Poverty Reduction Strategy in Decentralized Contexts:

1. Poverty Reduction Strategy in Decentralized Contexts: Comparative Lessons in Local Planning and Fiscal Dimensions in the Philippines and Indonesia

2. Outline for Philippine and Indonesian presentation • Decentralization experience • Processes for integrating planning and budgeting • Lessons for PRSP • Suggested policy and institutional responses

3. Lessons on Local Planning and Fiscal Dimensions Decentralization in the Philippines

4. Decentralization Experience: Political Context • Pre-’86: centralist government; authoritarian government; strong control orientation (Marcosian approach was to control power at the center) • Post-’86: era of democratization and ‘people empowerment’; approach was to “de-center” and to share powers

5. Decentralization Experience: Legal Context • 1987 Constitution: “The state shall ensure the autonomy of local governments.” • Local Government Code of 1991: devolution of national government powers and increase in the share of local governments in national taxes, including the power to tax

6. Decentralization Experience: Tiers of Government (Political) National Government City Province Municipality Barangay (village) Barangay (village)

7. Decentralization Experience: Tiers of Government (Administrative) National Government Regional Administration City Province Municipality Barangay (village) Barangay (village)

8. Decentralization Experience: Approach • gradual approach: sequential and transition-sensitive; oversight committee created to monitor implementation of the Devolution Masterplan • 3 phases of decentralization: changeover phase (1992-93); transition phase (1994-96); and stabilization phase (1997 onwards)

9. Decentralization Experience: Approach--continued • Decentralization in two forms: - devolution (political decentralization of powers from national government to local government units [LGUs], including the power to tax) - deconcentration (administrative delegation from national to regional agencies)

10. Decentralization Experience: Approach--continued • Devolution of national government powers includes public works, health, agriculture, social welfare, certain tourism functions, and construction of school buildings and facilities • Expansion of revenue generation powers of LGUs

11. Processes for Integrating P&B: Top-Down Exercise • P&B linkage through the MTPDP and MTPIP, as well as their regional components • sectoral priorities and policies in the MTPDP are translated into discrete programs, projects and activities (PPAs) through the MTPIP, which are expected to be funded in the budgeting exercise; regional priorities compete for funding at the national level

12. Processes for Integrating P&B: Top-Down Exercise--continued • MTEF provides a 3-year rolling prioritization of PAPs through • Sector Efficiency and Effectiveness Reviews (SEER): outcomes and outputs become bases for prioritizing and endorsing PAPs for funding in the budget; tool for strategic planning • SEER has not been piloted at the regional level

13. Processes for Integrating P&B: Top-Down Exercise--continued • Organizational Performance Indicators Framework (OPIF): budget reform to strengthen performance-based budgeting; OPIF as a tool for operational planning • OPIF is hampered by methodological difficulty • OPIF has not been piloted yet at the regional level

14. Socio-Economic Development Plans Investment Programs National MTPDP MTPIP National Agency Plans and Programs RDP RDIP Regional Regional Agency Plans and Programs Provincial/City PDP/CDP PDIP/CDIP Provincial Plans and Programs Municipal LDIP MDP Municipal Plans and Programs Barangay Plans and Programs Barangay

15. Processes for Integrating P&B: Bottom-Up Exercise • De-link in the bottom-up process: barangaymunicipality/cityprovince region • There is no incentive for lower LGUs to submit upwards their plans and programs, as aggregation at the higher LGU does not mean funding support or inter-LGU collaboration

16. Processes for Integrating P&B: Bottom-Up Exercise--continued • The greatest constraint for vertical aggregation is that most LGUs do not prepare plans at all, such that budget priorities are political decisions of the local chief executive • Constraints in linking local P&B: capacity, resources and incentives, quality of vertical supervision and inter-LGU collaboration, role of local chief executives (LCEs)

17. Lessons for PRSP: Local Poverty Planning and Budgeting • Anti-poverty programs (e.g., social reforma agenda, KALAHI) are centrally driven • Localizing anti-poverty programs remains a challenge, specifically in getting the commitment of LGUs to address poverty (which is considered a long-term goal, in contrast with the 3-year tenure of local chief executives)

18. Lessons for PRSP: Local Poverty P & B--continued • Local P&B are heavily inclined towards “legacy projects”, usually infra • National methodology/approach for poverty targeting could not be replicated at the local level: issues of capacity, resources, differing political priorities at the national and local levels, differing expectations from constituents and measurements of performance accountability

19. Lessons for PRSP: Issues and Concerns • Need to articulate clearly the objectives of the development plan and their operationalization in relation with core public administration functions • Vertical integration of plans may not be desirable given (a) different levels of admin and technical proficiency for P&B, (b) timing constraints and (c) sheer volume of plans for aggregation

