World Bank Document -...

Indonesia’s Infrastructure Planning & Budgeting Processes: Internal Report 1

Indonesia’s Infrastructure Planning and Budgeting Processes: An INTERNAL Report of the World Bank Global Governance Practice

I. Introduction & Project Background ................................................................................................... 3

II. Explanation of Budgeting and Planning Processes ........................................................................... 4 a. Medium-Term Budgeting and Planning Process (Central and Ministerial) ...................................... 5 b. Annual Central Budgeting and Planning Process .............................................................................. 6 c. Annual Ministry Planning and Budgeting Processes ......................................................................... 7 d. New Initiatives Process ...................................................................................................................... 8

III. Commentary on the Budgeting and Planning Process ...................................................................... 9 a. Particular Areas of Weakness ............................................................................................................ 9

i. Strict Adherence to Activities Outlined in the RPJMN ................................................................ 9 ii. No Discussion of “Projects” in the Central Process .................................................................... 10 iii. Lack of Connection Between Central and Ministry-Level Processes ........................................ 11 iv. Poor Communication Between Bappenas and KLs .................................................................... 12 v. Low (Probable) Quality of Feasibility Studies ............................................................................ 12 vi. Heterogeneity of Processes Across Government Units .............................................................. 13 vii. Supply-Driven Prevalence of Small Budget Items ..................................................................... 14

b. Opportunities for Improvement ....................................................................................................... 14 i. Amendment of Laws Governing Budgeting Process .................................................................. 14 ii. Existing Legal Basis for Feasibility Studies in Infrastructure KLs ............................................. 15 iii. Organizational Change Championed by Jokowi ........................................................................ 15 iv. Parallel Reform Activities .......................................................................................................... 16

IV. Reform Agenda ................................................................................................................................... 16 a. Provide a Legal Basis for Projects in the Central Process ............................................................... 16 b. Separate Execution and Preparation Functions in the Ministerial Process ...................................... 17 c. Institute Central Review of Feasibility Studies ................................................................................ 18 d. Differentiate Processes by Project Size and Importance ................................................................. 19

V. Conclusion ........................................................................................................................................... 20

VI. Appendix A: Details of Medium-Term Process ............................................................................... 21

VI Appendix B: Details of Annual National Process ............................................................................ 26

VIII.Appendix C: Details of Annual Ministry-Level Process ............................................................... 38

IX. Appendix D: Details of New Initiatives Process ............................................................................... 41

X. Appendix E: Budget Item Recurrence Across Provinces ............................................................... 43

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized


Glossary of Terms and Acronyms

Center of Government

The central ministries and agencies which plan and coordinate action across the entire government, including the Ministry of Planning, the Ministry of Finance, the Ministry of Civil Service Reform, etc.

DG Directorate General—an Echelon I unit, usually sectoral, within a line ministry. DIPA Daftar Isian Pelaksanaan Anggaran, translates as “List of Budget Implementation.”

DIPAs are the legal basis for procurement, issued by the Ministry of Finance at the start of the fiscal year.

DPR Dewan Perwakilan Rakyat, the “People’s Representative Council” or parliament. Echelon I/II Level one or two units within government ministries. Echelon 1 units correspond to

DGs, and are associated with “programs” in the budget. Echelon 2 units correspond to bureaus within DGs, and are associated with “activities” in the budget.

KL Kementerian/Lembaga, translates as “Ministries/Agencies”. Used as shorthand to indicate the first-level structural units of the government.

Musrenbang Musyawarah Perencanaan Pembangunan, translates as “Community Discussion for Development Planning.” Planning consultation meetings that take place at the national and regional levels.

PerMen Peraturan Menteri, a ministerial regulation e.g. PerMen 20-2010. PP Peraturan Pemerintah, a government regulation e.g. PP 17-2010.

Satker Satuan Kerja, translates as “work unit.” One Satker is created for each DIPA issued, and Satker officers are responsible for executing that DIPA.

UU Undang-Undang, a piece of legislation e.g. UU 25-2004.

Guide to Official Documents

Long-Term (20 yrs) Medium-Term (5 yrs) Annual National Plan RPJPN RPJMN RKP Ministry Plan - Renstra-KL Renja-KL

Budget - - RKAKL

Guide to Relevant Ministries Ministry of Planning Badan Perencanaan Pembangunan “Bappenas” Deputy for Development Spending Bidang Pendanaan Pembangunan Deputy for Infrastructure Ministry of Public Works Kementerian Pekerjaan Umum “PU” Secretariat General Sekretariat Jenderal DG of Spatial Planning Direktorat Jenderal Penataan Ruang DG of Water Resources Direktorat Jenderal Sumber Daya Air “SDA” DG of Highways Direktorat Jenderal Bina Marga “Bina Marga” DG of Human Settlements Direktorat Jenderal Cipta Karya “Cipta Karya” Ministry of Transport Kementerian Perhubungan “MoT” Secretariat General Sekretariat Jenderal DG of Land Transportation Direktorat Jenderal Perhubungan Barat DG of Sea Transportation Direktorat Jenderal Perhubungan Laut DG of Civil Aviation Direktorat Jenderal Perhubungan Udara DG of Railways Direktorat Jenderal Perkeretaapian


I. Introduction & Project Background

There is an urgent need to improve the quality of infrastructure spending in Indonesia, and specifically to improve the processes for budgeting and planning of infrastructure projects. According to the analysis prepared by the World Bank in developing the RPJMN, the country faces a strong need for increased infrastructure spending in coming years. However, the recent Public Expenditure Review on roads suggests that higher government investment in infrastructure doesn’t lead to better outcomes. This systematic problem suggests that the issue goes beyond individual policies that are ineffective or inefficient: either the process that the government are using to prioritize and propose spending isn’t appropriately selecting high value-for-money activities that can deliver on target, or activities are not being executed properly, or both.

To shed light on this issue, the World Bank’s Global Governance practice has partnered with Bappenas’ Deputy for Developing Spending to examine the process for budgeting and planning infrastructure spending. A combination of document review, semi-structured interviews, and case studies have been used to build up a picture of the budgeting and planning process as a whole. We are particularly grateful to colleagues at Bappenas, the Ministry of Public Works, the Ministry of Transport, AIPEG (the Australia Indonesia Partnership for Economic Governance), INDII (the Indonesian Infrastructure Initiative), and here at the Bank for their input.

Rather than focusing ex ante on one specific process or organization, we have attempted to answer the question “how do certain projects get funded?” and worked backwards to outline the factors that influence these decisions. For this reason, the report includes descriptions of both the medium-term and the annual planning process, in both the infrastructure ministries and the center of government. It goes on to provide analysis of the particular weaknesses in the system that prevent it from delivering allocative and technical efficiency in infrastructure spending, and to identify a few windows of opportunity for improvement. Lastly, it outlines several potential reform options that could overcome some of the barriers to efficient spending.

The fact that Bappenas is our client has informed the content of this report in several ways, most notably in the range of reforms that were considered. For instance, the RPJMN (the five-year government planning document) is central to Bappenas’ role in the planning and budgeting process and so we have taken its existence as given and considered only reforms within that framework. Other reform pathways, such as the elimination of five-year planning in favor of a reduced infrastructure spending baseline with greater in-year allocation of funds, are also possible and their relative merits should be considered in the broader conversation on the topic. This work with Bappenas, however, has focused on making suggestions for more incremental changes that can increase the efficiency of infrastructure spending.


II. Explanation of Budgeting and Planning Processes

The Indonesian budgeting and planning system is made up of several interlocking processes to allocate funds and plan activities over the medium- and short-term. Indonesia uses a five-year medium-term planning time frame to determine government output targets, activities necessary to achieve those outputs, and indicative budgets of the cost. The annual process then takes these plans as a starting point, and refines the annual budget and work plan to respond to annual fiscal conditions and provide more detail on things like the location of planned activities. To understand what aspects of budgeting and planning are determined where in the system, it is useful to understand the major categories of information that the government uses.

• Programs: The policy instruments to be carried out by KLs in order to achieve the goals and objectives of the RPJMN. They generally correspond to Echelon 1 units in KLs.

• Activities: The actions taken to facilitate, encourage, and regulate development, according to program goals. They generally correspond to Echelon 2 units in KLs.

• Outcomes: The results that reflect the functioning of the outputs in activities, and the activities in programs. These are generally assigned to Echelon 1 units in KLs.

