and

clients are critical to improving service delivery. When responsibility for public service delivery is devolved from

the center to regional governments, these relationships become even more important. Functions, powers, and

resources are expected to be shared, but this often creates confusion and confl ict. Decentralization and greater

community participation have the potential to improve service delivery—indeed, the data and experiences

reviewed above provide ground for optimism that they do so. However, the evidence also shows that progress

toward reaching the poorest groups and improving the quality of services for all depends on what role the central

government takes, how it relates to subnational governments and communities, and how effi ciently and eff ectively

it functions.

The recommendations below are the pillars of an improved architecture for service delivery in Indonesia.

Some of them are discussed more extensively in earlier chapters.

Clarifying Functional Assignments Between Central and Local Governments Under the decentralization law, line ministries relinquished their implementation responsibilities and

personnel management functions in the regions. Their main roles became formulating policy and

monitoring outcomes. The law, however, did not defi ne the specifi c functions transferred to local governments

within the decentralized sectors. Some local governments interpreted this omission to mean that they assumed

responsibility for all tasks in those sectors. The result has been a signifi cant overlap in functions, with line ministries

continuing to hang on to implementation, causing confusion, lack of coordination, and mistrust among the three

tiers of government.6 Senior local offi cials in the dinas (regional sector offi ce) are often unable to understand what

is happening in their sectors, who is doing it, and when actions are being taken. The province has responsibility for

coordinating, evaluating, and handling accreditation and standardization, but it continues to prepare and implement

programs, which should be handled by the districts. The central government and the districts view provincial

governments as rivals rather than as legitimate actors and possible partners. Since passage of the decentralization

6 A common argument for line ministries retaining their implementation roles has been that regional governments lack skilled manpower in planning

and management. The central government has attempted to address this situation by ruling that local governments should merge and streamline

their institutions (PP08/2003), but it has failed to implement the provisions that would permit local governments to shed excess staff (through accel-

erated early retirement, for example). Many local governments have chosen not to downsize their staff s, however. They rightly fail to see the point of

doing so in the absence of a broader functional analysis and subsequent trimming and rationalization process. A new regulation is in the making to

enable local governments to reduce staff in structural positions and move them to functional positions, but it will not address the problem of vague

and overlapping functional allocation.

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law, subsequent laws for specifi c sectors have attempted to clarify roles and functions, but they have not eliminated

the problem of vague and overlapping functions (Box 11).

Box 11. Vague and overlapping functions are hurting service delivery across sectors

Decisions about teachers—ranging from teacher training to recruitment, deployment, performance evaluation, human resources databases,

payroll, and redeployment—are made by diff erent levels of government, often leading to confusion and ineffi ciencies in teacher management.

Some functions, such as the hiring and fi ring of teachers, are decentralized to lower levels of government, but others, such as setting compensation

levels, are still eff ectively centralized.

Focus group discussions reveal the result of overlapping layers of management. According to teachers, the fact that central government approval is

still required for processes such as promotion has slowed personnel action, because decentralization has added another layer of bureaucracy. They

claim that management processes are neither more transparent nor better monitored, even though they take place at the district level.

In the health sector, it is not clear who approves the opening or closing of facilities and licenses them. By virtue of a 1986 ministerial decree, the

Ministry of Health still holds this function, although how this will change under decentralization and what the roles of the provincial and district

governments are have yet to be clarifi ed.

According to the decentralization law, water maintenance is a responsibility of the districts, but Article 9 allows the administration to move

decisionmaking up to a higher level of government whenever a matter crosses borders. Indeed, the devolution of basic service delivery to district

levels may have gone too far, because the principle for managing a specifi c water resource or supply effi ciently is, according to the Water Resources

Law 7/2004, “one basin, one management” and a basin may cross district or even provincial boundaries.

No ministry at the national level is responsible for sanitation. A key factor in Indonesia’s very low rate of urban sewerage coverage is the lack of

institutional responsibility for making policy that would identify and set out a legal and regulatory framework as well as defi ne a strategy for

involving households, communities, and the private sector in sanitation. Local governments require greater clarity and incentives regarding their

roles.

Source: World Bank (2004a, 2004b, 2004c, 2005e) and Lieberman et al. (2005)

Clearly defi ning functional allocation between national government agencies, local governments, frontline

providers, and communities so that they know what is expected of them and what they are accountable

for. Clearly defi ning who is responsible for what prevents both critical gaps and ineffi cient overlaps. A suggested

functional allocation emphasizes the roles of the central government as policymaker, standard-setter, and caretaker

of cross-regional issues; recognizes the potential of the provincial government for certain functions, especially those

that have scale economies; clarifi es the responsibilities and powers of the district governments; and defi nes roles for

frontline providers and communities (Table 4).

