Supporting an Effective Institutional Framework for Fiscal Decentralization Reforms

Transcription

1 Government of the Republic of Indonesia Ministry of Home Affairs Asian Development Bank Supporting an Effective Institutional Framework for Fiscal Decentralization Reforms ADB TA No.4682INO FINAL REPORT January 2008

2 Final Report i Final Report ADB TA 4682INO January 2008 List of Contents List of Acronyms Page i ii 1 KNOWLEDGE SUMMARY 1 2 INTRODUCTION Background and Objectives of the TA Activities and Outputs of the TA Purpose and Contents of this Report 4 3 REVIEW OF FISCAL DECENTRALIZATION ACTIVITIES NonQualitative Policy Analysis Rationale for the TA Methodology for Analysis Key Findings Next Steps Alternatives to Deconcentrated Funding Sources Rationale for TA Methodology for Analysis Key Findings Next Steps InterJurisdictional Service Delivery Rationale for TA Methodology for Analysis Key Findings Next Steps 10 4 REVIEW OF REGIONAL AUTONOMY ACTIVITIES Technical Evaluation of Pemekaran Applications Rationale for Technical Assistance Methodology Key Findings Next Steps 15

3 Final Report ii 4.2 Local Government Evaluation Rationale for TA Key Findings Next Steps 18 5 REVIEW OF CAPACITY BUILDING ACTIVITIES BACKGROUND: Why s stronger DPOD and 18 Secretariat are Important 5.2 Approach Secretariat Strengths and Weaknesses A 22 Summary 5.4 DPOD Strengths and Weaknesses A Summary Key Recommendations Key Issues and Questions for Follow on TA 29 6 CONCLUSION 34 APPENDICES Appendix 1 Appendix 2 Appendix 3 Appendix 4 List of reports prepared by ADB TA 4682INO List of Workshop Counterparts and Key Contacts Engaged During the TA List of Equipment Procured

4 Final Report iii LIST OF ACRONYMS ADB APBD BAKD Bappenas BAPPEDA CBAP DAK DAU DPOD DPR DSF DOB EA GoI JPIP KPPOD LGFGR LAN MoF MoHA MONEV NAPFD OTDA Asian Development Bank Anggaran Pendapatan dan Belanja Daerah (Local Government Budget) Bina Administrasi Keuangan Daerah (Facilitation on Regional Finance Administration) Badan Perencanaan Pembangunan Nasional (National Development Planning Agency) Badan Perencanaan Pembangunan Daerah (Regional/Local Planning Agency) Capacity Building Action Plan Dana Alokasi Khusus (Special Allocation Fund) Dana Alokasi Umum (General Allocation Fund) Dewan Pertimbangan Otonomi Daerah Dewan Perwakilan Rakyat (Parliament) Decentralization Support Facility Daerah Otonom Baru (New Local Government) Executing Agency Government of Indonesia Jawa Post Institute of Pro Autonomy Komite Pemantauan Pelaksanaan Otonomi Daerah (Committee of Monitoring for Regional Autonomy Implementation) Local Government Finance and Governance Reform Lembaga Administrasi Negara (State Administration Agency) Departemen Keuangan (Ministry of Finance) Departemen Dalam Negeri (Ministry of Home Affairs) Monitoring dan Evaluasi (Monitoring and Evaluation) National Action Plan for Fiscal Decentralization Otonomi Daerah (Regional Autonomy)

5 Final Report iv PP PPSK RTI TA ToR Peraturan Pemerintah (Government Regulation) Pusat Penelitian dan Studi Kependudukan (Population Study and Research Center) Research Triangle Institute Technical Assistance Terms of Reference

6 Final Report 1 1 KNOWLEDGE SUMMARY This contract assisted the Government of Indonesia (GOI) by providing technical assistance to DPOD (the Regional Autonomy Council) in Supporting an Effective Institutional Framework for Fiscal Decentralization Reforms. DPOD is a crossministerial body designed to provide balanced, technical evaluations of proposed decentralization reforms for consideration by the President of Indonesia. The Technical Assistance (TA) strengthened the DPOD Secretariat s technical and analytic capacity for intergovernmental coordination to enhance policy, legal, and regulatory consistency on decentralization reforms and proved to be a motivating catalyst for the beginning of DPOD s revival. The TA addressed the three major areas outlined in the original Terms of Reference (TOR) fiscal decentralization, regional autonomy, and capacity building. The fiscal decentralization area strengthened the DPOD Secretariat s analytic capacity through several fiscal decentralization subtasks that engage the mutual interests of the Ministry of Finance (MOF), the Ministry of Home Affairs (MOHA), and the National Development Planning Agency (BAPPENAS). The regional autonomy area examined selected aspects of the creation of new regional governments, primarily the technical evaluations of applications for new local governments. The capacity building area produced a Capacity Building Action Plan (CBAP) for the DPOD Secretariat that addresses ways to strengthen the capacities of individual staff in the DPOD Secretariat their skills, qualifications, knowledge, attitudes, work ethics, and motivations as a key part of improving decentralization policy coordination by the DPOD Secretariat. Importantly, the Plan also addressed higherlevel strategic issues impacting DPOD s viability as an independent agency. The year in which the majority of this TA was implemented, 2007, was a challenging year for DPOD. Typically it meets three to four times per year to deliberate on a wide range of issues. In 2007 it only met once, in April. Despite this the Task Forces met more frequently, with this TA s many activities often being a motivating force. Over the course of the year DPOD s Task Forces engaged on a variety of proposed reforms to Indonesia s administration of decentralization. The DPOD Secretariat was closely involved in this TA s activities which increasingly put the Secretariat forward as a facilitator for many of these technical discussions. At the project s conclusion the Executing Agency expressed its appreciation for assistance provided and expressed its desire for additional support in the future. The Executing Agency feels strongly that there is an important role for DPOD in implementing decentralization and that ongoing capacity building is required. 2 INTRODUCTION 2.1 Background and objectives of the TA On December 1, 2006 the 12 month 1 ADB TA Supporting and Effective Institutional Framework for Fiscal Decentralization began implementation. The executing agency is 1 A one month no cost extension was granted so this became a 13 month TA that concluded on December 31, 2007.

7 Final Report 2 the Ministry of Home Affairs (MOHA) Directorate General for Regional Autonomy (Otonomi Daerah [OTDA], specifically the Directorate to Facilitate DPOD and Relations among Institutions. This TA strengthened the DPOD Secretariat s technical and analytic capacity for intergovernmental coordination to enhance policy, legal, and regulatory consistency on decentralization reforms. The TA developed DPOD as a vehicle for a more coordinated approach to decentralization issues by the Ministry of Finance (MOF), MOHA, and other key ministries like BAPPENAS. The TA supported the DPOD Technical Working Group consisting of its three Task Forces on local government affairs, fiscal balance, and monitoring and evaluation of local government performance by preparing technical studies supporting the need for reforms, developing frameworks for improving the efficiency and effectiveness of the DPOD Secretariat, holding workshops and seminars to disseminate findings, and building consensus among key stakeholders on the need for reforms. The TA addressed the 3 major areas outlined in the original TOR fiscal decentralization, regional autonomy, and capacity building. The fiscal decentralization area strengthens the DPOD Secretariat s analytic capacity through several fiscal decentralization subtasks that engage the mutual interests of MOF, MOHA, and BAPPENAS. The regional autonomy area examines selected aspects of the creation of new regional governments. The capacity building area produced a Capacity Building Action Plan (CBAP) for the DOPD Secretariat. 2.2 Activities and Outputs of the TA The TA Team pursued a number of concurrent studies throughout the implementation timeframe. Although the activities will be presented by technical topic which makes them appear rigid, in practice the Team worked collaboratively to achieve all final outputs. The subject maters discussed are clearly interdependent which was reflected in the Team s collaborative implementation style. Nevertheless, for reporting purposes activities can be divided as follows: Task: Fiscal Decentralization SubTask 1: NonQuantitative Methods for Evaluating Fiscal Decentralization Proposals. One issue facing DPOD when it evaluates a proposal of any kind is the wide variety of technical backgrounds of each member. While this variety is a strength overall it can sometimes be a weakness if overly quantitative analysis is expected. This study and workshop outlined how to evaluate proposals using qualitative and analytical approaches without excessively relying on quantitative approaches. Proposed DAU formula changes served as the case study. SubTask 2: Deconcentrated Funding Alternatives. The continued and increasing importance of deconcentrated funds like the DAK have beset Indonesia s implementation of decentralization since Ministries hold differences in opinion as to how to proceed in reforming these funds. This TA

