INFRASTRUCTURE IN EAST ASIA

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INFRASTRUCTURE IN EAST ASIA THE PACIFIC

• Policy Coordination, Planning Infrastructure
  Provision A Country Study
• INDONESIA
• Bambang Bintoro Soedjito
• Chris Summers

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Part 1 Policy coordination infrastructure
planning

• 1.1. The Evolution of the General
  Infrastructure-specific Policy Making, Planning
  Funding Processes
• The Old Order Government to the mid sixties
• Direct macro allocations of funds to Ministries,
  Narrow slow infrastructure progress
• The New Order Government Late sixties
• think tank to develop plans on a cross sectoral
  basis the National Development Planning Agency
  strong Presidential authority to technocrats to
  prepare integrated overall economic fiscal
  envelopes, a rational plan for stabilisation 5
  year development plan, budgets the development
  projects
• selected key economic social objectives,
  concentrating on those until progress allowed a
  broadening of priorities Pattern continued with
  breaks only after the economic crisis until today
• The seventies
• matching capacity to Bappenas was developed in
  the Provinces in the 80s in Local Government.
  Infrastructure planning was at the core of
  economic social development planning.

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1.1. The Evolution of the General
Infrastructure-specific Policy Making, Planning
Funding Processes (contd)

• The mid to late eighties
• Success enabled move to holistic integrated
  approaches complexity, scale, participation
  numbers, the needed rate of progress the vying
  viewpoints of diverse interest groups becoming a
  challenge
• 11 to 12 pa industrial growth rapid
  urbanisation increasing the lag of infrastructure
  behind latent demand
• The fast nineties
• Bappenas, relying more on single sector
  discussions less on multi-sector discussion,
  directed programme project decisions in effort
  to improve efficiency. Close Presidential
  State Secretariat monitoring kept tight
  coordination
• Some political competition today has its roots in
  that period
• 1998 onwards, the crisis and the early
  Reformasi period
• Under the first reform government of President
  Abdurrahman, with strong public allegations
  pressures from other agencies, the role
  existence of Bappenas was put in question. In the
  atmosphere of uncertainty there was rather a
  hiatus at the policy, strategic planning and
  programme level of coordination in planning and
  budgeting

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1.2 The Changing Interaction with Donors

• played influential roles in plan formulation
  priorities from macro to the project level.
• vying agencies groups outside government took
  on donor support as means of support or
  frustration to their own policy investment
  ends.
• Infrastructure loans had policy institutional
  impacts far beyond the investment programme
• Gradually in the nineties loose donor liaison
  strengthened. This was greatly accelerated post
  crisis

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1.3 The Evolution of Public-Private Partnership

• 80s lack of framework to bid under, post bid
  negotiations as tortuous as for unsolicited
  investments. The stumbling blocks chiefly in
  assurances of tariff adjustments The involvement
  of special interests on the investors side were
  a key part of investors willingness to trust to
  the future government processes
• Late 90s competition in toll roads, special
  interests otherwise still strong, resultant
  contingent liabilities a serious concern in
  power.
• Beginnings of comprehensive frameworks in some
  sub-sectors a cross-sectoral umbrella
  framework.
• Progress renewed after the crisis but requires a
  high level policy base, especially for guarantees
  or subsidies to match more independent
  regulation.

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1.4 The current formal evolving plans for
infrastructure planning, funding control

• Public expenditure, PPP ODA envelopes In the
  crisis Bappenas lead the planning negotiation
  of cut backs in consultation with MOF on the
  restricted fiscal borrowing envelopes that
  would apply.
• National Tariffs Subsidies MOF Bappenas led
  the dialogue on overall policy, fiscal economic
  constraints on tariff changes in power
  telecommunications, and subsidies compensating
  measures for fuel. This relationship continues.
• ODA priorities, mobilisation management New
  planning ODA initiatives are again in the
  project form with embedded policy content.
  Bappenas leads the discussions with agencies
  donors on ODA.
• With much infrastructure provision under
  enterprises LGs, funds channeling requires
  policy, regulatory, guarantee, incentive changes

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1.4 The current formal evolving plans for
infrastructure planning, funding control
(contd)

• Overall Budget Envelope
• independent macro economic fiscal analyses by
  the Central Bank (Bank Indonesia), MOF,
  Bappenas. Endorsed by cabinet
• Bappenas MOF present comprehensive revenue
  expenditure plans, including taxes, subsidies,
  loans commitments, transfers to LGs parallel
  private investment within broad economic
  projection medium/long term plans
• the reform Parliament explored its right to
  debate to detailed project geographic
  allocations. This impaired the effectiveness of
  the development planning, putting public
  infrastructure services into jeopardy.
• a State Finance Law has been passed
  implementing regulations are in progress, a draft
  National Development Planning System Law was
  initiated by Parliament,

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1.4 The current formal evolving plans for
infrastructure planning, funding control
(contd)

