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  • 1. FINANCEThe Seven Keys to Effective Aid Management
  • 2. THE EXECUTING AGENCY OF REHABILITATION AND RECONSTRUCTION FOR ACEH AND NIAS(BRR NAD–NIAS)April 16, 2005 - April 16, 2009Head Office Nias Representative Office Jakarta Representative OfficeJl. Ir. Muhammad Thaher No. 20 Jl. Pelud Binaka KM. 6,6 Jl. Galuh ll No. 4, Kabayoran BaruLueng Bata, Banda Aceh Ds. Fodo, Kec. Gunungsitoli Jakarta SelatanIndonesia, 23247 Nias , Indonesia, 22815 Indonesia, 12110Telp. +62-651-636666 Telp. +62-639-22848 Telp. +62-21-7254750Fax. +62-651-637777 Fax. +62-639-22035 Fax. +62-21-7221570www.e-aceh-nias.orgknow.brr.go.idAdvisor : Kuntoro Mangkusubroto Photography : Arif AriadiAuthor : Amin Subekti Bodi ChandraEditor : Cendrawati Suhartono (Coordinator) Graphic Design : Bobby Haryanto (Chief) Harumi Supit Em Samudra Margaret Agusta (Chief) Edi Wahyono Erwin SantosoCopy Editor : Margaret Agusta MistonoWriter : Aichida Ul-Aflaha Wasito Hal Sullivan Final Reviewer : Aichida Ul–Aflaha Hendro Prasetyo Heru Prasetyo Margaret Mockler Intan Kencana Dewi Roy Rahendra Maggy Horhoruw Terry O’Donnell Ricky Sugiarto (Chief) Ratna Pawitra TrihadjiTranslation to IndonesianEditor : Harumi SupitCopy Editor : Ihsan Abdul SalamTranslator : Harry Bhaskara Prima RusdiDevelopment of the BRR Book Series is supported by Multi Donor Fund (MDF)through United Nations Development Programme (UNDP) Technical Assistance to BRR ProjectISBN 978-602-8199-48-3
  • 3. With this BRR Book Series, the Indonesian government, its people, and BRR wish toexpress their deep gratitude for the many kind helping hands extended from all over theworld following the December 26, 2004, earthquake and tsunami in Aceh and the March28, 2005, earthquake in the islands of Nias. Four years on, the once devastated landscapes are again vibrant with the sporadicrhythm of human life. This achievement is the result of a steadfast commitment of thelocal, national and international community, combined with the resilience of the peoplewho lost so much. The dynamics and challenges encountered during the massive undertaking ofrebuilding homes, hospitals, schools and other infrastructure, while striving to empowerthose who survived to reshape their future and redevelop their way of life, provide animportant understanding of the disaster-recovery process in Aceh and Nias. In light of this, within the pages of this book, BRR would like to share those experiencesand the lessons learned as a small contribution to return the favor to the world for theinvaluable support it contributed to building Aceh and Nias back better and safer; as ahistory of the humanitarian journey of a united world.
  • 4. I am proud, that we can share the experiences, knowledge, and lessonswith our fellow countries. I do hope that what we have done can be a standard, a benchmark, for similar efforts at the national and international levels. Speech of President Susilo Bambang Yudhoyono at the Official Closing Ceremony of BRR at the State Palace, April 17, 2009 about the BRRs trip to the Tsunami Global Lessons Learned Conference at the United Nations Headquarters in New York, April 24, 2009
  • 5. The Aceh-Nias post-tsunami recovery effort involves more than 900 national and internationalorganizations representing 55 countries. More than two-thirds of the funds come from theinternational community. Photo: BRR/Arif Ariadi
  • 6. ContentsChapter 1. Turning Pledges into Commitment 1 Unprecedented Generosity 1 External Factors that Influenced the Scope and Shape of Giving 3 The Creation of BRR 4 The Challenge Ahead 5 Building Credibility 6 Maintaining Engagement with Donors and Implementing Agencies 8 Conclusion and Observations 12Chapter 2. Matching Allocations with Real Needs 17 Large Scale Damage and Large Scale Response 17 Initial strategy 20 Persistent Gaps 23 Shifting to a Guided Facilitation Model 27 Ingredients of the guided facilitation approach 28 Mid-Term Review (MTR) 31 Coordination Mechanisms 33 Conclusion 35Chapter 3. Overcoming Disbursement Hurdles 37 Dissatisfaction with a Slow Beginning 37 The Shortfall of High Expectations 38 Two Types of Constraints on Progress 39 Breakthroughs & Solutions 47 Net Effects on Disbursement 55
  • 7. Chapter 4. Delivering Results: Modality of Fund Channeling and Performance 57 Generous External Support 57 Nearing the End the Reconstruction Phase 58 Different Fund Channeling Mechanisms 59 Conclusion 69Chapter 5. Achieving and Upholding Accountability 71 Getting to Trust 71 Mandatory Accountability 73 Value Added Accountability Systems 82 Conclusion 84Chapter 6. Maintaining Integrity Along the Road 87 A Single Incident, Deadly Consequences 87 Establishing Business Process Integrity 89 Personnel Integrity 91 Integrity Enforcement 92 Proactive Reporting on Integrity Allegations 95 Rigorous Integrity Review and Evaluation 96Chapter 7. Ending the Game and Leaving a Lasting Legacy 99 Strategic Choice: To Close or Extend BRR? 99 General Principles Applied 104 Handing Over Finished Projects 106 Transition of Unfinished Projects 111 Risk Management – Ensuring the Process Stayed Critically On Track 116 Conclusion & Achievements 118Notes 120Bibliography 123Glossary of Abbreviations 125Fact Sheet 129
  • 8. FINANCE: The Seven Keys to Effective Aid Management x Introduction For a period of three days, beginning on December 27, 2004, the Indonesian flag was drawn to half mast, and a nation was in mourning. A national disaster was declared and the world watched in disbelief. An earthquake, followed by a series of tsunamis, struck the western-end of Indonesia, causing an unprecedented loss of life and the obliteration of whole communities. For those who survived, their homes, livelihoods, and prospects for the future were swept out to sea. The earthquake, one of the largest in recent history measuring 9.1 on the Richter scale, was the result of a convergence between two tectonic plates beneath the ocean floor. Although dormant for over 1,000 years, with the buildup of pressure caused by one plate slowly sliding under the other at an estimated rate of 50 mm per year, on December 26, 2004, these two tectonic plates ruptured along a 1,600 km length of what is known as the Sunda mega-thrust. The epicenter of this earthquake was located 250 km south-west of the Indonesian province Nanggroe Aceh Darussalam. Its rupture - a slippage of up to 10 meters, resulted in the ocean floor being (permanently) lifted and dropped, pushing the entire water column up and down, and generating a series of powerful waves. Tsunamis swept violently up to 6 km inland over the shorelines of Aceh and surrounding islands, beginning less than half-an-hour after the earthquake. A total of 126,741 lives were lost and, in the wake of the disaster, an additional 93,285 people declared missing. Some 500,000 survivors lost their homes, while as many as 750,000 people lost their livelihoods. In the private sector, which constituted 78 percent of the destruction wrought by the earthquake and tsunamis, up to 139,195 homes were destroyed or severely damaged, along with 73,869 ha of land with varying degrees of productivity. A total of 13,828 fishing
  • 9. boats vanished, up to 27,593 ha of brackish fish ponds disappeared, and 104,500 small-to-medium businesses ceased to exist. In the public sector, 669 government buildings, 517health facilities, and hundreds of educational facilities were either destroyed or renderednon-functional. The loss to the environment included 16,775 ha of coastal forests andmangroves, and 29,175 ha of reefs. The loss and damage of these regions did not end there and, on March 28, 2005,another major earthquake measuring 8.7 on the Richter scale struck the nearby islands ofNias in the Indonesian province of North Sumatera. This second natural disaster resultedin the death of 979 people and the displacement of 47,055 survivors. The proximity of thisearthquake, a result also of two tectonic plates rupturing, slipping a length of 350 km, Introductiondirectly beneath the Simeulue and Nias islands, resulted in massive damage to the islands’infrastructure. The eyes of the world once again watched in disbelief as the devastation of these xiregions unfolded, and helping hands began arriving from all corners of the globe toassist in the rescue and relief operations. Individuals of every race, religion, culture andpolitical persuasion across each and every continent worldwide, along with governments,the private sector, non-government organizations and other national and internationalbodies, reacted in an unprecedented show of human concern and compassion. From the scale of the devastation wrought by both disasters, it was clear that it wouldnot be enough to simply replace the homes, schools, hospitals and other infrastructure.The rehabilitation and reconstruction program would need to embrace the rebuildingof the social structures that once thrived along the shores of Aceh and within thehinterlands of Nias. The trauma of losing friends, family and a means to support thosewho survived required that the recovery program focused not only on physical, but alsonon-physical, development, and on rebuilding an economy to a level that would ensure afirm foundation for future (re)development and growth. On April 16, 2005, the Government of Indonesia, through the issuance of GovernmentRegulation in Lieu of Law No. 2/2005, established the Agency for the Rehabilitation andReconstruction (Badan Rehabilitasi dan Rekonstruksi, BRR) to coordinate and jointlyimplement a community-driven recovery program for Aceh and Nias. BRR’s mandate wasto design policies, strategies and action plans, within an atmosphere of transparency andaccountability, and to implement them through effective leadership and coordination ofthe combined domestic and international effort to rebuild Aceh and Nias back better andsafer. The rehabilitation and reconstruction of Aceh and Nias have constituted a challengenot only for the people and Government of Indonesia but for the entire internationalcommunity. That this challenge was overcome successfully is reflected in theconclusions drawn in evaluations concerning the recovery program. In the final months
  • 10. of the program, the World Bank among others concluded that the recovery was anFINANCE: The Seven Keys to Effective Aid Management unprecedented success story and a model for international partnership - outcomes which were realized through effective government leadership. The nation’s management of the recovery program gained the confidence of donors, both institutions and individuals, and through BRR’s anti-corruption policies and processes, the trust of the international community. And without the cooperation of the international community, the post-disaster situation in Aceh and Nias - the unparalleled devastation - could never have been reversed. In recording this humanitarian achievement, BRR has produced the BRR Book Series containing 15 volumes that detail the processes, challenges, solutions, achievements and lessons learned during the rehabilitation and reconstruction program in Aceh and Nias. It is hoped that these books will function to capture and preserve the experience of the xii recovery, and to establish guidelines for future disaster-recovery programs across the world. As its title suggests, this book, “The Seven Keys to Effective Aid Management”, focuses on the financial aspects of the rehabilitation and reconstruction program in Aceh and Nias. It is not unusual to see large sums of money pledged following a horrendous natural disaster, but it is unusual to see most of those pledges converted into real commitments. In the case of the Aceh and Nias disasters, a remarkable 93 percent of the total US$7.2 billion pledged was committed - a remarkable achievement for what was an unimaginable series of disasters.
  • 11. 4-Year Achievement Rehabilitation and Reconstruction 635,384 people displaced 127,720 people killed and 93,285 missing 104,500 155,182small-medium enterprises (SME) destroyed laborers trained xiii 195,726 SMEs received assistance 139,195 140,304 houses destroyed permanent houses built 73,869 69,979 hectares of agricultural land destroyed hectares of agricultural land reclaimed 1,927 39,663 teachers killed teachers trained 13,828 7,109 fishing boats destroyed fishing boats built or provided 1,089 3,781 religious facilities destroyed religious facilities built or repaired 2,618 3,696 kilometers of road destroyed kilometers of road constructed 3,415 1,759 schools destroyed schools built 517 1,115 health facilities destroyed health facilities constructed 669 996 government buildings destroyed government buildings constructed 119 363 bridges destroyed birdges constructed 22 23 ports destroyed ports constructed 8 13 airports or airstrips destroyed airports or airstrips constructed
  • 12. Chapter 1. Turning Pledges into CommitmentTurning Pledgesinto Commitment 1Unprecedented Generosity The unprecedented scale of the December 2004 tsunami disaster catalyzed animmediate response of massive proportions, both from within Indonesia and from theinternational community. By January 2005, in the weeks following the Consultative Groupfor Indonesia (CGI) meeting, US$7.2 billion had been pledged to support reconstruction.1 The US$7.2 billion pledged to Aceh was nearly evenly sourced from the Government ofIndonesia (GOI), bilateral and multilateral donors, and Non-Governmental Organizations(NGOs). Communities in and outside of Indonesia contributed additional funds. This was Different with those in otherunprecedented: typically, multilateral donors provide the leading contribution of aid, places, the Multi Donor Fundsurpassing amounts committed by national authorities and NGOs. In the case of Aceh (MDF) for Aceh-Nias is anand Nias however, ‘good donorship’ was not limited to multilateral donors. effective mechanism due to the Co-chairmanship scheme. This response was not the largest ever; but it was notable for the number of countries The scheme places the hostthat contributed and the speed at which pledges were made. One hundred thirty-three government as a decisioncountries provided assistance to the humanitarian mission (Masyrafah and McKeon 2008), maker level to the donor groupmany of these whom had never contributed to a disaster before. It is also notable that a so that alignment between donor projects and government priorities is achieved. Photo: BRR/Arif Ariadi
  • 13. substantial portion of this aid was generated at the grass-roots level. The New York TimesFINANCE: The Seven Keys to Effective Aid Management reported on November 27, 2008, that grass-roots donations for victims of the tsunami broke all fund-raising records for an international humanitarian crisis. Private giving to NGOs and the United Nations (UN) exceeded pledges by the Organization for Economic Cooperation and Development’s Development Assistance Committee (OECD DAC) members, traditionally the world’s major givers. The onslaught of money was so robust that it made the historically generous response to the earthquake in Pakistan--US$73.4 million, according to data collected by the Center on Philanthropy at Indiana University- -seem practically miserly. Few international agencies halted fundraising upon reaching targets and as a result, NGOs, including organizations such as the Red Cross, wound up with overall more funds than donor administrations or multilateral organizations (TEC 2006). Indonesia was also given welcome breathing room 2 The economic landscape: by the Paris Club of wealthy creditor nations, who decided to let it and other affected countries suspend Standard and Poor’s Rating debt repayments. Some criticized the decision to grant Indonesia a debt moratorium since at the time the Standard and Poor’s (S&P) is a leading provider of financial tsunami hit, Indonesia had a sound macro-economic market intelligence. The company publishes financial environment. On a national scale, interest rates, research and analysis on credit ratings, indices, investment currency exchange and inflation levels were stable. research, risk evaluation and data. Indonesia had become a lower middle income country Just days before the tsunami hit, S&P raised its rating with an improving fiscal economy.2 Nonetheless, the on Indonesia’s creditworthiness, saying that the improving debt moratorium provided welcome breathing room.3 economy had raised the government revenue and foreign reserves, reduced the country’s debt burden and improved Clearly there was no lack of willingness to help. its ability to weather shocks. However, while the international climate was favorable, S&P raised Indonesia’s long-term foreign currency past experience has shown that goodwill does not sovereign credit rating from B to B-plus to reflect the necessarily translate into concrete commitment. Often country’s successful elections and positive economic outlook, and increased its currency rating from B-plus to BB. donors hold back from making good on pledges due These upgrades reflected ongoing progress in Indonesia’s to a lack of confidence that the money will be well- macro-economic stability, steadfast fiscal management, used. It was crucial to instill donor trust and confidence declining debt and favorable external liquidity, despite in order for Indonesia to receive the funds. a widening state budget deficit. In addition, successful legislative and presidential elections in 2004 sent a message The following sections examine in detail the process of stability that resulted in a better flow of investment. by which donors were encouraged to make good on their pledges, a process which holds potentially useful lessons for future disaster management and fundraising exercises.
  • 14. External Factors that Influenced the Scope andShape of Giving Chapter 1. Turning Pledges into Commitment Before discussing the process by which pledges were turned into commitments, it isworth noting that the following external factors distinctly influenced the size, scope andform of donations. These types of factors may profoundly alter the donor landscape infuture disaster management scenarios and should be taken into account. (i) Donor “Freshness” At the time of the the tsunami, the world had not witnessed a natural disaster ofcomparable proportions for some time. Only one natural disaster had attracted significantinternational attention in the previous year, the December 2003 earthquake in Bam, Iran,with 28,000 casualties. Thus, the tsunami was not in competition for aid with 3other disasters, nor were givers suffering from “donor fatigue.” (Note thatin the year following the tsunami, calamities in New Orleans, Kashmir, and Why was the public soYogyakarta, put at risk the transference of pledges for Aceh and Nias due to generous?commitment elsewhere.) What impelled the public to give so (ii) Timing and Media Coverage generously? A study by the Tsunami Evaluation Coalition (2006) that The international scope of the disaster, holiday timing and the resulting looked at funding from the Spanishintensity of media coverage played a meaningful role in catalyzing pledges. public listed the following reasons for private giving, in order of decreasing First, during this time there was a lack of other news stories to be covered, importance:resulting in repetitive and intense media coverage. The fact that several • 64.2% always donate afterinternational celebrities were involved also contributed to the media such an eventfascination. • 28.7% the media coverage Second, by 2004, technological advances—most prominently, the internet- • 17.3% Christmas spirit-were sufficiently well-developed and widespread to provide real-time, widely • 8.7% presence of touristsavailable updates on the devastation. Information on the climbing death tolland the damage was available at one’s fingertips. The tsunami was the most • 2.4% familiarity with the affected areareported disaster to date (TEC 2006). Third, the international context of the disaster was a key factor. The tsunami (Source: TEC Funding Response/hit several countries and as mentioned above, involved a number of well- General Public/Spain Report, 2006)known celebrities, creating a universal dimension to the disaster. The tsunamikilled people in 14 countries from 40 different nationalities. Reinforced bydramatic media images of the destruction, people everywhere felt a sense ofconnection and sympathy with the victims.
  • 15. (iii) Recent Shifts in the International Aid LandscapeFINANCE: The Seven Keys to Effective Aid Management As it happened, the receipt of funds by the Government of Indonesia (GOI) was positively affected by fortuitous recent developments on the international aid landscape. Trends in global aid had showed for some time what appeared to be an aggregate shift away from low-income countries toward middle-income countries (Harford, Hadjimichael, and Klein 2004), of which Indonesia was one. Then, just three months after the tsunami, the Paris Declaration on Aid Effectiveness officially laid the foundation for development aid to become more influenced by national authorities. This paradigm shift resulted from an examination of the political and institutional incentives that shape the way in which aid is both delivered and received. Leading up to the Paris Declaration, discussion in development circles had been focused on developing an international aid architecture that would more suitably 4 address a broad range of emerging issues. Debates had revolved around the role of aid in: encouraging better development, reducing the need for emergency relief, reducing the risk of recurrent natural disasters, and supporting fragile states. They also focused on the role of new aid donors in Asia and Europe. In general, the prevailing sentiment was that Paris Declaration on Aid aid delivery should be recast to be more responsive to the frequent emergence of both Effectiveness natural and man-made disasters, and that aid should also serve the agenda of the national The Paris Declaration on Aid Effectiveness of March 2005 was an authority. Such was the background of the international commitment by over one hundred country Ministers, Paris Declaration. Heads of Agencies and other Senior Officials to harmonize and align aid management, to help developing-country governments formulate The resulting aid architecture was thus and implement their own national development plans, using their propitiously conducive to a government- own national priorities, planning and implementation systems. The driven reconstruction program. It enabled five principles of the Paris Declaration are as follows: various breakthroughs and arrangements • Ownership-Patner countries exercise effective leadership over to take place, as the GOI moved into the their development policies and strategies, and coordinate reconstruction phase of the recovery. development actions. • Alignment-Donors base their overall support on partner countries’ national development strategies, institutions and procedures. The Creation of BRR • Harmonization-Donor actions are more harmonized, Taking ownership of the reconstruction, transparent and collectively effective. the GOI took the cardinal step of establishing • Managing for Results-Managing and implementing aid in a BRR. This new agency had the dual role way that focuses on the desired results and uses information of implementing its own projects while to improve decision-making. coordinating the works of others. Donors • Mutual Accountability-Donors and partners are accountable appreciated the GOI’s move to create a for development results. separate government agency expressly to
  • 16. handle the reconstruction, and were reassured by its dual-role function. The Economistreported on May 26, 2005, that BRR was “a promising new government body like no other:i.e., clean, efficient, well managed and results-oriented.” Chapter 1. Turning Pledges into Commitment The GOI made the crucial choice of appointing Kuntoro Mangkusubroto to head theagency. Kuntoro had a strong reputation and was known for his incorruptibility. As Headof BRR Executing Agency, Kuntoro’s leadership was inspiring. Early on, his openness toconsidering unconventional solutions to get things done as opposed to a ‘business asusual approach’ set a tone of urgency which trickled down through management levels. His appointment greatly contributed to the agency’s success. Under Kuntoro, BRR waseventually able to pressure the Central Government to change the way the latter worked(see Chapter 3). “Kuntoro Mangkusubroto had operated an open relief effort despite Indonesia’shistory of secrecy and corruption at all levels of government,” stated former United States 5President Bill Clinton during a visit to Aceh almost a year after the tsunami as reported inthe New York Times on December 1, 2005. Four years later, Pieter Smidt, Head of the Asian Development Bank (ADB)’s ExtendedMission in Sumatra, remarked in a similar vein, “It’s difficult to imagine that anybody elsecould have done a better job.”4The Challenge Ahead The challenge in front of BRR was enormous. As mentioned earlier, the first task was totranslate pledges into real commitments. To do so, it was imperative to demonstrate BRR’sown commitment to the task. Commitment can be defined as a function of credibility and involvement, whereascredibility rests on two key elements: trustworthiness and capability. BRR had todemonstrate that it was trustworthy, that it had the necessary capability, and that it wasinvolved. This would be fundamental to BRR’s success. The sheer amount of funds committed represented a huge responsibility. Pledges madeto Aceh and Nias were so great that they surpassed the minimum required to rebuild topre-tsunami levels by US$1.3 billion (Figure 1.1). This supplemental funding provided acushion for the rapidly increasing inflation rate and an opportunity to “build back better”beyond replacing the damaged goods and services to propel the long closed-off provinceand isolated islands to a development phase in step with the rest of the nation. But such aprocess would have to be carefully managed and came fraught with liability. Making things more difficult, a decades-long conflict between the central governmentand local separatist movements had been ongoing in the Aceh disaster area. To build trustand execute in a former conflict zone would not be easy.
  • 17. Meanwhile, BRR had to contend with Indonesia’s reputation for corruption. Out of theFINANCE: The Seven Keys to Effective Aid Management 145 countries ranked by Transparency International’s 2004 Corruption Perception Index, Indonesia came in at 133rd with a dismal score of 2.0 out of 10. Among the countries in the Asia-Pacific region, Indonesia ranked second worst just above Myanmar. The New York Times reported in January 2005 that as the United States and other world governments prepared to channel hundreds of millions of aid dollars to Aceh, Indonesia’s perceived culture of corruption had emerged as a major concern. BRR as the GOI’s agent in reconstruction had to find a way to overcome these hurdles and convince donors of the country’s credibility and commitment. Faced with these factors, the full enormity of BRR’s task became apparent. Despite all the challenges, in the case of Aceh and Nias, 93 percent of these pledges were eventually converted into real funding, a historically high conversion rate and a most 6 impressive achievement. How was the GOI, through the BRR, able to achieve this? Building Credibility Among the infant agency’s first tasks was to convince its international partners that BRR was able to competently lead and manage the funding. Faced with limited resources, a short timeframe and high expectations, BRR appealed to established Figure 1.1 - Aceh and Nias Reconstruction Needs, Pledges and Commitment Total Fund USD Billion 93% 0.5 USD 2.4B NGO USD 2.2B Donor Agencies 4.9 7.1 7.2 6.7 USD 2.1B Government of Indonesia Damage Build Back Pledged Committed Assessment
  • 18. world-class organizations for assistance. Management consultants McKinsey & Companywere engaged early in the process on a pro-bono basis to prepare organizationalstrategy, while ADB and Ernst & Young agreed to assist the set-up of a strong fiduciary Chapter 1. Turning Pledges into Commitmentmanagement structure. BRR’s credibility received an enormous boost from its associationwith these organizations, helping engender international confidence in the agency’sability to deliver. It was equally important to gain credibility in the eyes of the Acehnese. Threedecades of conflict between the local Free Aceh Movement (GAM) and the CentralGovernment had created lasting distrust. BRR was seen as an extension of the Jakarta-based administration, instead of as an organization championing local interests. Tocounter these perceptions and establish itself as a trustworthy body in Aceh, BRR tookthe unprecedented decision of decentralizing its operations to the regional level andlocating its headquarters in Banda Aceh. It was the first ministerial-level agency to do so 7in Aceh. BRR also welcomed locals, including ex-GAM members into its ranks. These stepseffectively altered the perception of BRR, casting it as a non-Jakarta-centric governmentbody. Finally, BRR had to overcome the aforementioned perception of corruption associatedwith Indonesia. BRR had to prove from the onset that it was committed to preventing anymisuse of funds provided by the Indonesian government and donors worldwide. Anysign of irregularities could decrease future funding. The agency established an autonomous, Anti-Corruption Unit (SAK­­­­) to guard againstmisconduct in BRR itself, as well as in any reconstruction projects,becoming the first Indonesian government agency to do so. TheAnti-Corruption Unit strategy was to simultaneously educateagainst, prevent and monitor for corruption, with an eye towards A Silver Liningensuring clean and transparent reconstruction. With the support In the midst of the destruction, the tsunamiof the Corruption Eradication Commission (KPK­), which opened brought an unexpected legacy of peace to the conflicted region of Aceh. Disputes quietedits first branch office with full enforcement authority in Aceh, BRR in the face of shared disaster, and the long-also established an Integrity Pact to fight systemic corruption. closed society opened up to a flood of foreignThrough the Anti-Corruption Unit and the Corruption Eradication aid workers. Against this landscape, PresidentComission regional offices, BRR was able to take a strong stance Yudhoyono’s attempts at reconciliation unexpectedly worked in Aceh’s favor and inspiredagainst corruption. Chapter 6 elaborates more on the corruption trust.risk and the steps BRR took to mitigate that risk. Altogether, the combination of these steps--including the Source: Sengupta and Mydans, The New York Times, December 25, 2005appointment of a credible leader in the person of Kuntoro--reassured the international commitment that their willingness togive was matched by a real commitment to reconstruction. Wheninterests are aligned, trust is a reasonable response (Hurley 2006),and so it was with the donors. In this way BRR built the foundations of credibility.
  • 19. Maintaining Engagement with Donors andFINANCE: The Seven Keys to Effective Aid Management Implementing Agencies It was crucial to establish effective collaboration platforms between BRR and donors, and among the donors themselves. The perceived fairness of a process is as important to participants as the outcome itself, and a key principle in creating this fair process is engagement, or involving individuals in the decisions that affect them (Kim and Mauborgne 1997). Bearing this in mind, BRR was careful to design model financing mechanisms that would maintain donors’ governance in the process, while also maximizing outputs and minimizing transaction costs. Several ways of channeling donations were established by BRR, each catering to a different group of players. The focus was to provide flexibility, create a hassle-free process 8 insofar as possible and accommodate the varied needs of donors. It was up to the donors to pick what financing channel they wanted to use. The overall goal was to create mechanisms that encouraged and enabled funding flows from donors. By doing so, the GOI and BRR demonstrated their respect for the reconstruction players’ needs and their concern that players remain engaged. This was particularly important given the vast amounts pledged to Aceh and Nias and the large number of players involved, with 992 organizations hailing from over 50 countries, which had made the process of converting pledges into commitments challenging from the start. The Multi-Donor Fund For better coordination of the reconstruction, the GOI and donors agreed to form the Multi-Donor Fund (MDF), pooling donor contributions with the World Bank serving as trustee. MDFs were conceived as the main body for coordination and donor harmonization in line with the best-practice approaches established by the Paris Declaration on Aid Effectiveness. According to a Scanteam report (2007), MDFs can reduce transaction costs and mitigate fiduciary and political exposure in high-risk, post-crisis environments.5 MDFs allow for the harmonization of donors by ensuring that all procedures follow regulations set by the administrator. Thus, MDFs simplify the tasks of the national authority in coordinating planning, implementation, reporting and quality assurance. Given the high-risk environment stemming from the political conditions in Aceh, the MDF was considered a good risk management vehicle taking into consideration the World Bank’s tested ability and capacity to work in such an environment. The Aceh-Nias MDF was co-chaired by BRR as the GOI representative, the World Bank as trustee, and the European Commission as the largest donor. As of December 2008, the MDF had a total of US$692 million in pledges from 15 different donors as illustrated in Table 1.1.
  • 20. Figure 1.2 offers a summary of donor preferences between the three financing options.As shown, players chose the financing mechanism that they deemed best suited for theimplementation of their projects. Chapter 1. Turning Pledges into Commitment For the GOI and donors alike, the MDF provided an opportunity to simplifycoordination, information flow, administrative and access costs associated with thereconstruction effort. For donors, moreover, the MDF created a forum for their voices.Certain major donors, such as the United States and Germany, still chose to channel amajority of their resources outside the MDF (i.e., directly to their own projects or to otherimplementing agencies), typically because they wished their agenda not be moderatedwithin the MDF. Nonetheless these donors continued to participate in the MDF, regardlessof the amounts they channeledthrough the MDF itself. In any one Table 1.1 - MDF Fund Pledges and Contributions as of December 2008MDF Steering Committee meeting, Amount * of Total Pledges Donor 975 percent of the top contributors (US$ million) %were present. In this way, the MDF European Commission 272.62 39%helped harmonize donor programs Netherlands 171.60 25%and facilitate alignment with United Kingdom – DFID 73.71 11%country priorities. Canada 25.55 3.7%Three Financing Options World Bank 25.00 3.6% Sweden 20.72 3.0% Three types of financingoptions were established by BRR Norway 19.57 2.8%in recognition of the considerable Denmark 18.03 2.6%diversity among donors in Aceh Germany 13.93 2.0%and Nias: 1) on-budget/on-treasury, Belgium 11.05 1.6%2) on-budget/off-treasury, and 3) Finland 10.13 1.5%off-budget/off-treasury. No one Asian Development Bank 10.00 1.4%mechanism is superior; each has USA 10.00 1.4%benefits and drawbacks (more inChapter 4). New Zealand 8.80 1.3% Ireland 1.20 0.2%(a) On-budget/on-treasury – In line with strengthening Total Contribution: 691.92 100% government partnership and * Based on World Bank foreign exchange rates as of December 2008. Source: MDF 2009 involvement in the recovery process, many traditional bilateral and multilateral donors channeled their funds through the government budget by signing a grant or loan agreement. Under the on-budget/on-treasury mechanism, donors use the GOI budgetary system and regulations to disburse their funds. The advantage is that the projects are then accountable under the national budgetary system. However, the regular budgetary process was initially slow in responding to reconstruction needs.
  • 21. Figure 1.2 Reconstruction Fund Channeling MechanismsFINANCE: The Seven Keys to Effective Aid Management 10 Definition of (b) On-budget/off-treasury – Some donors who traditionally worked with the government preferred that the disbursement of on- and off-budget, their funds be done outside the Special Purpose Treasury Office, or KPPN-K. These donors, such as the Governments of Germany and and on- and off- Japan, had identified certain sectors and projects to be carried out by their own implementing agencies. In this scheme, while donor treasury projects were accounted for in the national budgetary system, BRR lacked the full authority to influence the implementation process. (c) Off-budget/off-treasury – NGOs including UN agencies On-budget funds refer to donor funds channeled through the government budget, typically have implementation mechanisms on the ground. In these while off-budget funds refer to funds channeled cases, BRR allowed them to finance their projects using the off- directly to the project. The on-budget project budget/off-treasury mechanism. The upside is a potentially swifter expenditures are registered into the GOI national implementation process since agencies can bypass the long national budget through the Issuance of Spending Authority (DIPA). budgetary system process. However, these agencies are not then legally accountable to the GOI, making it difficult to monitor and evaluate their contributions.
