ADB supports financial management of local govts

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.