• Decentralised Budgets 2001 on
• disruptive influences on the planning, budgeting
  delivery of infrastructure areas where we can
  foresee the greater contention in the future
• regulations not adequate in dealing with
  responsibilities performance
• law committed fixed percentages of specific
  national revenue components to local governments
  without close cross reference to funding needs
  matching responsibilities
• gross imbalances between local governments in
  uptake of responsibility for national network
  infrastructure, particularly roads
  trans-district boundary
• central government ODA funds directed to cover
  some of this, effectively doubling up on resource
  transfers without performance incentives.
• infrastructure with high spill-over effects is
  presumed to be suffering
• many LG could not assure maintenance of past
  service levels.
• further top up funds were to be allocated or
  earned by criteria to focus funds to support
  policies however the outcome of final
  parliamentary approval varied substantially from
  that ideal. This illustrated weakness of
  transactional modes of funds allocation

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Part 2 Managing Institutional Reforms in
Infrastructure

• 2.1 Political Institutional Reform Challenges
  in relation to tariffs, subsidies guarantees
• Heritage of Public Reaction to subsidy tariff
  changes
• Legacy of distrust throughout community on
  guarantees
• Highly varied progress on measures to accelerate
  infrastructure improvement sectoral/cross-sector
  al infrastructure frameworks to date under joint
  Ministerial Committee assisted by Bappenas which
  would also address the above
• Emerging Independent Regulation
• underlying issue is the power of incoming
  President Parliament the support capacities
  to lead ensure implementation overcoming
  institutional inertia

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2.2 The legacy impacts of decentralization the
uneven competition for national financial
resources

• issues that need to be addressed include
• Mismatch between funds transferred from central
  government continued financed of national
  networks impacts of spill-overs, national
  policy initiatives
• Gross resource imbalances between local
  governments under-funding
• Lack of performance incentive accountability,
  will require long period to address, special
  grants/loans
• Contention over the state owned enterprises
• Empowerment without capacity
• Competition among agencies parliament for
  net/enhanced central role

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2.3 Important Political Institutional Reform
Processes Underway

• risks of a coordination void without tight
  Cabinet leadership
• MPR-Parliament-President Relationship
• Parliament-Local Government Relationship
• Progressive re-balancing of budgets performance
  requirements for local governments ( agencies)
• At the heart of the solutions are changes in the
  institutional arrangements linking macro-economic
  planning to fiscal management, strategic thematic
  planning, programmes, public debate, budget
  approval, implementation management, performance,
  audit, monitoring assessment.

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2.3 Important Political Institutional Reform
Processes Underway (contd)

• Recapping these institutional measures
• Preparation of implementation regulations under
  the State Finance Law
• Reaffirms linking fiscal analysis to macro
  economic analysis planning
• focus on programmes outcomes performance
• proposals for strengthening central institutions
  around a finance orientation
• Drafting of National Development Planning System
  Law
• integrating planning budgeting. agency, cabinet
  parliamentary roles linking long term medium
  term planning for multi/cross-sector development
  economic balance, performance monitoring
  evaluation
• new annual government work budget plan
  formalised as a Government Regulation (RPP RKAIP)
  that links these two laws

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2.3 Important Political Institutional Reform
Processes Underway (contd)

• Work under existing Presidential Decree
  empowering mechanisms for coordinating
  Infrastructure reform delivery acceleration
• debate on priorities constraints, regulatory
  measures, issues of PPP/PSP including scale,
  priorities, means, guarantees, tariffs,
  subsidies, independence of regulation
• Sub-sector laws implementing regulations at
  various stages from drafting to implementation
• The draft Law determining the basic framework of
  ministries extent of Presidential discretion on
  ministerial level changes
• Under post crisis reform attempts, macro economic
  thematic planning, actual application of
  strategies resources was disrupted a
  transactional climate for obtaining funds
  resulted
• Can provide basis for improved more stable
  relationships offsetting recent rapid

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2.4 Political institutional challenges to
reform

• Issues
• It is taking time for an overall vision to
  evolve/be imposed
• Line Ministry Local-Central Rivalries impede
  this
• Finding an architecture to balance Parliament
  executive, coordinators, regulators
  Implementers
• Mixed positions on reacceptance of merits
  scoping of central policy, coordination,
  monitoring evaluation capacity versus Treasury
  functions an internally institutionally
  integrated approach versus a transparent debate
  approach
• Processes
• Presidential elections a possibly new
  President-Parliament-Local Government dynamic
• basis for accelerating on-going change,
• inherent uncertainty
• to agree a more workable structure to overcome
  effects of weakened complementary coordiniating
  roles of Coordinating Ministers, State
  Ministers, Bappenas, MOF other agencies

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Part 3 - The Current Debate

• key institutional changes
• the future level of parliamentary debate on
  policies, plans, budgets
• the independence of macro cross-sectoral
  planning
• the very heavy issue of central-local financial
  relations
• leadership of the coordinating function for
  sector regulatory reform
• placement of planning coordinating functions
  the extent to which they report to a separate
  Minister, Coordinating Minister, are internalised
  under the Presidents Office, or subsumed within
  MOF
• the level of detail of Parliamentary
  involvement in planning budgeting

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Part 4 - Priorities

• 4.1 Infrastructure Needs
• Considering lead times, the more critical service
  priorities
• roads,
• power,
• urban water supply
• urban transportation