  • 22. When choosing among Table 1.2 - Types of Rreconstruction Players and the Implications of Their Preferred Funding Mechanismsthese mechanisms, the donors,mainly bilateral ones, weighed Fund Type Source of Funding Implications mechanism Chapter 1. Turning Pledges into Commitmentadvantages and challenges to Funds were channeledassess which would work best in accordance towith their strategy, capabilities, the prevailing GOI Indonesian taxpayersand their own development Government of regulations created and Paris Club debt On-budget Indonesia for normal conditions.agendas. Most players wound moratorium Bureaucratic systemsup maintaining the fund with lengthy timechanneling mechanisms that frames impeded swift implementation.they were accustomed to. Aid given by theTable 1.2 outlines the types of government of one Aid is often tied toplayers, their sources of funding, country directly to specific sectors or to Bilateral Donor another. Many dedicated On- and off-budgetpreferred method of channeling governmental aid specific implementing 11funds, and implications attached agencies to serve donor agencies dispense country’s agenda.to their choice of funding bilateral aid, for example AusAID.mechanism. Aid is given from the Ultimately, it was hoped government of a country to an international Streamlined transactionthat BRR could coordinate and agency, such as the cost of multiplemonitor all efforts. However, World Bank or the Asian actors. Accountability Multilateral Donor On- and off-budgetby being flexible with the Development Bank, to multiple nations which in turn distributes created proceduresfinancing mechanisms, donors the aid. Multilateral that limit speed andwere more comfortable as aid agencies are flexibility.they could channel their funds usually governed by the contributing countries.using processes they felt safe NGOs, have played anwith. These mechanisms also increasingly activeallowed them to implement role in distributing Faster speed of aidusing their own procedures aid from donations distribution but limited NGO from the private* and Off-budget control as actorsand implementation systems, public sectors. Many function independentlyif deemed appropriate. NGOs conduct their of government systems. own internationalConsequently donors, NGOs humanitarian work.and other delivery partners * The term ‘private’ covers both the general public and private entities,were able to maintain their such as companies, religious groups or associations–i.e., all non-governance in a way that they institutional donors.were accustomed to.Working with Implementing Agencies BRR did not stop at creating a collaborative platform for donors. It also developednew or used existing coordination platforms to facilitate coordination with majorimplementing partners.
  • 23. The United Nations Office of the Recovery Coordinator (UNORC) was one such platform.FINANCE: The Seven Keys to Effective Aid Management UNORC is a facility of the United Nations System whose main role was to coordinate UN and aid agencies and also provide strategic policy advice to BRR and the local government. Another such platform was the International Federation of the Red Cross and Red Crescent Societies (IFRC). Similar to the function of UNORC to UN agencies, the IFRC worked to assist the coordination of the Red Cross and Red Crescent Societies active in the reconstruction efforts in Aceh and Nias. Seventeen out of 27 Red Cross Organizations joined the umbrella organization of the IRFC, helping to streamline coordination efforts. BRR further made use of the powers bestowed by a Presidential decree to provide an alternative funding channel to on-budget fund flows and the MDF. This alternative funding channel was called the Recovery of Aceh and Nias Trust Fund (RANTF). The 12 RANTF funding facility was designed to provide flexibility of execution, with an emphasis on speedy response to program needs. It was meant to accommodate non-traditional and smaller donors, both public and private. The Trust Fund included both ‘open’ funds to be allocated by BRR to the most pressing program needs, and ‘closed’ funds earmarked by donors for particular projects. BRR had oversight of program and fund allocation, while the RANTF was responsible for all aspects of financial management including accounting and fund administration services. A procurement agent was engaged to manage the delivery of services to ensure the transparent process of project activities. Conclusion and Observations The generous response to the disaster demonstrated the willingness of the international community to give and showcased the best of the human spirit. The GOI welcomed the outpouring of sympathy of all forms, opening its doors to contributions around the world regardless of origin. This decision was not without drawbacks as the proliferation of agencies hampered coordination and increased the fragmentation of aid. The bulk of the funding came from the Indonesia taxpayers, and in return GOI was given leverage to determine the allocation of funds. However, the large amount of private funding channeled through NGOs and the Red Cross did impact the allocation of funds (more in Chapter 2). Early on BRR expended considerable effort and time on both large and small donors as well as on non-traditional donor countries, in order to get a rounded perspective on donor concerns. This was a labor-intensive and time-consuming task. In hindsight, the amount of time and energy spent with donors should have been more balanced to increase efficacy overall. Good relationships with donors large and small must be maintained. The ideal balance is to be inclusive yet strategic in allocating time and resources to cater to donors.
  • 24. Over the course of reconstruction, BRR had to ensure commitments were maintainedand if possible, increased. To do this, BRR provided concrete data that the beneficiarieswere benefiting from donor contributions. These periodic reports demonstrated progress Chapter 1. Turning Pledges into Commitmentbeing made on the ground. This transparency encouraged some donors to give morethan they initially pledged. Furthermore, some donors transferred pledges from othertsunami struck areas to Aceh and Nias. A key takeaway was that significant funds should be channeled through the nationalgovernment budget. Bringing donor funds on-budget can help coordination and effectiveimplementation of the recovery strategy (TEC 2006). As the Paris Declaration stated, itis essential for partner countries to exercise leadership over their development policiesand strategies, although the role of aid remains contested on the absorptive capacity ofrecipient governments.6 Strong ownership of the arrangements for the flow of funds, andeffective coordination among donors in line with a unified recovery plan and budget, 13is essential. These conclusions are backed by the experiences of countries which haveexperienced significant aid inflows; such experiences have generally underscored theimportance of country ownership, coordination, and of reinforcements to governmentalbudget and accounting systems. By contrast, experiences with off-budget support have been more complex becauseeach project has its own accounting, financial management, and procurementarrangements, resulting in fragmented recovery efforts. As NGOsoperate outside of government authority, there is also a lack offormal political accountability that in the case of Aceh, arguablyaffected pledges: the lack of political accountability meant The DIPA Processthat pledges not turning into commitment were more a factor The project preparation process forof concern for the NGOs than for the traditional bilateral and government begins with the development of a ministry’s annual work-plan andmultilateral donors. budget (RKA-KL), which is informed by the In Indonesia’s case, a government management structure Annual Government Work Plan (RKP) and budgetary ceilings. Implementing agencieswas in place that could review bilateral programs, co-financed submit draft budget plans to the Ministrymultilateral programs and MDF decisions for consistency with of Finance for review and approval. WithIndonesia’s own recovery plan and evolving priorities (TEC 2006). an approved budget plan in hand, theDespite this fact, the GOI elected not to impose an overarching implementing agency then prepares a budget Issuance of Spending Authoritygovernment-led management and structure. It also decided not to (DIPA), against which all disbursementscompel donors to deliver funds through the government budget. are to be authorized and processedInstead, it created BRR as a separate agency to take ownership of through the Office of State Services andthe overall program and assist coordination. Treasury (KPPN). On-budget projects may be authorized and processed through the BRR’s role at the helm of reconstruction did not come easily. It KPPN. On-treasury refers to disbursementsfirst had to earn trust and credibility from donors, partners and through the Directorate General ofthe community. Steps such as the establishment of the Anti- Treasury, or KPPN-K, office in Aceh.Corruption Unit and the Selection of a respected leader helped
  • 25. create trust. Meanwhile, BRR hired consultants with respected industry credentials tobolster the agency’s experience. Their experience substituted for the organization’s own,establishing a foundation of credibility. Chapter 1. Turning Pledges into Commitment Cognizant that donors and NGOs have their own reconstruction objectives, theirown procedures and, at times, their own implementing agencies, BRR established threedifferent fund channeling mechanisms for donors to choose from. BRR acknowledgedthe various needs of donors and implementing partners, facilitated donor engagementin the financial process, and provided comfort to donors who were able to pick theoption they felt most secure with. Donors were also able to weigh the strategicadvantages and disadvantages of each option. The formation of MDF and RANTF asfacilitating instruments for coordination further demonstrated the GOI’s commitmentto, and appreciation of, the international communitys reconstruction efforts. The sumtotal of these steps fostered an environment that was conducive to channeling aid and 15implementing reconstruction projects. In retrospect, BRR’s success and the overall effectiveness of the steps and processesdescribed in establishing credibility can perhaps best be judged by the unprecedentedamount of pledges made good. Eddy Purwanto, Chief Operating Officer, in discussion with JICA representatives during a field visit to a proposed Final Waste site. Photo: BRR/Arif Ariadi
  • 26. Chapter 2. Matching Allocations with Real NeedsMatching Allocationswith Real Needs 17Large Scale Damageand Large Scale Response One thing was clear from the rush of goodwill: Indonesia was not alone inrehabilitating and reconstructing its shattered parts. The outpouring of generosity fromcitizens around the world brought a large number of NGOs, agencies and institutionsinto the tsunami-affected areas. This high level of commitment demonstrated a universalspirit to answer the call of humanity. The challenging task ahead of the BRR was evident. Lives must be rebuilt, communitiesprotected, local economies revived, and the massive inflow of relief, rehabilitation andreconstruction funds must be managed with transparency and accountability to providemodernized civil administration and infrastructure. Adding to the complexity of this taskwas the coordination of a large number of actors and a high volume of funds that were The Saman Dance is a traditional Acehnese dance that symbolizesoff-budget and outside official development assistance flows. a harmonious relationship This chapter explores how in developing a recovery strategy, BRR sought a balance among humans. In a high-pacedbetween responding rapidly to the needs of the people and coordinating the numerous and bold rythm, the dancersinternational actors. As time revealed the changing needs on the ground, BRR responded form an impressive coherence of movement. Photo: BRR/Arif Ariadiaccordingly to the dynamics of the environment.
  • 27. The tsunami unleashed unprecedented destruction in modern history. It killedFINANCE: The Seven Keys to Effective Aid Management people from 14 countries. In Aceh, the waves reached one to six kilometers inland and destroyed 800 kilometers of coastline, an expanse greater than the distance from Jakarta to Surabaya or San Francisco to San Diego. By January 2005, 124,741 people died and 93,285 were recorded missing. The total estimate of damage and losses by the tsunami in Aceh alone was US$4.45 billion, or equivalent to about 80 percent of Aceh’s regional gross domestic product. Of the total, 66 percent was damage, while 34 percent constituted losses in the terms of income flows lost to the economy. The private sectors were heavily impacted by the disaster, Figure 2.1- Damage and Loss Assessment 18 1600 Damage Damage and Loss 1400 Losses Assessment Immediately following the tsunami, Indonesia’s 1200 National Development Planning Board (Bappenas) alongside international partners conducted a 1000 damage and losses assessment intended to provide a preliminary picture of the impact caused by the tsunami. This assessment was made under the 800 standard internationally accepted methodology developed by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). 600 Damage (direct impact) refers to the impact on assets, stock, property and is valued at agreed 400 replacement (as opposed to reconstruction) unit prices. The level of damage is also taken into consideration, i.e. whether an asset can be rehabilitated or repaired or 200 has been completely destroyed. Damage provides both an idea of the destruction of assets in a country as well as a baseline for defining a reconstruction program. 0 Losses (indirect impact) refer to flows that will Agriculture and Livestock Enterprises Environment Energy Water and Sanitation Bank and Finance Transport & communication Fisheries Education Health Govermance and Administrations Flood control, Irrigation & Sea Protection Culture and Religion Housing be affected--such as revenue, public and private expenditure--until the assets are recovered. The private sector refers to the part of the economy that is both run for private profit and is not controlled by the state. Housing, agriculture and livestock are part of the private sector. Source: Bappenas and International Community, 2005
  • 28. absorbing approximately 78 percent of the total damage and losses, whereas about 22percent of damages and losses were borne by the public sector (Bappenas and InternationalCommunity 2005). The huge human toll and the brunt of the disaster borne by the private Chapter 2. Matching Allocations with Real Needssector translated into lost or severely impacted livelihoods (Bappenas and InternationalCommunity 2005). In Nias, total damage and losses amounted to US$400 million. In designing a reconstruction strategy, these assessments of damage and loss informedBRR’s scale of priorities and actions. The damage and loss profile assisted in determiningpriorities (importance vs. urgency) and sequencing (timeline for reconstruction processin each sector and geographic region. The damage in Aceh was vast, affecting nearlyevery sector and nearly every region. This presented a different case than other disasterswherein only certain sectors had to be rebuilt, such as the housing sector after theearthquake in Bam, Iran. The scope of reconstruction works was massive. Livelihoodshad to be rebuilt along with the social fabric while the physical reconstruction of housing, 19production, and infrastructure proceeded. A surge of players poured into Aceh in the days following the tsunami. The onceclosed-off province found itself inundated with external parties. Agencies from 133countries carried out 200 projects in the emergency phase alone (Masyrafah and McKeon2008). The outpouring of domestic and international support resulted in many localand international NGOs, private sector actors, official donor agencies, and multilateralinstitutions seeking to provide assistance. Traditional groups of relief players, especiallyNGOs, found themselves in an unconventional situation whereby the generosity of thecontributions given to them from their own sources, outside the government agencies,provided an opportunity for organizations to do more than they normally would have--toremain in Aceh and Nias beyond the relief phase. Many of them did stay and according toBRR’s Data and Information Center, Pusdatin, as many as 992 funding and implementingagencies contributed during the reconstruction phase. The openness of the GOI to welcoming these numerous players had its costs. With somany agencies on the ground in Aceh and Nias, each with its own management structureand support services, the duplication of efforts was unavoidable. As the number ofagencies grew, so did the burden of coordination on BRR. Coordinating all these organizations while promoting the interests of local communitieswas by no means a simple task. BRR attempted to coordinate partners not funded by thenational budget, or off-budget projects, via sector working groups. In these meetings,partners gathered to discuss problems on the ground and searched for collaborativeopportunities to address overlaps. BRR’s role was to facilitate the discussions andguidance when necessary. However, issues were rarely resolved as partners increasinglyused the forum to promote or defend their own priorities. What initially started out as apromising management level forum for dialogue and coordination shifted mid-term tobecome a forum for a project status updates by lower-level personnel, and it was onlylater that a slightly modified approach restored its efficacy.
  • 29. As mentioned in Chapter 1, in the early months of reconstruction, BRR was a newFINANCE: The Seven Keys to Effective Aid Management agency trying to establish credibility and a form of structure both internal and external that was adequate to its dual role. BRR had not reached the stage of credibility at which partners could accept strict controls on their programs or on their fiduciary management from BRR. BRR was still trying to develop a unified planning strategy, budgetary framework and coordination structures that could be respected by all the international actors. The agency had limited resources to oversee such a massive endeavor and its coordination mechanisms were yet inadequate in quality and accuracy to handle the large scale of damage, combined with multiple actors. An evolving strategy was needed. Initial Strategy Locals, nationals and internationals alike were faced with an enormous task, 20 exacerbated by the complexity of the situation and scale of constraints. BRR was established to synthesize this chaotic situation and lead the national response, ensuring that resources were effectively allocated to meet the demands of the reconstruction. In devising a strategy to guide the reconstruction process that the National Development Planning Agency Board (Bappenas) and its partners (2005) had outlined, decision makers needed Goals of the Master Plan to: incorporate a comprehensive damage and needs assessment, rapidly mobilize reconstruction funds and The Master Plan aimed to, among other things: activities, focus on the needs of the local population, establish the highest fiduciary standards and an efficient build consensus and commitment among central and local governments, donors, and other stakeholders system for managing the funds, and establish a way to involved in the reconstruction update and monitor needs and results. Each stage of the coordinate and synchronize plans from various strategy needed to be shaped by the needs of the local sectors and stakeholders to create an integrated population. As we have learned from global experiences in action plan that clearly laid out the timeframe and post-disaster management, local communities need to be locations, identified sources of funding, and delegated among the central decision makers of the reconstruction implementation responsibilities process. publicize and disseminate data and information to local, national and international counterparts on the damage, loss and needs assessments The Master Plan Subsequent to the damage and needs assessment, develop an effective, transparent, and accountable system and mechanisms to mobilize funding from Bappenas in cooperation with international partners the national budget, regional budget and donors in developed a Master Plan. This Master Plan confirmed the accordance with the principles of good governance need for a separate reconstruction agency and laid out guidelines outlining detailed reconstruction targets in Aceh. Source: Bappenas 2005 On the following day, the President established BRR through Government Regulation in Lieu of Law No. 2/2005. Later, after being passed by the Indonesian Legislative, this emergency regulation became Law No. 10/2005.
  • 30. It was estimated that the Master Plan would take between three to five years toimplement, the results of which would feed into the more sustainable programs of theProvincial Medium-Term Development Plan (RPJMD). As determined by law, in carrying Chapter 2. Matching Allocations with Real Needsout reconstruction according to the Master Plan, BRR played a dual role: (i) to directlyimplement reconstruction projects funded by the national budget, and (ii) to coordinatethe implementation of the rehabilitation and reconstruction by line ministries, localgovernment and donors/NGOs. The original Master Plan provided key targets for reconstruction to be carried out andcoordinated by BRR. However, this version failed to also incorporate a strategic plan andkey decisions to guide the process. It was developed in haste to provide a barometerto gauge progress and targets for BRR. Faced with escalating demands from locals andinternational contributors for results, and under pressure to act immediately, the GOIopted not to take the time to design a sturdy foundation upon which a broad-based 21strategy of implementation and coordination could be built. While the Master Plandid lay out goals and set quantitative performance measurements, it failed to create acomprehensive strategy for BRR. In other words: the goals to be reached by BRR were manifold, the path to reach thosegoals lined with numerous obstacles, and the road map to reach the end target wasnonexistent. Figure 2.2 - Shifting Focus of Rehabilitation and Reconstruction Activities as Conceived in December 2005 Infrastructure & Other Public Facilities Housing Economic and Business Education & Empowerment Community & Health Spatial Planning Institutional Development Land Titling Religion, Social and Cultural Affairs 2005 2006 2007 2008 2009
  • 31. In the absence of a clear reconstruction plan in the Master Plan, BRR, created a broadFINANCE: The Seven Keys to Effective Aid Management strategy to guide the focus of its rehabilitation and reconstruction activities (Figure 2.2). Although unspecific, this strategy provided an initial broad design of sectors to be prioritized at various periods of the reconstruction. The intensity and time span that was to be dedicated to each sector was also shown in the strategy. A Free Market Approach In the 4th century BCE, the Taoist philosopher Zhuangzi said, “Good order results spontaneously when things are let alone.” This notion was the seed for what the late Austrian economist Friedrich Hayek called spontaneous order. Hayek espoused the classical liberal view that in market economies, order will emerge spontaneously out of seeming chaos, rather than springing from intentionally controlled, directed or managed economies (Hayek as cited in Petsoulas 2001, 2). Hayek believed that the organic 22 emergence of resources would lead to an allocation more efficient than any human design could achieve. The recovery landscape in Aceh was nothing short of chaotic when BRR first came into the picture. There was damage across all sectors and a plethora of agencies had rolled in. Instead of trying to control these agencies, BRR decided to adopt a predominantly “free market” approach bounded by appropriate regulation. This avoided a traditional command and control relationship between BRR and recovery players, allowing ideas and people to flow freely. Under the Hayek argument, over time ‘demand’ from the locals, local government and BRR would be matched with ‘supply’ from donors and NGOs, and a sophisticated business network would emerge organically amongst the delivery partners. This ‘free market’ approach also gave NGOs, whose largely private funding could be disbursed faster than funds from donors or GOI, relative freedom to act. As a result they were able to meet some urgent needs ahead of other actors. This meant that certain recovery programs which needed immediate action, such as support for those with trauma, getting children back to school and providing shelter, could be speedily tackled. Facing the tremendously varied needs in nearly every sector, many NGOs took further advantage of the flexibility they were given to explore areas beyond their conventional expertise. Thus for instance, many organizations with no history of building houses hired contractors to rebuild houses in Aceh and Nias. Here, their capacity to adapt to the expansive demands of recovery was tested. Through a natural selection process, the varying skills and capacities among delivery partners became more evident. BRR strategically fostered these emerging comparative advantages as they became evident. For example, BRR encouraged partners who were already equipped with the strategic, budgetary and structural designs to quickly deliver, supporting the need for rapid but organized response.
  • 32. The roles of the stakeholder groups became more defined with regard to differentreconstruction needs and types of projects. Bilateral and multilateral donors mostlycovered large-scale projects, whereas NGOs mainly carried out small-scale localized Chapter 2. Matching Allocations with Real Needsprojects. With time, as Hayek had theorized, resources were appropriately allocated andorganizations matched their own skills, old and new, with the priorities on the ground.Persistent Gaps In the early days, letting the outpouring of good will proceed unencumbered bycontrolled management from BRR allowed the comparative advantages of differentagencies to emerge organically, and also allowed the players to operate at their ownindividual speeds. Over time however, this ‘free market’ model proved to be inadequate inmanaging the influx of players. 23 The proliferation of agencies and the ample funding that most had access to createda disincentive for the players to coordinate. A negative externality of their flexibility andautonomous funding was that agencies had the liberty to implement independently.Meanwhile the receiving organizations were not tied to the purse strings of officialdonors, including the national government (TEC 2006). These factors enhanced theindependent action of NGOs and the Red Cross Movement and arguably increased theinfluence of non-government actors on the reconstruction, further reducing their need tocoordinate with multilateral and bilateral actors. Without rigorous coordination, overlaps occurred and some needs were not met. BRRdid its best to cover instances where supply did not meet demand, wielding the largeand flexible funds at its disposal to fill gaps. It had at its disposal the GOI on-budgetreconstruction funds. It is worth noting that the APBN national budget funding wasthe single largest source of funds in reconstruction. Masyarafah and McKeon (2008)reported that having a single agency controlling a significant share of the funding inAceh meaningfully reduced fragmentation of funds. But despite BRR’s best efforts, gapspersisted. A more effective coordination mechanism was needed.The Costs of Proliferating Aid Organizations Generous funding led to the proliferation of new and insufficiently experienced actors,and to established actors venturing into activities outside their normal area of expertise(TEC 2006). Many of the players moreover plunged into similar sectors, such as livelihoodand health, creating oversupply in certain sectors, while leaving others underfunded. This describes a situation of aid proliferation or aid bombardment where large numbersof donors and projects overburden the recipient government’s capacity to manage andadminister aid inflows. As a result the resident government cannot avoid having over- orunder-funded sectors.
  • 33. Donor proliferation, as witnessed in Aceh, has taken place almost continuously onFINANCE: The Seven Keys to Effective Aid Management a global scale since 1975 and comes with associated costs. Sources and channels of aid have increased rapidly with various multilateral organizations such as UN agencies emerging and more countries developing their own independent bilateral aid programs. For some countries, having such a program has virtually become a badge of a “developed” status (Acharya, Fuzzo and Moore 2004). Proliferation has important implications for the quality and cost of a response. In her catalog of the “seven deadly sins” of aid delivery, Birdsall (2005, as cited by Roodman 2006) cites proliferation under “envy,” a heading that refers to the failure of donors to coordinate. Evidently, each donor wants its own school-building project, its own HIV prevention campaign, and so on. Figure 2.3 - Sectoral Allocations in December 2005 The immediate consequence of aid proliferation 24 is an increase in the transaction costs incurred 1200 by recipient governments as they absorb foreign aid (Acharya et al., 2006). The costs can be direct 1000 transaction costs or indirect transaction costs (Acharya, Fuzzo and Moore 2004). Direct transaction costs absorb the energy of the recipient government, 800 which is burdened for example by increased reporting costs and other administrative overhead, siphoning off scarce domestic recipient resources such as US$ Million 600 tax revenue and the time of skilled government officials from directly productive use (Roodman 2006). Further, there is an increased burden on local 400 authorities and coordination structures. Indirect transaction costs take the form of unscrupulous bureaucratic and political behavior stimulated by aid 200 proliferation (Masyrafah and McKeon 2008). Initially, by allowing the chips to fall freely, BRR gave itself room to make sense of the chaos as 0 the free market approach brought to light the real Flood Control and Irrigation Work Community, Culture and Religion Transport Education Health Water and Sanitation Other Infrastructure Agriculture and Livestock Governance and Administrations (incl.Land) Industry, Trade and SMEs Fisheries Environment Housing needs and the varying degrees of expertise among players. Over time, problems emerged. Coordination was fragmented and issues were handled on an ad hoc basis, while organizations implemented in the same region and sector with limited information- sharing taking place. The costs of this ‘free market’ proliferation of agencies became apparent as the allocation of funds across sectors soon became unstable. (Source: BRR and Partners 2005)
  • 34. Figure 2.4 - Sectoral Allocations Gaps Versus Key Minimum Needs in December 2005 US$ MillionMisallocation of Funds 400 The total reconstruction program 300 Surplus Chapter 2. Matching Allocations with Real Needsof US$7.2 billion in Aceh and Nias was 200the largest reconstruction program in 100the developing world at the time. By 0December 2005, US$4.4 billion had -100been translated into concrete programs -200that served as the backbone for the Deficit -300first year of reconstruction (BRR and -400Partners, 2005). Almost half of the Community, Culture and Religion Agriculture and Livestock Flood Control and Irrigation Work Health Water and Sanitation Enterprise Education Other Infrastructure Communications Fisheries Energy Environment Transport Governance and Administration (incl.Land) Housingfunds were allocated to the housingand infrastructure sector, followedby the transport, health, education, 25community support and governancesectors (Figure 2.3). This sectionillustrates the gaps in reconstructionthat emerged over time and theirimplications. The initial US$4.4 billion wassufficient to cover the initial damage Source: BRR and Partners 2005and loss assessment, but it was notenough to meet minimum needs insome sectors, to build back better, or to account A Note on the Definition offor increased costs. Further, these allocationswere only broadly in line with sectoral needs. ‘Projects’Due to the varying appeal of sectors and the The true definition of a “project” is unclear due to varyingpresence of aid “tied” to certain projects, a year measurements for different partners and the varying tools forafter the tsunami, funding for several sectors recording reconstruction activities. For off-budget activities, BRRhad exceeded core minimum needs while other used the number of Project Concept Notes (PCNs) as an indicator. As of December 2008, 1,658 PCNs had been approved by BRRsectors remained heavily underfunded (Figure (more on the PCN approval process below). However, a PCN can2.4). Further, rising inflation rates triggered aid also represent a sectoral program with a collection of projectvolatility in Aceh and had a direct impact on the components, in which case the number of off-budget projectsability of international agencies to deliver on would be greater than the number of PCNs.their planned promises (Masyrafah and McKeon Meanwhile, for on-budget activities, BRR used over 900 Project2008). Implementing Units (PIUs or Satker) during the agency’s lifetime. Each PIU implemented a number of packages composed of a According to Masyrafah and McKeon varying number of contracts. As with a PCN, each package and(2008), Aceh hosted around 2,200 projects contract may constitute one single project or a group of them.implemented by over 500 agencies in the During 2005-2008, there were over 20,000 packages. Needless to say, the divergence in tools of measurement makes it difficultreconstruction phase alone. Of these projects, to come up with one clear number for the amount of projectsNGOs managed 80 percent, while the managed in the reconstruction period.
  • 35. Figure 2.5 - Regional Gaps in Financing in December 2005FINANCE: The Seven Keys to Effective Aid Management 26 NIAS 45 NIAS SELATAN 40 (Source: BRR and Partners 2005) government donors and the GOI implemented 18 percent and 7 percent respectively. The average project size for NGOs was far smaller than that of the GOI programs. By far the largest number of projects and reconstruction actors was found in the social sector, although its allocation of funding was not the highest. In the infrastructure and housing sectors—the most severely affected by the disaster—the number of projects and actors was lower. Fund allocation corresponded strongly with spatial damage, with a bias visible towards areas close to Banda Aceh. The regions which had experienced the greatest damage, Aceh Jaya and Aceh Barat followed by Nias, Aceh Besar and Banda Aceh, received the most funds with the exception of Nias. In the case of Banda Aceh and Aceh Besar, funding appeared to exceed the amount of damage and losses. By contrast, other parts of Aceh particularly the South and North-East of Aceh, as well as Nias, were still significantly
  • 36. underfunded (Figure 2.5). However, this discrepancy was in large part the result oflimited access during the early months of reconstruction to areas outside of Banda Acehand Aceh Besar. As more remote areas of the province and Nias became increasingly Chapter 2. Matching Allocations with Real Needsaccessible, funding flows into these areas increased. As noted previously, a year following the tsunami, it became apparent to BRR that itson-budget funds were not sufficiently bridging these misallocations. The proliferation ofagencies required a firmer, coordinated management approach to match allocations withreal needs than the free market approach provided. A change was needed.Shifting to a Guided Facilitation Model As BRR matured and a clearer picture emerged of the demands on the ground and thesupply that players were able to provide, BRR shifted to a “guided market” approach. The 27laissez faire approach had allowed order to emerge on its own, but it had its drawbacks ina situation of this scale. Ideally a common framework would have been set in place for theimplementation and administration of assistance operations, setting consistent standardsand guidelines across projects. Providing common rules for fiduciary managementand performance reporting would also have been useful to ensure the effectiveness,efficiency and integrity of funds usage. The management structure of the recoveryand reconstructions fund could have been designed in such a way as to provide suchoverarching coordination, with caretaken of course to avoid unnecessary Figure 2.6 - Sectoral Gaps Versus Core Minimum Needs in December 2006bureaucratic bottlenecks at a time US$ Millionwhen fast-disbursement of assistance 500is paramount. 400 Now, BRR began steering 300 Surpluspartners to implement projects in 200the underfunded sectors, filling 100gaps in needs on the ground that 0the free market approach had not -100adequately met. Over the course of Deficit -200reconstruction, the guided facilitation Agriculture and Livestock Flood Cntrol and Irrigation Work Health Governance and Administrations (incl.Land) Education Enterprise Water and Sanitation Communications Other Infrastructure Bank and Finance Energy Environment Community, Culture and Religion Transport Fisheries Housingapproach yielded real results on theground. Figure 2.6 and Figure 2.7 providea comparison of sectoral allocationsgaps versus core minimum needs inDecember 2006 vs. December 2007,showing an overall improved matchbetween funds and sector allocations. Source: World Bank 2007
  • 37. Figure 2.7 - Sectoral Allocations Gaps Versus Core Ninimum Needs in December 2007 It should be noted that sectoralFINANCE: The Seven Keys to Effective Aid Management USD Million funding needs to be changed over time; 600 for example the assessment of fund 500 allocations in December 2006 revealed 400 that there was no longer a deficit Surplus in the funds for the transportation 300 200 sector, whereas there was a greater 100 need for funds in the housing sector 0 compared to the previous year. By December 2007, housing had received -100 Deficit the appropriate allocations by BRR and -200 partners to surpass the core minimum Governance and Administrations (incl.Land) Agriculture and Livestock Flood Control and Irrigation Work Health Enterprise Education Water and Sanitation Communications Other Infrastructure Bank and Finance Energy Environment Community, Culture and Religion Transport Fisheries Housing needs. However, environment and 28 energy sectors were still underfunded. Overall, the gaps in the different sectors narrowed as BRR approached its final year. Ingredients of the Guided Facilitation Approach Source: World Bank 2007 Matching allocations with real needs is a function of information symmetry, persuasion and leadership. This section discusses how BRR translated these three elements into reality and got the guided facilitation approach to work. Information gathering and the enabled shift to portfolio management 1. Data capture: Recovery Aceh-Nias (RAN) Database Information is power. One key tool that enabled the shift in approach was the establishment of a sophisticated IT system that captured and reported financial commitments and disbursements. This was the web-based Recovery Aceh-Nias (RAN) Database. The RAN Database was based on the Development Assistance Database (DAD) system, which had been used to track funds in Afghanistan since 2003. In 2004, the United Nations Development Program (UNDP) initiated the use of DAD in all of the countries affected by the tsunami to provide information on the flow of funds. The GOI decided to customize and revamp the DAD to create the RAN Database.
  • 38. Project Concept Notes First inaugurated in October 2005, the RAN Database Project Concept Notes (PCNs) are an importantunderwent several iterations. It tracked where off-budget part of the RAN Database data gathering process.funding was and was not being allocated, and also tracked Each PCN contains information on the goals and Chapter 2. Matching Allocations with Real Needsthe physical progress of projects as reported by submitted objectives of projects, the source of funding, the implementing agency, timeline, location, and exactProject Concept Notes (PCNs). This data was then used to more Key Performance Indicators (KPIs) of the project.accurately guide partners towards addressing real needs.7 PCNs provide a basis for BRR to track projects2. On-the-ground presence: BRR Regional Offices implemented through off-budget mechanisms, as approved PCNs are registered into the RAN Data from the RAN Database was enhanced by information Database.from the BRR regional offices in the field. BRR had established The PCN approval process also substitutes forregional offices across Aceh and Nias to oversee on-the-spot direct control over the NGOs. BRR held regularexecution of projects and foster the active participation of PCN Approval Workshops in which BRR sectorcommunity members and the local government in the planning experts, the local government and relevant external stakeholders we invited to evaluate a batch ofand execution of projects. Having arms and legs on the ground submitted PCNs in a transparent fashion. The 29strengthened the bottom-up approach to reconstruction PCNs we rated as follows: unconditional approval,and provided a clearer picture of what was happening on the conditional approval, holding bay, or turned down.ground. Chapter 3 further elaborates on BRR regionalization. The criteria used to evaluate projects include alignment with the Master Plan and sector The information from the RAN Database and the BRR Regional vision, local community involvement, and projectOffices was instrumental in providing a more accurate picture of sustainability. This single approval process allowedthe individual parts as well as developing an understanding of for maximum coordination between government and non-government projects and avoided overlapsthe collective whole. Armed with this information, BRR was able in implementation.to better prioritize. It could sensibly sort through the profusion The PCN Approval Workshops thus provided aof organizations and projects to make decisions on fund forum where BRR could match proposed projectsallocations that maximized delivery. and partner skills with sectoral and regional demands on the ground. This process helped guide Consequently BRR was able to adjust its management funding towards real needs while maintaining donorapproach to focus on managing at the “big picture” and NGO buy-in.reconstruction portfolio level. Portfolio management is about As of December 2008, 46 PCN Approvalmanaging strengths and weaknesses, opportunities and threats, Workshops had been conducted. Of 1,859 PCNsand other tradeoffs in order to achieve a successful outcome proposed, 1,658 were approved.of the total recovery effort. Previously BRR had focused onmanaging at the project level, a mammoth task due to thethousands of existing projects. This was a better use of its limitedresources.Working with Reconstruction Players—The Art of Persuasion Each partner had their own reconstruction agenda and many had earmarked theirfunds for specific purposes. Yet for the resources to work effectively in the recoveryperiod, GOI through BRR had to take ownership of the reconstruction and persuadeplayers to align their strategies with that of the GOI’s. This follows the principles of theParis Declaration mentioned in Chapter 1.
