Latest installment in World Bank policy loan series deepens key reforms to improve Investment Climate, Public Financial Management and Poverty Reduction in Indonesia
Washington DC, November 22, 2011 – The World Bank today says it will continue supporting the Indonesian government in a solid reform program which over the past 7 years has led to more investment, improved financial management and reduced poverty. Today, World Bank executive directors approved the Eighth Development Policy Loan (DPL-8) in the amount of US$400 million. By providing financial support to Indonesia’s state budget, loans under the DPL series aim to build on progress made in three priority reform areas. These are improving the investment climate; strengthening public financial management; and enhancing poverty alleviation and service delivery efforts.
“Over the past decade, Indonesia has made remarkable progress in terms of achieving macroeconomic and political stability. The positive outlook in the macroeconomic situation and policy framework, warrant continued support for Indonesia’s institutional reforms through this DPL series,” says Stefan Koeberle, the World Bank’s Country Director to Indonesia. “The goals of the latest installment in the DPL series are closely aligned with Indonesia’s medium-term development priorities, as outlined in the Rencana Pembangunan Jangka Menengah Nasional 2010-14. The work itself will continue to be led by Indonesia.”
Indonesia’s main challenge right now is not so much the design of appropriate policies or the raising of financing, but rather strengthening the institutions in charge of implementing those policies in order to enhance their developmental impact. The institutional focus of the DPL-8 cuts across the following priority reform areas:
Investment climate – a dedicated team has been established to formulate Non-Tariff Measures under clear standard operating procedures, so that the Ministry of Trade has the appropriate mechanism to ensure that Non-Tariff Measures are designed in a transparent way, meet their objectives and are consistent with international trade agreements.
Public financial management – budget preparations now require guidelines to separate treatment of baselines and new initiatives; procedures to propose and scrutinize new initiatives; and consistency between plans and budgets. The ultimate objective is to achieve better development outcomes.
Poverty reduction – the Indonesian government continues its ambitious reform to improve the implementation of anti-poverty programs by instructing all main implementing agencies to use the same unified beneficiary database. This will increase synergies across programs, enhance their targeting and ultimately increase their impact on the poor.
The following key achievements were noted in relation with the reforms supported under the DPL-8:
- Increased investment flows into Indonesia: investment to GDP ratio rising to 31.5%, and FDI inflows to US$10 billion in the first two quarters of 2011 (from 2007-09 average of 27.9% and US$7 billion, respectively).
- Increased number of importers/exporters using the Indonesian National Single Window (INSW): from 3,791 in 2010 to 5,618 in 2011.
- Improvement in key indicators of the Doing Business Survey from 2011 to 2012: the time required to start a new business reduced from 47 to 45 days and number of procedures reduced from 9 to 8.
- Improvement in PEFA Performance Indicators: the multi-year perspective in fiscal planning, expenditure policy and budgeting was improved from 1.5 out of 4.0 in 2007 to 2.5 out of 4.0 in 2010; and the recording and management of cash balances, debt and guarantees was improved from D+ in 2007 to B+ in 2010.
- Increased number of GoI line ministries/ agencies receiving unqualified opinions on their financial statements: from 45 in 2009 to 52 in 2010.
- The National Team’s submission of a key policy note for GoI policy makers’ discussion on cost scenarios for health insurance for the poor (Jamkesmas) and a proposed health management information system to the chair of the National Team.
- Scaling up of PNPM-Mandiri: By end 2011, the Government’s flagship anti-poverty program reached 45,000 villages, 6,623 kecamatan and 494 kabupaten/cities (up from 8,500 villages in 1,094 sub-districts in 2009).