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Table 4. Suggested functional allocation for service delivery

Provider Function/role Related actions

National government

Make policy. • Finalize detailed function assignment for three tiers of government.

• Develop criteria for asymmetric decentralization, since not all regional governments are ready to take on new powers.

• Develop regulatory framework for using private sector and NGOs in service delivery.

• Establish systems whereby regional governments can collaborate to take advantage of scale economies.

Organize and staff central ministries according to central functions.

• Re-educate central agency staff about their roles and functions in a decentralized setting.

• Audit systematic management and governance skills. against assigned governance and management functions.

Set core service standards.

• Develop a small number of core standards for each sector.• Disseminate information about standards through training

programs for government offi cials and service providers. • Develop systems for monitoring core standards (for

example, national achievement tests for education, national surveillance system for health).

• Improve management and governance systems to reduce corruption.

Select key programs to fund at the national level using deconcentrated budget.

Reduce cross-regional inequalities.

• Establish national mechanism to improve equity across regions.

Collect and disseminate information about innovations and good practice across regions.

Provincial government

Develop detailed rules and regulations for implementing them.

• Hold provincial and district offi cials accountable for their responsibilities.

Develop regional service targets.

• Obtain support for targets from provincial and district levels.• Develop “scorecard” systems for rating or ranking districts in

their performance of functions.

Set service standards in line with national core standards.

• Disseminate information about standards through training programs for government offi cials and service providers.

• Monitor service standards throughout the province.

Build district implementation capacity.

• Inventory the fi nancial management, personnel, and procurement systems in all districts; address gaps and strengthen weak systems.

• Develop training programs on fi nancial management, personnel management, and procurement procedures.

• Require all districts to submit expenditure plans against performance targets.

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Provider Function/role Related actions

Fund and manage services for which scale economies are high (for example, training programs for districts), but do not compete with districts.

District government

Develop local plans and budgets, with specifi c performance targets.

• Inventory skills at the district level and undertake appropriate training to address skill gaps.

• Monitor performance against local targets.• Report up the management line (to bupati/walikota) and

horizontally to the Dewan Perwakilan Rakyat Daerah DPRD (Provincial House of Representatives).

Manage services to meet local targets, applying national and regional service standards.

• Monitor and assess service standards in the district.• Report on performance against standards. • Manage decentralized fi nancial, personnel, procurement,

and information systems.• Inform providers and user groups about service targets and

standards.• Ensure coverage of remote and disadvantaged groups.

Frontline providers (public or private)

Deliver services in accordance with service agreement.

• Increase use of service agreements that focus on outputs and services, and provide autonomy to providers in achieving these targets.

For public providers: Monitor and report on outcomes in service area.

• Budget block grants and human resources to providers based on what is needed to achieve targets. Reduce in- kind fi nancing.

• Make civil servants working for providers more accountable to providers.

• Incorporate user assessments in performance evaluations.

Communities Maintain and build village infrastructure.

• Ensure democratic processes within the community (see Chapter 3).

Manage targeted programs for the poor within the community.

• Move project-fi nanced, community-driven development programs on budget.

Provide feedback on service provision by providers and achievement of outcomes.

• Strengthen and create mechanisms for user feedback, such as the school committee.

Provide incentives for effi cient aggregation of administrative units. Some functions can be more effi ciently

handled by larger or smaller administrative entities. The effi cient management of large river basins, for example, is

likely to require the cooperation of several districts or even provinces. Communicable diseases reach beyond the

jurisdiction of single districts and require a coordinated approach. Schools for children with disabilities are under

the purview of the provincial government, according to Education Law 20/2003, rather than under the district

government, but it makes sense to give the districts responsibility for these schools, because they can better integrate

them into the district school system. At the same time, allowing districts to cooperate among themselves could solve

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the potential problem of these schools being too small to be cost-eff ective. With the increase in number of districts

(now numbering more than 430) in Indonesia since decentralization, the optimum size of each administrative unit

has become a more important issue. Opponents of decentralization have argued that the small size of some districts

reduces economies of scale. The optimum administrative unit, however, can be addressed head on, by providing

incentives for smaller units (such as districts or providers) to aggregate themselves, for example, as discussed below

and in Chapter 3.