• Outputs: The goods or services generated by activities carried out to support the achievement of program goals and policy objectives, e.g. kilometers of road built. These are generally assigned to Echelon 2 units in KLs.

• Projects: The set of actions specified in nature, duration, timing, and location in order to achieve program/activity outcomes within a given budget. Also called “packets” by PU.

The annual national planning and budgeting process, of which the new initiatives process is part, determines the plans for programs and activities, and budget allocations for corresponding ministry units, based on target outputs from the RPJMN.

The annual ministry planning and budgeting process determines the plans for projects (within activities), and how much will be budgeted for each, based on plans in the Renstra.

These processes are described in turn in the following sections, with details of the timing, nature, and legal basis for each of the steps described in depth in the appendices.


a. Medium-Term Budgeting and Planning Process (Central and Ministerial)

The medium-term planning and budgeting process takes place every five years, in alignment with the Presidential term. It produces two main documents—a national planning document called the RPJMN, and a series of ministry-level strategic planning documents called the Renstra-KLs. Interestingly, the majority of the planning takes place before the new President is elected, and the plans are aligned with Presidential Priorities in the first three months of the new term.

At the beginning of the process, Bappenas puts together a Preliminary Draft RPJMN, including an overall strategy for national development and a macro-economic framework for planning. This is largely based on making incremental progress towards the goals of the RPJP, which specifies the conditions the country should achieve by the end of a twenty-year period. This Draft RPJMN is then given to the KLs, who create draft strategic plans (“Renstra-KLs”) for the medium-term, which are detailed down to the level of planned activities, their locations, and indicative budgets over the five-year period. The national and ministry-level plans are then harmonized with each other, with the plans of the provinces, and eventually with the new President’s priorities, before being released as a Presidential Decree. In practice, however, the output targets from the RPJMN and the Renstra may differ quite significantly, which creates problems during annual planning and project execution.


b. Annual Central Budgeting and Planning Process

The annual central budgeting and planning process attempts to reconcile the planned output targets from the RPJMN and the Renstra-KLs with the fiscal constraints of that year. It is important to emphasize that the budgeting and planning process that takes place at the center of government is really a macro-budgeting process that focuses on the allocation of funds across ministries and programs, but doesn’t consider project-level details. There is a separate ministry micro-budgeting and planning process that allocates money across Ministry units below the Echelon II level, and considers the projects that will be executed by those units (described in the next section).

The national process begins with the drafting of the RKP, which includes the anticipated budget and the indicative ceilings for KLs to begin their planning early in the year. The KLs then go to work preparing their annual work plans (“Renja-KL”), in terms of programs, activities, and outputs on that basis. The activities specified in the RPJMN and Renstra-KL form the baseline of this annual plan, and other activities can be added only fiscal space allows. At the same time, the initial draft of the RKP is gradually revised in consultation with the KLs, the President, and eventually the DPR. KLs then revise their work plans on the basis of the more finalized RKP, and begin turning these work plans into ministry-level budget documents (“RKA-KLs”). These more detailed budget documents and work plans are then aggregated into the Financial Note, which is discussed with the DPR in late Fall. On the basis of this consultation, the KLs finalize their work plans and MOF finalizes the annual budget, which must be passed by the end of the fiscal year, in December. The final budget list will eventually be issued as budget warrants (“DIPAs”) by MOF, to the work groups (“Satkers”) of the KL in charge of executing those programs.


c. Annual Ministry Planning and Budgeting Processes

Infrastructure ministries go through their own annual planning and budgeting process, which focuses on the details of allocating money across Directorate Generals, and among projects to be executed by those DGs. This ministry-level process connects to the central process at various points, for instance by taking the RKP as an input to determine program budget ceilings and producing the Renja-KL to inform the RKA-KL. However, there is a strong division within the infrastructure ministries between this top down process that focuses on allocations of money and output targets across the Echelon I units (described above), and the bottom up processes within those Echelon I units whereby allocated money is distributed to Echelon II units and projects.

The ministry process begins when Bappenas releases the indicative budget ceilings to the infrastructure KLs. The KL Bureaus of Planning combine this information with planned output targets and budget allocations from their Renstra to determine the indicative allocations for their Echelon I units. These Echelon I units (e.g. Bina Marga in PU, or DG for Land Transport in MoT) then go to work planning for the specific projects they will fund that year with their allocation. In both PU and MoT there is a background process of project preparation operating continuously. Working groups in each ministry (Balais in Bina Marga, Dinas Programs in Cipta Karya, unknown in SDA and MoT) will prepare project proposals for the following year, although this report was unable to examine how much these proposals are representative of the needs of the community versus the preferences of the Satkers. The DGs will gather project proposals through some sort of annual consultative meeting—called the KonReg in PU—and then screen them to identify those which meet readiness criteria. The resources required to fund all “passing” proposals usually exceeds their allocation, so the DGs also exercise discretion in selecting a proportion of these projects to spend their money on, provided the sum total of their selected projects meets the output targets for that year.


d. New Initiatives Process

The New Initiatives process takes place up to three times during the annual national budgeting and planning cycle, and in principle is used to fill any fiscal space not taken up by activities specified in the RPJMN, as the indicative ceilings for KLs are gradually refined. In practice, this means that one or more New Initiative rounds may be cancelled each year if available funds cannot be found. Two of the three rounds were cancelled last year, and given fiscal constraints it seems unlikely that New Initiatives funding will be available for several years to come.

Because of the marginal nature of the funds being considered under New Initiatives, this process is considerably less important than the RPJMN or internal KL processes in determining the shape of the annual budget, and improvements to this process are unlikely to bring about major changes in the quality of overall infrastructure spending. However, the existence of the process does show that the government is used to considering one-off budgetary items through a formal proposal and review process, so it is worth understanding. The New Initiatives process is also one of the few points during the annual budgeting and planning process where Bappenas, working with MoF, directly reviews proposed activities and decides on budget allocation, so they may perceive it as disproportionately important. They are currently working with AIPEG to improve the process.

When they do take place, New Initiative rounds begin with the creation of proposals by KLs, which are submitted to Bappenas Deputy for Development Spending through a standardized computer system. Bappenas DDS collates these proposals, and forwards them on to the relevant deputies within both Bappenas (e.g. Bappenas Deputy for Infrastructure) and MOF. These two organizations score the proposals against a standard rubric, and return the scores to Bappenas Deputy for Development Spending, who collate them and pass the successful proposals on to the Cabinet.


III. Commentary on the Budgeting and Planning Process

a. Particular Areas of Weakness

Indonesia’s budgeting and planning system operates as a somewhat chaotic mechanism for merging the priorities and planned outputs of the President, Line Ministries, Sub-National Governments, and the Parliament into a marginally consistent set of work plans and budget allocations over the medium- and short-term. It is best thought of as a means of reconciling an extremely ambitious five-year wish list of output targets with the fiscal constraints of individual years. The fact that these wish-lists are assembled with no information about the technical efficiency of proposed activities, or even in some cases with the aggregate cost of activities, makes this annual process all the more difficult.

Moreover, there is a strong division of labor between the center of government bodies, who consider budget ceilings and output targets, and the infrastructure KLs who have autonomous power to decide what projects they will run to achieve those output targets subject to the budget constraint. There is almost an “iron curtain” between Bappenas and the Ministry Bureaus of Planning, and the Ministry Sectoral DGs and the provincial units, across which very little information can flow. Below I outline areas of weakness within the system, particularly as they relate to infrastructure planning.

i. Strict Adherence to Activities Outlined in the RPJMN

Throughout all of our conversations, the question of why any particular program, activity, or project came to be funded was nearly always referred back to the RPJMN. The RPJMN is a high-level document in that it deals only with the outputs targets for government units (e.g. 5,000 km of road built), but it is actually quite specific about when and where (though not how) those outputs are to be achieved. The document breaks down the five-year target into expected targets to be achieved in each of the five years, as well as indicative budgets for the units executing that activity in each of those years. People we spoke with seemed to feel that their primary responsibility in planning and budgeting was to be faithful to the plan of the RPJMN, regardless of whether situational changes might have warranted shifts in output targets. Flexibility in allocating money across ministries or units (through the New Initiatives process, for instance) is therefore only possible after all of the stipulations of the RPJMN have been met for a given year. If no fiscal space is available, the “baseline” of activities outlined in the RPJMN will always be given first priority, reducing the chance to optimize allocative efficiency.

