PLANNING AND BUDGETING REFORMS IN INDONESIA: Past Achievements and Future Challenges

1. PLANNING AND BUDGETING REFORMS IN INDONESIA:Past Achievements and Future Challenges Wismana Adi Suryabrata Director for Allocation of Development Funding, BAPPENAS

2. OUTLINE OF THE PRESENTATION • PLANNING AND BUDGETING FRAMEWORK • RULES AND REGULATION • THE FRAMEWORK • AGGREGATE FISCAL DISCIPLINE • ALLOCATIVE EFFICIENCY • OPERATIONAL EFFICIENCY • PAST ACHIEVEMENTS • MEDIUM-TERM PLAN (RPJMN 2004 -2009) • ANNUAL WORK PLAN (RKP 2005-2009) • FUTURE CHALLENGES • SHORT-TERM (2008-2009): PREPARATION OF MEDIUM-TERM PLAN (RPJMN) 2010-2014 • BEYOND (2010 – ONWARD)

3. PLANNING AND BUDGETING FRAMEWORKS

4. RULES AND REGULATIONS • LAW 25 : NATIONAL DEV’T PLANNING SYSTEM • REGULATORY INTERVENTION • BUDGET INTERVENTION (app. 20% of GDP) • LAW 32 : DIV. OF RESPONSIBILITIES BETW. CENTRAL & LOCAL GOV’T • LAW 17 : BUDGET INTERVENTION • LAW 33 : BALANCED FUND

5. PLANNING AND BUDGETING FRAMEWORK Aggregate Fiscal Discipline 2010 2011 2012 • Tax/GDP Ratio • Deficit/GDP Ratio • Debt/GDP Ratio MTFF: Medium Term Fiscal Framework MTEF: Medium Term Expenditure Framework Allocative Efficiency • Allocation to Priorities • Program  outcome • Activity  output Forward Estimates PBB: Performance Based Budgeting Unified Budget • Performance Culture (Performance Based Budgeting) • Good Governance : • Bidding • Official Travel (at cost) Operational Efficiency • External Control • Internal Control • Management Accountability *) RPJMN (5 YEAR DEV’T PLAN, WITH 3 YEARS ROLLING PLAN THROUGH RKP AND APBN)

6. Source : Taken from presentation by Dr Kay Brown, National Treasury, Government of South Africa *) Credible 5 year Baseline (realistic government programs with assured financing availability). **) Reviewed every year through the 3 year rolling Government Work Plan and Budget – APBN – for new initiatives ( drawdown savings and contingency reserve). ***) Challenge : credible resource envelope -- the size of contingency reserves

7. ALLOCATIVE EFFICIENCY • Performance budgeting categories (OECD) OECD definition : A form of budgeting that relates funds to measurable results Source : Taken from presentation by Leslie Fischer, National Treasury, Gov’t of South Africa

8. LOGIC MODEL THEORY Source: Framework for Managing Programme Performance Information, National Treasury, Republic of South Africa, May 2007

9. Performance Information in the MTEF Guidelines Source : Government of South Africa

10. CHALLENGES • Difficult to link resource allocations to results • Refining outputs (focus on quantitative instead of qualitative results) • Difficulty in defining indicators • Concurrent functions (implemented by central, provinces and districts) • Standardised indicators for provinces and districts.

11. Continued.. • Capacity constraints • Monitoring and evaluation feedback into policy making and resource allocation • Aligning policy planning with organizational accountability • Streamlining documents for planning, budgeting and monitoring and evaluation.

