1. Leveraging World Bank Engagements in Indonesia through Trust Funds

2. Chris Hoban 22 February 2011 Knowledge Series – Emerging Indonesia Location

3. Outline 1.Trust Funds in Indonesia 2.Engagements in the Country Partnership Strategy 3.Trust Fund Management 4.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 1.Trust Funds in Indonesia 2.Engagements in the Country Partnership Strategy 3.Trust Fund Management 4.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. Changing Bank Engagement in Indonesia  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

9. Key Changes in Approach  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

10. Outline 1.Trust Funds in Indonesia 2.Engagements in the Country Partnership Strategy 3.Trust Fund Management 4.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. 13 Portfolio Review sample - Education Project Title Net Comm ($m) Likely to ach Obj. Impl. Prog. Age% disb LManaging Higher Edu for Relevance & Eff. 80SMS5.249% LEarly Childhood Edu & Development (ECED) 73SMS4.059% GEducation – cofinancing ECED 25SS20% LEducation BERMUTU 88SMS3.568% GEducation – cofinancing BERMUTU 52SS318% LBOS KITA 600SS1.9100% GEducation – Bank executed 43SS323% GEdu – Gov’t executed (DESP & Teacher Pilot) 11SS399% GiBasic Education Capacity – Gov’t Executed 33UU214% LBOS KITA 2 500NA 0.20% 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 10/16/08

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 1.Trust Funds in Indonesia 2.Engagements in the Country Partnership Strategy 3.Trust Fund Management 4.Strengthening Indonesian Institutions

21.  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. PREM Work Program Evolution 20042010  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