Defi ne the role of the central government. PP 25/2000 establishes the central government as the main actor for

making national policy and laws and for setting service standards. The central government should let other levels

of government handle implementation, except for functions that have not been decentralized. It should focus on

the following roles:

• Setting national core standards about service delivery, monitoring and assessing progress against those

standards (but leaving room for local standards), and developing a regulatory framework for service delivery

that ensures that these standards are met by both public and private providers of services. These standards

will need periodic reviews and updates. The framework should ground both the civil service and a system for

adjudicating complaints.

• Funding and organizing services that are best provided and coordinated nationally, because of economies

of scale or their signifi cance to nation-building, without crowding out initiatives by regional governments.

Examples are development of a core curriculum for basic education and a national health surveillance

system.

• Helping the poorest regions to fi nance, provide, and support basic services under decentralization, in order

to narrow regional disparities. Decentralization has weakened the ability of the central government to

reduce inequalities between rich and poor people and between urban and rural areas. Currently, the value of

intergovernmental transfers to districts is at least twice the value of their own revenues; if transfers are used

judiciously, they can be a powerful mechanism for reducing regional inequalities.

• Providing an incentive to regional governments to address national priorities through Dana Alokasi Khusus,

with matching grants from the district government.

• Coordinating, or providing incentives for coordination, between districts for services that are more effi ciently

delivered at a scale larger than the district level (for example, hospitals).

• Creating a fi nancing mechanism for functions allocated to communities.

• Reviewing and disseminating lessons learned from diff erent regions.

Modernizing Personnel ManagementA rigid and outdated administrative system and an ineffi cient civil service have become serious liabilities

for improving service delivery. Like civil services in many other countries, Indonesia’s civil service is oriented

toward following rules rather than achieving results. Management accountability is seen mainly as accounting for

adherence to defi ned processes. Promotions are based on seniority, and there is no lateral entry to civil service

status. The system rewards generalists (people in structural positions) rather than specialists (people in functional

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positions), surely an obstacle to professionalizing the service. Pay and employment are not linked to performance,

and a focus on results is largely missing (Box 12).

Box 12. Too many bureaucrats, too few professionals

Before decentralization, about one-fi fth of Indonesia’s 3.6 million civil servants were assigned to local governments. This changed dramatically in

2001, when more than two-thirds of all civil servants became answerable to local governments. Teachers accounted for more than half of those

reassigned.

Overstaffi ng and mismatches between people and jobs are some of the unresolved issues that linger in the aftermath of decentralization. Entire

organizational units of staff in provinces remain in place, even though their functions were transferred to the districts. Often such units have

developed routine tasks to “justify” their existence, although parallel tasks are performed at the district level.

The civil service is divided into functional and structural positions. Functional positions cover people who deliver services, such as teachers and

doctors. Structural positions are those listed in the organizational structure of government. The rank system is applied to both functional and

structural civil servants.

People in structural positions earn higher salaries and receive better benefi ts, making such positions more desirable than functional positions.

There are an excess number of posts and personnel in structural positions and too few functional positions—too many bureaucrats and too

few professionals in the civil service. The system is outdated and stymies the adoption of modern personnel management. The Civil Service Law

(43/1999) states that every civil servant must be appointed to a specifi c position at a specifi c rank, but the latest Civil Service Agency data show that

a signifi cant number of civil servants are not appointed to any position.

Source: National Civil Service Board (BKN) data.

Review local government functions and job descriptions, creating performance-oriented personnel

management systems, and adopting merit-based practices at the local level. The purpose of a review of

local government functions is discussed in detail in chapter 3. District governments, however, are tied by centrally

determined rules, and there is confusion regarding where authority for personnel management is located. The

strategic next steps for central government are:

• Establish a clear framework and institutional home for personnel management. Too many central agencies

are involved in personnel management, adding to overall confusion. Functional overlaps of the entities that

set and manage civil service policy, such as Menteri Pendayagunaan Aparatur Negara (MenPan or Ministery

of Administrative Reform), Badan Kepegawaian Negara (BKN or The National Civil Service Agency), Lembaga

Administrasi Negara (LAN or National Institute of Administration), the Ministry of Home Aff airs, the Ministry of

Finance, the Cabinet Secretariat, and the State Secretary’s Offi ce, need to be eliminated.

