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PRESS RELEASE June 27, 2019

Indonesia: Boosting Rural Government Capacity, Infrastructure, and Citizen Engagement to Accelerate Poverty Reduction

WASHINGTON D.C., June 26, 2019 – The World Bank Board of Executive Directors today approved a $300 million loan for Indonesia to accelerate rural poverty reduction and improve service delivery in over 66,000 villages in 380 rural districts across the country.

The Institutional Strengthening for Improved Village Service Delivery Project will invest in customized capacity development and citizen engagement systems to improve village development plans and budgets, increase participation of rural communities in development planning, and strengthen accountability. Investments in these areas will help villages improve their budget spending which will lead to better development results.

“Villages occupy an important role in tackling poverty as it is where government meets the community. Playing this role effectively also depends on how well financing is converted into investments and services,” said Rudy Prawiradinata, Deputy for Regional Development, National Development Planning Agency (Bappenas). “Transfers to villages under the Village Law are one of the main instruments to pursue the Government’s vision of ‘building Indonesia from the periphery’ and spending must be effective. The project will implement new systems to improve the quality of spending at the village level, including capacity building and through technology-based approaches," he also said.

The 2014 Village Law significantly increased financial resources for Indonesia’s 74,954 villages to invest in rural infrastructure, human capital and job creation. The law also expanded the roles and responsibilities of villages on administration, infrastructure, basic service delivery, and community empowerment. These new fiscal resources and legal framework offer opportunities for villages to invest in larger, multiyear and multisectoral development activities and align village needs with local district and regional development priorities.

Villages would now play a role in investing in maternal health and community growth promotion activities, water and sanitation and early child education services. However, village governments have yet to realize the full potential of the Law, with institutional capacity and the scale and diversity of the country among the main challenges.

The project will focus on improving three key areas. First, it focuses on building capacity for data-driven and results-oriented medium-term development plans and budgets and in information systems and integrating data into decision-making. Second, it will promote active citizen engagement in planning, implementation and oversight, including by using technology-based applications to enable real-time community monitoring of village budget and participatory processes. And third, it will improve transparency and accountability systems with the publication of financial reports and performance-based awards.

“Indonesia continues its progress in reducing poverty and inequality. However, the gap between urban and rural areas poverty is still relatively wide. In 2018, the rural poverty rate was at 13.2 percent compared to 7 percent in urban areas. This is why it is time to make large-scale investments to strengthen the capacity of villages to use their expanded budgets most effectively and for Indonesia to get the maximum impact of these resources,” said Rodrigo A. Chaves, World Bank Country Director for Indonesia and Timor-Leste. “This project will support villages to address Indonesia’s gaps in rural infrastructure and human capital, thereby contributing to poverty reduction and future economic growth,” he added.

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Nick Keyes