8 Final Report 3 held an introductory workshop highlighting some of the key issues involving DPOD members and line ministries such as health and education. The goal was to get key stakeholders in the same room and talking within the same technical frameworks. SubTask 3: InterJurisdictional Service Delivery. Interjurisdictional service delivery has long been encouraged in Indonesia and its need is brought forward given the significant rise in the number of local governments. For economies of scale and improved service delivery Indonesia s local governments will increasingly need to engage in such cooperation. The TA wrote a technical paper on this subject, worked with the DPOD Secretariat for a site visit to support information collection, and delivered a workshop on key findings. Task: Regional Autonomy The rapid rise in the number of local governments (know in Indonesia as pemekaran) has caused increasing concern in Indonesia and is a high profile issue widely discussed in the media. As this TA began an informal Pemekaran Working group was created with a number of ministries, Parliament, and a number of donors to analyse the multitude of issues surrounding pemekaran. This TA worked closely with the Working Group s members and focused on understanding the technical and administrative evaluation of pemekaran applications, whether they went via MOHA or the DPR. The Team presented results at a number of nonproject workshops as well as at a TA sponsored workshop. A final report was also produced In the final months of the TA it became apparent that our support was disproportionally supporting DPOD s Working Groups on fiscal decentralization and local government affairs. The third Working Group, on monitoring and evaluation (MONEV), was not receiving support. The TA also learned that MOHA was preparing amendments to legislation surrounding MONEV that touched on pemekaran and evaluating that experience. With the ADB s concurrence, the TA supported a workshop to deliberate on proposed changes in legislation surrounding this issue. MOHA went on to enact these legislative changes in February Task: DPOD Secretariat Capacity Building The DPOD has a wide mandate in analysing proposed decentralization reforms. Supported by a Secretariat, DPOD is a complex organization primarily made up of assigned staff from many and varied GOI agencies, who form the working groups and Tim Teknis. There are a number of discrepancies in how DPOD functions in practice as opposed to how it functions in theory. This TA worked closely with DPOD members and Secretariat staff to determine DPOD s strengths and weaknesses through a number of mediums and to develop a draft set of recommendations for a capacity building plan. These recommendations were shared with approximately 35 DPOD stakeholders in October to discuss these findings and obtain additional inputs and consensus for

9 Final Report 4 how best to move forward with the strengthening of the organization. After revising the list of key recommendations a final workshop was held (December 2007) to discuss them and to finalize a plan of action for next steps. 2.3 Purpose and contents of this report This report summarizes the many technical contributions and outputs of the TA. It provides a comprehensive picture of the activities and lessons learned for eventual application to ongoing technical assistance by the ADB in Indonesia. 3 REVIEW OF FISCAL DECENTRALIZATION ACTIVITIES 3.1 NonQuantitative Policy Analysis Rationale for the TA To properly evaluate proposed fiscal decentralization reforms DPOD should use a combination of quantitative and nonquantitative analyses of such proposals. Nonquantitative methods are required to balance political, social, economic, cultural demands. To improve DPOD s analytical skills in evaluating fiscal decentralization proposals, this TA developed a nonquantitative assessment of fiscal decentralization (using examples from the DAU Formulas). The approach was summarized in a technical report by Fiscal Decentralization Advisor Dr. Bob Firestine and socialized through a workshop with the DPOD Working Group on Fiscal Decentralization on May 7, 2007 at the Red Top Hotel in Jakarta. The DAU formulas were selected as the case study since this critical intergovernmental grant formula has been continuously refined since its creation in Although the technical paper and presentation necessarily focused on the DAU as the example the criteria apply to most if not all fiscal decentralization proposals put forward to DPOD Methodology for analysis Interviews were held with key fiscal decentralization experts in Indonesia to understand nuances of the DAU formula and how its modifications over time have been evaluated. In addition, interviews were held with DPOD members to determine opportunities and constraints to their weigh in on such matters. Findings summarized observations and built upon international best practice Key Findings The technical paper highlighted a number of nonquantitative evaluation criteria that are in line with international best practice. Those criteria are:

10 Final Report 5 1) Rationale and clarity of purpose: An understandable rationale for the proposed change, with a clear statement of its purpose; 2) Singularity of purpose: A single objective for each grant program or component; 3) Simplicity: Grant component based on objective, measurable factors not controllable by recipient units of government; 4) Transparency: Wide dissemination (socialization) of formula mechanism and allocation amounts; 5) Accountability of outcomes: Grantor government accountable to the nation for proper operation of the grant program, and recipient governments accountable to their constituents for proper and effective use of grant funds; 6) Cost: Cost of the component or program is properly estimated before its implementation, and annual costs are monitored to ensure affordability; 7) Affordability: Cost of the component or program is within existing budgetary constraints; 8) Economic efficiency: Ideally, neutral effects on recipients resource allocation choices among activities or sectors; 9) Predictability of annual funding: Reasonably predictable funding of a given program or component from one year to another, ensuring stable fiscal planning on the part of each recipient government unit. In the paper and the workshop, the criteria were juxtaposed against various proposed changes to the DAU to assist DPOD members in evaluating the technical suitability of the proposed reforms. Dr. Firestine also encouraged DPOD to wait at least 90 days before issuing a ruling on a proposed reform. Although this will not always be possible given political imperatives, such a waiting period would be ideal to allow sufficient time for technical review. At the May workshop the participants, who are members of the DPOD Task Force for fiscal balance, observed the following in a lively discussion: a. The existing Regional Financial Management Information system needs to be improved in order to have more reliable/timely, updated and accurate data regarding local finance. b. For the purpose of more equal regional fiscal balance, DPOD should undertake the following studies to develop national benchmarking for fiscal decentralization: Correlation between number of local civil servants with a number and distribution of population; Correlation between the amount of DAU funding and its population served. c. Civil servants play a key role in development. They have two functions as a national asset for the state and also to carry out local functional activities. Therefore it was recommended to determine when some civil servants need to be managed nationally and when it is more strategic for civil servants to be managed directly by local governments. d. DPOD should actively promote the role of DAK (specific allocation grant) by transferring that from Deconcentration Funds and Administration Funds. In this regard using a nonquantitative approach as outlined by this TA may be required.

11 Final Report 6 e. DPOD should develop reward and penalty systems in implementation of regional autonomy. f. For evaluation and monitoring purposes, DPOD may encourage achievement of Minimum Service Standards as a performance criterion for regional governance effort. g. It was acknowledged that to carry out all suggested studies above the existing capacity of DPOD secretariat is weak Next Steps As noted above, DPOD acknowledged the Secretariat s capacity to carry many of these issues forward is limited. Consequently, the ADB team worked with the DPOD Secretariat to outline areas for additional analysis from the TA s capacity building activities. At the time of this workshop the two remaining fiscal decentralization subtasks were still loosely defined. Given the significant attention devoted to DAK funding during the workshop the Team and the DPOD Secretariat agreed that examining alternatives for the DAK should become one of those subtasks, as described below. 3.2 Alternatives to Deconcentrated Funding Sources Rationale for TA One of the burning issues in implementation of Law 33/2004 is the proposal to shift some Deconcentration and Coadministration Funds into the Specific Purpose Grant (DAK). Article 108 says: Deconcentration and Coadministration Funds, that are part of State Ministerial/Institutional budgets that are used to carry out administration which, according to laws, belong to regional administration, are gradually shifted into Specific Purpose Grant. Unfortunately some financing schemes are not clearly defined yet. Potential overlap is likely to occur between the National and Regional Budget. This is a result of ambiguity in distribution of administration between Central and Regional Government. Financial overlap also causes difficulties for inspection and may be abused for illegal activities. Execution of Deconcentration/Coadministration Funds needs to be reexamined and reevaluated to avoid financing programs that should be placed under regional s authority/function. Therefore, a mechanism to transfer the funds which has been regionalized into DAK is needed to avoid double financing. As an agency which is responsible to provide advice and recommendations to the President, DPOD requested the TA to study this issue in order to identify actions required for better fiscal balance between central and local governments.

