Leveraging World Bank Engagements in Indonesia through Trust Funds

1. Leveraging World Bank Engagements in Indonesia through Trust Funds

2. Leveraging World Bank Engagements in Indonesia through Trust Funds Chris Hoban 22 February 2011 Knowledge Series – Emerging Indonesia Location

3. Outline • Trust Funds in Indonesia • Engagements in the Country Partnership Strategy • Trust Fund Management • Strengthening Indonesian Institutions

4. Trust Funds support almost 60% of 315 full-time staff in Indonesia

5. Alignment of Trust Funds & Country Strategy Country Partnership Strategy • National Institutions • Sub-national • Finance & Private Sector • Infrastructure • Education • Community & Social • Environment & disasters Major Trust Funds • Public Financial Management • Decentralization Support Facility • Trade & Investment Climate • (coordination w AusAID) • Education • PNPM Support Facility, Poverty • Aceh MDF, Java Reconstruction

6. Outline • Trust Funds in Indonesia • Engagements in the Country Partnership Strategy • Trust Fund Management • Strengthening Indonesian Institutions

7. 2. Trust Funds in the Country Strategy • Country Partnership Strategy recognizes an integral role of trust funds in delivering key CPS outcomes • Portfolio Review combines ratings of loans and trust funds in each sector • Key review point is the Engagement Strategy Note, discussed jointly with Country & Sector Director

8. Events in 2004-2005 requiring fast response December 2004 tsunami March & September 2005: large fuel price increases \ - mitigated by targeted poverty programs 2005 infrastructure summit: needed economic analysis Bank’s responsiveness & quality advice strengthened its appeal as a dependable partner Flexible DFID trust fund helped Generated interest in further advice on better ways to spend funds & increase growth While key partners moving to more senior roles Changing Bank Engagement in Indonesia

9. Shift from traditional ESW to rapid response notes & continuous advice that are timely, relevant & requested. Work with reform champions to identify areas of need matched with available Bank skills Flexibility critical to utilize reform opportunities Let government own the reforms & pace of reform Use DPLs to overcome gridlock & bottlenecks Key Changes in Approach

10. Outline • Trust Funds in Indonesia • Engagements in the Country Partnership Strategy • Trust Fund Management • Strengthening Indonesian Institutions

11. 3. Trust Fund Management • All large trust funds are well aligned with country strategy & government priorities • and almost all strongly led by government • Integration of trust funds in portfolio review – requires rating of objectives & implementation • Engagement Strategy Reviews for good oversight • led by Country & Sector Directors • Trust fund management data challenges • Staffing issues

12. Alignment of Trust Funds & Country Strategy Country Partnership Strategy • National Institutions • Sub-national • Finance & Private Sector • Infrastructure • Education • Community & Social • Environment & disasters Major Trust Funds • Public Financial Management • Decentralization Support Facility • Trade & Investment Climate • (coordination w AusAID) • Education • PNPM Support Facility, Poverty • Aceh MDF, Java Reconstruction

13. Portfolio Review sample - Education L=loan, G=grant, Gi= grant with ISR

14. Trust Fund Management Issues • Manage budgets, property, staff exposure, deliverables, risks & client relationships across two "lines of business" • Overall comfort with these, but • Hard to report to management • Some innovative procedures, e.g. • Country team screening for ensuring strategy alignment • Selection process for grant recipients • One Stop Reviews reduce delays in trust fund approvals

15. Trust Fund Management Issues 2 • Review processes “as for loans”, but • Loans: ‘funds in’ once or twice (additional finance); ‘funds out’ through components • Trust Funds: ‘funds in’ many times;‘funds out’ - each child TF requires new review • Fee approval by too many departments • Two approaches for overheads (indirects) not easy to combine & track

16. Trust Fund Management Issues 3 • Difficult to track staff costs and exposure risk • Count staff by term or coterm, but not time charged to TFs • Strong need for consultants (ETC & STC) for speed & flexibility • Bank hiring far too slow • Two-year ETC limit is very constraining • Big gap in field benefits between term & ETC

17. Indonesia PREM Bank Budget & Trust Funds 2004-2010

18. Leveraging Bank Budget with Trust Funds Each dollar of BB spent on staff cost, supports over $2 in TF staff cost. In PREM, this has risen to $4.50

19. Utilization of staff between Bank Budget & Trust Funds 1. Bank staff time charged to TF – hard to monitor 2. Can’t charge TF staff to BB tasks

20. Outline • Trust Funds in Indonesia • Engagements in the Country Partnership Strategy • Trust Fund Management • Strengthening Indonesian Institutions

21. 4. Strengthening Indonesian Institutions • Challenges of slow reform of key government agencies • Rigid bureaucracy doesn’t promote innovation of utilize skills • Weak coordination across ministries • Severe audit discourages action • Major problems with procurement of consultants • Very long time to procure – often 2 years • Many good firms do not participate • No procurement oversight institutions (now rebuilding) • Procurement committees unqualified & not accountable • Poor contract management does not deliver quality

22. 4. Strengthening Indonesian Institutions Success Stories • Stronger Institutions • Fiscal Policy Office, Ministry of Finance • Spinoffs • Social Policy & Economic Research Unit SMERU • Knowledge Forum for Eastern Indonesia BAKTI Work in Progress • Key ministries, Universities, NGOs, • Oversight agencies, procurement systems • Continue to spin off where this makes sense

23. Strengthening Indonesian Institutions What’s next? • Continue timely response to key government policy analysis needs • Utilize Bank capabilities • Strong government ownership • Donor partnerships around government priorities • Help government to lead trust funds itself • Continue to work on country institutions • Civil service reform, procurement reform, key units • Analysis to support good policy decision-making • Spin off where possible • Stronger partnerships with universities, NGOs, think tanks

24. PREM Staffing Changes 1997 - 2010 1997 2010 62 full time 119 in SAP Many STCs

25. 2010 PREM Work Program Evolution 2004 • Macro (Monitoring) • Poverty (ESW) • Decentralization (ESW) • PFM (Loan preparation) • Macro • Poverty • Public Financial Management • Trade • Investment Climate • Finance • Regional Development • Decentralization Support Facility

26. Terima Kasih – Thank you