• Remove inconsistencies between decentralization and rules governing civil servants (Box 12). To eliminate

overstaffi ng and understaffi ng in the regions, policies for personnel transfers and retirement need to be

adjusted, and the dependency of Dana Alokasi Umum (DAU) on the number of civil servants employed should

be reconsidered. This dependence has created perverse incentives for district governments to increase the

number of civil servants, since there are no budgetary consequences.

• Institute a less rigid employment regime, abolishing the system of structural and functional positions and the

rigid ranking of posts, and reforming the opaque pay system.

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Box 13. Decentralization of education has not been eff ective

With the onset of decentralization, the management of all civil service teachers in primary and secondary public and private schools (with the

exception of madrasahs) was transferred to district governments. Yet various anomalies and diffi culties persist that restrict the districts’ freedom to

manage and reform their teaching workforce. The central Ministry of Education still recruits and pays contract teachers; madrasah teachers who are

civil servants are still managed by the Ministry of Religious Aff airs, not by districts; transfer procedures under Law 22/99 have discouraged teachers

from moving to other districts, reducing morale; and teachers still routinely pay bribes for appointments, transfers, promotions, and selection for

training.

The many problems in teacher workforce management, especially the lack of mobility since decentralization, have resulted in increased pressures

from teachers at the school level and their unions to recentralize the management of teachers. In interviews conducted for this report, several district

offi cials expressed their conviction that the recruitment of teachers would indeed soon be recentralized.

Source: World Bank (2005a).

Separate the fi nancing and implementing functions of service delivery. The civil service combines people who

set policies and fi nance and monitor service delivery and outcomes (that is, people working at agencies and line

ministries) and people who implement policies (that is, people working as frontline providers). This structure is in

line with the command and control strategy for service expansion. It is not suitable for increasing the accountability

of service providers to their fi nanciers or expanding the range of providers to deliver services to include private

providers, NGOs, and communities. Civil servants working for service providers need to be held to similar standards

as private providers; they need to be accountable for the services they deliver and the outcomes they achieve.

Promotion decisions for civil servants working for providers have to become more dependent on services delivered.

Under the current system, a teacher who is absent, for example, can offi cially be reprimanded only by the local

government.

Aligning the Budget Process and Monitoring with DecentralizationThe channels through which resources fl ow to districts and service providers are too diverse and fragmented,

making it almost impossible for benefi ciaries to know how much funding they are supposed to receive and whether

the funds have been released. This situation creates ineffi ciencies and numerous opportunities for corruption

and leakage.7 For accountability to improve services, accurate and timely information should fl ow between the

government and providers, between providers and clients, and between clients and government.

Clarify which services are going to be funded and managed by the central line agency. Operational budgets

for decentralized functions need to be moved to the level to which they have been assigned. The increase in

deconcentrated relative to decentralized budgets is evidence that central line agencies still dominate local

spending.

7 In education and health, for example, district offi cials do not know how much funding they are supposed to receive, whether the funds have been

released, or when they can expect to receive the funds. Some regional education offi cials have expressed frustration about this state of aff airs. With-

out information and transparency, they fi nd it diffi cult to plan or to develop coherent and eff ective educational programs. Schools must cope with

a bewildering array of funding sources. They receive salary support, cash, and in-kind inputs from three government levels, and they must prepare

separate routine and development budgets. No clear, functioning protocols prevent a proliferation of procedures and orders or ensure that funding

goes through a simple management chain.

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Inform district governments of central and provincial expenditures on decentralized functions ahead of

time. Provincial departments are well placed to share and coordinate spending plans with district governments.

Increase transparency of fi nancial fl ows to service providers. Tracking expenditures to the service provider

and disseminating the results can reduce leakage in the system, but greater transparency in funding mechanisms

is needed in order to do so. Currently, it is very diffi cult to track expenditures to providers. Budget-watch NGOs play

an important role in disseminating complicated and diffi cult to access information to the public (Box 14). Greater

use of bank transfers to an account in the name of the provider would enhance transparency and thus the ability of

independent observers to monitor whether resources reach frontline providers.

Box 14. Improving budget transparency in Bandung

The Bandung Institute for Governance Studies (BIGS) is an NGO devoted to promoting budget transparency in the city of Bandung, West Java.

It publishes and disseminates the city’s detailed budget, with the aim of increasing pressure on government to deliver on its plans and reducing

leakages. Before BIGS started publishing detailed budgets, information was monopolized by the executive branch of government and published

only in summary form. BIGS information is used by the Dewan Perwakilan Rakyat Daerah DPRD, the local parliament, and political parties to ask

questions about budgets. An education-focused NGO uses BIGS budget information for sector-specifi c advocacy. The general public and journalists

often contact BIGS to ask questions about budget allocations.

