ISLAMABAD: The Asian Development Bank (ADB) is extending $200 million to aid Indonesia’s push to develop strong regional governments, which can boost growth and cut poverty at the local level.
The ADB Board of Directors has approved a 15-year loan for Subprogram 2 of the Second Local Government Finance and Governance Reform Program. The initiative is helping to boost the financial and management capabilities of regional governments as they handle state finances and services that have been decentralized.
“Since 2001 national government has been devolving key expenditure and revenue functions to regional governments which are now responsible for the delivery of most basic services,” said Juan Luis Gomez, Senior Public Management Specialist at ADB. “Strengthening regional governments so they spend state funds effectively and provide services efficiently and equitably is essential for improving local living standards and reducing poverty.”
The second phase of the program targeted reforms in six core areas including strengthening local government management of decentralized funds, improving regional administration to boost service delivery, and developing more local revenue sources. Policy actions taken by the national government to support the reforms include the finalization of a comprehensive strategy for fiscal decentralization, the gradual devolution of taxes to local governments, and pioneering steps to introduce gender-based budgeting.
ADB estimates that the direct economic benefits of the program in the medium term will be worth around $820 million, with half the amount due to the improved financial management systems of regional governments and the other half stemming from efficiency improvements in collection of property taxes being devolved to the regions between 2011 and 2014. To build on current gains, ADB has drawn up a post program partnership framework which identifies future reforms to further improve the policy environment and strengthen the institutional capabilities of local governments.
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