  • 39. Complicating the task, some funds were pre-earmarked by donors for specific purposes.FINANCE: The Seven Keys to Effective Aid Management Tied aid limits the ability of any national coordinator to redirect flows. Bilateral agencies tend to focus on addressing needs driven by political motives, which are generally short- term in nature, while multilateral agencies generally take on longer-term projects within the range of their development agenda. Even if this tied aid is aligned with the recipient country’s priorities, there is a degree of constraint at the sector level where donors tie their support to specific activities. Non-earmarked money came with its own implications. All the tsunami affected countries brought in a high amount of un-earmarked money; according to a TEC report (2006), over half of the funds for the UN Appeal were given as un-earmarked money. Only a small proportion of IFRC funds (less than 10 percent) were earmarked. This general lack of earmarking meant that agencies could be extremely flexible in the use of funds, especially since donations from the general public were subject to reporting standards 30 less rigorous than that for funding from institutional donors. However, the pressure to show immediate results to private funders drove many agencies to select projects that clearly displayed the products of the contribution, even if that project was outside of their competency. In the absence of direct control, BRR had to be persuasive. Persuasion exerted far greater effect over the decision-making of independently-funded partners than rigid hierarchical structures did. Fortunately BRR had taken the pains to establish its credibility during the free market phase before it attempted to exert influence. As Cialdini (2001) remarked, persuasion can be extremely effective when it comes from peers as influence is better exerted horizontally rather than vertically. In addition, BRR understood the terrain faced by other actors on the ground thanks in part to the RAN Database augmented by field information from the BRR Regional Offices. As American entrepreneur Victor Kiam has been quoted as saying, “Information is the negotiator’s best weapon,” and of that the BRR had plenty. Once the agency had reached a position to negotiate, BRR artfully made the case to donors on where the aid should flow. Conger (1998) states that effective persuasion becomes a negotiating and learning process through which a persuader leads colleagues to a problem’s shared solution. The BRR combined its knowledge on sector allocations from the RAN Database with its capacity to guide the international community in a united effort to fill the reconstruction gaps. Leadership Having a single, leading agency in the form of BRR was a prerequisite to guided facilitation. Donors generally want to see recipient countries take leadership and articulate their wants at the strategy level, with a solid team deployed at the operational level. BRR had the resources to negotiate with finesse and make hard decisions based on
  • 40. the detailed information that it owned. This was a vast contrast to other line ministriesat that time. Such leadership, grounded in comprehensive information and executedthrough persuasion, effectively realized the guided facilitation model. Chapter 2. Matching Allocations with Real NeedsMid-Term Review (MTR) With a different model for coordination in place, halfway through its mandate, BRRmoved to conduct a Mid-Term Review (MTR) in April 2007 to measure the progress of thelast two years and decide how it should move forward. As mentioned, the original MasterPlan was developed responsively to the urgent demands and for quick implementation,and it thus fell short of laying out a clear plan and strategy for reconstruction. By early2007, while targets for some facilities now exceeded requirements (more schools andhealth centres than required), others were not feasible (a railway from Aceh to Medan),and still other livelihood needs had being addressed for some communities in Aceh and 31Nias (micro-hydropower plant, rice field rehabilitation). The MTR provided an opportunityto assess progress to date against the targets of the Master Plan. It also provided anopportunity to revise policies, strategies and targets in concert with an evaluation ofdynamic real needs, recapitulating the main rehabilitation and reconstruction programsin Aceh and Nias during 2005-2007. The MTR aimed to (i) recommend Figure 2.8 - The Four Quadrants of the MTRstrategies and policies on theimplementation of rehabilitation andreconstruction projects, (ii) provideguidance on an action plan for theremaining reconstruction period, and (iii)give recommendations on the closure ofBRR and transition to Line Ministries andLocal Government. As a whole, the revisedMaster plan was meant to refine the goalsof the recovery activities and providea legal basis for the implementation ofrehabilitation and reconstruction by BRRin 2005-2008, as well as for any remainingworks by the Line Ministries and the LocalGovernment in 2009. The MTR applied afour quadrant system to categorize progressby BRR and its partners (Figure 2.8). Thefirst quadrant was designated for projectsthat had exceeded the targets of the originalMaster Plan. Reconstruction of health andeducation facilities fell under this category.
  • 41. FINANCE: The Seven Keys to Effective Aid Management 32 Public Consultation with National The second quadrant contained projects that had inadequately met Master Plan targets. Development Planning Agency in These projects, such as the provision of fishing boats, had been moved down the priority Jakarta regarding revisions to the list in deference to other, more urgent needs on the ground. In the third quadrant were Master Plan, July 19, 2007. Photo: projects that had been implemented despite their lack of mention in the Master Plan, in BRR/Arif Ariadi response to demand. The last quadrant contained targets in the Master Plan that had not been carried out at all as the situation on the ground indicated a lack of implementation efficiency or insufficient need. These categories clearly showed the sectors that most needed additional funding versus those that had sufficiently met their targets. By scrupulously measuring the progress of the last two years, BRR obtained information critical to refining the outcome of reconstruction. Key features of the revision included increased allocations to housing and economic development and revision of the program targets based on consultations with beneficiaries, local government, and partners. The MTR considered the economic climate of exchange rate fluctuations with the US Dollar worldwide adversely affecting the price of imported materials, the fuel crisis escalating oil prices and indirectly raising transportation costs, security and social conflict issues, community and contractor capacity, and adverse weather conditions in arriving at realistic targets.
  • 42. The recommendations of the MTR became the basis for the Revised Master Plan containingadjustments to program targets and budget allocations, as well as more comprehensivepolicies and strategies to be carried during the BRR’s remaining lifetime. Some policies were Chapter 2. Matching Allocations with Real Needsstreamlined while others were broken down into more effective and efficient components.The budget plans were also revised in response to changing needs on the ground. Theseadjustments to the Master Plan made for an expedited process and more accurate goals. APresidential Regulation on the revision of the Master Plan was issued by the President in July2008. The MTR and, subsequently, the Revised Master Plan, were two critical landmarks inreconstruction. When dealing with the enormous task of implementing and coordinatingreconstruction, it is undoubtedly important to lay out a clear plan and targets on strategicand operational levels, and maintain the urgency of delivery without compromisingrigor. It is equally as crucial to be flexible and leave room for adjustments as needs 33change. Finally, measures are needed to assess the effectiveness of the plan in meetingthe changing needs. Reviewing the overall reconstruction is a key step in ensuring thatthings are on the right track. The MTR allowed this to happen and the Revised Master Planwas modified in accordance with changing needs.Coordination Mechanisms The scale of the Aceh and Nias reconstruction called for significant coordinationmechanisms to reduce overlaps and duplication of efforts, to minimize gaps andinefficiencies, and to make sure that projects were aligned with the interests of the peopleof Aceh and Nias. BRR was established to take on such coordination responsibilities,consolidating and streamlining the GOI’s reconstruction work through one agency. Asfor donors, the Multi Donor Fund for Aceh and Nias (MDF) provided a framework forcoordination and acted as a forum for dialogue. The UN agencies and the Red Cross Societiessimilarly had their own coordination forums.Coordination Forum for Aceh and Nias (CFAN) and Nias IslandsStakeholder Meeting (NISM) Led by BRR, the annual Coordination Forum for Aceh and Nias (CFAN) and Nias IslandsStakeholder Meeting (NISM) were meant to be vehicles to bring together deliverypartners in one room, receive partner recommendations, and create open dialogues tocollaboratively identify gaps, needs and solutions. Each year, CFAN and NISM focused ona different theme relevant to the changing needs in the reconstruction process. The BRRalso used this forum to publicize and raise awareness of where the funding was going,specifically allocations of funds by sector.
  • 43. As reported by Masyrafah and McKeon (2008), views on the success of these forumsFINANCE: The Seven Keys to Effective Aid Management were mixed. In some quarters these forums were viewed as a mere public relations exercise. The CFANs and NISMs did provide a platform for discussing progress and challenges. However, as their titles fundamentally denoted, there was an expectation that the forums would coordinate agencies, helping the reconstruction actors to set their strategies and shaping longer-term development plans. These expectations to a degree were not realized (Masyrafah and McKeon 2008). On the other hand, these forums for stakeholder coordination proved to be effective in aligning priorities. For example the introduction of the regionalization approach was discussed and lauded during the second CFAN. Chapter 4 discusses the history of CFAN. Approaching the end of its mandate, the last CFAN with BRR was intended to focus on three objectives: the acknowledgment of achievements, consolidation of lessons learned, 34 and continued coordination during the transition from reconstruction to sustainable development. Multi Donor Fund for Aceh and Nias (MDF) As mentioned in Chapter 1, the MDF was a joint initiative by the GOI and donors to pool funds for reconstruction. It provided an opportunity for participants including GOI to reduce information, coordination, administrative and various transaction costs. MDF initially implemented projects in response to outstanding needs. It partnered with agencies such as the World Bank that had a track record of implementing projects elsewhere in the country. As other needs became apparent, BRR capitalized on its position as co-chair and as the leading national authority on reconstruction to take on a leading role in determining fund programming. The agency steered funds where possible to meet the targets set by the Master Plan and to avoid overlaps with other projects and available funds. For instance, funds were allocated to provide technical assistance to BRR, and to small and large-scale infrastructure projects that could became strategic enablers in reconstruction, laying the foundation for improved agency capacity and drawing on local resources in building local infrastructure. The nearly US$700 million in the MDF, which amounted to about 10 percent of the total funds, had a relatively lower degree of constraints and therefore could also be utilized to help bridge gaps between funds and sector needs. The informed leadership of BRR was the key ingredient in ensuring the MDF pool of funds was optimized. In their review of 18 MDFs, Scanteam found that although the national authorities have both formal and informal means of influencing MDFs, the formal role is often weak (2007). In general, donors tend to have the dominant formal role in allocating or earmarking funds and in influencing decisions. The case of Aceh and Nias provided a different reality wherein the BRR used the opportunity to ensure alignment of donor programming with the government’s reconstruction agenda.
  • 44. Extended Arms of Coordination As mentioned, BRR took advantage of existing mechanisms and platforms that other Chapter 2. Matching Allocations with Real Needsagencies had to offer, to extend its coordination role and reduce associated costs. The United Nations Office of the Recovery Coordinator (UNORC) : Established at therequest of GOI through an MOU in 2005, UNORC has played a key function in facilitatingpolicy dialogues among recovery stakeholders. The UNORC provided a single accesspoint for BRR to the United Nations system. International Federation of the Red Cross and Red Crescent Societies (IFRC) - Similar tothe function of UNORC to UN agencies, IFRC’s role in Aceh is to assist the coordination ofthe Red Cross and Red Crescent Societies active in the reconstruction efforts in Aceh andNias. Of the 23 Red Cross Organizations, 18 of them have joined the coordination arms ofthe IRFC. The presence of this umbrella organization assisted BRR’s efforts in coordinatingthe numerous aid organizations in Aceh and Nias. 35Conclusion Exceptional international funding provided the opportunity for an exceptional internationalresponse. The GOI welcomed all commitments from all around the world. To quickly addressthe immediate needs in all sectors, BRR enabled all players to carry out projects with minimalintervention. Loosening its grip at the early stage let BRR discover valuable insights that onlytime could give. Reconstruction projects are fundamentally different than development projects. Gapsare persistent in reconstruction. The environment changes much more quickly, requiringan equally adaptable response. The speed of implementation must also be differentbecause of the urgency. Thus a balance needs to be struck between planning andaction, while flexible funding is required on the part of the national authority as well asdonors. This flexibility must be exemplified in the government’s Master Plan and in otherplanning. BRR caught the signals of misallocated funding early on but exerting too much controlat this stage would have been counterproductive. In time, order emerged out of thechaos and revealed the strengths and weaknesses of each partner and in BRR itself. Theshift to a guided facilitation approach at the appropriate time worked in Aceh and Niasto cope with a chaotic terrain wherein a proliferation of agencies, each with their ownfunding, posed challenges in coordination. The guided facilitation approach generatedpositive results with regard to the allocation of funds to the appropriate sectors.
  • 45. Chapter 3. Overcoming Disbursement HurdlesOvercomingDisbursementHurdles 37Dissatisfaction with a Slow Beginning The honeymoon period was soon over. By the end of 2005 and well into 2006, BRRfaced growing discontent with its performance. Confidence in its abilities was steadilyeroding. Public and civil society organizations in Aceh and Nias openly criticized BRR foracting too slowly, while local governments and donor communities also expressed signsof impatience, albeit in a more graceful manner. An outside consultant hired by BRR conducted a media study which showed thatbetween December 17, 2005 and January 3, 2006, 18 percent out of 113 national andinternational news articles on BRR mentioned the agency’s slow progress (Emerson2006). Of the 22 articles, only one had a positive tone. Opinions from local newspaperswere particularly pointed. Three weeks after the leading national newspaper Kompasran a December 17, 2005 news column titled “BRR Works Slowly”, on the Head of BRRExecuting Agency Kuntoro Mangkusubroto’s visit to the vice president for a progressupdate, on January 11, 2006, local newspaper Serambi Indonesia ran the headline “BRR is Assistance programs forUnprofessional.” Serambi Indonesia accused BRR of a lack of coordination and of harboring companies and capacity buildingincompetent personnel within the agency. Still harsher criticism came from a noted for employees are importantinformal leader of Nias who openly castigated BRR for failing to carry out rehabilitation initiatives for the economic and business development. Photo: BRR/Arif Ariadi
  • 46. and reconstruction in the area: “During 2005, it may be said that BRR did not seem toFINANCE: The Seven Keys to Effective Aid Management know what had to be done. In fact, the committed funds were not disbursed because they were unsure what to do with the money.”8 Frustration at the progress of rehabilitation and reconstruction was understandable. By the end of 2005, only 10 percent of the Rp3.9 trillion budget had been disbursed. One year after the tsunami, great swathes of urban landscape in Aceh and Nias remained nothing but empty wasteland while 67,500 people were still housed in tents, many of which were going moldy. Hundreds of thousands of people who had hoped to able to move quickly into permanent housing and return to normal activities were as yet dependent on food aid and emergency employment schemes (BRR and International Partners 2005). Nobody expected BRR to finish rebuilding overnight, but the general belief was that BRR should be moving faster. People were losing their patience. 38 The Shortfall of High Expectations It is a truism that when people receive less than what they expect, they are generally disappointed. The greater the perceived gap, the higher the level of dissatisfaction. As Zeithaml et al notes (1993), “Customer dissatisfaction occurs when ex ante expectations of a product or service exceed ex post perceptions of the product or service." This phenomenon was clearly at work in the context of post-disaster Aceh and Nias. It did not help that BRR had been burdened with exceedingly high expectations from the start. The people of Aceh and Nias, donors and NGOs, had greeted BRR’s establishment in April 2005 with great excitement, believing that the new agency would improve and speed up the recovery effort. But five months after the tsunami, little progress on the rehabilitation and reconstruction front was apparent. The emergency relief operations had largely commendable results with negligible additional casualties and successful prevention of disease outbreaks, but donors and NGOs had been cautious in moving on longer-term initiatives for fear of misdirected or duplicated assistance, and the government was slow to provide coordination.9 Only after the government had declared the end of emergency relief operations in March 2005 did the focus finally shift to rebuilding. In the ensuing lull of emergency relief activities, all eyes turned to BRR as the designated leader of the recovery effort. This excitement was reflected and reinforced by the barrage of positive media coverage early in the process, citing warm and hopeful remarks from prominent figures such as the UN Special Envoy for Tsunami Recovery Bill Clinton, World Bank officials, and noted Indonesian economist Faisal Basri. Local Acehnese newspaper Serambi Indonesia went even further on May 6, 2005, hoping BRR would act as a “motivator” for the local government and community in Aceh.
  • 47. Figure 3.1 - Constraints Affecting Disbursement Levels. As mentioned previously, the scale of devastationand the inherent complexities of post-disaster recoveryeffort involving thousands of actors were no easy Chapter 3. Overcoming Disbursement Hurdleschallenges for the infant organization, which wasstill finding its legs. Seven months was a minimalamount of time to develop organizational capacity andreach out to key stakeholders—line ministries, localgovernments, multilateral and bilateral donors, andNGOs—to agree on working mechanisms, establish acommon agenda, and develop shared priorities. BRR spent its first two months preparing and revisingissuance of the Issuance of Spending Authority (DaftarIsian Pelaksanaan Anggaran, DIPA), the state budget 39execution document that was eventually released inJuly 2005. BRR also held a series of project conceptworkshops which approved 180 projects worthUS$1.78 billion. From October to December 2005, 101 ProjectImplementing Units were set up to implement 945 projects fundedthrough the state budget (APBN). Given the scope of planning and preparationinvolved, it was not surprising that by the end of 2005 the disbursement rate wasstill very low. From the perspective of the people in Aceh and Nias, however, BRRhad made scant progress for its seven months of existence. Among locals, the BRRacronym was derisively translated as ‘Baru Rapat-Rapat’ (just holding meetings) toexpress their dissatisfaction with the agency.Two Types of Constraints on Progress As the coordinator of recovery and the main government on-budget projectimplementer, BRR faced enormous and multifaceted disbursement challenges. Thesechallenges occurred on both a legal policy level and an implementation level.Legal and Policy Constraints The legal/policy level constraints became pressing issues early on, and had to beaddressed ahead of the implementation challenges. These had to do with legal andregulatory rules in Indonesia, which defined “the rules of the game” and the operatingenvironment in which BRR functioned. These constraints were encountered within thecontext of Indonesian regulations as follows. (Note that the first two were financiallegal/policy constraints, while the remaining three were non-financial constraintsbut directly affected the disbursement speed of reconstruction funds.)
  • 48. (i) Line-By-Line Budget AllocationsFINANCE: The Seven Keys to Effective Aid Management As a government agency, BRR had to follow the standard national budget cycle in which proposed work plans and budget expenditures are submitted in the first quarter of the year. The final budget allotment for the upcoming fiscal year (Figure 3.1 and Figure 3.2) is issued in November after a series of government budget planning sessions that take place internally and with the legislature (DPR). Unlike line ministries and other permanent government agencies which dealt with a relatively stable development environment, BRR operated an emergency reconstruction effort that was extremely dynamic and fluid in nature. Situations on the field could change in a heartbeat due to the many players involved--including the NGOs who represented roughly one-third of reconstruction spending but could only be controlled at arm’s length by BRR—and the fragile socio-economic conditions of post-disaster 40 Aceh and Nias. Budget details that were valid in the planning stage might turn out to be inexecutable during implementation due to potential overlap with the works done by NGOs, competing new priorities, changes in demand, or sudden hikes of reconstruction material prices requiring substantial reduction in scope of projects. Figure 3.2 - GOI Budget Mechanism Proposed Budget Law/ Financial Note Line Ministry Budget & Work Plan Budget Law Ministry of Line Ministry Legislature Finance (incl. BRR) Reviewed LM B&WP DGBFB WU Budget & Work Plan Presidential Decision on Budget Details DG Treasury Budget Allotment Copy of Budget Allotment DG Treasury Work Units Regional Office DIPA Concept DIPA
  • 49. Figure 3.3 – GOI Budget Timetable GOI budget TIMETABLE Chapter 3. Overcoming Disbursement Hurdles January - April Annual National Strategic Plan (Bappenas) Macroeconomic and Fiscal Update and Outlook, including Revenue, Expenditure and Early April Deficit Estimate (BAPEKKI), Forward Estimate (DGBFB) April - May Preparation of Fiscal Policy Statement and Budget Policy Statement (DGBFB) May 15 Fiscal Policy Statement is submitted the Legislature (MoF) Mid May Budget Circular Budget Policy Statement and Line Ministries Cellings (DGBFB) June Ministries Strategic Plan and Budget Proposal are submitted to MoF (DGBFB) June Budget Preliminary Discussion between Line Ministries and Sectoral Committes July Budget Negotiation and Consolidation between line ministries and MoF (DGBFB) July Financial Note (MEFUO) First Semester (DGBFB) August 1st Week Cabinet Review and Approval of Government Budget (DGBFB) 41 August 18 Budget Law Submission to the Parliament (DGBFB) Sept - Oct Budget Discussion in the Parliament (DGBFB), Budget Committee) October 31 Budget Law Approval by the Parliament November Allotment Documents are issued (DGT Tresaury) The existing requirement of getting budget allotment approval from the Ministry ofFinance and the National Development Planning Agency (Bappenas) down to ProjectImplementing Unit and project levels was not flexible enough to cope with this fluidsituation. It needed to be amended to produce a more flexible allotment scheme in whichallocations could be switched among projects “on-the-fly” as needed.(ii) The Return of Unspent Funds As the reconstruction progressed, another roadblock lay in wait. Indonesian statebudget regulations require that at the end of the fiscal year, unspent funds must bereturned to the Treasury (KPPN).10 This rule is useful in maintaining budget time-discipline,but it was unfortunate for BRR because at the end of 2005, as previously mentioned,around 90 percent of the amount allocated in the DIPA remained unspent. This unusuallylarge budget balance was due to the fact that the establishment of BRR happened late,in the middle of the fiscal year, and the subsequent process of budget preparation andapproval took almost three months. Thus, when the DIPA was released in July 2005,BRR only had five months remaining to disburse the funds. Hastily prepared, the DIPAalso turned out to contain a number of inaccurate and insufficient project details thatimpeded execution, leading to low disbursements.
  • 50. In order for the projects to be continued, a special policy was needed allowing BRRFINANCE: The Seven Keys to Effective Aid Management to carryover the unspent budget from 2005, while still receiving the full amount of the 2006 budget. Otherwise, BRR would be forced to return the unspent 2005 budget to the Treasury, and would consequently suffer a sizeable budget reduction in 2006 with the overall size of the 2006 budget being just slightly higher than that of the total budget used in 2005 (Figure 3.4) based on the low absorption levels in 2005. This was unacceptable to BRR; the low absorption rate in 2005 did not properly reflect its capacity. BRR’s actual implementing capacity was far bigger. (iii) Procurement Process According to government procurement rules, the provision of goods and services valued above Rp50 million (around $4,500) must be held through open bidding. The usual process of project tendering—from document preparations, announcement, and bid 42 solicitation to contract sign-off— usually takes no less than 59 days for any transaction. There is an almost two-month lead time before any physical project implementation can begin. That was too long a waiting period for the thousands of locally displaced victims still living in tents and barracks one year after the tsunami. Each additional day worsened the simmering problems caused by this vast human displacement, and it was not unforeseeable that the mounting social cost might eventually be unbearable for the government. A quick project start was of paramount importance. (iv) Operational and Working Permits Impeding legal/policy constraints also hampered the administrative procedures for registration and immigration. Moved by the Figure 3.4 - Reallocation of Unspent Budget in Subsequent Years scale of the disasters, hundreds of international agencies involving thousands of individuals Additional arrived in Aceh and Nias from all corners of budget the world. They needed to promptly legitimize from Year 1 Balance their presence in Indonesia in order to be able to open bank accounts, legally hire local staff, obtain appropriate visas for foreign Budget staff, receive tax exemptions and customs Balance Allocated clearance, and claim other privileges that were only available to registered organizations. However, the registration process proved to be overwhelmingly tedious. They needed to go to separate government agencies for different Budget Spent types of documents. The sudden upsurge of administrative work handled by the said Year 1 Year 2
  • 51. agencies also caused serious backlogs in almost all facets of the process. Long waitinglines were involved and the issuance of the greatly-needed operational and workingpermits took an unacceptably long time. These administrative backlogs and delays Chapter 3. Overcoming Disbursement Hurdlesseriously hindered movement of international talent badly needed for the recovery. Theintricate and irresponsive administrative service also reflected poorly on the Indonesiangovernment in the eyes of the international community.(v) Tax Exemptions The enormous demand for reconstruction materials and equipment necessitatedmore flexible import customs arrangements. Prevailing regulations required proof to bepresented that import tax and duties had been paid before a customs clearance couldbe issued. This caused a serious bottleneck in the supply of imported materials sincethe majority, as donations in kind, were officially tax exempt.11 In this case, a letter ofrecommendation for tax exemption in lieu of the tax receipts was required for customs 43clearance. Since BRR was responsible for the overall recovery, it was the most appropriategovernment agency to issue such a recommendation letter. However, close cooperationwith relevant government agencies was needed to verify facts and ensure the validity ofsupporting documents before a recommendation letter could be safely issued. Another problematic regulation had to do with the Value Added Tax (VAT) and luxurygoods sales tax imposed on services and goods procured by foreign NGOs. The prevailinglaw did not provide tax exemptions for grants contributed by foreign non-governmentalinstitutions. Tax exemptions were only given to grant projects delivered through thegovernment on-budget mechanism. A special tax policy was needed to fix the inequalityin the treatment of on-budget versus off-budget grants.Implementation Constraints Compared with policy/legal constraints, implementation constraints became apparentduring later months as the implementation process proceeded and issues began to emerge.The following implementation constraints were faced by BRR:(i) General Startup Challenges As a new government agency, BRR faced a number of startup challenges in the firstmonths of its establishment. As mentioned previously, BRR had to coordinate a staggeringnumber and size of projects. It was one of the world’s biggest post-disaster rehabilitationand reconstruction programs in history, with US$6.7 billion worth of projects spreadacross the 16 public and private sectors that had been devastated by twin disasters—thetsunami in Aceh and subsequent earthquake in Nias. BRR’s small initial capacity was notup to handling this overwhelming amount of tasks right away.
  • 52. Reconstruction performance in the early months was therefore slower than it wouldFINANCE: The Seven Keys to Effective Aid Management have been in the hands of a more established government agency. The lack of internal coordination and capacity was apparent in the beginning as the agency was still in the process of acquiring and developing its human resources, organizational systems, and working procedures. BRR started with just twelve staff, which ballooned to 326 personnel within the first year of operations. The newly assembled staff members—recruited from the private sector or “loaned” from various government agencies and the private sector— needed time to adapt to their roles and develop a collective sense of mission before exhibiting their potential. Internal coordination and reporting mechanisms from the Head of BRR Executing Agency on down were still in formation and being fine-tuned to cope with the operational and strategic challenges of the organization. (ii) Coordination Problems 44 Initially, BRR coordination with local governments was rather weak. Local governments, seriously weakened by the disaster, seemed to expect that BRR would help them implement local priorities. However, seeing that the local governments lacked comprehensive rehabilitation plans, BRR devised its own overarching strategy and set up regional offices to target local problems within that strategy. This approach did not work very well. Local governments felt they already had sufficient knowledge about local concerns and were furious over what they regarded as a late start by BRR. The weak coordination between BRR and local governments cannot be attributed to lack of effort. There were many meetings and discussions. The different organizations just did not relate to each other very well in the beginning. As noted in the publication of BRR and International Partners (2005): “…most meetings, ostensibly for coordination, achieved little more than information-sharing rather than strategic planning [and] ... agency leaders were so busy on their own programs that they were frustrated when they attended a meeting that wasn’t useful ... [so that] they were likely to send junior staff in future, so reinforcing the information rather than strategy content” (Nazara and Resosudarmo 2007). This lack of coordination created a number of implementation problems, such as duplication of work with projects performed by the local governments, delayed project execution due to inadequate local support, and erroneous decisions caused by miscommunication. The fact that the majority of BRR staff members were stationed in the head office in Banda Aceh raised other questions about first-hand understanding of local situations and aspirations. It was apparent that BRR needed to decentralize its operations to improve coordination in the field. Coordination with line ministries such as the Ministry of Finance, the National Development Planning Agency, the Ministry of Public Works and the Ministry of Foreign Affairs was no less problematic. The roles and responsibilities of BRR, as a new agency, while clearly stated by Government Regulation in Lieu of Law No. 2/2005, were not readily understood and implemented on the operational level, especially by those who
  • 53. Chapter 3. Overcoming Disbursement Hurdles 45worked in the field. The Jakarta Post reported on November 9, 2005, that occasional acts Said Faisal, the Deputy forof ‘bureaucratic turf battle’ were apparent as the various agencies struggled to establish a Education and Health, speaks inmutually comfortable working relationship. The same could be said of BRR’s relationship front of NGOs and donors during a coordination meeting at Syiahwith donors and NGOs, who each had their own set of interests and priorities. Kuala University. Banda Aceh,(iii) Limited Availability of Resources for Reconstruction May 13, 2005. Photo: BRR/Arif Ariadi The level of reconstruction activities that can be performed in a given area is limited bythe supply of labor, machines, materials, and other resources than can be mobilized bythe implementing actors. Without enough contractors to carry out projects and enoughskilled people with the technical capability to execute and manage reconstruction jobs,the pace of progress will be limited. There is also a trade-off between the elements of time, cost, quality and quantity ofprojects delivered. It is difficult if not impossible to reduce a project’s completion timewithout affecting the cost, quality or quantity of the deliverables. The pre-disaster economies of Aceh and Nias were not robust. Nias’ economy wasretarded as a result of its relative geographic isolation, whereas the growth rate of Aceh’seconomy, despite its being a relatively rich province in terms of natural resources, hadlagged behind the rest of Indonesia as a result of the three-decades-long conflict withthe central government. Aceh ranked as the fourth-poorest province in the nation, before
  • 54. the tsunami contracted its economy by 10 percent in 2005.12 Total annual governmentFINANCE: The Seven Keys to Effective Aid Management spending in both Aceh and Nias—the dominant economic driver in an region where the private sector barely existed outside of mining and natural resources—averaged less than Rp10 trillion annually before the disasters, while their combined regional Gross Domestic Products (GDPs) reached just Rp37 trillion in 2005. As a result, the sudden inflow of post-disaster Finding Team Spirit funds overwhelmed these regions beyond their absorption capacity. Moreover, the vast destruction In hindsight, the problems encountered by BRR as leader of transportation infrastructure seriously hindered of the rehabilitation and reconstruction effort follow the shipment of needed materials. This situation patterns of the group development model as first proposed by was reflected in the delays of projects due to Bruce Tuckman (1965), who maintained that the phases of inavailability of materials and skilled personnel. forming-storming-norming-performing-adjourning are necessary 46 and inevitable in order for a team to grow, handle problems, The proliferation of agencies mentioned in find solutions, plan work, and deliver results. BRR and all Chapter 2 exacerbated the shortage as they stakeholders who worked together as a team were initially in the forming stage in which they met and learned about the competed for resources. New, not necessarily opportunity and challenges, and then agreed on goals and experienced or competent actors entered the began to tackle the tasks. Team members at that point tended scene. Among these were ex-GAM members to behave quite independently. They might be motivated but reintegrating into society who were eager to take were usually relatively uninformed of the shared issues and part in the opportunities of the reconstruction objectives of the reconstruction team. program. Meanwhile, established actors ventured The team then moved to the storming stage in which into activities outside of their normal area of different ideas compete for consideration. The team addressed issues such as what problems they were really supposed to expertise. Altogether this only worsened the solve, how they would function independently and together complicated problems caused by inadequate supply and what leadership model they would accept. Team members of contractors and materials. opened up to each other and confronted each other’s ideas and perspectives. Theoretically, BRR and other implementing Several months later, the team of stakeholders entered the actors could have “imported” contractors from norming stage. Team members adjusted their behavior to each the outside. However, it was BRRs policy that other, agreed on rules, shared methods, and working tools. redevelopment of Aceh and Nias should utilize During this phase, team members began to trust each other. indigenous local capacity where possible, although Motivation increased as the team became better acquainted construction materials and some highly skilled labor with the task. were inevitably brought in. This policy aimed to The team finally reached the performing stage, where they develop local capacity and promote local long-term could find ways to get the job done smoothly and effectively without inappropriate conflict. Team members became ownership of project results. From the socio-political interdependent, motivated and knowledgeable. perspective, social sensitivity stemming from At the adjourning stage, the team completed the task and prolonged government conflict meant that it was BRR gradually shifted responsibilities and handed over assets imperative to give the Acehnese an active role. BRR to other mainstream permanent government agencies. For had to actively avoid the impression of supporting— BRR, this was also a mourning stage in which people were as an Acehnese saying goes--“buya krueng teudong- dismayed by the prospect of BRRs closure after working hand- in-hand with them, sharing “the joys and sorrows” of managing dong, buya tamong meuraseuki” (newcomers amass a a colossal reconstruction effort. lot of fortune, while the indigenous can only watch).