This focus on RPJMN targets also seems to create many classic principal-agent problems. We have heard anecdotes of ministries meeting their target for kilometers of road built by widening existing roads by one meter—complying with the RPJMN, without actually achieving real progress towards infrastructure improvement. Even when roads are being built, the fact that output targets are given such high priority without any similar consideration of the quality of outputs, provides every incentive for ministries to deliver poor quality projects. And the fact that


no ex post evaluation of funding takes place, to connect outputs to actual outcomes, means that its impossible to tell how well the achievement of these outputs is actually filling infrastructure gaps.

ii. No Discussion of “Projects” in the Central Process

Corresponding to this focus on the output targets of the RPJMN, the central planning and budgeting system seems to have been designed to deal with ongoing spending for established programs, focusing on either the aggregate “program-level” strategy or the minute “input-level” details of executing a supposedly fixed type of project according to cost guidelines. Budget items correspond to structural and functional units within the infrastructure ministries, for instance the Planning Unit of Cipta Karya in Kalimantan province, or the executing unit for national roads in Jakarta. The central budget and work plans (including the RKP, the Renjas, and the RKAKL) do not have any actual “projects” in them—by a “project” I mean a set of activities that are specified in their timing, location, and nature to achieve a particular goal with maximum efficiency. These documents specify only the outputs that government units must achieve in a given year, and the budget allocations they will receive to pay for achieving that output target, along with the location of the activities in some cases. At no point do they touch on alternative ways of deploying resources to achieve output targets.

Money is Allocated to Structural Units: This lack of discrete, specific projects is evident looking at the database of budget warrants that PU maintains. A detailed examination of four provinces’ budgets over a five-year period showed that the majority of items were identical across provinces, varying only in the district or city the activity was assigned to, and the budgeted amount to spend in that year (see Appendix E). More than 85 percent of these items can be traced directly to a structural or functional unit within PU’s hierarchy: for instance, every province examined has line items for “Settlement Infrastructure in District X” and “Department of Public Works in Province Y”.

Variations in Spending Are Due to Changes in Project Portfolios Within Structural Units: Despite the similarity in the names of line items across provinces and across years, the total amounts actually disbursed across provinces and years actually vary quite significantly. Some of this variation may be driven by disbursement delays. For instance, a number of new spending items begin in 2011, corresponding to a new organizational structure in PU, but do not disburse money in that year. Officials in PU and MoT also indicated that different units would receive different allocations from their relevant DG based on the quality and importance of the projects they proposed through the bottom-up ministry process. However, interviews indicate that Bappenas never sees information about project efficiency, even in terms of average rates or return or similarly aggregate numbers, and so allocative decisions are made with no knowledge of the efficiency of proposed spending.


iii. Lack of Connection Between Central and Ministry-Level Processes

This lack of projects in the central process is indicative of a philosophical divide between the central and the ministerial processes. There is, in essence, a line drawn at the DG level across which almost no information flows. Bappenas and the Ministry Bureaus of Planning attempt to allocate money across ministries and units with little knowledge of the efficiency of the spending those units will undertake, and provincial units prepare projects, which DGs aggregate, with minimal guidance on how much funding will be available.

There are, in theory, some means of communicating priorities and capacity across this line, but they are extremely formalistic and seem only minimally effective. The DGs prioritize various projects based on how well they correspond to the “master plan” for roads, railways, etc., and these master plans are supposed to be coordinated with the RPJMN which forms the basis for national-level allocations. Also, the Ministry Planning Bureaus could theoretically access the feasibility studies that are being produced by the provincial units and reviewed by the DGs, but when we asked the PU and MoT Bureau of Planning for an example of a feasibility study neither unit could produce one. There are M&E systems in place in both PU and MoT that provide information on project execution to the Ministry Bureau of Planning and Bappenas, but in fact these systems report only on the achievement of output targets.

In short the top-down national process, which focuses mostly on budgeting for structural units, and the bottom-up ministry process, which focuses on planning for the projects to be undertaken by those units, are largely unconnected, except through the requirement that budgets and outputs match up. This creates serious problems for both technical efficiency and allocative efficiency. The bottom-up process, although it has good on-paper processes for appraising efficiency and selecting efficient projects, has little forward guidance on what projects they should be


preparing. And the center of government, which should be attempting to achieve allocative efficiency in their budgeting across sectors, has essentially no information about the actual technical efficiency being proposed or achieved.

iv. Poor Communication Between Bappenas and KLs

The lack of working formal channels for information transfer between the bottom-up and top-down processes is exacerbated by the generally poor communication between Bappenas and the infrastructure KLs. It was not clear to us from our interviews that either Bappenas Deputy for Development Spending or Deputy for Infrastructure was aware of the bottom-up process for project preparation and planning within the ministries. They could only conceive of budgeting and planning within the framework of output targets and budget allocations, and assumed that ministries translated money into kilometers of road (for example) through some monotonic function. The infrastructure ministries, for their part, seemed to view Bappenas as largely irrelevant to their own planning process—they would speak to them at the beginning of the year to verify the indicative ceilings and the annual priorities, but most of the actual planning guidance came through the Renstra, and its theoretical coordination with Bappenas’ RPJMN.

Most of the relations between Bappenas and the infrastructure KLs are structured as discrete transfers of information, with no real opportunity for dialogue. For instance, infrastructure ministries are given no guidance on what kinds of projects Bappenas will prioritize in a given round of the New Initiatives process, they are simply asked to fill out a five page form (the same form for all sizes of projects). Bappenas reviews the proposals against criteria of feasibility and importance, but because of the massive volume of proposals they receive, they do not provide any feedback to ministries for why a project has been accepted or rejected.

No interactions seem to take place in person, or as a dialogue. When asked what they might do if they wanted to find out more information about a particular activity that was falling behind on its output targets, Bappenas Deputy for Infrastructure indicated that they would go to their M&E department rather than calling up their counterparts in PU or MoT. (The fact that their M&E departments don’t actually have details beyond the progress on output targets underscores the fact that the Deputy for Infrastructure has maybe never tried to discuss the details of a project with their counterpart KLs.) This may stem from the fact that Bappenas views planning and budgeting as a mechanical process of turning budget allocations into outputs, and so lacks a common language with the DGs in their counterpart ministries, who are concerned with projects.

v. Low (Probable) Quality of Feasibility Studies

We were unable to review a large number of project feasibility studies as part of this work, but the organizational environment in which they are produced strongly suggests that they are of low quality. Feasibility studies are required of all investment projects within PU, and all projects of a certain size or importance (though the criteria weren’t clear to use) within MoT. These studies originate within the planning units, or sometimes regional units, of the ministries themselves, in


theory responding to the demands of communities from the Regional Musrenbangs. We have also heard anecdotes of regional working units simply preparing the easiest project that would keep them employed the following fiscal year and proposing that, but we did not explore the source of project ideas in depth as part of this study. The studies are usually produced by consulting firms who have received contracts from regional working units—the procurement details for many such studies are available in the government’s eProcurement system. Without reviewing actually feasibility studies we cannot comment on their quality, but it seems doubtful that small regional working units have sufficient capacity to ensure good economic and engineering analysis from contractors.

Moreover, there is no quality assurance process that we can detect. There are quite comprehensive guidelines in place for what a feasibility study should contain, but these recommendations do not have the force of law, nor do they vary based on the size or risk of a proposed project. Within Bina Marga, at least, the DG staff become involved in the details of the studies, reviewing the calculations as well as simply checking that a feasibility study exists and that its result are positive. However, we are unsure if other DGs with less capacity than Bina Marga become involved in this way, and there is no formal requirement for them to do so.

vi. Heterogeneity of Processes Across Government Units

The very fact that processes vary so dramatically based on the unit under consideration poses problems for smooth infrastructure spending. Law 25-2004 mandates that ministries must have a planning process, but this law applies equally and is worded to cover every single ministry, which allows for little specificity about what kind of planning should take place. It also makes no provisions that the center of government will review or regulate the quality of these planning processes. This lack of central coordination is visible in the diversity of planning methods, not just across ministries, but also even within ministries. In PU, recent attempts to centralize some project preparation activities have taken a different form in every sectoral DG. Bina Marga has built up project preparation capacity among the eleven Balais (regional implementation units for road building who supervise Satkers in their area). At Cipta Karya, which does not have functioning Balais for human settlements, project preparation sits within “Bina Programs” under the Secretariat of the Directorate Generally. Interestingly, there is also a Bina Programs unit in both Bina Marga and Sumber Daya Air, but it does not seem to perform this same function.