BIGS has had success in reducing the use of vague budget allocations, such as miscellaneous and travel expenditures in the 2005 budget. It has

spurred a court case against DPRD members over alleged corruption in the miscellaneous budget for 2002, which constituted 45 percent of the

overall budget.

Donors play an important role in funding organizations such as BIGS (BIGS is supported by the Ford Foundation). Funding operations from

government contracts is diffi cult, as BIGS experienced when it refused to provide kickbacks on an ombudsman contract it won.

Source: Kuznezov (2005b).

Rebuild national databases for monitoring services. Indonesia has a well-established national data collection

system on communities and households, but decentralization has greatly weakened its capacity to monitor services

in cases where that national capacity depended largely on the compliance of local governments. Government

needs to invest in rebuilding this capacity at the national level, perhaps through the Central Bureau of Statistics and

in coordination with line ministries.

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Chapter 6Toward an Operational Strategy for Improving Services

This chapter focuses on one question:How to sustain successful innovations in service delivery—and weed out the bad ones?

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To operationalize the cross-sectoral agenda to improving services proposed in this report, ministries and

local governments need to translate its recommendations into concrete policy actions. As a starting point for

debate, this chapter provides suggestions on what such actions might be. Many innovations are likely to start

out as pilots; in many cases, eff orts have already been initiated locally. It is important to ensure that successful

innovations are sustained. Toward that end, governments should diversify the portfolio of reform initiatives and

champions, provide grants for innovative reforms and pilots, bring personal incentives in line with institutional

objectives, identify winners and losers and provide some social protection to losers, invest in impact evaluation

and knowledge dissemination, engage civil society, invest in pro-poor coalition building, and ensure local

ownership.

Many of the recommendations in this report still have to prove their value in the fi eld. It is therefore

recommended that Indonesia adopt a strategy that allows many innovations to fl ourish and to provide incentives

for those that work to propagate. Pilots should be tested and given time to develop to show their results; follow-up

programs should be based on evaluation of their impact. The central government has an important role to play in

guiding the direction of innovations, initiating them selectively, and sharing information about their outcomes. The

rest of this chapter discusses what the principles of such an approach might be and lists a set of concrete measures

that can be taken to implement it.

How to Sustain Successful Innovations—and Weed out the Bad Ones?Indonesia can draw on many local and international experiments, pilots, and innovative ideas on how to make

services work better. Some of these, such as decentralization, democracy, active learning in education, and school-

based management, have entered the mainstream. Many more have not seen widespread adoption or sustained

implementation, despite their proven eff ectiveness. Examples in Indonesia include performance contracting of

village midwives, contract teachers, and hospital autonomy.

How can good practices and principles for making services work be more widely adopted—and adapted—across

the country and sustained over time? This chapter provides some ideas on how policymakers might think about

the scaling-up challenge. It lays out key principles and good practices for developing a virtuous cycle of innovation,

adoption, and service improvement.

The main message is that for sustained propagation of good practices, Indonesia needs to have a strategy

for dealing with complicated processes. These processes involve incentives, political economy, ownership, social

protection, information, and fi nancial support.

Focus on “high-value” reforms. It is important to focus support on “high value” reforms, some of which have already

been identifi ed by previous chapters. Early adopters need suffi ciently high economic and social returns to improved

practices. Politicians will not be willing to take risks for reforms that provide less. In the political market, innovations

must also be politically benefi cial to early adopters.

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Provide grants for innovative reforms and pilots. The political and economic risks facing early adopters of

diffi cult but high-value reforms must be taken into account. Early adopters are subject to higher risks and losses; late

adopters tend to benefi t from the experience of early adopters and subsequent studies. The additional information

and risk reduction gained by late adopters partly represent positive externalities produced by early adopters. To

achieve a more optimal rate of adoption across territories, central governments could provide subsidies to early local

government adopters of innovative good practices. For pilots to be useful, it is critical to give them enough time to

work and to carefully evaluate their impacts before terminating them or changing course.

