ADB supports financial management of local govts
The Jakarta Post, Jakarta
The Asian Development Bank (ADB) and the Indonesian government signed on Friday a loan agreement worth US$330 million to improve the financial management of local administrations in the country.
The funds -- $30 million in project loans for the regions and $300 million in program loans for the central government -- will be the first phase of the Local Government Finance and Governance Reform Sector Development Program, to promote more effective and efficient public service delivery by regional administrations.
"Local governments in Indonesia have inherited enormous responsibilities under a decentralized system without a clear and consistent institutional framework and adequate capacity to implement it," said Debra Kertzman, the program's team leader, expecting the reform initiative to help resolve the issue.
The ADB had approved the loans in November. The signing on Friday for the loan agreement was between ADB country director Edgar A. Cua and the Ministry of Finance's Director General of the Treasury Mulia P. Nasution.
The $30 million project loan will help improve related regional financial management reporting, including developing information systems at local administrations in the North Sumatra, West Sumatra, Lampung, West Java, Central Java, Yogyakarta, East Java, Bali, East Kalimantan, South Sulawesi, Gorontalo and North Maluku provinces.
The project loan carries a 32-year term, including a grace period of eight years, with an annual interest rate of 1 percent during the grace period and 1.5 percent afterward. The central and local governments will also shoulder the $12.9 million balance of the cost for the project, which will be implemented over three years until December 2008.
Acting as the project's executing agency, will be the Ministry of Home Affairs.
Meanwhile, the $300 million program loan will provide budgetary support for the central government to improve its policy, legal and regulatory framework for decentralization, focusing particularly on public financial management.
This includes regulatory reforms for local government borrowing and adopting a framework for minimum levels of service delivery.
The program loan carries a 15-year term, including a grace period of three years and an interest rate based on ADB's lending policies, with the finance ministry as its executing agency.
Besides the loans, the ADB will also provide $500,000 in technical assistance grants to strengthen the technical capacity of the intergovernmental Regional Autonomy Advisory Council, which is responsible for overseeing decentralization reforms.