While it may not be a problem that each of these units follows a slightly different process to plan and oversee smaller projects, the lack of standardization makes it difficult for the center of government to understand or check in on the planning and execution process for large, national priority projects. Moreover, while units like Bina Marga seem to have implemented relatively well functioning planning systems, at least on paper, it is not clear that units within Ministry of Transport (who we were not able to speak to in depth) have made similar strides in their project preparation processes.


vii. Supply-Driven Prevalence of Small Budget Items & Contracts

All sources we spoke with emphasized that the small size of the average project and contract, which raises the percentage of administrative costs and makes coordination more difficult, is driven from below. In some DGs it is provincial units who are in charge of proposing projects for the following year through the bottom-up process, and they always have an incentive to propose more projects for their unit to execute, regardless of need. A Satker has a set number of officers, and so larger contracts would mean fewer Satkers and fewer positions to fill. The slow nature of disbursement also makes smaller contracts preferable for contractors: many contractors invoice the government only once at the end of the year, to minimize the hassle of cumbersome paperwork and slow disbursement. With larger contracts, they would be forced to either outlay larger amounts of money that they could not recoup until the end of the year, or undergo the hassle of invoicing the government multiple times. This reinforces the trend towards smaller contracts, which increases administrative costs and reduces the efficiency of infrastructure investment.

There are numerous other examples of inefficient processes in the bottom-up system, which remain because they subtly serve the needs of local employees and contractors. For instance, staff who sit on procurement committees get an extra honorarium, providing an incentive to have many small procurement contracts and thus many committees with honoraria for everyone. Even though larger contracts would almost certainly lead to lower administration costs, projects continue to be procured in small pieces because it is in the interests of the staff of the units involved, and no disinterested central oversight exists to challenge these practices.

b. Opportunities for Improvement

Despite the many weaknesses and challenges in the budgeting and planning system, we have also identified several opportunities for reforming the system in the current institutional and political context. These different avenues lend themselves better or worse to different reform agendas, as will be discussed further in the section outlining some specific reform proposals.

i. Amendment of Laws Governing Budgeting Process

One avenue for change that Bappenas seems to favor is the amendment of legislation governing budgeting and planning processes. Given how closely Bappenas and the infrastructure Ministries seem to adhere to the letter of the laws, amending regulations would present an opportunity to institutionalize more technocratic reforms with a reasonable expectation of compliance. The regulations that outline most of the relevant steps in the planning and budgeting process include:

• PP 90-2010, on how to establish priorities in budgeting and planning • UU 25-2004, on how to line ministries should create their Renja-KL • PP 40-2006, on how the government should create the RKA-KL • UU 29-2013, on how MOF should issue budget warrants (DIPAs)


• PerMen PU 08-21, on the organization and responsibilities of PU units • PerMen Perhubungan 60-2010, on the organization and responsibilities of MoT units • PerMen ESDM 18-2010, on the organization and responsibilities of ESDM units

Each of these regulations appears to have a de facto “owner,” a KL who is responsible for executing the activities outlined in the text of the legislation, and ensuring that the stipulations of the law are followed1. Therefore, when selecting which regulations to amend, we would want to consider the capabilities and buy-in of the Ministry whose activities are targeted by that law.

However, simply amending these regulations is unlikely to bring about large-scale institutional change. Comparing the text of legislation governing budgeting and planning and what actually happens in practice reveals numerous examples where the letter, but not the spirit, of the law is followed, in an attempt to minimize discretion and responsibility.

ii. Existing Legal Basis for Feasibility Studies in Infrastructure KLs

One encouraging feature of the bottom-up system is that feasibility studies are required for nearly all new investment projects, and there is a strong legal basis for this requirement. Existing guidelines, published by the R&D Department within PU, are quite comprehensive, including options appraisal, examinations of rates of return and cost-benefit ratios, sensitivity analyses for both of these, and analysis of projected social and environmental impacts. The process outlined for creating these documents is appropriately iterative, with a first round “pre-feasibility study” to be followed up by the more comprehensive feasibility study if the proposed options look promising.

Because the legal basis for ex ante analysis of project feasibility and desirability exists, much of the information we would want about technical efficiency already exists within the system. There may be problems of quality assurance or knowledge management, but these can be addressed as alterations to an existing system, rather than trying to introduce the concept of ex ante project assessment from scratch.

iii. Organizational Change Championed by Jokowi

At the moment there seems to be a general agreement that the current method of choosing and financing infrastructure projects is not delivering quickly and efficiently enough to meet the country’s needs, providing an opportunity to push process reform. In particular, the forthcoming inauguration of President-Elect Jokowi means that Indonesia has a reform-minded executive who could, if he chose, push this agenda onto both Bappenas and the infrastructure Ministries. Ambitious changes to Bappenas’ role in budgeting and planning would also fit neatly into the

1 The full text of all of these regulations, roughly translated into English, has been saved in both hard and soft copies with the WB Governance practice.


ongoing discussions regarding the effectiveness of the center of government. If they can successfully pick up the coordination and appraisal review roles of a Chilean-style planning ministry, then over time the other areas of responsibility (in which they seem to exert little actual influence) could be phased out.

Indeed, a concerted reform effort by the President is probably the only way to effectively achieve ambitious organizational change within Bappenas and the infrastructure ministries. Process changes would need to be reflected in structural changes at Bappenas, corresponding to the adoption of a new philosophy towards planning that is at odds with the current planning mindset. (For instance, rather than checking whether a KL’s Renja is on track to meet their output targets, they would have to review whether a proposed activity could be justified as the most efficient way of meeting output targets, relative to other options.) On the part of the infrastructure KLs, a more ambitious reform would almost certainly entail developing greater project preparation and appraisal skills. A concerted push by a reform-minded executive is probably the only way to ensure that such sweeping changes would be implemented and coordinated properly.

iv. Parallel Reform Activities

The World Bank is not the only international organization working to reform the budgeting and planning process, and coordination with other reform efforts, particularly in the infrastructure Ministries, could grease the wheels of our proposed reforms. For instance, INDII has embedded advisors who are working long-term with DG for Highways in the Ministry of Public Works (Bina Marga) to create a longer-term planning process based on regional connectivity plans and more rigorous technical analysis of construction specifics. Over the next few years, they anticipate that Bina Marga will have considerably strengthened project planning skills, which would dovetail well with any proposed reform requiring greater KL expertise in project preparation. We can imagine launching a set of ambitious reforms to budgeting and planning as a phased role-out, beginning in partnership with Bina Marga, and eventually expanding to other Deputies within Public Works, and other infrastructure Ministries.

IV. Reform Agenda

To address the problems outlined above we have brainstormed several complementary packages of reforms. These ideas are preliminary, and are intended to form the basis for additional discussion with other donors and government counterparts. Additional information relevant to the implementation of these ideas, such as the text of regulations or examples of current document structures, is available from the World Bank Global Governance Practice.

a. Provide a Legal Basis for Projects in the Central Process

Instead of simply allocating money to structural units with little idea of what projects will be undertaken, Bappenas’ annual budgeting and planning process should be informed by a list of


the projects that each of the sectoral DGs commit to undertake with their allocation. The DGs can prepare such a list on the basis of their internal deliberations and provide basic project details as well as information about technical efficiency to justify their budget and help Bappenas make more informed allocative decisions. It might also be possible to institute this listing of projects in the RPJMN, where DGs and Bappenas would formally agree on the highest priority national projects that would have to be executed in the medium-term.

This is not to suggest that Bappenas should be given decision-making power over what projects get executed, but is instead intended to make the project-level decisions of the ministries transparent to Bappenas as they make allocative decisions. The idea, therefore, would be to require the DGs to commit to which projects they have selected during the budgeting and planning process, and provide project details to Bappenas. For instance, Bina Marga would still choose which roads they plan to build in a given year, but then the details of which roads those are and their technical specifications would be included in the Renja, RKAKL, and the DIPA issued for each Balai. The fact that Bappenas’ allocation would depend in part on the perceived value of the projects a unit is proposing should incentivize more collaboration in the preparation of those lists, even if the power to select projects remains within the infrastructure KLs.