12. OPERATIONAL EFFICIENCY Source : Allen Schick, A Contemporary approach of Public Expenditure Management, IBRD, 1998 *) Issues : moving gradually from external control to managerial accountability - Striking the balance between flexibility and accountability - Produce cost estimates of output and running cost

13. PAST ACHIEVEMENTS

14. MEDIUM-TERM DEVELOPMENT PLAN (RPJMN) 2004-2009 • AGGREGATE FISCAL DISCIPLINE • TARGET TO REDUCE DEBT/GDP RATIO TO 31.8% • ALLOCATIVE EFFICIENCY • STRATEGIC PRIORITIES AND TARGETS • REGULATORY INTERVENTION • BUDGET INTERVENTION • NO RESOURCE CONSTRAINT ON STRATEGIC PRIORITIES • OPERATIONAL EFFICIENCY • WEAK COSTING OF POLICIES IT HAS BEEN REVIEWED (ADJUSTED AND DEVELOPED) AND IMPLEMENTED THROUGH THE ANNUAL GOVERNMENT WORK PLAN 2005-2009 AND BUDGET 2005-2008

15. AGGREGATE FISCAL DISCIPLINE • ALLOCATION OF “TOP-DOWN” INDICATIVE CEILINGS BY MINISTRY/AGENCY AS CONSTRAINTS TO PROGRAM AND ACTIVITY PREPARATION (SINCE 2005) • INTEGRATING NON-ENERGY SUBSIDIES SUCH AS RASKIN, FERTILIZER, SEEDLINGS, CREDIT, ETC. W/ MINISTRY/AGENCY’S BUDGET (SINCE 2008)

16. ALLOCATIVE EFFICIENCY • SUBSTANCE • Standardized Activities (Outputs, Costs) • Policy planning : Priorities (e.g. agricultural revitalization, Focus priorities (Coordination among Ministries/Agencies, e.g. food security), Priority Activities (seedling supply – MOA, Irrigation – MOPW, etc). • Ministry/Agency Accountability : indicative ceilings for each line Ministry/agency w/ agreed performance output. • Integration of Subsidy and Special Purpose Grants (Dana Alokasi Khusus or DAK) policies with line ministries/agencies budget. • PROCESS • Trilateral Meetings (Performance Contracts) • Musrenbangnas (Coordination for Regional Government Work Plans) • Cabinet decision : Presidential Decree on the Government Work Plan (RKP).

17. OPERATIONAL EFFICIENCY • STANDARDS ARE BEING DEVELOPED • UNIT COST (GENERAL STANDARD UNIT COSTS AND SPECIFIC STANDARD UNIT COSTS) • OFFICIAL TRAVEL AT COST • PROCUREMENT (BIDDING) • USE OF CLASSES OF EXPENDITURE (INTERNAL CONTROL) TO CONTROL SPENDING

18. INTERNAL CONTROL *) 2006 – 2007 : spending for goods and services (especially the non-discretionary) increased to the levels of asset spending, and is predicted to continue in 2008. **) In the RAPBN (proposed budget) 2008 spending for goods and services is constrained. In the APBN (budget) 2008 it increases but does not exceed the APBN 2007 levels.

19. FUTURE CHALLENGES

20. FUTURE CHALLENGE:SUSTAINING REFORMS • SHORT-TERM (TAHUN 2008 – 2009): PREPARING THERPJMN 2010-2014 • MTFF : CREDIBLE RESOURCE ENVELOPE • MTEF : INDICATIVE BASELINE • ALLOCATIONS BASED ON RESOURCE CONSTRAINTS • ALLOCATIONS FOCUS ON ACHIEVEMENT OF RESULTS (OUTPUT, OUTCOME) – PROGRAM RESTRUCTURING • IMPLEMENTATION OF FISCAL DECENTRALIZATION (DIVISION OF AUTHORITY/FUNCTIONS WITH FINANCING CAPABILITY) • DEVELOP M & E TO LINK PROGRAM AND ACTIVITY PERFORMANCE TO ALLOCATION OF RESOURCES IMPLEMENTING THE RPJMN : THE FORTHCOMMING RKP • 3 YEARS ROLLING PLAN, ADDING NEW INITIATIVES

21. AGGREGATE FISCAL DISICPLINE *) LG Budget is substantial, requiring a clear division of functions between central and regional governments. **) Challenge: credibility of resource envelope –> determining contingency reserves (on average in other countries it is at 2% of total spending – in Indonesia it is at approx. 0.4% of GDP, while the fluctuative energy subsidy is at 2.5% of GDP resulting in a cut of line ministries expenditure by 0.9% GDP).

