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Second Local Government Finance and Governance Reform Program – Subprograms 1 and 2: Program Completion Report

sector: Public Sector Management | country: Indonesia

Long-term perspective. The adoption of the National Action Plan for Fiscal Decentralization (NAPFD) by the Ministry of Finance (MOF) laid the foundation for developing the Directorate General (DG) Fiscal Balance’s blueprint for institutional transformation. The policy design of the blueprint has also benefited from inputs by ADB and other donors. Through the development of this blueprint, the government now has a set of long-term objectives to guide and shape medium-term policy design and implementation. ADB is currently a member of an informal development partners working group on decentralization.

Flexibility in design. Fiscal decentralization is the process of decentralizing revenue raising and expenditure of moneys to a lower level of government while maintaining financial responsibility. The process is complex and involves major changes to the legal and regulatory framework, institutional arrangements, and human capacity. Hence, sufficient time must be allocated to program implementation. Design flexibility is also a key consideration. The use of the program cluster approach gave the Second Local Government Finance and Governance Reform Program (LGFGR2) implementers the opportunity to refine the policy actions proposed for succeeding subprograms to reflect the government’s achievements, changes in the policy and economic environment, and lessons from previous subprograms.

Technical assistance resources. Under LGFGR2, the government adopted legal, policy, and institutional measures, and established supporting infrastructure. Many of the concepts were relatively new and therefore required extensive consultation and coordination to ensure stakeholders’ understanding, acceptance, and adoption of the new measures. Substantial technical assistance (TA) support was necessary to ensure that best practices were incorporated and then consolidated throughout implementation to achieve the intended results. LGFGR2 identified a program of TA projects at the outset to help implement the medium-term program and improve the likelihood of compliance with completed activities. The selection of individual consultants was based not only on merit but also on their perceived ability to work well with local counterpart staff and their sensitivity to the local culture. These criteria are considered essential for the successful transfer of knowledge.

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