The reform would also want to provide some level of flexibility in case unforeseen circumstances prevented execution of a planned project. For instance, if it became clear that a project was not feasible in a given fiscal year, the DG could be required to officially inform Bappenas and MOF that they are altering the work plans to substitute in a different project, and include details on the technical efficiency of the substitute project.

Providing a Legal Basis for Projects

in the Central Process

! Require DGs to submit a list of planned projects, and details on their expected efficiency, to Bappenas for use in central budgeting and planning process

! Issue details of projects they have committed to executing as part of the DIPA for each implementing unit

! Require DGs to notify Bappenas and MoF if they deviate from planned list of projects, including why they can’t execute the planned project and details on the substitute project

b. Separate Execution and Preparation Functions in the Ministerial Process

The responsibilities for preparing forthcoming projects and executing those projects should be separated within the infrastructure ministries, where this has not already been fully implemented. The responsibility for preparing projects (which in some DGs falls to Satkers who also execute projects) should be centralized in a project preparation at the DG or Ministry level. This would both remove the conflict of interest and allow project preparation units to develop greater expertise in project appraisal and contracting for quality feasibility studies. Bina Marga has moved towards such a system by putting Balais in charge of project preparation, although once


the list of desired projects is created they still delegate the actual preparation of those projects to Satkers.

It is an open question where the best place to house a project preparation unit would be. The DGs within PU have “implementation units” for each of Indonesia’ 3 regions, who also seem to be responsible for some aspects planning. The exact division of labor between these units and the project preparation within Balais and Satkers is unclear to us at this time, but this is one potential home for dedicated project preparation units in DGs which have not yet begun to separate these functions. Having project preparation taking place from a unit with a regional mandate could also increase the focus on larger-scale projects, and reduce the fragmentation that is currently visible in the system.

In whatever form they take, project preparation units would not need to be so closely tied to the annual budgeting and planning process, as the Satkers currently are. Their goal would be to create a pool of high-value projects with quality feasibility studies and engineering design documents, which could be picked up in a given year and included in the list of projects committed to by the DG. Thus, this reform dovetails nicely with the inclusion of project-level details in the annual central planning process.

Separating Execution

and Preparation

of Projects in Ministries

! Create separate project preparation units within Ministries or DGs, above the Satker or Balai level where a conflict of interest exists

! Develop these units’ expertise in project appraisal and contracting, to improve quality of feasibility studies and engineering plans

! Maintain a pool of well-prepared, high value projects on an ongoing basis, rather than preparing projects for specific fiscal years

c. Institute Central Review of Feasibility Studies

A unit that reviews feasibility studies should be created within the center of government, to check the quality of appraisal happening within infrastructure ministries, and also to give Bappenas and MoF more insight into the projects being executed. This unit should be tasked with reviewing all feasibility studies for projects above a certain size, and a random sample of feasibility studies for smaller projects. In their review, this unit should maintain a dialogue with the units producing the studies, to challenge relevant pieces of the analysis and ensure that the final product reflects good estimations of a project’s value for money.

Such a unit could conceivably sit within Bappenas, which has relatively high capacity and oversees infrastructure spending across several ministries. However, it would probably be necessary to create a new unit within Bappenas, since the work of reviewing economic analyses and collaboratively improving project appraisals and plans is philosophically very different than the current work that Bappenas does. Because of that philosophical shift, this reform goes hand-in-hand with the suggestion to consider projects in the central budgeting and planning process.


Without that, Bappenas staff would lack the conceptual “vocabulary” to think about projects in relation to other planning activities.

Another key aspect of reviewing the quality of feasibility studies would be conducting ex post evaluations of whether benefits were delivered, to provide a basis for realistic assessments of the benefits of such projects. Project preparers in all countries notoriously suffer from optimism bias in their assessment of likely benefits, and ex post evaluation would give reviewers an objective basis on which to review proposals and make adjustments. Moreover, this better understanding of the link between spending, outputs, and outcomes would be useful for Bappenas as they set output targets for coming years.

Centralizing Review of Feasibility

Studies

! Create a new unit, presumably within Bappenas, to review feasibility studies for all large projects and a representative subset of smaller projects

! Develop this unit’s capacity to review technical analyses, and work collaboratively with ministries to improve their appraisals and plans

! Conduct ex post evaluations of the benefits of infrastructure investments, so feasibility studies can be informed by realistic assessments of achievement

d. Differentiate Processes by Project Size and Importance

The processes for proposing, appraising, and selecting projects should be differentiated based on project size, to allow for more flexibility for small projects and greater scrutiny for large once. In particular, it would be helpful to provide greater differentiation of processes for the development of feasibility studies, the application of standard costs, and the degree of center-of-government involvement. Such a reform would be difficult in the control-oriented government environment, but it might be possible if implemented alongside increased oversight from the center, as we suggest above.

i. Feasibility Studies

The PU and MoT guidelines for feasibility studies, which are currently applied similarly to all projects regardless of size, should be differentiated according to rules about project size. For instance, projects above a certain cost threshold could require both a pre-feasibility study and a full feasibility study, according to PU’s guidelines, while smaller projects would require only the pre-feasibility study. Concerns about the incentive to decrease project size below that threshold could be mitigated if this were adopted in parallel to the separation of project preparation and execution. Moreover, the above-described central control of feasibility studies, with central review of a subset of smaller projects, could ensure that quality is maintained for appraisal of smaller projects.


ii. Standard Costs

Infrastructure ministries should be allowed to apply for waivers for standard costing, subject to central review by Bappenas or MoF. This would prevent the application of standard costs to projects with wildly different specifications (a one-land versus a four-lane road, for instance), and allow the KLs to implement higher quality projects. To receive such a waiver, KLs would need to provide credible analysis indicating that the lifecycle costs of a given project (including implied costs) are actually minimized by spending more than standard costing would allow during the construction phase. These applications could be reviewed centrally, perhaps by the same unit that we are proposing to take on review of feasibility studies.

Differentiating Processes by Project Size/ Importance

! Create different requirements for if/how comprehensive a feasibility study must be commissioned based on the size of the proposed project.

! Allow infrastructure KLs to apply for a waiver of standard costs if they can prove that the lifecycle costs of a project are minimized with higher up-front investment.

V. Conclusion

The Indonesian system for planning and budgeting infrastructure projects is complex, with planning and budgeting authority vested at nearly every level of government. The challenge of coordinating the plans of all of these different units has resulted in a bifurcated system with strict separation of work and information between the macro-budgeting center of government and the micro-budgeting infrastructure ministries. In many cases, plans and budgets are not successfully coordinated, creating problems that become visible only during project execution. There are some bright spots, however, and several factors are converging to support a reform of the infrastructure budgeting and planning at this time.

Reform efforts should focus on breaking down the wall between the central and ministerial processes, and taking advantage of interactions between the two. The center of government can benefit from ministries’ information about estimated efficiency when allocating across sectors, while ministries can benefit from central oversight of their project appraisal and preparation. Success will mean changing mindsets at both levels, and this can be supported by structuring processes to promote dialogue and mutual dependence between the center an the infrastructure ministries.


VI. Appendix A: Details of Medium-Term Planning and Budgeting Process

1. Creation of Preliminary Draft RPJMN

Time Period Unknown

Participants Bappenas DDS

Inputs RPJP, Draft Technocratic Development Plan, Presidential Priorities

Governing Laws PP 40-2006 Articles 10 – 11

Description “Preparation of the Preliminary Draft RPJMN shall be implemented by the Minister (Bappenas). In order to set up the Preliminary Draft RPJMN, the Minister shall use: (a) the ongoing RPJP, (b) the draft technocratic development plan, and (c) the vision, mission, and program priorities of the President.

The draft technocratic development plan referred to above includes a macroeconomic framework, sectoral and territorial development plans collected from: (a) the results of evaluations of the implementation of the ongoing RPJMN, and (b) the aspirations/needs of the people. Evaluation of the implementation of the ongoing RPJMN shall be implemented according to existing legislation.

The Preliminary Draft RPJMN shall contain a strategy for national development policies and programs, Presidential priorities, as well as the macro-economic framework.

• The presidential priorities and programs are translated into strategic issues that cross KLs and regions, and connected to national output indicators, in consideration of the draft technocratic RPJMN.