12 Final Report Methodology for analysis Potentially putting constraints on deconcentrated funding remains a politically sensitive issue in Indonesia. It is generally acknowledged as an important issue but left at that. The purpose behind this workshop was to get the key actors in the same room and openly discussing options with the understanding this is the first of many technical conversations that need to take place on this topic. Consequently, Dr. Bambang Brodjonegoro, the Fiscal Decentralization Advisor, described international best practice for fiscal decentralization to place the discussion in context. He went on to describe trends in deconcentrated funding and the DAK since decentralization, based on data available from a number of government sources. Finally, he suggested areas for reform that were debated extensively with the DPOD members and line ministries in attendance Key Findings A transfer of Deconcentration/Coadministration Funds into DAK needs to be performed gradually. To transfer the funds in one massive step would certainly raise criticism because some line ministries would lose their field of administration. Further, the process of transfer should examine the priority of which sector(s) or activity(ies) whose funds can be transferred. Therefore, the TA suggested a phased approach as described here: a. Redefinition of authority and responsibility of each levels of government (Kabupaten/Kota, Province, and Central); b. Some activities which are interprovincial (or are national) will still be financed by concentration funds; c. Activities which were previously financed by Deconcentration Funds but are local in nature (Provincial or Kabupaten/Kota), could be transferred into Coadministration Funds with DAK scheme of finance; d. DAK should be arranged as matching grant with Balancing Fund for at least 5 percent of DAK allocation, for instance; e. DAK should be for proposed programs submitted by regional government; f. Evaluation of DAK proposals should be performed in a competitive manner with national priority and impact of Minimum Service Standards (SPM) in the relevant province as considerations, and; g. Process of evaluating DAK proposals by Central Government should be performed transparently and equitably, and give precedence to relatively poor regions Next Steps By transferring Deconcentration/Coadministration Fund into Specific Purpose Grant (DAK), then indirectly it will be included in regional expenditure budgets (APBD), and falls under regional government responsibility. This will likely increase regional finance accountability in implementing decentralization. DAK will be expected to be a matching grant instrument in the future to overcome interregional fiscal and development disparities. To achieve this objective some actions should be taken:

13 Final Report 8 a. Review all related regulations in terms of Deconcentration funds, Coadministration fund and DAK; b. Local governments should strengthen their own capacity for monitoring, evaluation and controlling of DAK utilization as well as an incentive instruments regarding reward and punishment; c. Develop an effective coordination mechanism between central and local government in order to reach some national targets at local level; d. Accelerate development on SPMs for health, education and basic infrastructures; e. Baseline data should be developed in each ministry for more accountable and transparent budget planning; f. Based on the National Action Plan for Fiscal Decentralization, MOF and MOHA should develop a detailed work schedule on transferring Deconcentration Fund/Co Administration Fund to DAK. 3.3 InterJurisdictional Service Delivery Rationale for TA The creation of new local governments, called pemekaran, is a burning issue in the implementation of regional autonomy in Indonesia. Since 1999 a total of 165 new local governments have been created with many applications still pending. Empirical evidence from 2006 notes that most local governments (whether new or not) will not be able to fulfill even minimum service standards of such public services. It is predicted that this situation will put a lot of pressure on state budget in the future, either directly or indirectly. According to the law whenever the local government has no capacity to provide a minimum public service then the central government has an authority to abolish or to merge this local government. Although an amalgamation or abolishment of a local government is a legal option, it would face enormous obstacles. In effect, it is not politically possible to merge local governments in Indonesia and this is not expected to change anytime soon. But the service delivery challenge remains. Therefore the TA proposes a moderate solution to develop and encourage interregional cooperation among local governments in order to achieve economies of scale and to reach more efficient and more effective public services. Based on Presidential Degree No. 28 year 2005 the role of DPOD is to advise and recommend to the President all related policies regarding implementation of regional autonomy affairs, including the creation, amalagamation or abolishment of local governments. To respond this role, ADB TA 4682 and the secretariat of DPOD decided to study a comprehensive assessment of an interregional cooperation scheme as a practical solution in managing more effecient and effective public services among local governments.

14 Final Report Methodology for analysis Interregional cooperation is not a new matter in government administration. Initially encouraged in 1975 by Law No. 5/1974 regarding Principles in Local Government Administration, some local governments initiated interregional cooperation. Examples include the provincial government of DKI Jakarta and its surrounding local governments which is called by JABODETAKEJUR (JakartaBogorDepokTangerangBekasi and Cianjur). This kind of mechanism is also mentioned in the Law No. UU 32/2004 as a new version of local government administration. We selected two case studies which are Jabodetabekjur as a representative for metropolitan area and Kartamantul (Yogyakarta, Sleman and Bantul) as a representative for interregional cooperation among medium and small local governments. The Team conducted comparative studies from international best experiences and compared them to the Indonesian cases studies for lessons learned. In addition, examples for new areas of interjurisdictional cooperation were identified Key Findings Interregional cooperation through interjurisdictional service delivery among two or more neighbouring local governments can be very beneficial. The advantages of interregional cooperation, which have been proven worldwide, include: a. reducing an imbalance or competition of service delivery among neighbouring regions; b. optimizing available resources, in particular for the poor regions; c. increasing the effectiveness of service delivery through economies of scale; d. a practical solution to cost effective and efficient delivery of services when there are a number of local government jurisdictions in close proximity. e. Improved communication between local authorities. Interregional cooperation can be established between government to government and between government to business/private companies. The private or business entity should be in a form of a corporate entity. Public private partnerships are increasingly popular for a range of services. In Indonesia, interregional cooperation between small towns like Kartamantul and Sarbagita have proven more successful compared with Jakarta and its surrounding areas called Jabodetabekjur (JakartaBogorDepokTangerangBekasi and Cianjur). Kartamantul manages a joint solid waste management and waste water treatment service between Yogyakarta, Sleman and Bantul while Sarbagita manages solid waste management between Denpasar, Bangli, Gianyar and Tabanan. Although Jakarta and its surrounding areas have been developing interjurisdictional cooperation since 1975 its progress is not as significant. Interregional cooperation at Jabodetabekjur is more complicated in terms of the various levels of government involved, which includes three provincial governments and eight kabupaten/kota jurisdictions. On the other hand, Kartamantul lies in one province, namely DI Yogyakarta, and Sarbagita only involves the province of Bali. The homogeneity in culture in Kartamantul and Sarbagita is often cited as one of the keys for success.

15 Final Report 10 When interjurisdictional service delivery is pursued it is important for all parties to plan in advance for arbitration services if required. Whenever a dispute arises it is preferable that the parties can resolve issues internally. If not, then it would be prudent to involve a higher government level to serve as arbitrator, such as provincial authorities or a Minister in extreme circumstances. Final decisions should be respected as that: final Next Steps Areas for additional work on interjurisdictional service delivery arose out of the workshop, namely: 1. More study is needed to define incentive mechanisms for interregional cooperation in order to motivate more active local governments; 2. More study is needed on how to introduce a government administration based on functional areas, called a special purpose district. This international model may prove helpful for Indonesia in the context of river basin management or water districts, for example. 3. GOI should produce draft regulations related to establishing cooperation between local governments and other countries. 4 REVIEW OF REGIONAL AUTONOMY ACTIVITIES 4.1 Technical evaluation of pemekaran applications Rationale for Technical Assistance Early on in the TA s implementation it was agreed with the Executing Agency that this portion of the TA would focus on the issue of creation of local governments, known as pemekaran in Bahasa Indonesia. Pemekaran receives a lot of press attention and is a highprofile issue in Indonesia. In January 2007 it became apparent that a number of donors were already planning a series of studies to evaluate pemekaran, including USAID, UNDP and the World Bank and that many parts of GOI were equally interested and considering sponsoring their own analysis, including BAPPENAS and MOHA. The ADB TA regional autonomy team members quickly met with key donor and GOI counterparts to clearly define which niche this TA could reasonably support. There are many issues surrounding pemekaran and it would have been impossible for this TA to address all of them. The outcome of this early and proactive coordination with other donors and the GOI is that this ADB TA took a leadership and facilitating role in defining and executing essential analyses for the GOI on this critical issue. Considering limited resources and the plan to have studies conducted by several institutions, this ADB TA focused on the applications themselves to create regions and on the technical review that is conducted on such applications. As this TA focuses on DPOD, and DPOD is a key player in the technical review of pemekaran applications, this is a natural fit for this TA.

