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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
Center of The central ministries and agencies which plan and coordinate action across the
Government 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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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
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.
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
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.
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.
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.
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.
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:
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.
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.
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.
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.
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.
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.
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
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 ! 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
Legal Basis
for Projects ! Issue details of projects they have committed to executing as part of the DIPA
for each implementing unit
in the Central
Process ! 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
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
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 ! Create separate project preparation units within Ministries or DGs, above the
Satker or Balai level where a conflict of interest exists
Execution
and ! Develop these units’ expertise in project appraisal and contracting, to improve
quality of feasibility studies and engineering plans
Preparation
of Projects in ! Maintain a pool of well-prepared, high value projects on an ongoing basis,
rather than preparing projects for specific fiscal years
Ministries
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.
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 ! Create a new unit, presumably within Bappenas, to review feasibility studies
for all large projects and a representative subset of smaller projects
Review of
Feasibility ! Develop this unit’s capacity to review technical analyses, and work
collaboratively with ministries to improve their appraisals and plans
Studies
! Conduct ex post evaluations of the benefits of infrastructure investments, so
feasibility studies can be informed by realistic assessments of achievement
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.
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.
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.
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