• The macroeconomic framework shall contain a general description of the economy, including the overall direction of fiscal policy for the upcoming medium-term period. The preparation of this macroeconomic framework shall be based on objective economic conditions, and implemented in coordination with the relevant agencies.

The Preliminary Draft RPJMN shall be delivered to the President for Cabinet meetings, as agreed in the draft guidelines for the preparation of the Renstra-KLs.” [PP 40-2006]

Outputs Preliminary Draft RPJMN


2. Creation of Draft Renstra-KLs

Time Period Unknown

Participants Relevant KLs

Inputs Preliminary Draft RPJMN

Governing Laws PP 40-2006 Articles 12– 13

Description “The preparation of Draft Renstra-KLs is the duty of the Leadership KL in the last year of the implementation of the ongoing RPJMN, beginning with the preparation of the draft technocratic development plans for their sector. In drafting the technocratic development plans referred to above, the governing KL shall collect: (a) results of the evaluations of ongoing sector development plans, and (b) the aspirations/needs of the people. The leadership of the KL, in coordination with the relevant Government Area, shall achieve a division of labor in achieving the national targets, in accordance with the draft technocratic development plan in that sector.

The leadership KLs shall prepare draft Renstra-KLs that include the mission, vision, goals, strategies, policies, programs, and activities as well as the corresponding principal duties and functions of their KL, based on the draft RPJMN. The “purpose” referred to above is a translation of that KL’s vision, which is concerned with and equipped with national objectives to be achieved in order to achieve the targets o f the President’s priority programs. In realizing their goals, the leadership KL will divide tasks to be implemented either by that KL or by local governments, as indicated in the division of tasks referred to above. The policies referred to above are a course of action taken by a KL in the form of activities, within the relevant regulatory framework and the framework of the Public Services and Government Investment. Programs referred to above include the objectives (outcomes) to be achieved in the plan period, with measurable indicators, principal activities to achieve these objectives, an indication of the necessary resources, and the organizational units of the KL responsible. The main activities referred to above include activities within the Regulatory Framework and/or activities within the framework of the Public Services and Government Investment. These main activities shall at least contain the location, output, and the resources required, at an indicative level.

The draft Renstra-KL shall be submitted to the Minister-KL for use in the preparation of the Draft RPJMN.” [PP 40-2006]

Outputs Draft Renstra-KL


3. Creation of Draft RPJMN, Based on Renstra-KLs

Time Period Unknown

Participants Minister (Bappenas)

Inputs Preliminary Draft RPJMN, Draft Renstra-KLs

Governing Laws PP 40-2006 Articles 14

Description “The draft RPJMN shall be prepared by the minister using the Preliminary Draft RPJMN and the draft Renstra-KLs.” [PP 40-2006]

Outputs Draft RPJMN

4. Coordination of Draft Renstra-KLs with Draft RPJMN

Time Period Unknown

Participants Minister (Bappenas)

Inputs Draft RPJMN, Draft Renstra-KLs

Governing Laws PP 40-2006 Articles 14

Description The draft Renstra-KLs shall be reviewed by the Minister to ensure that: • Programs that are targeted as presidential priorities span the

hierarchy into the relevant KL and tasks carried out by SNGs in accordance with authority.

• The document is consistent as an elaboration of the draft Preliminary Draft RPJMN.

• Programs and activities of the principal KL are consistent as the elaboration of operational Preliminary Draft RPJMN.

• The objectives (outcomes) of each program synergistically support the President’s priority program targets contained in the Preliminary Draft National Development Plan.

• The outputs of each of the principal activities synergistically support the outcomes of parent programs.

• Necessary resources are feasible according to the macroeconomic framework contained in the Preliminary Draft RPJMN.

The results of the review referred to above shall be used to refine the Draft RPJMN into the RPJMN. The draft RPJMN shall be used as a main ingredient in the National Medium-Term Musrenbang. “ [PP 40-2006]

Outputs Revised Renstra-KL


5. National Medium-Term Musrenbang

Time Period Two months after inauguration

Participants Bappenas, Relevant KLs, Provinces

Inputs Draft RPJMN

Governing Laws PP 40-2006 Article 15

Description “The National Medium-Term Musrenbang shall be organized by the Ministry to enhance the draft RPJMN. The National Medium-Term Musrenbang is to be followed by elements organized by states and involving the community. The National Medium-Term Musrenbang is to be preceded by a series of activities consisting of socialization of the early Draft RPJMN, public consultation, and public aspirations/needs. The National Medium-Term Musrenbang shall be implemented no later than two months after the inauguration of the President.” [PP 40-2006 ]

Outputs No immediate outputs

6. Preparation of Final Draft RPJMN

Time Period Two months after inauguration

Participants Bappenas

Inputs Draft RPJMN, Input from Musrenbang


Description “The final draft prepared by the Minister of National Development Planning shall be prepared based on the results of the National Medium-Term Musrenbang. The final Draft RPJMN shall be submitted to the President.” [PP 0-2006]

Outputs Final Draft RPJMN


7. President Releases RPJMN as Presidential Decree

Time Period Three months after inauguration

Participants President

Inputs Final Draft RPJMN


Description “The President shall release the Final Draft RPJMN into the RPJMN by Presidential Decree no later than three months after his inauguration.

The RPJMN shall function as: (a) guidelines for adjustment of the Renstra-KLs, and (b) material for preparation and improvement of the RPJMDs, with attention to the tasks of local governments in achieving national targets contained in the RPJMN. The Renstra-KLs referred to above shall be a set of regulations governing the KLs, and shall be submitted to:

(a) the Minister (of Bappenas) (b) the Minister of the Interior (c) the Minister of Finance (d) the Minister of State for Administrative Reform” [PP 40-2006]

Outputs RPJMN


VII. Appendix B: Details of Annual National Planning and Budgeting Process

1. National Multi-Level Priority Setting

Time Period January

Participants Bappenas Bureau for Planning, Bappenas Deputy for Infrastructure, KL Bureau of Planning, KL Relevant Deputy

Inputs RPJMN, Renstra-KL


Description “The president sets the policy interest and national development priorities in January for the year based on the results of the evaluation of ongoing policies. Based on the Policy Direction and the national development priorities, the KLs evaluate the implementation of programs and ongoing activities. Based on the evaluation of the implementation of programs and activities, the KL develops a New Initiative plan and indicative budget requirements, in alignment with the Policy Direction and national development priorities, to be submitted to Bappenas and MoF.

Bappenas and MoF evaluate the implementation of programs and activities that are running, and review new proposals for New Initiatives, based on development priorities, fulfillment of feasibility analysis, and an indication of the efficiency of fund requirements. Bappenas coordinates the implementation of the evaluation, and the integration of results. Further provisions on the procedures for preparation of New Initiatives is under the purview of the Minister of Planning." [PP 90-2010]

It seems that many eventually-funded projects aren’t specified in the RPJMN or the New Initiatives Process, they are the product of PU’s internal, bottom-up system of having projects proposed. The primarily relate to the medium-term planning process by meeting the output targets proposed in those documents. [Peter and Hendri, AIPEG at PU]

Outputs (no immediate outputs)


2. Creation of Indicative Budget

Time Period February

Participants MoF DG Budget, Bappenas

Inputs RPJMN

Governing Laws PP 40-2006 Article 19, PP 90-2010 Article 8

Description “A preliminary draft of the RKP is prepared by the Minister, as an elaboration of the RPJMN, no later than the second week of February. Early drafts of the policy design should take into account the national development priorities, the draft macroeconomic framework, work plan and funding, the performance of previous years’ development spending, as well as forecasting problems, challenges, and opportunities facing the new year…The draft indicative ceilings shall be prepared by the Minister together with the Minister of Finance. The early draft RKP, and draft indicative ceilings, shall be discussed in Cabinet meetings. The results of the cabinet discussion will subsequently be incorporated into the Joint Circular between the Minister and Minister of Finance, as guidance for the preparation of the Renja-KL.” [PP 40-2006]

“The Ministry of Finance estimates, compiled for the estimation of the fiscal capacity (“indicative budget”) are planned, including an adjustment ceiling, no later than mid-February. The indicative ceiling shall be prepared by the Minister of Finance, with the Minister of Planning, with due regard to the fiscal capacity and compliance with national development priorities. This indicative ceiling is broken down into organizational unit, program, activities, and an indication of funding to support the Policy Direction as designated by the President. The indicative ceiling must be submitted to the KL with a letter signed by the Minister of Finance and the Minister of Planning in March.” [PP 90-2010]