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4.2 Resources

• pool of public resources too small to close the
  gap
• powers transferred to local government without
  performance safeguards, limits the capabilities
  of central government to respond
• accountability limited, means needed for
  efficient resource allocations
• policy basis medium-term strategy for increased
  ODA needed
• transaction costs for sector agencies to obtain
  approvals ODA need to be reduced.
• Priorities
• current medium term policy analysis action
  plans, efficient overall coordination
  monitoring
• Clear policy basis for addressing LG performance
  requirements spill-overs
• parallel streams for monitoring information,
  checks balances at all levels
• clear institutional basis for tying funds release
  to compliance
• transitions from tight linkages from policy
  action plans to sub-programme funds release, with
  more general criteria as accountability becomes
  effective.
• tight analytical basis for political debate to
  adjust general grant transfers to local
  governments to meet equity minimum performance
  policies

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4.3 Performance by local government needs to be
improved, under-funded non-bankable local
governments need additional resources or supports

• Priorities
• President Parliament need independent
  analytical basis to award funds to local
  governments programmes, balancing sector LG
  interests
• Sectors need independent policy reference to
  support their detailed approvals accountability
  controls for LGs
• Local Audit agencies (BAWASDA) need clear basis
  for functional audits lines of reporting
• Analytic support, policy enabling regulations
  to allow conditional loan funding, subsidies
  independent regulation for water waste
  management enterprises to revive investment
  private operation/investment
• MOF needs strong information control base for
  minimising exposure to supports to LGs (including
  on lending, take-over of failed LGs) matched by
  clear cross-sectoral policies

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4.4 Need to create value streams for participants
in public private investment in infrastructure
service improvements, optimise supports

• Need to overcome variances between institutional
  capability needs
• Need to progressively provide policy basis,
  regulation by contract, developed regulatory
  frameworks with safeguards for necessary policy
  developments impartial application of
  regulation
• Need to add supports where economic social
  value is high but financing or local funding is
  insufficient
• Need to respond to a lack of confidence in the
  community, private sector, agencies Parliament
  basis integrity of tariff adjustments,
  subsidies guarantees
• Where risk costs are high, but will reduce
  progressively, need transitional funding schemes
  that can be rolled over to lower cost long term
  funding

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4.4 Need to create value streams for participants
in public private investment in infrastructure
service improvements, optimise supports
(contd)

• Priorities
• targeted technical assistance, capacity building
  sharing of planning systems
• clear publicised national policy basis to provide
  guidance to planners, including LGs investors
  minimise transaction costs
• President / Parliament needs independent
  analytical basis to support programme or project
  specific funds award to LGs programmes,
  balancing sector LG interests
• clear high level policy commitment from incoming
  Government Parliament to support completing the
  regulatory reform process, institutional change
  application
• strong Coordinating Minister/Presidential
  leadership for sharing policy regulatory
  dialogue across sectors executing the reform
  process
• cater in contracts / regulatory frameworks,
  internal funding mechanisms donor/IFI
  participation for use of roll-over funding from
  public sector to maximise benefits captured, or
  by investors

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4.5 Overall needs

• Common to many of these needs priorities are
  strong impartial macro economic analysis, policy
  analysis cross sectoral action plans, with
  overall revenue expenditure planning priorities
  to match the fiscal management outlook
• Close linkages of this planning support
  monitoring evaluation of follow up to President
  Parliament
• A balance between the efficiencies of
  internalising analysis of the main policy
  planning choices within government versus the
  transparency of their debate before Parliament
  exposure to wider community inputs
• Strong linkages between approved policy action
  plans cross sectoral plans to the impartial
  allocation of resources to programmes LGs.
• Strong linkages between monitoring of compliance
  performance with continued funds channelling
  supports from central/provincial governments to
  district government
• Support from both the regional audit agencies
  the line ministries to a coordinated monitoring
  reporting process

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4.5 Overall needs (contd)

• Priorities
• issue of the Law on Planning Systems regulation
  cross linking State Finances Law to define
  relationships between long, medium short term
  planning, fiscal management, the application of
  policies budgets.
• clearly differentiate the level of macro-economic
  cross sectoral policy analysis, planning,
  evaluation to be integrated in direct support of
  President, Parliament Cabinet, from that to be
  assigned to line agencies, MOF or elsewhere.
• clarify the operational linkages that will
  confirm budgetary programme implementation
  compliance either at a high level (programmes)
  within cross-sectoral planning process or
  implementation coordination process
• remove ambiguities in Ministerial/Presidential
  leadership of the planning coordination
  processes at programme level detailed
  implementation
• clarify scope sources of information for
  periodic Parliamentary scrutiny
• complete new Medium Term Development Plan as
  Decree of incoming President to promulgate policy
  reform agenda, overall priorities to
  stakeholders

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Conclusions

• All this points to the key role of regulatory
  institutional reforms a re-assertion of
  systematic planning coordination links from
  policy to monitoring.
• These capacities have been remarkably developed
  in agencies in the past but in the aftermath of
  crisis, budget shifts, hurried reforms
  decentralisation, the effective application of
  those capabilities may only now be rising from a
  critical low-point