16 Final Report 11 In an effort to socialize this TA s analysis regarding pemekaran and to gain larger support for this and all studies, the ADB Team presented a summary of all activities to the DPOD Technical Team on 23 April The Head of the DPOD Technical Team expressed appreciation for the proposal made by the ADB TA to initiate a miniworkshop on the pemekaran studies, to be discussed with the DPOD Task Force Members. Many Technical Team members expressed a strong interest in the pemekaran work. The TA s team continued with the analysis from this point forward making frequent presentations to DPOD, the informal working group on pemekaran, and DPR and DPD members Methodology Two stages of analysis were employed to evaluate the pemekaran application process: (i) analysis of the applications themselves submitted either to the Government or to the DPR (the latter which is seen as a streamlined process and by far the most popular choice in recent years), and (ii) analysis of the technical review of select applications through two case studies (Bandung in West Java and Lahat Lawang in South Sumatra). The goal of the analysis was to see if there are any major differences in the types of information provided and how these applications are evaluated in practice. 1. Analysis of pemekaran proposals submitted to Government or DPR The analysis of pemekaran applications was only performed for applications approved by the Government and the DPR in December 2006 and issued as Laws in January The TA obtained six copies of pemekaran applications among the 16 candidates. Two applications were submitted to Government and four were submitted to DPR. Four issues were analysed: Is the information presented in the standard format? Is the information that is presented in line with the subindicators in Government Regulation 129/2000? Is any information presented although it is not required? Does the information vary depending on the channel through which the proposal is submitted? As well as reviewing the proposals and their supporting documentation, substantial interviews have taken place with appropriate representatives of the Government, DPR, and DPD. 2. Case studies of the technical evaluation of pemekaran proposals conducted by Government or DPR Through our case studies and extensive interviewing with key stakeholders, the following issues were analysed around the process of technical review of pemekaran applications: 2 In December 2006, the central government and the DPR approved 16 proposals for creating to create new local governments; four of these proposals were initiated d by the Government, while the remaining twelve were initiated by the DPR.

17 Final Report 12 Which institution does it, how it is done, and sharing of information between institutions Administrative coordination and technical reports on the process and outcome Use of thirdparty services What data are received Timely implementation of the evaluations Personnel constraints Key Findings Evaluation of the pemekaran applications The TA s final report describes in detail the number of bodies involved in evaluating a pemekaran application. PP 129/2000 lists 19 indicators and 43 subindicators presumed to indicate if a local government can be viable. For ease in reviewing, these requirements have been condensed into the figure below, which quickly show where differences in the review process occur. The information requested primarily focuses on the administrative, technical and physical characteristics of the new local government and the impact of its division on the existing one.

18 Final Report 13 Checklist of requirements for a pemekaran proposal Requirement Government DPR DPD 1. Letter of aspiration from the community (in favor) 3 2. Decree of Approval from Regency/City DPRD 3. Proposal from Regent/Mayor 4. Decree of Approval from Provincial DPRD 5. Proposal from Governor 6. Regional Study 4 7. Map showing territory of Regency/City to be created 8. Regency/City DPRD Decree on designation of prospective capital 9. Regency/City DPRD Decree on willingness to provide funding support from parent Regency/City for three consecutive years 10. Governor s Decree on legislation to establish districts to be included in the newly created region 11. Legal regulation on establishment of parent regency 12. Governor s Decree on willingness to provide financial support to newly created region 13. Map of territory concerned 14. Parent Regency/City Ordinance on establishment of districts 15. Presentation on prospective region and/or field visit 16. Checklist form on completeness of prospective new region (signed by Regent/Mayor & Chairman of DPRD) 3 At least one public meeting must be held to discuss the proposed new local government. A list of participants should also be supplied. 4 This initial assessment, prepared by the local government, describes the economic viability of the new local government.

19 Final Report 14 The applications for the six case studies showed that there are no major differences in the proposal formats for applications sent to the Government versus DPR. The checklist in the figure above shows that the requirements are quite clear so there is limited scope for any significant deviation. What does differ, however, is the degree to which the information provided by applicants is evaluated for accuracy, completeness, and timeliness. In some cases local governments provide additional information that goes beyond the stated requirements. Such information may include: the name and location of the new region s capital city (some applications may state a definitive location whereas others simply name a district); a decree on the commitment to provide financial support for the first three years (some applications simply state funds will be available from the parent regency/province whereas others detail a funding ceiling); description of available land for the construction of government offices in the new region; and any other studies considered necessary to support the new region after its establishment. Technical evaluation of the pemekaran applications The process for conducting a technical evaluation varies between applications submitted to DPR versus DPD. These two processes are described in significant detail in the TA s final report on pemekaran. By way of summary, for those submitted to the Government a review is supposed to take place first by MOHA and then DPOD. Given limited resources, they conduct their reviews simultaneously and often with considerable preparation and analysis first occurring by external consultants. Their recommendations are ultimately forwarded to the President for a final decision. The avenue for a technical review of an application submitted to DPR is significantly more complicated, at least on paper (in practice, submitting an application to DPR and not the Government is viewed as having a higher success rate and somewhat more streamlined). But technical reviews do occur with a team comprising DPD and DPR. Once a recommendation is finalized DPR sends this to the President who then issues a Presidential Decree authorizing MOHA to evaluate the application on his behalf. At this point MOHA and DPOD conduct their own technical evaluation as described above. Importantly, they often engage external consultants so the analysis is often viewed as more technically rigorous. It is common for this twophased evaluation process to result in duplication of requests to the local government. Several of the case study local governments reflected that there is limited coordination between DPR, DPD, MOHA, and DPOD in the technical reviews. When an application is received by MOHA (and DPOD) it is first administratively evaluated against a check list of items required in GR 129/2000. Any glaring omissions are requested from the local government. A technical review then takes place, usually by external consultants, which culminates with a site visit by MOHA, DPOD, and often the consultants. The technical review includes analysing the data submitted, assumptions, and recommendations by the local government. In some cases the consultants will return after the site visit if there are significant outstanding issues. The case study local governments felt that the consultants were the driver of the technical review. The role of the local government at this point is to provide information as requested. There is a bit of resentment by local governments that they only serve a data gathering mode. According to Law 32/2004 and PP129/2000 the Governor and the Provincial DPRD should provide stated endorsement for a pemekaran application. However the regulations imply a bigger hand than is often the case: typically provincial authorities are more or less notified of the application and do not take an active part in its formulation. If the application is eventually accepted the Province begins to take a more active role right before the DPR issues the Law. At this point Provinces are required to provide startup funding for the new regional government and this willingness must be explicitly

20 Final Report 15 stated. In addition, provinces have taken on an arbitration role when problems arise between the parent regency and the newly created region (for example, in asset transfer) Next Steps There are a number of comprehensive recommendations for reform to the pemekaran process which are addressed by the informal donor and GOI Working Group on pemekaran. But for this TA s subject within pemekaran key recommendations include: In the revision of GR 129/2000, the technical requirements to be presented in the proposal for establishment of a DOB should include not only a preliminary study but also should be accompanied by studies relating to (i) regional alignment, (ii) prospective capital of the DOB, (iii) transfer of personnel, assets, and documents, and (iv) initial financial assistance. The lack of this information presently tends to cause further complications in implementation as several can be controversial yet essential decisions. Rather than duplicate technical review efforts by DPR, DPD, MOHA, and DPOD these bodies could improve coordination. This would save limited resources and result in a reduced administrative burden to the local government. In the revision of GR 129/2000, the role of the provincial government should be explicitly stated, starting from the initial process of submitting the proposal, rather than only appearing during deliberation of the Law on Establishment of a DOB. The roles of the provincial government that need to be explicitly set forth in the revised version of Government Regulation 129/2000 should include: (i) conducting a study on regional alignment, (ii) establishing a technical team at the provincial level to review fulfilment of the requirements for establishing a DOB, (iii) conducting a study on financial aid for the DOB s operations, and (iv) conducting an evaluation of the administration of the DOB five years after its establishment. Up until the end of the TA the team continued to play an active role in providing advice to GOI agencies surrounding proposed GR 129/2000 revisions. In addition, the TA worked with GOI to improve how pemekaran is evaluated more broadly as described in the next section. 4.2 Local Government Evaluation Rationale for TA On 31 July 2007, Working Group I on Government Affairs of DPOD, with support from ADB TA 4682INO, held a workshop to examine the formation of new administrative areas (Pemekaran Daerah). One issue that arose in the discussion of the study results was the government s plan to issue a Government Regulation (PP) as the legal basis for Evaluation of the Conduct of Regional Administration (Evaluasi Penyelenggaraan Pemerintahan Daerah, EPPD). The planned PP on EPPD will cover not only local administrations that have long been established, but also newlyestablished autonomous regions (Daerah Otonom Baru, DOB), at both the provincial and the regency/city levels.