20. Lessons for PRSP: Issues and Concerns • To tighten linkage between P&B, there is a need to prepare sector plans to guide annual programming and budgeting • Need for closer coordination between the national government and LGUs for poverty reduction measures, e.g., delivery of social reform initiatives, implementation arrangements, etc. • MTEF to provide operational linkage between P&B

21. Suggested Policy and Institutional Responses • On planning • no need to replicate national planning processes at the local level, given the diversity of LGUs in terms of preparedness and resources • Bottom-up integration may only be relevant up to the tier where supervision is relevant; programs/projects not funded in lower level LGUs may be submitted upwards for consideration by the supervising LGU

22. Suggested Policy and Institutional Responses • On expenditure programming • ideally, P&B should reside in one institution • Weak linkage of P&B is traced to poor revenue forecasting; MTEF should be responsive in terms of revenue forecasting • Local level: not an issue of weak linkage between P&B, but the lack of plans

23. Suggested Policy and Institutional Responses • On monitoring • unclear monitoring systems under a decentralized government • Performance monitoring not done at the local level, except in locales where civil society is strong (e.g., Cebu City)

24. Lessons on Local Planning and Fiscal Dimensions Decentralization in Indonesia

25. Decentralization Experience: Political Context • highly centralist government; strong control orientation (Soeharto approach was to control power at the center) • 2001: decentralization policy was adopted

26. Decentralization Experience: Legal Context • Law No. 22/1999 on Regional Governance • Law No. 25/1999 on Financial Balance between Central and Regional Governments

27. Decentralization Experience: Approach • “big bang” approach: service delivery is the responsibility of sub-national units; financing the cost of sub-national service delivery remains to be a key issue

28. Decentralization Experience: Approach--continued • Decentralization covers: - service delivery - inter-governmental transfers and the power to tax

29. Decentralization Experience: Structures of Local Governments • Autonomous provinces • Districts located in rural areas • Municipalities/cities (located in urban areas) • Sub-districts within municipalities and cities • Villages in rural and urban areas

30. Processes for Integrating P&B: Top-Down Exercise • institutional: role of Bappenas (National Development Planning Board) • Issuance of the Propenas containing the development priorities • Convening of development coordination meetings to thresh out central and regional government issues • Preparation of 5-year national and regional plans and the annual “implementation” plans

31. Processes for Integrating P&B: Top-Down Exercise--continued • The most important planning document at the national and regional levels is the annual plan, which is approved by the Legislature • Formulation of the Propeda, Renstrada and Repetada provides linkage between planning and budgeting, and the national and regional governments

32. Processes for Integrating P&B: Bottom-Up Exercise • Formulation of the annual budget follows the bottom-up approach • Repetada is drawn from the aspirations and priorities of people at the village, district and city levels, which are prioritized by the Bappeda across local governments

33. Decentralization Opportunities at the Transition Stage • Capability-building for local officials re participatory planning • Adopting a holistic approach to planning to include, revenue generation and M&E • simplifying planning processes, including the modules for training • Incorporating poverty targeting in future planning exercises

34. Decentralization Opportunities at the Transition Stage--continued • Improving coordination mechanisms between the central and local government units

35. Lessons for PRSP: Local Poverty Planning and Budgeting • Budgeting is still highly centralized, with local budgeting still being set at the central level through the MoHA • Need for transparency in budget allocation, including the prioritization process (MTEF is not implemented yet)

36. Lessons for PRSP: Local Poverty P & B--continued • In the transition from a centralized to a decentralized government, institutional responsibilities across government ministries and government levels should be defined • Local P&B need to be reviewed in consonance with the requirements of genuine decentralization and autonomy

37. Lessons for PRSP: Local Poverty P & B--continued • P&B linkage in Indonesia should consider: (a) prioritization process at each level, (b) performance-based budgeting, (c) adoption of the MTEF

38. Suggested Policy and Institutional Responses • On planning • bottom-up integration may only be relevant up to the tier where supervision is relevant • At lower government tiers, projects which they cannot fund, may be raised to higher government tiers • Capacity building on planning approaches needs to be holistic

39. Suggested Policy and Institutional Responses • On expenditure programming • Need to address institutional fragmentation; BAPPENAS can be invited to sit in the Budget Committee • Greater attention needed on agency/ ministry plans and the listing of priority programs and projects for inclusion into the expenditure program • Weak P&B linkage may also be attributed to poor revenue forecasting • Unconditional grants (IRA and DAU) should be allocated at the discretion of lower level LGUs, with minimal conditions at the center

40. Suggested Policy and Institutional Responses • On monitoring • unclear monitoring systems under a decentralized government • Need to heighten civil society engagement on local performance monitoring

41. End of Presentation Thank you.