  • 55. But the consequence of this policy was a slower rate of progress. Local implementingpartners needed time to develop capacity, sometimes through costly trial-and-error, asthey moved along the learning curve. Some of the project outputs delivered by “small- Chapter 3. Overcoming Disbursement Hurdlestime” local contractors, many of whom were only able to build one or two houses at atime, turned out to be of low quality, thereby requiring retrofitting in the following year tosettle complaints from the beneficiaries. While some critics pounced on this an example ofquality control failure by BRR, put in perspective, the amount spent on retrofitting was adrop in the bucket compared to the overall spending in housing projects, at Rp 2.3 billionor a mere 0.36 percent of the total Rp 4.7 trillion. For BRR, this was an acceptable price toget local communities actively participating.Breakthroughs & Solutions BRR formulated a number of legal, policy and implementation breakthroughs and 47solutions to deal with the constraints and performance barriers discussed above. Thesewere as follows.(i) Block Allocation To provide more budgetary flexibility, BRR proposed a block allocation system whereinthe national legislature approved broad budget allocations by sector or district asopposed to approving line-by-line allocations earmarked for individual projects. Under the block allocation system, the implementation process proceeded as follows.Project proposals were submitted by working units to BRR, BRR reviewed and approvedprojects drawing on its knowledge of extant gaps in reconstruction activities, and fundswere then transferred from the broad block allocation to individual, fully-preparedprojects. This approach had a number of advantages over the normal budgetary process:• It enabled BRR to compare individual project proposals, specifically off-budget projects, with the evolving project catalogue. This improved coordination.• It gave BRR the time to review proposals more rigorously and ensure that they followed BRR guidelines; that is to ensure that they were community-driven, benefited from expert input, followed the highest professional standards, etc.• It gave BRR the flexibility to allocate resources according to changing needs and funding gaps instead of ‘locking in’ all activities for that year in the middle of the previous year, as the regular budget cycle demanded.• It maintained greater transparency for stakeholders throughout the process.• In summary, grouping the budget allocation by sector allowed more flexibility, created a smaller administrative burden, and afforded faster implementation. The block allocation budget system proved to be an effective breakthrough mechanism.
  • 56. (ii) Budget Carryover & Trust FundFINANCE: The Seven Keys to Effective Aid Management As previously mentioned, to sustain the recovery as it gained momentum, it simply did not make sense for BRR to stick to the standard procedure of returning the budget balance to the Treasury at the end of the year. BRR therefore sought approval from the government, and was allowed to carry over most of the unspent funds into the following year.13 As a result, in 2006 BRR had two fiscal budgets running simultaneously, the 2006 Carryover Budget and the 2006 Annual Budget. Having two fiscal budgets running at the same time was not without consequences. Between the 2005 Carryover Budget of Rp 3.5 trillion and 2006 Budget of Rp 10.5 trillion, BRR operating capacity was stretched to the limit. Staff members worked long hours seven days a week, yet at the end of the year, there were still works unfinished and monies unspent. Out of Rp3.5 trillion available in the 2006 Carryover Budget, only Rp 2.0 trillion was eventually spent. As for the 2006 budget, the end-of-year realization was Rp 5.6 48 trillion, leaving a balance of Rp 4.8 trillion. Unlike the request to carry over the 2005 unspent budget, the appeal for another budget extension by BRR at the end of 2006 was not granted. The Indonesian Government felt that approving another extension would send a signal to other government agencies that budget extensions were acceptable. The overall budget time- discipline would be seriously challenged. Therefore, another mechanism was created in order to enable spending of the remaining funds. To this end, a BRR Trust Fund account was formed to accommodate the unused funds. This was accomplished by an authorization letter from the Director General of Treasury of the Ministry of Finance authorization letter in 2006, and by another letter from the Figure 3.5 - BRR Budget Carryover and Trust Fund 0.4T 0.2T Absorbed Balance 2T 1.5T Absorbed Balance 2T Absorbed 3.5T Trust Fund Ceiling 3.9T Ceiling 3.5 Ceiling 2.2T 2005 2006L (carryover) 2006 2007 Trust Fund
  • 57. Chapter 3. Overcoming Disbursement Hurdles 49Director General of Treasury Regulation in 2007.14 These two decrees contained technical A number of Projectguidelines on the use of funds from the Trust Fund. Later, the closure of the BRR Trust fund Implementing Unit personnelwas directed by a Director General of Treasury Regulation issued in September 2007.15 wait in line to pick up a Fund Disbursement Authorization The establishment of the Trust Fund shifted the function of the Treasury vis-a-vis BRR Letter at the Special Office forin keeping with the specific guidelines outlined by those decrees. Similar to the budget State Services and Treasurycarryover, the Trust Fund allowed unspent 2006 national APBN budget funds to be (KPPN-K). Banda Aceh, December 16, 2008. Photo: BRR/Arif Ariadidisbursed the following year, providing funding for delayed projects. The total ceilingof the trust fund was established at Rp 2.2 trillion. At the closure of the fund, almost allmonies had been spent, with absorption levels reaching as high as 91 percent.(iii) Direct Appointment of Housing Contractors To speed up contracting of housing projects, deviation from government procurementstandards was necessary. Therefore, during a cabinet meeting in July 2005, the Headof BRR Executing Agency Kuntoro Mangkusubroto officially submitted a request to thepresident to amend the procurement regulation. In response, a presidential regulationwas issued in November 2005 which allowed BRR to directly appoint contractors for thehousing projects.16 This amendment was originally valid until July 1, 2006 but was laterextended to December 31, 2006. Upon issuance of the amendment, BRR moved quickly
  • 58. to review some 3,000 companies who had registered for pre-qualification. BRR directlyFINANCE: The Seven Keys to Effective Aid Management appointed the ones deemed capable to develop shelters for the people of Aceh and Nias. After going through a fair and transparent objections stage, most contracts had been awarded by the end of May 2006. Apart from speedy project contracting, direct appointments also afforded flexibility in making one-on-one matches between the contractor and project, which was especially useful when local preferences and aspirations had to be taken into account. Robust capacity development and the previous history of conflict warranted equitable distribution of projects among contractors, with a strong bias towards utilizing local resources as much as possible. (iv) Integrated Government Services 50 Another innovative breakthrough was devised to improve government service in the matter of registering foreign agencies, and issuing operational and working permits including the letter of recommendations needed for tax exemptions. Through Presidential Regulation No. 69/2005, in November 2005 BRR established an Integrated Team that gathered relevant branches of government offices under one roof. Included in the Integrated Team were: the Directorate General of Immigration (from the Ministry of Law & Human Rights), the Directorate General of Taxation and Directorate General of Customs & Excise (from the Ministry of Finance), the Directorate General of Metals, Machines, Textiles & Miscellaneous (from the Ministry of Industry), the Directorate General of Foreign Trade (from the Ministry of Trade), the Regional Police Office, and the Directorate General of Protocol and Consular Affairs (from the Ministry of Foreign Affairs). Although in retrospect the setup of a one- stop-shop for government services was a great idea and eased the administrative process for all concerned, it was a real battle to get buy-in from the government agencies. The
  • 59. Chapter 3. Overcoming Disbursement Hurdles 51government agencies were afraid that this “special treatment” would set a precedent for Stacks of wood imported fromothers to expect the same service in the future. Fear of losing control over the process to New Zealand used for housingBRR was another (unspoken) reason for their brush-offs. reconstruction in Teunom, Aceh Jaya, following customs Understanding their concerns, BRR went to great lengths to convince them that the clearance. March 23, 2007.one-stop service would not comprise special treatment. All requirements for obtaining Photo: BRR/Arif Ariadithe documents would remain exactly the same, the only difference being in the poolingof the various government offices within one location to speed up service. Furthermore,BRR would not take over the responsibility and authority of said government agencies.There would be no change in the chain of command. Service staff in Integrated Teamwould still report to their various line ministry superiors and BRR would not intervene intheir decision-making process. After a series of meetings, the one-stop-shop service ideafinally received the green light. By combining and modifying administrative procedures, Integrated Team sped upthe registration process for international agencies and the issuance of foreign visas andworking permits. Through letters of recommendation for customs duties and first-levelVAT exemptions, Integrated Team also expedited imports of aid materials and facilitatedproject activities financed by foreign grants.17
  • 60. The establishment of Integrated Team also helped boost the rate of registrationFINANCE: The Seven Keys to Effective Aid Management compliance, which was very advantageous to BRR in keeping track of so many organizations—most notably the NGOs which had their own resources and were not dependent on the government for funding— and in coordinating and monitoring their activities. (For those interested in reading more about on Integrated Team and other breakthroughs made by BRR, please refer to Book 3 of the BRR Book Series which focuses on these breakthroughs in detail.) (v) Tax Exemptions To provide a legal basis for tax-exemptions on foreign grant-funded goods and services procured by NGOs, at the request of BRR, the Ministry of Finance (MoF) released the MoF Regulation No 43/2007 establishing said exemption. This new ruling greatly benefited the 68 NGOs who were subsequently granted tax-exemption on their various projects, creating billions of rupiah in tax savings and increasing net project amounts. The benefits 52 of this policy trickled down to the people of Aceh and Nias as beneficiaries. (vi) Decentralization of Offices To produce quick results while building up its capacity, BRR’s initial strategy was to coordinate reconstruction efforts, provide general oversight and approve, but not implement, projects. However, the slow pace of initial progress prompted the GOI to broaden BRR’s functions in hopes of expediting these tasks, including implementing Figure 3.7 - Number of BRR Personel 2005 - 2008 1200 1200 1000 1000 800 800 600 600 400 400 200 2005 2006 2008 2005 2006 2008 2007 2007 200 Head Office Regional Office
  • 61. Figure 3.8 - Functions of Regional Offices Administration Coordination Chapter 3. Overcoming Disbursement Hurdles • Establish office • Communicate reconstruction program to • Record and report issues arising in stakeholders stakeholder meeting • Lead coordination meetings • Represent BRR with stakeholders in • Assist in avoiding overlaps and filling gaps the region • Understand and communicate • Provide information to stakeholders reconstruction needs about BRR Operations Capacity building 53 • Coordinate disbursement of BRR funds • Assist local government in establishing • Monitor and evalube BRR Project policies ang programs Implementing Units • Work to prevent collusion, corruption and • Settle problems faced by BRR projects nepotism • Facilitiate release of useable land • Work to support and strengthen civil society • Manage Operations center unit in the region • Work with the local government in • Prepare region’s program for following year’s coordination and program implementation budget • Prepare an exit strategy for BRRprojects that were funded through the state budget. To effectively undertake thesebroader functions, BRR expanded and restructured its operations. The number of staff grewsignificantly from 271 at the end of 2005 to 1,073 in December 2006, peaking at 1,576 inDecember 2007. Staff received training as needed on financial and project management,project contracting, and other relevant topics to improve their skills and knowledge.More sector specialists, financed mostly through donor assistance, were also recruited toenhance BRR’s technical capability. To improve coordination with local governments and other local stakeholders, BRR movedfrom a centralized model to a decentralized regional model. The centralized model wasinitially necessary to coordinate the delivery of vital needs during the early stages, but as thereconstruction progressed it was deemed important to bring the decision-making authorityand responsibility closer to the field. Six BRR regional offices were set up throughout Aceh andNias in mid-2006. Due to the dynamics of the organization and changing demands from thestakeholders, the regional offices were restructured three times between 2006-2007.
  • 62. Figure 3.9 - Completed Shipment by Commercial Operators Under Coordination of World Food Program Shipping Service (WFPSS)FINANCE: The Seven Keys to Effective Aid Management 50,000 44,971 45,000 40,000 35,000 31,654 31,799 29,090 30,000 24,978 24,812 25,000 24,120 54 23,434 21,145 20,000 22,796 20,960 14,107 15,000 16,212 13,706 12,185 13,156 10,000 11,104 7,500 5,000 4,659 2,813 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Source: WFP Logistic Support Unit, “Monthly Bulletin” 12 May 2008 (vii) Shipping Service To solve the problem of inadequate material supplies, a novel breakthrough was created in October 2005 through the establishment of the World Food Program Shipping Service, a module of the WFP Global Logistics organization. This service provided delivery of reconstruction materials such as cement, timber and housing supplies to the east and west coasts of Aceh and to the islands of Simeulue and Nias where road transport was made difficult, if not impossible, following the tsunami. Operating nine landing crafts and three conventional vessels, the Shipping Service assisted 80 implementing organizations involved in the reconstruction effort.18 The decision to set up this service was prompted by the market failure as actors from the private sector failed to resolve the shortage of sea transport service. This created a giant hole in the reconstruction supply chain, causing a dramatic surge in costs due to scarcity of materials that in turn led to a major distortion of the reconstruction program. Year-on-year inflation surged as high as 42 percent in Aceh and Nias during 2006, and was
  • 63. Figure 3.10 - Disbursement Rates by Players100% Chapter 3. Overcoming Disbursement Hurdles 90% 80% 70% 60% 50% 40% 55 30% Donor 20% NGO GOI 10% Nov-05 Jun-06 Dec-06 Jun-07 Dec-07 Dec-08possibly significantly higher in the less accessible areas. Subsidized by the MDF, the serviceprovided by the WFP Shipping Service was crucial to the success of the reconstructionprogram in the most inaccessible areas.Net Effects on Disbursement The pace of reconstruction picked up steadily after the various breakthroughs andsolutions discussed above removed or alleviated constraints. The rise in disbursementrates from November 2005 to December 2008 reflects this momentum. BRR had a slow start in 2005 but its disbursements increased significantly throughout theyears, surpassing the performance of NGOs in 2007 and 2008. By BRR’s closure in April 2009,140,304 houses were built, and, overall, the conditions were even better than before thedisaster occurred.
  • 64. Delivering Results: Modality of Fund Channeling and PerformanceModality of Fund Chapter 4. Delivering Results:Channeling andPerformance 57Generous External Support The aid landscape in the reconstruction program of Aceh and Nias was unique in thatthe government of Indonesia only contributed about one-third (31 percent, to be precise)of the total reconstruction funds. Of the US$6.7 billion funds committed, US$4.6 billioncame from various bilateral and multilateral donors, international NGOs and communities.This disproportionately large donor contribution was not due to any withholding on thepart of the GOI, which allocated a massive US$2.1 billion. It was rather evidence of goodwill from the domestic and international communities. Indonesia was blessed to receivesuch generous global support as the massive scale of the combined disasters was simplybeyond the capacity of Indonesia to go it alone in recovering. Without it, the recoverycould have taken much longer, if even possible at all. As in most situations where a multitude of donors exist, the methods of fundchanneling were diverse. One surprising aspect about the composition of aid in Every year, more than 20%Aceh and Nias was the extent to which NGOs came up with substantial sums of their of Acehs GDP comes fromown money.19 A large amount of aid funds flowed through some 992 funding and agriculture. Some 70 thousandimplementing partners operating on the field rather than directly to the government.20 hectares of agricultural land wereRoughly half of all donor aid was channeled through the NGOs, many of which operated rehabilitated or newly created in the 4-year recovery period. Photo: BRR/Arif Ariadi
  • 65. as both implementing and funding organizations which also supported smaller NGOsFINANCE: The Seven Keys to Effective Aid Management with funding. This in effect created a parallel structure of support for the reconstruction program that BRR could only control at arm’s length through a range of coordination meetings and forums. The actors channeling these funds had a range of different experiences with fund disbursement and implementation. They also produced varying results, with differing degrees of effectiveness. The sections of this chapter provide a retrospective analysis on how effective the different aid channeling methods were in delivering results. Conclusions are drawn from our experiences leading the reconstruction of Aceh and Nias, and therefore may not be appropriate for general application. Each post disaster reconstruction is unique and should be handled accordingly. Moreover, these conclusions are based on subjective judgments that may differ from the way others perceive the same realities. Nonetheless, we have done our best to draw and convey conclusions 58 Nearing the End the Reconstruction Phase Towards the end of BRR’s mandate, BRR prepared to transition the GOI aid it channeled to other government organs. BRR’s mandate was only four years long, from April 16, 2005 to April 16, 2009, whereas according to the Master Plan and Revised Master Plan the overall reconstruction effort was expected to take five years starting from the end of emergency phase on March 26, 2005. With this in mind, BRR planned to complete all physical projects by the end of 2008, leaving the remaining final months in 2009 for gradual transition and exit. BRR’s strategy was successfully rolled out, as reflected by the high deployment rate (96 percent) of the GOI budget under its control. Of the US$2.1 billion allocated to BRR between 2005 and 2008, US$2.0 billion had been spent. The Indonesian Legislature concluded from these results that BRR had achieved its mandate and should be closed down as scheduled on April 16, 2009. There would be no extension to the mandate. In preparation, beginning in January 2009, the execution and implementation of all reconstruction-related on-budget projects was shifted to the relevant mainstream line ministries and local governments under the coordination of the National Development Planning Agency, as had been the case before establishment of BRR. The status of donor and NGOs projects, on the other hand, varied considerably and was not so easily summarized. While some had seen the majority of their projects completed well before the end of 2008, such as the governments of Japan and Germany, some others took longer to implement their projects. The MDF was a case in point for the latter. To ensure sufficient time for the implementation of their projects, MDF extended its completion date from 2010 to 2012.
  • 66. Different Fund Channeling Mechanisms As described in Chapters 1 and 2, BRR set up three main fund channeling mechanisms, Modality of Fund Channeling and Performanceor modalities, to accommodate the different needs of donors. They are brieflyrecapitulated below.(a) On-budget/on-treasury. Here, donors used the GOI budgetary system and regulations to disperse their funds. Multilateral donors such as the World Bank in its Chapter 4. Delivering Results: capacity as the administrator of MDF and the ADB—both being essentially banks with no direct implementing capacity—chose this modality, as well as some of the large bilateral donors.(b) On-budget/off-treasury: Where funds were disbursed outside of the State Treasury (KPPN), but the disbursement was reported in the national budgetary system. Under this mechanism, the fund was not initially legalized in the budget document. Disbursement was made directly from the donor government’s account into the 59 GOI’s account at a specified bank, and from there payments would be channeled to the implementing agencies. After the procurement of goods or services had been completed, the disbursed fund would then apply for budget legalization through an Issuance of Spending Authority (DIPA). This mechanism was used by the governments of Japan and Germany. Figure 4.1 - Fund Channeling Mechanisms of Fund Foreign Govt Organizations and Source GOI Multilateral Donors Communities Trust Fund MDF RANTF Fund Channel On Budget/ On Budget/ Off Budget/ On Treasury Off Treasury Off Treasury Implementer BRR & Other Govt Working Units Own Implementation Units & (Satkers) NGOs Project REHABILITATION & RECONSTRUCTION PROJECTS On Budget Mechanism Off Budget Mechanism
  • 67. Figure 4.2 - Fund Modality and PerformanceFINANCE: The Seven Keys to Effective Aid Management 60 (c) Off-budget/off-treasury: When donors used neither the GOI budgetary system nor dispensed funds through the State Treasury. This mechanism was employed by all non-governmental donors and by some foreign governments. Multilateral donors such as the ADB and the World Bank-administered MDF also utilized this mechanism to complement assistance delivered through the on-budget mechanism. The Recovery Aceh-Nias Trust Fund (RANTF), a trust fund managed by BRR on behalf of individual, community and foreign government donors, used this modality too. The diagram in Figure 4.1 illustrates these flows, while Figure 4.2 provides an overview of the actors according to their preferred fund channeling modality. Effectiveness of Players Using the On-Budget/On-Treasury Modality Since the Paris Declaration, multilateral and bilateral donors have been channeling more aid through on-budget mechanisms in line with the implementation of the five principles of the Paris Declarations on aid effectiveness. On-budget mechanisms promote ownership, alignment, harmonization, managing for results and mutual accountability of aid funds by allowing the partner government to formulate and implement its own reconstruction or development plans, using its own methods of prioritizing, planning and implementation.
  • 68. From BRR’s perspective, on-budget/on treasury donor funds constituted the mostflexible external support. They were “programable funds” that could be arranged tosupport and complement domestic funds in the agency’s budget. Consequently these Modality of Fund Channeling and Performancefunds were always aligned with the overall reconstruction agenda. In some cases, on-budget donor funds were allocated to fill sectoral and regional gaps where no otherfunding was available. This was in contrast to off-budget aid, where funding was usuallytied to a specific project. Reallocation of funds to other projects within or outside the Chapter 4. Delivering Results:original sector or program was usually impossible. Figure 4.3 - Disbursement Rates of ADB and MDF as of December 2008Donor experiences with thismodality 800 Two major donors using the on- 800 700budget/on-treasury modality during Commitmentthe reconstruction of Aceh and Nias 700 Disbursement 600 61were the MDF and ADB. The combined 500 600contribution of the two multilateraldonors was in excess of one billion 500 400 65% US$ milliondollars. Another donor using this 300 400modality was the government of Italy, 83%who swapped GOI loans for grants (See 300 200Box: Debt Swap with Italy). 200 100 100 MDF ADB Debt Swap with Italy “Italy approved an agreement initiated in 2005 with the Indonesian government to finance seven projects in Aceh under a bilateral debt swap deal. The seven projects, worth more than Rp 150 billion (US$13.6 million), include the construction of a fishing port, three irrigation systems and two roads, and a Rp 49.96 billion incentive support contribution to a government poverty alleviation scheme called Hopeful Family Program (PKH). Under the 2005 agreement, Italy would forgive $24.2 million and 5.7 million euro ($7.8 million) of Indonesia’s debt within five years by financing the country’s reconstruction projects in Aceh, still recovering from the devastating 2004 tsunami. It has so far eliminated $5 million and 10.74 million euro by financing ten projects during the 2006-2008 period. A debt swap scheme allows a country to shift budget allocations which should be used to pay foreign debts over to financing other activities, with approval from the lender. Such activities may include infrastructure construction, health and education projects, or social empowerment programs.” Source: The Jakarta Post, January 10, 2009
  • 69. Both the World Bank, as the trustee and partner agency of MDF, and the ADB areFINANCE: The Seven Keys to Effective Aid Management development banks, which have a long history of relations with the GOI. In the beginning, the World Bank and the ADBs ETESP experienced similar constraints on resources. But as the reconstruction program neared its end, a noted disparity in performance became apparent between them. ETESP had achieved a high disbursement rate of 83 percent at the end of 2008 whereas the disbursement rate of MDF on-budget projects stood at 65 percent (Figure 4.3). The ADB’s superior performance can be attributed to a number of breakthroughs they created to expedite processes, while still retaining high standards of aid accountability and effectiveness. What breakthroughs enabled ADB’s success? (i) Post-Facto Review 62 Post-facto review was an innovative breakthrough that greatly sped up ADB projects. According to the provisions of the grant agreement, ADB approval was required for all subprojects. However, it was agreed that approval could be done on a “post-facto” basis. Subprojects could be immediately implemented once the GOI (as represented by BRR) approved the contract. If during post-facto reviews it was found that acceptable procedures had not been followed, ADB would not finance the contract and therefore any grant funds that had already been spent would have to be refunded by the GOI. Prior ADB approval was only required for the first three subprojects in a given sector and for subprojects estimated to cost in excess of US$500,000. Multi Donor Fund The Multi Donor Fund (MDF) for Aceh and Nias was established at the GOI’s request in April 2005 by the World Bank and several donor agencies. The MDF is a trust fund administered by the World Bank as trustee and constitutes pooled funds amounted to US$691.92 million contributed by 15 donors: the European Commission, the Netherlands, United Kingdom, World Bank, Sweden, Denmark, Norway, Germany, Canada, Belgium, Finland, Asia Development Bank (ADB), United States, New Zealand and Ireland (see Table 1.1 in Chapter 1 for list of contributions by donor). Project proposals for the MDF were initially reviewed by BRR, but approval had to be granted by a Steering Committee, which was co-chaired by officials from BRR, World Bank, and the European Commission as the biggest donor. Therefore, unlike ADB’s funded projects, MDF projects could not start before getting approval from the Steering Committee. For coordination of the day-to-day operations, the Steering Committee was supported by a secretariat. MDF provided a convenient way of pooling donor resources and liberated donors from establishing multiple of bank accounts and programs. This significantly reduced the transaction costs of aid delivery. Among the desirable characteristics of MDF were full integration with the GOI budget, preparation of timely reports on actual disbursements derived from the government’s accounting system, and good fiduciary arrangements to ensure integrity in the use of funds.
  • 70. Post-facto review was a solution made possible by the high level of trust ADB placed inthe GOI. With this breakthrough, project commencements could be sped up significantlywhile ADB as the donor remained safeguarded from the accompanyingly higher risk of Modality of Fund Channeling and Performancemisappropriation. It was a brilliant mechanism whereby both parties “could have theircake and eat it too,” increasing project speed without relinquishing control. By relying onthe GOI procurement system—in essence, the fund channeling was not only “on-budget”but also “on-procurement”—ADB also helped empower GOI implementing units in Aceh Chapter 4. Delivering Results:and Nias. This in turn developed their capacity to deliver similar projects in the future. When asked whether the decision to utilize a post-facto review was indeed a gooddecision, Pieter Smidt, head of ADB’s Extended Mission in Sumatra (EMS) said: “Of course there is risk if you use an ex-post procurement review. There are a number of cases where the project implementing units did not follow [what are] essentially the government’s own procedures and therefore ADB cannot finance some contracts. We 63 have to declare three to four million dollars to be ineligible for ETESP funding and the number may increase as we have not finished doing the review… but [the post-facto review] was still a good decision as it accelerated implementation. Indeed it was a good decision.21 We at BRR were of the same opinion as ADB. Althoughthe ineligible amounts might end up having to be refundedby GOI, we considered them an acceptable cost of doing Asian Development Bankbusiness. Putting it in a larger context, the benefits of faster The Asian Development Bank (ADB) was among the first to respond to the tsunami by committingoverall project execution far exceeded its cost. Benefactors significant grants for the rehabilitation andby now have long enjoyed project deliverables, and the reconstruction program. On April 7, 2005, ADBmomentum of recovery could be maintained at a higher approved a support package for rehabilitation andspeed. reconstruction of Aceh and Nias, comprising the Earthquake and Tsunami Emergency Support Project(ii) Delegation of Authority (Decentralization) (ETESP) for US$290 million, a contribution to the MDF of US$10 million, and a Community Water Services Another principle that ADB’s actions illustrated was the and Health Project (CWSHP) grant of US$16.4 million.usefulness of decentralizing operations and having a field ETESP was the largest grant project in ADB’s historypresence. ADB’s initiative to establish a local office—the and was used to restore essential public services andExtended Mission in Sumatra—paid real dividends. Given rebuild infrastructure and promote the resurgenceadequate authority to make decisions on its own, the local of private economic activity. Although ETESP wasoffice was responsive and adaptive to the demands from the approved prior to the formal establishment of BRR, subsequent to its establishment all its subprojectsfield. The time needed for project preparation, appraisal and were designed and implemented in close coordinationexecution could be shortened to a minimum. with BRR as the leader for the overall reconstruction. Indeed, the importance of speed cannot be overstated in ETESP was funded through the Asian Tsunami Fund (ATF), a trust fund established by ADB in the wake ofpost-disaster reconstruction. Disaster victims need to get the tsunami to assemble contributions from ADB andback to their normal lives as soon as possible. The longer they other bilateral and multilateral donors.have to wait, the greater the social and economic cost. Timeplanning is a luxury that such circumstances do not afford,
  • 71. and consequently meticulous planning often falls by the New Structures FosterFINANCE: The Seven Keys to Effective Aid Management wayside. A strong sense of urgency must be maintained throughout the process. Urgency While people usually agree on the importance of speed in a post-disaster undertaking, acting accordingly When managing post-disaster reconstruction, it is is easier said than done. As time passes and disaster important for government as well as donors to adopt a structure that is conducive to this high sense of urgency. news coverage recedes, after the basic minimum A new structure may be best. The organizational culture supports have been delivered to victims, it is only human of government and big donors is usually shaped to cope fall back into a “business as usual” mentality. The sense with predictable, regular development challenges with of emergency gradually evaporates. Daily routine kicks longer time frames. The pace of decision making is typically slow and energy levels are rarely high. The organization back in and activities return to their normal pace. structure also is designed to focus people’s attention on One of the best ways to maintain a high sense narrow technical and functional issues, sometimes at 64 the expense of broader goals. Establishing a high sense of urgency is by decentralizing operations. The of urgency in such a big organization can be extremely government, donors, and other reconstruction actors difficult (Kotter 1996). should delegate authority to the lowest level possible, The establishment of BRR as an ad-hoc government where capacity exists. Despite the obvious risk of agency independent of any line ministry provided just such delegation of authority, local management of the an autonomous structure where a high level of energy reconstruction process has a host of advantages. The and sense of urgency could be maintained until the finish scope for interaction and collaboration between the line. The flat organization as structure with a less formal working environment adopted by BRR also promoted the disaster-affected population and the reconstruction free flow of information. Staff avoided being slotted into actors is greatest at the local level. Armed with better organizational silos and instead worked collaboratively on first-hand knowledge about what is going on, the issues cross-cutting issues to achieve common goals. that need to be addressed, the aspirations of people and A higher level of turnover and attrition is expected in such the tradeoff among choices, local management usually a stressful, fast-paced working environment. Indeed, an makes fast and better decisions than those managing agency with a limited lifespan such as BRR should not be from a distance. Localized authority also avoids the expected to yield a stable career path. BRR was more akin to an organization of volunteers than a government agency. frustration caused by the rigid, hierarchical decision- Individuals ought to take their leave if their contribution is making chains of centralized organizations. Accordingly, no longer needed or excessive burnout prevents them from the ADB’s decision to delegate authority to its EMS office performing. made great sense. The Extended Mission in Sumatra, a nimble organization unit separated from the mainstream organization structure This contrasted sharply with the centralized structure of ADB, was a good example of an effective ad-hoc adopted by many other donors in which Jakarta-based organization on the donor side. Armed with sufficient decision makers sat far removed from the goings-on in capacity and authority, the office could respond quickly Aceh and Nias, with post-disaster reconstruction being and decisively on various planning and implementation issues of ETESP subprojects without being paralyzed by the just one of the many “development projects” on the limiting structure of the bank’s organization. agenda. Distanced from the emergency atmosphere that was the order of the day in Aceh and Nias and lacking incentives to work faster and harder as typically demanded by post-disaster reconstruction, these officials did not share the same sense of urgency as the
  • 72. Modality of Fund Channeling and Performance Chapter 4. Delivering Results: 65people in the field. Here, decision-making processes went though the usual pipelines Vacational High School built byin which onerous administrative and technical requirements frequently delayed KfW in Banda Aceh. August 22,implementation. Finally, the Indonesia country office sometimes lacked the authority or 2008. Photo: BRR/Arif Ariadiconfidence to make decisions, even decisions that could have been locally, and waitedfor instructions to be sent from global headquarters. Occasionally, prospective projectsand the time spent developing them might come to nothing if the judgments of the localoffice were not shared by the global headquarters, despite the fact that the latter did notnecessarily know what was happening in the field and therefore operated from a differentperspective. The need to relay information between the Indonesia country office andglobal headquarters caused yet further delays.(iii) Use of an Imprest Account To expedite disbursements, ADB established a project-specific imprest account in BankIndonesia with a ceiling of US$29 million that was maintained and monitored by BRR,with support provided by a project management office. Line ministries were given accessto sub-accounts of this imprest account so that they could use the funds for subprojectimplementation. The imprest account was replenished to compensate for the liquidation
  • 73. Reducing Transaction and the usage of funds by the end-beneficiaries. For transactions Costs ThroughFINANCE: The Seven Keys to Effective Aid Management below US$100,000, statement-of-expenditure procedures could be used so long as the appropriate conditions for the use of the Collaboration procedures were satisfied. This mechanism greatly facilitated the speed of disbursements Transaction costs are not the only consideration of ADB grants (ADB 2006). Since the majority of the transactions in deciding to go it alone or to join a trust fund, nor were paid for out of this imprest account, direct payments only possibly the most important. However, it is worth had to be arranged for some very large contracts. throwing in a brief theoretical discussion. Tapscott and Williams (2006) posited a new way of reading the famous Coase Theorem first Effectiveness of Players Using the posited by Nobel prizewinner Ronald Coase as On-Budget/Off-Treasury Modality such: “There must be a balance between the costs The upside of the on-budget/off-treasury modality is that the of the transactions that a company must pay and donor has its own implementing capacity. This helps relieve the 66 the opportunity to make everything in-house.” Only if the costs of doing things in-house are higher than burden of implementation from the partner government, whose performing them in partnership with others, is it resources are typically spread thin across sectors and regions better for the company to collaborate. affected by the disaster. The downside of this modality is that the Applied to fund channeling mechanisms in a partner government has limited influence on the fund allocation post disaster reconstruction context, we derive the and project execution. Donor agencies usually arrive with following axiom: “As long as the transaction costs preconceived notions on the types of project to be funded and of going it alone exceed those of working together the way these projects should be implemented. in a pooled fund, donors will be better off by joining in.” Donor visibility is among the main reasons why this modality This axiom held true in reality. Government and is preferred by certain donors to multilateral arrangements. By donors benefitted from reduced transaction costs going bilateral and off-treasury, the results of aid projects are when government resources were pooled, such more visible, quantifiable, and directly attributable to the donors. as under the BRR or in the case of the integrated “one-stop-shop” of Tim Terpadu. By contrast, in the This can be beneficial when they report back to their home case of certain non-traditional donors in Aceh such country taxpayers and to the media. Meanwhile, by including as Kuwait and Saudi Arabia who decided not to aid disbursements in the government state budget reports, they channel their funds through multilateral channels align projects with the partner government’s objectives. or multi-donor funding schemes, the transaction costs incurred by both the donors and the BRR (by Another reason why big bilateral donors prefer this modality spending scarce management time on bilateral to pooling their funds in a trust fund such as the MDF is the courtesy visits, etc) were very high relative to the negligible benefit that such a trust fund provides for big donors. contributions they made. Pooling contributions into a single fund reduces transaction costs in the form of information, coordination, administrative and various access costs through joint effort and burden sharing among donors. By combining resources, the donors also can leverage impact to the extent that is not achievable by smaller-sized, more scattered contributions. But these benefits are not appealing for large donors, who already have the economies of scale to prepare, appraise, approve and implement projects by themselves. For these donors, participation in a trust fund is likely not to reduce transaction costs and may even increase them due to additional efforts associated with collaboration.