21 Final Report 16 To be responsive to the DPOD Working Group on Monitoring and Evaluation the TA agreed to host a workshop specifically around the planned PP on EPPD and where it intersects with other regulations concerning pemekaran. Initially, the Directorate General of Regional Autonomy, MOHA was to prepare separate Draft Government Regulations (RPP) on EPPD for longestablished regions and for newlyestablished regions (DOB). However, in the harmonization process, they decided this would be cumbersome and that they should be combined. Therefore, the draft on Evaluation of DOB is to be integrated into the draft PP on EPPD that is being prepared by the Directorate for Capacity Building and Evaluation of Regional Performance, Directorate General of Regional Autonomy, MOHA. A number of harmonization issues remained which is why the TA came to support discussions on how to achieve this. With regard to the preparation of the EPPD instrument, a number of institutions have been and/or are currently involved in constructing evaluation instruments, which could serve as references and lessons learned. In this connection, ADB TA 4682INO facilitated a workshop on Preliminary Discussion of Preparation of Instruments for EPPD. In the implementation, the miniworkshop was conducted jointly by TA4682 INO together with DPOD Secretariat (Working Group I, Government Affairs and Working Group III, Monitoring and Evaluation Section) and the Directorate for Capacity Building and Evaluation of Regional Performance, Directorate General of Regional Autonomy, MOHA Key Findings The basic law on EPPD is based on Law Number 32 of The scope of EPPD includes Evaluation of Performance of the Conduct of Regional Government (Evaluasi Kinerja Penyelenggaraan Pemerintahan Daerah, EKPPD), Evaluation of Performance of Conduct of Regional Autonomy (Evaluasi Kinerja Penyelenggaraan Otonomi Daerah, EKPOD), and Evaluation of New Autonomous Regions (Evaluasi Daerah Otonom Baru, EDOB). The Government conducts EKPPD based on the Reports on Conduct of Regional Governance (Laporan Penyelenggaraan Pemerintahan Daerah, LPPD) submitted by the Heads of Regions. EKPPD is conducted every year. EKPPD addresses the quality of regional policy decisions and the quality of policy implementation. EKPPD appraisal aspects/ parameters and indicators exist at policy decision level (13 appraisal aspects) and at policy implementation level (9 appraisal aspects). The EKPPD outcome is as described in the figure below.

22 Final Report 17 EKPPD OUTCOME HIGH PERFORMANCE GOOD PERFORMANCE REGENCIES/CITI ES LOW PERFORMANCE + ZERO PERFORMANCE 280 REGENCIES/CITI ES CAPACITY BUILDING AND PERFORMANCE IMPROVEMENT + 97 REGENCIES/CITI ES 30 REGENCIES/CITI ES 3 (THREE) YEARS IN A ROW PERFORMANCE IMPROVES PERFORMANCE DOES NOT IMPROVE EKPOD ABOLISHED/ MERGED Regional Governments conduct EKPOD based on the outcome of EKPPD. In the case of very low performance for three years in row, such regions could be abolished/ merged if they are unable to implement their own regional autonomy. If regions are unable to achieve the standards/ criteria set by the Government relating to the aims of autonomy, such regions could be abolished and merged with others. The aims of regional autonomy, according to article 3 clause (3) and article 20, are: (i) to enhance public wealth, (ii) to enhance public services, (iii) regional competitiveness, and (iv) development of democratic life. Evaluation of DOB is applied to newly established regions for three years. This evaluation is to be followed up by providing capacity building and specific facilitation to the regions as needed. The appraisal aspects are: (i) establishment of regional apparatus, (ii) personnel allocation, (iii) DPRD membership allocation, (iv) establishment of APBD (local budget), (v) grant allocation from the parent region and aid from the provincial government, (vi) personnel transfers, transfer of assets, funding and documentation, (vii) capital removal, for regions whose capital city is moved, (viii) establishment of RUTR (zoning plan), and (ix) infrastructure support to enhance regional investment. The implementation plan for EPPD is described in the figure below: EVALUATION OF IMPLEMENTATION OF REGIONAL ADMINISTRATIONS Official Announcement of New Region Evaluation of New Region E K P P D Improvement of Performance EKPOD Recommendation for Abolition/ Merger Specific Facilitation Third Year 3 (THREE) INSTRUMENTS TO MEASURE PERFORMANCE OF IMPLEMENTATION OF REGIONAL ADMINISTRATION: 1. EVALUATION OF NEW AUTONOMOUS REGIONS/ ADMINISTRATIVE TRANSITION IN IMPLEMENTATION OF NEW AUTONOMOUS ADMINISTRATIONS 2. EVALUATION OF IMPLEMENTATION OF REGIONAL ADMINISTRATION/ PERFORMANCE OF IMPLEMENTATION OF REGIONAL ADMINISTRATION 3. EVALUATION OF REGIONAL CAPABILITY/ CAPACITY OF AUTONOMOUS REGION

23 Final Report 18 To prepare the method and indicators for the implementation of EPPD, consideration should be given to evaluation methods already applied by various institutions, including: (i) the model of PP 129/2000, (ii) the Regional Development Index model (Bappenas), (iii) the Regional Competitiveness model (PPSK BI), (iv) the Regional Investment Attractiveness model (KPPOD / Regional Autonomy Watch), (v) the Jawa Pos Institute of Pro Autonomy (JPIP) model, (vi) the Alternative Model for Measuring Performance in Conduct of Regional Autonomy (LAN, 2004), and (vii) the Regional Performance Measurement and Evaluation Model (LAN, 2006). The parameters in the Regional Performance Measurement and Evaluation Model developed by LAN fall into three categories: (i) Public Welfare Parameter, with indicators: Economic Welfare, Social Welfare, Art, Culture and Sports, Environmental Management, and Equitability of Development; (ii) Public Services Parameter, with indicators: Education, Health, Public Order and Security, (iii) Competitiveness Parameter, with indicators: Local Economy, Infrastructure and Communication, Quality of Human Resources, and Quality of Public Institutions Next Steps Based on the experience of various institutions that have conducted evaluations of the performance of local government administrations, a small team was formed to draft the method, parameters and indicators for implementation of EPPD. The Small Team will consist of representatives from the Department of the Interior, BPS, LAN, BPKP, donor agencies, and private institutions/ foundations. The Small Team will be chaired by the Director for Capacity Building and Evaluation of Regional Performance, Directorate General of Regional Autonomy, MOHA. The Small Team will have the duties of preparing the method, parameters, and indicators for EPPD in the shortest possible time, as the draft is to be deliberated by the Ministry of Justice and Human Rights in the process of harmonization of the draft on Establishment of New Autonomous Regions (Revision of PP 129/2000) with the draft on EPPD. The new regulation was adopted in February REVIEW OF CAPACITY BUILDING ACTIVITIES 5.1 BACKGROUND: Why a Stronger DPOD and Secretariat are Important DPOD has an important role to play in decentralization. It is the one body at the centre of government with the potential to bring together central and regional interests in a single, coordinated policy voice direct to the President s office and thence to Parliament. Issues with which DPOD must deal are complex and difficult. The scale and speed of the decentralization process make them more so. Mismanaging these issues is

24 Final Report 19 unacceptable. Failure could set back or introduce unnecessary conflicts within the regional decentralization and democratisation process. Developing DPOD s capacity for oversight and policy capacity is a priority. DPOD recognises this. Indeed, everyone consulted during the TA does so too. DPOD s capacity is dependent on the support it receives from its members, their ministries and the DPOD secretariat. Organisations are more than the sum of their functions. They also contain a dynamic we call the organisational ethos. This is also referred to as the organisational culture, and sometimes as its tone. However you describe it, the ethos is central to the very being of an organisation. It permeates and reflects the collective will and mindset of those who inhabit it. What we have gradually come to realise is that the prevailing ethos of those associated with DPOD, including those who stand on the sidelines as interested observers, is one bordering on benign neglect. They know that DPOD could make an important contribution to the decentralization process but fear it can t and won t. In turn, they exhibit a feeling of wait and see. While we would not want to overplay this, it is an important feature of DPOD. We believe it stems in large part from a failure to recognise the political realities of ministerial noninvolvement. After all, the logic goes, if the ministers don t show much interest, why should we? It is good to raise these lines of possible ministerial thought for two reasons. The first is that the ministers are unlikely to ramp up their interest in and contribution to DPOD until they themselves recognise and become convinced of its potential status and importance as a political and technical contributor to nation building. The second is that, if the ministers themselves think like this, the tone at the top is in need of some serious repair and, until it is repaired, the consequent ethos of DPOD will probably remain fragile and could make any reforms suboptimal. 5.2 APPROACH It is never easy to carry out a capacity building effort within a government body that is made up primarily of parttime or deputized staff. The technical and working groups change membership annually and continuity of thought and knowledge is an ongoing problem faced in all components of the DPOD. Making longterm CB investments in individuals can be seen as a questionable use of limited funds. Nevertheless some amount of training and team building is required to raise the overall level of understanding and the eventual DPOD products.