Box 15. A cautionary tale of three reform initiatives

Out of nine case studies completed in 2005 on innovative services in Indonesia, three have already run into diffi culties because they lack institutional

support within their localities (one of them from Tanah Datar was discussed in Chapter 2). A governance reform project in Boelemo District, North

Sulawesi, championed by the district regent, has run into unexpected challenges because of lack of support within the civil service, and even from

civil society, for a set of initiatives to sanction civil servants more harshly by fi ning them for bad behavior and reducing some allowances. While the

regent is a genuine reformer, and has created an “open door” policy in his offi ce, he has had limited success in implementing the reforms beyond

his direct sphere of infl uence. In offi ces he visits regularly, discipline has improved, but in more distant locations, it remains unclear if civil servant

behavior has changed signifi cantly. Civil society groups are still young and fairly disorganized, and civil servants are reluctant to implement reforms

that they perceive do not benefi t them. Thus the reforms have yet to receive the institutional buy-in essential to deepening this initiative.

In Maros District, South Sulawesi, an initiative to promote participatory planning has run into diffi culty because of weak facilitation of village-level

planning and the lack of links between village plans and allocations made by the District Planning Agency (Bappeda). While a local coalition of

civil society groups (the Forum Warga) is involved and the district government has passed a law promoting transparency, neither of these factors

has translated into successful participatory planning. Implementation regulations for the new law have not yet been passed, leading to a situation

in which nobody is accountable for ensuring that local planning is undertaken correctly. The Forum Warga, while enthusiastic, may not have the

skills or funding to promote participatory planning on its own, and the district government, which has allocated funding for these exercises, has

twice postponed these allocations. Without clearer accountability arrangements, better local facilitation, and assured funding, it is likely that this

initiative will face further diffi culties in the future.

Source: Leisher and Nachuk (2005)

Align incentives for sustainability. Good practices are often not sustained because incentives are incompatible.

This is illustrated by the experience of the Fourth Health Project, which introduced an innovative quality assurance

model based on the systematic application of standardized protocols to manage the diagnosis and treatment of

certain diseases in a number of puskesmas in the 1990s (See Box 15). The program was successful in the sense that

it improved service quality, as evidenced by higher compliance with standards and greater client satisfaction. But

wider adoption of the quality assurance model stalled, for several reasons. One was the lack of alignment in the

economic and moral incentives for recommended quality assurance practices. Only token rewards were given to

health centers and staff that practiced the quality assurance model: although they had to work harder and smarter

to provide better care by complying with recommended standards, their salary and budget remained the same as

others’. A second reason was the shift of central government priorities to other issues, due to the economic and

political crises in the 1990s.

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Diversify the portfolio of reform initiatives and champions. Risks can be reduced by diversifying the portfolio.

Failure of a single high-profi le innovation can mean political disaster and an end to the political career of its

champion. Decentralization reduces risk by diversifying the country’s portfolio of innovations and champions. The

“let a thousand fl owers bloom” approach is therefore a reasonable strategy for dealing with the economic and

political risk associated with reforms and innovations.

Invest in impact evaluation and knowledge dissemination. The social and economic impact of innovative

projects and programs in Indonesia has not been systematically and rigorously evaluated. Central government

investment in the analysis, evaluation, synthesis, and dissemination of information on local pilots, experiments, and

experiences across provinces and districts could help spread adoption of innovations that work. Without central

government fi nancial and technical assistance, the dissemination of good practices will be underfunded, as local

stakeholders will not take into account the value of jurisdictional spillovers of local research, development, and

experimentation. The Green Revolution provides an example of how good evaluation has facilitated the widespread

adoption of new agricultural practices in Indonesia and elsewhere.

Box 16 Introducing health quality standards

Improving the quality of primary health care services does not have to be expensive, as demonstrated by the experience in the Quality Assurance

program introduced in Indonesia in the mid nineties. The program introduced protocols for the treatment of common illnesses. The introduction

was done gradually, expanding the range of illnesses and the number of health clinics, as experience cumulated. Mid 2000, six years after the pilot,

1588 health clinics participated in the program. Universal compliance with “best practices” – defi ned as completion of over 80 percent of all items

in the protocols – was achieved for the most commonly served health needs (the preprogram compliance rate was only about 20-30 percent). In

addition, doctors and patient satisfaction rates increased. Doctors gained professional pride, as their awareness of the quality of service they deliv-

ered increased. The program however was discontinued as a result of the economic crisis, changes in leadership, and decentralization where some

districts distanced themselves from nationally initiated programs to assert their new autonomy.

The successful roll out of the program holds lessons about how to implement future service agreements that promote quality in the health sector.