  • 74. Performance The governments of Germany and Japan were among the donors who selected thismodality. Modality of Fund Channeling and Performance(i) The Government of Germany Traditionally, German bilateral assistance is implemented through project and programaid. For the reconstruction of Aceh and Nias, Germany provided special grants amounting Chapter 4. Delivering Results:to €170 million, €35 million of which was delivered through the German Agency forTechnical Cooperation (GTZ) with the remaining €135 million delivered through theGerman Bank for Reconstruction and Development (KfW). Projects implemented included the reconstruction and improvement of healthservices in Aceh, rehabilitation and reconstruction of vocational schools, secondaryschools, housing and settlements, modernization of vocational training, support for localgovernment, and reconstruction and development of the microfinance system. 67(ii) The Government of Japan Japanese bilateral assistance to the Aceh-Niasrecovery program totaled ¥14.6 billion, which was Clearing Up Donor Confusionallocated across 15 projects administered by JICS The Head of Rehabilitation and Reconstruction Agency(Japanese International Cooperation System) as the for Aceh and Nias (BRR) Kuntoro Mangkusubroto said in animplementing arm of JICA (Japanese International interview that donors used to be confused about whom theyCooperation Agency). should talk to if they wanted to get involved in post-tsunami reconstruction. “There seems to be confusion among those Projects implemented included support for wishing to participate in the reconstruction work as to whichvocational training centers, schools and universities, government agency they should talk to.”rehabilitation of fishing activities, reconstruction “There are always questions about how to participate in theof orphanages, roads, markets and health centers, reconstruction process. For example, the one that we receivedsupply of medicine, recovery of water supply and from the German government. They were confused as theysanitation system. were accustomed to approaching ministries in Jakarta before coming to Banda Aceh.” Overall, the bilateral grant projects from Germany In response, Kuntoro said he asked them to come directlyand Japan performed satisfactorily, reaching near to him or his agency, BRR. “When it comes to coordination,completion by the end of 2008. Some implementation the authority over all reconstruction activities in Aceh andhurdles were inevitably encountered, which is to Nias, I always urge international agencies or NGOs to comebe expected when disbursing grants of such a straight to Banda Aceh. No need to go to Jakarta.”large scale. Confusion regarding the role of BRR According to Kuntoro, the only agency that still seemedmarred coordination in the early months (see Box confused was JICA from Japan. “It seems they are not well4.6); uncertainty regarding customs clearance informed about the BRR. I hope that once they understandprocedures delayed the release of Rp 32 billion worth that the BRR is the only agency that has been given the authority by the government over the rebuilding of Aceh andof school equipment from Germany,22 while land Nias, they will come to us to discuss their programs in Acehacquisition problems threatened cancellation of a and Nias.”Japanese-funded local marketplace rehabilitationproject.23 However, apart from those minor hiccups, Source: The Jakarta Post, June 11, 2005implementation generally went smoothly.
  • 75. CFAN Meetings CFAN meetings focus on resolving major Effectiveness of Players Using the Off-Budget/Off-FINANCE: The Seven Keys to Effective Aid Management issues faced during the period. Treasury Modality CFAN 1 (October 2005). Identified bottlenecks and challenges and discussed Proliferation of Agencies a new approach to coordination, i.e., the The advantage to off-budget modality was swift implementation, guided facilitation model. as the aid agencies did not have to follow a long and rigorous national CFAN 2 (May 2006). Focused on the budgetary cycle. However, since the agencies were not legally regionalization and establishment of the accountable to the GOI, it was difficult to monitor and evaluate their Joint Secretariat. contributions. In the case of Aceh and Nias, the difficulty was multiplied CFAN 3 (April 2007). Held halfway by the fact that the over 992 funding and implementing agencies, through the BRR’s mandate, the meeting scores of UN agencies and bilateral donors who went off-budget focused on thematic issues and preparation of a consolidated mid-term report. generally had their own funding sources. Therefore, they had little or no incentive for coordination among themselves. The potential cost of CFAN 4 (February 2009). The last 68 meeting, a celebratory CFAN to acknowledge redundant resources and duplicate activities was enormous. achievements, consolidate the lessons Fortunately, despite the many actors involved, aid funds were learned and give input for the continuation of post-BRR coordination. largely concentrated in the hands of a few big international NGOs and donors, making coordination easier than envisaged. The top 15 actors accounted for 80 percent of reconstruction funding24. Among the largest off-budget contributors were USAID, UN Agencies, and International Red Cross. Coordination Tools As mentioned in Chapter 2, in coordinating the off-budget activities, BRR employed two levels of meeting to improve harmonization of activities and alignment of projects with the interests of the people of Aceh and Nias: (a) Coordination Forum for Aceh and Nias (CFAN) CFAN was a high level forum for coordination, bringing together all recovery partners, both government and NGOs, to discuss collective progress and challenges as well as provided a critical avenue for sharing information and creating strategies for moving forward. (b) Project Concept Note Approval Workshop (PCN Workshop). In order to better coordinate the activities of NGOs, BRR established a mandatory submission of Project Concept Notes (PCN) by the project proponent. NGO-led projects could not start without BRR’s prior approval. PCN Approval Workshops were an operational level meeting conducted to discuss and decide on feasibility of projects proposed. The criteria used to evaluate projects included alignment with the Master Plan and sector vision, local community involvement, and project sustainability. During the early recovery period, the workshop was held once a week, then every three weeks. Eventually, as the number of projects proposed declined over the latter half of 2008, it was conducted monthly. Each workshop reviewed an average of 40 to 50 projects.
  • 76. Modality of Fund Channeling and Performance Chapter 4. Delivering Results: 69Over the 44 workshops held during BRR’s tenure, some 1,700 projects were reviewed out, Finance Minister Sri Mulyaniof which 1,540 projects were approved. speaks in front of CFAN 3 participants. Jakarta, April 24,Performance 2007. Photo: BRR/Arif Ariadi The performance of projects channeled off-budget was largely commendable. Of theRp 3.38 trillion committed, Rp 2.67 trillion (79 percent) had been disbursed by the end of2008. Most of the unfinished projects were at their final stages, with 106 (56 percent) of190 open projects anticipating completion in 2009.Conclusion As the famous Sichuan proverb popularized by Deng Xiaoping says, “No matter if itis a white cat or a black cat, as long as it can catch mice, it is a good cat.” Donors maychoose different fund channeling mechanisms, but in the end they are all accountable forresults. The main reason to select one particular modality over another is effectiveness indelivering performance. Regardless of the modality a particular donor agency chooses,what donor constituents and benefactors most care about is the end result.
  • 77. Chapter 5. Achieving and Upholding AccountabilityAchieving andUpholdingAccountability 71Getting to Trust At the onset, BRR had struggled to build credibility and inspire trust. As thereconstruction and rehabilitation process progressed and more responsibilities cameunder its purview, accountability emerged as an increasingly important factor inmaintaining that credibility and trust. Unlike most government agencies, BRR was an agency established to provide a speedyresponse to an emergency situation. Essential to its effectiveness was the capacity to beresponsive, flexible and solution-oriented. The previous chapter highlighted the breakthroughs that enabled BRR to deliver itswork swiftly. These breakthrough policies and procedures were meaningful to the extentthat there was accountability to assure compliance with their provisions. Accountability is advanced when the organization is held responsible for the operation Micro, small, and mediumand effectiveness of programs and institutions under its control. Demonstrating enterprises in Aceh revived in a very short period. Not onlyaccountability therefore requires that accurate performance information be collected and receiving funding assistance, theyreported in some public venue. also got business management training and consultations. Photo: BRR/Arif Ariadi
  • 78. The agency’s mandate dictated that BRR was legally accountable for financial reportingFINANCE: The Seven Keys to Effective Aid Management on the use and performance of funds expended from its central government budget. It was also responsible for recording and coordinating the outputs of reconstruction projects implemented by other international and national organizations. BRR’s accountability framework required ingenious tailoring to encompass the numerous delivery partners’ various needs, within the structure of the GOI public finance regulations that BRR was subject to. BRR needed to create a framework that contained the appropriate modalities and fund channelling options to speed supplies and urgently needed assistance to beneficiaries. In addition to the mandatory accountability systems that BRR was subject to as a Line Ministerial level agency, BRR also put in place and carried out non-mandatory accountability systems that were developed from the mandatory systems. These non- mandatory accountability systems had the added bonus of facilitating BRR’s coordination 72 work. Each system of accountability had its own tools and methods for application. This chapter will discuss the reporting systems and tools that BRR used to enable a clear and accurate accounting of funds usages, reconstruction program outputs, and accomplishments. A Note on Compliance and Effectiveness The compliance view of accountability is deeply entrenched in the history, theory, and practice of the GOI. This view of accountability holds that a correct operation is one where every step is properly documented and is taken in accordance with existing regulations to ensure funds are used appropriately and to provide a complete and accurate record of what is being accomplished. Financial accountability is a form of compliance accountability, for it has to do with how the government uses and treats its funds. Has it disbursed its funds honestly? Have it lived up to expectations by checking whether it complied with prevailing rules? Financial accountability can be measured vis-à-vis compliance with regulations. It is important to keep in mind that until today, there was no national disaster management regulatory framework for accountability. BRR was therefore held accountable to regulations that were created under normal conditions, contrary to its mandate for speedy delivery and flexible response. As a new organization, BRR did not have pre-established procedures ready to be put into action; rather these procedures were formed during the initial months of operations, during which the agency’s attempts at swift response to people’s needs where at times at loggerheads with the need to adhere to regulations created for normal situations. In these circumstances, compliance with the legal framework actually functioned to constrain the organization’s effectiveness and response time.
  • 79. Accountability for performance has to do with what outputs and outcomes havebeen produced from inputs. Has the organization achieved the desired result? Was Chapter 5. Achieving and Upholding Accountabilitythe organization able to reach clear performance targets? To create accountability forperformance, we must frame our expectations in terms of results--not in terms of rules,regulations or processes. In this sense, accountability for performance is not complianceaccountability (Behn 2001). The more appropriate model--especially in a reconstructioncontext--is effectiveness accountability. Effectiveness is a measure of goal achievement.An effective program achieves the goals that have been set in advance for it (Wolf andHassel 2001). The Master Plan and its revision clearly outlined the expectations of thereconstruction.; therefore performance accountability could be measured by comparingoutputs against the outlined expectations, as opposed to measuring the processes bywhich these results were produced. 73Mandatory Accountability Accountability systems are a way to hold government agencies “accountable” for theiraccomplishments or lack thereof, and for the use or misuse of funds. These systemsconstrained the extent to which BRR could deviate from the responsibilities as laid outfor it by Presidential Regulation in Lieu of Law No. 2/2005. With regard to the differenttypes of modalities and funding channels available to donors, BRR was accountable forthe performance of on-budget APBN funds as well as for bilateral and multilateral donorcontributions, and for recording the output of the off-budget funds managed by NGOs.Hence BRR’s mandatory accountability was comprised of two components: financial andperformance accountability. Table 5.1 - Mandatory Accountability Systems Legal Fund Source of Type Report Indicator Submitted to Framework Mechanism Information Financial Report Project (composed of: President through Implementing 1. LRA On-budget/on- Disbursement MOF Units and Financial 2. Balance Sheet treasury & on- levels Subject to audit State Treasury 3. Notes to budget/off-treasury Financial Status by Supreme Audit disbursement Financial Agency status reports Statements) ProjectPresidential Implementing All fund mechanismsRegulation in Units and Performance (On-budget/on-Lieu of Law State Treasury President Report treasury; on-budget/No.2/2005 disbursement through MOF off-treasury, & off- status reports budget/off-treasury) and RAN Performance Outputs (KPIs) Database Project Implementing State Ministry of On-budget/on- Units and Administrative LAKIP treasury & on- State Treasury Reforms budget/off-treasury disbursement (MenPAN) status reports
  • 80. Financial AccountabilityFINANCE: The Seven Keys to Effective Aid Management BRR’s mandated scope extended to the management of funding mechanisms not only of GOI centrally funded reconstruction activities, but also of funds committed and implemented by international and domestic NGOs and donors. BRR was legally responsible for financial reporting of all on-budget expenditures. For off-budget projects, BRR relied on its partners’ own accountability mechanisms to report on their financial achievements. This section will first discuss the financial reporting of on-budget projects that BRR was directly responsible for under its mandate. (a) The Role of PIUs in the Accountability Process BRR reported on the thousands of projects it implemented using the GOI funds by tracking project fund disbursement. This was done through Project Implementation Units 74 (PIUs). PIUs were responsible for implementing and executing BRR projects at the district level and as such were on the frontline of overseeing fund disbursements. Figure 5.1 illustrates the structure of each PIU and the financial responsibilities of its members. During BRR’s tenure there were over 900 PIUs throughout NAD and Nias. BRR established rigorous financial reporting systems and procedures for project implementation in which the PIUs on the ground reported directly to BRR’s Chief Financial Officer (CFO), or the Deputy of Finance and Planning. All PIUs had to be held Figure 5.1 - Satker Financial Structure HEAD OF PROJECT IMPLEMENTING UNIT Project Manager SPM TREASURER
  • 81. Figure 5.2 - BRR’s Organizational Financial Reporting Line Chapter 5. Achieving and Upholding Accountability BRR Director Deputy of Deputy of Finance Operations Sectoral Sectoral Sectoral Sectoral Sectoral Sectoral Sectoral Deputy Deputy Deputy Deputy Deputy Deputy Deputy Regional Regional Regional Regional Regional Regional I II III IV V VI 75 PIU PIU PIU PIUaccountable for their work. This system of direct accountability allowed BRR to monitorspending without many layers of administration, making for a much more streamlinedaccountability system. BRR closely monitored this system to ensure that it adhered to its mandated task.Each PIU reported on a monthly basis to the Directorate of Accounting under theBRR’s CFO/Deputy of Finance and Planning which in turn checked expenditures, thenconsolidated reporting for all PIUs. BRR completed monthly consolidated financialreports. Reconciliations were carried out with the State Treasury (KPPN-K) to allow fortiming and recording differences. Reports were adjusted accordingly and submitted to allstakeholders; to ensure integrity. After they were audited by the GOI’s Badan PemeriksaKeuangan (BPK or Supreme Audit Agency), these financial reports were open to publicscrutiny. According to public finance regulations, the PIUs should comply with DirectorateGeneral of Treasury regulations. A PIUs internal process, structure, and accountabilityis well-regulated by Ministerial Decree No.66/2005. However, in the context of the BRRimplementation, there were a number of differences when compared with ordinary PIUs. In a significant departure from Indonesia’s public procurement regulations, the BRRPIUs were permitted to appoint non-civil servants to the tender committees.25 Fiduciaryresponsibility lay with the head of the PIU who in turn reported to the BRR Director ofFinance. Procurement was carried out by an independent Tender Committee appointedby the PIU. The Tender Committee was tasked with procuring goods and servicesin accordance with the applicable GOI law on procurement.26 Box 5.1 explains theaccountability system for the payment of tenders.
  • 82. Another difference was that the employees of reconstruction Satkers could beFINANCE: The Seven Keys to Effective Aid Management contracted for just one year, and that those employees were often sourced from other government agencies or departments. Each PIU head was under contract to produce specific deliverables within a fiscal period. The contract could be renewed or terminated at the end of each fiscal period, while remuneration was based on achievements of the targets. Upon project completion, the PIU handed over all of the project deliverables, documents, operational (e.g. furniture, equipment, vehicles) and fixed assets (e.g. roads, bridges, health centre) constructed under the project to BRR, and its entire staff was then terminated. An unfortunate consequence of these short annual contracts was the negative impact on the institutional memory of each PIU. Coming from different government agencies, new PIU staff were not yet imbued with a sense of urgency regarding the delivery reconstruction and rehabilitation needs. As the PIU personnel begin to develop 76 this urgent post-disaster mentality, the finite contract period would put an end to their involvement in reconstruction, interrupting the accumulation of knowledge and acculturation. (b) Financial Reporting Accurate and complete records of all financial transactions were needed to show how the taxpayers’ money had been used. The definition of financial transactions included inflows from the APBN, expenditure, and money that was Accounting for Tender loaned or borrowed. On a periodic basis, financial transactions were supposed to match the amount budgeted, unless any Payments changes had been previously approved. Upon its establishment, BRR was mandated by Regulation The PIU, using Technical Assistance where in Lieu of Law No.2/2005 to submit a Financial Report, similar appropriate, reviewed the Tender Committee to other Line Ministries. This financial accountability report decision and all being well entered into contract with follows an orderly and systematic national accounting system the successful bidder. BRR set up and implemented the following payment verification process: for all expenditures from the State Budget, that is the (GOI) Government Accounting Standards are comprised of existing The first Payment was usually due on signing of accounting standards modified in 2005 for wider acceptance. the contract and the issuance of a notice to proceed. In Aceh this was reviewed by State Treasury. BRR must submit a semi-annual, annual, and final Financial Report to the Ministry of Finance (MOF). The MOF in turns Subsequent payments were subject to the PIU assessing the physical progress of the contractor consolidates all Ministerial and Local Government Financial and issuing a verification letter attesting to the Reports to create the National Financial Accountability Report. progress, which then formed the basis for the contractor to issue the invoice. BRR’s Financial Report consisted of three complementary components. First was the Budget Realization Report. The On receipt of the invoice the State Treasury referred to the database of contractors, reviewed the Budget Realization Report detailed disbursements made authorizations and verifications and finally checked against the stated budget commitments. This report was that there was a budget available to accommodate the payment.
  • 83. crucial in depicting the Table 5.2 - Rehabilitation and Reconstruction Allocations per Sectorspending capacity of Master Plan Allocation Revisions (2008) Master Plan* Chapter 5. Achieving and Upholding Accountabilitythe organization during including Funding Mechanism of the Rehabilitation Sector Allocation of Aceh-Naasthe time period covered 2005and concomitantly, the APBN Non-APBN Totalperformance of said Housing 579,021 880,454 1,089,411 1,969,865organization. Second was Infrastructure 2,208,505 1,423,710 696,452 2,120,162the Balance Sheet, a snapshot Social Affairs 1,566,021 415,866 1,146,557 1,562,423of the financial status as Economic 161,182 324,181 482,407 806,588of a specific date. The last Developmentcomponent was comprised Institutional 657,096 203,183 300,997 504,180of the Notes to the Financial DevelopmentStatement. The first two Management 0 223,846 139,362 363,208components provide a 77numerical picture of progress, TOTAL 5,171,825 3,417,240 3,855,186 7,272,426while the Notes to the *Blanket allocation established by DPR-RI in 2005Financial Statement provide anarrative on the numbers thathelps explain and clarify thefinancial status.(c) Financial Targets At the start of BRR, funds were allocated to sectoral groupings by the governmentlegislative assembly (DPR-RI) beginning late 2005, in consultation with BRR, the NationalDevelopment Planning Agency and local government. Estimates of the damage requiringreconstruction and rehabilitation were used as a basis to make these allocations. Aftera Mid-Term Review in June 2007 and further analysis of demand, the Master Plan wasrevised to cover US$7.2 billion instead of US$5.2 billion. The revised Master Plan wasconsidered at this point to more fully represent the interests of Acehnese communities.The resulting allocation of funds by sector is shown in Table 5.2.(d) The Role of Audits BRR’s Annual Financial Report is subject to outsideaudit by the Supreme Audit Agency. This independent Supreme Audit Agencyevaluation reports on the accuracy of BRR’s financialstatement, with the objective of providing an opinion Opinionon the organization’s reporting. For each Financial Report, the Supreme Audit Agency Beginning 2006, BRR submitted periodic Financial provides one of the following opinions:Reports to the Audit Agency, and audit accordingly • Unqualified Opinionissued an opinion on each of those reports.27 • Qualified Opinion • Disclaimer • No Opinion
  • 84. Audits are performed to evaluate the validity and reliability of information providedFINANCE: The Seven Keys to Effective Aid Management on the organization’s system, process, or projects, and also to assess the financial system. An audit keeps an entity honest by treating truth as a measurable value and target, using compliance with the existing standards as the yardstick of honesty. Any discrepancy or inaccuracy must be addressed and repaired. Commonly, an audit will reveal simple accounting mistakes. In other cases, more serious issues, such as fraud, may come to light during an BRR Trust Fund audit. As mentioned in previous chapters, BRR had to deliver As mentioned in Chapter 3, the BRR Trust quickly under the constraints of prevailing regulations Fund was formed based on an MOF authorization which, designed for normal situations, could not sufficiently letter to allow unspent funding to be disbursed the following year with the purpose of securing accommodate a post-disaster context. Upon auditing funding for delayed projects. Projects funded BRR’s Financial Report in 2006, BPK issued a Disclaimer, 78 through the Trust Fund are not exempt from perceiving the BRR Trust Fund (Box 5.3) and fund channeling the national standards of accountability and mechanisms for certain projects as being non-compliant with transparency; BRR maintained its commitment to comply with legal standards. The Trust Fund existing regulations. These projects were: the World Bank- account was established to provide speed, financed Community-Based Settlement Rehabilitation and sustainability and flexibility to projects in the Reconstruction Project (ReKompak) as funded through a PMU post-disaster area. A similar account was created account; scholarships for continuing healthcare education to expedite the post-disaster financing process to in NAD, which were channeled through BRR and the Medical facilitate the Yogyakarta earthquake recovery. Academic Department of Unsyiah; and the Banda Aceh Scholarship Committee Account. This perception of noncompliance had to do with the view that the BRR Trust Fund, Table 5.3 - Supreme Audt Agency Opinion and Funds for Line Ministries in 2007 ReKompak, and Scholarship Committee Account deviated Number of Amount of Funds Percentage of Opinion from normal regulations. Organizations (Rp million) Funds These had been designed WTP 17 89,373,031.22 11.79% in response to pressing WDP 31 18,279,991.67 2.41% reconstruction needs: the need to sustain leftover TMP 37 649,066,668.52 85.66% budget funds from one year TW 1 1,016,011.82 0.13% to the next in the case of the Total 86 757,735,703.23 100% former, and the need for swift fund channeling mechanisms Source: BPK 2009 in the case of the latter two projects. At that time, existing regulations could not factor in the urgency of the reconstruction. Compliance gave way to the need for urgent delivery and flexibility in carrying out a post- disaster response.
  • 85. Chapter 5. Achieving and Upholding Accountability 79 In maintaining compliance accountability, the framework for accountability must be Head of BRR Executing Agencyadjusted to suit the post-disaster context. Under such circumstances, divergence from Kuntoro Mangkusubroto (center),normal procedures does not necessarily indicate misconduct. Different imperatives are at accompanied by the Deputy forwork. The Supreme Audit Agencys opinion on BRR’s Financial Report in 2006 suggested Finance and Planning, Aminthat the GOI standard auditing procedures were simply not appropriate to a post-disaster Subekti (left), witness the Headcontext. Upon shifting their paradigm to that of a post-disaster context, the Audit of the Supreme Audit AgencysAgencys subsequent audit of the BRR Trust Fund’s utilization indicated no problems of representative office in Banda Aceh, Ir. Abdul Rifal Saleh, signsignificance. the results of the Audit Agencys. In 2007, BRR was one of 17 out of 86 Line Ministries to receive an Unqualified Opinion Banda Aceh, November 20, 2008.on its Financial Report (Table 5.3). The majority of Line Ministries (31 agencies) received a Photo: BRR/Arif AriadiQualified Opinion or a Disclaimer (37 agencies). In contrast to BRR, many of the 17 agencieswho received an Unqualified Opinion were newly established and were managing a relativelysmall amount of assets and funds, equivalent to approximately 12 percent of the total StateBudget (BPK, Menunaikan Amanat Konstitusi, 2009). Getting an Unqualified Opinion on its report was a remarkable achievement for BRR,especially given that it had to manage the greatest amount of funds (two billion dollars inreconstruction funds) among all the agencies.
  • 86. Performance AccountabilityFINANCE: The Seven Keys to Effective Aid Management Commitments of government and non-government funds must be translated into real results. As its mandate stated, BRR would be held accountable for its performance in Aceh and Nias. To measure the effectiveness of BRR’s work, the Revised Master Plan provided a set of reconstruction output targets. As a ministerial level agency, BRR was legally accountable for reporting the outputs of funds channeled through on-budget mechanisms. Moreover, its dual role as a coordinating body charged BRR with reporting on the outputs of off-budget funds as well. (i) Performance Targets In Chapter 2, we discussed the changes made to the Master Plan to better accommodate the demands on the ground. The Revised Master Plan thus became a compass for measuring outputs through the Key Performance Indicators (KPIs) set out in 80 it. These predetermined KPIs constituted legally acceptable performance accountability measurements for the effectiveness of efforts by BRR and partners. In total, there were 678 KPIs across the five principal sectors. In addition to conducting a Mid-Term Review (MTR), BRR carried out a stocktaking exercise to gauge the progress in each of the sectors. Table 5.4 is an example of the results of the stocktaking process in the housing and settlement sector. It had been established at the outset that satisfactory performance for BRR would be defined as 85 to 100 percent achievement of the overall KPI. By December 2008, 90 percent of the Master Plan KPIs had been reached (Table 5.5). The KPI stocktaking exercise showed that having overcoming painful disbursement hurdles and shifted its approach Table 5.4 – 94% of the Overall Key Performance Indicators (KPIs) Have Been Achieved Category of Percentage Achieved Sub-Sector BLUE GREEN YELLOW ORANGE RED Grand > 100% 76-99% 51-75% 26%-50% <25% Total Infrastructure 59 6 2 1 3 71 Institutional Development 106 3   2   111 Economic Development 125 6 5 8 7 151 Housing and Settlement 40 2 1   2 45 Socio-Cultural and Religious Affairs 265 12 8 5 9 299  Percentage 87.89% 4.28% 2.36% 2.36% 3.10% 100.00% * KPIs not reached during BRR’s tenure were transferred to the Rencana Kerja Pemerintah 2009 RKP or Annual Government Work Plan 2009 (more in Chapter 7).
  • 87. to improve coordination, BRR had been able to steer reconstruction efforts towards thetargets of the GOI Revised Master Plan. Chapter 5. Achieving and Upholding Accountability(ii) Performance Reporting Process As mentioned above, PIUs played a key role in the reporting of project implementationprogress. PIUs acted as BRR’s arms and legs on the ground to monitor and record theoutputs of on-budget funds as they took place. As for off-budget outputs, the KPIsreached by NGOs and other implementing partners (more below) were monitoredthrough the RAN Database.(iii) Performance Report According to Regulation in Lieu of Law No.2/2005, BRR must submit a bi-annual, annualand final Performance Accountability Report. This Performance Accountability Reportwas an inclusive report covering all outputs funded by all fund channeling mechanisms.As the national standard for performance reporting was suited for on-budget funded 81projects only, BRR was tasked with developing its own reporting format that could showboth on- and off-budget performance reporting. The Performance Report format thatBRR came up included a comparison of KPI progress as compared to the targets of theRevised Master Plan. In so doing, BRR only reported the outputs of all the reconstructionplayers, not outcome. Constructing this performance report was not without its challenges. While outputsof on-budget projects could easily be measured in line with the Revised Master PlanKPIs, off-budget project KPIs were a different story. There were no such widely-acceptedstandards for off-budget reporting of progress. The RAN Database, which was the keytool in recording the financial and performance achievements, did not apply the Revised Table5.5 – Achieved Key Performance Indicators (KPIs) in the Housing and Settlement Sector Category of Percentage Achieved Sub-Sector BLUE GREEN YELLOW ORANGE RED Grand > 100% 76-99% 51-75% 26%-50% <25% Total Land Administration 20 1 1   2 24 Housing 3         3 Spatial Planning 17 1       19  Total 40 2 1   2 46
  • 88. Master Plan KPI targets from the beginning; later, when partners were asked to reportFINANCE: The Seven Keys to Effective Aid Management their KPIs, they often did so according to a different set of KPIs than those specified in the RAN Database. Moreover, the accuracy of the RAN Database was subject to the compliance of reconstruction partners. Meanwhile PIUs on the ground were reporting on the implementation progress in accordance with the government standard, i.e., the Revised Master Plan KPIs. The differing standards of KPI measurement complicated the reporting process for BRR, and consequently compromised the completeness and accuracy of the reporting. (iv) LAKIP The Performance Accountability Report is a nationwide Ministerial and Local Government-level standard performance report. It reports on the outputs generated by on-budget funds. As an established national standard for performance reporting, The format was one that BRR could follow for its on-budget activities. Performance 82 Accountability Report are submitted to the Ministry of State Ministry for Administrative Reforms annually. Experiences in Aceh and Nias demonstrated that the Performance Accountability Report, a national accountability reporting system, is too narrow in scope for reconstruction purposes; it fails to incorporate off-budget components that have a significant impact on the overall results. GOI did not yet have an integrated system of accountability for on- and off-budget outputs. While BRR was the first of all Line Ministries to be mandated to report on off-budget funded outputs, BRR will not be the last. An integrated system of accountability that can handle on- and off-budget outputs with a fair standard of recording and reporting is needed on a national level. (v) Recognition When reviewing submitted Performance Accountability Report, the State Ministry of Administrative Reforms compared the performance of each agency against their set of targets. In 2006, BRR received an award for its first ranking performance, as shown by its Performance Accountability Report. In 2007, although BRR did not receive as high a ranking in comparison to other agencies, BRR was still awarded a certificate for submitting the Performance Accountability Report on time. Value Added Accountability Systems BRR provided systems of accountability to stakeholders in the reconstruction and rehabilitation program in Aceh and Nias above and beyond that required by Indonesian law. These accountability systems also created transparency on the joint reconstruction process. Transparency is about openness. It is about being able to see what decisions are being made and how they are made, as well as if and how decisions are implemented once they are
  • 89. agreed to. Access to information is critical to transparency. The following paragraphs giveexamples of the transparent information systems that BRR instituted to create transparency Chapter 5. Achieving and Upholding Accountabilityof results over its four years.RAN Database As mentioned in Chapter 2, the RAN Database system was established in late 2005to register and monitor donor and NGO programs, and to monitor off-budget physicaland financial implementation progress. Developments made to the system allowedit to monitor commitment and disbursement levels along with the outputs producedby funding and implementing agencies. The system is labor intensive and overlaps ofinformation took place, creating a small amount of doubt regarding the accuracy andcompleteness of the data. To overcome its shortcomings, the BRR Center for Data andInformation and the Directorate of Accounts and Asset Management undertook outreachactivities to increase its compliance level and ensure agencies confirmed the data they 83submitted. As BRR came to a close, the RAN Database had a compliance rate of 92percent and nearly 70 percent of recorded agencies had confirmed their achievements.28In 2008 the database was the recipient of a prestigious technology award from the FutureGovernance Asia Pacific Consortium.Asset Management and Information Systems(i) SIMAS/ SABMN/ AMIS The Asset Management Information System, AMIS, was created by BRR as a supportingapplication to an existing asset management system called Sistem Akuntabilitas BarangMilik Negara (SABMN or State-owned Asset Accountability System), which belonged tothe MOF. SABMN recorded important information such as the location, contract number,types of assets, and the end user of each asset. These details confirmed the existence ofthe asset and the condition of the asset (based on 11 classifications). In 2008 AMIS was further developed. The System integrated data from the RANDatabase to help BRR (UNDP-MDF) transparently and accountably verify the existenceof assets for handover to local governments. AMIS provided the Provincial Departmentof Finance, Provincial Department of Public Works, Provincial Planning Department andthe Provincial and National Archives with access to a geographically-referenced, photo-verified asset database that could be used for asset management and reporting.(ii) SIMBADA and SIMDA Since AMIS was designed for BRR’s asset handover under the regulatory framework ofthe MOF, it was appropriate for National and Provincial level Provincial Departement ofFinance use only. Therefore, to address the needs of provincial and district level ProvincialDepartement of Finance and sectoral district departments, BRR developed the SIMBADA
  • 90. FINANCE: The Seven Keys to Effective Aid Management 84 The transfer of Asset system for asset planning and management and SIMDA system for district level financial Management Applications to the planning and management. At provincial and district levels, financial and asset planning local NAD authorities. October and management are regulated by the Ministry of Home Affairs.29 Both the SIMBADA and 29, 2008. Photo: BRR/Arif Ariadi SIMDA systems comply with these regulations and potentially provide end users with efficient, computerized financial and asset planning and management tools to enhance local government’s ability to plan and develop, budget, operate and maintain the public assets they received. Conclusion It was important that BRR create and maintain accountability to stakeholders and beneficiaries. As noted above, this had to do with both financial accountability as well as performance accountability. In other words, BRR had to be able to answer for its activities. To do this, BRR had to be able to measure its progress vis-à-vis targets. Setting targets at the onset that were collectively agreed upon by stakeholders was essential to providing measurements for BRR’s performance and accountability down the road. These targets, and the relevant KPI to measure achievement of those targets, were set out in the Master Plan and fine-tuned in the Revised Master Plan.