25 Final Report 20 The TA itself provided limited time and resources to the CB component. Given this limitation, we have undertaken a quick and dirty processoriented approach to understanding the perceived strengths and weaknesses of DPOD and have built a series of recommendations around this assessment which, if implemented, should ensure that the organization is revitalized and meets the high level of expectations placed on DPOD from all stakeholders. Specifically, the TA has undertaken the following process inherent in management of change in any dynamic organization *). *) Note: The TA can only be responsible for steps 14 We were able to a) distribute a series of questionnaires to approximately 30 DPOD staff members, b) undertake a self training needs assessment process with key members of the DPOD Secretariat, and c) conduct a series of personal interviews with senior officers associated with DPOD directly and indirectly. Once a draft strengths and weaknesses document and a series of draft recommendations was developed, a workshop was held (October 2007) for approximately 35 DPOD stakeholders to discuss these findings and obtain additional inputs and consensus for how best to move forward with the strengthening of the organization. After revising the list of key recommendations a final workshop was held (November 2007) to discuss them and to finalize a plan of action for what next. The DPOD is inherently a rather complex organization primarily made up of assigned staff from many and varied GOI agencies, who form the working groups and Tim Teknis. The following organization chart depicts this complexity and demonstrates the need for a strong secretariat.

26 Final Report 21

27 Final Report Secretariat Strengths and Weaknesses A Summary Law 32 and 33/ 2004 instructs DPOD (Dewan Pertimbangan Otonomi Daerah) to advise the President on regional autonomy policy includes regional structures, fiscal balance and regional capacity. DPOD seeks to strengthen its secretariat. This includes a subsecretariat, Technical Team, and Working groups as stipulated in the MOHA Decrees The following summarizes the secretariat s perceived strengths and weakness. Secretariat Strengths Performance. Secretariat can be productive when its members do meet and focus their energies on strategic issues requiring specific outcomes. Potential Contribution. The existing secretariat does have the potential to make a significant contribution to DPOD because of the knowledge, expertise and connections of its members. Unleashing this potential requires greater coordination, more structured consultative processes, more regular meetings, better resourced administrative support. CrossAgency Integration. Secretariat offers a structured vehicle for enhanced crossagency integration and coordination between MOHA and MOF, both pivotal to decentralization. Technical Specialisation. Two separate but integrated technical subdirectorates in Directorate Facilitation of DPOD for regional autonomy and fiscal balance allow each to concentrate on its area of technical expertise. MOHA Political and Business Support. Placement of the secretariat within MOHA provides political, budgetary and administrative support from a key central agency interested in its outputs. Secretariat Administration Base. The present DPOD Secretariat Administration within MOHA provides a mid level but functional support base for DPOD business that could be upgraded and expanded. Crossagency Support. There is goodwill and support across agencies for the work of the DPOD and its Secretariat. Secretariat Weaknesses Structural Placement of Secretariat Within MOHA. Muddies relationship between MOHA and secretariat. Confuses roles. Constrains crossagency engagement and coordination. Limited Secretariat Budget. Limited budget and staff compromises ability to obtain quality independent inputs. Infrequent Secretariat Meetings. Not according to mandate. Poorly Briefed Secretariat Technical Teams. Unclear role definition, terms of reference and reporting arrangements. Distorted Secretariat Delegations. Unclear secretariat chain of command. Task delegations from DPOD meetings appear confusing. Technical Rather than Policy Inputs. Inputs for creating new regions focused on technical requirements. Wider policy implications not fully considered. Misaligned Secretariat Business Incentives. Payments to secretariat members paid if do or don t meet. A potential disincentive to active, productively engagement. Leadership Difficulties. There is a need for dedicated, fulltime leadership unhindered by multiple competing roles and assignments.

28 Final Report DPOD Strengths and Weaknesses A Summary Law 32 and 33/2004 on regional autonomy instructs DPOD (Dewan Pertimbangan Otonomi Daerah) to advise the President on regional autonomy, including regional structures, fiscal balance and regional capacity. The following summarizes DPOD s perceived strengths and weakness by those consulted. DPOD Strengths Established Legal Entity. DPOD is a formal legal entity mandated by Parliament with a clear reporting line to the President. Clear Mandate. DPOD has a clear mandate to advise the President and, through him, the Parliament on matters of regional autonomy. Performance. DPOD performs mandated functions re fiscal balance and regional structures. Policy Role. DPOD s business is policy advice, not implementation. It is free from the managerial and administrative burdens of implementation agencies. Wholeofgovernment Policy Linkages. DPOD offers the only systemic, wholeofgovernment linkage for decentralization policy. Representation of key central agencies offers potential for strong intergovernmental coordination, expanded role in harmonizing sectoral laws before they go to Parliament and resolution of subsequent intersectoral issues. Ministerial Attention. With eight key ministers as members, DPOD offers an important vehicle for the Indonesian political elite to advance decentralization policy. Regional Voice. With three regional members, DPOD has the potential to inject the regional voice directly into central policy making. Operational Capacity. As a working body, DPOD has developed crossagency experience and expertise in the central management of decentralization policy. DPOD Weaknesses Role Limitations. DPOD can only advise on specific matters related directly to its mandated functions. Law 32 provides no scope for general advice on decentralization. Law 34 offers no direct authority on horizontal financial balance. DPOD s effectiveness rests on the President response. Limited Ministerial Commitment and Participation. Often member ministers send more junior staff to DPOD meetings. Limited Meeting Time. Some consider DPOD a "rubber stamp. Short and infrequent meetings insufficient for indepth consideration of issues. Weak Regional Contribution. Regional members ability and knowledge seen as limited in scope. Information and Performance Limitation. Lacks information to provide big picture advice on regional capacity. Perceived Lack of Independence. Attached to MOHA and reporting through the Minister, seen as ministry, not government, vehicle. Low Profile and Identity. Low profile, no separate office. Role sometimes confused with Team 157. Considered lacking in identity. Fiscal Advice Overruled. The DPR sometimes overrides the DAU formula and other fiscal recommendations rendering DPOD s advice on fiscal balance irrelevant. Lack of Agency Engagement. Weak consultation with nonmoha member agencies. Better integration with key nonmember agencies suggested.

29 Final Report KEY RECOMMENDATIONS Capacity building must start by making the existing structure and organization stronger but also consider dramatically new structures and procedures for the future. The following 16 recommendations move from the general to the specific. 1. MUST BUILD UP IMAGE AND CREDIBILITY THROUGH IMPROVED OUTPUTS RATIONALE: In a nonstructural body working within government bureaucracy credibility is earned through the generation of products/outputs which are perceived as useful for the related stakeholders. The case of DPOD is slightly different from other traditional agencies in that the enduser of the outputs is not DOWN to the consumer.but UP to the consumer. The top decision makers in both the legislative and the executive wings of the GOI expect that the DPOD will provide them clear analysis and recommendations related to decisions which will affect the future of governance into the indefinite future, where wrong decisions will have serious impact. At present, it is not clear that the top decision makers feel that they are being provided the necessary inputs that are both timely and of high quality. Without this, it will be extremely difficult for DPOD to obtain full credibility. Summary: The present level of image and credibility is not sufficient. 2. NEED A TWO YEAR PLAN FOR CB IN DPOD RATIONALE: Capacity building within a government organization is never easy or particularly quick. DPOD has a somewhat unique opportunity over the next two years to identify and implement a focused CB program. It appears that there will be a moratorium on increasing the number of local governments within Indonesia until after the election in This provides a window of opportunity for DPOD to focus inward and carry out a campaign of capacity building. This TA provides an outline for CB in the years BUILD UP THROUGH BOTH INTERNAL DEVELOPMENT AND EXTERNAL OUTSOURCING RATIONALE: Capacity Building will require both a selfimprovement exercise program to build up the DPOD body and make it healthier and stronger as well as some injections of new blood (people). Both approaches together will allow the patient to become strong as quickly as possible. In essence this is a Build and Add approach to capacity building. 4. DEVELOP CLEAR STANDARD OPERATIONAL PROCEDURES (SOP S) AND STICK TO THEM. ESPECIALLY RELATED TO DPOD AND OTHER MOHA UNITS FUNCTIONAL RESPONSIBILITIES. RATIONALE: Since DPOD was established until now, several changes have taken place within MOHA and related departments. For example, a new Directorate for

