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.