Outputs Draft RKP


3. Trilateral Meeting to Discuss KL Indicative Ceilings

Time Period March

Participants Bappenas Deputy for Developing Spending, Bappenas Bureau for Planning, Bappenas Deputy for Infrastructure, MoF DG Budget, KL Bureau of Planning, KL Relevant Deputy

Inputs Draft RKP

Governing Laws PP 90-2010 Article 8, Sections 7 – 8

Description “In the process of preparing the Renja-KL, there shall be a trilateral meeting between the relevant KL, the Ministry of Planning, and the Ministry of Finance. The relevant Minister shall convey their Renja-KL to Bappenas and the Ministry of Finance for improvement of the draft RKP and the preparation of the initial details of the ceiling, according to organizational units, functions, programs, and activities as part of the preliminary draft budget for the subject.” [PP 90-2010]

Outputs (no immediate output)


4. KLs Create Technical Breakdowns of Work Plans for the Year

Time Period April

Participants KL Bureau of Planning, KL Bureau of Finance, KL Relevant Deputy

Inputs Draft RKP, Renstra-KL, Indicative Ceilings

Governing Laws PP 40-2006 Articles 20 and 21

Description “Leadership KLs prepare a draft Renja-KL with reference to the initial draft RKP, and guided by the Renstra-KL, as well as the indicative ceiling set out in the Joint Circular. The Draft Renja-KL shall take on board policies, programs, and activities as a translation of the Renstra-KL. The “policies” referred to are the direction and the steps needed to achieve the objective of each program for the year’s plans. Activities shall include the principal activities of the Renstra-KL, as well as supporting activities to achieve parent programs and objectives detailed by output indicators and their targets, forecast targets, location, budget, and implementation details.

The break-down of implementation by activity center, de-concentration, or co-administration shall be determined in accordance with relevant legislation. The draft Renja-KL shall be submitted to the relevant Minister no later than mid-March.

The minister then analyzes the Renja-KL to ensure that there is:

(a) There is harmony between programs/activities within that KL, (b) There is harmony between programs across KLs, regions, and

cross-regional activities, (c) The relationship between the target output for that year aligns with

the previous year and the forecasts for following years, and aligns with the planned budget to achieve it,

(d) The plans for activity execution are appropriate given the authority of that KL.

The results of this review shall be used in drafting the interim RKP.” [PP 40-2006]

The concrete way in which medium-term planning contributes to annual planning is by specifying the outputs that must be achieved by the programs implemented within a given year. For instance, the Renstra may specify that you must build 50 km of road in a given province in FY 2015, and then you try to match this quota with projects proposed from below.” [Peter and Hendri, AIPEG at PU]

Outputs Draft Renja-KL, Interim RKP


5. Musrenbang to Discuss Plans with Provinces

Time Period April

Participants Bappenas, Bappeda, Provincial Governors Inputs Draft RKP, Draft Renja-KL

Governing Laws PP 40-2006 Articles 23 and 24, UU 25-2004 Article 23

Description Provincial Annual Musrenbang: “An annual planning forum shall be held by the provincial governors, as well as the representations of the central government, in order to discuss the Draft RKP. The discussion of the draft RKP is held for synchronization between the national development priorities and the local development priorities, as well as synchronization of de-concentrated activities with development needs in different areas. The Provincial Annual Musrenbang will be held by elements of the provinces, representatives from Bappeda in each district, representatives of the relevant KLs, as well as members of the communities. The Annual Musrenbang shall be held in the second week of April, and will be used as an ingredient in the Draft RKP.”

National Annual Musrenbang: “This annual planning forum shall be held by the National Minister in order to discuss improvements to the design of the Draft RKP and the Draft Renja-KLs. It is also held to ensure synchronization of the RKP with the RKP-Ds. It is to be held in the fourth week of April every year.” [PP 40-2006]



6. Finalization of Draft RKP

Time Period May

Participants Bappenas Inputs Draft RKP, Information from Musrenbang

Governing Laws UU 25-2004 Articles 24 and 25

Description “The Minister shall prepare a Final Draft RKP on the basis of the National Musrenbang. The head of planning shall complete the Final RKP-D based on the Provincial Musrenbang results, to guide the preparation of the draft RKP and the local budget.” [UU 25-2004]

Outputs Revised Draft RKP

7. Presentation of Draft RKP to President, Creation of Final Draft RKP

Time Period May

Participants Bappenas, MOF, President Inputs Draft RKP


Description “The RKP Final Draft shall be prepared by the Minister on the basis of the Annual National Musrenbang. The Final Draft RKP must be submitted to the President no later than the first week of May.” [PP 40-2006]

Outputs Final Draft RKP


8. President Presents RKP to DPR

Time Period May

Participants President, DPR Inputs Final Draft RKP


Description “The President shall turn the RKP into a Presidential Regulation of the Final Draft RKP at the latest by mid-May. The RKP shall be discussed with the House of Representatives, with the results used as guidelines for the eventual law about budget revenue and expenditures.” [PP 40-2006]


9. Line Ministries Discuss Work Plans with Sector Commissions

Time Period June

Participants KLs, DPR Inputs Final Draft RKP, Draft Renja-KL


Description “The RKP as described above [i.e. the Final Draft RKP prepared by the President] shall be discussed with the House of Representatives, with the results used as guidelines for preparing the eventual law about budget revenues and expenditures. The RKP shall be used by KLs to alter the drafts of their Renja-KLs.” [PP 40-2006]

These discussions aren’t focused on the meat of individual programs, but on the total ceiling allocated for that KL. The net result of these discussions is usually a very small (perhaps 1-2 percent) increase in the ceiling for that KL, possibly in anticipation of programs that DPR members would like to add in the future. [Peter and Hendri, AIPEG at PU]

Outputs (Minimally) Revised Renja-KL


10. MOF and KLs Create Initial Budget Documents

Time Period July

Participants MOF, KLs Inputs Draft Renja-KL, Final Draft RKP


Description “The Minister of Finance, in the preparation of the RKA-KL, sets the KL budget ceiling with reference to fiscal capacity, the indicative ceiling, the Renja-KL, and performance evaluations of the outcomes of that KL. The KL budget ceiling illustrates the policy direction established by the president, and must be specified at least by organizational units and programs. The KL budget ceiling must be submitted to each KL by the end of June. The Minister in charge of preparing the RKA-KL shall refer to:

a. The budget ceiling for that KL, b. The Renja-KL, as described earlier, c. The RKP agreement between Government and the DPR, resulting

from preliminary talks about the draft budget, and d. Standard costs.

Preparation of the RKA-KL shall also accommodate New Initiatives proposals.” [PP 90-2010]

“The RKA-KL will look quite similar to the Renja-KL, in that it uses the same accounting codes to refer to specific activities. However, the RKA-KL is different in that it attaches a money value to those activities, based on standard costs. Because there will be gaps between the sum of the detailed costs and the budget ceiling, the agency will often add more activities to make sure they don’t get their budget trimmed. Therefore, you will often see a few more activities in the RKA-KL compared to the Renja.” [Enda]

Outputs Draft RKA-KL


11. Tripartite Meeting: Bappenas & DG Budget Review RKA-KLs

Time Period July

Participants KLs, MOF, Bappenas Inputs Draft RKA-KL


Description “The RKA-KL shall be examined in a review forum between the KL, along with MOF and Bappenas.

In the discussion of the RKA-KL with Parliament, adjustments can be made to incorporate proposed New Initiatives, so long as (1) the RKP is in accordance with the agreement between Government and the DPR, (2) the relevant KL will still achieve their performance targets, and (3) the budget ceiling for that KL is not exceeded.

The Minister of Finance is to coordinate this review of the RKA-KL, in order to produce the Final RKA-KL. This review should be holistic, and include:

a. The feasibility of the budget planned performance targets, and b. Consistency of these performance targets with the RKP.

This review of the RKA-KL should be completed by the end of July.” [PP 90-2010]

Outputs Final RKA-KL


12. DG Budget Creates Financial Note

Time Period August

Participants MOF, Cabinet, President Inputs RKP, Renja-KL, RKA-KL


Description “The MoF collects RKA-KL, to be used as:

a. Materials for preparing the Financial Note, Draft Budget, and Draft APBN, and

b. The draft budget for the discussion of supporting documents.