30 Final Report 25 Local Government Capacity Development and Assessment has been created under the DG OTDA. BAKD has been given a new and broader mandate in the areas of fiscal management of Local Governments, etc. Given these new developments it is imperative that a set of clear SOP s along with clear roles and responsibilities be agreed. Over time, it appears that some of the original DPOD mandate has been absorbed by other existing and new agencies. Once these SOP s and job descriptions are in place, the DPOD can focus all available resources to getting good at their mandated role and tasks. (See 1 and 2 above) 5. INVOLVE DONORS IN DEVELOPING DPOD RATIONALE: There is significant technical and financial assistance among both bilateral and multilateral donors to support the GOI in its program to simplify, professionalize and decentralize governance in Indonesia. However, there is very little donor attention to and support of the DPOD to date. Even this TA provides only limited assistance aimed at assessing DPOD and recommending changes, with little or no financial support for implementation of change. A detailed DPOD Capacity Building Action Plan needs to be finalized and agreed upon which will become the focus of discussions with various donors offering them the opportunity to help strengthen this very important body. 6. REQUEST BPK PRESIDENT TO CLARIFY WHAT HE WANTS(HOPES) FROM DPOD RATIONALE: The original decree for DPOD makes it clear that this body will be under and report to the President of the Republic him/herself. This was (and is) considered to be a powerful mandate which could be used to ensure a high profile and a full review of any and all outputs at the highest levels. Since it has been several years since the inception of DPOD, it would be useful for the President to publicly restate his desires for what he expects from the DPOD and how important this unit is to solid decision making related to local government creation and resource sharing. This public request will greatly encourage donors to get behind DPOD as well as motivate related GOI departments to nominate their most senior and capable officers as members of the working groups and technical team. Both are felt to be necessary ingredients to the overall capacity building effort of DPOD. 7. CONSIDER REDUCING THE EXISTING TIM TEKNIS AND THREE WORKING GROUPS TO JUST TWO BODIES WHICH CAN BE CALLED TIM TEKNIS A AND B OR WORKING GROUPS A AND B. RATIONALE: At present there are more than a hundred persons listed as members of the three working groups plus the Tim Teknis of DPOD. Coordinating the four separate groups is difficult and at times there is a blurring of discussion areas especially for the local government assessment working group who overlaps with the new Directorate for Local Government Capacity Building and Performance Evaluation and Directorate Regional Management and Special Autonomy both within DG OTDA. Perhaps it would be best for all concerned if DPOD had only two groups of advisors; one to focus on Fiscal Balance issues and another to focus on Pemekaran issues. Both would report their findings and

31 Final Report 26 recommendations to the DPOD Secretariat (Minister of Home Affairs) who in turn would share them with the President (and Parliament as requested). The above is an attempt to streamline DPOD and reduce the time delays between initial discussions and subsequent recommendations being made to the decision makers themselves. 8. PLACEMENT OF TWO FULLTIME HIGHLY REGARDED LOCAL EXPERTS IN EACH OF THE TWO TIM TEKNIS WORKING GROUPS AS SPECIALISTS WITH THE TASK OF PREPARING QUARTERLY DISCUSSION PAPERS IN THEIR FIELD FOR DISCUSSION WITHIN THE FULL TIM TEKNIS. (FOR A PERIOD OF TWO YEARS). RATIONALE: This is in relation to items 3 and 6 above. This is the injection from outside aimed at quickly improving the quality of the DPOD products as well as its image and credibility. These experts will be fulltime and be charged with developing concept papers in their related areas of expertise which in turn will be the focus of quarterly working group meetings. Following the quarterly meetings they would also finalize the findings and recommendations in a professional manner and submit them to the DPOD Secretariat for approval and submission to the President for consideration. This is an effort to make the DPOD become even more proactive and professional in dealing with the major issues related to Fiscal Balance and Pemekaran. 9. PLACEMENT OF TWO FULLTIME HIGHLY REGARDED LOCAL EXPERTS WITHIN THE DIRECTORATE OF DPOD FACILITIES FOR TWO YEARS ONE EACH IN FISCAL BALANCE AND PEMARKARAN RATIONALE: These experts will be the counterparts to the four specialists described above and will assist the Directorate (SubDits) to provide technical quality control and direction within the two focal areas of DPOD. They would be charged with coordinating the capacity building efforts in their respective areas of expertise. Thus, there will be a team of three experts within both DPOD areas of concentration who will generate, facilitate, train, and advise as a part of their job description. They will be the nucleus of the revitalization effort. 10. CONSIDER RELOCATING DPOD OUTSIDE OF MOHA IN A NEUTRAL LOCATION RATIONALE: As stated earlier, image is very important in a bureaucratic world. One of the TA findings was that agencies outside of MOHA see DPOD as being a MOHA unit which in turn creates hesitancy for them to assign busy and senior officers to DPOD tasks/activities. Naturally this also has an effect on the quality of output coming from the various components of DPOD, and, the ownership of and commitment to the reports and recommendations generated. Since DPOD is a national body NOT purely a department unit, it may be best to relocate the Directorate/Secretariat outside of MOHA. This could be an existing agency such as Bappenas, Sekneg, Office of the President, or to a new independent office location. This would make it clear to all stakeholders that DPOD has national standing and is not only a part of MOHA. To solidify this new image, the Minister of

32 Final Report 27 MOHA, MOF, Bappenas and even the President would be expected to visit and attend important meetings held at this location. 11. DPOD TO PREPARE AN ANNUAL STATE OF DECENTRALIZATION REPORT FOR PRESIDENT AND DPR/DPD RATIONALE: As mentioned in the first point above, it is important for DPOD to increase and improve its outputs. A very salient product which will improve the status and image of DPOD is an annual State of Decentralization Report. This could be presented by the Minister of MOHA to both the President and to the DPR. The experts assigned to DPOD (see 8 and 9 above) should be instrumental in preparing this document along with the regular DPOD team. The Report should identify the key issues covered in the past year related to decentralization and those that will be the focus of the coming year for DPOD and partner agencies. 12. DG OTDA(MOHA), DG FISCAL BALANCE (MOF), AND DEPUTY CHAIRMAN BAPPENAS SHOULD FORM DPOD EXECUTIVE COMMITTEE TO MEET QUARTERLY TO DISCUSS DPOD ISSUES AND SET PRIORITIES RATIONALE: The DPOD has become too much a MOHA body. The other partner departments feel that they have little input or control over DPOD. However, both Bappenas and MOF expressed the desire to become more involved in revitalizing DPOD. The best way for this to happen is to establish an executive committee made up of MOHA, MOF, and Bappenas Echelon I officers who will meet together quarterly to set priorities and the agenda for the coming months and years. The two experts appointed in the Directorate of Facilities for DPOD and InterAgency Relation could also attend as advisors and be responsible for preparing the Executive. Committee Report each quarter to be signed by the three members. 13. UNDERTAKE AN INTENSIVE TRAINING PROGRAM FOR ALL DIRECT STAKEHOLDERS OF DPOD RATIONALE: The DPOD family is made up of many members who come from dozens of agencies. Many of these agencies are only marginally related to the issues of local government pemekaran and fiscal balance. Nevertheless, they are designated members of the DPOD working groups and/or technical team. It is important that ALL who participate in the deliberation and subsequent recommendation process be both satu bahasa and deeply knowledgeable about the key issues being discussed. Therefore, a series of short courses have been identified as a possible training program for the various members of the DPOD family. The membership is often very fluid and changes even from year to year, which means that all existing members and any subsequent new members will all need to attend appropriate courses. (The continuous changing of DPOD working group members is another issue that needs to be looked at.) The experts placed within the DPOD Secretariat as mentioned above would be responsible for coordinating the training program and even acting as trainers themselves on many occasions. This training program will have the benefit of both building up the body of knowledge required for producing professional outputs, and will also serve as a

33 Final Report 28 teambuilding exercise that will hopefully allow for smoother and more productive meetings and higher quality outputs. 14. DPOD MUST COMMUNICATE INFORMALLY WITH DPR COMMISSION II BEFORE ANY CONSULTATIVE MEETING SESSIONS RATIONALE: In order to ensure that national level decisions fit the best interests of the overall development of Indonesia, a broad consensus must be created which will lead to clear decisions and streamlined implementation. The decisions related to formulation of new local governments and how to share national fiscal resources will impact the nation for many years to come. To this end it has been suggested that the DPOD should establish a standard operating procedure (SOP) which allows for informal exchanges of opinions and ideas with the DPR before each formal DPOD session. This will allow for full consideration of all aspects of any particular issue. 15. DPOD MUST ESTABLISH A DATA PROCESSING AND ANALYSIS CAPABILITY RATIONALE: DPOD should not reinvent the wheel and attempt to gather all relevant data on existing and/or potential local governments. This data is already collected and held by many other government bodies. However, DPOD should have the capability to access pertinent data, process it, and incorporate it into the decision making process. Often this lack of updated information affects the timeliness (information has to be collected) and quality of decisions/recommendations provided to the minister of MOHA and the President. 16. A FOLLOWUP TECHNICAL ASSISTANCE PROJECT IS REQUIRED RATIONALE: DPOD is much too important an agency to be allowed to slip into mediocrity. Every effort must be made to vitalize all aspects of DPOD. The Minister of MOHA and the Director General of OTDA should request both bilateral and multilateral donors to provide a technical assistance input aimed at facilitating a capacity building process that will ensure that DPOD reaches its full potential and is able to carry out its important mandated role and fulfil the high expectations of all stakeholders. SUMMARY: It is hoped that the above recommendations taken together will ensure the revitalization of DPOD in a way that it can fulfil its important mandate as expressed in the Perpres No 28/2005. Naturally, to make all of the above happen will require substantial political will and additional budget. However, if the former is in evidence, the additional funds required will likely not be a significant problem.