  • 91. Detailed, on-time reporting from BRR on its performance and financial achievementsclearly indicated its progress to donors and showed where BRR was in relation to Chapter 5. Achieving and Upholding Accountabilityits targets. Audits and anti-corruption initiatives helped to maintain the rigor andbelievability of these reporting processes, to the satisfaction of all stakeholders and toBRR’s benefit. These processes helped BRR to successfully track, explain and account for itsfunds usage and performance to stakeholders and beneficiaries—the hallmarks ofaccountability. Finally it should be noted that efforts to demonstrate BRR’s accountabilityproduced additional value, by producing a host of other information for the use ofstakeholders. These are all lessons to take away from the experience in Aceh and Nias. Accountabilityfor an endeavor on this massive scale must encompass all of its players and accommodatethe context. BRR’s accountability of on- and off-budget funds and their outputs would 85have been strengthened by the existence of a nationally integrated accountabilitysystem to measure its overall efficacy. Meanwhile, the post-disaster context requires anappropriate post-disaster accountability framework that accommodates the need toimplement quickly and allows for flexibility to respond to changing needs.
  • 92. Chapter 6. Maintaining Integrity Along the RoadMaintaining IntegrityAlong the Road 87A Single Incident, Deadly Consequences It was 3:27 p.m. on January 15, 2009. US Airways Flight 1549 had just taken offfrom New York’s LaGuardia International Airport, heading for Charlotte, North Carolina.The Airbus 320 had climbed to 3,000 feet (914 meters) when its pilot, Capt. “Sully”Sullenberger made an emergency call. “This is Cactus 1549, hit birds, we lost thrust in both engines,” the flight’s pilot toldcontrollers at LaGuardia. “We’re turning back towards LaGuardia.” Controllers immediately began preparations to clear a runway for emergency landingbut less than a minute later, Sullenberger reported the aircraft wouldn’t make it. “We’re unable [to do so]. We may end up in the Hudson.” When a controller asked if Sullenberger wanted to try for an airport about six milesaway in New Jersey, the pilot responded, “We can’t do it. We’re gonna be in the Hudson.” Along the Aceh-Nias recovery, Thanks to the pilot’s decisiveness and the crew’s fantastic handling of the emergency BRR prioritized anti-corruptionsituation, the crippled jet made it down safely into the frigid waters of the Hudson. The enforcement at the utmost. Thebody of the plane remained intact and all 155 passengers and crew members survived. BRR Anti-corruption Unit (SAK) was the spearhead. Photo: BRR/Arif Ariadi
  • 93. Preliminary evidence suggested that the incident was caused by a collision with birds.FINANCE: The Seven Keys to Effective Aid Management A passenger sitting in the first-class section reported seeing birds hit the jet. Two FAA radars spotted vague targets in the path of the jet that were consistent with a bird flock, and both pilot and co-pilot also confirmed that a large flock struck the plane shortly after takeoff from LaGuardia.30 Incidents like this convey a profound lesson for all of us. Even a small snag—like a bird--can bring a huge, sophisticated engine like the Airbus 320 to a grinding halt. A single unanticipated blow can bring a strong organization to its knees. In a case described by TIME magazine as “the crime of the century,” 28-year-old Nick Leeson single-handedly caused the downfall of his employer Barings Bank, the oldest bank in Great Britain. Founded in 1762, the bank that had helped finance the Napoleonic Wars, the Louisiana Purchase, and the Erie Canal went bankrupt as a result of accumulated 88 losses to the tune of US$1.4 billion stemming from one man’s rogue futures trading activities. On March 3, 1995, Barings was sold for a mere £1.00 to the Dutch banking giant ING. In another high profile case following the implosion of Enron (once a US Fortune Top Ten Company) the global accounting firm Arthur Andersen was forced to cease operations, its reputation irreparably damaged. Andersen auditors had failed to uncover the management fraud committed by Enron’s directors and its own fate was sealed when some of its employees shredded paperwork relating to Enron, destroying vital evidence. Thousands of employees all over the globe became unwitting victims of the firm’s demise in 2001 (Dickstein and Flast 2009). The incidents that brought down Flight 1549, Barings and Arthur Andersen are examples of acute operational risk. Acute operational risk is to be avoided at all costs, with appropriate measures put in place to contain it if we are to sleep soundly at night. From the onset, BRR’s management practices were geared to minimize such risk. Procedures had to be put in place to deal at once with any risks that emerged. This was no easy task: the reconstruction program led by BRR was extremely complex, involving thousands of projects worth billions of dollars in value. There was ample room for things to go wrong, ranging from the accidental misdirection of funds to deliberate project fraud, from inefficient procurement to reputational damage. Any of these incidents could have triggered a full-blown crisis. Imagine, for instance, the damage that a high profile corruption case committed by one of BRR’s senior officials would have wreaked. Stakeholder trust in BRR would have been seriously undermined and BRR’s reputation potentially ruined. To foster, manage and guard its organizational integrity, BRR needed to create certain procedural practices. In other words, it needed to manage for organizational integrity.
  • 94. By integrity, we mean adherence to moral and ethical principles; soundness of moralcharacter; honesty. A second definition of integrity is the state of being whole, entire, orundiminished as for example ‘to preserve the integrity of an empire’ or ‘to preserve the Chapter 6. Maintaining Integrity Along the Roadintegrity of a ship’s hull.’ An organization with integrity is a robust organization that canweather the challenges and risks that it may encounter in the course of its journey. This chapter discusses how BRR met these challenges.Establishing Business Process Integrity In establishing BRR’s organizational integrity, it was first of all necessary to establisha business and operating environment acceptable to the international communitywho would be channeling significant sums of money through the reconstruction andrehabilitation program. Well-known global consulting firms McKinsey & Company 89and Ernst & Young were therefore engaged to draw up BRR’s business model, and putaccounting and financial management systems in place. Their expertise helped guide BRRtowards adopting systems that were transparent and incorporated sufficient checks andbalances in support of the agency’s integrity. Maintaining integrity throughout BRR’s business process was challenging for a numberof reasons, among them:1. The large number of procurements and contracts awarded for goods and services, some of which had to be awarded on a non-competitive basis due to the emergency nature of the requirements;2. The remote locations of project implementation;3. Relatively low levels of international trust and a general perception of Indonesia as one of the more corrupt countries in the world, as assessed by Transparency International (TI) and other international organizations. To overcome these issues and preserve the integrity of its business processes in the faceof these challenges, BRR had to establish various mechanisms for checks and balances.The mechanisms involved audits both internal and external, as well as anti-corruptioninitiatives. Indeed, across public sector agencies such as the BRR, efficient and effectiveauditing arrangements are essential in ensuring good governance, transparency, andultimately, integrity. Public sector auditing arrangements encompass both an externalaudit function (independent from the executive arm and submitting reports to thelegislative arm) and an internal audit function (reporting to the executive body arm only).These two types of audits have different but complementary functions. External audits functioned as an outside mechanism that was responsible for helpingto ensure BRR’s full accountability to legislature and through it, to the public. The internalaudit functioned as a sort of self-administered check that helped ensure the agency’s
  • 95. legislative and regulatory compliance with the relevant authorities. The internal audit wasFINANCE: The Seven Keys to Effective Aid Management carried out by BRR itself together with Financial And Development Supervisory Agency . It was considered part of BRR’s internal control system, a system which also helped identify opportunities to improve management practices. In summary, the mechanisms and channels that BRR used to foster integrity were: 1. Internal Audits, carried out by • BRR’s Internal Audit • Financial and Development Supervisory Agency 2. Anti-Corruption initiatives, carried out by BRR’s Anti-Corruption Unit 3. External Audits, carried out by the Supreme Audit Agency BRR’s Anti-Corruption Unit supplemented the internal and external audit function. The Unit received allegations or complaints, carried out internal investigations, and reported 90 illegal activity if merited to law enforcement agencies. The last part of its mandate distinguished it from the internal audit. Initially, the Anti-Corruption Unit reported directly to the Head of BRR Executing Agency (Bapel). Later the responsibility for SAK’s supervision was shifted to the Supervisory Board. The Unit was given broad access rights to all areas of BRR’s operations, so that it could freely monitor the rehabilitation and reconstruction implementation process across the organization, with an emphasis on accounting for the huge amounts of funding and assets involved. Figure 6.1 graphically depicts BRR’s integrity structure. It includes public awareness of the communities and other stakeholders within NAD and Nias as a factor. Figure 6.1 - BRR’s Integrity Structure Badan Rehabilitasi dan Rekonstruksi Aceh - Nias (BRR) Supreme Advisory Bapel Supervisory Audit Board Board Chairman Agent (BPK) Anti Finance & Internal Development Deputy Corruption Audit Unit (SAK) Supervisory Board (BPKP) Communities and Other Stakeholders
  • 96. Personnel Integrity From the very beginning, it was evident that maintaining integrity and a firm stance Chapter 6. Maintaining Integrity Along the Roadagainst corruption would be critical to BRR’s reputation and its ability to functioneffectively. The maintenance of integrity lay at the very heart of BRR’s risk managementplan. As mentioned earlier, it was crucial that BRR establish a framework that wouldencourage and preserve such integrity. In the absence of such a framework, there was noway that BRR could carry out its mandate properly, particularly the all-important sourcingof needed public goods and services for the tsunami-stricken areas. Good policies and rules were the key to building this framework from the ground up,to creating transparency and efficiency, andtherefore to managing risk. BRR was able toarticulate clear, consistent and appropriatepolicies and rules, and to develop the BRR Employee Integrity Pact 91political will to ensure they were enforced. Each prospective BRR employee agreed to abide by and sign aThis was extremely important; the culture two-page Integrity Pact with an eight-page attachment. Other than the agreed-upon market salary, the first page listed 28 specific financially-and performance of government agencies, related items that the prospective employee had to agree to, includingparticularly ad hoc agencies such as the BRR, the following items (which many Indonesian civil servants do receive).are profoundly impacted by the policies The prospective employee agreed not to request or accept money orand rules in place. Bad policies and rules compensationencourage inconsistent and disruptive • for attending meetingsbehavior and thus poor outcomes. • as honorariums Although BRR was created as a ministerial- • as gifts, bribes or bonuseslevel agency, it was established outside • for transportation subsidiesof the Indonesian civil service system.Recruitment and compensation of BRR • for activity allowancesemployees and officials was undertaken in a • for rice subsidies andmanner similar to a well-functioning private • for 22 other specific items detailed on the first page of thesector firm, rather than a bureaucratic Integrity Pact.government agency. BRR’s quid pro quo for The eight-page attachment then set out the legal and regulatoryproviding its employees with market-based framework governing BRR’s good governance and anticorruptioncompensation was that the employees principles.had to abide by a strictly-enforced codeof professional integrity, including theexecution of a compulsory “Declaration ofIntegrity and Compliance” statement, alsoreferred to as an “Integrity Pact.” The signed Integrity Pact was part of all employees’ workcontracts. It outlined a list of various actions considered to fall within the definition ofcorruption, which the employees promised to avoid.
  • 97. In short, the GOI authorized BRR to offer salaries that were considerably higher thanFINANCE: The Seven Keys to Effective Aid Management what other government agencies were paying; however, in exchange for the higher rate of compensation, the newly-recruited employee agreed to forego money or compensation for employment-related activities that domestic civil servant bureaucrats typically received. This type of compensation has a tendency to lead towards corruption, conflicts of interest, or inappropriate behavior. Corruption within the Indonesian bureaucracy is well known and documented. Transparency International has, for more than fourteen years, published an annual Corruption Perceptions Index ranking countries according to “the degree to which corruption is perceived to exist among public officials and politicians.” The 2007 poll surveyed 179 countries, with Indonesia ranking 143rd in the bottom twenty percent. The personnel integrity issues BRR faced were threefold: 92 (a) How to stem corruption during the procurement, management and disposal of billions of dollars worth of goods and services in the remote regions of tsunami- stricken Aceh and Nias; (b) How to establish and maintain honesty in all aspects of BRR’s operations, including reporting; and (c) How to re-build “better.” The tsunami not only took lives but collapsed the economic, social, and governmental infrastructure. The government was understandably inexperienced and was unprepared to cope with the preternatural scale of the disaster. No robust, functional organization existed to mobilize needed resources at either local or national or levels. Local capacities in Aceh had been greatly weakened by the nearly thirty years of civil war and by the tsunami’s destruction of government infrastructure. It was hardly the most conducive environment for fostering a regime of integrity—quite the opposite. Exposing this long dysfunctional community to the temptation of sudden, almost unimaginable riches was a recipe for corruption. BRR’s successful stemming of procurement corruption in the remote regions of tsunami-stricken Aceh and Nias was primarily due to BRR’s commitment to integrity as a risk management tool. Protecting BRR’s integrity encompassed vigorous anti-corruption initiatives, accountability measures as discussed in Chapter 5, high ethical standards and honesty in reporting and all business aspects. Integrity Enforcement BRR is the only Indonesian government agency with both an internal audit organization and its own anti-corruption task force, the Anti-Corruption Unit. Each is an important part of BRR enforcement, but their functions differ. Internal audit reports to management but has no investigatory role, while the Anti-Corruption Unit reports to the Supervisory Board, carries out investigations and takes the necessary steps to report corruption to the appropriate authorities. The Anti-Corruption Unit works together with BRR’s internal audit
  • 98. Chapter 6. Maintaining Integrity Along the Road 93organization,other government institutions and civil society organizations in carrying A public awareness campaignout its function. These organizations include NGOs such as Transparency International session on anti-corruptionIndonesia (TII), university groups and international institutions such as the UNDP, the culture by Corruption EradicationAsian Development Bank, the World Bank and others. Comission local government workers of Simeulue. November In addition to these stakeholders, the Corruption Eradication Commission (KPK) 14, 2006. Photo: BRR/Iracollaborated with the Anti-Corruption Unit as a working partner to assist in the oversight Damayantiof the rehabilitation and reconstruction program and to ensure that the Anti-CorruptionUnit itself remained clean. This collaboration was aimed not just at following up onoccurrences or allegations of corruption within BRR’s implementation of the rehabilitationand reconstruction program, but also to provide preventive anti-corruption educationand socialization. The Anti-Corruption Unit also established a working partnership withthe Financial and Development Supervisory Agency (BPKP).31 This cooperation enabledthe secondment of expert staff from BPKP to assist the Anti-Corruption Unit in the field. The Anti-Corruption Unit further established relationships with certain governmentinstitutions that had the authority to pursue corruption cases, including the CorruptionEradication Commission (KPK), Fair Business Practices Supervisory Commission (KPPU),local government and the police. These government institutions could provide thenecessary support and channels in the case that the Anti-Corruption Unit wished topursue a criminal case.
  • 99. The Anti-Corruption Units Three Principle Integrity Success Factor IFINANCE: The Seven Keys to Effective Aid Management Objectives BRR was formed as a well-focused, The approach developed by Anti-Corruption Unit in its mandate to special purpose ministerial-level eradicate corruption from the recovery program is illustrated by its three agency with the organizational principle objectives: prevention, investigation and education. Figure 6.2 flexibility and a finite, four-year term illustrates Anti-Corruption Units objectives over time. to accomplish its rehabilitation and reconstruction mandate of Prevention, the first objective, necessitated the flexing of political the tsunami stricken areas of Aceh will and a working environment that could minimize corrupt practices. and Nias, all in accordance with a This objective required--and received--a commitment from BRR’s consensus-developed Master Plan. management and staff to avoid any involvement in corruption. In carrying out its second objective, investigation, the Anti-Corruption Unit unit focused on ascertaining whether the various processes of 94 the rehabilitation and reconstruction program fulfilled the governance standards established by BRR. The Anti-Corruption Unit focused in particular the procurement of goods and services. This objective also investigated allegations of corruption that were reported by the community. Since its inception in September 2005, the Anti-Corruption Unit unit received more than 1,500 complaints from various stakeholders of various kinds (Table 6.1), through a range of complaint reporting methods (Table 6.2). Starting at the beginning of 2006, as housing development tenders Figure 6.2 - Anti-Corruption Unit Principle Objectives Shift Over Time started to increase the number of complaints registered rose likewise. In 2008, housing procurement was the source Prevention of most complaints. At the time that this publication was written, approximately ninety percent of the 1,500 complaints had been investigated while Education the remainder was still being investigated and processed. Out of the 1,537 complaints filed, 910 of them, or 60 percent, have been taken up as formal Investigation cases. Education, Anti-Corruption Units third objective, has 2005 2006 2007 2008 2009 been an ongoing effort since BRR’s establishment
  • 100. in 2005. Anti-Corruption Unit plays a Table 6.1 - Nature of Complaints Received by Anti-Corruption Unit, September 2005 - December 2008key role in BRR’s promotion of goodgovernance, which is usually described Number of Complaints Chapter 6. Maintaining Integrity Along the Road Type of Complaintsas having four fundamental principles: 2005-2006 2007 200 8 Totalparticipation, accountability, predictability Procurement violation process 531 191 87 809and transparency. In the education Administration violation 9 5 0 14program, SAK collaborated with relevant Integrity Charter violation 21 5 1 27organizations in the field to encourage Corruption, Collusion and nepotism 120 38 8 166the community to understand and reject indicationcorrupt practices. Rehabilitation and reconstruction 134 20 0 154 implementation obstacles As mentioned above, SAK established Payment Obligation to State Cashiera working partnership with BPKP that 2 2 0 4 violationallowed staff from the latter to be General criminal act 4 5 0 9 95seconded to SAK. In December 2008, Other 255 30 59 34422 BPKP staff assisted across the three Total 1.076 296 155 1.527areas of Anti-Corruption Units mission:prevention, education and investigation. Table 6.2 - Source of Complaints Received by Anti-Corruption Unit, September 2005 - December 2008In addition, several Financial DevelopmentSupervisory Agency staff assisted SAK Number of Complaints Complaint Reporting Methodwith data maintenance and management 2005-2006 2007 2008 Totalinformation reporting. Letter 775 185 83 1.043 Facsimile 8 2 1 11 SAK continued to improve BRR’s Email 13 23 1 37procedures and work practices, many of SMS 92 11 5 108which had flaws with potential for misuse. Visiting SAK Office 78 47 11 136In doing so, SAK successfully stopped anumber of fraudulent tender processes Telephone 8 1 1 10from continuing which in turn prevented Mass Media 102 27 53 182significant financial losses. Total 1.076 296 155 1.527Proactive Reportingon Integrity Allegations BRR set clear and unambiguous policies and rules to maintain integrity and keep thespecter of corruption at bay. One of these policies was to proactively report on corruptionallegations to, and in collaboration with, Financial Development Supervisory Agency,Supreme Audit Agency, Corruption Eradication Comission, the police, and other lawenforcement agencies.32 With more than 96 percent percent of tsunami recovery assistance coming from theinternational community, BRR had an enormous fiduciary duty, both legal and moral, toIndonesia’s international donors and to the citizens of the Aceh and Nias.
  • 101. Under the amended Law No. 31/99 on “Anti-corruption,” public participation wasFINANCE: The Seven Keys to Effective Aid Management permitted in Indonesia’s anticorruption drive, and BRR therefore was within its rights to report corruption while law enforcers, including the National Police, the Attorney General’s Office and judges, were permitted to receive information on corruption from all sides, including parties whose identity remained confidential. Certain disclosures on the part of BRR’s officials were required under Indonesia’s laws and regulations, amongst them Law No. 28/99, “State Administrators Clean and Free From Corruption, Collusion and Nepotism.” Under this law, government officials are required to disclose their wealth at the time of their appointment, during their term and upon leaving office. This law established a mechanism for an independent Investigation Commission, which was subsequently realized in the form of the Corruption Eradication Commission (KPK). Government officials subject to this law include all state officials performing executive, legislative, or judicial functions, plus other officials 96 Integrity Success whose functions and main duties are related to state governance including BRR officials. Factor II All corruption allegations are taken seriously, but corruption during times of economic stress and recoveries from natural disasters carries BRR recruited suitably-qualified particularly harsh penalties. Under Law No. 28/99, government officials professionals on short-term, market- are subject to investigation, prosecution and punishment. The death oriented employment contracts to assist BRR to pursue its enormous rehabilitation sentence may even be applied to those found guilty of committing and reconstruction mandate, a human corruption more than once, those involved in major embezzlement resources strategy that meant BRR had the cases and to those who take advantage of national disasters, a state of flexibility to retain, redeploy and terminate emergency or economic crises. staff according to the needs of the organization while mitigating corruption. Rigorous Integrity Review and Evaluation BRR adopted a continuous and a rigorous review of its integrity system. The agency was routinely monitored by its internal audit section and periodic Financial Development Supervisory Agency evaluations. Annually, it was subjected to review by the government’s external auditor. BRR’s 2007 Statement of Accountability received an unqualified opinion from BPK, Indonesia’s supreme audit institution. In addition, BRR was subject to periodic, independent reviews and evaluation of its overall integrity systems, including any propensities towards false or misleading statements or misrepresentation of the facts. In late 2006, BRR established a Memorandum of Understanding (MoU) with Transparency International – Indonesia (TI-I) with the aim of promoting the integrity of rehabilitation and reconstruction in Aceh and Nias. The first concrete activity to occur under this MoU was an invitation from BRR for TI-I to conduct an evaluation, complete with recommendations, of the BRR Integrity System. This evaluation was conducted by TI-I with technical input from TI Headquarters in Berlin
  • 102. and with support from bilateral aid donors in England and the United States. The resultingreport was completed in May 2007 and was released to the public. It provides a usefulsnapshot of the key systems in place and includes recommendations from TI on how Chapter 6. Maintaining Integrity Along the Roadthese systems could be further improved. At the time of this evaluation, the chairman of BRR indicated that all recommendationswould be upheld, a commitment he reiterated when the evaluation results was released.One of the report’s recommendations was related to the Anti-Corruption Unit, SAK. Since its establishment in September 2005, the unit had been part of BRR ExecutingAgency and reported to that Head of BRR Executing Agency. TI-I recommended that theAnti-Corruption Unit be placed instead under the direct authority of the SupervisoryBoard. Realizing this step required formal endorsement from the Supervisory Board. Ajoint meeting of the Supervisory Board and Executing Agency was conducted in mid-June at the BRR Office in Jakarta to fully consider the recommendation and after detailed 97discussion of the implications and modalities of the transfer, the Supervisory Boardagreed to the recommended change. On June 27, 2007, Anti-Corruption Unit begananswering to the Supervisory Board instead of Executing Agency . This shift broadened the capacity of the Supervisory Board through the Anti-CorruptionUnit pre-established capabilities, while allowing the Executing Agency to focus morerigorously on compliance both financial and non-financial. Altogether it provideda stronger basis for increasing public trust in the integrity of the overall program ofrehabilitation and reconstruction in Aceh and Nias.
  • 103. Chapter 7. Ending the Game and Leaving a Lasting LegacyEnding the Gameand Leaving aLasting Legacy 99Strategic Choice: To Close or Extend BRR? Four years of operations covering huge challenges, complex dynamics and manyachievements had birthed a multitude of views on how BRR should end. From a legalpoint of view, Article 26 of the BRR legislation clearly stated that BRR had a four-yearlifespan that could be extended through a Presidential Decree. Reflective of its dynamicand planning-oriented management, by November 2007, BRR had already started toprepare for the closure and transition process. There were of course various arguments for the extension of BRR. Ten percent of itsmandate as stipulated in the Master Plan was unfinished. Many believed that the steadilyincreasing disbursement over the four years of BRR’s operation had created momentumfor economic growth in long-dormant Aceh, and that closure of BRR could potentiallydisrupt this momentum. BRR’s ability to deal with the national government andinternational community was also seen as too valuable to be given up. Further, while the reconstruction and rehabilitation partners including BRR in particular Banda Aceh at night shows ahad taken pains to foster many capacity building programs aimed at provincial and local lively and promising outlook. It isgovernment, the local government’s ability to handle an ongoing development program a clear sign that the communityof this size was still in question. Aceh was now one of the largest recipients of central has risen to a level better thangovernment allocation funds following a decision to allocate two percent of the total before. Photo: BRR/Arif Ariadi
  • 104. national General Fund Allocation as Special Autonomy Funds to Aceh in recognition ofFINANCE: The Seven Keys to Effective Aid Management the increasing peace dividend generated after the Helsinksi MoU. Nonetheless, on the financial management and spending side, Aceh’s performance was still among the lowest. In their evaluation of Aceh’s Public Financial Management (PFM), the World Bank found that the financial management capacity varied widely in the province. While Aceh Utara was the highest scoring local government (69 percent), fourteen of its counterparts scored relatively poorly (Figure 7.2). The provincial government scored moderate/ partially acceptable. The average score was 41 percent, with average outcomes indicating particular weaknesses in accounting, reporting, cash management and external audit (Figure 7.3). The PFM scores from the World Bank survey are supported by data from Supreme Audit Agency on the spending capacity of the provincial government in 2008. That year, the100 Aceh provincial government disbursed just 35 percent of their budget (Figure 7.4). BRR also had a project implementation advantage over the government in that it was able to start projects promptly at the beginning of each year, a rare practice. Commonly government projects begin to be tendered only in March or April of each year. The situation was even worse for the local government budget, which due to the political mechanisms of local parliaments were usually approved halfway through year, leaving only six months for implementation. Figure 7.1 - Effect of the Special Autonomy Funds on Aceh’s Revenues (Source: World Bank 2006) 18 Trillion Rp (Constant 2006 prices) 16 14 Gains from Law 11/2006 12 10 8 6 4 2 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total revenue with Special Autonomy Funds($60/brl) Total revenue without Special Autonomy Funds ($60/brl)
  • 105. Figure 7.2 – Public Financial Management Scores for 21 Local Governments and the Provincial Government Chapter 7. Ending the Game and Leaving a Lasting Legacy 100 SCORE GUIDE 81-100% Excellent/Fully acceptable 80 61-80% Good/Substantially acceptable 41-60% Moderate/Partially acceptable 21-40% Poor/Substantially unacceptable 60 0-20% Very poor/unacceptableScore % 40 20 0 101 Aceh Besar Banda Aceh Bener Meriah Aceh Barat Aceh Selatan A Tenggara Aceh Jaya Aceh Barat Daya Lhokseumawe Nagari Raya Aceh Tengah Bireun Aceh Utara Average Pidie Gayo Lues Aceh Timur NAD Simeulue Singkil Langsa A Tamiang Sabang Source: World Bank 2007 Figure 7.3 – Average PFM Score by Strategic Area (Source: World Bank 2007) On the other hand, BRR management supported by various stakeholders believed that closing the agency was the best course of action. There were many arguments in support REGULATORY FRAMEWORK of this choice. Based on the stocktaking 100 exercise that BRR did, more than 94 percent PLANNING EXTERNAL AUDIT & BUDGETING of the Reconstruction and Rehabilitation Key 80 & OVERSIGHT Performance Indicators (KPI) set out by the 60 Master Plan had been completed by the end of Fiscal Year 2008 and thus BRR had already 40 satisfactorily achieved its emergency response ASSET 20 CASH objectives. The development works next on MANAGEMENT MANAGEMENT the agenda were of a more regular/normal 0 nature, which should not involve BRR. Moreover, extending BRR’s mandate would run counter to broader government objectives PROCUREMENT PUBLIC DEBT of decentralization. A BRR extension could & INVESTMENT distort government policy in Aceh, have an adverse effect on budget considerations and be demotivating for provincial and INTERNAL ACCOUNTING AUDIT & REPORTING district government personnel. Its continued
  • 106. Figure 7.4 - Provincial Governments’ Disbursement Rates as of November 30, 2008FINANCE: The Seven Keys to Effective Aid Management 100% 90% 80% 70% 60% 50% 40% 30%102 20% 10% 0% Sumatera Utara Sumatera Selatan Sumatera Barat Gorontalo Maluku Utara NAD Riau Kepulauan Riau DKI Jakarta Jawa Barat Jambi Bengkulu Jawa Tengah Jawa Timur DI Yogyakarta Banten Kalimantan Barat Bali Kalimantan Timur Kalimantan Selatan Kalimantan Tengah Sulawesi Utara Sulawesi Tenggara Sulawesi Tengah Sulawesi Barat Sulawesi Selatan Maluku Papua Papua Barat NTT NTB Kep. Bangka Belitung Lampung Source: BPK, Menunaikan Amanat Konstitusi, 2009 existence might potentially diminish social capital, trust and participative public service delivery in Aceh’s democratic system as BRR by all definitions was a central government agency. Meanwhile BRR’s Human Resource capacity, competency and capability base for continuing operations would likely erode under an extension scenario, as key staff having achieved personal and organizational goals would pursue career enhancing opportunities elsewhere. Transaction costs of implementing the development budget would also be compounded if both the Provincial Government and BRR were involved. After a long exchange of views, in October 2008 the Regional House of Representative (DPRD) officially issued a recommendation to the government to close BRR by April 2009. There were no precedents in Indonesia for an effective transition and exit strategy applicable to an ad hoc government agency. Quite the contrary, the scene is littered with examples of old ad hoc agencies that took on a life of their own for example the National Family Planning Board, the Investment Coordinating Board and the more recent case
  • 107. Figure 7.5 – Elements of the Transition Strategy Chapter 7. Ending the Game and Leaving a Lasting Legacy Preset Conditions Issues Action Result Stakeholder Involvement Direct Dialogue Political/ Organizational PARTICIPATION willingness Asset to accept assets Ownership & Management Sustainability & Tools Policy Dialogue National Level Project & Program Ministries Ownership ORGANIZATION 103 New Owners of Provincial assets, projects Government/ Framework and programs Governor for Coordination have set roles Expectations and resources Distric Level Government/Bupati Planning or Wali Kota for Resources TRAINING Recipients of assets, project Lack of Skills & Capacity Building and programs Human Resources Programs have the required capacity to manageof Indonesia Bank Restructuring Agency which, though legally closed, birthed a mini-IBRA successor called Asset Management Company, which had the job of completingits predecessor’s work. BRR would have to be innovative in its closure approach if it wasserious about shutting down. With this in mind, BRR devised a strategy based on the conceptual framework depictedin Figure 7.5. BRR used this broad framework to devise its transition and end-of-mandate strategy,with due regard to all levels of the stakeholder spectrum. Where handover of projectsand programs concerned multi-year activities and implementation, funding donorswere consulted as to the appropriate mechanism depending on the national or localgovernment implementation modality.