The programs started with an audit of existing service standards using peer reviewers from neighboring health centers. The pilot provided training to

health staff in protocols for selected illnesses, which initially included only ante-natal care (ANC), acute lower respiratory (ARI) care, and immuniza-

tion. District supervisors increased their visit rate to participating clinics, engaging in collegial discussions of case management and best practices

with health workers. Their increased visits seem to motivate the clinic director to supervise compliance with standards more closely. Within months,

the compliance rates of these health centers showed dramatic improvements in a wide range of compliance indicators. For example, the compli-

ance rate for history taking shot up from about 40 percent to 90 percent. When the program was several provinces, the range of diseases covered

under the protocols also increased. The expanded program also encouraged team-based work of neighboring clinics to deal with more complex

problems of service quality.

Source : Bernhart (1998a,b)

Ensure wide ownership. Ownership is a key factor in the adoption of good practices. Overdependence on a

few champions of reform makes innovations vulnerable to cancellation if the reformist looses power or changes

position (See Box 16). In Indonesia good practices initiated by central Government have been rejected because

local governments did not have a stake in their success, or vice versa. For example, although the village midwife

contracting program was shown to be eff ective, it was not sustained, partly because it was seen as a national

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government project that would reduce the resources that puskesmas directly controlled. It is critical that local

governments receive the credit for introducing innovations and reforms.

Analyze winners and losers. Political economy analysis of reforms is critical. Such an analysis would, for example,

predict that the health and education bureaucracy would resist providing health services to the poor through a

demand-driven voucher system or giving scholarships directly to the families of recipients. They would resist such

eff orts, because they would take away control of resources from the health and education bureaucracy. To reduce

this threat, the education bureaucracy captured school grants by putting them under their direct control instead of

giving them directly to parents, blunting their eff ectiveness.

Provide some social protection to losers. Where losers are able to block the introduction or propagation of

reforms, the usual strategy is to adopt countermeasures to address the fears and losses (economic, political, and

psychological) of people aff ected by reforms. Reaching out to them to explain the rationale for the changes can help

smooth their implementation. Providing people who are adversely aff ected by changes with the fi nancial and other

assistance needed to facilitate their adjustment is also helpful. This strategy is especially relevant to civil service and

oil pricing reforms.

Invest in civil society and building pro-poor coalitions. Policymakers can take advantage of the rise of civil

society in Indonesia, which has successfully engaged in anti-corruption judicial reform activities. Indonesian civil

society can play an eff ective role in developing “social accountability.” It can also play a critical role in championing

the causes of the poor and facilitating their organization into a more eff ective political force. This is important in view

of the need to provide countermeasures against elite capture of and resistance to pro-poor policies and programs.

Suggested Policy Actions and PilotsThe list of suggested policy actions and pilots for making services work consists of concrete proposals that refl ect

the stakeholder views expressed at the 2005 Jakarta conference on “Making Services Work for the Poor in Indonesia”

(Table 5). It represents a starting point for debate.

The central government could support the innovations by creating a service delivery innovation fund. This fund,

managed by a coordinating ministry (Menkokesra or Bappenas), could provide matching grants to districts for

implementing innovations in service delivery. Line ministries could provide lists of activities that could be (co)funded

through this facility, providing an incentive for districts to develop activities in line with the national strategy and

decentralization. Participation by districts would be voluntary. It would be preferable if the facility also had a window

for district-initiated initiatives. Central ministries could work with districts to implement the initiatives and ensure

that the innovations are evaluated and the lessons available to all stakeholders.

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Table 5. Suggested policy actions for making services work in Indonesia

Recommendation Action Agency

Rationalize function allocation and governance structures.

1. Work with six representative subnational governments and relevant civil society organizations/experts to establish the functional and operational responsibilities of each level of government.

Ministry of Education and Ministry of Health lead for respective sectors. Ministry of Home Aff airs and Ministry of Finance participate. Menkokesra or Bappenas handles coordination.

Make Intergovernmental Relations Work for Service Delivery

2. Consult with regional governments and other stakeholders to solicit their views on the draft, revise it, and disseminate the fi nal version widely. Document the process and share it as a model for other sectors.

Ministry of Finance, MenPan, sector ministries.

3. Determine the expenditures on current central government activities in regions on regional functions.

Ministry of Finance and sector ministries.

4. Over time, use costing information to set lower, more appropriate ministry budget allocations, transferring remaining central budget resources to Dana Alokasi Khusus DAK .


5. Provide Anggaran Pendapatan Belanja Daerah APBN expenditure information to provincial and district governments as they are preparing their annual plans and budgets. Also provide them to the public, making clear the level and purpose of deconcentrated expenditures allocated to which programs in each province and district.