34 Final Report KEY ISSUES AND QUESTIONS FOR FOLLOW ON TA a. For Secretariat DPOD The following issues and questions are intended as a set of focused reminders for policy makers. Some concern functional issues. Others are more fundamental to the nature of the secretariat s business and how this should be conducted. All need to be taken into consideration. It is suggested that a followon TA be provided to address the following issues. Issue Strengthening Principles Secretariat Role Issues Management Business Priorities Secretariat Structures Secretariat Membership Enabling Resources Enabling Instruments Questions What does strengthening the Secretariat really mean? Is it just a matter of upgrading the present administrative structures and increasing the resources available to it? Or is something more fundamental required? For instance, should the Secretariat remain with MOHA and be one of its prime policy vehicles? Or is a greater degree of independence desirable? What principles should guide the strengthening process? What is the vision for the Secretariat? What difference should it make? What roles should it perform? What outcomes should it deliver? How should it deliver these? How should it operate as an entity? What will success look like? How will it be measured? What critical issues face DPOD? What are their complexities? Who are the stakeholders? How should they be engaged or managed? What protocols are required? What are DPOD s business priorities? How should the Secretariat service these? What outputs should it deliver? By when? What inputs will it need to do so? Where will they come from? What business processes should support their provision? How should the Secretariat be structured? From whom should it take its directions? To whom should it report? What should be its core functional groupings? Should these functions align with those of DPOD itself or be more broadly based? What administrative support is required? What attributes are most desirable in secretariat members? What echelon levels are desirable? From where should secretariat staff be drawn? Should multiagency secondments and rotations be considered? How will secretariat members be selected and appointed? Where will the Secretariat be located? What administrative facilities will it required? What financial resources? What legal or administrative instruments are required to establish an effective Secretariat? What should these say? How will they be drafted? Development Program What process is required to move forward in strengthening the Secretariat? What forums, workshops and presentations are required? Who needs to approve what? How do we secure their approval? What are the relevant milestones? Who will do what to achieve them?

35 Final Report 30 b. For DPOD The following issues and questions are a set of focused reminders for policy makers as they consider the future of DPOD. The list is a starting point for any future TA activity. It requires further consideration and expansion. Issue DPOD Role Functional Authority Governance Membership Interacting with Parliament Questions What is DPOD s role? What are its objectives? What is really expected of it? What outcomes are desired of it? How should its performance be judged? What principles should guide its activities and recommendations? Where or in what way do the principles of capacity equalisation and regional responsiveness fit? What priority should be given to them? How? What functions should DPOD perform? How should these be described? What does providing advice on regional capacity actually mean? What scope does it give DPOD to advise the president generally? Should DPOD have a role in harmonising intersectoral legislation before it goes to Parliament? Should DPOD have a mediation or facilitation role in the management of intersectoral issues? If so, what authority does it require to perform such roles? Should DPOD s members be independent at arm s length from the political system? How can their decisions be made transparent to guard against political or other distortions? What can they do to ensure the quality, integrity and effectiveness of their advice is beyond question? How should the members be selected? What qualifications do they require? What skills should they bring? What contributions should they make? How should the regional perspective be injected into deliberations? Should DPOD or its secretariat interact with Parliament? What role should it play in relation to the DPD when its members take office? What is the most productive way to interact with the MPR and DPD? If Parliament continually overrides DPOD advice, should this be regarded a failure of DPOD or a triumph for democracy?

36 Final Report 31 DPOD OVERVIEW OF POTENTIAL TRAINING ACTIVITIES, TARGET GROUP IN DPOD PROPOSED TRAINING MODULE LIKELY NUMBERS 1. All IT Users in DPOD [Secretariat] 2. All Public Finance Professionals in Fiscal Balance Component at DPOD INDICATIVE LENGTH OF TRAINING Use of the IT / IS System hours per person split into 2 batches Public Finance Techniques Particularly to Allow Professional Staff to Access and Use Analytical Tools of the IT / IS System 3. Most Staff of DPOD Various short skills training courses to be provided mainly by the Training Centre (Badan Diklat) in MOHA and LAN 4. Secretariat of DPOD (a) Use of IT IS Systems (ParticularlySupport and Administrative Systems) by all Secretariat Staff +/ hours per person split into 2 batches +/ 25 Most courses are of short duration of 2 to 3 days +/ hours per person split into 2 batches INDICATIVE FUNDING SOURCE ADB Project Loan ADB Project Loan GOI budget mainly funded directly by Badan Diklat ADB Project Loan 5. Sub Directorate of DPOD Fiscal Balance (b) IT IS Specialist Systems Qualifications Course for IT Administrators / IT Specialist in DPOD 6 30 hours per person 1 batch (c) Legal Drafting / Writing Techniques hours per person one batch (a) Budget Analysis and Evaluation With Focus on Data, Tools and Techniques Available in IT / IS System hours per person split into 2 batches ADB Project Loan DPOD, GOI Budget or Donor Yet to be Identified ADB Project Loan Directorate of Regional (b) Legal Drafting / Writing Techniques [Note Staff from the Secretariat and hours per person two batches DPOD, GOI Budget or Donor Yet to be Research Triangle Institute Indonesia

37 Final Report 32 TARGET GROUP IN DPOD PROPOSED TRAINING MODULE LIKELY NUMBERS Management and Special Autonomy Staff Fiscal Balance Sub Directorate Will Also Participate in this Course] (c) Report Writing and Presentation Techniques INDICATIVE LENGTH OF TRAINING 10 8 hours per person two batches INDICATIVE FUNDING SOURCE Identified DPOD, GOI Budget or Donor Yet to be Identified 6. Sub Directorate of Fiscal Balance DPOD Sub Directorate Governance (DPOD) (a) Techniques for Analysis / Evaluation of Regional Data Relating to: (i) Revenues; (ii) Investments; (iii) Assets; (iv) Borrowings; and (v) Regional Enterprises. Course to focus on Data, Tools and Techniques Available in the / IS System (b) Analysis of Performance of Regional Government hours per person ADB Project Loan 8 16 hours per person 1 batch only DPOD, GOI Budget or Donor Yet to be Identified Directorate of Regional Management and Special Autonomy Sub Directorate of Fiscal Balance (c) Regional Assets and Investment Management [Including Assets Revaluation] (d) Regional Taxes and Charges Management 8 24 hours per person 1 batch only 8 16 hours per person 1 batch only DPOD, GOI Budget or Donor Yet to be Identified DPOD, GOI Budget or Donor Yet to be Identified Research Triangle Institute Indonesia

38 Final Report Fiscal Balance Unit (a) Techniques for Analysis / evaluation of Regional and Central Data Relating to Fiscal Balance / Intergovernmental Financing Issues. Course to Focus on Data, Tools and Techniques Available in IT / IS System 8 30 hours per person ADB Project Loan 8. Sub Directorate of Fiscal Balance DPOD For all DPOD Secretariat (a) Techniques for Analysis / Evaluation of Regional Information Relating to Budget Realization, Accounting, Control and Systems / Procedures. Course to Focus on Data, Tools and Techniques Available in IT / IS System (b) Report Writing and Presentation Techniques hours per person ADB Project Loan 10 8 hours per person DPOD, GOI Budget or Donor Yet to be Identified For all DPOD Secretariat 9. For all DPOD Secretariat (c) Building Teamwork hours per person DPOD, GOI Budget or Donor Yet to be Identified Public Policy hours per person DPOD, GOI Budget or Donor Yet to be Identified 10.For all DPOD Secretariat Policy Evaluation Technique hours per person DPOD, GOI Budget or Donor Yet to be Identified Research Triangle Institute Indonesia