Pro-Poor Planning and Budgeting Project

INTRODUCTION

1. Two key findings of the 2005 Country Poverty Assessment for Indonesia are that (i) improved quality social services and infrastructure access is central to poverty reduction and achievement of the Millennium Development Goals (MDGs), but that (ii) the population remains highly vulnerable to shocks.1 Poverty reduction is a major concern of the Government of the Republic of Indonesia, which has incorporated the national poverty reduction strategy paper (PRSP) in its Medium-Term Development Plan (MTDP) 2005–2009. The Government has requested Asian Development Bank (ADB) support for developing local government-level poverty reduction strategies linked to pro-poor resource allocation, and for designing social assistance programs to mitigate the impact of shocks on the poor. Reconnaissance missions took place in February and April 2005 to identify broad issues. Staff undertook fact-finding in July 2005, with follow-up in August and October 2005, to reach broad understanding with the Government on the project's design and scope. The impact, outcomes, and outputs of the technical assistance (TA) are summarized in the design and monitoring framework (Appendix 1).

ISSUES

2. The National Poverty Reduction Strategy Paper . The Government finalized and published the PRSP in September 2005, but a prior draft version was incorporated in the MTDP in January 2005. Poverty reduction is conceptualized in terms of fulfilling 10 basic rights: the right to food, health, education, employment, housing, clean water, land, natural resources and a clean environment, security, and participation. The 10 basic rights are reflected in 10 targets, and it is evident from the list that service delivery is key to achieving them. The Government's challenge now is how to operationalize the PRSP in the context of decentralization. This task forms the core of the work program of the National Development Planning Agency (BAPPENAS) Deputy Minister for Poverty Reduction, a position created in September 2005, underscoring the Government's commitment to addressing these issues.

3. Decentralization and Poverty Reduction . Indonesia embarked on an ambitious decentralization program in January 2001. Vast responsibilities were devolved to the local governments, now comprising 32 provinces and some 440 districts and cities. Decentralization was carried out with a “big bang,” often without adequate preparation or capacity development at either the local or central level and many gaps remain. The country governance assessment shows considerable variation across provinces and districts in their capacity to implement decentralized responsibilities, and a discrepancy between the standards for public services and the resources allocated to them.3 One of the objectives of decentralization is for local governments to become more responsive to the needs of their constituents. In Indonesia this goal is hampered by a number of constraints. At the local government level, the capacity to implement new responsibilities is often low. Furthermore, local responsibilities are not always clear.

4. The process of decentralization has the potential to greatly improve welfare through prompt service delivery to the people, especially the poor. In October 2002 the interministerial Poverty Reduction Committee (KPK) circulated an instruction to all subnational governments to establish local poverty reduction committees (KPKD).4 The instruction stipulated that each KPKD should develop a local poverty reduction strategy (SPKD), but it lacked clear guidance on what a poverty reduction strategy is, why it is important, and how to go about preparing one. As a result, …..(see detail)