  • 108. FINANCE: The Seven Keys to Effective Aid Management104 The Aceh Tsunami Museum is one of the projects funded by BRR. As General Principles Applied 2008 drew to a close, contractors As described in previous chapters, the establishment of BRR was unprecedented for worked around the clock to the Government of Indonesia (GOI). BRR was a central government agency located at the complete the project within BRR’s lifetime. October 13, 2008. provincial level, with the dual function of executing its own budget and coordinating Photo: BRR/Arif Ariadi efforts from all the varied international agencies. BRR had successfully navigated the difficult take-off stage. Subsequent achievements showed BRR flying high. The most difficult stage was yet ahead, though: the landing process. No matter how far or high an organization soars, a crash landing will label it a failure. All aspects of the end-phase therefore had to be carefully assessed to ensure a smooth touchdown. In BRR’s case, this meant that a variety of stakeholders had to be intensively involved to avoid information asymmetry and the like. The closure of BRR did not just denote a bunch of projects closing.33 It embodied the winding down of a high-level initiative from the national government, one which may provide a model for ad hoc intervention in the future when facing sizeable national agendas that ordinary mechanisms cannot cope with.
  • 109. A transition strategy had to be formulated that would enable a smooth handover, Chapter 7. Ending the Game and Leaving a Lasting Legacyespecially in light of the unfinished ten percent of BRR’s mandate. In this case, transitionand exit were more or less two sides of the same coin. The exit and transition had to address three important elements: accountability, how toaddress finished projects, and how to handover unfinished projects. The issue of accountability has been explored in Chapter 5 with a detailed descriptionof the processes by which BRR created and managed accountability vis-a-vis variousstakeholders. In this chapter, we therefore elaborate more on how BRR addressed theother exit and transition issues, i.e., how to treat finished versus unfinished projects. In fact, a well-defined platform for this already existed as set forth by the regulationsgoverning BRR in particular Article 26, which stated that if BRR closed, managementand implementation of government programs would be shifted to normal mechanisms.In other words they would be delivered through line ministry and local governments. 105The division of responsibilities between line ministries (central government) and localgovernment is further defined by PP 38/2007 on the Delineation of Authority betweenCentral and Local Government ; the former is responsible for national infrastructure, suchas national-level roads, while the latter is responsible for regional infrastructure such localroads. Specific to Aceh, the Law of Governing Aceh (LOGA) also applied. LOGA’s principleswere in alignment with that of PP 38/2007. The difference is that LOGA granted moreautonomy at the Provincial Level instead at the lower District Level. The exit and transition strategy was also shaped by PP 2/2006 regarding the Regulationof External State Loans and Funds. This decree ruled that all foreign aid must bechanneled through the central government administration before being transferredto local government through on-granting and on-lending mechanisms.34 However, theregulations on the implementation of these on-granting mechanisms had not yet beenestablished. Nor did most local governments have the capacity to properly handle theadministration of administration of foreign aid. Figure 7.6 – Core Elements of Exit and Transition Treatment of Finished Projects Accountability Treatment of Unfinished Projects TION R MAN D AT E C O M P BR LE
  • 110. The two government decrees, PP 2/2006 and PP 38/2007, applied to projects regardlessFINANCE: The Seven Keys to Effective Aid Management of fund channeling modality, with some differences between project types. For projects channeled through the government i.e., on-budget/ on-treasury and on-budget/ off treasury, these principles applied without exception. As described earlier these types of projects were typically funded by the government, bilateral and multilateral agencies. Some adjustments however applied to off-budget/off-treasury projects that were implemented directly by agencies such as the UN, Red Cross and NGOs. As described in Chapter 6, BRR, although involved in the approval process and funding of such projects (i.e., acting as a clearing house for their asset transfers), played an overall smaller role in off-budget/off-treasury projects. A different transition strategy was needed to manage these projects. Timewise, the transitional strategy was divided into three main phases: (i) a preparatory106 phase prior to November 2008, (ii) a period called the “soft-closing” phase to enable BRR to get all its affairs in order and report to the President and Parliament, and (iii) a “grand closing” phase at the end of which the President was to close the door with finality on the highly successful coordination and facilitation of the reconstruction and rehabilitation relief effort. Handing Over Finished Projects Simply put, BRR created assets for the use of others. There were no assets created exclusively for BRR’s use. Similarly, BRR coordinated and recorded assets created “off- budget/off-treasury” through international and national NGOs. Transferring the assets was the “end game.” Table 7.1 – Transition Strategies of Different Players Fund Recipients of Successors of Donors Role of BRR Channeling finished project unfinished projects • ocal Government for L On-budget • Execute • ocal Government L Rupiah funding MDF, ADB, GOI on treasury • Transfer the asset • Line Ministries • ine Ministries for external L funding • Approve the projects • ecords in the R • ocal Government for L Germany (KFW), On-budget Government Budget • ocal Government L Rupiah funding Japan (JICS) off treasury after project completed • Line Ministries • ine Ministries for external L • Clearing House for the funding asset • Approve the projects UN, Red Cross, Off budget • ocal Government L Remain with the agency or • learing house for the C NGO off treasury • Line Ministries implementing partners assets
  • 111. Figure 7.7 – Key Dates in the Timeline of Transition Chapter 7. Ending the Game and Leaving a Lasting Legacy Soft Grand Closing Closing JAN 1 2008 JUN 30 2008 AUG 10 2008 NOV 1 2008 DEC 31 2008 FEB 27 2009 APR 3 2009 APR 16 2009 • ompossing C • ompossing C •2009 RKAKL • roject Payment • Project Payment P Preliminary BRR clossing Presidential Presidential evaluation Settlement Settlement finacial report process Decree on Decree on • etting out S • inalization of F • Finalization of adjustment of PMT Guideline 2009 Line AP3D AP3D the master plan Symbol RR Ministries •Writing Work • Writing Work • etting out S continuation Local Govt. Group Report Group Report 2009 RKP •Setting out 2009 Works Groups Clarification RKAKL •MoU signings of Supreme with Line Audit Agency Ministries Audit by BPK Donors finding 107 Completion of fisical construction by BRR AcehNias Coordination of RR continuity by the Natioanal Development Planning Board. Implementation by Line Ministries Local Govt. Finalizing Finalizing Completion Submission Submission Finalizing presidential presidential of fisical of unaudited of audited Presidential decree on decree on PMT construction of Performaces Performaces Decree on the adjustment of Guideline RR program project Finacial Report Finacial Report to clossing of BRR the Perpres Continuation the President Perubahan Rencana Induk Financial and Development Supervisory Agency endorsment of BRR accountabilities In addition to BRR’s responsibilities for transferring finished assets to beneficiaries, ithad an additional responsibility to ensure that recognition was given to the providerand funder of the asset. Assets are not merely created and simply handed over at leisure;there are certain procedures and rules to be followed. These are quite formal and detailhow the transition should take place. The applicable laws governing the management,maintenance and transfer of state-owned assets (BMN) are the State Finances Law 17/03and State Treasury Law 01/04. The Minister of Finance issued two key implementingregulations on the delegation of authority namely, Minister of Finance Regulation(PMK) 96/07 and Minister of Finance Regulation No. 62/08 on the Procedures for BRR’sManagement of State Owned Assets. In order to comply with the strict guidelines set forth by these government laws, BRRhad to make certain preparations to conclude the transfer of assets in an orderly fashion.The first step was identification of the assets and verification of their existence. Basic data
  • 112. FINANCE: The Seven Keys to Effective Aid Management108 The transfer of assets to the local on the assets was required such as the cost of construction, the source of funding and the governments of Nias and South user of the facility. Nias. February 28, 2008. Photo: BRR/Bodi CH When BRR’s data systems were constructed, it had not been foreseen BRR would have a need for a discrete database that could record both on-budget and off-budget items. The need for this only became apparent in hindsight. Had BRR known what lay ahead in the reconstruction and rehabilitation process, it would have approached the database management in a different way. As it was, myriad data systems were in usage including one system for off-budget and others for on-budget. This meant that the collecting and verifying basic data was a labor intensive and tedious process. BRR’s policy on finished projects and any resulting assets was they would be transferred to the district government as the first choice and priority recipient. The second choice recipient would be the provincial government. The default position, in the event that the asset transfer failed to take place between BRR and either of these two destinations within the period of BRR’s mandate (April 2005-April 2009), was the transfer of assets to an appropriate line ministry, with the recipient of last resort being the Ministry of Finance. State assets from bilateral and multilateral donors as well as international and national NGOs must include an official handover letter with their signature to BRR. BRR in turn gave recipients of these assets a signed, official handover letter.
  • 113. Some rehabilitated and reconstructed assets were not transferred to either the Chapter 7. Ending the Game and Leaving a Lasting Legacyprovincial or district government. These assets were those designated under National Lawto be of national strategic ownership such as airports, ports and major roads. Ownershipalong with continued operational and maintenance responsibility of these assets wastransferred directly to the line ministries. All assets created through programs and projects acquired and/or constructed underthe auspices of BRR’s Reconstruction and Rehabilitation Mandate, either from on-budget(APBN, DIPA, loan, grant) or off-budget (International NGO, donor, national NGO) funds areconsidered national assets to be managed by the Ministry of Finance (Directorate Generalof Asset Management). In transferring these assets, BRR’s Deputy of Finance and Planning (Directorate of AssetManagement) was responsible for:1. inventorying on and off-budget assets (validating the existence, completeness, 109 functionality and ownership);2. optimizing the utilization of the assets by the relevant government agencies; and3. Ensuring adequate and valid documentation. Figure 7.8 – Role of BRR as the Assets Clearinghouse Clearing House BRR BRR Regional Local Government NGOs Sectoral Deputy Directorate of line Ministry/ Accounts and Asset Agency Management GOI/Donors Consultancy State Budget State/Reg Govt Owned Enterprise
  • 114. BRR’s strategy was to create an inventory of on- and off-budget assets in conjunctionFINANCE: The Seven Keys to Effective Aid Management with a District Government Team (Pemda TK II35 and BRR Regional Office). The results of the district level asset inventories were reviewed by a Provincial Team (Provincial Government, BRR and Kanwil I DJKN36) for the handover to Provincial Government. Where assets were jointly deemed to be problematic in some way, it was documented and the asset was handed over as such to District Government. It was then passed to a BRR Clearinghouse (consisting of BRR Regional Office, Sector Deputy and Directorate of Accounts and Asset Management) for resolution and subsequent transfer back to District Government for hand over. Computerized Asset Management Systems As mentioned there was a myriad of data systems set up by divisions and sections within divisions. In hindsight this should have been managed differently, however, when110 the emphasis and demand is on urgent implementation to a population without shelter, food and livelihood, databases are probably not high on the list of priorities! The source of asset data for the on-budget inventory was the Ministry of Finance accounting system (SABMN) which recorded BRR expenditures and was audited by the various auditing agencies (Supreme Audit Agency, Financial development Supervisory Agency and external audits). The source of off-budget asset data was donor/NGO reports to BRR’s RAN Database validated against Project Concept Notes, contracts or other documentation from the donors/NGOs themselves in their final exit reports to BRR. The accountability and asset verification of ownership was supported by UNORC.37 One major task arising from the consolidation was the reconciliation of data. As each KPI might have several inputs from different sources; it was difficult to reconcile financial records due to the diverse funding sources for each of the inputs--on-budget/on-treasury, on-budget/off-treasury and off-budget/off-treasury. An Asset Management and Information System (AMIS) was developed with the assistance of AusAID and GTZ to support the handover of public assets to local government. It provided asset mapping with a Geographic Information Systems (GIS) platform for asset recording, in conjunction with: satellite imagery of assets, geo-spatial map of each asset and textual information on each asset. AMIS brought together a number of existing databases (as mentioned above) used for financial reporting and operational recording of on- and off-budget assets that were developed by BRR’s various divisions and sections within divisions. It incorporated the results of the inventorying, geo-referencing, asset photographs and satellite imagery of public on- and off-budget assets.
  • 115. AMIS facilitated BRR’s efforts to transparently and accountably record the existence and Chapter 7. Ending the Game and Leaving a Lasting Legacygeo-reference of each on- and off-budget fixed asset for handover to local government.The AMIS together with the government accounting system (SABMN/SIMBADA38)provided end users with the following operational and maintenance information:• Ministry of Finance• the Governor’s Office• Regional Office of the Directorate General of Asset Management (Kanwil I DJKN)• Municipal/District and Provincial Asset Management and Finance Office (Dinas Keuangan dan Kekayaan Daerah )• Municipal/District and Provincial Department of Public Works• Regional Planning Development Agency,39 and• Operational sectoral departments at Provincial and District levels, particularly Health and Education. After inventory, validation and preliminary handover had taken place for both on- and 111off-budget assets and the results consolidated through the AMIS System, the formalhandover from BRR to the Governor of the System would take place at the end of BRR’smandate in April 2009.Transition of Unfinished Projects As described in the Chapter 4, while mandates had largely been achieved andcommitments disbursed, there were some projects and funding commitments thatneeded to continue through 2009. This unique situation arose from the divergencebetween the legal imperatives to close BRR by April 16, 2009 and operational imperativeson the ground. In this context, BRR had to consider several different transition scenarios:• What to do with multi-year projects that would finish well after BRR’s tenure and how would they be financed?• How would BRR reconcile and value the collective efforts of all contributors with the mandated targets for reconstruction and rehabilitation?• What types of residual issues or activities might possibly be leftover after BRR closed its doors, and how would they be handled and financed in a normalized situation? At the time that BRR prepared to wind down, its project portfolio could be categorizedas follows with regard to the above transition scenarios: multi-year projects (drawingfrom IRFF, State budget and other funding sources): projects that finished on or aroundDecember 31, 2008 as planned; off-budget assets created by bilateral and internationaland national NGOs; and projects that slipped slightly into the first quarter of 2009 plus asmall number of projects omitted from BRR’s four-year reconstruction and rehabilitationprogram, including projects that were unfinished by defaults due mainly to contract,
  • 116. quality, or beneficiary disputes.FINANCE: The Seven Keys to Effective Aid Management What to do with multi-year projects? 40 Projects that were ‘unfinished by design’ refer to multi-year projects implemented over many years which could not be completed within BRR’s tenure. By the very term “multi- year” one could conclude that these projects are large in nature and would fall under the term “large infrastructure and strategic projects.” The funding of multi-year projects came from various sources: the Indonesian government (through its APBN), MDF (administered by the World Bank), ADB, AFD41 and JBIC.42 These projects needed a new mechanism and authority to finish after BRR’s closure. To deal with this issue, the Government prepared a budget to cover the period of transition in Fiscal Year 2009. It was to be funded through three channels as follows.112 • BRR: for General Administrative Expenses and Project Winding Up • Local Government: for Project Continuation sourced from GOI • Line Ministries: for Project Continuation sourced from Grant and Loan BRR entered into agreement with the MDF to co-finance the building of large infrastructure and strategic assets through two avenues: (i) The Infrastructure Figure 7.9 – Establishment of the 2009 Budget Arrangements for Multi Donor Trust Fund (MDF) Projects RKP 2009 3.673 T 222 M (RM) 415 M (RM) General Completion of Continuation of Reconstruction Reconstruction by BRR by Ministries Local Goverment Admin Expences ACC 999 1.788 T (PHLN) 1.663 T (RM) Line Ministries Local Goverment Deconsentrations Fund/ Tugas Perbantuan ACC 999 Depar tmen t Dep ar tmen t Dep ar tment Dep ar tment Depar tment Depar tmen t Dinas under the Local Goverment of Aceh and Nias Notes for Line Ministries : - Regulated Under Goverment Regulation PP No. 2 Tahun 2006 - Executing Agency is the related Line Ministries
  • 117. Reconstruction Financing Facility (IRFF) program financed by the MDF and administered Chapter 7. Ending the Game and Leaving a Lasting Legacyby the World Bank, and (ii) the Infrastructure Reconstruction Enabling Project (IREP -Design and Supervision Consultant) which supported IRFF with an emphasis on capacitybuilding at the local levels. The IRFF program was the most significant single partnership undertaking by BRRin that the program concentrated on large infrastructure projects and was the largestsectoral program implemented by BRR besides Housing and Settlement; collectively IRFFprojects accounted for 34 percent of all infrastructure projects in 2008 and 30 percent ofall infrastructure projects over BRR’s tenure. The implementation of the IRFF program was fraught with complex and protractednegotiations which, together with cumbersome procurement modalities, impacted theprogress of the proposed infrastructure projects that had been identified for financing. The intended program was for a US$300 million injection to the Reconstruction and 113Rehabilitation effort funded jointly by GOI and the MDF and managed by the World Bank.The funding allocation was GOI 70 percent (equivalent to US$200 million) and the MDF 30percent (equivalent to US$100 million). The IRFF program was conceived in January 2006 and within six months ProjectConcept Notes (PCN) were produced for priority and selected projects. These projectswere to be significant and of high profile for the people of Aceh and Nias. The expectationwas that project construction would commence in January 2007. Due to protracted negotiations, decision-making requiring high ranking considerationin the World Bank’s Washington DC headquarters, personnel changes at the World Bankresident mission in Indonesia and protracted World Bank procurement modalities, theGrant Agreement was not signed until January 15, 2007 and it was not until 18 monthsafter the PCN that the design and supervision consultant was mobilized. In the meantime BRR, due to GOI budget cycles and community pressure to act, had touse counterpart funds allocated for this program. Failure on the part of BRR to use thesefunds would have resulted in a closure of budget lines at year-end and the allocatedfunding being lost. In essence BRR used the counterpart funds (approximately US$151million) to finance urgently required and priority projects under the program using 100%Government of Indonesia funds. This had the effect of disturbing the agreed funding ratioof GOI 70 percent MDF 30 percent The sequence is shown in Figure 7.9. This meant that BRR had to negotiate a new funding arrangement with the MDFthrough its secretariat and trustee the World Bank. The negotiations again becameprotracted to the extent that by December 31, 2008, the date of transition, the formalGrant Agreement Amendments still had not been executed--this despite agreementbetween all parties (World Bank, MDF, Ministry of Finance, Bappenas and concernedministries) on July 3, 2008 to the finance arrangements and the draft Grant AgreementAmendment No 2.
  • 118. The funding mechanism was a cornerstone of the transition of these multi-year projectsFINANCE: The Seven Keys to Effective Aid Management to line ministries, such as Public Works, and any delay in these arrangements hampered the finalization of the transition. BRR proposed a transitional funding arrangement which was accepted by all parties in July 2008 to provide mechanisms that would ensure funding of multi-year projects to their completion. The ratio of 70 percent to 30 percent was replaced with a ratio of GOI = US$126.5 million or 55 percent MDF = US$99.91 million or 45 percent These funds applied to the following projects (for a total of 59 Packages): Ports - 5 Packages Water Sanitation - 8 Packages Water Supply - 5 Packages114 National Roads - 8 Packages Provincial Roads - 10 Packages District Roads - 23 Packages Similarly, there exist discrete strategies for dealing with ADB, AFD and JBIC multi-year projects. BRR was heavily involved in compiling budgets for 2009 funding of the multi- year projects with line ministries. The transition of these infrastructure projects was in any event negotiated with the concerned ministries, with the Ministry of Public Works taking a lead role as the Executing Figure 7.10 – IRFF Project Timeline $ 151 mio $ 226 mio IRFF Eligible Project Funded by 100% GOI IRFF Project JAN 2006 DEC 2007 DEC 2008 Discussion started OCT 2007 Consultant Mobilized JUNE 2006 15 JAN 2007 PCN Released GA signed
  • 119. Agency for the majority of programs/projects and Bappenas becoming the Executing Chapter 7. Ending the Game and Leaving a Lasting LegacyAgency for ADB programs and projects with strong linkage to the Ministry of PublicWorks. All infrastructure projects financed by MDF/ADB/AFD/JBIC were to be placed under oneExecuting Agency in Ministry of Public Works with a dedicated Project Management Unit(PMU). Additionally, some of them will have a dedicated Project Implementing Unit (PIU)in other line ministries; for example all IRFF port projects will be managed by the Ministryof Transportation through a PIU.Arrangements for Asian Development Bank (ADB) projects ADB’s program transition was relatively relaxed with an open and constructive dialoguethroughout the transition period. ADB implemented projects in partnership with BRR to the value of US$294.50 million; 115this was in addition to ADB’s contribution to the MDF of US$10 million. The contributionwas allocated to various areas as outlined in Table 7.2 below. The transition arrangements provided for Bappenas to become the executing agencyand home for a Project Management Office (PMO) . Only a portion of the program was Figure 7.11 –Transition Arrangements of MDF Projects Transferred MDF Project to Line Ministries Aceh Land Administration System Project (RALAS) National Land Administration Agency Support for Poor and Disadvantage Areas Nias Livelihood and Development Project (Nias LEDP) Ministry of Development of Disadvantaged Areas Economic Development Financing Facility (EDFF) Nias Kecamatan-Based Recovery and Planning (KRRP) Ministry of Home Affairs Infrastructure Reconstruction Enabling Program Infrastructure Reconstruction Financing Facility Ministry of Public Works Community-Based Settlement Rehabilitation and Reconstruction Project (REKOMPAK) Community Recovery through the Urban Recovery (UPP)
  • 120. not yet complete at the end of BRR’s tenure. This occurred in the roads and bridges, ruralFINANCE: The Seven Keys to Effective Aid Management water supply and sanitation, education and the fiduciary oversight components. Roads and Bridges were classified as infrastructure and therefore would be implemented by the Ministry of Public Works, who had also been appointed the Executing Agency for the infrastructure projects of MDF. An additional Project Implementation Unit (PIU) would be created for ADB projects. Rural water supply and sanitation would be implemented by the Ministry of Health, where an additional PIU was created which reported to the PMO in Bappenas. The education component would be implemented by the Ministry of National Education, where an additional PIU was created which reported to the PMO in Bappenas.Bappenas would retain the PIU for Fiduciary Oversight Component. Arrangements for Agence Française de116 Table 7.2 – ADB ETESP Project Allocations Développement (AFD) and Japan Bank for International Cooperation (JBIC) projects Allocation Component As with the ADB the transition of these projects was ($ million) 1 Agriculture 35.0 relatively relaxed as they were classified as infrastructure 2 Fisheries 28.0 and were transferred to the Executing Agency of Ministry of Public Works under the control of the newly created 3 Small Micro Enterprises 15.0 PMU. 4 Health 13.0 5 Rural Water Supply Sanitiation 7.0 6 Education 17.5 Risk Management – Ensuring 7 Housing 8 Irrigation 70.8 30.0 the Process Stayed Critically On 9 Spatial Planning Environment 17.0 Track 10 Roads Bridges 37.0 In its final year BRR introduced a risk management 11 Power 9.7 regime to monitor and evaluate the progress towards 12 (a) Fiduciary Oversight (AFT) 11.0 transition and closure. The following Risk Management (b) Fiduciary Oversight (Netherlands) 3.5 Model was used (Figure 7.13). From July 2008 onwards, Total 294.5 bi-weekly management meetings involving everyone in the organization were held which evaluated the current situation versus the model of transition and exit risk management. BRR evaluated four key areas of risk management: 1. Operational Risk • Maintaining the commitment to providing quality – the clearing house reported on problematic areas. • BRR had to ensure it delivered on time and within its mandate period.
  • 121. 2. Financial Risk Chapter 7. Ending the Game and Leaving a Lasting Legacy • Reporting – ensuring compliance with accountability regime. • Auditing – providing auditors with timely access to all records and facilitating resolution of audit queries. • Funding – obtaining pledges, and converting these to commitments and disbursement to achieve objectives.3. Legal Risk • Procurement – ensuring compliance with both pre- Figure 7.13 – The Risk Management Model appraisal and ex post-facto regimes, all in compliance with tand GOI procurement guidelines as d ers Eva modified by the President for Un lua t execution by BRR. 117 e • Environmental – ensuring compliance with all guidelines.4. Political Risk • International – BRR had to ensure Identity an open dialogue and forum Prioritize to ensure that donor voices were heard and conversely that GOI views and strategies were interspersed at the appropriate levels. • National – BRR had to consider the implications of the political Re environment between the central vis it age Man government and the provincial governments. Some ideas were in conflict with each other and BRR had to identify and maneuver between these conflicts. • Local – Given the government’s Decentralization and Special Autonomy policies, BRR was placed in a situation where it had to deal with differing perceptions of exactly how these policies were interpreted at the local levels. The risk to a smooth, clean and effective transition was extreme as the provincial government in particular had a different post-BRR vision than the central government and even BRR itself. In addition, local government attempted to apply a selective approach to the acceptance of finished assets, procrastinating on who would manage the project after the transfer of ownership.
  • 122. Conclusion AchievementsFINANCE: The Seven Keys to Effective Aid Management From the onset, it was established that BRR had four years in which to carry out its mandate. Clear sunset clauses were critical to prevent the ad hoc agency from taking on a posthumous life of its own. The continued involvement of BRR beyond the reconstruction phase would have extracted a heavy cost in the lack of local government ownership. A comprehensive transition and exit strategy had to be formulated. The investments made by partners worldwide need to be maintained in the long run to facilitate the economic recovery of Aceh and Nias. During the last phase of its tenure, BRR embarked on an unprecedented level of technical and political dialogue with partners at international, nation and local levels to ensure a smooth, clean and effective transition. Line ministries and local government were engaged in the project design, identification and design of funding mechanisms and project implementation organization for projects118 with lifetimes beyond 2008. Identifying the strategy for programs that will be handed over to Local or Central government counterparts and associated institutions is only the first step in sustaining the physical outcome of reconstruction. The transfer of knowledge, of preserving institutional memory and the processes the agency undertook to implement and coordinate is equally important, lest the lessons learned be forgotten. Throughout reconstruction, BRR provided experiential learning by involving local counterparts in the process. The regionalization of BRR offices, for example, paved the way for collaboration and involvement with the Local Government. The exchange of knowledge acquired in this process is a stepping-stone to managing the development. At all stages of the business process adopted by BRR, including set up of its business processes, establishing coordination mechanisms, implementing programs and projects, managing its finances and finally designing and implementing a transition and exit strategy, it sought guidance and direction from world-renowned agencies, consulting firms and experts to ensure its management had the best possible advice before making final decisions. This ensured that BRR would maintain its integrity and accountability throughout its tenure, leaving a lasting legacy behind.
  • 123. NotesFINANCE: The Seven Keys to Effective Aid Management 1 According to the Tsunami Evaluation Coalition (TEC), the amount pledged to Aceh was less than the US$ 9.0 billion pledged to Hurricane Mitch in 1998, the US$8.2 billion pledged to Afghanistan for the 2004–2007 period and the US$ 9.4 billion committed to Iraq in 2004 (TEC 2006). Iraq received nearly US$ 15 billion of Official Development Aid from OECD DAC members as debt relief in 2005, while just under half this amount was disbursed for the tsunami in the same year. The United Nations (UN) appeal for the tsunami was the third largest on record, following the UN appeals for Sudan (2005) and Iraq (2003).120 2 Based on World Bank assessments of per capita gross income, 2007. 3 Indonesia acquired a moratorium amounting to US$2.7 billion. The debt payments, which matured in 2005, were postponed for five years with a grace period of one year. The GOI and parliament agreed that US$2.1 billion would be allocated to reconstruction in the fiscal year of 2005 while the remaining US$600 million would be devoted elsewhere. 4 2008 interview with contributors 5 Scanteam conducted reports of Multi Donor Trust Funds around the world for which either the UN or the World Bank served as the manager or trustee. 6 Institute of Development Studies, http://www.ids.ac.uk 7 In practice, the completeness and accuracy of the RAN Database is contingent on the compliance of partners to update their progress on the database; monitoring fund flows and physical outputs created additional work for an already labor intensive system. Initially low, compliance rates reached 92 percent as of December 2008. 8 www.niasisland.com 9 BBC News Asia, “Aceh Restoration ‘Close to Zero,’” May 9, 2005. 10 State Treasury Decree No. 13/2003 on Budget Mechanisms. 11 According to Indonesian law, foreign donations are tax-exempt as long as they are used by the designated recipients or handed over to the government at closure of projects, but are liable for taxes if subsequently disposed of through the private sector 12 Absorption capacity is a term used in development economics to describe the capacity of an economy to absorb additional external funding from foreign Investment or aid. (World Bank, BRR and BAPPEDA 2008) 13 Not all the unspent funds were to be carried over, only funds tied to outstanding projects. Allocations for routine administrative expenditures were generally not carried over. 14 No. S - 9255/Pb/2006 on 22 December 2006 15 Perdirjen No. 03/PB/2007
  • 124. 16 Presidential Regulation No. 70/200517 Under this regulation, only goods and services provided by the main contractors of foreign-grant funded reconstruction are exempt from Value Added Tax. The exemption is not applicable for sub-contractors and projects funded by domestic grants.18 WFP Shipping Service, Project Appraisal Document II, June 200619 Masyrafah and McKeon 200820 This number only takes into account registered NGOs. The actual number is slightly higher as some NGOs did not report their activities until the end of the reconstruction program.21 2008 interview conduted by contributors22 Serambi Indonesia, October 16, 2008.23 Serambi Indonesia, September, 30, 2007.24 Masyarafah and McKeon 2008 12125 Through an amendment to the Presidential Regulation No. 70/05.26 As articulated by Keppres 80/03, and amended by Presidential Regulation No. 70/05 for the Procurement of Goods and Services.27 BPK began auditing Financial Reports of Line Ministries in 2006. Previously it only reviewed the National Financial Accountability Report by the MOF.28 Despite the best attempts to reach out to all organizations, many players had already completed their programs in Aceh and Nias, making it difficult for the Pusdatin Outreach Team to contact them for confirmations.29 Permendagri No. 17/2007 (SIMBADA - Asset) and Permendagri No. 59/2007 (SIMDA - Financial)30 CNN, www.cnn.com, January 17, 2009.31 BPKP, a state agency reporting directly to the President, is responsible for auditing specific activities financed by the budgets of the central and provincial governments. BPKP has developed a “National Anti-Corruption Strategy” based on a two-year study of corruption throughout Indonesia.32 Law No 20/2001 amended the initial 1999 anti-corruption law.33 ADB Definition (Guidelines on Project Completion Report): A project is deemed complete when its facilities and components are substantially completed and are ready to operate (regardless of closure of its financial account). World Bank Definition (Global Environmental Facility Guidelines): Prior to project closeout, a final on-site monitoring visit is conducted. This visit may be waived if the project had been previously monitored and found to be in substantial compliance. World Bank Definition (Tsunami Recovery in Sri Lanka): A newly constructed or renovated facility reaches substantial completion, sometimes called beneficial occupancy, when it is considered available for full occupancy and total active operation.34 ‘On-granting’ is a process whereby a grant received by central government is re-granted to the local government who implements the project. On-lending
  • 125. is the same mechanism applied to loans.FINANCE: The Seven Keys to Effective Aid Management 35 District Level Local Government 36 Regional Office of the Directorate General of National Treasury at provincial level. 37 United Nations Office of Recovery Coordinater. 38 United Nations Office of Recovery Coordinator. 39 Computerized Ministry of Finance Financial System: Central, Provincial and District Levels. 40 Planning Board at provincial level. 41 Agence Française de Développement (AFD) 42 Japan Bank for International Cooperation (JBIC)122
  • 126. BibliographyChapter 1Bappenas. The Master Plan for the Rehabilitation and Reconstruction of Aceh and Nias – Main Book. Jakarta: Bappenas, Jakarta, 2005.Harford, T, Hadjimichael, B and Klein, M. The Supply of Aid: How Are Donors Giving, and to Whom?, Public Policy for the Private Sector. http://rru. worldbank.org (2004): Note Number 276 pp 1-4.Hurley R. Managing Yourself: The Decision to Trust’, Harvard Business Review, September 2006. 123Kim, W.C and Mauborgne, R. ‘Fair Process: Managing in the Knowledge Economy’, Harvard Business Review, July-August 1997.Masyrafah, Harry and McKeon, Jock. Post-Tsunami Aid Effectiveness in Aceh: Proliferation and Coordination in Reconstruction. Washington DC: Wolfhensohn Center for Development, 2008.Scanteam. Review of Post-Crisis Multi-Donor Trust Funds. Olso: Scanteam, 2007TEC. Joint Evaluation of the International Response to the Indian Ocean Tsunami: Synthesis Report. London: Tsunami Evaluation Coalition, 2006.Transparency International. Corruption Perception Index 2004.Chapter 2Acharya, Fuzzo, and Moore 2004 as cited in Masyrafah, H and McKeon, M. Post-Tsunami Aid Effectiveness in Aceh: Proliferation and Coordination in Reconstruction, Washington DC: Wolfhensohn Center for Development, 2008.Acharya, Lima, and Moore. Proliferation and fragmentation: Transactions costs and the value of aid. The Journal of Development Studies 42(1), (2006): 1–21.Bappenas and International Community. Indonesia: Preliminary Damage and Loss Assessment; The December 26, 2004 Natural Disaster, Indonesia: Bappenas, 2005.Birdsall (2005) as cited by Roodman, D. Competitive Proliferation of Aid Projects: A Model, Center for Global Development Working Paper Number 89 ( June 2006).Cialdini, R. Harnessing the Science of Persuasion, Harvard Business Review 79 no. 9 (2001).Conger, J. A. The Necessary Art of Persuasion, Harvard Business Review 76 (1998): 84-96.