Modernize public administration

6. Undertake a diagnostic analysis of workforce issues with MenPan; representatives of professional associations (medical practitioners for health, teachers and principals for education); and three subnational governments.

Ministry of Education and Ministry of Health lead for respective sectors. MenPan and Ministry of Finance participate.

7. Use results of diagnostic analysis to make recommendations for short-term fi xes (on approaches that districts could pilot to attract doctors to remote and undesirable locations, for example, on incentives systems that could reward good performance) as well as more systemic reforms.

8. Establish an independent task force under the presidency, supported by a technical expert group to provide advice on broader issues as well as options and sequencing of civil service reform.

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9. Produce a strategic action plan that proposes reforms, using input from the sectoral diagnostics and other consultations.

10. Pilot proposed reforms in volunteer districts.

Align monitoring with decentralization.

11. Compile existing data on quality of service delivery; publish the information (if possible, on a province by province and district by district basis); and identify gaps in information. Design and conduct survey to gather information to fi ll the gaps.

BPS leads, relevant sector ministries/agencies participate.

12. Review current minimum service standards in light of the fi ndings.

Ministry of Health, Ministry of Education.

Establish an innovation fund.

13. Establish an innovation matching fund to encourage innovations in service delivery by district governments along the lines suggested below.

Coordinating ministry for social welfare and sector ministries.

14. Establish the capacity to monitor the impact of these innovations and disseminate the results.

Coordinating ministry for social welfare and sector ministries.

Increase provider accountability toward government.

15. Pilot service agreements with public providers in volunteer districts.

Ministry of Health, Ministry of Education, Ministry of Agriculture

Ministry of Finance leads, relevant sector ministries and agencies participate.

16. Establish an easy to access information system that can trace expenditures to the level of the service provider for the fuel subsidy compensation programs. Contract with civil society organizations to independently monitor implementation of fuel subsidy compensation programs. Disseminate results of monitoring. (INT)

Ministry of Health, Ministry of Education, Ministry of Public Works.

17.Pilot in selected districts, making funding for service providers – public and private - dependent on utilization (formula-based funding, capitation payment based on preferred provider choice, and so forth). Develop a national strategy on the basis of experience. (CP)

Ministry of Health, Ministry of Education, Ministry of Agriculture.

78Making Services Work for the Poor in Indonesia:Focusing on Achieving Results on the Ground


18. Encourage local governments in remote areas to contract with NGOs to provide primary health and basic education services. Develop a national strategy on the basis of experience.

Ministry of Health, Ministry of Education, provincial and district governments.

19.Review current standards and rules that inhibit remote districts from providing services (examples include the rule that every school must have at least six teachers and the rule that paramedics cannot provide health care under the national health insurance plan).

Ministries of Education, Health.

Use client power to improve delivery of diff erent types of services.

20. Reinstate the provisions of Law 22/1999 on the role and responsibilities of Bank Pembangunan Daerah BPDs. (CP)

Ministry of Home Aff airs.

21. Allocate suffi cient funds to villages for functions assigned to them, under control of representative bodies and processes.

District and municipal governments, Ministry of Health, Ministry of Education, Ministry of Public Works.

22. Pilot conditional cash transfers, using individual- and community-based approaches.

Ministry of Finance, Ministry of Health, Ministry of Education.

This report is intended to provide an overview of most important issues that hinder progress in service delivery in

Indonesia. There are many important policy questions that are left unanswered in this report. Future research could

use the analysis of this report to focus on more specifi c sectoral problems. For instance, it could address:

The impact of the current block grant program schools (BOS). Has this centrally managed program caused

a reduction in local government expenditures for education? Did it reduce school fees for poor children as

intended? Did it result in increased enrolment?

Reasons behind the recent increase in malnutrition.

How to establish eff ective public – private partnerships in service delivery.

The optimal allocation of public resources. How to increase public education expenditures to 20 percent

of the national budget as required by law? How to allocate spending in the health sector over preventive,

promotion and curative spending?

Which incentives for teachers are eff ective in improving their performance. Will the measures as planned

in the recently passed teacher reform law (certifi cation in combination with rise in pay) be eff ective?

The effi ciency of bulk procurement versus local facility based procurement of inputs, such as drugs.

How to eff ectively deliver services to remote areas.

Information system to support decentralized service delivery and evidence based policy making

•

•

•

•

•

•

•

•

79Making Services Work for the Poor in Indonesia:


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