The Government of Indonesia was seeking options for local government infrastructural development in its growing urban areas as means to support its urban development agenda and implementation of decentralization. The Government participated in an exchange with Colombia, which was recognized for its experiences with fiscal decentralization, creating and managing municipal development funds, and monitoring and evaluating fund transfers.

Challenge

The Government of Indonesia acknowledged the need for supporting local governments on financing options for their infrastructure investments. The Ministry of Finance created a new unit on urban financing, while the National Planning Agency and the Ministry of Home Affairs also set priorities for supporting urban and metropolitan development. The Government of Indonesia needed to upgrade its capacity and know-how in designing and successfully implementing an urban development plan that would ensure the country was able to grow economically and deal with rapid urbanization. The Government began planning for the development of municipal development funds, called Regional Infrastructure Development (RID) Funds, that could provide funding and capital injections at the local level, while also holding local governments accountable and helping them reach predefined targets.

As part of this process, the Government needed to learn how other countries had implemented successful national urban development projects and managed RID Funds. In Indonesia particularly, there was a lack of effective policy instruments, absence of standards and formal incentives for private sector engagement, unclear guidance on roles and responsibilities of stakeholders, and no clear plans for effective management and monitoring and evaluation (M&E) of RID Fund implementation in order for it to be successful and contribute to national urban development.

Solution

The Government of Indonesia requested the World Bank’s assistance in arranging a knowledge exchange with Colombia. Colombia had demonstrated experience in designing and successfully implementing an effective national urban development program. Participating in the exchange from Indonesia were key government officials who would be directly involved in the technical design of the country’s urban development and urban policy and the RID Fund as well as in leadership and decision-making. This group included representatives of the National Planning Agency (BAPPENA), Ministry of Finance, Ministry of Home Affairs, and Ministry of Public Works. Providing knowledge in Colombia were representatives from the National Planning Department; the inter-sectoral Committee on Evaluation and Management for Results; and FINDETER, the development bank for sustainable infrastructure of Colombia.

The government representatives visited Colombia on February 23-27, 2015, for a program encompassing presentations and knowledge sharing with national government officials, followed by site visits to local governments and infrastructure projects. During the exchange, the government representatives split into two teams, one focused on learning about fiscal decentralization efforts in Colombia, and the other on municipal financing issues. The decentralization team met with the Ministry of Hacienda, National Planning Department, and local government officials in La Celera to better understand how they had developed fiscal discipline mechanisms that included an M&E framework and a reward-and-sanction mechanism for high- and low-performing local governments. They learned and observed how an M&E framework can be used to measure performance of local government transfers and, in turn, reward high performance and sanction low- or non-performing programs. Meanwhile, the municipal finance team met with FINDETER representatives to learn about its experiences as a second-tier financier, including security mechanisms, pricing, and setting up a municipal development fund to provide capital injections. 

Results

The exchange:  

• Increased knowledge on how to design and implement M&E frameworks for an intergovernmental transfer system of urban development funds.
• Raised awareness of the role second-tier lending institutions, such as FINDETER, play in supporting first-tier lenders (i.e., commercial banks) in providing needed capital injections and supporting local credit markets.

Lessons Learned

• Participation by multiple government agencies in knowledge exchanges helps ensure that there is support and closer coordination among the various governmental stakeholders.
• Strong, high-level political buy-in is a key factor for successful implementation of any reform agenda and/or any M&E framework that seeks to hold stakeholders accountable for reaching specified targets.
• During knowledge exchanges, it is important to discuss and demonstrate successes, but equally important to discuss and highlight failures and how they were dealt with during reforms.

World Bank Group Contribution

The exchange was financed by the South-South Knowledge Exchange (SSKE) Facility.

Partner

Providing knowledge in Colombia were representatives of the Government of Colombia, including its National Planning Department and Committee for Evaluation and Management for Results. Additionally, representatives of FINDETER, the development bank for sustainable infrastructure of Colombia, provided knowledge.

Moving Forward

The Government of Indonesia has begun to use the lessons learned from their experience in Colombia to discuss and plan several options for moving forward on improving the fiscal decentralization agenda in Indonesia as it moves toward realization of its RID Fund. They are currently engaging in a series of participatory meetings and consultations with national-level stakeholders to build consensus on M&E design to ensure accurate indicators are developed and an integrated M&E plan is built. Likewise, the Government of Indonesia is planning improvements in the intergovernmental transfer system, moving it to a more performance-based system. Following lessons from this exchange, the Ministry of Finance is finalizing a Ministerial Decree for M&E of the intergovernmental transfer system and revising their regulations and policies on the intergovernmental transfer system.

Beneficiaries/Participants

Participants from Indonesia were:

• Heru Subiyantoro, Secretary to the Director General Fiscal Balance, Ministry of Finance
• Redonnizar Moeloek, Director General of Regional Finance, Ministry of Home Affairs
• Ahmad Yani, Director for Regional Borrowing, Director General Fiscal Balance, Ministry of Finance
• Ubaidi Sholeh, Head of Unit for Evaluation and Monitoring of Transfers, Director General Fiscal Balance, Ministry of Finance
• Maria Dyah Savitri, Head of Unit for Local Government Capacity Building, Director General Fiscal Balance, Ministry of Finance
• Rizqi Yuwanita, National Planning Agency
• Fnu Sumito, Head of Bureau for Multilateral Financing, Ministry of Public Works
• Denny Kurniawan, Staff of Director General Fiscal Balance, Ministry of Finance
• Dyan Adiyta, Staff of Director General Fiscal Balance, Ministry of Finance