  • 127. Hayek cited by Petsoulas, Christian. Hayek’s Liberalism and Its Origins: His Idea of Spontaneous Order and the Scottish Enlightenment.Routledge, 2001-2.FINANCE: The Seven Keys to Effective Aid Management Masyrafah, Harry and McKeon, Jock. Post-Tsunami Aid Effectiveness in Aceh: Proliferation and Coordination in Reconstruction. Washington DC: Wolfhensohn Center for Development, 2008. Roodman, D. Competitive Proliferation of Aid Projects: A Model, Center for Global Development Working Paper, Number 89, June 2006. TEC. Joint Evaluation of the International Response to the Indian Ocean Tsunami: Synthesis Report. London: Tsunami Evaluation Coalition, 2006. Chapter 3 BRR and International Partners. Aceh and Nias One Year After the Tsunami, December 2005.124 Emerson Communications Consultant. BRR NAD Aceh Reflections in the Media, January 2006. Nazara, Suahasil and Resosudarmo, Budy. Aceh-Nias Reconstruction and Rehabilitation: Progress and Challenges at the End of 2006, ADBI Discussion Paper, June 29, 2007. Tuckman, Bruce. Development seqyunce in small group, Psychological Bulletin 63 (1965): 384-399. Zeithaml, Valarie A., Berry Leonard L. and Parasuraman A. The Nature and Determinants of Customer Expectations of Service, Journal of the Academy of Marketing Science no. 21 Winter (1993): 1-12. Chapter 4 Masyrafah, Harry and McKeon, Jock. Post-Tsunami Aid Effectiveness in Aceh: Proliferation and Coordination in Reconstruction. Washington DC: Wolfhensohn Center for Development, 2008 Kotter, John P. Leading Change, Harvard Business School Press, January 15, 1996. Tapscott, Don and Williams, Anthony D. Wikinomics: How Mass Collaboration Changes Everything. Penguin Portfolio, 2006. Chapter 5 Behn, Robert D. Rethinking Democratic Accountability, Brookings Institution Press, 2001 Wolf, Patrick J. and Hassel, Bryan C. Effectiveness and Accountability (Part 1): Alternatives to the Compliance Model,Progressive Policy Institute publication. Progressive Policy Institute, May (2001): 53-76. Chapter 6 Dickstein, Dennis I. and Flast, Robert H. No Excuses, A Business Process Approach to Managing Operational Risk, Wiley Publishing, January 2009.
  • 128. Glossary of AbbreviationsAbbreviations English IndonesianADB Asian Development Bank Bank Pembangunan AsiaAIPRD Australia-Indonesia Partnership for Kemitraan Australia-Indonesia untuk Reconstruction and Development Rekonstruksi dan PembangunanAPBD Government of Indonesia’s Regional Anggaran Pendapatan dan Belanja Annual Budget DaerahAPBN Government of Indonesia’s National Anggaran Pendapatan dan Belanja Annual Budget Negara 125ASEAN Association of South East Asia Perhimpunan Negara-Negara Asia Nations TenggaraBakornas National Coordination Agency (for Badan Koordinasi Nasional(PBP) Disaster Mitigation and Refugees), (Penanggulangan Bencana now has became National Agency for dan Penanganan Pengungsi), Disaster Mitigation sekarang bernama Badan Nasional Penanggulangan Bencana (BNPB)Bapel Executing Agency Badan PelaksanaBappeda Agency for the Planning of Regional Badan Perencanaan Pembangunan Development DaerahBappenas National Development Planning Badan Perencanaan Pembangunan Agency NasionalBLM Direct Community Assistance Bantuan Langsung MasyarakatBPK Supreme Audit Agency Badan Pemeriksa KeuanganBPS Statistic Center Bureau Badan Pusat StatistikBRR Agency for the Rehabilitation and Badan Rehabilitasi dan Rekonstruksi Reconstruction of the Regions Wilayah dan Kehidupan Masyarakat and Community of Nanggroe Aceh Provinsi Nanggroe Aceh Darussalam Darussalam and the Nias Island of dan Kepulauan Nias Provinsi the Province of North Sumatra Sumatera UtaraCFAN Coordination Forum for Aceh and Nias Forum Koordinasi untuk Aceh dan NiasDana Otsus Special Autonomy Fund Dana Otonomi KhususDAU General Allocation Fund Dana Alokasi UmumDIPA Issuance of Spending Authority Daftar Isian Pelaksanaan AnggaranDirjen Director General Direktur JenderalDPR House of Representative Dewan Perwakilan RakyatDPRD House of Regional Representative Dewan Perwakilan Rakyat Daerah
  • 129. Abbreviations English IndonesianFINANCE: The Seven Keys to Effective Aid Management DRR disaster risk reduction pengurangan risiko bencana ETESP Earthquake and Tsunami Emergency Proyek Sektor Bantuan Darurat Sector Project funded by Asian Gempa Bumi dan Tsunami yang Development Bank (ADB) dibiayai oleh Asian Development Bank (ADB) GAM Free Aceh Movement Gerakan Aceh Merdeka GDP Gross Domestic Product Produk Domestik Bruto (PDB) GOI Government of Indonesia Pemerintah Republik Indonesia Inpres Presidential Instruction Instruksi Presiden INTOSAI International Organisation of Supreme Organisasi Tertinggi BPK-BPK se- Audit Institutions Dunia IREP Infrastructure Reconstruction Program Pemampuan Rekonstruksi126 Enabling Program Prasarana IRFF Infrastructure Reconstruction Sarana Pendanaan Rekonstruksi Financing Facilitiy Prasarana JICS Japan International Cooperation Badan Jepang mengenai Sistem System Kerjasama Internasional K/L Ministry/Institution Kementerian Negara/Lembaga Kabapel Head of Executing Agency Kepala Badan Pelaksana KfW Kreditanstalt fur Wrederaubau is a Kreditanstalt fur Wrederaubau adalah German Development Bank acting as Bank Pembangunan Jerman yang the funding management manager on berperan sebagai pengelola dana behalf of German Government. atas nama pemerintah Jerman. KPI Key Performance Indicator Indikator Kinerja Utama KKN Corruption, Collusion, and Nepotism Korupsi, Kolusi, dan Nepotisme KPA Budget Authority Officer Kuasa Pengguna Anggaran KP4D The Village Committee for Housing Komite Percepatan Pembangunan and Settlement Development Perumahan dan Permukiman Desa Acceleration KPK Corruption Eradication Commission Komisi Pemberantasan Tindak Pidana Korupsi KPPN Office for State Services and Treasury Kantor Pelayanan dan Perbendaharaan Negara KPPN-K Special Office for State Services and Kantor Pelayanan dan Treasury Perbendaharaan Negara-Khusus LAKIP Performance Accountability Report Laporan Akuntabilitas Kinerja Instansi Pemerintah LOGA Law on Governing Aceh Undang-Undang Pemerintahan Aceh (UUPA) LSM Non-government Organisation (NGO) Lembaga Swadaya Masyarakat
  • 130. Abbreviations English IndonesianMAK Account Code in Indonesian Mata Anggaran Kegiatan Budgetary SystemMDF Multi-Donor Fund Dana Multi-DonorMenPAN Ministry of State Apparatus Kementerian Negara Pendayagunaan Empowerement Aparatur NegaraMOF Ministry of Finance Departemen Keuangan (Depkeu)MTR Mid-Term Review Evaluasi Paruh WaktuMPR People’s Consultative Assembly Majelis Permusyawaratan RakyatNAD Nanggroe Aceh Darussalam Nanggroe Aceh DarussalamNISM Nias Islands Stakeholder Meeting Pertemuan pemangku kepentingan Kepulauan NiasNGO Non-Governmental Organization Organisasi nonpemerintah/ Lembaga 127 Swadaya Masyarakat (LSM)PAD Regional Income Pendapatan Asli DaerahPBB United Nations (UN) Perserikatan Bangsa-BangsaPCN Project Concept-Note Nota-Konsep ProyekPDB Gross National Product (GNP) Produk Domestik BrutoPDRB Regional Gross Domestic Product Produk Domestik Regional BrutoPemda Regional Government Pemerintah DaerahPemkab District Government Pemerintah KabupatenPemprov Province Government Pemerintah ProvinsiPerpres Presidential Regulation Peraturan PresidenPerpu Government Regulation in Lieu of Law Peraturan Pemerintah Pengganti Undang-UndangPHLN Foreign Soft Loans/ grant Pinjaman/Hibah Luar NegeriPMT Exit Strategy Pengakhiran Masa TugasPMU Project Management Unit Unit Manajemen ProyekPNPM National Programme of Community Program Nasional Pengembangan Development MasyarakatPP Government Regulation Peraturan PemerintahPPK Contract Preparation Officer Pejabat Pembuat KomitmenPSD Basic Infrastructure and Facilities Prasarana dan Sarana DasarPU Public Works Pekerjaan UmumPusdatin Center for Data and Information Pusat Data dan InformasiRAND Recovery Aceh-Nias Database Basis-data Pemulihan Aceh-NiasRANTF Recovery Aceh-Nias Trust Fund Dana Perwalian Pemulihan Aceh-NiasReKompak Community-based Rehabilitation and Rehabilitasi dan Rekonstruksi Reconstruction of Settlements Pemukiman Berbasis Komunitas
  • 131. Abbreviations English IndonesianFINANCE: The Seven Keys to Effective Aid Management RI Republic of Indonesia Republik Indonesia RKP Government Work Plan Rencana Kerja Pemerintah Rp Rupiah (Indonesian currency) Rupiah RPJM Mid-term Development Plan Rencana Pembangunan Jangka Menengah SAK Anti-corruption Unit Satuan Antikorupsi Satker Project Implementing Unit Satuan Kerja Satkorlak Unit for Coordinating Implementers Satuan Koordinasi Pelaksana of Disaster and Displaced Persons Penanggulangan Bencana dan Management Penanganan Pengungsi Satlak Implementer Unit Satuan Pelaksana128 SK Decree Surat Keputusan SP2D Fund Disbursement Order Letter Surat Perintah Pencairan Dana SPM Management Control System Sistem Pengendalian Manajemen TA Fiscal Year Tahun Anggaran TNI Indonesian National Army Tentara Nasional Indonesia UKM Small and Medium Enterprise (SME) Usaha Kecil dan Menengah UN United Nations Perserikatan Bangsa-Bangsa (PBB) UNDP United Nations Development Program Pembangunan Perserikatan Programme Bangsa-Bangsa (PBB) UNORC United Nations Office of the Recovery Badan Perserikatan Bangsa-Bangsa Coordinator for Aceh and Nias Koordinator Pemulihan khusus untuk Aceh dan Nias UU Law Undang-Undang UUPA Law on the Governing of Aceh Undang-Undang Pemerintahan Aceh Wanrah Advisory Board Dewan Pengarah Wanwas Supervisory Board Dewan Pengawas WB World Bank Bank Dunia
  • 132. fact sheet
  • 133. Table FS. 1 – Preliminary Damage and Loss Assessment (Source: Bappenas 2005)FINANCE: The Seven Keys to Effective Aid Management   Total Impact Property   Damage Losses Total Private Public Social Sectors 1674.9 65.8 1740.7 1440.6 300.1 Housing 1398.3 38.8 1437.1 1408.4 28.7 Education 110.8 17.6 128.4 9 119.4 Health 82.5 9.4 91.9 23.2 68.6 Culture and Religion 83.4 83.4 83.4 Infrastructure 636 240.8 876.8 325.9 550.8 Transport 390.5 145.4 535.9 165.8 370.1 Communications 18.9 2.9 21.8 8.6 13.2 Energy 67.8 0.1 67.9 1.1 66.9130 Water and Sanitation 26.6 3.2 29.8 18.3 11.4 Flood control, irrigation and sea 132.1 89.1 221.2 132.1 89.1 protection Productive Sectors 351.9 830.2 1182.1 1132 50.1 Agriculture and Livestock 83.9 140.9 224.8 194.7 29.9 Fisheries 101.5 409.4 510.9 508.5 2.5 Enterprises 166.6 280 446.6 428.9 17.7 Cross Sectoral 257.6 394.4 652 562.9 89.1 Environment 154.5 154.5 548.9 Governance and administration 89.1 89.1 89.1 Bank and Finance 14 14 14 Total Impact 2920.4 1531.2 4451.6 3461.4 990.1 Table FS. 2 – Funding Needs for Reconstruction 2005-2009    Commitment On-Budget       Needs Commitment Difference Year Revision Donor Government Commitment On-Budget On-Budget On-Budget Budget Master Plan Off-Budget APBN Presidential External   Regulation (Non-APBN) RM* loans and/or 47/2008 grants** (APBN) (APBN) (APBN) 1 2 4 5 6 7 8 9 = (8 - 7) 2005 66,993,387.00 10,472,599.00 2,497,146.00 - 2,497,146.00 2,497,146.00 - 2006   4,727,294.00 6,954,455.00 937,591.00 7,892,046.00 7,892,046.00 - 2007   1,278,811.00 7,842,029.00 3,286,635.00 11,128,664.00 11,128,664.00 - 2008   7,390,948.00 7,523,541.00 2,487,540.00 10,011,081.00 7,000,401.00 (3,010,680.00) 2009   7,390,948.00 3,834,851.00 - 3,834,851.00 - (3,834,851.00) TOTAL 66,993,387.00 31,630,599.00 28,652,022.00 6,711,766.00 35,363,788.00 28,518,257.00 (6,845,531.00)
  • 134. Table FS. 3 – Annual Funding for Rehabilitation and Reconstruction Program in Aceh and Nias APBN Sector Master Plan 2005 2006 2007 2008 2009* TotalHousing 5.384.900 64.399 2.259.255 3.264.490 1.752.436 847.645 8.188.225Infrastructure 21.208.700 96.042 1.827.479 2.884.490 3.413.532 5.018.964 13.240.507Social Affairs 14.564.000 152.055 1.223.192 1.399.755 882.908 209.649 3.867.559Economic 1.499.200 24.631 964.253 1.104.581 235.942 685.425 3.014.832DevelopmentInstitutional 28.075 898.421 719.135 133.227 110.751 1.889.609 Fact SheetDevelopmnet 6.111.000Management 49.461 465.410 866.899 689.175 10.825 2.081.770Total 48.767.800 414.663 7.638.014 10.239.350 7.107.220 6.883.260 32.282.507 131 Figure FS.1 – Breakdown of Commitments of the Major Groups of Players (USD billion)
  • 135. Table FS. 4 – MDF Project Allocations and Disbursements as of December 2008 (Source: MDF 2009) Partner No Project Implementing Agency AgencyFINANCE: The Seven Keys to Effective Aid Management National Land Administration Agency 1 Reconstruction of Aceh Land Administration System Project (RALAS) World Bank (BPN) Community Recovery Through The Kecamatan Development Project 2 World Bank Ministry of Home Affairs (KDP) 3 Community Recovery Through the Urban Poverty Program (UPP) World Bank Ministry of Public Works Community-Based Settlement Rehabilitation and Reconstruction 4 World Bank Ministry of Public Works Project (REKOMPAK) 5 Infrastructure Reconstruction Enabling Program World Bank BRR/ Ministry of Public Works 6 Nias Kecamatan-Based Recovery and Planning Project World Bank Ministry of Home Affairs Ministry of Development of 7 Support for Poor and Disadvantaged Areas World Bank Disadvantaged Areas (KPDT) 8 Infrastructure Reconstruction Financing Facility World Bank BRR/ Ministry of Public Works132 Off-Budget Projects 9 Technical Support for Badan Rehabilitasi Rekonstruksi (BRR) NAD-Nias UNDP UNDP/BRR 10 Tsunami Recovery Waste Management Programme UNDP UNDP/Dinas Support to Strengthen the Role and Capacity of CSOs in the Recovery 11 UNDP UNDP of Aceh 12 Capacity Building for Local Resource-based Rural Roads UNDP ILO 13 Sea Delivery and Logistics Program WFP WFP Leuser International Foundation/ 14 Aceh Forest and Environment Project World Bank Fauna and Flora International 15 Tsunami Recovery Port Redevelopment Programme UNDP UNDP 16 Banda Aceh Flood Mitigation Project World Bank Muslim Aid 17 Lamno-Calang Road Maintenance Project UNDP UNDP 18 Aceh Government Transformation Programme UNDP UNDP Total Allocation to Projects Disaster Risk Reduction-Aceh Economic Development Financing Facility Aceh Government Transformation Programme Sustainable Recovery of Smallholder Farmers Livelihoods and Improved Forest Conservation in Aceh Nias Livelihoods and Economic Development Program Sea Delivery and Logistics Program Support for Poor and Disadvantaged Areas Total Commitment to New Projects Total Unallocated and Uncommitted funds Total Unallocated Funds** Total Paid in Contributions * isbursement in this case may refer to the funds that have been transferred to implementing D agencies not necessarily spent on the projects directly ** Total unallocated funds may fluctuate depending on exchange rates ,rate of investment and actual costs of administration, appraisal and supervision.
  • 136. US$ million Percent Disbursed Allocated Disbursed* Start of Project End of Project (%)On-Budget Projects 28.50 11.70 41 Jun ‘05 Dec ‘08 64.70 64.70 100 Aug ‘05 Dec ‘08 17.96 17.90 100 Aug ‘05 Dec ‘09 85.00 81.66 96 Oct ‘05 Feb ‘09 42.00 14.13 34 Jul ‘06 Sep ‘09 25.75 10.15 39 Nov ‘06 Dec ‘09 Fact Sheet 25.00 4.08 16 Feb ‘07 Jun ‘10 100.00 19.57 20 Jul ‘06 Dec ‘09 133 22.48 22.48 100 Jul ‘05 May ‘09 24.41 19.43 80 Sep ‘05 Dec ‘10 6.00 6.00 100 Dec ‘05 Feb ‘10 11.80 11.80 100 Jan ‘06 Dec ‘09 24.70 24.70 100 Mar ‘06 Feb ‘10 17.53 8.42 48 Feb ‘06 Jun ‘10 3.78 3.78 100 Dec ‘05 Dec ‘07 4.50 2.05 46 Apr ‘06 Jun ‘09 1.46 1.46 100 Oct ‘06 Dec ‘07 9.92 9.92 100 May ‘08 Dec ‘09 515.49 333.92 65     9.87         50.00         4.06         4.99         20.00         0.33         0.60         89.85   89.23         179.08         691.92
  • 137. Table FS. 5 - ADB ETESP Disbursements as of December 2008FINANCE: The Seven Keys to Effective Aid Management Committed Contracts Payments Sectors Allocation   USD (000) USD (000) % USD (000) % USD (000) % Agriculture 35,000 36,505 104.30% 31,940 91.26% 31,555 90% Fisheries 30,000 36,783 122.61% 25,747 85.82% 25,656 86% Micro and Small 13,500 14,377 106.49% 13,877 102.79% 5,944 44% Enterprises Health 13,000 14,236 109.51% 10,803 83.10% 9,392 72% Education 16,000 21,035 131.47% 11,041 69.01% 11,174 70% Rural Water Supply 7,000 7,636 109.09% 6,005 85.78% 4,949 71% Housing 73,000 74,636 102.24% 67,671 92.70% 49,348 68%134 Irrigation 30,000 35,321 117.74% 29,669 98.90% 27,577 92% Spatial Planning 16,000 16,055 100.34% 15,980 99.87% 11,170 70% Roads and Bridges 37,000 45,721 123.57% 32,683 88.33% 24,177 65% Power 9,500 11,900 125.26% 9,347 98.39% 8,922 94% Fiduciary Oversight 14,500 14,500 100.00% 12,318 84.95% 10,831 75% Total 294,500 328,704 111.61% 267,080 90.69% 220,695 75% Figure FS. 2 – Comparison of Disbursement Rates of the Different Fund Channeling Mechanisms USD 6.7B On-BUDGET Off-BUDGET (Government funds) (Non-government funds) Total funds : USD 3.0B GoI : USD 2.1B On-TREASURY Donor : USD 0.9B (MDF, WB, ADB, IDB, JBIC) N/A Total disbursed: USD 2.5B (~83%) Total funds : USD 0.32B Total funds : USD 0.34B Off-TREASURY (JICS and KfW) (UN, NGOs, private, oth- ers) Total disbursed: USD 0.29B USD 2.7B Total disbursed: (~90%) (~79%)
  • 138. Table FS.6 - Amount Committed and Disbursed Through theThree Funding Mechanisms (in million) FUNDING MECHANISM SOURCE OF COMMITMENT DISBURSMENTS % FUNDING (USD) (USD)ON-BUDGET ON-TREASURY- GOI 2,100.00 2,024.30 96.40%- BILATERAL MULTILATERAL 920.15 471.00 51.19 Fact SheetON-BUDGET OFF-TREASURY- BILATERAL MULTILATERAL 321.14 288.00 89.68% 135OFF-BUDGET OFF-TREASURY- BILATERAL MULTILATERAL 1,169.54 654.00 55.92%- NGO, PRIVATE OTHERS 2,209.17 2,022.00 91.53%TOTAL 6,720.00 5,459.30 81.24% Table FS. 7 - GOI`s Annual Disbursement Rates Amount to 96% No Budget Category RM (Rupiah) 1 DIPA 2005 Disbursed 414,662,762,597.00 2 DIPA-L 2006 Disbursed 2,082,482,891,058.00 3 DIPA 2006 Disbursed 4,746,492,669,712.00 4 Trust Fund BRR Disbursed 1,948,851,905,202.00 5 DIPA 2007 Disbursed 5,212,003,413,219.00 Total 14,404,493,641,788.00No DIPA Kategori RM6 DIPA-L 2008 Disbursed 2,154,096,450,550.007 DIPA 2008 Disbursed 3,685,356,419,040.00 Total 5,839,452,869,590.00 20,243,946,511,378.00 96% In 2009, GOI has allocated Rp. 2.83 trillion (RM*) for the completion of reconstruction + 23,83 T 113% (* Rupiah Murni = money from “pure” domestic sources)
  • 139. Table FS.8 – 94% of the Overall Key Performance Indicators (KPIs) have been AchievedFINANCE: The Seven Keys to Effective Aid Management Category of Percentage Achieved Sub-Sector BLUE GREEN YELLOW ORANGE RED Grand 100% 76-99% 51-75% 26%-50% 25% Total Infrastructure 59 6 2 1 3 71 Institutional Development 106 3   2   111 Economic Development 125 6 5 8 7 151 Housing and Settlement 40 2 1   2 45 Socio-Cultural and Religious Affairs 265 12 8 5 9 299  Percentage 87.89% 4.28% 2.36% 2.36% 3.10% 100.00%136 Table FS.9 – Achieved Key Performance Indicators (KPIs) in the Housing and Settlement Sector Category of Percentage Achieved Sub-Sector BLUE GREEN YELLOW ORANGE RED Grand 100% 76-99% 51-75% 26%-50% 25% Total Land Administration 20 1 1   2 24 Housing 3         3 Spatial Planning 17 1       19  Total 40 2 1   2 46 Table FS.10 – Achieved Key Performance Indicators (KPIs) in the Infrastructure Sector Category of Percentage Achieved Sub-Sector BLUE GREEN YELLOW ORANGE RED Grand 100% 76-99% 51-75% 26%-50% 25% Total Public Buildings 6         6 Energy and Electricity 16 1     2 19 Infrastructure Reconstruction Enabling 5         5 Project (IREP) Roads and Bridges 1 2 2 1   6 Infrastructure Maintenance 7         7 Transportation 5 1       6 Postal and Telecommunications 7 1     1 9 Water Resources 7         7 Terminals and Road Traffic 5 1       6 Total 59 6 2 1 3 71
  • 140. Table FS.11 – Achieved Key Performance Indicators (KPIs) in the Economic Development Sector Category of Percentage Achieved Sub-Sector BLUE GREEN YELLOW ORANGE RED Grand 100% 76-99% 51-75% 26%-50% 25% TotalIndustry 13         13Forestry and Environment 14   1 2 1 18Manpower 6   1     7Tourism 9       1 10Trade 20 1 1     22 Fact SheetFishery 20 2   2 3 28Plantation 9   1   2 12Farming 20 2   2   24 137Animal husbandry 14 1 1 2   18 Total 125 6 5 8 7 152 Table FS.12 – Achieved Key Performance Indicators (KPIs) in the Institutional Development Sector Category of Percentage Achieved Sub-Sector BLUE GREEN YELLOW ORANGE RED Grand 100% 76-99% 51-75% 26%-50% 25% TotalLegal Affairs 19 2       21Public Order, Security, and Defense (K3M) 57 1   1   59Regional Institutions 30     1   31 Total 106 3   2   111 Table FS.13 - Achieved Key Performance Indicators (KPIs) in the Socio-cultural Affairs Sector Category of Percentage Achieved Sub-Sector BLUE GREEN YELLOW ORANGE RED Grand 100% 76-99% 51-75% 26%-50% 25% TotalReligious Affairs 18 5 3 2 2 30Cultural Affairs 32   1   1 34Health 34         34Sports 25         25Youth 9 1     2 12Education 72 5 4 3 2 86Role of Women and Children 30 1       31Social Affairs 45       2 47 Total 265 12 8 5 9 299
  • 141. Figure FS. 3 – Value of On-Budget Asset as of December 2008FINANCE: The Seven Keys to Effective Aid Management 18,000,000,000,00 Value of On-Budget s/d 31 December 2008 16,000,000,000,00 nad nias 14,000,000,000,00 12,000,000,000,00 10,000,000,000,00 8,000,000,000,00 6,000,000,000,00 4,000,000,000,00 2,000,000,000,00138 0 Operations Program Housing In Progress Total Assets Assets Assets PUBLIC ASSETS 135,839,230,828 9,505,213,815,1 - 3,262,221,801,6 12,903,274,847 NON-PUBLIC ASSETS - - 4,546,164,852,2 - 4,546,164,825,2 TOTAL ASSETS 135,839,230,828 9,505,213,815,1 4,546,164,852,2 3,262,221,801,6 17,449,439,672,0 NOT YET HANDED OVER 135,839,230,828 5,339,202,652,3 - 3,262,221,801,6 8,737,263,684,9 Figure FS. 4 – Off Budget Asset Data Collection Process and Results as of February 2009 Total 1024 Agencies* (Funding and Implementing) Unreachable 36 Agencies PCN No KPI Assets No Respond +/- Rp.34 T 150 Agencies to submit Asset From 93 Agencies Contacted Asset Form Under Disbursed Follow Up With KPI Assets 317 Agencies Processed Filled in +/- Rp.27 T 513 Agencies 363 Agencies 86 Agencies Already Submitted Asset Data Estimated Non Estimated 148 Agencies Asset Asset +/- Rp.13.10 T +/- Rp.14.90 T 73, 83% Value of Asset Rp.11.00 T * - includes first level implementing agencies, ie, contractors
  • 142. Figure FS. 5 – Value of Off-Budget Asset as of Desember 2008 Fact Sheet 139 Figure FS. 6 – BRR Organizational Structure in Preparation for its Closure Head of Implementing Agency Deputy Head Executing Agency Secretary of Expert Staff Executing Agency Head of Executive Agency Deputy Head Advisor Supervision Head of Executing Agency Deputy Head Special Staff Finance and Planning Head of Executing Agency Deputy for Deputy forDeputy for Deputy for Deputy for Deputy for Deputy for Education, Institutional and Religious Economy Housing /Head of Infrastrucsture, Health and HumanSocial and and and Operation Women Environment and Resources Culture Enterprise Settlement Maintenance Empowerment Development Head of Head of Head of Head of Head ofRepresentative Representative Representative Representative Representative Office I Office II Office III Office V OfficeVI
  • 143. Figure FS. 7 – BRRs Finance and Planing Deputy Organizational Structure in Preparation for its ClosureFINANCE: The Seven Keys to Effective Aid Management Deputy Finance and Central Government Relations Vice Deputy Finance and Central Government Relations140 Center Head Donor Relations and Team Work Termination (PMT) International Stakeholders Center Head Reporting Center Head Accountant and Center Head Finance and Central Government Relations Asset Management Head of Monitoring and Head of Financial Affairs Head of Reporting Evaluation Head of Central Government Head of Funding Head of Asset Handover Relations Affairs Head of Asset Accounting Head of Accounting and Finance
  • 144. Table FS. 14 – Laws and Regulations Law / Reg / Decree Number Date Explanations Presidential Regulation regarding revisions to the Presidential RegulationsPresidential Regulation  No. 47/2008 August 1, 2006 No. 30/2005 (Master Plan)Presidential Decree No. 86/M/2006 August 29, 2006 Salinan Presidential Decree Republik Indonesia No. 86/M /2006 Presidential Regulation regarding revisions to Presidential Regulation No.Presidential Regulation No. 76 /2006 July 19, 2006 34 /2005 regarding the organizational structure, work plan and financial responsibilities of BRR NAD-Nias Presidential Regulation No. 8/2006 regarding the Fourth Revision to thePresidential Regulation No. 8 /2006 March 20, 2006 Presidential Decree No. 80/2003 on Guidelines for the Implementation of Government Goods/Services Procurement Presidential Regulation No. 83/2005 regarding the National CoordinatingPresidential Regulation No. 83/2005 January 18, 2006 Agency for Disaster Response November 18, Laws on Government Regulation in lieu of Law No. 2/2005 regarding BRRLaw UU No. 10 /2005 2005 region and livelihood of NAD-Nias provinces passed into law Presidential Regulation regarding the role of foreign institutions/individuals November 18, Fact SheetPresidential Regulation No. 69 /2005 in the framework of grants aimed for the rehabilitation and reconstruction 2005 of NAD-Nias provinces Presidential Regulation regarding the third revision to the Presidential November 18,Presidential Regulation No. 70 /2005 Decree No. 80/2003 on guidelines for government goods/services 2005 procurement 141 Decree of Coordinating Minister for Politics, Legal, and Security AffairsSurat Decree Sekretariat KEP. 34 /MENKO/ in His Capacity as Chairman of the Advisory Board of the Agency for the July 14, 2005Dewan Pengarah BRR zPOLHUKAM/06/2005 Rehabilitation and Reconstruction Agency Nanggroe Aceh Darussalam and Nias Islands. Province of North Sumatera Presidential Regulation of the Republic of Indonesia No. 34/2005 Regarding Organizational Structure and Working Scheme And FinancialPresidential Regulation No. 34 /2005 April 29, 2005 Right of the Agency for the Rehabilitation and Reconstruction of NAD Province and Nias Islands Province, North Sumatera Membership of the Advisory Board and Supervisory Council and OfficialsPresidential Decree NO 63/M /2005 April 29, 2005 of the Agency for the Rehabilitation and Reconstruction of Nanggroe Aceh Darussalam and Nias Islands, North Sumatera. Master Plan of the Rehabilitation and Reconstruction of NAD Province andPresidential Regulation No. 30/2005 April 18, 2005 Nias Islands, North SumateraGovernment Regulation in Agency for the Rehabilitation and Reconstruction of NAD Province and Nias No. 2/2005 April 15, 2005Lieu of Law Province, North SumateraDecree of Deputy for Establishment of the Team Secretariat of Rehabilitation and ReconstructionRegional Autonomy and KEP.003/D.3/04/2005 April 1, 2005 Planning of Aceh and NiasRegional Development Emergency Response Activities and Planning/Preparation of thePresidential Instruction No.1/2005 March 2, 2005 Rehabilitation and Reconstruction of Post Earthquake and Tsunami Disaster in Nanggroe Aceh Darussalam and North Sumatera Province.Decree of Deputy forRegional Autonomy and February 11, Establishment of the Team Secretariat of the Rehabilitation and Kep.001/D.3/02/2005Regional Development 2005 Reconstruction Planning of Aceh and North Sumatera(Revised)Minister of State Decree.PPN/Head of National Establishment of the Team Secretariat of the Rehabilitation and Kep.001/M.PPN/01/2005 January 10, 2005Development Planning Reconstruction Planning of Aceh and North SumateraBoard November 3, Presidential Decree regarding guidelines for the implementation ofPresidential Decree Kepres No. 80 Tahun 2003 2003 government goods/services procurement November 21, Law of the Republic of Indonesia No. 20 Year 2001 regarding revisions toLaw No. 20 Tahun 2001 2001 the Law No. 31 Year 1999 on Corruption Eradication Special Autonomy for Aceh Special Province as Nanggroe Aceh DarussalamLaw No.18/2001 August 9, 2001 ProvinceMinister of State Decree.PPN/Head of National Establishment of Coordinating Team for the Planning of the Rehabilitation Kep.007/M.PPN/02/2005 February 1, 2001Development Planning and Reconstruction of Aceh and North Sumatera.Board
  • 145. FINANCE: The Seven Keys to Effective Aid Management142
  • 146. Fact Sheet143
  • 147. FINANCE: The Seven Keys to Effective Aid Management144
  • 148. Fact Sheet145
  • 149. FINANCE: The Seven Keys to Effective Aid Management146

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