The Financial Note, Draft Budget, and Draft APBN shall be discussed in a cabinet meeting, and the results of this cabinet meeting [i.e. revised documents] shall be submitted by Government to the DPR in August.”

Outputs Draft Financial Note, Draft APBN


13. Financial Note is Reviewed with DPR, Amended, Passed as Law

Time Period August – October

Participants

Inputs Draft Financial Note


Description “The Government must have completed its discussion of the Draft Budget and Draft APBN no later than the end of October. In terms of the discussion, it should produce an optimization of the budget ceilings used by the Government, in accordance with the Policy Direction set by the President. The results of the discussion of the Draft Budget and Draft APBN, as referred to above, shall be set forth in an official report. The draft budget for discussion an agreement shall be finalized, and a record of the discussion of the agreement shall be delivered by MOF to the KL.

The relevant minister shall adjust their RKA-KL based on reports of this discussion and the agreement of the DPR. Further provisions on the procedure for adjusting the RKA-KL are allowed by the issuance of regulations by the Minister of Finance.” [PP 90-2010]

Outputs Final Renja-KL, Final RKA-KL


14. Budget Warrants are Issued

Time Period November – December

Participants MOF, KLs Inputs Final RKA-KL, Final Renja-KL

Governing Laws PP 90-2010 Article 13 and 14

PP 29-2013 Article 3 Description “The allocation of MOF is specified by the needs of the Central

Government and the transfers to the regions, and it shall be determined by the President no later than November 30. This presidential decree is an integral part of the APBN. The relevant KLs’ ministers shall then prepare the budget execution documents based on the budget allocation set forth in the Presidential Decree, with reference to the RKA-KL. The Minister of Finance shall release these documents, to begin the execution of the budget document, no later than December 31.” [PP 90-2010]

“Preparation of Excerpt DIPA: Matters that should be considered for preparing the Excerpt of DIPAs:

1. Principally, Excerpt DIPAs shall be prepared using the data that their sources come from, including: a. The Renja of their Working Unit or Satker, that has been

adjusted to the Budget Allocation of their KL and has been approved by the DPR, examined by Bappenas and DG Budget, and has been stipulated in a Presidential Decree concerning the Detailed Central Government Budget…

b. The APBN that has been adjusted to the Budget Allocation and has been approved by the DPR, has been examined by the Assistant of Budget Users and DG Budget, and has been stipulated in the List of Examination Results [M&E things].

2. Excerpt DIPAs constitute the description of a Master DIPA for each working unit. In case of a Working Unit (Satker) managing more than one program that comes from an Echelon I unit, then their Excerpt DIPA shall contain all programs that fall under its responsibility.” [PP 29-2013]

Outputs DIPAs (see template in Appendix B)


VIII. Appendix C: Details of Annual Ministry Planning and Budgeting Process

1. Bappenas and MOF Issue Indicative Budget Ceilings to KLs


Participants Bappenas DDS, MOF DG Budget

Inputs Preliminary Draft RKP


Description “The early draft RKP, and draft indicative ceilings, shall be discussed in Cabinet meetings. The results of the cabinet discussion will subsequently be incorporated into the Joint Circular between the Minister and Minister of Finance, as guidance for the preparation of the Renja-KL.” [PP 40-2006]


2. KLs Issue Indicative Budgets to Echelon 1 Units


Participants KL Planning Bureau

Inputs KL Indicative Ceiling

Governing Laws ???

Description PU then allocates budget to DGs and echelon 1 units, providing basis for planning exercises within Bina Marga.

Outputs Echelon 1 Indicative Ceiling


3. Bina Marga Creates First Draft Renja


Participants KL Echelon 1 Planning Bureaus

Inputs Echelon 1 Indicative Ceilings

Governing Laws ???

Description Bina Marga itself allocates money between construction and maintenance expenditures (Directorate of Planning and Programming)

Outputs First Draft Renja-KL

4. Bina Marga Meets with Regional Satkers at KonReg

Time Period March

Participants Echelon 1 Planning Bureaus, Satkers, Balai

Inputs First Draft Renja-KL

Governing Laws ???

Description Bina Marga has meetings with regional Satkers at KonReg to collect input.

Outputs Revised Renja-KL


5. MOF Releases Revised, Specific Budget Ceilings

Time Period April

Participants Bappenas, Bappeda, Provincial Governors

Inputs Draft RKP, Revised Renja-KL

Governing Laws PP 40-2006 Articles 23 and 24, UU 25-2004 Article 23

Description National Annual Musrenbang: “This annual planning forum shall be held by the National Minister in order to discuss improvements to the design of the Draft RKP and the Draft Renja-KLs. It is also held to ensure synchronization of the RKP with the RKP-Ds. It is to be held in the fourth week of April every year.” [PP 40-2006]


6. KLs Prepare RKA-KL

Time Period June

Participants PU Planning Bureau

Inputs Revised Renja-KL, Revised RKP

Governing Laws ???

Description On this basis, the line ministries then prepare the RKA-KL. Within Bina Marga, budget submissions are prepared based on top down prioritization among, and determination of, budget constraints for each of the Satkers. The phase then goes on to include detailed cost estimates for activities, and budget submissions.

Outputs


IX. Appendix D: Details of New Initiatives Process

1. Line Ministries Draft New Initiative Proposals

Participants Relevant KL

Inputs Outputs of KL planning processes (e.g. KonReg)

Description In order to secure funding to New Initiatives projects, the KLs must submit a formal proposal to Bappenas. Apart from the format of the proposal form, Bappenas doesn’t seem to provide additional guidance on what they are looking for in New Proposals, or feedback about why previous proposals were accepted or rejected. Therefore, there is not a lot of incentive for KLs to provide detailed information beyond what is specified in the proposal form.

Outputs New Initiative Proposal

2. Bappenas Collects All New Initiative Proposals

Participants Bappenas Deputy for Development Spending

Inputs New Initiatives Proposals

Description Bappenas DDS receives an estimated 1,000 proposals, at 10-15 pages each, totaling more than IDR 200 trillion in requests from the various KLs. They are submitted through a central computer system with a single proposal template for all sizes of projects. There is no pre-screening for whether projects meet specific criteria, so the size of the projects and the quality of the proposals varies dramatically. This imposes a heavy administrative burden on Bappenas, particularly since they have only a few days’ window to assess and return these proposals.

After compiling the various proposals, Bappenas DDS distributes them to both the relevant Deputy within Bappenas (e.g. Deputy for Infrastructure) and also to MOF DG Budget, who forwards them to the relevant DG Budget sectoral experts. [Chandra at Bappenas DDS]

Outputs (no immediate output)


3. New Initiatives Proposals Reviewed by Bappenas and MOF

Participants Bappenas Deputies, MOF DG Budget

Inputs New Initiative Proposal

Description Bappenas Deputies and MOF DG Budget then review the proposals, scoring them against a rubric for the aspects of the project described in the submission. For Bappenas, this includes:

a. Purpose of the Project (4 percent weight) b. Problem Being Addressed (3 percent) c. Scope of the Project (2 percent) d. Beneficiaries (5 percent) e. Project Strategy (4 percent) f. Performance Indicators Targeted (6 percent) g. Budget Suitability (3 percent) h. Appropriateness of Budget (3 percent) i. Sources of Funding (4 percent)

And it is assumed that the remaining percentage of the “weight” is taken up by the aspects of the proposal evaluated by MOF. It is worth noting that simple addition of a weighted set of rubric scores could allow for projects that, for instance, don’t actually address an actual problem to still score quite well overall.

Outputs New Initiative Proposal Assessment and Score

4. Scores Collated by Bappenas DDS

Participants Bappenas DDS

Inputs New Initiative Assessments

Description Bappenas DDS then compiles the scores, and any proposal which receives more than “70” is considered okay. However, given that the total requested may still exceed the available fiscal space, Bappenas DDS can exercise some discretion in which proposals they pass along for consideration by the Cabinet. Bappenas then passes the portfolio of resulting projects to the Cabinet, for consideration along with the rest of the budget.

Outputs Portfolio of proposals deemed acceptable by Bappenas and MOF

World Bank Document -...

Documents

Transcript of World Bank Document -...