Measuring performance of local governments

Measuring performance of local governments

Wolfgang Fengler, Rajiv Sondhi and Bambang Suharnoko, Bali

Indonesia is one of the more decentralized nations in the
world. Regions are responsible for one-third of all government
spending, and half of the development budget. Most spending on
education, health and infrastructure is local, and the regions
employ three-quarters of the civil service. The amount of local
resources is likely to increase further.

The share of the main central government transfer (DAU) will
increase to 26 percent in 2007. Revenues from natural resource
are likely to increase due to record high oil and gas prices. On
top of this, international donor agencies are increasingly
channeling their support through local governments and provinces.

This degree of decentralization is higher than the average in
developed countries, and all other East Asian nations, except
China. Indonesia is now so decentralized that for government to
work, decentralization must work. The stakes are high because if
decentralization falters services such as education and health
care would suffer, the gap between the rich and poor may widen,
and even the hard-won macroeconomic stability could be
jeopardized.

Indonesia's 440 local governments receive most of their
resources through the DAU, an unconditional grant from the
central governments. The DAU is based on needs. It aims to
equalize district funds using indicators such as poverty, the
size of the region, population, cost of living and fiscal
capacity.

From an international perspective, the DAU has a good
allocation formula and the fact that poor regions receive
disproportionate per-capita allocation demonstrates this. At the
same time, the DAU still includes a large component for fully
financing the local civil service wage bill which reduces the
impact of the formula.

Local governments have received an enormous amount of new
responsibilities in the last years. This increased responsibility
also demands more accountability. So far it has been difficult to
make informed judgments about the quality of local performance
and accountability. A credible performance measurement system
could help establish an allocation system that captures needs and
performance. In most high-income countries, financial performance
of local governments is measured by rating agencies and these
performance measurement mechanisms create important performance
pressures.

Indonesia already has a large number of institutions that
provide ratings and assessments. For instance, the Regional
Autonomy Watch (KPPOD) has been measuring the investment climate
in almost half of the local governments since 2001. Central
Bureau of Statistics (BPS), together with UNDP, regularly
produces a Human Development Index (HDI), which allows the public
to compare the quality of health and education achievements. In
addition, donors such as ADB, USAID and the World Bank have
developed their own tools including an in-depth review of local
governments' Public Financial Management processes and outcomes.

Still missing is a system of Core Performance Indicators that
cover every local government in the country beyond the existing
regional and sectoral snapshots. Now is the time to develop and
implement a system that most importantly should be very simple
and easy to implement.

Most mayors and local parliaments have just been elected and
after fours years into decentralization their responsibilities
are broadly established -- despite some lack of clarity in the
assignment of tasks. Standardized performance measurement would
also allow central and local governments as well as the general
public to monitor the decentralization process, to create peer
pressure among local government and to make local governments
even more responsive to the needs of their citizens.

The writers are members of World Bank team that facilitated
the workshop "Strengthening Public Services in Decentralizing
Indonesia: Approaches for Measuring Performance of Local
Governments" which was held at The Patra Bali on August 28-29,
2005.