22. ALLOCATIVE EFFICIENCY: PROGRAM RESTRUCTURING • BASIC PRICIPLES • Alignment Principle : Each program is aligned to a government objective • Each program ‘collects’ spending which contributes to an objective, and • Relates spending to performance indicators • Congruence Principle : Each program is congruent with an organizational unit • This ensures accountability for improving levels of performance indicators and targets

23. PROPOSED PROGRAM ARCHITECTURE 23

24. SME Example 24

25. Food Security Example (MOA) Secure Level of Rice Availability, a Minimum 90% of Total Domestic Need Agriculture, Forestry and Fishery Revitalization, and Rural Development 04. Economy Food Production and Improvement of Household Access to Food 04.03. Agriculture, Forestry, Fishery and Marine Provide Adequate Agriculture Infrastructure Achieve Food Security Trough Production Increase and Consumption Diversity Ministry Of Agriculture Increase Food Distribution, Trough Institution Capacity Building and Rural Infrastructure Improvement and Development DG. Land and Water Management Facilitate and Improvement of Food Security to the Level of Household Food Security Improvement Development and Improvement of Agriculture Infrastructure to Support Food Security Irrigation Scheme for 145.000 Ha Rice field Water Management Directorate 25

26. Food Security Example (MPW) Secure Level of Rice Availability, a Minimum 90% of Total Domestic Need Agriculture, Forestry and Fishery Revitalization, and Rural Development 04. Economy Food Production and Improvement of Household Access to Food 04.03. Agriculture, Forestry, Fishery and Marine Provide Adequate Agriculture Infrastructure Water Supply for Household, Housing, Agriculture and Industry increased Ministry Of Public Works Irrigation Scheme, Swamp and Other Irrigation Scheme Management and Development Manage Irrigation Scheme, Swamp and Other Irrigation Scheme to Support Food Sustainability Irrigation Scheme for rice fields functioning DG. Water Resources Irrigation Scheme Rehabilitation Irrigation Scheme for 1.516.748 Ha Rice field Directorate Irrigation 26

27. Linking Presentational Performance Information to Spending (Public Works) 27

28. Linking Presentational Performance Information to Spending (Agriculture) 28

29. Continued … • BEYOND (2010 – ONWARD) • ALLOCATIVE EFFICIENCY • FOCUS EFFORTS ON THE PILOT PROJECTS (6 MINISTRIES/AGENCIES: PUBLIC WORKS, AGRICULTURE, EDUCATION, HEALTH, FINANCE, AND BAPPENAS) • GRADUALLY INCLUDE OTHER MINISTRIES/AGENCIES • REVIEW M & E FOR LINKING PLANNING TO THE BUDGETING FRAMEWORK, (improve performance-informed budgeting, moving gradually to direct/formula performance budgeting) • IMPROVING THE REGULATORY FRAMEWORK AND ANALYSIS • OPERATIONAL EFFICIENCY • IMPROVING COSTING • MOVING GRADUALLY FROM INTERNAL CONTROL TO MANAGERIAL ACCOUNTABILITY

30. Next Steps • Strengthen and stabilize a compatible legal and regulatory framework • Focus on aggregate fiscal targets and strategic objectives in medium-term plan (RPJMN) • Medium term costs of existing policies • Roll over into Annual Work Plan and Budget • Update policy and parameter changes • Strengthen internal control systems

31. Continued.. • Develop performance evaluation, but simplify the documents (planning, budgeting, and reporting). • Greater application of IT but simplify the system • Improve processes (trilateral meetings, musrenbangnas, cabinet meetings) for contesting and coordinating policies. • Keep participants focused on objectives • Strengthen consumer feedback

32. THANK YOU DISCUSSION